Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission File Number:
001-38087
GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Texas
001-38087
75-1656431
(State or Other Jurisdiction of Incorporation)(Commission File Number)(IRS Employer Identification No.)
FORM 10-Q
16475 Dallas Parkway, Suite 600
Addison, Texas
 
75001
(Address of Principal Executive Offices)(Zip Code)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto.
Commission File Number: 001-38087
(888)
572
-
9881
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
GUARANTY BANCSHARES, INC.
(Exact name
Title of registrant as specified in its charter)each class
  
    Trading symbol    
Texas  75-1656431
Name of each exchange on which registered
(State or other jurisdiction ofCommon Stock, par value $1.00 per share  (I.R.S. employer
incorporation or organization)GNTY  identification no.)
201 South Jefferson Avenue
Mount Pleasant, Texas75455
(Address of principal executive offices)(Zip code)NASDAQ Global Select Market
(903) 572 - 9881
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  
☒
  No  
☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  
☒
  No  
☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
 Accelerated filer
☐
  
Accelerated filer
 
☒
Non-accelerated
filer ☒
 
☐
Smaller reporting company ☐
(Do not check if a smaller reporting company) 
☐
   
Emerging growth company
 Emerging growth company 
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
☒


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  
☐
  No  
☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  
☐
  No  
☒
As of November 13, 2017,August 2, 2021, there were 11,058,95612,057,937 outstanding shares of the registrant’s common stock, par value $1.00 per share.


Table of Contents

Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
  (Unaudited) (Audited)
  September 30,
2017		 December 31,
2016
ASSETS    
Cash and due from banks $33,736
 $39,605
Federal funds sold 34,250
 60,600
Interest-bearing deposits 27,075
 27,338
Total cash and cash equivalents 95,061
 127,543
Securities available for sale 238,133
 156,925
Securities held to maturity 179,081
 189,371
Loans held for sale 3,400
 2,563
Loans, net 1,294,847
 1,233,651
Accrued interest receivable 6,440
 7,419
Premises and equipment, net 43,958
 44,810
Other real estate owned 1,929
 1,692
Cash surrender value of life insurance 18,376
 17,804
Deferred tax asset 4,267
 4,892
Core deposit intangible, net 2,870
 3,308
Goodwill 18,742
 18,742
Other assets 16,949
 19,616
Total assets $1,924,053
 $1,828,336
LIABILITIES AND SHAREHOLDERS' EQUITY    
Liabilities    
  Deposits    
    Noninterest-bearing $405,678
 $358,752
    Interest-bearing 1,211,624
 1,218,039
          Total deposits 1,617,302
 1,576,791
   Securities sold under agreements to repurchase 12,920
 10,859
   Accrued interest and other liabilities 7,601
 6,006
   Other debt —
 18,286
   Federal Home Loan Bank advances 65,157
 55,170
   Subordinated debentures 13,810
 19,310
      Total liabilities 1,716,790
 1,686,422
     
Commitments and contingent liabilities 

 
KSOP-owned shares —
 31,661
     

GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
   (Unaudited)
June 30,
2021		  (Audited)
December 31,
2020		 
ASSETS
         
Cash and due from banks
  $37,611  $47,836 
Federal funds sold
   385,075   218,825 
Interest-bearing deposits
   24,532   85,130 
   
 
 
  
 
 
 
Total cash and cash equivalents
   447,218   351,791 
Securities available for sale
   446,636   380,795 
Loans held for sale
   5,088   5,542 
Loans, net of allowance for credit losses of $31,548 and $33,619, respectively
   1,856,277   1,831,737 
Accrued interest receivable
   8,801   9,834 
Premises and equipment, net
   54,405   55,212 
Other real estate owned
   227   404 
Cash surrender value of life insurance
   36,367   35,510 
Core deposit intangible, net
   2,573   2,999 
Goodwill
   32,160   32,160 
Other assets
   43,207   34,848 
   
 
 
  
 
 
 
Total assets
  $2,932,959  $2,740,832 
   
 
 
  
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
         
Liabilities
         
Deposits
         
Noninterest-bearing
  $928,416  $779,740 
Interest-bearing
   1,604,610   1,506,650 
   
 
 
  
 
 
 
Total deposits   2,533,026   2,286,390 
Securities sold under agreements to repurchase
   15,336   15,631 
Accrued interest and other liabilities
   28,058   25,257 
Line of credit
   0   12,000 
Federal Home Loan Bank advances
   49,000   109,101 
Subordinated debentures
   19,810   19,810 
   
 
 
  
 
 
 
Total liabilities
   2,645,230   2,468,189 
Commitments and contingencies (see Note 11)
   0   0 
Shareholders’ equity
         
Preferred stock, $5.00 par value, 15,000,000 shares authorized, 0 shares issued
   0   0 
Common stock, $1.00 par value, 50,000,000 shares authorized, 14,074,198 and 12,951,676 shares issued, and 12,057,937 and 10,935,415 shares outstanding, respectively
   14,074   12,952 
Additional paid-in capital
   223,822   188,032 
Retained earnings
   94,073   113,449 
Treasury stock, 2,016,261 shares at cost
   (51,419)   (51,419) 
Accumulated other comprehensive income
   7,179   9,629 
   
 
 
  
 
 
 
Total shareholders’ equity
   287,729   272,643 
   
 
 
  
 
 
 
Total liabilities and shareholders’ equity
  $          2,932,959  $            2,740,832 
   
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
4.
3. 

Table of Contents

GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
  (Unaudited) (Audited)
  September 30,
2017		 December 31,
2016
     
Shareholders' equity    
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued —
 —
Common stock, $1.00 par value, 50,000,000 shares authorized, 11,921,298 and 9,616,275 shares issued, 11,058,956 and 8,751,923 shares outstanding, respectively 11,921
 9,616
Additional paid-in capital 155,493
 101,736
Retained earnings 64,778
 57,160
Treasury stock, 862,342 and 864,352 shares at cost (20,087) (20,111)
Accumulated other comprehensive loss (4,842) (6,487)
  207,263
 141,914
Less KSOP-owned shares —
 31,661
     
Total shareholders' equity 207,263
 110,253
Total liabilities and shareholders' equity $1,924,053
 $1,828,336


See accompanying notes to consolidated financial statements.
5.


GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollars in thousands, except per share data)

 Three Months Ended
September 30,		 Nine Months Ended September 30,
 2017 2016 2017 2016
Interest income       
Loans, including fees$15,486
 $14,294
 $45,115
 $40,857
Securities       
Taxable1,545
 1,038
 4,257
 4,298
Nontaxable919
 923
 2,761
 2,308
Federal funds sold and interest-bearing deposits215
 172
 960
 528
Total interest income18,165
 16,427
 53,093
 47,991
        
Interest expense       
Deposits2,730
 2,329
 7,761
 6,791
FHLB advances and federal funds purchased157
 109
 294
 277
Subordinated debentures164
 217
 559
 656
Other borrowed money12
 104
 337
 452
Total interest expense3,063
 2,759
 8,951
 8,176
        
Net interest income15,102
 13,668
 44,142
 39,815
Provision for loan losses800
 840
 2,250
 3,240
Net interest income after provision for loan losses14,302
 12,828
 41,892
 36,575
        
Noninterest income       
Service charges986
 914
 2,801
 2,625
Net realized gain on securities transactions—
 64
 25
 82
Net realized gain on sale of loans589
 486
 1,490
 1,231
Other income2,127
 1,938
 6,184
 5,664
Total noninterest income3,702
 3,402
 10,500
 9,602
        
Noninterest expense       
Employee compensation and benefits6,729
 6,370
 20,156
 19,057
Occupancy expenses1,938
 1,720
 5,552
 5,196
Other expenses3,499
 3,390
 10,409
 10,087
Total noninterest expense12,166
 11,480
 36,117
 34,340
        
Income before income taxes5,838
 4,750
 16,275
 11,837
Income tax provision1,699
 1,380
 4,644
 3,290
Net earnings$4,139
 $3,370
 $11,631
 $8,547
Basic earnings per share$0.37
 $0.38
 $1.17
 $0.95
Diluted earnings per share$0.37
 $0.38
 $1.16
 $0.95




See accompanying notes to consolidated financial statements.
6.


GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Net earnings $4,139
 $3,370
 $11,631
 $8,547
Other comprehensive income:        
Unrealized (losses) gains on securities        
Unrealized holding (losses) gains arising during the period (264) (115) 2,422
 3,990
Amortization of net unrealized gains on held to maturity securities 23
 48
 58
 98
Reclassification adjustment for net gains included in net earnings —
 (105) (25) (123)
Tax effect 92
 —
 (839) (1,083)
Unrealized (losses) gains on securities, net of tax (149) (172) 1,616
 2,882
Unrealized holding gains (losses) arising during the period on interest rate swaps 35
 34
 29
 (289)
Total other comprehensive (loss) income (114) (138) 1,645
 2,593
Comprehensive income $4,025
 $3,232
 $13,276
 $11,140




See accompanying notes to consolidated financial statements.
7.


GUARANTY BANCSHARES, INC.
CONSOLIDATED STATMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands, except share amounts)

  Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Less: KSOP-Owned Shares Total Shareholders’ Equity
For the Nine Months Ended September 30, 2016                
Balance at December 31, 2015 $—
 $9,616
 $101,525
 $49,654
 $(16,486) $(6,573) $(35,384) $102,352
Net earnings —
 —
 —
 8,547
 —
 —
 —
 8,547
Other comprehensive income —
 —
 —
 —
 —
 2,593
 —
 2,593
Purchase of treasury stock —
 —
 —
 —
 (7,261) —
 (3,000) (10,261)
Sale of treasury stock —
 —
 —
 —
 8,557
 —
 —
 8,557
Stock based compensation —
 —
 162
 —
 —
 —
 —
 162
Net change in fair value of KSOP shares —
 —
 —
 —
 —
 —
 (1,539) (1,539)
Dividends:                
Common - $0.26 per share —
 —
 —
 (2,328) —
 —
 —
 (2,328)
Balance at September 30, 2016 $—
 $9,616
 $101,687
 $55,873
 $(15,190) $(3,980) $(39,923) $108,083
                 
For the Nine Months Ended September 30, 2017                
Balance at December 31, 2016 $—
 $9,616
 $101,736
 $57,160
 $(20,111) $(6,487) $(31,661) $110,253
Net earnings —
 —
 —
 11,631
 —
 —
 —
 11,631
Other comprehensive income —
 —
 —
 —
 —
 1,645
 —
 1,645
Terminated KSOP put option —
 —
 —
 —
 —
 —
 34,300
 34,300
Exercise of stock options —
 5
 55
 —
 24
 —
 —
 84
Sale of common stock —
 2,300
 53,455
 —
 —
 —
 —
 55,755
Stock based compensation —
 —
 247
 —
 —
 —
 —
 247
Net change in fair value of KSOP shares —
 —
 —
 —
 —
 —
 (2,639) (2,639)
Dividends:                
Common - $0.39 per share —
 —
 —
 (4,013) —
 —
 —
 (4,013)
Balance at September 30, 2017 $—
 $11,921
—
$155,493
—
$64,778
—
$(20,087)—
$(4,842) $—
 $207,263




See accompanying notes to consolidated financial statements.
8.


GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) 
  For the Nine Months Ended September 30,
  2017 2016
Cash flows from operating activities    
Net earnings $11,631
 $8,547
Adjustments to reconcile net earnings to net cash provided from operating activities:    
Depreciation 2,385
 2,262
Amortization 782
 779
Deferred taxes (214) (1,228)
Premium amortization, net of discount accretion 3,581
 3,528
Net realized gain on securities transactions (25) (82)
Gain on sale of loans (1,490) (1,231)
Provision for loan losses 2,250
 3,240
Origination of loans held for sale (50,230) (43,146)
Proceeds from loans held for sale 50,883
 45,158
Write-down of other real estate and repossessed assets 9
 107
Net loss (gain) on sale of premises, equipment, other real estate owned and other assets 111
 (1,214)
Stock based compensation 247
 162
Net change in accrued interest receivable and other assets 1,680
 (1,633)
Net change in accrued interest payable and other liabilities 1,624
 1,342
Net cash provided by operating activities 23,224
 16,591
     
Cash flows from investing activities    
Securities available for sale:    
Purchases (313,177) (26,140)
Proceeds from sales 213,813
 103,942
Proceeds from maturities and principal repayments 18,925
 54,021
Securities held to maturity:    
Purchases —
 (86,642)
Proceeds from sales 923
 1,866
Proceeds from maturities and principal repayments 7,497
 15,121
Acquisition of Denton branch, net of cash paid —
 2,399
Net purchases of premises and equipment (1,678) (634)
Net proceeds from sale of premises, equipment, other real estate owned and other assets 1,830
 2,826
Net increase in loans (64,438) (168,154)
Net cash used in investing activities (136,305) (101,395)
     
Cash flows from financing activities    
Net change in deposits 40,511
 64,536
Net change in securities sold under agreements to repurchase 2,061
 (254)
Proceeds from FHLB advances 60,000
 120,178
Repayment of FHLB advances (50,013) (81,346)
Proceeds from other debt 2,000
 10,000
Repayment of other debt (20,286) (18,357)
Repayments of debentures (5,500) (1,000)
Purchase of treasury stock —
 (7,261)

See accompanying notes to consolidated financial statements.
9.


GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) 
  For the Nine Months Ended September 30,
  2017 2016
Sale of treasury stock —
 8,557
Exercise of stock options 84
 —
Sale of common stock 55,755
 —
Cash dividends (4,013) (2,329)
Net cash provided by financing activities 80,599
 92,724
Net change in cash and cash equivalents (32,482) 7,920
Cash and cash equivalents at beginning of period 127,543
 111,379
Cash and cash equivalents at end of period $95,061
 $119,299

    
Supplemental disclosures of cash flow information    
Interest paid $8,958
 $1,839
Income taxes paid 4,910
 4,610

    
Supplemental schedule of noncash investing and financing activities    
Transfer loans to other real estate owned and repossessed assets $992
 $5,862
Terminated KSOP put option 34,300
 —
Net change in fair value of KSOP shares 2,639
 1,539

See accompanying notes to consolidated financial statements.
10.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
   Three Months Ended
June 30,		  Six Months Ended
June 30,		 
   2021  2020  2021  2020 
Interest income
                 
Loans, including fees
  $22,864  $24,139  $47,059  $46,656 
Securities
                 
Taxable
   1,138   1,187   2,190   2,481 
Nontaxable
   1,053   1,086   2,092   2,061 
Federal funds sold and interest-bearing deposits
   229   169   456   635 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total interest income
   25,284   26,581   51,797   51,833 
   
 
 
  
 
 
  
 
 
  
 
 
 
                  
Interest expense
                 
Deposits
   1,493   3,040   3,096   7,461 
FHLB advances and federal funds purchased
   102   123   201   205 
Subordinated debentures
   188   176   376   319 
Other borrowed money
   24   60   156   97 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total interest expense
   1,807   3,399   3,829   8,082 
   
 
 
  
 
 
  
 
 
  
 
 
 
                  
Net interest income
   23,477   23,182   47,968   43,751 
Provision for credit losses
   (1,000)   12,100   (1,000)   13,500 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net interest income after provision for credit losses
   24,477           11,082           48,968           30,251 
   
 
 
  
 
 
  
 
 
  
 
 
 
                  
Noninterest income
                 
Service charges
   855   571   1,684   1,479 
Net realized gain on sale of loans
   1,244   1,508   2,642   2,697 
Other income
   3,871   2,908   7,763   5,772 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total noninterest income
   5,970   4,987   12,089   9,948 
   
 
 
  
 
 
  
 
 
  
 
 
 
                  
Noninterest expense
                 
Employee compensation and benefits
   10,204   8,077   20,147   17,543 
Occupancy expenses
   2,833   2,550   5,520   5,027 
Other expenses
   4,666   4,557   9,348   9,021 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total noninterest expense
   17,703   15,184   35,015   31,591 
   
 
 
  
 
 
  
 
 
  
 
 
 
                  
Income before income taxes
   12,744   885   26,042   8,608 
Income tax provision (benefit)
   2,312   (190)   4,648   1,255 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings
  $        10,432  $1,075  $21,394  $7,353 
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic earnings per share*
  $0.87  $0.09  $1.78  $0.59 
   
 
 
  
 
 
  
 
 
  
 
 
 
Diluted earnings per share*
  $0.85  $0.09  $1.75  $0.59 
   
 
 
  
 
 
  
 
 
  
 
 
 
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
See accompanying notes to consolidated financial statements.
4. 

Table of Contents

GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
   Three Months Ended
June 30,		  Six Months Ended
June 30,		 
   2021  2020  2021  2020 
Net earnings
  $10,432  $1,075  $21,394  $7,353 
Other comprehensive (loss) income:
                 
Unrealized (losses) gains on securities
                 
Unrealized holding (losses) gains arising during the period
   (869)   11,382   (3,700)   12,486 
Unrealized gains on held to maturity securities transferred to available for sale
   —   —   —   2,265 
Amortization of net unrealized gains on held to maturity securities
   —   —   —   46 
Tax effect
   182   (2,390)   778   (3,100) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Unrealized (losses) gains on securities, net of tax
   (687)   8,992   (2,922)   11,697 
Unrealized holding gains (losses) arising during the period on interest rate swaps
   23   (243)   472   (829) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total other comprehensive (loss) income
   (664)   8,749   (2,450)   10,868 
   
 
 
  
 
 
  
 
 
  
 
 
 
Comprehensive income
  $        9,768  $        9,824  $        18,944  $        18,221 
   
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
5. 
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GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
     Preferred  
Stock		     Common  
Stock		     Additional  
Paid-in
Capital		   Retained
  Earnings  		      Treasury    
Stock		  Accumulated
Other
Comprehensive
Income		  Total
 Shareholders’ 
Equity		 
For the Six Months Ended June 30, 2021
     
Balance at December 31, 2020
  $—   $12,952   $188,032   $113,449  $(51,419)  $9,629  $272,643 
Net earnings
   —    —    —    21,394   —   —   21,394 
Other comprehensive loss
   —    —    —    —   —   (2,450)   (2,450) 
10% stock dividend
   —    1,094    34,853    (35,947)   —   —   — 
Exercise of stock options
   —    28    608    —   —   —   636 
Stock based compensation
   —    —    329    —   —   —   329 
Cash dividends:
     
Common - $0.40 per share
   —    —    —    (4,823)   —   —   (4,823) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at June 30, 2021
  $—   $14,074   $223,822   $94,073  $(51,419)  $7,179  $287,729 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
                                 
For the Three Months Ended June 30, 2021
     
Balance at March 31, 2021
  $—   $14,070   $223,550   $86,053  $(51,419)  $7,843  $280,097 
Net earnings
   —    —    —    10,432   —   —   10,432 
Other comprehensive loss
   —    —    —    —   —   (664)   (664) 
Exercise of stock options
   —    4    105    —   —   —   109 
Stock based compensation
   —    —    167    —   —   —   167 
Cash dividends:
     
Common - $0.20 per share
   —    —    —    (2,412)   —   —   (2,412) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at June 30, 2021
  $—   $14,074   $223,822   $94,073  $(51,419)  $7,179  $287,729 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
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GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
     Preferred  
Stock		     Common  
Stock		     Additional  
Paid-in
Capital		   Retained
  Earnings  		      Treasury    
Stock		  Accumulated
Other
Comprehensive
Income		  Total
 Shareholders’ 
Equity		 
For the Six Months Ended June 30, 2020
     
Balance at December 31, 2019
  $—   $12,905   $186,692   $98,239  $(34,492)  $(1,793)  $261,551 
Impact of adoption of ASC 326, net of tax of $955
   —    —    —    (3,593)   —   —   (3,593) 
Net earnings
   —    —    —    7,353   —   —   7,353 
Other comprehensive income
   —    —    —    —   —   10,868   10,868 
Exercise of stock options
   —    3    69    —   —   —   72 
Purchase of treasury stock
   —    —    —    —   (13,477)   —   (13,477) 
Stock based compensation
   —    —    312    —   —   —   312 
Cash dividends:
     
Common - $0.35 per share*
   —    —    —    (4,211)   —   —   (4,211) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at June 30, 2020
  $—   $12,908   $187,073   $97,788  $(47,969)  $9,075  $258,875 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
                                 
For the Three Months Ended June 30, 2020
     
Balance at March 31, 2020
  $—   $12,908   $186,916   $98,805  $(45,309)  $326  $253,646 
Net earnings
   —    —    —    1,075   —   —   1,075 
Other comprehensive income
   —    —    —    —   —   8,749   8,749 
Purchase of treasury stock
   —    —    —    —   (2,660)   —   (2,660) 
Stock based compensation
   —    —    157    —   —   —   157 
Dividends:
     
Common - $0.17 per share*
   —    —    —    (2,092)   —   —   (2,092) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at June 30, 2020
  $—   $12,908   $187,073   $97,788  $(47,969)  $9,075  $258,875 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
*
Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
See accompanying notes to consolidated financial statements.
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GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
          For the Six Months Ended        
June 30,		 
          2021                  2020         
Cash flows from operating activities
        
Net earnings
 $21,394  $7,353 
Adjustments to reconcile net earnings to net cash provided by operating activities:
        
Depreciation
  2,210   1,995 
Amortization
  679   673 
Deferred taxes
  (235)   (2,175) 
Premium amortization, net of discount accretion
  2,200   1,908 
Gain on sale of loans
  (2,642)   (2,697) 
Provision for credit losses
  (1,000)   13,500 
Origination of loans held for sale
  (60,289)   (69,170) 
Proceeds from loans held for sale
  63,385   67,041 
Write-down of other real estate and repossessed assets
  4   357 
Net gain on sale of premises, equipment, other real estate owned and other assets
  1   107 
Stock based compensation
  329   312 
Net change in accrued interest receivable and other assets
  (7,420)   (6,409) 
Net change in accrued interest payable and other liabilities
  3,049   2,053 
  
 
 
  
 
 
 
Net cash provided by operating activities
 $21,665  $14,848 
  
 
 
  
 
 
 
         
Cash flows from investing activities
        
Securities available for sale:
        
Purchases
 $(112,178)  $(20,894) 
Proceeds from maturities and principal repayments
  40,437   22,552 
Securities held to maturity:
        
Proceeds from maturities and principal repayments
  0   3,024 
Net originations of loans
  (23,984)   (246,637) 
Purchases of premises and equipment
  (1,409)   (3,881) 
Proceeds from BOLI death benefit
  464   0 
Proceeds from sale of premises, equipment, other real estate owned and other assets
  155   339 
  
 
 
  
 
 
 
Net cash used in investing activities
 $(96,515)  $(245,497) 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
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GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
           For the Six Months Ended        
June 30,		 
   2021  2020 
Cash flows from financing activities
         
Net change in deposits
  $246,636  $285,222 
Net change in securities sold under agreements to repurchase
   (295)   6,314 
Proceeds from FHLB advances
   80,000   200,000 
Repayment of FHLB advances
   (140,101)   (154,508) 
Proceeds from line of credit
   5,000   20,000 
Repayment of line of credit
   (17,000)   (18,000) 
Proceeds from issuance of debentures
   0   10,000 
Repayments of debentures
   0   (500) 
Purchase of treasury stock
   0   (13,477) 
Exercise of stock options
   636   72 
Cash dividends
   (4,599)   (4,194) 
   
 
 
  
 
 
 
Net cash provided by financing activities
  $170,277  $330,929 
   
 
 
  
 
 
 
Net change in cash and cash equivalents
   95,427   100,280 
Cash and cash equivalents at beginning of period
   351,791   90,714 
   
 
 
  
 
 
 
Cash and cash equivalents at end of period
  $447,218  $190,994 
   
 
 
  
 
 
 
          
Supplemental disclosures of cash flow information
         
Interest paid
  $4,068  $8,497 
Income taxes paid
   6,850   2,600 
          
Supplemental schedule of noncash investing and financing activities
         
Cash dividends accrued
   2,412   2,092 
Transfer of loans to other real estate owned and repossessed assets
   444   182 
Stock dividend
   35,947   0 
See accompanying notes to consolidated financial statements.
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
: Guaranty Bancshares, Inc. (“Guaranty”) is a bank holding company headquartered in Mount Pleasant, Texas that provides, through its wholly-owned subsidiary, Guaranty Bank & Trust, N.A. (the “Bank”), a broad array of financial products and services to individuals and corporate customers, primarily in its markets of East Texas, Bryan/College Station and the Dallas/Fort Worth, metroplex.Greater Houston and Central Texas. The terms “the Company,” “we,” “us” and “our” mean Guaranty and its subsidiaries, when appropriate. The Company’s main sources of income are derived from granting loans throughout its markets and investing in securities issued by the U.S. Treasury, U.S. government agencies and state and political subdivisions. The Company’s primary lending products are real estate, commercial and consumer loans. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ abilities to honor contracts is dependent on the economy of the State of Texas and primarily the economies of East Texas, Bryan/College Station and the Dallas/Fort Worth, metroplex.Greater Houston and Central Texas. The Company primarily funds its lending activities with deposit operations. The Company’s primary deposit products are checking accounts, money market accounts and certificates of deposit.

Basis of Presentation
: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank, and their respective other direct and indirect subsidiaries and any other entities in which Guaranty has a controlling interest. The Bank has five6 wholly-owned non-bank subsidiaries, Guaranty Company, Inc., G B COM, INC., 2800 South Texas Avenue LLC, Pin Oak Realty Holdings, Inc. and, Pin Oak Asset Management, LLC (formerly Pin Oak Energy Holdings, LLC) and White Oak Aviation, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.
The consolidated financial statements in this Reportreport have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2016,2020, included in Guaranty’s Annual Report on Form 10-K for the Guaranty’s Prospectus filed with the SEC under Rule 424(b) on May 9, 2017, relating to its initial public offering.year ended December 31, 2020. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
All dollar amounts referenced and discussed in the notes to the consolidated financial statements in this Reportreport are presented in thousands, unless noted otherwise.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

KSOP Repurchase Right
COVID-19
: In accordanceOn March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, of which virus variants continue to spread through the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and business activities must be, to varying degrees, curtailed with applicable provisionsthe goal of decreasing the rate of new infections. The outbreak of COVID-19, and its subsequent variants, could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company.
Government leaders and the Federal Reserve have taken several actions designed to mitigate the economic fallout resulting from the coronavirus. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, signed into law on March 27, 2020, authorized more than $2 trillion to battle COVID-19 and its economic effects, including immediate cash relief for individual citizens, loan programs for small businesses, support for hospitals and other medical providers, and various types of economic relief for impacted businesses and industries. The goal of CARES Act was to prevent severe economic downturn. The CARES Act also provided for temporary interest only or payment deferral modifications for loans without classifying them as troubled debt restructurings under current accounting rules. Additional government-backed hardship relief measures were signed into law in early 2021, as well as extension of many of the Internal Revenue Code, the terms of Guaranty’s employee stock ownership planCARES Act provisions, with 401(k) provisions (“KSOP”), provided that, for so long as Guaranty was a privately-held company without a public market for its common stock, KSOP participants would have the right, for a specified period of time, to require Guaranty to repurchase shares of its common stock that are distributed to them by the KSOP. This repurchase obligation terminated upon the consummation of Guaranty’s initial public offering and listing of its common stock on the NASDAQ Global Select Market in May 2017. However, because Guaranty was privately-held without a public market for its common stock as of and for the year ended December 31, 2016, the shares of common stock held by the KSOP are reflected in the Company’s consolidated balance sheet as of December 31, 2016 as a line item called “KSOP-owned shares,” appearing between total liabilities and shareholders’ equity. As a result, the KSOP-owned shares are deducted from shareholders’ equity in the Company’s consolidated balance sheetfurther measures currently being considered.

(Continued)
11.
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Due to the COVID-19 pandemic, market interest rates declined significantly, with the 10-year Treasury bond falling below 1.00% on March 3, 2020 for the first time. On March 16, 2020, the Federal Open Market Committee reduced the target federal funds rate range to 0.00% to 0.25%, at which it remains as of December 31, 2016. For all periods following Guaranty’s initial public offeringJune 30, 2021.​​​​​​​ These reductions in interest rates and continued listingother effects of the COVID-19 outbreak may adversely affect the Company’s common stock on the NASDAQ Global Select Market, the KSOP-owned shares will be included in,financial condition and not be deducted from, shareholders’ equity. The terminationresults of the repurchase obligation following the listing of Guaranty’s common stock on the NASDAQ Global Select Market is also reflected in the statement of changes in shareholders’ equity as “terminated KSOP put option.”
Recent Accounting Pronouncements:
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. In addition, the amendments in this ASU provide a detailed framework to assist entities in evaluating whether a set of assets and activities constitutes a business,operations, as well as clarify the definitionbusiness and consumer confidence. As a result of the term output so the term is consistent with how outputs are described in Topic 606. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company does not expectspread of COVID-19 and its variants, economic uncertainties have arisen which can negatively impact net interest income and noninterest income. Other financial impacts could occur though such potential impact remains unknown at this pronouncement to have a significant impact on its consolidated financial statements.time.​​​​​​​

Recent Accounting Pronouncements
:
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill impairment for all entities by requiring impairment changes to be based on the first step in today’s two-step impairment test, thus eliminating step two from the goodwill impairment test. In addition, the amendment eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill impairment test. For pubic companies, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is in the process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. For public companies, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following nine specific cash flow issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned; 6) life insurance policies; 7) distributions received from equity method investees; 8) beneficial interests in securitization transactions; and 9) separately identifiable cash flows and application of the predominance principle. The amendments are effective for public companies for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of this guidance to be material to its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, which sets forth a "current expected credit loss" ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model andmethodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to the measurementfinancial assets measured at amortized cost, including loans receivable and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842: Leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale securities that management does not intend to sell or believes that it is more likely than not they will be required to sell.
The Company adopted the Current Expected Credit Losses (CECL) standard (Accounting Standards Update 2016-13 or ASC 326) on January 1, 2020. The day one impact of adopting CECL resulted in an allowance increase of $4,548, or 28.1%, from December 31, 2019. The day one increase was primarily due to recognizing expected lifetime losses in the portfolio and adding an economic forecast based upon our assumptions on
January 1, 2020
. The Company made significant additional provisions during the year ended December 31, 2020 as a result of CECL model assumptions driven by COVID-19 and related uncertainties.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and applies to some off-balance sheetoff-balance-sheet (OBS) credit exposures. For public companies,Results for reporting periods beginning after January 1, 2020 are presented under ASC 326. The Company recorded a decrease to retained earnings of $3,593, net of tax effects of $955, as of January 1, 2020 for the amendments in this update are effectivecumulative effect of adopting ASC 326.
Allowance for fiscalCredit Losses:

Available for Sale Debt Securities
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether or not it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securities amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected are less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
(Continued)
12.
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Changes in the allowance for credit losses are recorded as provisions for or reversal of credit loss expense. Losses are charged against the allowance when management believes an available-for-sale security is uncollectible or when either of the criteria regarding intent to sell or required to sell is met. Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.
Loans

The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected over the lifetime of the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Subsequent recoveries, if any, are credited to the allowance.
years beginning after December 15, 2019, including interim periods within those fiscal years.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We use the weighted-average remaining maturity method (WARM method) as the basis for the estimation of expected credit losses. The Company has assembledWARM method uses a transition team to assesshistorical average annual charge-off rate. This average annual charge-off rate contains loss content over a historical lookback period and is used as a foundation for estimating the adoptioncredit loss reserve for the remaining outstanding balances of this ASU, and has developedloans in a project plan regarding implementation.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities onsegment at the balance sheet by lesseesdate. The average annual charge-off rate is applied to the contractual term, further adjusted for those leases classifiedestimated prepayments, to determine the unadjusted historical charge-off rate. The calculation of the unadjusted historical charge-off rate is then adjusted for current conditions and for reasonable and supportable forecast periods. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendmentsdifferences in this ASU are effectiveunderwriting standards, portfolio mix, delinquency level, or term as well as for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption of this ASU is permitted for all entities. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognizedenvironmental conditions, such as changes in net income; public business entitiesunemployment rates, property values, or other relevant factors. These qualitative factors serve to usecompensate for additional areas of uncertainty inherent in the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizationsportfolio that are not public business entities; eliminatingreflected in our historic loss factors.
The allowance for credit losses is measured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan portfolio segments include both regulatory call report codes and by internally identified risk ratings for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separately identified our mortgage warehouse loans, internally originated SBA loans, SBA loans acquired from Westbound Bank in 2018 and loans originated under the requirementPaycheck Protection Program (“PPP”) for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value thatinherent risk analysis. Accrued interest receivable on loans is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU permits early adoption of the instrument-specific credit risk provision. The Company is in the process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), followed by various amendments: ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in these updates amend existing guidance related to revenue from contracts with customers. The amendments supersede and replace nearly all existing revenue recognition guidance, including industry-specific guidance, establish a new control-based revenue recognition model, change the basis for deciding when revenue is recognized over a time or point in time, provide new and more detailed guidance on specific topics and expand and improve disclosures about revenue. In addition, these amendments specify the accounting for some costs to obtain or fulfill a contract with a customer. The amendments are effective for annual and interim periods beginning after December 15, 2017, and must be retrospectively applied.  The majority of the Company's income consists of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scopeestimate of the amendments. The Company continues to evaluate the impact of the amendments on the components of noninterest income that have recurring revenue streams; however, the Company does not expect any recognition changes to have a significant impact to its consolidated financial statements.credit losses.

(Continued)
13.
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Below is a summary of the segments and certain of the inherent risks in the Company’s loan portfolio:
Commercial and industrial:
  
This portfolio segment includes general secured and unsecured commercial loans which are not secured by real estate or may be secured by real estate but made for the primary purpose of a short term revolving line of credit. Credit risk inherent in this portfolio segment include fluctuations in the local and national economy.
Construction and development:
This portfolio segment includes all loans for the purpose of construction, including both business and residential structures; and real estate development loans, including non-agricultural vacant land. Credit risk inherent in this portfolio include fluctuations in property values, unemployment, and changes in the local and national economy.
Commercial real estate:
The commercial real estate portfolio segment includes all commercial loans that are secured by real estate, other than those included in the construction and development, farmland, multi-family, and 1-4 family residential segments. Risks inherent in this portfolio segment include fluctuations in property values and changes in the local and national economy impacting the sale of the finished structures.
Farmland:
The farmland portfolio includes loans that are secured by real estate that is used or usable for agricultural purposes, including land used for crops, livestock production, grazing & pastureland and timberland. This segment includes land with a 1-4 family residential structure if the value of the land exceeds the value of the residence. Risks inherent in this portfolio segment include adverse changes in climate, fluctuations in feed and cattle prices and changes in property values.
Consumer:
This portfolio segment consists of non-real estate loans to consumers. This includes secured and unsecured loans such as auto and personal loans. The risks inherent in this portfolio segment include those factors that would impact the consumer’s ability to meet their obligations under the loan. These include increases in the local unemployment rate and fluctuations in consumer and business sales.
1-4 family residential:
This portfolio segment includes loans to both commercial and consumer borrowers secured by real estate for housing units of up to 4 families. Risks inherent in this portfolio segment include increases in the local unemployment rate, changes in the local economy and factors that would impact the value of the underlying collateral, such as changes in property values.
Multi-family residential:
This portfolio segment includes loans secured by structures containing 5 or more residential housing units. Risks inherent in this portfolio segment include increases to the local unemployment rate, changes in the local economy, and factors that would impact property values.
Agricultural:
The agricultural portfolio segment includes loans to individuals and companies in the dairy and cattle industries and farmers. Loans in the segment are secured by collateral including cattle, crops and equipment. Risks inherent in this portfolio segment include adverse changes in climate and fluctuations in feed and cattle prices.
(Continued)
13. 

Table of Contents
NOTE 2 - ACQUISITIONS
GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 6, 2016,
(Dollars in thousands, except per share data)
The following groups of loans are considered to carry specific similar inherent risk characteristics, which the Company purchased certain assets and assumed certain liabilities associated with a former branch locationBank considers separately during its calculation of a non-related bank in Denton, Texas (Denton), which resultedthe allowance for credit losses. These groups of loans are reported within the segments identified in the additionprevious table.
Mortgage Warehouse:
The mortgage warehouse portfolio includes loans in which we purchase mortgage loan ownership interests from unaffiliated mortgage originators that are generally held by us for a period of less than 30-days, typically 5-10 days before they are sold to an approved investor. These loans are consistently underwritten based on standards established by the approved investor. Risks inherent in this portfolio include borrower or mortgage originator fraud.
SBA – Acquired Loans
The SBA – acquired loans segment consists of partially SBA guaranteed loans that were acquired from Westbound Bank in June 2018. These loans are commercial real estate and commercial and industrial in nature and were underwritten with guidelines that are less conservative than our Company. Risks inherent in this portfolio include increases in interest rates, as most are variable rate loans, generally lower levels of borrower equity, less conservative underwriting guidelines, fluctuations in real estate values and changes in the local and national economy.
SBA – Originated Loans
The SBA – originated loans segment consists of loans that are partially guaranteed by the SBA and were originated and underwritten by Guaranty Bank & Trust loan officers. Risks inherent in this portfolio include increases in interest rates due to variable rate structures, generally lower levels of borrower equity or net worth, fluctuations in real estate values and changes in the local and national economy.
SBA – Paycheck Protection
Program Loans
Loans originated under the PPP are 100% government guaranteed by the SBA. As a result, the loans are excluded from the segments above and a minimal reserve estimate was applied to this segment of loans for purposes of calculating the credit loss provision.
In general, the loans in our portfolio have low historical credit losses. The credit quality of approximately $4,659loans in assetsour portfolio is impacted by delinquency status and the assumption of approximately $4,658 in liabilities.   The Company acquired the bank premises at 4101 Wind River Lane in Dentondebt service coverage generated by our borrowers’ businesses and recorded it at fair market value of $2,075.  Other assets acquired, at fair value, included cash of $2,399, core deposit intangible of $42, goodwill of $141 and loans of $2.   Liabilities assumed included non-interest bearing deposits of $581, interest bearing deposits of $4,047 and other liabilities of $30.   As a result of the transaction, the Company paid $66 to the seller, representing the differencefluctuations in the value of real estate collateral. Management considers delinquency status to be the acquired assets lessmost meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the allowance for credit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for credit losses, which would adversely affect our results of operations and financial condition. Delinquency statistics are updated at least monthly.
Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor that impact management’s estimates of loss factors used in determining the amount of the allowance for credit losses. Internal risk ratings are updated on a continuous basis.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the liabilities assumedcollateral at the reporting date, adjusted for selling costs as appropriate.
(Continued)
14. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Credit Quality Indicators - The Company monitors the credit quality of the loans in the various segments by identifying and evaluating credit quality indicators specific to each segment class. This information is incorporated into management’s analysis of the adequacy of the allowance for credit losses. Information for the credit quality indicators is updated monthly or quarterly for classified assets and at least annually for the remainder of the portfolio.
The following is a discussion of the primary credit quality indicators most closely monitored for the loan portfolio, by class:
Commercial and industrial:
In assessing risk associated with commercial loans, management considers the business’s cash flow and the value of the underlying collateral to be the primary credit quality indicators.
Construction and development:
In assessing the credit quality of construction loans, management considers the ability of the borrower to make principal and interest payments in the event that they are unable to sell the completed structure to be a primary credit quality indicator. For real estate development loans, management also considers the likelihood of the successful sale of the constructed properties in the development.
Commercial real estate:
Management considers the strength of the borrower’s cash flows, changes in property values and occupancy status to be key credit quality indicators of commercial real estate loans.
Farmland:
In assessing risk associated with farmland loans, management considers the borrower’s cash flows and underlying property values to be key credit quality indicators.
Consumer:
Management considers delinquency status to be the primary credit quality indictor of consumer loans. Others include the debt to income ratio of the borrower, the borrower’s credit history, the availability of other credit to the borrower, the borrower’s past-due history, and, if applicable, the value of the underlying collateral to be primary credit quality indicators.
1-4 family residential:
Management considers delinquency status to be the primary credit quality indictor of 1-4 family residential loans. Others include changes in the local economy, changes in property values, and changes in local unemployment rates to be key credit quality indicators of the loans in the 1-4 family residential loan segment.
Multi-family residential:
Management considers changes in the local economy, changes in property values, vacancy rates and changes in local unemployment rates to be key credit quality indicators of the loans in the multifamily loan segment.
Agricultural:
In assessing risk associated with agricultural loans, management considers the borrower’s cash flows, the value of the underlying collateral and sources of secondary repayment to be primary credit quality indicators.
From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan can be grouped with its like segment for allowance consideration or whether it should be individually evaluated for a specific allowance for credit loss allocation. If individually evaluated, an allowance for credit loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.
(Continued)
15. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
In response to the COVID-19 pandemic, the Bank provided financial relief to many of its customers through a 3-month principal and interest payment deferral program or an up to 6-month interest only program. Pursuant to the CARES Act and the April 7, 2020 Interagency guidance and GAAP, these loan modifications, and certain subsequent modifications, are not considered to be troubled debt restructurings.
Reserve for Unfunded Commitments
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company in the transaction.      

Goodwill of $141 arising from the Denton acquisition consisted largely of synergies and the cost savings resulting from the combiningCompany. The allowance for credit losses on off balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the operationslikelihood that funding will occur and an estimate of the companies and isexpected credit losses on commitments expected to be deductible for income taxes purposes.funded over its estimated life.
Effect of Stock Splits and Stock Dividends on Prior Period Presentation
: Earnings and dividends per share and weighted average shares outstanding are presented as if all stock splits and stock dividends were effective from the earliest period presented through the date of issuance of the financial statements. Unless indicated otherwise, other share amounts have not been adjusted.
NOTE 32 - MARKETABLE SECURITIES

The following tables summarize the amortized cost and fair value of securities available for sale and securities held to maturity as of SeptemberJune 30, 20172021 and as of December 31, 20162020 and the corresponding amounts of gross unrealized gains and losses:
June 30, 2021
  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Estimated
Fair
Value		 
Available for sale:
                    
U.S. government agencies
  $10,014   $134   $0   $10,148 
Corporate bonds
   39,153    1,356    78    40,431 
Municipal securities
   162,219    9,634    40    171,813 
Mortgage-backed securities
   155,970    2,140    794    157,316 
Collateralized mortgage obligations
   65,282    1,660    14    66,928 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total available for sale
  $      432,638   $      14,924   $      926   $      446,636 
   
 
 
   
 
 
   
 
 
   
 
 
 
December 31, 2020
  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Estimated
Fair
Value		 
Available for sale:
                    
Corporate bonds
  $29,608   $1,382   $8   $30,982 
Municipal securities
   164,668    11,036    0    175,704 
Mortgage-backed securities
   104,210    3,041    87    107,164 
Collateralized mortgage obligations
   64,611    2,335    1    66,945 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total available for sale
  $      363,097   $      17,794   $      96   $      380,795 
   
 
 
   
 
 
   
 
 
   
 
 
 
There is 0 allowance for credit losses recorded for our available for sale debt securities as of June 30, 2021 or December 31, 2020.
September 30, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 Gross
Unrealized
Losses		 
Estimated
Fair
Value
Available for sale:       
Corporate bonds$18,842
 $178
 $—
 $19,020
Municipal securities7,769
 —
 305
 7,464
Mortgage-backed securities91,801
 20
 863
 90,958
Collateralized mortgage obligations120,580
 493
 382
 120,691
Total available for sale$238,992
 $691
 $1,550
 $238,133
        
Held to maturity:       
Municipal securities$146,993
 $2,696
 $516
 $149,173
Mortgage-backed securities23,337
 278
 66
 23,549
Collateralized mortgage obligations8,751
 181
 503
 8,429
Total held to maturity$179,081
 $3,155
 $1,085
 $181,151


(Continued)
14.
16. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Information pertaining to securities with gross unrealized losses as of June 30, 2021 and December 31, 2020, for which no allowance for credit losses has been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is detailed in the following tables:
December 31, 2016
Amortized
Cost
 
Gross
Unrealized
Gains
 Gross
Unrealized
Losses		 
Estimated
Fair
Value
Available for sale:       
Corporate bonds$25,254
 $6
 $377
 $24,883
Municipal securities7,841
 —
 622
 7,219
Mortgage-backed securities61,298
 —
 1,608
 59,690
Collateralized mortgage obligations65,789
 10
 666
 65,133
Total available for sale$160,182
 $16
 $3,273
 $156,925
        
Held to maturity:       
Municipal securities$149,420
 $901
 $3,889
 $146,432
Mortgage-backed securities28,450
 318
 290
 28,478
Collateralized mortgage obligations11,501
 265
 521
 11,245
Total held to maturity$189,371
 $1,484
 $4,700
 $186,155
   Less Than 12 Months   12 Months or Longer   Total 
June 30, 2021
  Gross
Unrealized
Losses		  Estimated
Fair
Value		   Gross
Unrealized
Losses		   Estimated
Fair
Value		   Gross
Unrealized
Losses		  Estimated
Fair
Value		 
Available for sale:
                   
Corporate bonds
  $(78)  $7,708   $0   $0   $(78)  $7,708 
Municipal securities
   (40)   4,486    0    0    (40)   4,486 
Mortgage-backed securities
   (794)   81,619    0    0    (794)   81,619 
Collateralized mortgage obligations
   (14)   3,549    0    0    (14)   3,549 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total available for sale
  $  (926)  $97,362   $0   $0   $  (926)  $  97,362 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
   Less Than 12 Months   12 Months or Longer   Total 
December 31, 2020
  Gross
Unrealized
Losses		  Estimated
Fair
Value		   Gross
Unrealized
Losses		  Estimated
Fair
Value		   Gross
Unrealized
Losses		  Estimated
Fair
Value		 
Available for sale:
                           
Corporate bonds
  $(8)  $2,493   $  —  $—   $(8)  $2,493 
Mortgage-backed securities
     (87)   25,775    —   —    (87)   25,775 
Collateralized mortgage obligations
   —   —    (1)   106    (1)   106 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total available for sale
  $(95)  $  28,268   $(1)  $  106   $(96)  $  28,374 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
There were 25 investments in an unrealized loss position with no recorded allowance for credit losses at June 30, 2021. The Company’s held to maturity mortgage-backed securities portfolio includes non-agencyin a loss position were composed of collateralized mortgage obligations, with a carrying value of $1,470, which hadand mortgage backed securities. Management evaluates available for sale debt securities in an unrealized losses of $503 as of September 30, 2017. These non-agencyloss position to determine whether the impairment is due to credit-related factors or noncredit-related factors. With respect to the collateralized mortgage obligations and mortgage-backed securities were rated AAA at purchase.issued by the U.S. Government and its agencies, the Company has determined that a decline in fair value is not due to credit-related factors. The Company monitors thesethe credit quality of other debt securities through the use of credit ratings and other factors specific to ensure itan individual security in assessing whether or not the decline in fair value of municipal or corporate securities, relative to their amortized cost, is due to credit-related factors. Triggers to prompt further investigation of securities when the fair value is less than the amortized cost are when a security has adequatebeen downgraded and falls below an A credit support,rating, and the Company records other than temporary impairment (OTTI) as appropriate. The Company does not have the intent to sell these securities and does not expect to sell the securities before their anticipated recovery.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.security’s unrealized loss exceeds 20% of its book value. Consideration is given to (1) the length of time and the extent to which the fair value has beenis less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuersecurity for a period of time sufficient to allow for any anticipated recovery in fair value. The Company did not record any OTTI losses on any of its securities during the nine months ended September 30, 2017 or for the year ended December 31, 2016.


(Continued)
15.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Information pertaining to securities with gross unrealized losses as of September 30, 2017 and December 31, 2016 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is detailed in the following tables:
 Less Than 12 Months 12 Months or Longer Total
September 30, 2017
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:           
Corporate bonds$—
 $—
 $—
 $—
 $—
 $—
Municipal securities—
 —
 (305) 7,464
 (305) 7,464
Mortgage-backed securities(556) 72,802
 (307) 13,913
 (863) 86,715
Collateralized mortgage obligations(244) 42,825
 (138) 7,522
 (382) 50,347
Total available for sale$(800) $115,627
 $(750) $28,899
 $(1,550) $144,526
            
Held to maturity:           
Municipal securities$(258) $39,090
 $(258) $13,085
 $(516) $52,175
Mortgage-backed securities(66) 10,562
 —
 —
 (66) 10,562
Collateralized mortgage obligations—
 —
 (503) 2,272
 (503) 2,272
Total held to maturity$(324) $49,652
 $(761) $15,357
 $(1,085) $65,009
 Less Than 12 Months 12 Months or Longer Total
December 31, 2016
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:           
Corporate bonds$(377) $22,529
 $—
 $—
 $(377) $22,529
Municipal securities(622) 7,219
 —
 —
 (622) 7,219
Mortgage-backed securities(1,047) 44,420
 (561) 15,270
 (1,608) 59,690
Collateralized mortgage obligations(437) 55,435
 (229) 9,049
 (666) 64,484
Total available for sale$(2,483) $129,603
 $(790) $24,319
 $(3,273) $153,922
            
Held to maturity:           
Municipal securities$(3,889) $98,943
 $—
 $—
 $(3,889) $98,943
Mortgage-backed securities(290) 19,983
 —
 —
 (290) 19,983
Collateralized mortgage obligations—
 —
 (521) 2,350
 (521) 2,350
Total held to maturity$(4,179) $118,926
 $(521) $2,350
 $(4,700) $121,276

The number of investment positions in an unrealized loss position totaled 104 and 177 at September 30, 2017 and December 31, 2016, respectively. The securities in a loss position were composed of tax-exempt municipal bonds, corporate bonds, collateralized mortgage obligations and mortgage backed securities.Management believes the unrealized loss on the remaining securities is a function of the movement of interest rates since the time of purchase. Based on evaluation of available evidence, including recent changes in interest rates, credit rating information and

(Continued)
16.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

information obtained from regulatory filings, management believes the declines in fair value for theseunrealized losses on the securities are temporary. Should the impairmentas of any of these securities become other-than-temporary, the cost basis of the investment would be reduced and the resulting loss recognized in net income in the period the OTTIJune 30, 2021 is identified. The Companynot credit-related. Management does not have the intent to sell any of these mortgage-backed securities and believes that it is more likely that itthan not the Company will not be requiredhave to sell any such securities before recovery of cost. The fair values are expected to recover as the securities beforeapproach their anticipated recovery. The Company does not consider these securities to be OTTI at September 30, 2017.maturity date or repricing date or if market yields for the investments decline.
Mortgage-backed securities and collateralized mortgage obligations are backed by pools of mortgages that are insured or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association or the Government National Mortgage Association.

As of SeptemberJune 30, 2017,2021, there were no0 holdings of securities of any one issuer, other than the collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

(Continued)
17. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Securities with fair values of approximately $221,777$299,031 and $259,499$314,962 at SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

The proceeds from sales of securities and the associated gains and losses are listed below for:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Proceeds$199,974
 $31,969
 $214,736
 $109,056
Gross gains—
 96
 38
 243
Gross losses—
 (32) (13) (161)

DuringThere were 0 securities sold during the ninethree or six months ended SeptemberJune 30, 2017 and 2016, the Company sold three held-to-maturity securities each year. The Company sold these municipal securities based upon internal credit analysis, under the belief that they had experienced significant deterioration in creditworthiness. The risk exposure presented by these municipalities had increased beyond acceptable levels, and the Company determined that it was reasonably possible that all amounts due would not be collected. The credit analysis determined that the municipalities had been significantly impacted because their tax bases are heavily reliant on the energy industry relative to other sectors of the economy. Specifically, the revenues of these municipalities have been adversely impacted by the significant decline in energy prices since 2014. The Company believes the sale of these securities were merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.

Sale of securities held to maturity were as follows for:
2021 or 2020.
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Proceeds from sales$—
 $—
 $923
 $1,866
Amortized cost—
 —
 907
 1,842
Gross realized gains—
 —
 16
 24
Tax expense related to securities gains/losses—
 —
 (4) (7)


(Continued)
17.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The contractual maturities at SeptemberJune 30, 20172021 of available for sale and held to maturity securities at carrying value and estimated fair value are shown below. The Company invests in mortgage-backed securities and collateralized mortgage obligations that have expected maturities that differ from their contractual maturities. These differences arise because borrowers and/or issuers may have the right to call or prepay their obligation with or without call or prepayment penalties.
   Available for Sale 
June 30, 2021
  Amortized
Cost		   Estimated
Fair
Value		 
Due within one year
  $2,817   $2,850 
Due after one year through five years
   54,849    57,225 
Due after five years through ten years
   78,842    82,309 
Due after ten years
   74,878    80,008 
Mortgage-backed securities
   155,970    157,316 
Collateralized mortgage obligations
   65,282    66,928 
   
 
 
   
 
 
 
Total Securities
  $            432,638   $            446,636 
   
 
 
   
 
 
 
 Available for Sale Held to Maturity
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
Due within one year$—
 $—
 $2,683
 $2,693
Due after one year through five years1,086
 1,096
 5,126
 5,292
Due after five years through ten years17,756
 17,924
 43,228
 44,785
Due after ten years7,769
 7,464
 95,956
 96,403
Mortgage-backed securities91,801
 90,958
 23,337
 23,549
Collateralized mortgage obligations120,580
 120,691
 8,751
 8,429
Total Securities$238,992
 $238,133
 $179,081
 $181,151
NOTE 43 - LOANS AND ALLOWANCE FOR LOANCREDIT LOSSES

The following table summarizes the Company’s loan portfolio by type of loan as of:
   June 30, 2021  December 31, 2020 
Commercial and industrial
  $424,624  $445,771 
Real estate:
         
Construction and development
   264,002   270,407 
Commercial real estate
   608,464   594,216 
Farmland
   94,525   78,508 
1-4 family residential
   389,616   389,096 
Multi-family residential
   42,086   21,701 
Consumer
   51,795   51,044 
Agricultural
   14,608   15,734 
Overdrafts
   444   342 
   
 
 
  
 
 
 
Total loans
(1)
   1,890,164   1,866,819 
Net of:
         
Deferred loan fees, net
   (2,339)   (1,463) 
Allowance for credit losses
   (31,548)   (33,619) 
   
 
 
  
 
 
 
Total net loans
(1)
  $                1,856,277  $                1,831,737 
   
 
 
  
 
 
 
 September 30, 2017 December 31, 2016
Commercial and industrial$192,663
 $223,997
Real estate:   
Construction and development201,067
 129,366
Commercial real estate393,314
 367,656
Farmland54,349
 62,362
1-4 family residential365,889
 362,952
Multi-family residential23,235
 26,079
Consumer51,711
 53,505
Agricultural24,449
 18,901
Overdrafts698
 317
Total loans1,307,375
 1,245,135
Less:   
Allowance for loan losses12,528
 11,484
Total net loans$1,294,847
 $1,233,651
As
(1) Excludes accrued interest receivable on loans of September$5.8 million and $7.0 million as of June 30, 20172021 and December 31, 2016, included in total loans above were $1,089 and $1,210 in unamortized loan costs, net of loan fees, respectively.2020, respectively, which is presented separately on the consolidated balance sheets.


(Continued)
18.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The Company’s estimate of the allowance for credit losses (“ACL”) reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The following tables present the activity in the allowance for loan losses and the recorded investment inACL by class of loans by portfolio segment and based on impairment method for the ninesix months ended SeptemberJune 30, 2017,2021, for the year ended December 31, 20162020 and for the ninesix months ended SeptemberJune 30, 2016:2020:
For the Six Months Ended
June 30, 2021
 Commercial
and
industrial		  Construction
and
development		  Commercial
real
estate		  Farmland  1-4 family
residential		  
Multi-family

residential		  Consumer  Agricultural  Overdrafts  Total 
Allowance for credit losses:
                                        
Beginning balance
 $4,033  $4,735  $15,780  $1,220  $6,313  $363  $929  $239  $7  $33,619 
Provision for credit losses
  (329)   (914)   167   19   (162)   255   (34)   (49)   47   (1,000) 
Loans charged-off
  (238)   —   (760)   —   —   —   (76)   —   (84)   (1,158) 
Recoveries
  11   1   11   —   —   —   28   —       36   87 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance
 $     3,477  $     3,822  $     15,198  $     1,239  $      6,151  $         618  $   847  $      190  $        6  $        31,548 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
For the Year Ended
December 31, 2020
 Commercial
and
industrial		  Construction
and
development		  Commercial
real
estate		  Farmland  1-4 family
residential		  
Multi-family

residential		  Consumer  Agricultural  Overdrafts  Total 
Allowance for loan losses:
                                        
Beginning balance, prior to adoption of ASC 326
 $2,056  $2,378  $6,853  $570  $3,125  $409  $602  $197  $12  $16,202 
Impact of adopting ASC 326
  546   323   2,228   26   1,339   (50)   72   73   (9)   4,548 
Provision for loan losses
  1,398   2,034   6,698   624   1,915   4   373   (33)   187   13,200 
Loans charged-off
  (68)   —   —   —   (68)   —   (155)   (18)   (234)   (543) 
Recoveries
  101   —   1   —   2   —   37   20   51   212 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance
 $4,033  $4,735  $15,780  $1,220  $6,313  $363  $929  $239  $7  $  33,619 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
For the Six Months Ended
June 30, 2020
 Commercial
and
industrial		  Construction
and
development		  Commercial
real
estate		  Farmland  1-4 family
residential		  
Multi-family

residential		  Consumer  Agricultural  Overdrafts  Unallocated  Total 
Allowance for loan losses:
                                            
Beginning balance
 $2,056  $2,378  $6,853  $570  $3,125  $409  $602  $197  $12  $—  $16,202 
Impact of adopting ASC 326
  546   323   2,228   26   1,339   (50)   72   73   (9)   —   4,548 
Provision for loan losses
  1,491   2,193   6,567   654   1,729   245   364   114   60   83   13,500 
Loans charged-off
  (43)   —   —   —   (59)   —   (80)   (18)   (83)   —   (283) 
Recoveries
  86   —   —   —   2   —   17   20   27   —   152 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance
 $4,136  $4,894  $15,648  $1,250  $6,136  $604  $975  $386  $7  $83  $  34,119 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
For the nine months ended September 30, 2017Commercial
and
industrial		 Construction
and
development		 Commercial
real
estate		 Farmland 1-4 family
residential		 Multi-family
residential		 Consumer Agricultural Overdrafts Total
Allowance for loan losses:                   
Beginning balance$1,592
 $1,161
 $3,264
 $482
 $3,960
 $281
 $585
 $153
 $6
 $11,484
Provision for loan losses602
 762
 1,019
 (24) (585) (15) 149
 258
 84
 2,250
Loans charged-off(737) —
 (84) —
 (307) —
 (230) (4) (117) (1,479)
Recoveries116
 —
 —
 —
 21
 —
 95
 —
 41
 273
Ending balance$1,573
 $1,923
 $4,199
 $458
 $3,089
 $266
 $599
 $407
 $14
 $12,528
Allowance ending balance:                   
Individually evaluated for impairment$19
 $—
 $31
 $85
 $145
 $—
 $—
 $240
 $—
 $520
Collectively evaluated for impairment1,554
 1,923
 4,168
 373
 2,944
 266
 599
 167
 14
 12,008
Ending balance$1,573
 $1,923
 $4,199
 $458
 $3,089
 $266
 $599
 $407
 $14
 $12,528
Loans:                   
Individually evaluated for impairment$354
 $—
 $4,029
 $276
 $1,097
 $228
 $—
 $696
 $—
 $6,680
Collectively evaluated for impairment192,309
 201,067
 389,285
 54,073
 364,792
 23,007
 51,711
 23,753
 698
 1,300,695
Ending balance$192,663
 $201,067
 $393,314
 $54,349
 $365,889
 $23,235
 $51,711
 $24,449
 $698
 $1,307,375
(Continued)
For the year ended December 31, 2016Commercial
and
industrial		 Construction
and
development		 Commercial
real
estate		 Farmland 1-4 family
residential		 Multi-family
residential		 Consumer Agricultural Overdrafts Total
Allowance for loan losses:                   
Beginning balance$1,878
 $1,004
 $2,106
 $400
 $2,839
 $325
 $562
 $138
 $11
 $9,263
Provision for loan losses910
 162
 1,158
 82
 1,117
 (44) 171
 15
 69
 3,640
Loans charged-off(1,213) (9) —
 —
 (71) —
 (269) —
 (200) (1,762)
Recoveries17
 4
 —
 —
 75
 —
 121
 —
 126
 343
Ending balance$1,592
 $1,161
 $3,264
 $482
 $3,960
 $281
 $585
 $153
 $6
 $11,484
Allowance ending balance:                   
Individually evaluated for impairment$64
 $—
 $—
 $47
 $108
 $—
 $34
 $—
 $—
 $253
Collectively evaluated for impairment1,528
 1,161
 3,264
 435
 3,852
 281
 551
 153
 6
 11,231
Ending balance$1,592
 $1,161
 $3,264
 $482
 $3,960
 $281
 $585
 $153
 $6
 $11,484
Loans:                   
Individually evaluated for impairment$231
 $1,825
 $1,196
 $258
 $2,588
 $5
 $200
 $15
 $—
 $6,318
Collectively evaluated for impairment223,766
 127,541
 366,460
 62,104
 360,364
 26,074
 53,305
 18,886
 317
 1,238,817
Ending balance$223,997
 $129,366
 $367,656
 $62,362
 $362,952
 $26,079
 $53,505
 $18,901
 $317
 $1,245,135
19. 


(Continued)
19.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

During the year ended December 31, 2020, a total allowance for credit losses provision of $13.2 million was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. There was a reverse provision for ACL of $1.0 million during the second quarter of 2021, partially due to the aforementioned COVID-specific qualitative factors established during 2020 being reduced during the second quarter of 2021 by approximately 14 basis points across the loan portfolio in order to capture the improvements that have occurred to macro-economic factors evaluated at the onset of the pandemic, as well as upgrades to risk ratings for certain loans that were downgraded at the onset of COVID as a precautionary measure. Although management is cautiously optimistic about improving economic trends, it is possible that the economic effects of the pandemic could continue beyond 2021, particularly if COVID variants result in widespread health issues that cause an increase in social distancing measures.
For the nine months ended September 30, 2016Commercial
and
industrial		 Construction
and
development		 Commercial
real
estate		 Farmland 1-4 family
residential		 Multi-family
residential		 Consumer Agricultural Overdrafts Total
Allowance for loan losses:                   
Beginning balance$1,878
 $1,004
 $2,106
 $400
 $2,839
 $325
 $562
 $138
 $11
 $9,263
Provision for loan losses949
 134
 993
 74
 916
 46
 74
 (10) 64
 3,240
Loans charged-off(1,196) (9) —
 —
 (25) —
 (170) —
 (119) (1,519)
Recoveries14
 4
 —
 —
 —
 —
 103
 —
 61
 182
Ending balance$1,645
 $1,133
 $3,099
 $474
 $3,730
 $371
 $569
 $128
 $17
 $11,166
Allowance ending balance:                   
Individually evaluated for impairment$139
 $—
 $—
 $47
 $82
 $—
 $29
 $1
 $—
 $298
Collectively evaluated for impairment1,506
 1,133
 3,099
 427
 3,648
 371
 540
 127
 17
 10,868
Ending balance$1,645
 $1,133
 $3,099
 $474
 $3,730
 $371
 $569
 $128
 $17
 $11,166
Loans:                   
Individually evaluated for impairment$236
 $—
 $1,464
 $259
 $2,177
 $—
 $208
 $319
 $—
 $4,663
Collectively evaluated for impairment224,381
 125,045
 359,212
 61,643
 346,224
 34,538
 54,137
 18,904
 594
 1,224,678
Ending balance$224,617
 $125,045
 $360,676
 $61,902
 $348,401
 $34,538
 $54,345
 $19,223
 $594
 $1,229,341

Credit Quality
The Company closely monitorsuses the weighted-average remaining maturity (“WARM”) method as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate containing loss content over a historical lookback period and is used as a foundation for estimating the credit loss reserve for the remaining outstanding balances of loans in a segment at the balance sheet date. The average annual charge-off rate is applied to the contractual term, further adjusted for estimated prepayments, to determine the unadjusted historical charge-off rate. The calculation of the unadjusted historical charge-off rate is then adjusted, using qualitative factors, for current conditions and for reasonable and supportable forecast periods. Qualitative loss factors are based on the Company’s judgement of company, market, industry or business specific data, differences in loan-specific risk characteristics such as underwriting standards, portfolio mix, risk grades, delinquency level, or term. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors. Additionally, we have adjusted for changes in expected environmental and economic conditions, such as changes in unemployment rates, property values, and other relevant factors over the next 12 to 24 months. Management adjusted the historical loss experience for these expectations. No reversion adjustments were necessary, as the starting point for the Company’s estimate was a cumulative loss rate covering the expected contractual term of the portfolio.
The ACL is measured on a collective segment basis when similar risk characteristics exist. Our loan performance trends to manageportfolio is segmented first by regulatory call report code, and evaluatesecond, by internally identified risk grades for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separate segments for our warehouse lines of credit, for our internally originated SBA loans, for our SBA loans acquired from Westbound Bank and for SBA-guaranteed PPP loans. Consistent forecasts of the exposure to credit risk. Key factors tracked byloss drivers are used across the Company and utilized in evaluatingloan segments. For loans that do not share general risk characteristics with segments, we estimate a specific reserve on an individual basis. A reserve is recorded when the credit qualitycarrying amount of the loan portfolio include trends in delinquency ratios,exceeds the leveldiscounted estimated cash flows using the loan’s initial effective interest rate or the fair value of nonperforming assets, borrower’s repayment capacity, and collateral coverage.for collateral-dependent loans.

Assets are graded “pass” when the relationship exhibits acceptable credit risk and indicates repayment ability, tolerable collateral coverage and reasonable performance history. Lending relationships exhibiting potentially significant credit risk and marginal repayment ability and/or asset protection are graded “special mention.” Assets classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. Substandard graded loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets graded “doubtful” are substandard graded loans that have added characteristics that make collection or liquidation in full improbable. Loans that are on nonaccrual status are generally classified as substandard.
In general, the loans in our portfolio have low historical credit losses. The Company typically measures impairment based onclosely monitors economic conditions and loan performance trends to manage and evaluate the present value of expected future cash flows, discounted atexposure to credit risk. Key factors tracked by the loan's effective interest rate, or based onCompany and utilized in evaluating the loan's observable market price or the fair valuecredit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral if the loan is collateral-dependent.coverage.

The following tables summarize the credit exposure in the Company’s consumer and commercial loan portfolios as of:
September 30, 2017
Commercial
and
industrial
 
Construction
and
development
 
Commercial
real
estate
 Farmland 
1-4 family
residential
 
Multi-family
residential
 Consumer and Overdrafts Agricultural Total
Grade:                 
Pass$188,440
 $181,879
 $388,007
 $53,649
 $357,814
 $21,659
 $51,631
 $22,525
 $1,265,604
Special mention3,705
 19,188
 1,030
 413
 3,059
 1,348
 362
 1,147
 30,252
Substandard518
 —
 4,277
 287
 5,016
 228
 416
 777
 11,519
Total$192,663
 $201,067
 $393,314
 $54,349
 $365,889
 $23,235
 $52,409
 $24,449
 $1,307,375

(Continued)
(Continued)
20. 
20.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of June 30, 2021:
June 30, 2021
  2021   2020   2019  2018  2017  Prior  Revolving
Loans
Amortized
Cost		  Total 
Commercial and industrial:
                                   
Pass
  $211,052   $67,442   $24,286  $10,741  $6,105  $20,334  $83,765  $423,725 
Special mention
   30    105    —   —   27   —   —   162 
Substandard
   —    284    62   226   46   33   —   651 
Nonaccrual
   —    —    41   4   —   2   39   86 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total commercial and industrial loans
  $  211,082   $  67,831   $  24,389  $  10,971  $6,178  $20,369  $  83,804  $  424,624 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                    
Charge-offs
  $—   $—   $(145)  $(67)  $(19)  $—  $(7)  $(238) 
Recoveries
   —    —  �� —   —   —   1   10   11 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—   $—   $(145)  $(67)  $(19)  $1  $3  $(227) 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                    
Construction and development:
                                   
Pass
  $75,324   $95,313   $41,751  $8,414  $17,464  $16,080  $7,054  $261,400 
Special mention
   —    793    —   —   967   —   —   1,760 
Substandard
   —    —    609   3   —   —   —   612 
Nonaccrual
   —    —    230   —   —   —   —   230 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total construction and development loans
  $75,324   $96,106   $42,590  $8,417  $18,431  $16,080  $7,054  $264,002 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                    
Charge-offs
  $—   $—   $—  $—  $—  $—  $—  $— 
Recoveries
   —    —    —   —   —   1   —   1 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—   $—   $—  $—  $—  $1  $—  $1 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                    
Commercial real estate:
                                   
Pass
  $59,861   $99,816   $71,480  $65,798  $46,928  $186,791  $13,461  $544,135 
Special mention
   406    —    1,610   3,298   4,630   1,843   —   11,787 
Substandard
   —    7,072    2,391   10,943   13,210   18,204   —   51,820 
Nonaccrual
   —    —    —   162   202   358   —   722 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total commercial real estate loans
  $60,267   $  106,888   $75,481  $80,201  $64,970  $  207,196  $13,461  $608,464 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                    
Charge-offs
  $—   $—   $(17)  $—  $(472)  $(271)  $—  $(760) 
Recoveries
   —    —    —   —   11   —   —   11 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—   $—   $(17)  $—  $(461)  $(271)  $—  $(749) 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                    
Farmland:
                                   
Pass
  $28,867   $13,528   $9,286  $9,158  $5,494  $22,182  $5,750  $94,265 
Special mention
   —    —    —   —   —   30   —   30 
Substandard
   —    —    —   —   —   121   —   121 
Nonaccrual
   —    —    —   —   —   109   —   109 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total farmland loans
  $28,867   $13,528   $9,286  $9,158  $5,494  $22,442  $5,750  $94,525 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                    
Charge-offs
  $—   $—   $—  $—  $—  $—  $—  $— 
Recoveries
   —    —    —   —   —   —   —   — 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—   $—   $—  $—  $—  $—  $—  $— 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
(Continued)
21. 

Table of Contents
GUARANTY BANCSHARES, INC.
December 31, 2016
Commercial
and
industrial
 
Construction
and
development
 
Commercial
real
estate
 Farmland 
1-4 family
residential
 
Multi-family
residential
 Consumer and Overdrafts Agricultural Total
Grade:                 
Pass$218,975
 $127,537
 $360,264
 $61,713
 $353,483
 $25,871
 $52,648
 $17,965
 $1,218,456
Special mention4,299
 4
 1,927
 248
 4,311
 —
 524
 478
 11,791
Substandard706
 1,825
 5,465
 401
 5,121
 208
 568
 458
 14,752
Doubtful17
 —
 —
 —
 37
 —
 82
 —
 136
Total$223,997
 $129,366
 $367,656
 $62,362
 $362,952
 $26,079
 $53,822
 $18,901
 $1,245,135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)
June 30, 2021
  2021  2020  2019  2018  2017  Prior  Revolving
Loans
Amortized
Cost		  Total 
1-4 family residential:
                                 
Pass
  $54,740  $76,540  $57,049  $43,069  $30,548  $114,346  $11,120  $387,412 
Special mention
   —   —   —   —   27   —   —   27 
Substandard
   —   —   —   —   —   —   —   — 
Nonaccrual
   —   —   227   310   230   1,410   —   2,177 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total 1-4 family residential loans
  $54,740  $76,540  $57,276  $43,379  $30,805  $115,756  $11,120  $389,616 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $—  $—  $—  $—  $—  $—  $—  $— 
Recoveries
   —   —   —   —   —   —   —   — 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—  $—  $—  $—  $—  $—  $—  $— 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Multi-family residential:
                                 
Pass
  $12,271  $4,828  $4,426  $15,480  $593  $3,601  $206  $41,405 
Special mention
   —   —   —   —   —   —   —   — 
Substandard
   —   —   —   —   681   —   —   681 
Nonaccrual
   —   —   —   —   —   —   —   — 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total multi-family residential loans
  $12,271  $4,828  $4,426  $15,480  $1,274  $3,601  $206  $42,086 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $—  $—  $—  $—  $—  $—  $—  $— 
Recoveries
   —   —   —   —   —   —   —   — 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—  $—  $—  $—  $—  $—  $—  $— 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Consumer and overdrafts:
                                 
Pass
  $15,248  $16,834  $7,234  $6,807  $1,051  $804  $4,005  $51,983 
Special mention
   —   8   2   —   —   —   —   10 
Substandard
   —   —   —   —   —   —   —   — 
Nonaccrual
   —   44   84   106   12   —   —   246 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total consumer loans and overdrafts
  $15,248  $16,886  $7,320  $6,913  $1,063  $804  $4,005  $52,239 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $(87)  $(18)  $(38)  $(16)  $(1)  $—  $—  $(160) 
Recoveries
   36   3   —   8   2   15   —   64 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $(51)  $(15)  $(38)  $(8)  $1  $15  $—  $(96) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                       ��          
Agricultural:
                                 
Pass
  $1,535  $2,330  $1,232  $1,222  $333  $652  $7,153  $14,457 
Special mention
   —   —   —   —   27   —   —   27 
Substandard
   —   —   5   33   46   17   —   101 
Nonaccrual
   —   —   —   23   —   —   —   23 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total agricultural loans
  $1,535  $2,330  $1,237  $1,278  $406  $669  $7,153  $14,608 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $—  $—  $—  $—  $—  $—  $—  $— 
Recoveries
   —   —   —   —   —   —   —   — 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—  $—  $—  $—  $—  $—  $—  $— 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Total loans:
                                 
Pass
  $458,898  $376,631  $216,744  $160,689  $108,516  $364,790  $132,514  $1,818,782 
Special mention
   436   906   1,612   3,298   5,678   1,873   —   13,803 
Substandard
   —   7,356   3,067   11,205   13,983   18,375   —   53,986 
Nonaccrual
   —   44   582   605   444   1,879   39   3,593 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total loans
  $  459,334  $  384,937  $  222,005  $  175,797  $  128,621  $  386,917  $  132,553  $  1,890,164 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $(87)  $(18)  $(200)  $(83)  $(492)  $(271)  $(7)  $(1,158) 
Recoveries
   36   3   —   8   13   17   10   87 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Total current period net (charge-offs) recoveries
  $(51)  $(15)  $(200)  $(75)  $(479)  $(254)  $3  $(1,071) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
(Continued)
22. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2020:
December 31, 2020
  2020   2019   2018  2017   2016   Prior   Revolving
Loans
Amortized
Cost		  Total 
Commercial and industrial:
                                      
Pass
  $278,687   $30,563   $12,860  $4,366   $6,131   $16,294   $90,074  $438,975 
Special mention
   124    119    222   4,040    1,324    —    —   5,829 
Substandard
   —    307    540   50    43    —    —   940 
Nonaccrual
   —    —    13   —    14    —    —   27 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total commercial and industrial loans
  $278,811   $30,989   $13,635  $8,456   $7,512   $16,294   $  90,074  $445,771 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
                                       
Charge-offs
  $—   $—   $(43)  $—   $—   $—   $(25)  $(68) 
Recoveries
   —    —    43   —    —    14    44   101 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
  Current period net
  $—   $—   $—  $—   $—   $14   $19  $33 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
                                       
Construction and development:
                                      
Pass
  $118,590   $76,926   $26,212  $24,524   $7,742   $10,507   $3,266  $267,767 
Special mention
   356    —    —   990    —    —    —   1,346 
Substandard
   —    609    5   —    680    —    —   1,294 
Nonaccrual
   —    —    —   —    —    —    —   — 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total construction and development loans
  $118,946   $77,535   $26,217  $25,514   $8,422   $10,507   $3,266  $270,407 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
                                       
Charge-offs
  $—   $—   $—  $—   $—   $—   $—  $— 
Recoveries
   —    —    —   —    —    —    —   — 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
  Current period net
  $—   $—   $—  $—   $—   $—   $—  $— 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
                                       
Commercial real estate:
                                      
Pass
  $91,819   $80,753   $89,542  $72,311   $86,946   $123,463   $5,890  $550,724 
Special mention
   —    2,716    3,542   849    5,724    449    —   13,280 
Substandard
   —    —    2,010   4,913    4,445    8,240    —   19,608 
Nonaccrual
   —    1,140    151   4,158    4,769    386    —   10,604 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total commercial real estate loans
  $91,819   $  84,609   $  95,245  $  82,231   $  101,884   $  132,538   $5,890  $  594,216 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
                                       
Charge-offs
  $—   $—   $—  $—   $—   $—   $—  $— 
Recoveries
   —    —    —   —    —    1    —   1 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
  Current period net
  $—   $—   $—  $—   $—   $1   $—  $1 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
                                       
Farmland:
                                      
Pass
  $17,444   $12,668   $10,327  $6,620   $9,904   $15,402   $5,864  $78,229 
Special mention
   —    —    —   —    —    35    —   35 
Substandard
   —    —    —   —    —    129    —   129 
Nonaccrual
   —    —    —   —    —    115    —   115 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total farmland loans
  $17,444   $12,668   $10,327  $6,620   $9,904   $15,681   $5,864  $78,508 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
                                       
Charge-offs
  $—   $—   $—  $—   $—   $—   $—  $— 
Recoveries
   —    —    —   —    —    —    —   — 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
  Current period net
  $—   $—   $—  $—   $—   $—   $—  $— 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
(Continued)
23. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
December 31, 2020
  2020  2019  2018  2017  2016  Prior  Revolving
Loans
Amortized
Cost		  Total 
1-4 family residential:
                                 
Pass
  $87,578  $62,937  $52,087  $37,224  $43,858  $93,486  $10,091  $387,261 
Special mention
   —   —   —   —   —   168   —   168 
Substandard
   —   —   —   —   —   —   —   — 
Nonaccrual
   —   —   326   44   163   1,134   —   1,667 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total 1-4 family residential loans
  $87,578  $62,937  $52,413  $37,268  $44,021  $94,788  $10,091  $389,096 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $—  $—  $—  $—  $(9)  $(59)  $—  $(68) 
Recoveries
   —   —   —   —   —   2   —   2 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—  $—  $—  $—  $(9)  $(57)  $—  $(66) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Multi-family residential:
                                 
Pass
  $5,889  $4,498  $3,617  $1,371  $1,737  $4,391  $198  $21,701 
Special mention
   —   —   —   —   —   —   —   — 
Substandard
   —   —   —   —   —   —   —   — 
Nonaccrual
   —   —   —   —   —   —   —   — 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total multi-family residential loans
  $5,889  $4,498  $3,617  $1,371  $1,737  $4,391  $198  $21,701 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $—  $—  $—  $—  $—  $—  $—  $— 
Recoveries
   —   —   —   —   —   —   —   — 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—  $—  $—  $—  $—  $—  $—  $— 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Consumer and overdrafts:
                                 
Pass
  $24,740  $11,176  $9,369  $1,701  $735  $513  $2,825  $51,059 
Special mention
   16   83   9   7   —   —   —   115 
Substandard
   —   —   —   —   —   —   —   — 
Nonaccrual
   24   36   131   20   1   —   —   212 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total consumer loans and overdrafts
  $24,780  $11,295  $9,509  $1,728  $736  $513  $2,825  $51,386 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $(243)  $(63)  $(31)  $(43)  $(3)  $(6)  $—  $(389) 
Recoveries
   49   2   12   8   4   13   —   88 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $(194)  $(61)  $(19)  $(35)  $1  $7  $—  $(301) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Agricultural:
                                 
Pass
  $3,489  $1,718  $1,893  $607  $273  $189  $7,408  $15,577 
Special mention
   —   —   —   36   —   —   —   36 
Substandard
   —   7   10   —   24   —   —   41 
Nonaccrual
   —   —   33   —   45   2   —   80 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total agricultural loans
  $3,489  $1,725  $1,936  $643  $342  $191  $7,408  $15,734 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $—  $—  $(18)  $—  $—  $—  $—  $(18) 
Recoveries
   —   —   —   —   20   —   —   20 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Current period net
  $—  $—  $(18)  $—  $20  $—  $—  $2 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Total loans:
                                 
Pass
  $  628,236  $  281,239  $  205,907  $  148,724  $  157,326  $  264,245  $  125,616  $  1,811,293 
Special mention
   496   2,918   3,773   5,922   7,048   652   —   20,809 
Substandard
   —   923   2,565   4,963   5,192   8,369   —   22,012 
Nonaccrual
   24   1,176   654   4,222   4,992   1,637   —   12,705 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total loans
  $628,756  $286,256  $212,899  $163,831  $174,558  $274,903  $125,616  $1,866,819 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
                                  
Charge-offs
  $(243)  $(63)  $(92)  $(43)  $(12)  $(65)  $(25)  $(543) 
Recoveries
   49   2   55   8   24   30   44   212 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Total current period net (charge-offs) recoveries
  $(194)  $(61)  $(37)  $(35)  $12  $(35)  $19  $(331) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
(Continued)
24. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
There were 0 loans classified in the “doubtful” or “loss” risk rating categories as of June 30, 2021 and December 31, 2020.
The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of June 30, 2021:
         Real Estate               Non-RE               Total         Allowance for
Credit Losses
      Allocation      		 
Commercial and industrial
  $123   $—   $123   $42 
Real estate:
          
Construction and development
   609    —    609    210 
Commercial real estate
   4,602    —    4,602    948 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $5,334   $—   $5,334   $1,200 
   
 
 
   
 
 
   
 
 
   
 
 
 
The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of December 31, 2020:
         Real Estate               Non-RE               Total         Allowance for
Credit Losses
      Allocation      		 
Commercial and industrial
  $129   $—   $129   $44 
Real estate:
          
Construction and development
   609    —    609    208 
Commercial real estate
   9,989    —    9,989    2,048 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $10,727   $—   $    10,727   $2,300 
   
 
 
   
 
 
   
 
 
   
 
 
 
The following tables summarize the payment status of loans in the Company’s total loan portfolio, including an aging of delinquent loans and loans 90 days or more past due continuing to accrue interest and loans classified as nonperforming as of:
June 30, 2021
  30 to 59 Days
Past Due		   60 to 89 Days
Past Due		   90 Days
and Greater
Past Due		   Total
Past Due		   Current   Total
Loans		   Recorded
Investment >
90 Days and
Accruing		 
Commercial and industrial
  $45   $38   $59   $142   $424,482   $424,624   $— 
Real estate:
                                   
Construction and development
   64    236    230    530    263,472    264,002    — 
Commercial real estate
   40    278    206    524    607,940    608,464    — 
Farmland
   95    —    —    95    94,430    94,525    — 
1-4 family residential
   1,315    63    641    2,019    387,597    389,616    — 
Multi-family residential
   —    —    —    —    42,086    42,086    — 
Consumer
   178    18    85    281    51,514    51,795    — 
Agricultural
   42    —    —    42    14,566    14,608    — 
Overdrafts
   —    —    —    —    444    444    — 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $    1,779   $    633   $    1,221   $  3,633   $  1,886,531   $  1,890,164   $        — 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
September 30, 201730 to 59 Days Past Due 60 to 89 Days Past Due 90 Days and Greater Past Due Total Past Due Current 
Total
Loans
 Recorded Investment > 90 Days and Accruing
Commercial and industrial$246
 $60
 $30
 $336
 $192,327
 $192,663
 $—
Real estate:             
   Construction and development77
 —
 —
 77
 200,990
 201,067
 —
   Commercial real estate—
 38
 1,521
 1,559
 391,755
 393,314
 —
   Farmland2
 —
 6
 8
 54,341
 54,349
 —
   1-4 family residential2,701
 838
 1,894
 5,433
 360,456
 365,889
 —
   Multi-family residential—
 —
 228
 228
 23,007
 23,235
 —
Consumer617
 201
 94
 912
 50,799
 51,711
 —
Agricultural66
 —
 4
 70
 24,379
 24,449
 —
Overdrafts—
 —
 —
 —
 698
 698
 —
Total$3,709
 $1,137
 $3,777
 $8,623
 $1,298,752
 $1,307,375
 $—
(Continued)
December 31, 201630 to 59 Days Past Due 60 to 89 Days Past Due 90 Days and Greater Past Due Total Past Due Current Total
Loans		 Recorded Investment > 90 Days and Accruing
Commercial and industrial$941
 $105
 $25
 $1,071
 $222,926
 $223,997
 $—
Real estate:             
   Construction and development73
 —
 1,825
 1,898
 127,468
 129,366
 —
   Commercial real estate1,629
 32
 134
 1,795
 365,861
 367,656
 —
   Farmland100
 26
 7
 133
 62,229
 62,362
 —
   1-4 family residential3,724
 803
 1,041
 5,568
 357,384
 362,952
 —
   Multi-family residential207
 49
 —
 256
 25,823
 26,079
 —
Consumer613
 205
 87
 905
 52,600
 53,505
 —
Agricultural59
 —
 15
 74
 18,827
 18,901
 —
Overdrafts—
 —
 —
 —
 317
 317
 —
Total$7,346
 $1,220
 $3,134
 $11,700
 $1,233,435
 $1,245,135
 $—
25. 


(Continued)
21.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The following table presents information regarding nonaccrual loans as of:
December 31, 2020
  30 to 59 Days
Past Due		   60 to 89 Days
Past Due		   90 Days
and Greater
Past Due		   Total
Past Due		   Current   Total
Loans		   Recorded
Investment >
90 Days and
Accruing		 
Commercial and industrial
  $385   $25   $22   $432   $445,339   $445,771   $—   
Real estate:
                                   
Construction and
development
   256    —      —      256    270,151    270,407    —   
Commercial real
estate
   1,094    —      10,105    11,199    583,017    594,216    —   
Farmland
   117    3    —      120    78,388    78,508    —   
1-4 family residential
   2,097    556    127    2,780    386,316    389,096    —   
Multi-family residential
   —      —      —      —      21,701    21,701    —   
Consumer
   383    124    97    604    50,440    51,044    —   
Agricultural
   50    46    45    141    15,593    15,734    —   
Overdrafts
   —      —      —      —      342    342    —   
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $    4,382   $    754   $    10,396   $  15,532   $  1,851,287   $  1,866,819   $        —   
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 September 30, 2017 December 31, 2016
Commercial and industrial$57
 $82
Real estate:   
   Construction and development—
 1,825
   Commercial real estate2,113
 415
   Farmland162
 176
   1-4 family residential2,716
 1,699
   Multi-family residential228
 5
Consumer164
 192
Agricultural315
 15
Total$5,755
 $4,409

Impaired Loans and Troubled Debt Restructurings
A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower'sborrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with original contractual terms of the loan. Loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired. Loans defined as individually impaired, based on applicable accounting guidance, include larger balance nonperforming loans and TDRs.

The outstanding balances of TDRs are shown below:
                                                       
     June 30, 2021       December 31, 2020   
Nonaccrual TDRs
  $86   $90 
Performing TDRs
   9,535    9,626 
   
 
 
   
 
 
 
Total
  $9,621   $9,716 
   
 
 
   
 
 
 
Specific reserves on TDRs
  $—     $—   
   
 
 
   
 
 
 
There was 1 loan modified as a TDR that occurred during the six months ended June 30, 2021. No TDRs have subsequently defaulted during 2021, and the TDRs described above have 0t increased the allowance for credit losses and have 0t resulted in any charge-offs during the six months ended June 30, 2021.
 September 30, 2017 December 31, 2016
Nonaccrual TDRs$—
 $43
Performing TDRs316
 462
Total$316
 $505
Specific reserves on TDRs$19
 $4

The following tables presenttable presents the loan by class, modified as a TDR that occurred during the six months ended June 30, 2021:
Six Months Ended June 30, 2021
  Number
of
      Contracts      		   
Pre-Modification

Outstanding
Recorded
  Investment  		   
Post-Modification

Outstanding
Recorded
  Investment  		 
Troubled Debt Restructurings:
     
Commercial and industrial
   1   $17   $17 
   
 
 
   
 
 
   
 
 
 
Total
   1   $17   $17 
   
 
 
   
 
 
   
 
 
 
The following table presents loans by class, modified as TDRs that occurred during the nine monthsyear ended September 30, 2017 and 2016:December 31, 2020:
Year Ended December 31, 2020
  Number
of
      Contracts      		   
Pre-Modification

Outstanding
Recorded
  Investment  		   
Post-Modification

Outstanding
Recorded
  Investment  		 
Troubled Debt Restructurings:
               
Construction and development
   2   $1,289   $1,081 
Commercial and industrial
   1    129    85 
Commercial real estate
   1    1,017    670 
   
 
 
   
 
 
   
 
 
 
Total
   4   $2,435   $1,836 
   
 
 
   
 
 
   
 
 
 
Nine Months Ended September 30, 2017
Number
of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
Commercial and industrial1 $34
 $15
1-4 family residential1 11
 11
Total2 $45
 $26

There were no TDRs that have subsequently defaulted through September 30, 2017. The TDRs described above increased the allowance for loan losses by $19 and resulted in no charge-offs during the nine months ended September 30, 2017.

(Continued)
(Continued)
26. 
22.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Nine Months Ended September 30, 2016
Number
of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
Commercial and industrial1
 $90
 $90
Commercial real estate1
 796
 796
   1-4 family residential2 189
 189
Total4 $1,075
 $1,075

There were no TDRs that subsequently defaulted in 2016. Theduring 2020, and the TDRs described above did not0t increase the allowance for loancredit losses and resulted in no0 charge-offs during the nineyear ended December 31, 2020.
There were 0 loans modified as TDRs during the six months ended SeptemberJune 30, 2016.2020.

The following table presents information about the Company’s impaired loans as of:
September 30, 2017Unpaid
Principal
Balance		 Recorded
Investment		 Related
Allowance		 Average
Recorded
Investment
With no related allowance recorded:       
Commercial and industrial$325
 $325
 $—
 $381
Real estate:       
Construction and development—
 —
 —
 415
Commercial real estate3,746
 3,746
 —
 4,363
Farmland120
 120
 —
 106
1-4 family residential231
 231
 —
 1,288
Multi-family residential228
 228
 —
 166
Consumer—
 —
 —
 81
Agricultural397
 397
 —
 380
Subtotal5,047
 5,047
 —
 7,180
With allowance recorded:       
Commercial and industrial29
 29
 19
 411
Real estate:       
Construction and development—
 —
 —
 10
Commercial real estate283
 283
 31
 580
Farmland156
 156
 85
 122
1-4 family residential866
 866
 145
 867
Multi-family residential—
 —
 —
 26
Consumer—
 —
 —
 56
Agricultural299
 299
 240
 176
Subtotal1,633
 1,633
 520
 2,248
Total$6,680
 $6,680
 $520
 $9,428

(Continued)
23.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The following table presents information about the Company’s impaired loans as of:
December 31, 2016Unpaid
Principal
Balance		 Recorded
Investment		 
Related
Allowance
 
Average
Recorded
Investment
With no related allowance recorded:       
Commercial and industrial$28
 $28
 $—
 $809
Real estate:       
Construction and development1,825
 1,825
 —
 172
Commercial real estate1,196
 1,196
 —
 871
Farmland89
 89
 —
 109
1-4 family residential1,799
 1,799
 —
 1,575
Multi-family residential5
 5
 —
 2
Consumer105
 105
 —
 89
Agricultural15
 15
 —
 68
Subtotal5,062
 5,062
 —
 3,695
With allowance recorded:       
Commercial and industrial203
 203
 64
 3,153
Real estate:       
Farmland169
 169
 47
 169
1-4 family residential789
 789
 108
 639
Consumer95
 95
 34
 155
Agricultural—
 —
 —
 2
Subtotal1,256
 1,256
 253
 4,118
Total$6,318
 $6,318
 $253
 $7,813
During the nine months ended September 30, 2017 and 2016, total interest income and cash-based interest income recognized on impaired loans was minimal.

NOTE 54 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT

At SeptemberJune 30, 20172021 and December 31, 2016,2020, securities sold under agreements to repurchase totaled $12,920$15,336 and $10,859,$15,631, respectively.

The Company has a $25.0 millionan unsecured $25,000 revolving line of credit, which had an0 outstanding balance of $0 at quarter end,June 30, 2021, bears interest at the greater of (i) the prime rate, plus 0.50%which was 3.25% at June 30, 2021, or (ii) the rate floor of 3.50%, with interest payable quarterly, and matures in March 2018.2022.

Federal Home Loan Bank (FHLB) advances, as of June 30, 2021, were as follows:

Fixed rate advances, with monthly interest payments, principal due in:
Year
  Current
Weighted
  Average Rate  		    Principal Due   
2021
   0.19%  $41,500 
2022
   1.99%   1,500 
2023
   —   — 
2024
   1.76%   6,000 
2025
   —   — 
       
 
 
 
       $49,000 
There are no fixed rate advances, with monthly principal and interest payments outstanding as of June 30, 2021.
(Continued)
24.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

NOTE 65 - SUBORDINATED DEBENTURES

Subordinated debentures are made up of the following as of:
 September 30, 2017 December 31, 2016
Trust II Debentures$3,093
 $3,093
Trust III Debentures2,062
 2,062
DCB Trust I Debentures5,155
 5,155
Other debentures3,500
 9,000
 $13,810
 $19,310

The Company has three trusts, Guaranty (TX) Capital Trust II (“Trust II”), Guaranty (TX) Capital Trust III (“Trust III”), and DCB Financial Trust I (“DCB Trust I”) (“Trust II”, “Trust III” and together with “DCB Trust I,” the “Trusts”). Upon formation, the Trusts issued pass-through securities (“TruPS”) with a liquidation value of $1,000 per share to third parties in private placements. Concurrently with the issuance of the TruPS, the Trusts issued common securities to the Company. The Trusts invested the proceeds of the sales of securities to the Company (“Debentures”). The Debentures mature approximately 30 years after the formation date, which may be shortened if certain conditions are met (including the Company having received prior approval of the Federal Reserve and any other required regulatory approvals).
 Trust II Trust III DCB Trust I
Formation dateOctober 30, 2002 July 25, 2006 March 29, 2007
      
Capital trust pass-through securities     
Number of shares3,000
 2,000
 5,000
Original liquidation value$3,000
 $2,000
 $5,000
      
Common securities liquidation value93
 62
 155

The securities held by the Trusts qualify as Tier 1 capital for the Company under Federal Reserve Board guidelines. The Federal Reserve’s guidelines restrict core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier 1 capital, net of goodwill, the full amount is includable in Tier 1 capital at September 30, 2017 and December 31, 2016. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier 1 capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the junior subordinated debentures.

With certain exceptions, the amount of the principal and any accrued and unpaid interest on the Debentures are subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company. Interest on the Debentures is payable quarterly. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the Debentures.
 Trust II Debentures Trust III Debentures DCB Trust I Debentures
Original amount$3,093
 $2,062
 $5,155
Maturity dateOctober 30, 2032
 October 1, 2036
 June 15, 2037
Interest dueQuarterly Quarterly Quarterly


(Continued)
25.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

In accordance with ASC 810, "Consolidation," the junior subordinated debentures issued by the Company to the subsidiary trusts are shown as liabilities in the consolidated balance sheets and interest expense associated with the junior subordinated debentures is shown in the consolidated statements of earnings.     

Trust II Debentures
Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 3.35%.

On any interest payment date on or after October 30, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

                                                       
       June 30, 2021         December 31, 2020   
Trust II Debentures
  $3,093   $3,093 
Trust III Debentures
2,0622,062
Interest was payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 1.67%.

On any interest payment date on or after October 1, 2016 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

DCB Trust I Debentures
5,1555,155
Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 1.80%.

On any interest payment date on or after June 15, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

Other debentures
In July 2015, the Company issued $4,000 in debentures, of which $3,000 were issued to directors and other related parties. The $3,000 of debentures to related parties were repaid in May 2017 and a $500 par value debenture, which carried a rate of 2.5%, matured and was repaid in July 2017. The remaining $500 debenture has a rate of 4.00% and a maturity date of January 1, 2019. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.

In December 2015, the Company issued $5,000 in debentures, of which $2,500 were issued to directors and other related parties. In May 2017, $2,000 of the related party debentures were repaid with a portion of the proceeds of Guaranty’s initial public offering. The remaining $3,000 of debentures were issued at par value of $500 each with rates ranging from 3.00% to 5.00% and maturity dates from July 1, 2018 to July 1, 2020. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.





   9,5009,500 
(Continued)
26.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
   
 

NOTE 7 - STOCK OPTIONS

The Company’s 2015 Equity Incentive Plan (the “Plan”) which was adopted by the Company and approved by its shareholders in April 2015, amended and restated the Company’s 2014 Stock Option Plan. The maximum number of shares of common stock that may be issued pursuant to stock-based awards under the Plan equals 1,000,000 shares, all of which may be subject to incentive stock option treatment. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. Currently outstanding option awards have vesting periods ranging from 5 to 10 years and have 10-year contractual terms.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer group averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant.

A summary of activity in the Plan during the nine months ended September 30, 2017 and 2016 follows:
Nine Months Ended September 30, 2017 Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life in Years Aggregate Intrinsic Value
Outstanding at beginning of year 340,377
 $23.43
 7.34 $194
   Granted 150,598
 27.64
 9.62 657
   Exercised (7,033) 11.94
 4.48 141
   Forfeited (6,000) 23.17
 7.13 53
Balance, September 30, 2017 477,942
 $24.93
 7.57 $3,376
         
Exercisable at end of period 98,044
 $23.45
 6.17 $838

Nine Months Ended September 30, 2016 Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life in Years Aggregate Intrinsic Value
Outstanding at beginning of year 314,391
 $23.28
 8.00 $225
   Granted 37,500
 23.44
 9.50 21
   Forfeited (19,000) 23.16
 8.15 16
Balance, September 30, 2016 332,891
 $23.31
 7.45 $230
         
Exercisable at end of period 58,491
 $21.24
 6.53 $161


   $19,810$19,810 
(Continued)
27.
The Company has three trusts, Guaranty (TX) Capital Trust II (“Trust II”), Guaranty (TX) Capital Trust III (“Trust III”), and DCB Financial Trust I (“DCB Trust I”) (“Trust II”, “Trust III” and together with “DCB Trust I,” the “Trusts”). Upon formation, the Trusts issued pass-through securities (“TruPS”) with a liquidation value of $1,000 per share to third parties in private placements. Concurrently with the issuance of the TruPS, the Trusts issued common securities to the Company. The Trusts invested the proceeds of the sales of securities to the Company (“Debentures”). The Debentures mature approximately 30 years after the formation date, which may be shortened if certain conditions are met (including the Company having received prior approval of the Federal Reserve and any other required regulatory approvals).
(Continued)
27. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

A summary of nonvested activity in the Plan during the nine months ended September 30, 2017 and 2016 follows:
Nine Months Ended September 30, 2017 Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life in Years Aggregate Intrinsic Value
Outstanding at beginning of year 250,700
 $23.73
 7.65 $69
   Granted 150,598
 27.64
 9.62 657
   Vested (17,400) 23.13
 7.91 154
   Forfeited (4,000) 23.17
 7.13 53
Balance, September 30, 2017 379,898
 $25.31
 7.93 $2,538

Nine Months Ended September 30, 2016 Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life in Years Aggregate Intrinsic Value
Outstanding at beginning of year 267,200
 $23.72
 8.22 $76
   Granted 37,500
 23.44
 9.50 21
   Vested (13,500) 23.00
 8.59 14
   Forfeited (16,800) 23.16
 8.15 16
Balance, September 30, 2016 274,400
 $23.75
 7.65 $69

Information related to the Plan is as follows for the nine months ended:
  September 30, 2017
Intrinsic value of options exercised $141
Cash received from options exercised 84
Tax benefit realized from options exercised —
Weighted average fair value of options granted 5.40

As of September 30, 2017, there was $1,963 of total unrecognized compensation expense related to unvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 4.43 years.

The Company granted options under the Plan during the first nine months of 2016 and 2017. Expense of $247 and $162 was recorded during the nine months ended September 30, 2017 and 2016, respectively.

NOTE 8 - EMPLOYEE BENEFITS

KSOP
The Company maintains an Employee Stock Ownership Plan containing Section 401(k) provisions covering substantially all employees (“KSOP”). The plan provides for a matching contribution of up to 5% of a participant’s qualified compensation starting January 1, 2016. As of December 31, 2016, the plan included a repurchase obligation, or “put option”, which is a right to demand that the sponsor repurchase shares of employer stock distributed to the participant under the terms of the plan, for which there was no public market for such shares, of an established cash price. This put option was terminated upon completion of Guaranty’s initial public offering and listing of its common stock on the NASDAQ Global Select Market in May 2017. Guaranty’s total contributions accrued or paid during the nine months ended September 30, 2017 and 2016 totaled $739 and $727, respectively.

Benefits under the KSOP generally are distributed to participants in the form of cash, although participants have the right to receive distributions in the form of shares of common stock.


GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
   Trust II   Trust III   DCB Trust I 
Formation date
   October 30, 2002    July 25, 2006    March 29, 2007 
Capital trust pass-through securities
               
Number of shares
   3,000    2,000    5,000 
Original liquidation value
  $3,000   $2,000   $5,000 
Common securities liquidation value
   93    62    155 
The securities held by the Trusts qualify as Tier 1 capital for the Company under Federal Reserve Board guidelines. The Federal Reserve’s guidelines restrict core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier 1 capital, net of goodwill, the full amount is includable in Tier 1 capital at June 30, 2021 and December 31, 2020. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier 1 capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the junior subordinated debentures.
With certain exceptions, the amount of the principal and any accrued and unpaid interest on the Debentures are subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company. Interest on the Debentures is payable quarterly. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the Debentures.
   Trust II Debentures   Trust III Debentures   DCB Trust I
Debentures		 
Original amount
  $3,093   $2,062   $5,155 
Maturity date
   October 30, 2032    October 1, 2036    June 15, 2037 
Interest due
   Quarterly    Quarterly    Quarterly 
In accordance with ASC 810, “
Consolidation,
” the junior subordinated debentures issued by the Company to the subsidiary trusts are shown as liabilities in the consolidated balance sheets and interest expense associated with the junior subordinated debentures is shown in the consolidated statements of earnings.
Trust II Debentures
Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 3.35%.
On any interest payment date on or after October 30, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
Trust III Debentures
Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 1.67%.
On any interest payment date on or after October 1, 2016 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
DCB Trust I Debentures
Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 1.80%.
On any interest payment date on or after June 15, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
(Continued)
28. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Other Debentures
In May 2020, the Company issued $10,000 in debentures to directors and other related parties. The debentures were issued at a par value of $500 each with fixed annual rates between 1.00% and 4.00% and maturity dates between November 1, 2020 and November 1, 2024. $500 matured in November of 2020 and $9,500 remain as of June 30, 2021. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.
The scheduled principal payments and weighted average rates of other debentures are as follows:
Year
  Current
Weighted
    Average Rate    		  Principal Due 
2022
   2.45%  $2,000 
2023
   2.85%   3,500 
2024
   3.74%   4,000 
       
 
 
 
       $                        9,500 
       
 
 
 
NOTE 6 – EQUITY AWARDS
The Company’s 2015 Equity Incentive Plan (the “Plan”) was adopted by the Company and approved by its shareholders in April 2015. The maximum number of shares of common stock that may be issued pursuant to stock-based awards under the Plan equals 1,100,000 shares, all of which may be subject to incentive stock option treatment. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from 5 to 10 years and have 10-year contractual terms. Restricted stock awards vest under the period of restriction specified within their respective award agreements as determined by the Company. Forfeitures are recognized as they occur, subject to a 90-day grace period for vested options.
The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer group averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant.
(Continued)
29. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
A summary of stock option activity in the Plan during the six months ended June 30, 2021 and 2020 follows:
Six Months Ended June 30, 2021
  Number of
Shares		  Weighted-
Average
Exercise
Price		   Weighted-
Average
Remaining
Contractual
Life in
Years		   Aggregate
Intrinsic
Value		 
Outstanding at beginning of year
   506,200  $26.81    5.82   $1,805 
Effect of 10% stock dividend
   50,770               
Granted
   24,500   33.37    9.61    22 
Exercised
   (28,590)   22.28    3.38    337 
Forfeited
   (19,020)   26.01    7.09    153 
   
 
 
               
Balance, June 30, 2021
   533,860  $24.84    5.58   $4,930 
   
 
 
               
                    
Exercisable at end of period
       312,206  $23.58    4.49   $3,274 
   
 
 
               
Six Months Ended June 30, 2020
  Number of
Shares		  Weighted-
Average
Exercise
Price		   Weighted-
Average
Remaining
Contractual
Life in
Years		   Aggregate
Intrinsic
Value		 
Outstanding at beginning of year
   508,000  $26.68    6.24   $3,159 
Granted
   35,000   27.64    9.72    41 
Exercised
   (3,000)   24.00    2.29    6 
Forfeited
   (28,200)   31.93    8.16    — 
   
 
 
               
Balance, June 30, 2020
   511,800  $26.47    5.90   $607 
   
 
 
               
                    
Exercisable at end of period
       284,620  $25.28    4.88   $438 
   
 
 
               
A summary of nonvested stock option activity in the Plan during the six months ended June 30, 2021 and 2020 follows:
Six Months Ended June 30, 2021
            Number of        
Shares		  
    Weighted-Average    

Grant
Date Fair Value		 
Outstanding at beginning of year
       214,680  $4.46 
Effect of 10% stock dividend
       23,218     
Granted
                             24,500   5.67 
Vested
       (31,724)   (6.13) 
Forfeited
       (9,020)   (8.06) 
       
 
 
     
Balance, June 30, 2021
       221,654  $5.01 
       
 
 
     
Six Months Ended June 30, 2020
            Number of        
Shares		  
    Weighted-Average    

Grant
Date Fair Value		 
Outstanding at beginning of year
                             251,120  $4.97 
Granted
       35,000   4.13 
Vested
       (35,740)   (6.43) 
Forfeited
       (23,200)   (3.13) 
       
 
 
     
Balance, June 30, 2020
       227,180  $5.55 
       
 
 
     
(Continued)
30. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Information related to stock options in the Plan is as follows for the six months ended:
     June 30, 2021      June 30, 2020   
Intrinsic value of options exercised
  $337  $6 
Cash received from options exercised
  $636   72 
Weighted average fair value of options granted
   5.67   4.13 
Restricted Stock Awards and Units
A summary of restricted stock activity in the Plan during the six months ended June 30, 2021 and 2020 follows:
                                                                                     
Six Months Ended June 30, 2021
  Number of
Shares		  
Weighted-Average

Grant
Date Fair Value		 
Outstanding at beginning of year
   35,300  $29.72 
Effect of 10% stock dividend
   3,530   — 
Granted
   0   0 
Vested
   (4,840)   30.25 
Forfeited
   0   0 
   
 
 
     
Balance, June 30, 2021
   33,990  $26.95 
   
 
 
     
                                                                                     
Six Months Ended June 30, 2020
  Number of
Shares		  
Weighted-Average

Grant
Date Fair Value		 
Outstanding at beginning of year
   31,459  $30.29 
Granted
   0   0 
Vested
   (10,100)   30.25 
Forfeited
   0   0 
   
 
 
     
Balance, June 30, 2020
   21,359  $30.31 
   
 
 
     
Restricted stock granted to employees typically vests over five years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.
As of June 30, 2021, there was $1,772 of total unrecognized compensation expense related to unvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 3.17 years.
The Company granted options under the Plan during the first six months of 2021 and 2020. Expense of $329 was recorded during both the six months ended June 30, 2021 and 2020, which represents the fair value of shares vested during those periods.
NOTE 7 - EMPLOYEE BENEFITS
KSOP
The Company maintains an Employee Stock Ownership Plan containing Section 401(k) provisions covering substantially all employees (“KSOP”). The plan provides for a matching contribution of up to 5% of a participant’s qualified compensation starting January 1, 2016. Guaranty’s total contributions accrued or paid during the six months ended June 30, 2021 and 2020 totaled $737 and $692, respectively.
Upon separation from service or other distributable event, a participant’s account under the KSOP may be distributed in kind in the form of the GNTY common shares allocated to his or her account (with the balance payable in cash), or the entire account can be liquidated and distributed in cash.
(Continued)
31. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
As of June 30, 2021, the number of shares held by the KSOP was 1,304,471. There were 0 unallocated shares to plan participants as of June 30, 2021, and all shares held by the KSOP were treated as outstanding.
(Continued)
28.
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

As of December 31, 2016, the fair value of shares of common stock, held by the KSOP, was deducted from permanent shareholders’ equity in the consolidated balance sheets, and reflected in a line item below liabilities and above shareholders’ equity. This presentation was necessary in order to recognize the put option within the KSOP-owned shares, consistent with SEC guidelines, because the Company was not yet publicly traded. The Company used a valuation by an external third party to determine the maximum possible cash obligation related to those securities. Increases or decreases in the value of the cash obligation were included in a separate line item in the statements of changes in shareholders’ equity. The fair value of allocated and unallocated shares subject to the repurchase obligation totaled $31,661 as of December 31, 2016.

As of September 30, 2017 and December 31, 2016, the number of shares held by the KSOP were 1,314,277 and 1,319,225, respectively. There were no unallocated shares to plan participants as of September 30, 2017 and there were 50,000 shares unallocated to plan participants as of December 31, 2016.  During the nine months ended September 30, 2017 and 2016, the Company did not repurchase any shares from KSOP participants that received distributions of shares from the KSOP which were subject to the put option that applied to the KSOP shares before we were publicly traded. All shares held by the KSOP were treated as outstanding at each of the respective period ends. 

Executive Incentive Retirement Plan
The Company established a non-qualified, non-contributory executive incentive retirement plan covering a selected group of key personnel to provide benefits equal to amounts computed under an “award criteria” at various targeted salary levels as adjusted for annual earnings performance of the Company. The plan is non-funded.

In connection with the Executive Incentive Retirement Plan, the Company has purchased life insurance policies on the respective officers. The cash surrender value of life insurance policies held by the Company totaled $18,376$36,367 and $17,804$35,510 as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.

Expense related to these plans totaled $381$471 and $329$400 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $592 for the year ended December 31, 2020. This expense is included in employee compensation and benefits on the Company’s consolidated statements of earnings. The recorded liability totaled approximately $2,361$4,781 and $2,002$4,383 as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively and is included in accrued interest and other liabilities on the Company’s consolidated balance sheets.

Bonus Plan
The Company has a bonus plan that rewards officers and employees based on performance of individual business units of the Company. Earnings and growth performance goals for each business unit and for the Company as a whole are established at the beginning of the calendar year and approved annually by Guaranty’s board of directors. The Bonus Planbonus plan provides for a predetermined bonus amount to be contributed to the employee bonus pool based on (i) earnings target and growth for individual business units and (ii) achieving certain pre-tax return on average equity and pre-tax return on average asset levels for the Company as a whole. These bonus amounts are established annually by Guaranty’s board of directors. The bonus expense under this plan for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 totaled $1,718$2,153 and $1,451, respectively and$728, respectively. This expense is included in employee compensation and benefits on the consolidated statements of earnings.

NOTE 8 – LEASES
The Company has operating leases for bank locations, ATMs, corporate offices, and certain other arrangements, which have remaining lease terms of 1 year to 14 years. Some of the Company’s operating leases include options to extend the leases for up to 10 years.
Operating leases in which we are the lessee must be recorded as right-of-use assets with corresponding lease liabilities. The right-of-use asset represents our right to utilize the underlying asset during the lease term, while the lease liability represents the present value of the obligation of the Company to make periodic lease payments over the life of the lease. The associated operating lease costs are comprised of the amortization of the right-of-use asset and the implicit interest accreted on the lease liability, which is recognized on a straight-line basis over the life of the lease. As of June 30, 2021, operating lease right-of-use assets were $15,179 and liabilities were $15,551, and as of December 31, 2020, lease assets and liabilities were $13,291 and $13,539
respectively, and were included within the accompanying consolidated balance sheets as components of other assets and accrued interest and other liabilities, respectively. 
Operating lease expense for operating leases accounted for under ASC 842 for the six months ended June 30, 2021 and 2020 was approximately $1,146 and $921, respectively, and is included as a component of occupancy expenses within the accompanying consolidated statements of earnings.
(Continued)
32. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The table below summarizes other information related to our operating leases as of:
             June 30, 2021          December 31, 2020     
Operating leases
             
  Operating lease right-of-use assets
                            $15,179  $13,291 
  Operating lease liabilities
       15,551   13,539 
    
             
Weighted average remaining lease term
             
  Operating leases
       9 years   9 years 
Weighted average discount rate
             
  Operating leases
       1.96%   2.19% 
The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2024 and thereafter. Minimum future lease payments under these non-cancelable operating leases in excess of one year as of June 30, 2021, are as follows:
                                                       
Year Ended December 31,
  Amount 
2021
  $1,107 
2022
   2,110 
2023
   2,049 
2024
   2,008 
2025
   1,868 
Thereafter
   7,440 
   
 
 
 
Total lease payments
   16,582 
Less: interest
   (1,031) 
   
 
 
 
Present value of lease liabilities
  $15,551 
   
 
 
 
NOTE 9 - INCOME TAXES

Income tax expenses wereexpense was as follows for:
   Three Months Ended
June 30,		  Six Months Ended
June 30,		 
   2021  2020  2021  2020 
Income tax expense for the period
  $  2,312  $(190)  $4,648  $1,255 
   
 
 
  
 
 
  
 
 
  
 
 
 
Effective tax rate
   18.14%   -21.47%     17.85%     14.58% 
 Nine Months Ended September 30,
 2017 2016
Income tax expense for the period$4,644
 $3,290
Effective tax rate28.54% 27.79%

The effective tax rates differ from the statutory federal tax rate of 35%21% for the three and six months ended June 30, 2021 and 2020, largely due to tax exempt interest income earned on certain investment securities and loans and the nontaxable earnings on bank owned life insurance.

(Continued)
29.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)


NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes certain derivative financial instruments. Stand-alone derivative financial instruments such as interest rate swaps, are used to economically hedge interest rate risk related to the Company’s liabilities. These derivative instruments involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instruments, is reflected on the Company’s consolidated balance sheetsheets in other liabilities.

(Continued)
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Company is exposed to credit related losses in the event of nonperformance by the counterparties to those agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail to perform their respective obligations.

The Company entered into interest rate swaps to receive payments at a fixed rate in exchange for paying a floating rate on the debentures discussed in Note 6.5. Management believes that entering into the interest rate swaps exposed the Company to variability in their fair value due to changes in the level of interest rates. It is the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that are appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in this liability to other liabilities of the Company. To meet this objective, the
The Company utilizesalso entered into interest rate swaps as an asset/liability management strategy to hedgereceive payments at a floating rate in exchange for paying a fixed rate, the change in valueobjective of which is to reduce the cash flows due to changes in expectedoverall cost of short-term 3-month FHLB advances that will be renewed consistent with the reset terms on the interest rate assumptions.swap and that are included in the amounts in Note 4.

Interest rate swaps with notional amounts totaling $5,000 as of SeptemberJune 30, 20172021 and December 31, 2016,2020, were designated as cash flow hedges of the debentures and $40,000 as of June 30, 2021 and December 31, 2020 were determined to be fully effective during all periods presented. As such, no amountdesignated as cash flow hedges of ineffectiveness has been included in net income.the FHLB advances.

Therefore, theThe aggregate fair value of the swaps is recorded in accrued interest and other liabilities within the Company’s consolidated balance sheets with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

The information pertaining to outstanding interest rate swap agreements used to hedge floating rate debentures and FHLB advances was as follows as of:
September 30, 2017:          
Notional
Amount
 
Pay
Rate
 
Receive
Rate
 
Effective
Date
 
Maturity
in Years
 
Unrealized
Losses
$2,000
 5.979% 3 month LIBOR plus 1.67% October 1, 2016 8.51 $340
$3,000
 7.505% 3 month LIBOR plus 3.35% October 30, 2012 5.08 $326
June 30, 2021 
        Notional        
Amount		  Pay
    Rate    		        Receive      
Rate		     Effective    
Date		     Maturity    
in Years		      Unrealized    
Losses		 
$2,000   5.979%      3 month LIBOR plus 1.67%     10/1/2016  4.75  $324 
$3,000   7.505%  3 month LIBOR plus 3.35% 10/30/2012  1.33  $160 
$15,000   0.668%  3 month LIBOR 3/18/2020  1.72  $105 
$15,000   0.790%  3 month LIBOR 3/18/2020  3.72  $45 
$10,000   0.530%  3 month LIBOR 3/23/2020  1.73  $45 
December 31, 2020 
        Notional        
Amount		  Pay
    Rate    		        Receive      
Rate		     Effective
Date		     Maturity    
in Years		      Unrealized    
Losses		 
$2,000   5.979%      3 month LIBOR plus 1.67%     10/1/2016  5.25  $408 
$3,000   7.505%  3 month LIBOR plus 3.35% 10/30/2012  1.83  $221 
$15,000   0.668%  3 month LIBOR 3/18/2020  2.22  $159 
$15,000   0.790%  3 month LIBOR 3/18/2020  4.22  $288 
$10,000   0.530%  3 month LIBOR 3/23/2020  2.23  $75 
December 31, 2016:          
Notional
Amount
 
Pay
Rate
 
Receive
Rate
 
Effective
Date
 
Maturity
in Years
 
Unrealized
Losses
$2,000
 5.979% 3 month LIBOR plus 1.67% October 1, 2016 9.25 $342
$3,000
 7.505% 3 month LIBOR plus 3.35% October 30, 2012 5.83 $353

Interest expense recorded on these swap transactions totaled $559$320 and $656$276 during the ninesix months ended SeptemberJune 30, 20172021 and 2016, respectively, and2020, respectively. This expense is reported as a component of interest expense on the debentures.debentures and the FHLB advances and federal funds purchased. At SeptemberJune 30, 2017,2021, the Company expected none ofNaNof the unrealized loss to be reclassified as a reduction of interest expense during the remainder of 2017.2021.

(Continued)
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)


NOTE 11 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company enters into various transactions, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions are referred to as “off-balance sheet commitments.” The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and letters of credit, which involve elements of credit risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

(Continued)
34. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Management assessesconsiders the likelihood of commitments and letters of credit to be funded, along with credit related conditions present in the loan agreements when estimating an ACL for off-balance sheet commitments. Loan agreements executed in connection with construction loans and commercial lines of credit have standard conditions which must be met prior to the Company being required to provide additional funding, including conditions precedent that typically include: (i) no event of default or potential default has occurred; (ii) that no material adverse events have taken place that would materially affect the borrower or the value of the collateral, (iii) that the borrower remains in compliance with all loan obligations and covenants and has made no misrepresentations; (iv) that the collateral has not been damaged or impaired; (v) that the project remains on budget and in compliance with all laws and regulations; and (vi) that all management agreements, lease agreements and franchise agreements that affect the value of the collateral remain in force. If the conditions precedent have not been met, the Company retains the option to cease current draws and/or future funding. As a result of these conditions within our loan agreements, management has determined that credit risk associated with certain commitments to extend credit in determining the levelis minimal and there is 0recorded ACL as of the allowance for credit losses.June 30, 2021 and December 31, 2020.

Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the table below. If the commitment were funded, the Company would be entitled to seek recovery from the customer. As of SeptemberJune 30, 20172021 and December 31, 2016, no amounts2020, 0amounts have been recorded as liabilities for the Bank’s potential obligations under these guarantees.

Commitments and letters of credit outstanding were as follows as of:
                                                                   
   Contract or Notional Amount 
   June 30, 2021   December 31, 2020 
Commitments to extend credit
  $358,725   $324,277 
Letters of credit
   8,511    8,488 
Litigation
 Contract or Notional Amount
 September 30, 2017 December 31, 2016
Commitments to extend credit$339,872
 $297,607
Letters of credit9,334
 8,879

Litigation
The Company is involved in certain claims and lawsuits occurring in the normal course of business. Management, after consultation with legal counsel, does not believe that the outcome of these actions, if determined adversely, would have a material impact on the consolidated financial statements of the Company.

FHLB Letters of Credit
At SeptemberJune 30, 2017,2021, the Company had letters of credit of $52,000$50,833 pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law.

NOTE 12 - REGULATORY MATTERS

The Company on a consolidated basis and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.


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31.
35. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

A comparison
The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Company and Bank on January 1, 2015, with certain transition provisions that were fully phased in on January 1, 2019. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of the Company’s and Bank’s actual capitalminimum amounts and ratios to required capital amounts and ratios are presented(set forth in the following tablestable below) of Common Equity Tier 1 capital, Tier 1 capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and or Tier 1 capital to adjusted quarterly average assets (as defined). Management believes, as of:of June 30, 2021 and December 31, 2020, that the Bank met all capital adequacy requirements to which it was subject.
  Actual Minimum Required For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions
  Amount Ratio Amount Ratio Amount Ratio
September 30, 2017                        
Total capital to risk-weighted assets:            
      Consolidated $213,905
 14.62% $117,065
 8.00%   n/a
      Bank 202,722
 13.85% 117,078
 8.00% $146,348
 10.00%
Tier 1 capital to risk-weighted assets:            
      Consolidated 201,377
 13.76% 87,799
 6.00%   n/a
      Bank 190,194
 13.00% 87,809
 6.00% 117,078
 8.00%
Tier 1 capital to average assets:            
      Consolidated 201,377
 10.68% 75,457
 4.00%   n/a
      Bank 190,194
 10.08% 75,465
 4.00% 94,331
 5.00%
Common equity tier 1 capital to risk-weighted assets:            
      Consolidated 191,067
 13.06% 65,849
 4.50%   n/a
      Bank 190,195
 13.11% 65,307
 4.50% 94,333
 6.50%

  Actual Minimum Required For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions
  Amount Ratio Amount Ratio Amount Ratio
December 31, 2016                        
Total capital to risk-weighted assets:            
      Consolidated $149,468
 10.86% $110,083
 8.00%   n/a
      Bank 173,528
 12.63% 109,947
 8.00% $137,434
 10.00%
Tier 1 capital to risk-weighted assets:            
      Consolidated 137,984
 10.03% 82,562
 6.00%   n/a
      Bank 162,044
 11.79% 82,460
 6.00% 109,947
 8.00%
Tier 1 capital to average assets:            
      Consolidated 137,984
 7.71% 71,560
 4.00%   n/a
      Bank 162,044
 9.06% 71,505
 4.00% 89,381
 5.00%
Common equity tier 1 capital to risk-weighted assets:            
      Consolidated 127,674
 9.28% 61,922
 4.50%   n/a
      Bank 162,044
 11.79% 61,845
 4.50% 89,332
 6.50%

In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the “Basel III Capital Rules”). The Basel III Capital Rules, among other things, (1) introducehave (i) introduced a new capital measure called “Common Equity Tier 1” (“CETI”CET1”), (2) specify(ii) specified that Tier 1 capital consist of Common Equity Tier 1CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (3) define Common Equity Tier 1(iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to Common Equity Tier 1CET1 and not to the other components of capital, and (4) expand(iv) expanded the scope of the deductions/adjustments as compared to existing regulations. The Basel III Capital Rules became effective for the Companyregulations, and (v) imposed a “capital conservation buffer” of 2.5% above minimum risk-based capital requirements, below which an institution would be subject to limitations on January 1, 2015, with certain transition provisions to be fully phased in by January 1, 2019.

Starting in January 2016, the implementationactivities including payment of the capital conservation buffer became effective for the Company starting at the 0.625% level and increases 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases

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Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except perdividends, share data)

the minimum required risk-weighted capital ratios. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases and to pay discretionary bonuses to executive officers.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table above)As of total, CETI and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of SeptemberJune 30, 20172021 and December 31, 2016 that2020, the Company met all capital adequacy requirements to which it was subject.

As of September 30, 2017 and December 31, 2016, the Bank’sCompany’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the BankCompany must maintain minimum total risk-based, CETI,CET1, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table above.table. There are no conditions or events since SeptemberJune 30, 20172021 that management believes have changed the Bank’s capital category under the regulatory framework for prompt corrective action.Company’s category.

The Federal Reserve’s guidelines regarding the capital treatment of trust preferred securities limits restricted core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier 1 capital, net of goodwill, the rules permit the inclusion of $10,310 of trust preferred securities in Tier 1capital at Septemberas of June 30, 20172021 and December 31, 2016.2020. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier 1 capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the subordinated debentures.

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Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios are presented in the following tables as of:
   Actual  Minimum Required
For Capital
Adequacy Purposes		  Minimum Required
Under Basel III
(Including Buffer)		  To Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   Amount   Ratio  Amount   Ratio  Amount   Ratio  Amount   Ratio 
June 30, 2021
                                     
Total capital to risk-weighted assets:
                                     
Consolidated
  $    280,300    14.52%  $    154,445    8.00%  $202,709    10.50%        n/a 
Bank
   289,779    15.01%   154,442    8.00%   202,705    10.50%  $    193,052    10.00% 
Tier 1 capital to risk-weighted assets:
                                     
Consolidated
   256,077    13.26%   115,834    6.00%   164,098    8.50%        n/a 
Bank
   265,556    13.76%   115,831    6.00%   164,094    8.50%   154,442    8.00% 
Tier 1 capital to average assets:
(1)
                                     
Consolidated
   256,077    8.86%   115,560    4.00%   115,560    4.00%        n/a 
Bank
   265,556    9.19%   115,560    4.00%   115,560    4.00%   144,450    5.00% 
Common equity tier 1 capital to risk-weighted assets:
                                     
Consolidated
   245,767    12.73%   86,875    4.50%   135,139    7.00%        n/a 
Bank
   265,556    13.76%   86,874    4.50%   135,137    7.00%   125,484    6.50% 
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.
   Actual  Minimum Required
For Capital
Adequacy Purposes		  Minimum Required
Under Basel III
(Including Buffer)		  To Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   Amount   Ratio  Amount   Ratio  Amount   Ratio  Amount   Ratio 
December 31, 2020
                                     
Total capital to risk-weighted assets:
                                     
Consolidated
  $  263,144    13.20%  $    159,496    8.00%  $    209,338    10.50%        n/a 
Bank
   285,490    14.32%   159,514    8.00%   209,362    10.50%  $    199,392    10.00% 
Tier 1 capital to risk-weighted assets:
                                     
Consolidated
   238,115    11.94%   119,622    6.00%   169,464    8.50%        n/a 
Bank
   260,459    13.06%   119,635    6.00%   169,483    8.50%   159,514    8.00% 
Tier 1 capital to average assets:
(1)
                                     
Consolidated
   238,115    9.13%   104,293    4.00%   104,293    4.00%        n/a 
Bank
   260,459    9.99%   104,293    4.00%   104,293    4.00%   130,366    5.00% 
Common equity tier 1 capital to risk-weighted assets:
                                     
Consolidated
   227,805    11.43%   89,716    4.50%   139,559    7.00%        n/a 
Bank
   260,459    13.06%   89,726    4.50%   139,574    7.00%   129,605    6.50% 
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.
Dividends paid by Guaranty are mainly provided by dividends from its subsidiaries. However, certain regulatory restrictions exist regarding the ability of its bank subsidiary to transfer funds to Guaranty in the form of cash dividends, loans or advances. The amount of dividends that a subsidiary bank organized as a national banking association, such as the Bank, may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years.


(Continued)
33.
37. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

NOTE 13 - FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

Marketable Securities
: The fair values for marketable securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans Held For Sale:Sale
: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Derivative Instruments
: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

Other Real Estate Owned
: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly (Level 3).
Impaired
Individually Evaluated Collateral Dependent Loans
: The fair value of impairedindividually evaluated collateral dependent loans with specific allocations of the allowance for loan losses is generally based on the present value of estimated future cash flows using the loan's existing rate or, if repayment is expected solely from the collateral, the fair value of collateral, less costs to sell. The fair value of real estate collateral is determined using recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant (Level 3). Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business (Level 3).  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly (Level 3).


(Continued)
34.
38. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The following tables summarize quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value:
As of September 30, 2017Fair Value 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable
Inputs
(Level 2)
 
Significant Other Unobservable Inputs
(Level 3)
Assets (liabilities) at fair value on a recurring basis:       
Available for sale securities       
Mortgage-backed securities$90,958
 $—
 $90,958
 $—
Collateralized mortgage obligations120,691
 —
 120,691
 —
Municipal securities7,464
 —
 7,464
 —
Corporate bonds19,020
 —
 19,020
 —
Derivative instruments(666) —
 (666) —
        
Assets at fair value on a nonrecurring basis:       
Impaired loans6,160
 —
 —
 6,160
Other real estate owned1,929
 —
 —
 1,929

                                                                                                 
As of June 30, 2021
  Fair
Value		  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets (liabilities) at fair value on a recurring basis:
                  
Available for sale securities:
                  
Mortgage-backed securities
  $157,316  $0   $157,316  $0 
Collateralized mortgage obligations
   66,928   0    66,928   0 
Municipal securities
   171,813   0    171,813   0 
Corporate bonds
   40,431   0    40,431   0 
U.S. government agencies
   10,148   0    10,148   0 
Loans held for sale
   5,088   0    0   5,088 
Cash surrender value of life insurance
   36,367   0    36,367   0 
SBA servicing assets
   740   0    0   740 
Derivative instrument assets
   484   0    484   0 
Derivative instrument liabilities
   (679)   0    (679)   0 
          
Assets at fair value on a nonrecurring basis:
         
Individually evaluated collateral dependent loans
   4,134   0    0   4,134 
As of December 31, 2016Fair Value 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable
Inputs
(Level 2)
 
Significant Other Unobservable Inputs
(Level 3)
Assets (liabilities) at fair value on a recurring basis:       
Available for sale securities       
Mortgage-backed securities$59,690
 $—
 $59,690
 $—
Collateralized mortgage obligations65,133
 —
 65,133
 —
Municipal securities7,219
 —
 7,219
 —
Corporate bonds24,883
 —
 24,883
 —
U.S. treasury securities—
 —
 —
 —
Derivative instruments(695) —
 (695) —
        
Assets at fair value on a nonrecurring basis:       
Impaired loans6,065
 —
 —
 6,065
Other real estate owned1,692
 —
 —
 1,692

                                                                                                 
As of December 31, 2020
  Fair
Value		  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets (liabilities) at fair value on a recurring basis:
                  
Available for sale securities:
                  
Mortgage-backed securities
  $107,164  $0   $107,164  $0 
Collateralized mortgage obligations
   66,945   0    66,945   0 
Municipal securities
   175,704   0    175,704   0 
Corporate bonds
   30,982   0    30,982   0 
Loans held for sale
   5,542   0    0   5,542 
Cash surrender value of life insurance
   35,510   0    35,510   0 
SBA servicing assets
   763   0    0   763 
Derivative instrument assets
   629   0    629   0 
Derivative instrument liabilities
   (1,151)   0    (1,151)   0 
          
Assets at fair value on a nonrecurring basis:
         
Individually evaluated collateral dependent loans
   8,427   0    0   8,427 
There were no transfers between Level 2 and Level 3 during the ninesix months ended SeptemberJune 30, 20172021 or for the year ended December 31, 2016.2020.

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Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Nonfinancial Assets and Nonfinancial Liabilities
Nonfinancial assets measured at fair value on a nonrecurring basis during the ninesix months ended SeptemberJune 30, 20172021 and 20162020 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loancredit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in current earnings. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.


(Continued)
35.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The following table presents foreclosed assets that were remeasured and recorded at fair value as of:
                                                                                                    
     June 30, 2021      December 31, 2020      June 30, 2020   
Other real estate owned remeasured at initial recognition:
             
Carrying value of other real estate owned prior to remeasurement
  $0  $42  $0 
Charge-offs recognized in the allowance for credit losses
   0   (9)   0 
   
 
 
  
 
 
  
 
 
 
Fair value of other real estate owned remeasured at initial recognition
  $0  $33  $0 
   
 
 
  
 
 
  
 
 
 
  
Other real estate owned remeasured subsequent to initial recognition:     
Carrying value of other real estate owned prior to remeasurement
  $0  $62  $62 
Write-downs included in collection and other real estate owned expense
   0   (1)   (1) 
   
 
 
  
 
 
  
 
 
 
Fair value of other real estate owned remeasured subsequent to initial recognition
  $0  $61  $61 
   
 
 
  
 
 
  
 
 
 
 September 30, 2017 December 31, 2016 September 30, 2016
Foreclosed assets remeasured at initial recognition:     
Carrying value of foreclosed assets prior to remeasurement$544
 $78
 $67
Charge-offs recognized in the allowance for loan losses(175) (11) (11)
Fair value of foreclosed assets remeasured at initial recognition$369
 $67
 $56
      
Foreclosed assets remeasured subsequent to initial recognition:     
Carrying value of foreclosed assets prior to remeasurement$—
 $170
 $180
Write-downs included in collection and other real estate owned expense—
 (69) (79)
Fair value of foreclosed assets remeasured subsequent to initial recognition$—
 $101
 $101

The following tables presenttable presents quantitative information about nonrecurring Level 3 fair value measurements as of:
June 30, 2021
      Fair Value       Valuation
Technique(s)		  Unobservable
Input(s)		  Range
(Weighted
Average)		 
Other real estate owned
  $227   Appraisal
value of
collateral		  Selling costs
or other
normal
adjustments		   10%-20% (16%) 
December 31, 2020
      Fair Value       Valuation
Technique(s)		  Unobservable
Input(s)		  Range
(Weighted
Average)		 
Other real estate owned
  $404   Appraisal
value of
collateral		  Selling costs
or other
normal
adjustments		   10%-20% (16%) 
  Fair Value 
Valuation
Technique(s)
 Unobservable Input(s) Range (Weighted Average)
September 30, 2017        
Impaired loans $6,160
 Fair value of collateral - sales comparison approach Selling costs or other normal adjustments: Real estate Equipment 10%-20% (16%) 10%-20% (5.3%)
Other real estate owned $1,929
 Appraisal value of collateral Selling costs or other normal adjustments 10%-20% (16%)
(Continued)
  Fair Value 
Valuation
Technique(s)
 Unobservable Input(s) Range (Weighted Average)
December 31, 2016        
Impaired loans $6,065
 Fair value of collateral - sales comparison approach Selling costs or other normal adjustments: Real estate Equipment 10%-20% (16%) 40%-50% (42%)
Other real estate owned $1,692
 Appraisal value of collateral Selling costs or other normal adjustments 10%-20% (16%)
40. 


(Continued)
36.
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

The following table presents information on individually evaluated collateral dependent loans as of June 30, 2021:
   Fair Value Measurements Using     
   Level 1   Level 2   Level 3   Total Fair Value 
Commercial and industrial
  $—   $—   $81   $81 
Real estate:
          
Construction and development
   —    —    399    399 
Commercial real estate
   —    —    3,654    3,654 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $            —   $            —   $            4,134   $        4,134 
   
 
 
   
 
 
   
 
 
   
 
 
 
The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of SeptemberJune 30, 20172021 and December 31, 2016,2020, are as follows:
  Fair value measurements as of
September 30, 2017 using:
  Carrying Amount 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total
Fair Value
Financial assets:                      
Cash, due from banks, federal funds sold and interest-bearing deposits $95,061
 $67,986
 $27,075
 $—
 $95,061
Marketable securities held to maturity 179,081
 —
 181,151
 —
 181,151
Loans, net 1,294,847
 —
 —
 1,293,992
 1,293,992
Accrued interest receivable 6,440
 —
 6,440
 —
 6,440
Nonmarketable equity securities 9,379
 —
 9,379
 —
 9,379
Cash surrender value of life insurance 18,376
 —
 18,376
 —
 18,376
Financial liabilities:          
Deposits $1,617,302
 $1,305,206
 $305,084
 $—
 $1,610,290
Securities sold under repurchase agreements 12,920
 —
 12,920
 —
 12,920
Accrued interest payable 883
 —
 883
 —
 883
Federal Home Loan Bank advances 65,157
 —
 64,856
 —
 64,856
Subordinated debentures 13,810
 —
 11,445
 —
 11,445
   Fair value measurements as of
June 30, 2021 using:		 
   Carrying
Amount		   Level 1
Inputs		   Level 2
Inputs		   Level 3
Inputs		   Total
Fair Value		 
Financial assets:
                    
Cash, due from banks, federal funds sold and interest-bearing deposits
  $    447,218   $    447,218   $    0   $    0   $    447,218 
Loans, net
   1,856,277    0    0        1,866,176    1,866,176 
Accrued interest receivable
   8,801    0    8,801    0    8,801 
Nonmarketable equity securities
   14,011    0    14,011    0    14,011 
Financial liabilities:
                    
Deposits
  $    2,533,026   $    2,184,394   $    349,698   $    0   $    2,534,092 
Securities sold under repurchase agreements
   15,336    0    15,336    0    15,336 
Accrued interest payable
   565    0    565    0    565 
Federal Home Loan Bank advances
   49,000    0    49,173    0    49,173 
Subordinated debentures
   19,810    0    18,745    0    18,745 
  Fair value measurements as of
December 31, 2016 using:
  Carrying Amount 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total
Fair Value
Financial assets:                      
Cash, due from banks, federal funds sold and interest-bearing deposits $127,543
 $100,205
 $27,338
 $—
 $127,543
Marketable securities held to maturity 189,371
 —
 186,155
 —
 186,155
Loans, net 1,233,651
 —
 —
 1,235,306
 1,235,306
Accrued interest receivable 7,419
 —
 7,419
 —
 7,419
Nonmarketable equity securities 10,500
 —
 10,500
 —
 10,500
Cash surrender value of life insurance 17,804
 —
 17,804
 —
 17,804
Financial liabilities:          
Deposits $1,576,791
 $1,234,875
 $342,615
 $—
 $1,577,490
Securities sold under repurchase agreements 10,859
 —
 10,859
 —
 10,859
Accrued interest payable 889
 —
 889
 —
 889
Other debt 18,286
 —
 18,286
 —
 18,286
Federal Home Loan Bank advances 55,170
 —
 55,160
 —
 55,160
Subordinated debentures 19,310
 —
 16,809
 —
 16,809

   Fair value measurements as of
December 31, 2020 using:		 
   Carrying
Amount		   Level 1
Inputs		   Level 2
Inputs		   Level 3
Inputs		   Total
Fair Value		 
Financial assets:
                    
Cash, due from banks, federal funds sold and interest-bearing deposits
  $    351,792   $    351,792   $    0   $    0   $    351,792 
Loans, net
   1,831,737    0    0        1,846,868    1,846,868 
Accrued interest receivable
   9,834    0    9,834    0    9,834 
Nonmarketable equity securities
   14,095    0    14,095    0    14,095 
Financial liabilities:
                    
Deposits
  $    2,286,390   $    1,907,587   $    380,570   $    0   $    2,288,157 
Securities sold under repurchase agreements
   15,631    0    15,631    0    15,631 
Accrued interest payable
   804    0    804    0    804 
Federal Home Loan Bank advances
   109,101    0    109,381    0    109,381 
Subordinated debentures
   19,810    0    17,406    0    17,406 
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values (Level 1).


(Continued)
37.
41. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

Loans, net
The fair value of fixed-rate loans and variable-rate loans that reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality (Level 3).

Cash Surrender Value of Life Insurance
The carrying amounts of bank-owned life insurance approximate their fair value.value (Level 2).

Nonmarketable Equity Securities
It is not practical to determine the fair value of Independent Bankers Financial Corporation, Federal Home Loan Bank, Federal Reserve Bank and other stock due to restrictions placed on its transferability.

Deposits and Securities Sold Under Repurchase Agreements
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 1). The fair values of deposit liabilities with defined maturities are estimated by discounting future cash flows using interest rates currently offered for deposits of similar remaining maturities (Level 2).

Other Borrowings
The fair value of borrowings, consisting of lines of credit, Federal Home Loan Bank advances and Subordinated debentures is estimated by discounting future cash flows using currently available rates for similar financing (Level 2).

Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate their fair values (Level 2).

Off-balance Sheet Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

NOTE 14 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net earnings of the Company. Dilutive share equivalents include stock-based awards issued to employees.

Stock options granted by the Company are treated as potential shares in computing earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

(Continued)
38.
42. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)


The computations of basic and diluted earnings per share for the Company were as follows for the:
  Three Months Ended
June 30,		  Six Months Ended
June 30,		 
  2021  2020  2021  2020 
Numerator:
                
Net earnings (basic)
 $10,432  $1,075  $21,394  $7,353 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings (diluted)
 $10,432  $1,075  $21,394  $7,353 
  
 
 
  
 
 
  
 
 
  
 
 
 
    
                
Denominator:
                
Weighted-average shares outstanding
(basic)*
      12,056,550       12,128,516       12,047,643       12,352,074 
Effect of dilutive securities:
                
Common stock equivalent shares from stock
options
  195,037   —   168,311   — 
  
 
 
  
 
 
  
 
 
  
 
 
 
Weighted-average shares outstanding (diluted)*
  12,251,587   12,128,516   12,215,954   12,352,074 
  
 
 
  
 
 
  
 
 
  
 
 
 
    
                
Net earnings per share
                
Basic
 $0.87  $0.09  $1.78  $0.59 
  
 
 
  
 
 
  
 
 
  
 
 
 
Diluted
 $0.85  $0.09  $1.75  $0.59 
  
 
 
  
 
 
  
 
 
  
 
 
 
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
(Continued)
43. 
    
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Numerator:       
Net earnings (basic)$4,139
 $3,370
 $11,631
 $8,547
Net earnings (diluted)$4,139
 $3,370
 $11,631
 $8,547
        
Denominator:       
Weighted-average shares outstanding (basic)11,058,956
 8,955,476
 9,951,767
 8,991,671
Effect of dilutive securities:       
Common stock equivalent shares from stock options105,473
 9,581
 75,505
 9,581
Weighted-average shares outstanding (diluted)11,164,429
 8,965,057
 10,027,272
 9,001,252
        
Net earnings per share       
Basic$0.37
 $0.38
 $1.17
 $0.95
Diluted$0.37
 $0.38
 $1.16
 $0.95


Table of Contents
(Continued)
39.




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) as well as with our consolidated financial statements and notes theretoany subsequent Quarterly Reports on Form 10-Q, the risk factors appearing in Item 1A of Part II of this Report, and the other risks and uncertainties listed from time to time in our Prospectus,reports and documents filed with the SEC, including our Annual Report on May 9, 2017 pursuant to Rule 424(b) ofForm 10-K for the Securities Act of 1933, as amended (the “Securities Act”), relating to our initial public offering (the “IPO Prospectus”).year ended December 31, 2020. Unless the context indicates otherwises,otherwise, references in this Report to “we,” “our,” “us,” and the “Company” refer to Guaranty Bancshares, Inc., a Texas Corporation,corporation, and its consolidated subsidiaries. References in this Report to “Guaranty Bank & Trust” and the “Bank” refer to Guaranty Bank & Trust, N.A., a national banking association and our wholly ownedwholly-owned consolidated subsidiary.
This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements” and “Risk Factors” in our IPO Prospectus, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements. For additional information concerning forward-looking statements, please read “-Special Cautionary Notice Regarding Forward-Looking Statements” below.
General
We were incorporated in 1990 to serve as the holding company for Guaranty Bank & Trust. Since our founding, we have built a reputation based on financial stability and community leadership. In May 2017, we consummated an initial public offering of our common stock, which is traded on the NASDAQ Global Select Market under the symbol “GNTY.”
We currently operate 2631 banking locations in the East Texas, Dallas/Fort Worth, EastCentral Texas and Central TexasGreater Houston regions of the state. Our growth has been consistent and primarily organic. Our principal executive office is located at 201 South Jefferson Street, Mount Pleasant,16475 Dallas Parkway, Suite 600, Addison, Texas, 75455,75001 and our telephone number is (903)(888) 572-9881. Our website address iswww.gnty.com
gnty.com
. Information contained on our website does not constitute a part of this Report and is not incorporated by reference into this filing or any other report.
As a bank holding company that operates through one segment, we generate most of our revenue from interest on loans and investments, customer service and loan fees, fees related to the sale of mortgage loans, and trust and wealth management services. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.
Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the State of Texas.


Impact of COVID-19 and Quarterly Highlights
40.
In March 2020, the outbreak of the novel coronavirus disease 2019 (“COVID-19”) was recognized as a pandemic by the World Health Organization. Global health concerns relating to COVID-19 and variants of the virus, have had, and will likely continue to have, a severe impact on the macroeconomic environment, leading to lower interest rates, depressed equity market valuations, heightened financial market volatility and significant disruption in banking and other financial activity in the areas we serve. Since March 2020, governmental responses to the pandemic included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, resulted in rapid decreases in commercial and consumer activity, temporary or permanent closures of many businesses that led to a loss of revenues and a rapid increase in unemployment, material decreases in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. Despite the wide availability of vaccines in early 2021, these risks and uncertainties remain as the extent to which the American public is willing to receive the vaccines remains unknown, and more contagious strains of the virus mutate both in the US and abroad.
(Continued)
44. 
Table of Contents

The financial performance of the Company generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services that the Company offers and whose success it relies on to drive growth, are highly dependent upon the business environment in the primary markets in which we operate and in the United States as a whole. Unfavorable market conditions and uncertainty due to the COVID-19 pandemic may result in a deterioration in the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for credit losses, adverse asset values of the collateral securing loans and an overall material adverse effect on the quality of the loan portfolio.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program (“PPP”), a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. PPP loans were intended to provide eligible businesses with funding for payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. PPP loans are forgivable to the extent that the borrower can demonstrate that the funds were used for such costs. Any amounts not forgiven will bear interest at 1% and be repayable over a term of 24 to 60 months from origination. PPP has been subject to amendments to increase the size of the program, extend the period in which loans could be made, extend the period for which costs could be forgiven and to provide additional flexibility to borrowers. In December 2020, several portions of the CARES Act were extended as part of the Consolidated Appropriations Act, including additional stimulus payments to consumers and a second round of PPP loans for small businesses. It is expected that there may be further changes to PPP, either through legislation or changes to forms and applications required under PPP.
Significant uncertainties as to future economic conditions exist, and we have taken measured actions during the pandemic, to ensure that we have the balance sheet strength to serve our clients and communities, including increases in liquidity and reserves supported by a strong capital position. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from government stimulus and relief programs; however, the extent to which the COVID-19 pandemic will continue to impact our operations and financial results, as well as timing of economic recovery, remains uncertain.
Quarterly highlights of the Company include:
●
Solid Net Earnings and Core Earnings
. Net earnings have remained consistent for the past four quarters. Net core earnings
†
, which exclude provisions for credit losses and income tax, net PPP income, and interest on PPP-related borrowings, have also remained solid over the last five quarters, illustrating a consistent core earnings stream. Net core earnings
†
were $9.8 million for the second quarter, compared to $9.4 million for the first quarter of 2021, and $10.5 million during the second quarter of 2020.
●
Steady Net Interest Margin and Firm Loan Yields
. The fully tax-equivalent (“FTE”) net interest margin, net of PPP effects, was 3.38% for the second quarter of 2021, compared to 3.48% in the preceding quarter and 3.75% in the second quarter of 2020. The decrease in the current quarter is primarily due to higher liquidity levels, which had a lower average yield during the quarter of only six basis points. Net interest income decreased $1.0 million, or 4.1%, from $24.5 million in the first quarter of 2021 to $23.5 million in the second quarter of 2021. However, excluding the effects of PPP, net interest income increased $752,000, or 3.6%, from $21.0 million in the first quarter of 2021 to $21.7 million in the second quarter. Average loan yield, excluding PPP effects, increased three basis points, from 4.79% in the first quarter to 4.82% in the second quarter of 2021. Interest expense decreased $215,000, or 10.6%, from $2.0 million in the first quarter of 2021 to $1.8 million in second quarter of 2021. The Bank continues to decrease cost of funds as higher rate CDs mature and to reduce interest rates on non-maturing deposits as market conditions allow. In addition, 63.8% of the loan portfolio, or $1.16 billion, has interest rate floors and 57.5% of those loans are currently at their floors. The weighted average interest rate of loans currently at their floor is 4.37%.
●
Strong Credit Quality.
Non-performing assets as a percentage of total assets were 0.13% at June 30, 2021 and March 31, 2021, compared to 0.56% at June 30, 2020. Net charge-offs to average loans (annualized) were 0.05% for the quarter ended June 30, 2021, compared to 0.18% for the quarter ended March 31, 2021, and (0.02%) for the quarter ended June 30, 2020. The decrease in non-performing assets and the increase in charge-offs during the second quarter of 2021 compared to the same period of 2020 resulted primarily from the resolution of three problem loans, made to two borrowers, with outstanding combined book balances of $8.7 million at December 31, 2020, that were acquired during the Westbound acquisition and which were fully reserved prior to the onset of COVID-19.
(Continued)
45. 
Table of Contents
●
Paycheck Protection Program. The Bank continued participation in the PPP2 program through its end date in the second quarter of 2021. During the first half of 2021, we originated total PPP2 loans of $100.8 million to 1,349 borrowers, which resulted in recognition of $3.3 million of net origination fees and related amortization for PPP2 loans during the first half of 2021. The Bank also recognized $1.8 million in PPP1 deferred origination fees during the first half of 2021 through both amortization and forgiveness of the related PPP1 loans. As of June 30, 2021, there are outstanding PPP1 balances of $26.6 million to 325 borrowers, a reduction of 87.3% from the $209.6 million to 1,944 borrowers that was originated under the PPP1 program. Net deferred origination fees remaining as of June 30, 2021 are $355,000 and $2.2 million from PPP1 and PPP2, respectively.
†
Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.
Critical Accounting PoliciesMarketable Securities
: The fair values for marketable securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Our consolidated
Loans Held For Sale
: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).
Derivative Instruments
: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
Other Real Estate Owned
: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly (Level 3).
Individually Evaluated Collateral Dependent Loans
: The fair value of individually evaluated collateral dependent loans is generally based on the fair value of collateral, less costs to sell. The fair value of real estate collateral is determined using recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant (Level 3). Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business (Level 3).
(Continued)
38. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following tables summarize quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value:
                                                                                                 
As of June 30, 2021
  Fair
Value		  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets (liabilities) at fair value on a recurring basis:
                  
Available for sale securities:
                  
Mortgage-backed securities
  $157,316  $0   $157,316  $0 
Collateralized mortgage obligations
   66,928   0    66,928   0 
Municipal securities
   171,813   0    171,813   0 
Corporate bonds
   40,431   0    40,431   0 
U.S. government agencies
   10,148   0    10,148   0 
Loans held for sale
   5,088   0    0   5,088 
Cash surrender value of life insurance
   36,367   0    36,367   0 
SBA servicing assets
   740   0    0   740 
Derivative instrument assets
   484   0    484   0 
Derivative instrument liabilities
   (679)   0    (679)   0 
          
Assets at fair value on a nonrecurring basis:
         
Individually evaluated collateral dependent loans
   4,134   0    0   4,134 
                                                                                                 
As of December 31, 2020
  Fair
Value		  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets (liabilities) at fair value on a recurring basis:
                  
Available for sale securities:
                  
Mortgage-backed securities
  $107,164  $0   $107,164  $0 
Collateralized mortgage obligations
   66,945   0    66,945   0 
Municipal securities
   175,704   0    175,704   0 
Corporate bonds
   30,982   0    30,982   0 
Loans held for sale
   5,542   0    0   5,542 
Cash surrender value of life insurance
   35,510   0    35,510   0 
SBA servicing assets
   763   0    0   763 
Derivative instrument assets
   629   0    629   0 
Derivative instrument liabilities
   (1,151)   0    (1,151)   0 
          
Assets at fair value on a nonrecurring basis:
         
Individually evaluated collateral dependent loans
   8,427   0    0   8,427 
There were no transfers between Level 2 and Level 3 during the six months ended June 30, 2021 or for the year ended December 31, 2020.
(Continued)
39. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Nonfinancial Assets and Nonfinancial Liabilities
Nonfinancial assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2021 and 2020 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in current earnings. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.
The following table presents foreclosed assets that were remeasured and recorded at fair value as of:
                                                                                                    
     June 30, 2021      December 31, 2020      June 30, 2020   
Other real estate owned remeasured at initial recognition:
             
Carrying value of other real estate owned prior to remeasurement
  $0  $42  $0 
Charge-offs recognized in the allowance for credit losses
   0   (9)   0 
   
 
 
  
 
 
  
 
 
 
Fair value of other real estate owned remeasured at initial recognition
  $0  $33  $0 
   
 
 
  
 
 
  
 
 
 
  
Other real estate owned remeasured subsequent to initial recognition:     
Carrying value of other real estate owned prior to remeasurement
  $0  $62  $62 
Write-downs included in collection and other real estate owned expense
   0   (1)   (1) 
   
 
 
  
 
 
  
 
 
 
Fair value of other real estate owned remeasured subsequent to initial recognition
  $0  $61  $61 
   
 
 
  
 
 
  
 
 
 
The following table presents quantitative information about nonrecurring Level 3 fair value measurements as of:
June 30, 2021
      Fair Value       Valuation
Technique(s)		  Unobservable
Input(s)		  Range
(Weighted
Average)		 
Other real estate owned
  $227   Appraisal
value of
collateral		  Selling costs
or other
normal
adjustments		   10%-20% (16%) 
December 31, 2020
      Fair Value       Valuation
Technique(s)		  Unobservable
Input(s)		  Range
(Weighted
Average)		 
Other real estate owned
  $404   Appraisal
value of
collateral		  Selling costs
or other
normal
adjustments		   10%-20% (16%) 
(Continued)
40. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table presents information on individually evaluated collateral dependent loans as of June 30, 2021:
   Fair Value Measurements Using     
   Level 1   Level 2   Level 3   Total Fair Value 
Commercial and industrial
  $—   $—   $81   $81 
Real estate:
          
Construction and development
   —    —    399    399 
Commercial real estate
   —    —    3,654    3,654 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $            —   $            —   $            4,134   $        4,134 
   
 
 
   
 
 
   
 
 
   
 
 
 
The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of June 30, 2021 and December 31, 2020, are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimatesas follows:
   Fair value measurements as of
June 30, 2021 using:		 
   Carrying
Amount		   Level 1
Inputs		   Level 2
Inputs		   Level 3
Inputs		   Total
Fair Value		 
Financial assets:
                    
Cash, due from banks, federal funds sold and interest-bearing deposits
  $    447,218   $    447,218   $    0   $    0   $    447,218 
Loans, net
   1,856,277    0    0        1,866,176    1,866,176 
Accrued interest receivable
   8,801    0    8,801    0    8,801 
Nonmarketable equity securities
   14,011    0    14,011    0    14,011 
Financial liabilities:
                    
Deposits
  $    2,533,026   $    2,184,394   $    349,698   $    0   $    2,534,092 
Securities sold under repurchase agreements
   15,336    0    15,336    0    15,336 
Accrued interest payable
   565    0    565    0    565 
Federal Home Loan Bank advances
   49,000    0    49,173    0    49,173 
Subordinated debentures
   19,810    0    18,745    0    18,745 
   Fair value measurements as of
December 31, 2020 using:		 
   Carrying
Amount		   Level 1
Inputs		   Level 2
Inputs		   Level 3
Inputs		   Total
Fair Value		 
Financial assets:
                    
Cash, due from banks, federal funds sold and interest-bearing deposits
  $    351,792   $    351,792   $    0   $    0   $    351,792 
Loans, net
   1,831,737    0    0        1,846,868    1,846,868 
Accrued interest receivable
   9,834    0    9,834    0    9,834 
Nonmarketable equity securities
   14,095    0    14,095    0    14,095 
Financial liabilities:
                    
Deposits
  $    2,286,390   $    1,907,587   $    380,570   $    0   $    2,288,157 
Securities sold under repurchase agreements
   15,631    0    15,631    0    15,631 
Accrued interest payable
   804    0    804    0    804 
Federal Home Loan Bank advances
   109,101    0    109,381    0    109,381 
Subordinated debentures
   19,810    0    17,406    0    17,406 
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values (Level 1).
(Continued)
41. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Loans, net
The fair value of fixed-rate loans and variable-rate loans that affectreprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality (Level 3).
Cash Surrender Value of Life Insurance
The carrying amounts reportedof bank-owned life insurance approximate their fair value (Level 2).
Nonmarketable Equity Securities
It is not practical to determine the fair value of Independent Bankers Financial Corporation, Federal Home Loan Bank, Federal Reserve Bank and other stock due to restrictions placed on its transferability.
Deposits and Securities Sold Under Repurchase Agreements
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 1). The fair values of deposit liabilities with defined maturities are estimated by discounting future cash flows using interest rates currently offered for deposits of similar remaining maturities (Level 2).
Other Borrowings
The fair value of borrowings, consisting of lines of credit, Federal Home Loan Bank advances and Subordinated debentures is estimated by discounting future cash flows using currently available rates for similar financing (Level 2).
Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate their fair values (Level 2).
Off-balance Sheet Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.
NOTE 14 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the financial statementsnet earnings of the Company. Dilutive share equivalents include stock-based awards issued to employees.
Stock options granted by the Company are treated as potential shares in computing earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and accompanying notes. We base our estimates on historical experience and on various other assumptionsthe amount of tax impact that we believewould be recorded in additional paid-in capital when the award becomes deductible are assumed to be reasonable under current circumstances. These assumptions formused to repurchase shares.
(Continued)
42. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The computations of basic and diluted earnings per share for the basisCompany were as follows for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.the:
We have identified the following accounting policies and estimates that, due
  Three Months Ended
June 30,		  Six Months Ended
June 30,		 
  2021  2020  2021  2020 
Numerator:
                
Net earnings (basic)
 $10,432  $1,075  $21,394  $7,353 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings (diluted)
 $10,432  $1,075  $21,394  $7,353 
  
 
 
  
 
 
  
 
 
  
 
 
 
    
                
Denominator:
                
Weighted-average shares outstanding
(basic)*
      12,056,550       12,128,516       12,047,643       12,352,074 
Effect of dilutive securities:
                
Common stock equivalent shares from stock
options
  195,037   —   168,311   — 
  
 
 
  
 
 
  
 
 
  
 
 
 
Weighted-average shares outstanding (diluted)*
  12,251,587   12,128,516   12,215,954   12,352,074 
  
 
 
  
 
 
  
 
 
  
 
 
 
    
                
Net earnings per share
                
Basic
 $0.87  $0.09  $1.78  $0.59 
  
 
 
  
 
 
  
 
 
  
 
 
 
Diluted
 $0.85  $0.09  $1.75  $0.59 
  
 
 
  
 
 
  
 
 
  
 
 
 
* Periods prior to the difficult, subjective or complex judgmentsstock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
(Continued)
43. 
Table of Contents
Item 2. Management’s Discussion and assumptions inherent in those policiesAnalysis of Financial Condition and estimates,Results of Operations
The following discussion and the potential sensitivity of our consolidated financial statements to those judgments and assumptions, is critical to an understandinganalysis of our financial condition and results of operations. operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) and any subsequent Quarterly Reports on Form 10-Q, the risk factors appearing in Item 1A of Part II of this Report, and the other risks and uncertainties listed from time to time in our reports and documents filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2020. Unless the context indicates otherwise, references in this Report to “we,” “our,” “us,” and the “Company” refer to Guaranty Bancshares, Inc., a Texas corporation, and its consolidated subsidiaries. References in this Report to “Guaranty Bank & Trust” and the “Bank” refer to Guaranty Bank & Trust, N.A., a national banking association and our wholly-owned consolidated subsidiary.
General
We believe thatwere incorporated in 1990 to serve as the judgments, estimatesholding company for Guaranty Bank & Trust. Since our founding, we have built a reputation based on financial stability and assumptions usedcommunity leadership. In May 2017, we consummated an initial public offering of our common stock, which is traded on the NASDAQ Global Select Market under the symbol “GNTY.”
We currently operate 31 banking locations in the preparationEast Texas, Dallas/Fort Worth, Central Texas and Greater Houston regions of the state. Our principal executive office is located at 16475 Dallas Parkway, Suite 600, Addison, Texas, 75001 and our telephone number is (888) 572-9881. Our website address is
gnty.com
. Information contained on our website does not constitute a part of this Report and is not incorporated by reference into this filing or any other report.
As a bank holding company that operates through one segment, we generate most of our financial statements are appropriate.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses. Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. Fees associated with the origination of loans and certain direct loan origination costs are netted and the net amount is deferred and recognized over the life of the loan as an adjustment of yield.
The accrual ofrevenue from interest on loans and investments, customer service and loan fees, fees related to the sale of mortgage loans, and trust and wealth management services. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is discontinued when therethe difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a clear indication thatratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the borrower’s cash flow may not be sufficient to meet paymentsdifference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.
Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as they become due, which is generally when a loan is 90 days past due. A loan may continue to accrue interest, even if it is more than 90 days past due, if the loan is both well collateralized and it isas in the processvolume and types of collection. When a loan is placed on nonaccrual status, all previously accruedinterest-earning assets, interest-bearing and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long asnoninterest-bearing liabilities and shareholders’ equity, are usually the remaining book balance of the asset is deemed to be collectible. If collectability is questionable, then cash payments are applied to principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured in accordance with the terms of the loan agreement.
The allowance for loan losses is an estimated amount management believes is adequate to absorb inherent losses on existing loans that may be uncollectible based upon review and evaluation of our loan portfolio. Management’s periodic evaluation of the allowance is based on general economic conditions, the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experience and the resultslargest drivers of periodic reviews ofchanges in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the portfolio.
The allowance for loan losses is comprised of two components. The first component, the general reserve, is determined in accordance with current authoritative accounting guidance that considers historical loss rates for the last five years adjusted for qualitative factors based upon general economicmoney supply, political and international conditions and other qualitative risk factors both internalconditions in domestic and external to us. Such qualitative factors include current local economic conditions and trends including unemployment, changes in lending staff, policies and procedures, changes in credit concentrations,foreign financial markets. Periodic changes in the trends and severity of problem loans and changes in trends in volume and terms of loans. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors. For purposes of determining the general reserve, the loan portfolio, less cash secured loans, government guaranteed loans and impaired loans, is multiplied by our adjusted historical loss rate. The second component of the allowance for loan losses, the specific reserve, is determined in accordance with current authoritative accounting guidance based on probable and incurred losses on specific classified loans.
The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).
In general, the loans in our portfolio have low historical credit losses. The credit qualitytypes of loans in our portfolios is impactedloan portfolio are affected by, delinquency statusamong other factors, economic and debt service coverage generatedcompetitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the State of Texas.
Impact of COVID-19 and Quarterly Highlights
In March 2020, the outbreak of the novel coronavirus disease 2019 (“COVID-19”) was recognized as a pandemic by our borrowers’the World Health Organization. Global health concerns relating to COVID-19 and variants of the virus, have had, and will likely continue to have, a severe impact on the macroeconomic environment, leading to lower interest rates, depressed equity market valuations, heightened financial market volatility and significant disruption in banking and other financial activity in the areas we serve. Since March 2020, governmental responses to the pandemic included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and fluctuationsindividuals, resulted in rapid decreases in commercial and consumer activity, temporary or permanent closures of many businesses that led to a loss of revenues and a rapid increase in unemployment, material decreases in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. Despite the wide availability of vaccines in early 2021, these risks and uncertainties remain as the extent to which the American public is willing to receive the vaccines remains unknown, and more contagious strains of the virus mutate both in the US and abroad.
(Continued)
44. 
Table of Contents
The financial performance of the Company generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of real estate collateral. Management considers delinquency statuscollateral securing those loans, as well as demand for loans and other products and services that the Company offers and whose success it relies on to bedrive growth, are highly dependent upon the most meaningful indicator ofbusiness environment in the primary markets in which we operate and in the United States as a whole. Unfavorable market conditions and uncertainty due to the COVID-19 pandemic may result in a deterioration in the credit quality of one-to-four single family residential, home equityborrowers, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for credit losses, adverse asset values of the collateral securing loans and linesan overall material adverse effect on the quality of creditthe loan portfolio.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program (“PPP”), a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. PPP loans were intended to provide eligible businesses with funding for payroll and other consumer loans. In general,costs to help those businesses remain viable and allow their workers to pay their bills. PPP loans do not beginare forgivable to show signs of credit deterioration or default until they have been outstanding


41.


for some period of time, a process we refers to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our loans to be “seasoned” andextent that the credit qualityborrower can demonstrate that the funds were used for such costs. Any amounts not forgiven will bear interest at 1% and current levelbe repayable over a term of delinquencies and defaults represents the level of reserve needed in the allowance for loan losses. If delinquencies and defaults were24 to 60 months from origination. PPP has been subject to amendments to increase wethe size of the program, extend the period in which loans could be made, extend the period for which costs could be forgiven and to provide additional flexibility to borrowers. In December 2020, several portions of the CARES Act were extended as part of the Consolidated Appropriations Act, including additional stimulus payments to consumers and a second round of PPP loans for small businesses. It is expected that there may be further changes to PPP, either through legislation or changes to forms and applications required under PPP.
Significant uncertainties as to increasefuture economic conditions exist, and we have taken measured actions during the pandemic, to ensure that we have the balance sheet strength to serve our provision for loan losses,clients and communities, including increases in liquidity and reserves supported by a strong capital position. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from government stimulus and relief programs; however, the extent to which would adversely affectthe COVID-19 pandemic will continue to impact our results of operations and financial condition.
Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor in identifying loans that are individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the allowance for loan losses. Internal risk ratings are updated on a continuous basis.
Loans are considered impaired when, based on current information and events, it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral. Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price. As of September 30, 2017 and December 31, 2016, all significant impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral.
From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan is subject to impairment and the need for a specific allowance for loan loss allocation. An allowance for loan loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.
We have certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.
Real estate loans are also subject to underwriting standards and processes similar to commercial and industrial loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate collateral. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are generally diverse in terms of type and geographic location throughout the State of Texas. This diversity helps us reduce the exposure to adverse economic events that affect any single market or industry.
We utilize methodical credit standards and analysis to supplement our policies and procedures in underwriting consumer loans. Our loan policy addresses types of consumer loans that may be originatedresults, as well as the underlyingtiming of economic recovery, remains uncertain.


Quarterly highlights of the Company include:
42.
●
Solid Net Earnings and Core Earnings
. Net earnings have remained consistent for the past four quarters. Net core earnings
†
, which exclude provisions for credit losses and income tax, net PPP income, and interest on PPP-related borrowings, have also remained solid over the last five quarters, illustrating a consistent core earnings stream. Net core earnings
†
were $9.8 million for the second quarter, compared to $9.4 million for the first quarter of 2021, and $10.5 million during the second quarter of 2020.
●
Steady Net Interest Margin and Firm Loan Yields
. The fully tax-equivalent (“FTE”) net interest margin, net of PPP effects, was 3.38% for the second quarter of 2021, compared to 3.48% in the preceding quarter and 3.75% in the second quarter of 2020. The decrease in the current quarter is primarily due to higher liquidity levels, which had a lower average yield during the quarter of only six basis points. Net interest income decreased $1.0 million, or 4.1%, from $24.5 million in the first quarter of 2021 to $23.5 million in the second quarter of 2021. However, excluding the effects of PPP, net interest income increased $752,000, or 3.6%, from $21.0 million in the first quarter of 2021 to $21.7 million in the second quarter. Average loan yield, excluding PPP effects, increased three basis points, from 4.79% in the first quarter to 4.82% in the second quarter of 2021. Interest expense decreased $215,000, or 10.6%, from $2.0 million in the first quarter of 2021 to $1.8 million in second quarter of 2021. The Bank continues to decrease cost of funds as higher rate CDs mature and to reduce interest rates on non-maturing deposits as market conditions allow. In addition, 63.8% of the loan portfolio, or $1.16 billion, has interest rate floors and 57.5% of those loans are currently at their floors. The weighted average interest rate of loans currently at their floor is 4.37%.
●
Strong Credit Quality.
Non-performing assets as a percentage of total assets were 0.13% at June 30, 2021 and March 31, 2021, compared to 0.56% at June 30, 2020. Net charge-offs to average loans (annualized) were 0.05% for the quarter ended June 30, 2021, compared to 0.18% for the quarter ended March 31, 2021, and (0.02%) for the quarter ended June 30, 2020. The decrease in non-performing assets and the increase in charge-offs during the second quarter of 2021 compared to the same period of 2020 resulted primarily from the resolution of three problem loans, made to two borrowers, with outstanding combined book balances of $8.7 million at December 31, 2020, that were acquired during the Westbound acquisition and which were fully reserved prior to the onset of COVID-19.
(Continued)
45. 
Table of Contents

●
Paycheck Protection Program. The Bank continued participation in the PPP2 program through its end date in the second quarter of 2021. During the first half of 2021, we originated total PPP2 loans of $100.8 million to 1,349 borrowers, which resulted in recognition of $3.3 million of net origination fees and related amortization for PPP2 loans during the first half of 2021. The Bank also recognized $1.8 million in PPP1 deferred origination fees during the first half of 2021 through both amortization and forgiveness of the related PPP1 loans. As of June 30, 2021, there are outstanding PPP1 balances of $26.6 million to 325 borrowers, a reduction of 87.3% from the $209.6 million to 1,944 borrowers that was originated under the PPP1 program. Net deferred origination fees remaining as of June 30, 2021 are $355,000 and $2.2 million from PPP1 and PPP2, respectively.
†

Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.
collateral, if secured, which must be perfected. The relatively small individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes risk.
Marketable Securities
: The fair values for marketable securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans Held For Sale
: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).
Derivative Instruments
: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
Other Real Estate Owned
: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly (Level 3).
Individually Evaluated Collateral Dependent Loans
: The fair value of individually evaluated collateral dependent loans is generally based on the fair value of collateral, less costs to sell. The fair value of real estate collateral is determined using recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant (Level 3). Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business (Level 3).
(Continued)
38. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following tables summarize quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value:
                                                                                                 
As of June 30, 2021
  Fair
Value		  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets (liabilities) at fair value on a recurring basis:
                  
Available for sale securities:
                  
Mortgage-backed securities
  $157,316  $0   $157,316  $0 
Collateralized mortgage obligations
   66,928   0    66,928   0 
Municipal securities
   171,813   0    171,813   0 
Corporate bonds
   40,431   0    40,431   0 
U.S. government agencies
   10,148   0    10,148   0 
Loans held for sale
   5,088   0    0   5,088 
Cash surrender value of life insurance
   36,367   0    36,367   0 
SBA servicing assets
   740   0    0   740 
Derivative instrument assets
   484   0    484   0 
Derivative instrument liabilities
   (679)   0    (679)   0 
          
Assets at fair value on a nonrecurring basis:
         
Individually evaluated collateral dependent loans
   4,134   0    0   4,134 
                                                                                                 
As of December 31, 2020
  Fair
Value		  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets (liabilities) at fair value on a recurring basis:
                  
Available for sale securities:
                  
Mortgage-backed securities
  $107,164  $0   $107,164  $0 
Collateralized mortgage obligations
   66,945   0    66,945   0 
Municipal securities
   175,704   0    175,704   0 
Corporate bonds
   30,982   0    30,982   0 
Loans held for sale
   5,542   0    0   5,542 
Cash surrender value of life insurance
   35,510   0    35,510   0 
SBA servicing assets
   763   0    0   763 
Derivative instrument assets
   629   0    629   0 
Derivative instrument liabilities
   (1,151)   0    (1,151)   0 
          
Assets at fair value on a nonrecurring basis:
         
Individually evaluated collateral dependent loans
   8,427   0    0   8,427 
There were no transfers between Level 2 and Level 3 during the six months ended June 30, 2021 or for the year ended December 31, 2020.
(Continued)
39. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Nonfinancial Assets and Nonfinancial Liabilities
Nonfinancial assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2021 and 2020 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in current earnings. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.
The following table presents foreclosed assets that were remeasured and recorded at fair value as of:
                                                                                                    
     June 30, 2021      December 31, 2020      June 30, 2020   
Other real estate owned remeasured at initial recognition:
             
Carrying value of other real estate owned prior to remeasurement
  $0  $42  $0 
Charge-offs recognized in the allowance for credit losses
   0   (9)   0 
   
 
 
  
 
 
  
 
 
 
Fair value of other real estate owned remeasured at initial recognition
  $0  $33  $0 
   
 
 
  
 
 
  
 
 
 
  
Other real estate owned remeasured subsequent to initial recognition:     
Carrying value of other real estate owned prior to remeasurement
  $0  $62  $62 
Write-downs included in collection and other real estate owned expense
   0   (1)   (1) 
   
 
 
  
 
 
  
 
 
 
Fair value of other real estate owned remeasured subsequent to initial recognition
  $0  $61  $61 
   
 
 
  
 
 
  
 
 
 
The following table presents quantitative information about nonrecurring Level 3 fair value measurements as of:
June 30, 2021
      Fair Value       Valuation
Technique(s)		  Unobservable
Input(s)		  Range
(Weighted
Average)		 
Other real estate owned
  $227   Appraisal
value of
collateral		  Selling costs
or other
normal
adjustments		   10%-20% (16%) 
December 31, 2020
      Fair Value       Valuation
Technique(s)		  Unobservable
Input(s)		  Range
(Weighted
Average)		 
Other real estate owned
  $404   Appraisal
value of
collateral		  Selling costs
or other
normal
adjustments		   10%-20% (16%) 
(Continued)
40. 
Table of Contents
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table presents information on individually evaluated collateral dependent loans as of June 30, 2021:
   Fair Value Measurements Using     
   Level 1   Level 2   Level 3   Total Fair Value 
Commercial and industrial
  $—   $—   $81   $81 
Real estate:
          
Construction and development
   —    —    399    399 
Commercial real estate
   —    —    3,654    3,654 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $            —   $            —   $            4,134   $        4,134 
   
 
 
   
 
 
   
 
 
   
 
 
 
The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of June 30, 2021 and December 31, 2020, are as follows:
   Fair value measurements as of
June 30, 2021 using:		 
   Carrying
Amount		   Level 1
Inputs		   Level 2
Inputs		   Level 3
Inputs		   Total
Fair Value		 
Financial assets:
                    
Cash, due from banks, federal funds sold and interest-bearing deposits
  $    447,218   $    447,218   $    0   $    0   $    447,218 
Loans, net
   1,856,277    0    0        1,866,176    1,866,176 
Accrued interest receivable
   8,801    0    8,801    0    8,801 
Nonmarketable equity securities
   14,011    0    14,011    0    14,011 
Financial liabilities:
                    
Deposits
  $    2,533,026   $    2,184,394   $    349,698   $    0   $    2,534,092 
Securities sold under repurchase agreements
   15,336    0    15,336    0    15,336 
Accrued interest payable
   565    0    565    0    565 
Federal Home Loan Bank advances
   49,000    0    49,173    0    49,173 
Subordinated debentures
   19,810    0    18,745    0    18,745 
   Fair value measurements as of
December 31, 2020 using:		 
   Carrying
Amount		   Level 1
Inputs		   Level 2
Inputs		   Level 3
Inputs		   Total
Fair Value		 
Financial assets:
                    
Cash, due from banks, federal funds sold and interest-bearing deposits
  $    351,792   $    351,792   $    0   $    0   $    351,792 
Loans, net
   1,831,737    0    0        1,846,868    1,846,868 
Accrued interest receivable
   9,834    0    9,834    0    9,834 
Nonmarketable equity securities
   14,095    0    14,095    0    14,095 
Financial liabilities:
                    
Deposits
  $    2,286,390   $    1,907,587   $    380,570   $    0   $    2,288,157 
Securities sold under repurchase agreements
   15,631    0    15,631    0    15,631 
Accrued interest payable
   804    0    804    0    804 
Federal Home Loan Bank advances
   109,101    0    109,381    0    109,381 
Subordinated debentures
   19,810    0    17,406    0    17,406 
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values (Level 1).
(Continued)
41. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Loans, net
The fair value of fixed-rate loans and variable-rate loans that reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality (Level 3).
Cash Surrender Value of Life Insurance
The carrying amounts of bank-owned life insurance approximate their fair value (Level 2).
Nonmarketable Equity Securities
It is not practical to determine the fair value of Independent Bankers Financial Corporation, Federal Home Loan Bank, Federal Reserve Bank and other stock due to restrictions placed on its transferability.
Deposits and Securities Sold Under Repurchase Agreements
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 1). The fair values of deposit liabilities with defined maturities are estimated by discounting future cash flows using interest rates currently offered for deposits of similar remaining maturities (Level 2).
Other Borrowings
The fair value of borrowings, consisting of lines of credit, Federal Home Loan Bank advances and Subordinated debentures is estimated by discounting future cash flows using currently available rates for similar financing (Level 2).
Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate their fair values (Level 2).
Off-balance Sheet Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.
NOTE 14 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net earnings of the Company. Dilutive share equivalents include stock-based awards issued to employees.
Stock options granted by the Company are treated as potential shares in computing earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.
(Continued)
42. 
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GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The computations of basic and diluted earnings per share for the Company were as follows for the:
  Three Months Ended
June 30,		  Six Months Ended
June 30,		 
  2021  2020  2021  2020 
Numerator:
                
Net earnings (basic)
 $10,432  $1,075  $21,394  $7,353 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net earnings (diluted)
 $10,432  $1,075  $21,394  $7,353 
  
 
 
  
 
 
  
 
 
  
 
 
 
    
                
Denominator:
                
Weighted-average shares outstanding
(basic)*
      12,056,550       12,128,516       12,047,643       12,352,074 
Effect of dilutive securities:
                
Common stock equivalent shares from stock
options
  195,037   —   168,311   — 
  
 
 
  
 
 
  
 
 
  
 
 
 
Weighted-average shares outstanding (diluted)*
  12,251,587   12,128,516   12,215,954   12,352,074 
  
 
 
  
 
 
  
 
 
  
 
 
 
    
                
Net earnings per share
                
Basic
 $0.87  $0.09  $1.78  $0.59 
  
 
 
  
 
 
  
 
 
  
 
 
 
Diluted
 $0.85  $0.09  $1.75  $0.59 
  
 
 
  
 
 
  
 
 
  
 
 
 
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
(Continued)
43. 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) and any subsequent Quarterly Reports on Form 10-Q, the risk factors appearing in Item 1A of Part II of this Report, and the other risks and uncertainties listed from time to time in our reports and documents filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2020. Unless the context indicates otherwise, references in this Report to “we,” “our,” “us,” and the “Company” refer to Guaranty Bancshares, Inc., a Texas corporation, and its consolidated subsidiaries. References in this Report to “Guaranty Bank & Trust” and the “Bank” refer to Guaranty Bank & Trust, N.A., a national banking association and our wholly-owned consolidated subsidiary.
General
We were incorporated in 1990 to serve as the holding company for Guaranty Bank & Trust. Since our founding, we have built a reputation based on financial stability and community leadership. In May 2017, we consummated an initial public offering of our common stock, which is traded on the NASDAQ Global Select Market under the symbol “GNTY.”
We currently operate 31 banking locations in the East Texas, Dallas/Fort Worth, Central Texas and Greater Houston regions of the state. Our principal executive office is located at 16475 Dallas Parkway, Suite 600, Addison, Texas, 75001 and our telephone number is (888) 572-9881. Our website address is
gnty.com
. Information contained on our website does not constitute a part of this Report and is not incorporated by reference into this filing or any other report.
As a bank holding company that operates through one segment, we generate most of our revenue from interest on loans and investments, customer service and loan fees, fees related to the sale of mortgage loans, and trust and wealth management services. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.
Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the State of Texas.
Impact of COVID-19 and Quarterly Highlights
In March 2020, the outbreak of the novel coronavirus disease 2019 (“COVID-19”) was recognized as a pandemic by the World Health Organization. Global health concerns relating to COVID-19 and variants of the virus, have had, and will likely continue to have, a severe impact on the macroeconomic environment, leading to lower interest rates, depressed equity market valuations, heightened financial market volatility and significant disruption in banking and other financial activity in the areas we serve. Since March 2020, governmental responses to the pandemic included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, resulted in rapid decreases in commercial and consumer activity, temporary or permanent closures of many businesses that led to a loss of revenues and a rapid increase in unemployment, material decreases in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. Despite the wide availability of vaccines in early 2021, these risks and uncertainties remain as the extent to which the American public is willing to receive the vaccines remains unknown, and more contagious strains of the virus mutate both in the US and abroad.
(Continued)
44. 
Table of Contents
The financial performance of the Company generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services that the Company offers and whose success it relies on to drive growth, are highly dependent upon the business environment in the primary markets in which we operate and in the United States as a whole. Unfavorable market conditions and uncertainty due to the COVID-19 pandemic may result in a deterioration in the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for credit losses, adverse asset values of the collateral securing loans and an overall material adverse effect on the quality of the loan portfolio.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program (“PPP”), a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. PPP loans were intended to provide eligible businesses with funding for payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. PPP loans are forgivable to the extent that the borrower can demonstrate that the funds were used for such costs. Any amounts not forgiven will bear interest at 1% and be repayable over a term of 24 to 60 months from origination. PPP has been subject to amendments to increase the size of the program, extend the period in which loans could be made, extend the period for which costs could be forgiven and to provide additional flexibility to borrowers. In December 2020, several portions of the CARES Act were extended as part of the Consolidated Appropriations Act, including additional stimulus payments to consumers and a second round of PPP loans for small businesses. It is expected that there may be further changes to PPP, either through legislation or changes to forms and applications required under PPP.
Significant uncertainties as to future economic conditions exist, and we have taken measured actions during the pandemic, to ensure that we have the balance sheet strength to serve our clients and communities, including increases in liquidity and reserves supported by a strong capital position. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from government stimulus and relief programs; however, the extent to which the COVID-19 pandemic will continue to impact our operations and financial results, as well as timing of economic recovery, remains uncertain.
Quarterly highlights of the Company include:
●
Solid Net Earnings and Core Earnings
. Net earnings have remained consistent for the past four quarters. Net core earnings
†
, which exclude provisions for credit losses and income tax, net PPP income, and interest on PPP-related borrowings, have also remained solid over the last five quarters, illustrating a consistent core earnings stream. Net core earnings
†
were $9.8 million for the second quarter, compared to $9.4 million for the first quarter of 2021, and $10.5 million during the second quarter of 2020.
●
Steady Net Interest Margin and Firm Loan Yields
. The fully tax-equivalent (“FTE”) net interest margin, net of PPP effects, was 3.38% for the second quarter of 2021, compared to 3.48% in the preceding quarter and 3.75% in the second quarter of 2020. The decrease in the current quarter is primarily due to higher liquidity levels, which had a lower average yield during the quarter of only six basis points. Net interest income decreased $1.0 million, or 4.1%, from $24.5 million in the first quarter of 2021 to $23.5 million in the second quarter of 2021. However, excluding the effects of PPP, net interest income increased $752,000, or 3.6%, from $21.0 million in the first quarter of 2021 to $21.7 million in the second quarter. Average loan yield, excluding PPP effects, increased three basis points, from 4.79% in the first quarter to 4.82% in the second quarter of 2021. Interest expense decreased $215,000, or 10.6%, from $2.0 million in the first quarter of 2021 to $1.8 million in second quarter of 2021. The Bank continues to decrease cost of funds as higher rate CDs mature and to reduce interest rates on non-maturing deposits as market conditions allow. In addition, 63.8% of the loan portfolio, or $1.16 billion, has interest rate floors and 57.5% of those loans are currently at their floors. The weighted average interest rate of loans currently at their floor is 4.37%.
●
Strong Credit Quality.
Non-performing assets as a percentage of total assets were 0.13% at June 30, 2021 and March 31, 2021, compared to 0.56% at June 30, 2020. Net charge-offs to average loans (annualized) were 0.05% for the quarter ended June 30, 2021, compared to 0.18% for the quarter ended March 31, 2021, and (0.02%) for the quarter ended June 30, 2020. The decrease in non-performing assets and the increase in charge-offs during the second quarter of 2021 compared to the same period of 2020 resulted primarily from the resolution of three problem loans, made to two borrowers, with outstanding combined book balances of $8.7 million at December 31, 2020, that were acquired during the Westbound acquisition and which were fully reserved prior to the onset of COVID-19.
(Continued)
45. 
Table of Contents
●
Paycheck Protection Program. The Bank continued participation in the PPP2 program through its end date in the second quarter of 2021. During the first half of 2021, we originated total PPP2 loans of $100.8 million to 1,349 borrowers, which resulted in recognition of $3.3 million of net origination fees and related amortization for PPP2 loans during the first half of 2021. The Bank also recognized $1.8 million in PPP1 deferred origination fees during the first half of 2021 through both amortization and forgiveness of the related PPP1 loans. As of June 30, 2021, there are outstanding PPP1 balances of $26.6 million to 325 borrowers, a reduction of 87.3% from the $209.6 million to 1,944 borrowers that was originated under the PPP1 program. Net deferred origination fees remaining as of June 30, 2021 are $355,000 and $2.2 million from PPP1 and PPP2, respectively.
†
Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates, and the potential sensitivity of our consolidated financial statements to those judgments and assumptions, is critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate.
Loans and Allowance for Credit Losses (ACL)
Loans are stated at the amount of unpaid principal, reduced by unearned income and an allowance for credit losses. Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. Fees associated with the origination of loans and certain direct loan origination costs are netted and the net amount is deferred and recognized over the life of the loan as an adjustment of yield.
The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. A loan may continue to accrue interest, even if it is more than 90 days past due, if the loan is both well collateralized and it is in the process of collection. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be collectible. If collectability is questionable, then cash payments are applied to principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured in accordance with the terms of the loan agreement.
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries will not exceed the aggregate of loan amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We use the weighted-average remaining maturity method (WARM method) as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate. This average annual charge-off rate contains loss content over a historical lookback period and is used as a foundation for estimating the credit loss reserve for the remaining outstanding balances of loans in a pool or segment of our loan portfolio at the balance sheet date. The average annual charge-off rate is applied to the contractual term, further adjusted for estimated prepayments, to determine the unadjusted historical charge-off rate. The calculation of the unadjusted historical charge-off rate is then adjusted for current conditions and for reasonable and supportable forecast periods. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors. In early 2020, to address the uncertainties resulting from COVID-19, an additional qualitative factor was added to specifically address COVID-related economic factors and potential credit losses, in addition to our standard qualitative factors.
(Continued)
46. 
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The allowance for credit losses is measured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan portfolio segments include both regulatory call report codes and internally identified risk ratings for our commercial loan segments and delinquency status for our consumer loan segments. We also have separate segments for our warehouse lines of credit, for our internally originated SBA loans, for our SBA loans acquired from Westbound Bank, and for loans originated under the PPP program.
In general, the loans in our portfolio have low historical credit losses. The credit quality of loans in our portfolio is impacted by delinquency status and debt service coverage generated by our borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the allowance for credit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition. Delinquency statistics are updated at least monthly.
Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor that impacts management’s estimates of loss factors used in determining the amount of the allowance for credit losses. Internal risk ratings are updated on a continuous basis.
Loans with unique risk characteristics are evaluated on an individual basis. Loans evaluated individually are excluded from the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
For off-balance sheet credit exposures, we estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring (TDR) when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan can be grouped with its like segment for allowance consideration or whether it should be individually evaluated for a specific allowance for credit loss allocation. If individually evaluated, an allowance for credit loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral. Most modifications made as a direct result of COVID-19 are not TDRs pursuant to the CARES Act and the April 7, 2020 Interagency guidance and GAAP.
We have certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed.
(Continued)
47. 
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Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.
Real estate loans are also subject to underwriting standards and processes similar to commercial and industrial loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate collateral. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are generally diverse in terms of type and geographic location throughout the State of Texas. This diversity helps us reduce the exposure to adverse economic events that affect any single market or industry.
We utilize methodical credit standards and analysis to supplement our policies and procedures in underwriting consumer loans. Our loan policy addresses types of consumer loans that may be originated as well as the underlying collateral, if secured, which must be perfected. The relatively small individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes risk.
Marketable Securities
Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Management determines the appropriate classification of securities at the time of purchase. Interest income includes amortization and accretion of purchase premiums and discounts. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”)an allowance for credit losses based on at leastwhether they are classified as held to maturity or available for sale. For held to maturity securities, management measures expected credit losses on a quarterlycollective basis by major security type and more frequently when economic or marketcredit rating. The estimate of expected credit losses considers historical credit loss information that is then adjusted for current conditions warrant such an evaluation.and reasonable and supportable forecasts. For available for sale securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesseswe first assess whether it intendswe intend to sell, or it is more likely than not that itwe will be required to sell athe security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference betweensecurity’s amortized cost andbasis is written down to fair value is recognized as impairment through earnings.income. For debt securities available for sale that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically relate to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount ofthat the fair value is less than the amortized cost basis. Any impairment is split into two components as follows: (1) OTTI related tothat has not been recorded through an allowance for credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, whichlosses is recognized in other comprehensive income.  The
Changes in the allowance for credit losslosses are recorded as provision for (or reversal of) credit losses expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is defined as the difference between the present valueconfirmed or when either of the cash flows expectedcriteria regarding intent or requirement to be collected and the amortized cost basis.sell is met.

(Continued)
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Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on and off-balance sheet financial instruments do not include the value of anticipated future business or the value of assets and liabilities not considered financial instruments.

Emerging Growth Company
The Jumpstart our Business Startups Act of 2012 (“JOBS ActAct”) permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we have “opted out” of this provision. As a result, we will comply with new or revised accounting standards to the same extent that compliance is required for non-emerging growth companies. Our decision to opt out of the extended transition period under the JOBS Act is irrevocable.

(Continued)
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Discussion and Analysis of Results of Operations for the NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
Results of Operations
The following discussion and analysis of our results of operations compares our results of operations for the ninesix months ended SeptemberJune 30, 20172021 with the ninesix months ended SeptemberJune 30, 2016.2020. The results of operations for the ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017.2021.
Net earnings were $11.6$21.4 million for the ninesix months ended SeptemberJune 30, 2017,2021, as compared to $8.5$7.4 million for the ninesix months ended SeptemberJune 30, 2016.2020. The following table presents key earnings data for the periods indicated:


   For the Six Months Ended June 30, 
(dollars in thousands, except per share data)  2021  2020 
Net earnings
  $                  21,394  $                  7,353 
Net earnings per common share*
   
-basic
   1.78   0.59 
-diluted
   1.75   0.59 
Net interest margin
(1)
   3.60%   3.79% 
Net interest rate spread
(2)
   3.42%   3.47% 
Return on average assets
   1.51%   0.59% 
Return on average equity
   15.31%   5.70% 
Average equity to average total assets
   9.86%   10.41% 
Cash dividend payout ratio*
   22.47%   58.46% 
43.
* Adjusted to give effect to the 10% stock dividend issued during the first quarter of 2021.
(1)
Net interest margin is equal to net interest income divided by average interest-earning assets.
(2)
Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
Large provisions for credit losses in the prior period, resulting from effects of COVID-19 and participation in the PPP program, have created temporary extraordinary results in the calculation of net earnings and related performance ratios. With the credit outlook still uncertain as a result of COVID-19 and other economic factors, the following table illustrates net earnings and net core earnings per share,
(Continued)
50. 
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which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as net core performance ratios for the six months ended June 30, 2021 and 2020.

       For the Six Months Ended June 30,     
(dollars in thousands, except per share data)  2021  2020 
Net earnings
  $21,394  $7,353 
Adjustments:
   
Provision for credit losses
   (1,000)   13,500 
Income tax provision
   4,648   1,255 
PPP interest income, including fees
   (5,859)   (2,540) 
Net interest expense on PPP-related borrowings
   —   31 
  
 
 
  
 
 
 
Net core earnings
†
  $19,183  $19,599 
  
 
 
  
 
 
 
   
Total average assets
  $2,857,707  $2,491,614 
Adjustments:
   
PPP loans average balance
   (146,103)   (81,592) 
Excess fed funds sold due to PPP-related borrowings
   —   (42,033) 
  
 
 
  
 
 
 
Total average assets, adjusted
†
  $2,711,604  $2,367,989 
  
 
 
  
 
 
 
Total average equity
   281,730   259,275 
  
 
 
  
 
 
 
   
PERFORMANCE RATIOS
   
Net earnings to average assets (annualized)
   1.51%   0.59% 
Net earnings to average equity (annualized)
   15.31   5.70 
Net core earnings to average assets, as adjusted (annualized)
†
   1.43   1.66 
Net core earnings to average equity (annualized)
†
   13.73   15.20 
   
PER COMMON SHARE DATA
   
Weighted-average common shares outstanding, basic*
   12,047,643   12,352,074 
  
 
 
  
 
 
 
Earnings per common share, basic*
  $1.78  $0.59 
  
 
 
  
 
 
 
Net core earnings per common share, basic*
†
   1.59   1.59 
  
 
 
  
 
 
 
* Adjusted to give effect to the 10% stock dividend issued during the first quarter of 2021.
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in “
—Non-GAAP Financial Measures
”.
 For the Nine Months Ended September 30,
 2017 2016
 (Dollars in thousands, except per share data)
Net earnings$11,631
 $8,547
Net earnings per common share   
-basic1.17
 0.95
-diluted1.16
 0.95
Net interest margin(1)
3.37% 3.25%
Net interest rate spread(2)
3.15% 3.06%
Return on average assets0.82% 0.65%
Return on average equity8.74% 7.89%
Average equity to average total assets9.42% 8.19%
Dividend payout ratio33.33% 27.37%
(1) Net interest margin is equal to net interest income divided by average interest-earning assets.
(Continued)
(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
51. 

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Net Interest Income
Our operating results depend primarily on our net interest income. Fluctuations in market interest rates impact the yield and rates paid on interest-earning assets and interest-bearing liabilities, respectively. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Net interest income, before the reverse provision for the nine months ended September 30, 2017credit losses, was $44.1$48.0 million compared to $39.8$43.8 million for the ninesix months ended SeptemberJune 30, 2016,2020, an increase of $4.3$4.2 million, or 10.9%9.6%. The increase in net interest income was comprised ofbefore the provision (or reverse provision) for credit losses resulted from a $5.1$4.3 million, or 10.6%52.6%, increase in interest income offset by a $775,000, or 9.5%, increasedecrease in interest expense. The growth in interest incomeAlthough there was primarily attributable to a $110.6$106.1 million, or 9.5%5.9%, increase in average loans outstanding for the ninesix months ended SeptemberJune 30, 2017,2021, compared to the ninesix months ended SeptemberJune 30, 2016, further improved2020, that increase was offset by a 0.04% increase24 basis point decrease in the average yield on total loans. loans driven by lower rates on PPP loans and new and variable rate loans, partially offset by recognition of PPP origination fees, which are described in more detail in a table below.
The increase in average loans outstanding was primarily due to loans originated through the PPP and modest organic growth in all of our markets and continuing maturity of de novo and acquired locationsapproximately $48.1 million, or 2.82%, from the same quarter in the Dallas/Fort Worth metroplex and Bryan/College Station markets.prior year. The $775,000 increase$4.3 million decrease in interest expense for the ninesix months ended SeptemberJune 30, 20172021 was primarily related to a $74.1decrease in the cost of interest-bearing deposits of 63 basis points, despite a $114.0 million, or 6.33%7.7%, increase in average interest-bearing deposits over the same period in 2016.2020. The majorityaverage deposit balance increase appears to be the result of this increase was due to organic growth, primarilygovernment stimulus payments, PPP-related deposits and general changes in savings and money market accounts, driven in part by favorable rates that were offered in our Bryan/College Station and Dallas/Fort Worth metroplex markets. consumer spending habits.
For the ninesix months ended SeptemberJune 30, 2017,2021, net interest margin on a taxable equivalent basis and net interest spread were 3.37%3.64% and 3.15%3.42%, respectively, compared to 3.25%3.78% and 3.06%3.47% for the same period in 2016,2020, which reflects a decrease in both loan yield due to the increasescontinued repricing of variable rate loans to lower interest rates during the period, a decrease in interest incomethe cost of interest-bearing deposits as discussed above, relativeand higher interest-bearing deposits at other banks (primarily federal funds), which earned an average yield of 10 basis points compared to 58 basis points in the increases in interest expense.prior period.
Average Balance Sheet Amounts, Interest Earned and Yield Analysis
The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for eachall major categorycategories of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average raterates earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the amount of interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield.


44.
(Continued)
52. 


Table of Contents
                                                                                                                              
  For the Six Months Ended June 30, 
  2021  2020 
(dollars in thousands) 
Average

Outstanding

Balance
  
Interest

Earned/

Interest

Paid
  
Average

Yield/

Rate
  
Average

Outstanding

Balance
  
Interest

Earned/

Interest

Paid
  
Average

Yield/

Rate
 
ASSETS
      
Interest-earning assets:
      
Total loans
(1)
 $1,899,864  $47,059   4.99%  $1,793,742  $46,656   5.23% 
Securities available for sale
  399,255   4,282   2.16   300,053   3,586   2.40 
Securities held to maturity
  —     —     —     72,266   956   2.66 
Nonmarketable equity securities
  10,043   265   5.32   10,545   222   4.23 
Interest-bearing deposits in other banks
  380,455   191   0.10   142,341   413   0.58 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-earning assets
  2,689,617   51,797   3.88   2,318,947   51,833   4.49 
  
 
 
  
 
 
   
 
 
  
 
 
 
Allowance for credit losses
  (32,951)     (24,250)   
Noninterest-earning assets
  201,041     196,917   
 
 
 
    
 
 
   
Total assets
 $2,857,707    $2,491,614   
 
 
 
    
 
 
   
LIABILITIES AND SHAREHOLDERS’ EQUITY
      
Interest-bearing liabilities:
      
Interest-bearing deposits
 $1,591,784  $3,096   0.39%  $1,477,806  $7,461   1.02% 
Advances from FHLB and fed funds purchased
  50,075   201   0.81   78,957   205   0.52 
Line of credit
  8,470   149   3.55   5,599   75   2.69 
Subordinated debentures
  19,810   376   3.83   14,214   319   4.51 
Securities sold under agreements to repurchase
  18,013   7   0.08   15,466   22   0.29 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-bearing liabilities
  1,688,152   3,829   0.46   1,592,042   8,082   1.02 
  
 
 
  
 
 
   
 
 
  
 
 
 
Noninterest-bearing liabilities:
      
Noninterest-bearing deposits
  862,619     618,176   
Accrued interest and other liabilities
  25,206     22,121   
 
 
 
    
 
 
   
Total noninterest-bearing liabilities
  887,825     640,297   
Shareholders’ equity
  281,730     259,275   
 
 
 
    
 
 
   
Total liabilities and shareholders’ equity
 $    2,857,707    $    2,491,614   
 
 
 
    
 
 
   
Net interest rate spread
(2)
    3.42%     3.47% 
      
Net interest income
  $    47,968    $    43,751  
  
 
 
    
 
 
  
Net interest margin
(3)
    3.60%     3.79% 
Net interest margin, fully taxable equivalent
(4)
    3.64%     3.78% 
 For the Nine Months Ended September 30,
 2017 2016
 Average Outstanding Balance Interest Earned/ Interest Paid Average Yield/ Rate Average Outstanding Balance Interest Earned/ Interest Paid Average Yield/ Rate
 (Dollars in thousands)
Assets           
Interest-earnings assets:           
Total loans(1) 
$1,269,387
 $45,115
 4.75% $1,158,807
 $40,857
 4.71%
Securities available for sale216,908
 3,678
 2.27% 216,744
 3,057
 1.88%
Securities held to maturity184,269
 3,340
 2.42% 179,963
 3,549
 2.63%
Nonmarketable equity securities7,012
 379
 7.23% 8,452
 193
 3.05%
Interest-bearing deposits in other banks72,948
 581
 1.06% 74,525
 335
 0.60%
Total interest-earning assets1,750,524
 $53,093
 4.06% 1,638,491
 $47,991
 3.91%
Allowance for loan losses(12,040)     (10,654)    
Noninterest-earnings assets144,937
     137,796
    
Total assets$1,883,421
     $1,765,633
    
Liabilities and Stockholders’ Equity           
Interest-bearing liabilities:           
Interest-bearing deposits$1,243,536
 $7,761
 0.83% $1,169,468
 $6,791
 0.78%
Advances from FHLB and fed funds purchased41,661
 294
 0.94% 65,503
 240
 0.49%
Other debt8,973
 300
 4.48% 13,650
 452
 4.42%
Subordinated debentures16,607
 559
 4.50% 20,642
 656
 4.25%
Securities sold under agreements to repurchase12,937
 37
 0.38% 12,264
 37
 0.40%
Total interest-bearing liabilities1,323,714
 $8,951
 0.90% 1,281,527
 $8,176
 0.85%
Noninterest-bearing liabilities:           
Noninterest-bearing deposits375,655
     333,640
    
Accrued interest and other liabilities6,650
     5,939
    
Total noninterest-bearing liabilities382,305
     339,579
    
Shareholders’ equity177,402
     144,527
    
Total liabilities and shareholders’ equity$1,883,421
     $1,765,633
    
Net interest rate spread(2)
    3.15%     3.06%
Net interest income  $44,142
     $39,815
  
Net interest margin(3)
    3.37%     3.25%
(1) Includes average outstanding balances of loans held for sale of $3.5$3.7 million and $3.2$4.5 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets.assets, annualized.

(4) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.
(Continued)
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To illustrate core net interest margin, fully taxable equivalent, and remove the extraordinary impacts resulting from the PPP program, the table below excludes PPP loans and their associated fees and costs for the six months ended June 30, 2021:
   For the Six Months Ended June 30, 2021 
(dollars in thousands)  Average
    Outstanding    
Balance		  Interest
      Earned/      
Interest
Paid		  Average
    Yield/ Rate    		 
Total interest-earning assets
  $2,689,617  $51,797   3.88% 
    
Total loans
   1,899,864   47,059   4.99 
Adjustments:
    
PPP loans average balance and net fees
(1)
   (146,103)   (5,260)   7.26 
  
 
 
  
 
 
  
 
 
 
Total loans, net of PPP effects
  $1,753,761  $41,799   4.81% 
    
  
 
 
  
 
 
  
 
 
 
Total interest-earning assets, net of PPP effects
†
  $2,543,514  $46,537   3.69% 
    
Net interest income, fully taxable equivalent (“FTE”)
   $48,488  
Net interest margin, FTE
     3.64% 
Net interest income, net of PPP effects
†
    43,228  
Net interest margin, FTE, net of PPP effects
†
     3.43% 
†
Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in “—Non-GAAP Financial Measures”
(1)
Interest earned consists of interest income of $720,000 and net origination fees recognized in earnings of $4.5 million for the six months ended June 30, 2021.
The following table presents the change in interest income and interest expense for the periods indicated for eachall major componentcomponents of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.


45.
   For the Six Months Ended
June 30, 2021 vs. 2020		 
   Increase (Decrease)    
   Due to Change in  Total Increase 
(in thousands)      Volume      Rate  (Decrease) 
Interest-earning assets:
    
Total loans
  $2,775  $(2,372)  $403 
Securities available for sale
   1,190   (494)   696 
Securities held to maturity
   (961)   5   (956) 
Nonmarketable equity securities
   (11)   54   43 
Interest-earning deposits in other banks
   691   (913)   (222) 
  
 
 
  
 
 
  
 
 
 
Total increase (decrease) in interest income
  $3,684  $(3,720)  $(36) 
  
 
 
  
 
 
  
 
 
 
    
Interest-bearing liabilities:
    
Interest-bearing deposits
  $581  $(4,946)  $(4,365) 
Advances from FHLB and fed funds purchased
   (75)   71   (4) 
Line of credit
   39   35   74 
Subordinated debentures
   126   (69)   57 
Securities sold under agreements to repurchase
   4   (19)   (15) 
  
 
 
  
 
 
  
 
 
 
Total increase (decrease) in interest expense
   675   (4,928)   (4,253) 
  
 
 
  
 
 
  
 
 
 
Increase in net interest income
  $        3,009  $        1,208  $        4,217 
  
 
 
  
 
 
  
 
 
 


 For the Nine Months Ended September 30, 2017 vs. 2016
 Increase (Decrease)  
 Due to Change in Total Increase
 Volume Rate (Decrease)
 (Dollars in thousands)
Interest-earning assets:     
Total loans$5,255
 $(997) $4,258
Securities available for sale4
 617
 621
Securities held to maturity104
 (313) (209)
Nonmarketable equity securities(104) 290
 186
Interest-earning deposits in other banks(17) 263
 246
Total increase (decrease) in interest income$5,242
 $(140) $5,102
      
Interest-bearing liabilities:     
Interest-bearing deposits$618
 $352
 $970
Advances from FHLB and fed funds purchased(225) 279
 54
Other debt(209) 58
 (151)
Subordinated debentures(182) 84
 (98)
Securities sold under agreements to repurchase3
 (3) —
Total increase in interest expense5
 770
 775
Increase (decrease) in net interest income$5,237
 $(910) $4,327

Provision for LoanCredit Losses
The provision for loancredit losses is a charge to income in order to bring our allowance for loancredit losses to a level deemed appropriate by management based on factors such as historical loss experience, trends in classified and past due loans, volume and growth in the loan portfolio, current economic conditions in our markets and value of the underlying collateral. Loans are charged off against the allowance for loancredit losses when determined appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the determination.
The
(Continued)
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A reverse provision for loan losses for the nine months ended September 30, 2017of $1.0 million was $2.3 million compared to $3.2 million for the nine months ended September 30, 2016. The decreaserecorded in the provision expense was relatedsecond quarter of 2021 in order to one large loan relationship whose repayment ability deteriorated inbegin to capture improvements that have occurred to macro-economic factors evaluated at the prior year, thus increasing a specific reserve allocated toonset of the borrower duringpandemic as part of the prior year. Net charge offs were $1.2 million for the nine months ended September 30, 2017 compared to $1.3 million for the same period in 2016. The amount of net charge offs during the nine months ended September 30, 2017 resulted primarily from two relationships totaling approximately $700,000,aforementioned COVID-specific qualitative factors, or Q-factors, as well as smaller charge off amountsrisk rating upgrades for specific loans, which impact the reserve calculations within our model. For the year ended December 31, 2020, a total allowance for credit losses provision of $13.2 million was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in our single familynational GDP, Texas unemployment rates and consumer loan portfolios. The amountnational industry related CRE trends, all of net charge offswhich were impacted by the effects of COVID-19.
These COVID-specific qualitative factors, established during 2020, were reduced during the nine months ended September 30, 2016 resulted primarilyfirst half of 2021 from one relationship, totaling approximately $1.2 million,55 basis points across the loan portfolio to 27.5 basis points across the portfolio in order to conservatively capture the improvements that was charged off duringhave occurred to macro-economic factors evaluated at the third quarteronset of 2016.the pandemic. Although management is cautiously optimistic about improving economic trends, it is likely that the economic effects of the pandemic could continue beyond 2021, and emerging COVID-19 variants may result in adverse economic impacts.
Noninterest Income
Our primary sources of recurring noninterest income are service charges on deposit accounts, merchant and debit card fees, fiduciary income, gains on the sale of both mortgage and SBA loans, and income from bank-owned life insurance. insurance. Noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.
The following table presents components of noninterest income for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 and the period-over-period variations in the categories of noninterest income:


       For The Six Months Ended    
June 30,		       Increase    
(Decrease)		 
(in thousands)
  2021   2020   2021 vs. 2020 
Noninterest income:
      
Service charges
  $1,684   $1,479   $205 
Gain on sale of loans
   2,642    2,697    (55) 
Fiduciary and custodial income
   1,119    988    131 
Bank-owned life insurance income
   418    425    (7) 
Merchant and debit card fees
   3,428    2,465    963 
Loan processing fee income
   317    280    37 
Warehouse lending fees
   452    407    45 
Mortgage fee income
   334    302    32 
Other noninterest income
   1,695    905    790 
  
 
 
   
 
 
   
 
 
 
Total noninterest income
  $12,089   $9,948   $2,141 
  
 
 
   
 
 
   
 
 
 
46.


 For the Nine Months Ended September 30, Increase (Decrease)
 2017 2016 2017 v. 2016
 (Dollars in thousands)
Noninterest income:     
Service charges on deposit accounts$2,801
 $2,625
 $176
Merchant and debit card fees2,301
 2,026
 275
Fiduciary income1,055
 1,058
 (3)
Gain on sales of loans1,490
 1,231
 259
Bank-owned life insurance income347
 337
 10
Gain on sales of investment securities25
 82
 (57)
Loan processing fee income454
 473
 (19)
Other noninterest income2,027
 1,770
 257
Total noninterest income$10,500
 $9,602
 $898

Total noninterest income increased $898,000,$2.1 million, or 9.35%21.5%, for the ninesix months ended SeptemberJune 30, 20172021 compared to the same period in 2016.2020. Material changes in the components of noninterest income are discussed below.
Service Charges on Deposit Accounts.
We earn fees from our customers for deposit-relateddeposit related services, and these fees typically constitute a significant and generally predictable component of our noninterestnon-interest income. Beginning in March 2020, as a result of COVID-19, we waived certain service charges in sensitivity to our customers through June 30, 2020. Service charges on deposit accounts were $2.8fee income was $1.7 million for the ninesix months ended SeptemberJune 30, 2017, which increased over2021 compared to $1.5 million for the same period in 2016 by $176,000,2020, an increase of $205,000, or 6.7%13.9%, resulting largely from the virus-related fee waivers.
Gain on Sale of Loans
. This increase in service chargesWe originate long-term fixed-rate mortgage loans and Small Business Administration (SBA) loans for resale into the secondary market. We sold 279 mortgage loans for $63.4 million during the six months ended June 30, 2021 compared to 287 mortgage loans for $67.0 million for the six months ended June 30, 2020. Gain on sale of loans was due in part$2.6 million for the six months ended June 30, 2021, a decrease of $55,000, or 2.0%, compared to our deposit growth during$2.7 million for the same period in 2020. $2.5 million and $165,000 of the gain in the current year was attributable to the sales of mortgage loans and SBA 7(a) loans, respectively, while the gain during the six month period of the prior year consisted of $2.3 million in mortgage loan sales and $419,000 in SBA 7(a) loan sales.
Fiduciary and Custodial Income.
We have trust powers and provide fiduciary and custodial services through our trust and wealth management division. Fiduciary income was $1.1 million and $988,000 for the six months ended June 30, 2021 and 2020, respectively, an increase of $131,000, or 13.3%. The revenue increase resulted primarily from 16 new accounts that opened during the first six months of 2021, which have generated additional income. Furthermore, revenue for our services fluctuates by month with the market value for all publicly-traded assets, which are primarily held in irrevocable trusts and investment management accounts that carry higher fees. Additionally, our custody-only assets are carried in a new deposit service charge andtiered percentage rate fee schedule implemented during February 2017.charged against market value.
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Merchant and Debit Card Fees.
We earn interchange income related to the activity of our customers’ merchant debit card usage. Debit card interchange income was $2.3$3.4 million for the ninesix months ended SeptemberJune 30, 2017,2021, compared to $2.0$2.5 million for the same period in 2016,2020, an increase of $275,000,$963,000, or 13.6%39.1%. The increase was primarily due to a change in contract terms, an annual earnings credit received from our debit card vendor and growth in the number of demand deposit accountsDDAs and debit card usage volume during 2017.
Gain on Sales of Loans. We originate long-term fixed-rate mortgage loans for resale into the secondary market.  We sold 270 loans for $49.4 million for the nine months ended September 30, 2017 compared to 224 loans for $43.2 million for the nine months ended September 30, 2016. Gain on sale of loans was $1,490,000 for the nine months ended September 30, 2017, an increase of $259,000, or 21.0%, compared to $1,231,000 for the same period in 2016, which reflects an increase in mortgage volume and the2021. The total number of loans sold.DDAs increased by 2,897 accounts, from 49,058 as of June 30, 2020 to 51,955 as of June 30, 2021.
Other.
This category includes a variety of other income producing activities, including mortgage loan origination fees, wire transfer fees, loan administration fees, and other fee income. Other noninterest income increased $257,000,$790,000, or 14.5%87.3%, for the ninesix months ended SeptemberJune 30, 2017,2021, compared to the same period in 20162020 due primarily to a gain of $277,000 on bank-owned life insurance proceeds resulting from the growthdeath of a former bank officer, as well as the write-off of repossessed assets of $356,000 in our loan portfolio and increased mortgage origination volume causing an increasethe prior year that was not present in fee income generated from loan administration fees and income from mortgage loan origination and processing fees.the current year.
Noninterest Expense
Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of our facilities and our furniture, fixtures and office equipment, professional and regulatory fees, including FDIC assessments, data processing expenses, and advertising and promotion expenses.
For the ninesix months ended SeptemberJune 30, 2017,2021, noninterest expense totaled $36.1$35.0 million, an increase of $1.8$3.4 million, or 5.17%10.8%, compared to $34.3$31.6 million for the ninesix months ended SeptemberJune 30, 2016.2020. The following table presents, for the periods indicated, the major categories of noninterest expense:


       For The Six Months Ended    
June 30,		       Increase    
(Decrease)		 
(in thousands)
  2021   2020   2021 vs. 2020 
Employee compensation and benefits
  $20,147   $17,543   $2,604 
Non-staff expenses:
      
Occupancy expenses
   5,520    5,027    493 
Legal and professional fees
   1,351    1,108    243 
Software and technology
   2,169    1,884    285 
Amortization
   679    671    8 
Director and committee fees
   422    384    38 
Advertising and promotions
   793    841    (48) 
ATM and debit card expense
   1,156    897    259 
Telecommunication expense
   414    389    25 
FDIC insurance assessment fees
   337    317    20 
Other noninterest expense
   2,027    2,530    (503) 
  
 
 
   
 
 
   
 
 
 
Total noninterest expense
  $35,015   $31,591   $3,424 
  
 
 
   
 
 
   
 
 
 
47.


 For the Nine Months Ended September 30, Increase (Decrease)
 2017 2016 2017 v. 2016
 (Dollars in thousands)
Employee compensation and benefits$20,156
 $19,057
 $1,099
Non-staff expenses:     
Occupancy expenses5,552
 5,196
 356
Amortization781
 719
 62
Software and Technology1,533
 1,368
 165
FDIC insurance assessment fees527
 900
 (373)
Legal and professional fees1,472
 1,358
 114
Advertising and promotions879
 752
 127
Telecommunication expense412
 438
 (26)
ATM and debit card expense766
 705
 61
Director and committee fees760
 680
 80
Other noninterest expense3,279
 3,167
 112
Total noninterest expense$36,117
 $34,340
 $1,777

Material changes in the components of noninterest expense are discussed below.
Employee Compensation and Benefits
. Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $20.2$20.1 million for the ninesix months ended SeptemberJune 30, 2017,2021, an increase of $1,099,000,$2.6 million, or 5.8%14.8%, compared to $19.1$17.5 million for the same period in 2016. The increase was2020. Employee compensation and benefits expense increased $768,000 due to standard annual salary increases and employee growth from 460 to 480 full-time equivalent employees, but increased primarily due to an increase in per employee salaries, as well asbonus accrual expense of approximately $1.4 million. The bonus accrual in the prior year was halted due to the unknown impacts of COVID-19 during that time and was resumed during the period in 2021.
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Occupancy Expenses.
Occupancy expenses are mainly comprised of depreciation expense on fixed assets, and lease expense related to ASC 842 accounting. Occupancy expenses increased health insurance expenses, bonus$493,000, or 9.8%, for the six months ended June 30, 2021 compared to the same period of the prior year. Depreciation expense benefit plan expenses and payroll taxes. As of SeptemberASC 842 lease expense increased $216,000 and $224,000, respectively, compared to the prior year period.
Legal and Professional Fees.
Legal and professional fees, which include audit, loan review and regulatory assessments, were $1.4 million and $1.1 million for the six months ended June 30, 20172021 and 2016, we had 397 and 395 full-time equivalent employees,2020, respectively, an increase of two employees.
Occupancy Expenses. Occupancy expenses were $5.6 million and $5.2 million for$243,000, or 21.9%. The increase was primarily the nineresult of professional recruiting fees paid during the six months ended SeptemberJune 30, 2017 and 2016, respectively. The increase2021 that were not paid during the same period of $356,000, or 6.9%, resulted primarily from additional lease expense of banking centers totaling $181,000 and an increase in ad valorem taxes of $90,000, primarily associated with repossessed assets.2020.
Software and Technology.
Software and technology expenses increased $165,000,$285,000, or 12.06%15.1%, from $1.37$1.9 million for the ninesix months ended SeptemberJune 30, 20162020 to $1.53$2.2 million for the ninesix months ended SeptemberJune 30, 2017.2021. The increase is attributable primarily to incrementalnew software investments to improve online deposit account opening, further enhance treasury management capabilities and improve connectivity to support remote working and other technology capabilities.
ATM and Debit Card Expense.
We pay processing fees resulting from growth in volumerelated to the activity of our loancustomers’ ATM and deposit accounts.
FDIC Insurance Assessment Fees. FDIC assessment feesdebit card usage. ATM and debit card expenses were $527,000 and $900,000$1.2 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively. The decrease2021, an increase of $373,000,$259,000, or 41.4%28.9%, resulted from the effect of an update in our accounting methodology during 2016 relatedcompared to accrual of the assessment fees and an increased one time expense in the prior period.
Advertising and Promotions. Advertising and promotion related expenses were $879,000 and $752,000$897,000 for the nine months ended September 30, 2017same period in 2020 as a result of increased ATM and 2016, respectively. The increase of $127,000, or 16.9%, was primarily due to increases in advertising expense indebit card usage by our growth markets, especially Dallas/Fort Worth and Bryan/College Station.customers.
Other
. This category includes operating and administrative expenses, such as stock option expense, expenses and losses related to repossession of assets, small hardware and software purchases, expense of the value of stock appreciation rights, losses incurred on problem assets, OREO related expenses, gains or losses on the sale of OREO,other real estate owned and other assets, other real estate owned expense and write-downs, business development expenses (i.e., travel and entertainment, charitable contributions and club memberships), insurance and security expenses. Other noninterest expense increased to $3.3decreased $503,000, or 19.9%, from $2.5 million for the ninesix months ended SeptemberJune 30, 2017, compared2020 to $3.2$2.0 million for the same period in 2016, an increase of $112,000, or 3.5%.six months ended June 30, 2021. The increasedecrease was primarily due to additional stock appreciation rights and stock option expensesfewer charitable contributions of $306,000 during the


48.


comparable periods, partially offset by$211,000, a $128,000 decrease in loan and filing fee expenses of $168,000 during the comparable periods, resulting from both processing efficiencies and a $92,000 reduction in appraisal review costs by reviewing the appraisals internally, rather than through a third party vendor.loan processing fees.
Income Tax Expense
The amount of income tax expense we incur is influenced by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, income tax expense totaled $4.6 million and $3.3$1.3 million, respectively. The increase in income tax expense was primarily due to an increase in net earnings before taxes of $17.4 million. Our effective tax rates for the ninesix months ended September 30, 20172021 and 20162020 were 28.54%17.85% and 27.79%14.58%, respectively.
Discussion and Analysis of Results of Operations for the Three Months Ended SeptemberJune 30, 20172021 and 20162020
Results of Operations
The following discussion and analysis of our results of operations compares our results of operations for the three months ended SeptemberJune 30, 20172021 with the three months ended SeptemberJune 30, 2016.2020. The results of operations for the three months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017.2021.
Net earnings were $4.1$10.4 million for the three months ended SeptemberJune 30, 2017,2021, as compared to $3.4$1.1 million for the three months ended SeptemberJune 30, 2016. 2020. Basic earnings per share were $0.87 for the three months ended June 30, 2021 compared to $0.09 during the same period in 2020.
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The following table presents key earnings data for the periods indicated:
   For the Three Months Ended June 30, 
(dollars in thousands, except per share data)
                2021                               2020               
Net earnings
  $10,432      $1,075    
Net earnings per common share*
    
-basic
   0.87       0.09    
-diluted
   0.85       0.09    
Net interest margin
(1)
   3.40%    3.75% 
Net interest rate spread
(2)
   3.24%    3.48% 
Return on average assets
   1.42%    0.16% 
Return on average equity
   14.64%    1.67% 
Average equity to average total assets
   9.72%    9.72% 
Cash dividend payout ratio*
   22.99%    190.00% 
* Adjusted to give effect to the 10% stock dividend issued during the first quarter of 2021.
 For the Three Months Ended September 30,
 2017 2016
 (Dollars in thousands, except per share data)
Net earnings$4,139
 $3,370
Net earnings per common share   
-basic0.37
 0.38
-diluted0.37
 0.38
Net interest margin(1)
3.38% 3.26%
Net interest rate spread(2)
3.13% 3.07%
Return on average assets0.87% 0.75%
Return on average equity7.99% 9.20%
Average equity to average total assets10.86% 8.16%
(1) Net interest margin is equal to net interest income divided by average interest-earning assets.
(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
Net Interest Income
Net interestWith the credit outlook still uncertain as a result of COVID-19 and other economic factors, the following table illustrates net earnings and net core earnings results, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as performance ratios for the three months ended SeptemberJune 30, 20172021 and 2020:
   For the Three Months Ended
June 30,		 
           2021                  2020         
Net earnings
  $10,432  $1,075 
Adjustments:
   
Provision for credit losses
   (1,000)   12,100 
Income tax provision
   2,312   (190) 
PPP loans, including fees
   (1,954)   (2,540) 
Net interest expense on PPP-related borrowings
   —   31 
  
 
 
  
 
 
 
Net core earnings
†
  $9,790  $10,476 
  
 
 
  
 
 
 
   
Total average assets
  $2,938,944  $2,657,609 
Adjustments:
   
PPP loans average balance
   (155,417)   (163,184) 
Excess fed funds sold due to PPP-related borrowings
   —   (84,066) 
  
 
 
  
 
 
 
Total average assets, adjusted
†
  $2,783,527  $2,410,359 
  
 
 
  
 
 
 
Total average equity
  $285,803  $258,225 
  
 
 
  
 
 
 
   
PERFORMANCE RATIOS
   
Net earnings to average assets (annualized)
   1.42%   0.16% 
Net earnings to average equity (annualized)
   14.64   1.67 
Net core earnings to average assets, as adjusted (annualized)
†
   1.41   1.75 
Net core earnings to average equity (annualized)
†
   13.74   16.32 
   
PER COMMON SHARE DATA
   
Weighted-average common shares outstanding, basic*
   12,056,550   12,128,516 
  
 
 
  
 
 
 
Earnings per common share, basic*
  $0.87  $0.09 
  
 
 
  
 
 
 
Net core earnings per common share, basic
†
*
   0.81   0.86 
  
 
 
  
 
 
 
* Adjusted to give effect to the 10% stock dividend issued during the first quarter of 2021.
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in the schedules accompanying this release.
Net Interest Income
Net interest income, before the provision for credit losses, in the second quarter of 2021 and 2020 was $15.1$23.5 million compared to $13.7and $23.2 million, for the three months ended September 30, 2016,respectively, an increase of $1.4$295,000, or 1.3%, resulting primarily from a decrease in deposit-related interest expense of $1.5 million, or 10.5%.50.9%, compared to the same quarter of the prior year. The increasedecrease in netdeposit-related interest incomeexpense was comprised of a $1.7 million, or 10.6%, increase in interest income offset by a $304,000,$1.3 million, or 11.0%5.2%, increasedecrease in interest expense. The growth inloan-related interest income, was primarily attributabledue to a $76.7 million, or 6.3%, increase in averageour PPP loans, outstandingwhich earned only 1.00% interest, and low interest earned on high balances of fed funds held at other banks.
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Loan yield decreased from 5.15% for the three months ended September 30, 2017, comparedsecond quarter of 2020 to 4.79% for the three months ended September 30, 2016, and further improved bysecond quarter of 2021, a 0.07% increasechange of 36 basis points, while the cost of interest-bearing deposits decreased from 0.83% to 0.37% during the same period, a change of 46 basis points. The decrease in the averageloan yield on total loans. The increase in average loans outstanding was primarily due to organic growththe dilutive effect of the 1.00% interest rate on PPP loans originated during the second quarter of 2020, partially offset by the yield added from net PPP loan origination fees. The decrease in all of our markets and continuing maturity of de novo and acquired locationsloan yield is also attributable to reductions in interest rates by the Federal Reserve in the Dallas/Fort Worth metroplex and Bryan/College Station markets. The $304,000first quarter of 2020.


49.


increase in interest expense for the three months ended September 30, 2017 was primarily related to a $62.9 million, or 5.4%, increase in average interest-bearing deposits over the same period in 2016, and an increase in the average rate of 0.08%. The majority of this increase was due to organic growth, primarily in money market accounts, driven in part by favorable rates that were offered in our Bryan/College Station and Dallas/Fort Worth metroplex markets. For the three months ended SeptemberJune 30, 2017,2021, net interest margin on a taxable equivalent basis and net interest spread were 3.38%3.44% and 3.13%3.24%, respectively, compared to 3.26%3.78% and 3.07%3.48% for the same period in 2016,2020, which reflects the increaseschanges in interest income discussed above relative to the increaseschanges in interest expense.
Average Balance Sheet Amounts, Interest Earned and Yield Analysis
The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively.
The table also sets forth the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended SeptemberJune 30, 20172021 and 2016,2020, the amount of interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield.


50.
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Table of Contents
  For the Three Months Ended June 30, 
  2021  2020 
(dollars in thousands)
 Average
Outstanding
Balance		  Interest
Earned/
Interest
Paid		  Average
Yield/ Rate		  Average
Outstanding
Balance		  Interest
Earned/
Interest
Paid		  Average
Yield/ Rate		 
ASSETS
      
Interest-earning assets:
      
Total loans
(1)
 $    1,912,722  $    22,864   4.79%  $    1,885,959  $    24,139   5.15% 
Securities available for sale
  420,202   2,191   2.09   379,803   2,273   2.41 
Nonmarketable equity securities
  10,056   164   6.54   11,869   108   3.66 
Interest-bearing deposits in other banks
  426,074   65   0.06   209,005   61   0.12 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-earning assets
  2,769,054   25,284   3.66   2,486,636   26,581   4.30 
  
 
 
  
 
 
   
 
 
  
 
 
 
Allowance for loan losses
  (32,664)     (27,720)   
Noninterest-earning assets
  202,554     198,693   
 
 
 
    
 
 
   
Total assets
 $2,938,944    $2,657,609   
 
 
 
    
 
 
   
LIABILITIES AND SHAREHOLDERS’ EQUITY
      
Interest-bearing liabilities:
      
Interest-bearing deposits
 $1,623,351  $1,493   0.37%  $1,480,106  $3,040   0.83% 
Advances from FHLB and fed funds purchased
  49,063   102   0.83   134,677   123   0.37 
Line of credit
  2,374   21   3.55   7,791   47   2.43 
Subordinated debentures
  19,810   188   3.81   17,618   176   4.02 
Securities sold under agreements to repurchase
  14,887   3   0.08   18,106   13   0.29 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-bearing liabilities
  1,709,485   1,807   0.42   1,658,298   3,399   0.82 
  
 
 
  
 
 
   
 
 
  
 
 
 
Noninterest-bearing liabilities:
      
Noninterest-bearing deposits
  916,631     718,378   
Accrued interest and other liabilities
  27,025     22,708   
 
 
 
    
 
 
   
Total noninterest-bearing liabilities
  943,656     741,086   
Shareholders’ equity
  285,803     258,225   
 
 
 
    
 
 
   
Total liabilities and shareholders’ equity
 $2,938,944    $2,657,609   
 
 
 
    
 
 
   
Net interest rate spread
(2)
    3.24%     3.48% 
Net interest income
  $23,477    $23,182  
  
 
 
    
 
 
  
Net interest margin
(3)
    3.40%     3.75% 
Net interest margin, fully taxable equivalent
(4)
    3.44%     3.78% 
 For the Three Months Ended September 30,
 2017 2016
 Average Outstanding Balance Interest Earned/ Interest Paid Average Yield/ Rate Average Outstanding Balance Interest Earned/ Interest Paid Average Yield/ Rate
 (Dollars in thousands)
Assets           
Interest-earnings assets:           
Total loans(1) 
$1,300,307
 $15,486
 4.72% $1,223,611
 $14,294
 4.65%
Securities available for sale245,409
 1,376
 2.22% 163,563
 709
 1.72%
Securities held to maturity180,737
 1,088
 2.39% 196,003
 1,252
 2.54%
Nonmarketable equity securities6,541
 59
 3.58% 8,816
 61
 2.75%
Interest-bearing deposits in other banks40,997
 156
 1.51% 75,112
 111
 0.59%
Total interest-earning assets1,773,991
 $18,165
 4.06% 1,667,105
 $16,427
 3.92%
Allowance for loan losses(12,492)     (11,843)    
Noninterest-earnings assets145,958
     140,087
    
Total assets$1,907,457
     $1,795,349
    
Liabilities and Stockholders’ Equity           
Interest-bearing liabilities:           
Interest-bearing deposits$1,224,991
 $2,730
 0.88% $1,162,060
 $2,329
 0.80%
Advances from FHLB and fed funds purchased50,420
 157
 1.24% 93,001
 97
 0.41%
Other debt—
 —
 —% 10,000
 104
 4.14%
Subordinated debentures13,821
 164
 4.71% 20,310
 217
 4.25%
Securities sold under agreements to repurchase14,262
 12
 0.33% 11,952
 12
 0.40%
Total interest-bearing liabilities1,303,494
 $3,063
 0.93% 1,297,323
 $2,759
 0.85%
Noninterest-bearing liabilities:           
Noninterest-bearing deposits390,043
     344,721
    
Accrued interest and other liabilities6,798
     6,752
    
Total noninterest-bearing liabilities396,841
     351,473
    
Shareholders’ equity207,122
     146,553
    
Total liabilities and shareholders’ equity$1,907,457
     $1,795,349
    
Net interest rate spread(2)
    3.13%     3.07%
Net interest income  $15,102
     $13,668
  
Net interest margin(3)
    3.38%     3.26%
(1) Includes average outstanding balances of loans held for sale of $2.1$3.2 million and $1.7$6.5 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets.assets, annualized.

(4) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.
(Continued)
60. 
Table of Contents
To illustrate core net interest margin and remove the extraordinary impacts resulting from the PPP program, the table below excludes PPP loans and their associated fees and costs for the three months ended June 30, 2021:
   For the Three Months Ended June 30, 2021 
(dollars in thousands)
  Average
    Outstanding    
Balance		  Interest
Earned/
Interest
Paid		  Average
      Yield/ Rate      		 
Total interest-earning assets
  $        2,769,054  $            25,284   3.66% 
    
Total loans
   1,912,722   22,864   4.79 
Adjustments:
    
PPP loans average balance and net fees
(1)
   (155,417)   (1,747)   4.51 
  
 
 
  
 
 
  
 
 
 
Total loans, net of PPP effects
  $1,757,305  $21,117   4.82% 
    
    
  
 
 
  
 
 
  
 
 
 
Total interest-earning assets, net of PPP effects
†
  $2,613,637  $23,537   3.61% 
    
    
Net interest income, fully taxable equivalent (“FTE”)
   $23,746  
Net interest margin, FTE
     3.44% 
Net interest income, net of PPP effects†
    21,999  
Net interest margin, FTE, net of PPP effects†
     3.38% 
† Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in the schedules accompanying this release.
(1) Interest earned consists of interest income of $385,000 and net origination fees recognized in earnings of $1.4 million for the three months ended June 30, 2021.
The following table presents the change in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.


51.
   For the Three Months Ended
June 30, 2021 vs. 2020
   Increase (Decrease)
Due to Change in		 Total Increase
(in thousands)
  Volume Rate (Decrease)
Interest-earning assets:
       
Total loans
   $                345  $          (1,620)  $          (1,275)
Securities available for sale
    243   (325)   (82)
Nonmarketable equity securities
    (17)   73   56
Interest-earning deposits in other banks
    65   (61)   4
   
 
 
 
  
 
 
 
  
 
 
 
Total increase (decrease) in interest income
   $636  $(1,933)  $(1,297)
   
 
 
 
  
 
 
 
  
 
 
 
       
Interest-bearing liabilities:
       
Interest-bearing deposits
   $297  $(1,844)  $(1,547)
Advances from FHLB and fed funds purchased
    (79)   58   (21)
Line of credit
    (33)   7   (26)
Subordinated debentures
    22   (10)   12
Securities sold under agreements to repurchase
    (2)   (8)   (10)
   
 
 
 
  
 
 
 
  
 
 
 
Total increase (decrease) in interest expense
    205   (1,797)   (1,592)
   
 
 
 
  
 
 
 
  
 
 
 
Increase (decrease) in net interest income
   $431  $(136)  $295
   
 
 
 
  
 
 
 
  
 
 
 


 For the Three Months Ended September 30, 2017 vs. 2016
 Increase (Decrease)  
 Due to Change in Total Increase
 Volume Rate (Decrease)
 (Dollars in thousands)
Interest-earning assets:     
Total loans$3,624
 $(2,432) $1,192
Securities available for sale1,821
 (1,154) 667
Securities held to maturity(365) 201
 (164)
Nonmarketable equity securities(81) 79
 (2)
Interest-earning deposits in other banks(515) 560
 45
Total increase (decrease) in interest income$4,484
 $(2,746) $1,738
      
Interest-bearing liabilities:     
Interest-bearing deposits$556
 $(155) $401
Advances from FHLB and fed funds purchased(526) 586
 60
Other debt—
 (104) (104)
Subordinated debentures(305) 252
 (53)
Securities sold under agreements to repurchase8
 (8) —
Total increase (decrease) in interest expense(267) 571
 304
Increase (decrease) in net interest income$4,751
 $(3,317) $1,434

Provision for LoanCredit Losses
The
There was a reverse provision for loancredit losses for the three months ended September 30, 2017 was $800,000 compared to $840,000 for the three months ended September 30, 2016. Net charge offs wereof $1.0 million for the three months ended SeptemberJune 30, 20172021, compared to $1.3a provision expense of $12.1 million for the same periodthree months ended June 30, 2020. During the second quarter of 2020, a COVID-specific qualitative factor was added to the CECL model, primarily derived from changes in 2016. Two relationships totaling approximately $700,000national GDP, Texas unemployment rates and national industry related CRE trends, all of which were charged offimpacted by the effects of COVID-19. The COVID-19 qualitative factor was reduced during the thirdcurrent year quarter by 14 basis points to reflect the continued improvement of 2017 and one relationship totaling approximately $1.2 million was charged off duringthose macro-economic factors used to establish the third quarterinitial COVID-specific qualitative factor at the onset of 2016.the pandemic.
(Continued)
61. 
Table of Contents
Noninterest Income
The following table presents components of noninterest income for the three months ended SeptemberJune 30, 20172021 and 20162020 and the period-over-period variations in the categories of noninterest income:
 For the Three Months Ended
September 30,		 Increase (Decrease)
 2017 2016 2017 v. 2016
 (Dollars in thousands)
Noninterest income:     
Service charges on deposit accounts$986
 $914
 $72
Merchant and debit card fees778
 690
 88
Fiduciary income362
 364
 (2)
Gain on sales of loans589
 486
 103
Bank-owned life insurance income116
 112
 4
Gain (loss) on sales of investment securities—
 64
 (64)
Loan processing fee income146
 161
 (15)
Other noninterest income725
 611
 114
Total noninterest income$3,702
 $3,402
 $300


   For The Three Months Ended
June 30,		 Increase
(Decrease)
(in thousands)
  2021 2020 2021 vs. 2020
Noninterest income:
       
Service charges
   $855  $571  $284
Gain on sale of loans
    1,244    1,508    (264)
Fiduciary and custodial income
    570   474   96
Bank-owned life insurance income
    206   207   (1)
Merchant and debit card fees
    1,922   1,334   588
Loan processing fee income
    164   130   34
Warehouse lending fees
    211   243   (32)
Mortgage fee income
    157   204   (47)
Other noninterest income
    641   316   325
   
 
 
 
  
 
 
 
  
 
 
 
Total noninterest income
   $          5,970  $          4,987  $            983
   
 
 
 
  
 
 
 
  
 
 
 
52.



Total noninterest income increased $300,000,$983,000, or 8.8%19.7%, for the three months ended SeptemberJune 30, 20172021 compared to the same period in 2016.2020. Material changes in the components of noninterest income are discussed below.
Service Charges on Deposit Accounts.We earn fees from our customers for deposit-related services, and these fees constitute a significant and predictable component of our noninterest income.
Service charges on deposit accounts were $986,000fee income was $855,000 for the three months ended SeptemberJune 30, 2017, which increased over2021 compared to $571,000 for the same period in 2016 by $72,000,2020, an increase of $284,000, or 7.9%49.7%. ThisThe increase was primarily due to service charge waivers during the prior year quarter because of COVID-19, as well as increases in service chargescustomer spending activity during the current year quarter.
Gain on Sale of Loans.
We sold 125 mortgage loans for $28.3 million for the three months ended June 30, 2021 compared to 181 mortgage loans for $42.5 million for the three months ended June 30, 2020. Gain on sale of loans was due in part$1.2 million for the three months ended June 30, 2021, a decrease of $264,000, or 17.5%, compared to our deposit growth during$1.5 million for the same period in 2020. The total gain on loans sold during the quarter ended June 30, 2021 consisted of $1.0 million in mortgage loans and a$165,000 in SBA 7(a) loans sold during the quarter ended June 30, 2021.
Fiduciary and Custodial Income.
We have trust powers and provide fiduciary and custodial services through our trust and wealth management division. Fiduciary income was $570,000 and $474,000 for the three months ended June 30, 2021 and 2020, respectively, an increase of $96,000, or 20.3%. The revenue increase resulted primarily from eight new deposit service charge and fee schedule implementedaccounts that opened during February 2017.the quarter, which have generated additional income.
Merchant and Debit Card Fees.
We earn interchange income related to the activity of our customers’ merchant and debit card usage. Debit card interchange income was $778,000$1.9 million for the three months ended SeptemberJune 30, 20172021 compared to $690,000$1.3 million for the same period in 2016,2020, an increase of $88,000,$588,000, or 12.8%44.1%. The increase was primarily due to a change in contract terms, receipt of an annual statement credit from our debit card vendor, as well as growth in the number of demand deposit accountsDDAs and debit card usage volume during 2017.2021.
Gain on Sale of Loans. We originate long-term fixed-rate mortgage loans for resale into the secondary market.  We sold 109 loans for $19.9 million for the three months ended September 30, 2017 compared to 92 loans for $16.2 million for the three months ended September 30, 2016. Gain on sale of loans was $589,000 for the three months ended September 30, 2017, an increase of $103,000, or 21.2%, compared to $486,000 for the same period in 2016, which reflects an increase in mortgage volume and the number of loans sold.
Other.
Other.
This category includes a variety of other income producing activities, including mortgage loan origination fees, wire transfer fees, loan administration fees, and other fee income. Other noninterest income increased $114,000,$325,000, or 18.7%102.8%, for the three months ended SeptemberJune 30, 20172021, compared to the same period in 20162020 due primarily to a $256,000 write-off of repossessed assets during the growth in our loan portfolio and increased mortgage origination volume causing an increase in fee income generated from loan administration fees and income from mortgage loan origination and processing fees.prior year quarter.
(Continued)
62. 
Table of Contents
Noninterest Expense
For the three months ended SeptemberJune 30, 2017,2021, noninterest expense totaled $12.2$17.7 million, an increase of $686,000,$2.5 million, or 6.0%16.6%, compared to $11.5$15.2 million for the three months ended SeptemberJune 30, 2016.2020. The following table presents, for the periods indicated, the major categories of noninterest expense:
   For The Three Months Ended
June 30,		 Increase
(Decrease)
(in thousands)
  2021 2020 2021 vs. 2020
Employee compensation and benefits
   $10,204  $8,077  $2,127
Non-staff expenses:
       
Occupancy expenses
    2,833   2,550   283
Legal and professional fees
    747    589    158
Software and technology
    1,055   945   110
Amortization
    336   338   (2)
Director and committee fees
    167   165   2
Advertising and promotions
    338   408   (70)
ATM and debit card expense
    616   479   137
Telecommunication expense
    180   209   (29)
FDIC insurance assessment fees
    168   122   46
Other noninterest expense
    1,059   1,302   (243)
   
 
 
 
  
 
 
 
  
 
 
 
Total noninterest expense
   $          17,703  $          15,184  $          2,519
   
 
 
 
  
 
 
 
  
 
 
 
 For the Three Months Ended
September 30,		 Increase (Decrease)
 2017 2016 2017 v. 2016
 (Dollars in thousands)
Employee compensation and benefits$6,729
 $6,370
 $359
Non-staff expenses:     
Occupancy expenses1,938
 1,720
 218
Amortization258
 240
 18
Software and Technology533
 451
 82
FDIC insurance assessment fees162
 300
 (138)
Legal and professional fees692
 481
 211
Advertising and promotions303
 278
 25
Telecommunication expense128
 130
 (2)
ATM and debit card expense253
 203
 50
Director and committee fees253
 222
 31
Other noninterest expense917
 1,085
 (168)
Total noninterest expense$12,166
 $11,480
 $686

Material changes in the components of noninterest expense are discussed below.


53.


Employee Compensation and Benefits
. Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $6.7$10.2 million for the three months ended SeptemberJune 30, 2017,2021, an increase of $359,000,$2.1 million, or 5.6%26.3%, compared to $6.4$8.1 million for the same period in 2016.2020. The increase was due primarily toresulted from an increase in per employee salaries, as well as increased health insurance expenses, benefit plan expensessalary expense due to annual salary adjustments and payroll taxes. Asresumption of September 30, 2017 and 2016, we had 397 and 395 full-time equivalent employees, respectively, an increase of two employees.bonus accruals that were halted during the prior year quarter due to COVID-19 uncertainties.
Occupancy Expenses.
Occupancy expenses increased $283,000, or 11.1% during the second quarter of 2021 compared to the same period of the prior year primarily due to new leases entered into during the quarter.
Legal and Professional Fees.
Legal and professional fees, which include audit, loan review and regulatory assessments, were $1.9 million and $1.7 million$747,000 for the three months ended SeptemberJune 30, 2017 and 2016, respectively.2021, an increase of $158,000, or 26.8%, compared to $589,000 for the same period in 2020. The increase was primarily the result of $218,000, or 12.7%, resulted primarily from additional lease expense of banking centers and an increaseprofessional recruiting fees paid during the quarterthree months ended June 30, 2021 that were not paid during the same period of machine and equipment servicing expenses relatedthe prior year due to automated teller machines and banking center alarm systems.COVID-19 hiring restrictions put in place at the time.
Software and Technology Fees.
Software and technology fees consist of fees paid to third parties for support of software and technology products. Software support fee expense was $533,000$1.1 million for the three months ended SeptemberJune 30, 2017,2021, compared to $451,000$945,000 for the same period in 2016,2020, an increase of $82,000,$110,000, or 18.2%11.6%. The increase resultedis attributable primarily from general increases into new software investments to improve online deposit account opening, further enhance treasury management capabilities and improve connectivity to support remote working and other technology contract costs.capabilities.
FDIC Insurance Assessment Fees. FDIC assessment fees
ATM and Debit Card Expense.
ATM and debit card expenses were $162,000 and $300,000$616,000 for the three months ended SeptemberJune 30, 20172021, an increase of $137,000, or 28.5%, compared to $479,000 for the same period in 2020 as a result of increased ATM and 2016, respectively. The decrease of $138,000, or 46.0%, resulted from the effect of an update indebit card usage by our accounting methodology during 2016 related to accrual of the assessment fees and an increased one time expense in the prior period.customers.
Other
. This category includes operating and administrative expenses, such as stock option expense, expenses and losses related to repossession of assets, small hardware and software purchases, expense of the value of stock appreciation rights, losses incurred on problem assets, OREO related expenses, gains or losses on the sale of OREO, business development expenses (i.e., travel and entertainment, charitable contributions and club memberships), insurance and security expenses. Other noninterest expense decreased to $917,000$243,000, or 18.7%, from $1.3 million for the three months ended SeptemberJune 30, 2017, compared2020 to $1.1 million for the same period in 2016, a decrease of $168,000, or 15.48%.three months ended June 30, 2021. The decrease was primarily due to reductionsfewer charitable contributions of $156,000 and an $89,000 reduction in office and computer supplies, account promotion expense and loan and filing expenses, quarter-over-quarter, partially offset by an increase in liability insurance expense.processing fees.
(Continued)
63. 
Table of Contents
Income Tax Expense
For the three months ended SeptemberJune 30, 2017 and 2016,2021, income tax expense totaled $1.7$2.3 million, and $1.4 million, respectively. Ourin contrast to a tax benefit of $190,000 received in the same period of 2020. The effective tax rates for the three months ended SeptemberJune 30, 20172021 and 2016,2020 were 29.10%18.14% and 29.05%21.47%, respectively. The effective tax rates differ from the statutory federal tax rate of 21% for the three months ended June 30, 2021 and 2020, largely due to tax exempt interest income earned on certain investment securities and loans and the nontaxable earnings on bank-owned life insurance.
(Continued)
64. 
Table of Contents
Discussion and Analysis of Financial Condition as of SeptemberJune 30, 2017 2021

Assets
Our total assets increased $95.7$192.1 million, or 5.2%7.0%, from $1.8$2.74 billion as of December 31, 20162020 to $1.9$2.93 billion as of SeptemberJune 30, 2017.2021. Our asset growth was primarily due to increases in our loancash and cash equivalents of $95.4 million, securities portfolios,available for sale of $65.8 million and in total gross loans of $23.3 million. The increase in cash and cash equivalents is due to a $166.3 million increase in federal funds sold, partially offset by decreases in interest-bearing cash deposits and due from balances of $60.6 million and $10.2 million, respectively. The increase in loans resulted largely from our participation in the PPP2 loan program, and the increase in cash and other assets.cash equivalents resulted largely from increases in deposit balances that resulted from government stimulus payments, PPP2 loan proceeds and general changes in consumer spending and saving habits.

Loan Portfolio
Our primary source of income is derived through interest earned on loans to small- to medium-sized businesses, commercial companies, professionals and individuals located in our primary market areas. A substantial portion of our loan portfolio consists of commercial and industrial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning asset base.
Our loan portfolio is the largest category of our earning assets. As of SeptemberJune 30, 2017,2021, total loans held for investment were $1.31$1.89 billion, an increase of $62.2$23.3 million, or 5.0%1.3%, from the December 31, 20162020 balance of $1.25$1.87 billion. In addition to these amounts, $3.4$5.1 million and $2.6$5.5 million in loans were classified as held for sale as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.


54.

The increase in gross loans during the period included outstanding PPP loan balances of $127.4 million, to 1,674 borrowers, as of June 30, 2021. Excluding the outstanding balance of PPP loans, gross loans increased 2.1%, or $35.8 million, from December 31, 2020, primarily the result of period-end increases in commercial real estate and multi-family residential portfolios.

Total loans, excluding those held for sale, as a percentage of deposits, were 80.8%74.6% and 79.0%81.6% as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. Total loans, excluding those held for sale, as a percentage of total assets, were 67.9%64.4% and 68.1% as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
The following table summarizes our loan portfolio by type of loan and dollar change and percentage change from December 31, 20162020 to SeptemberJune 30, 2017:2021:
(in thousands)
  As of
    June 30, 2021    		   As of
 December 31, 2020 		   Increase
   (Decrease)   		       Percent     
Change		 
Commercial and industrial
  $424,624   $445,771   $(21,147)   (4.74%) 
Real estate:
       
Construction and development
   264,002    270,407    (6,405)   (2.37%) 
Commercial real estate
   608,464    594,216    14,248   2.40% 
Farmland
   94,525    78,508    16,017   20.40% 
1-4 family residential
   389,616    389,096    520   0.13% 
Multi-family residential
   42,086    21,701    20,385   93.94% 
Consumer and overdrafts
   52,239    51,386    853   1.66% 
Agricultural
   14,608    15,734    (1,126)   (7.16%) 
  
 
 
   
 
 
   
 
 
  
 
 
 
Total loans held for investment
  $1,890,164   $1,866,819   $23,345   1.25% 
  
 
 
   
 
 
   
 
 
  
 
 
 
       
Total loans held for sale
  $5,088   $5,542   $(454)   (8.19%) 
  
 
 
   
 
 
   
 
 
  
 
 
 
 As of September 30, 2017 As of December 31, 2016 Dollar Change Percent Change
 (Dollars in thousands)
Commercial and industrial$192,663
 $223,997
 $(31,334) (13.99)%
Real estate:       
Construction and development201,067
 129,366
 71,701
 55.42 %
Commercial real estate393,314
 367,656
 25,658
 6.98 %
Farmland54,349
 62,362
 (8,013) (12.85)%
1-4 family residential365,889
 362,952
 2,937
 0.81 %
Multi-family residential23,235
 26,079
 (2,844) (10.91)%
Consumer and overdrafts52,409
 53,822
 (1,413) (2.63)%
Agricultural24,449
 18,901
 5,548
 29.35 %
Total loans held for investment$1,307,375
 $1,245,135
 $62,240
 5.00 %
        
Total loans held for sale$3,400
 $2,563
 $837
 32.66 %
Nonperforming Assets
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured.
(Continued)
65. 
Table of Contents
We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have several procedures in place to assist us in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
We had $10.2 million in
Nonperforming assets as a percentage of total loans were 0.20% at June 30, 2021, compared to 0.70% at December 31, 2020. The Bank’s nonperforming assets asconsist primarily of September 30, 2017, compared to $9.6nonaccrual loans. During 2020, nonperforming assets included three Small Business Administration (SBA) 7(a), partially guaranteed (75%) loans that were acquired in the June 2018 acquisition of Westbound Bank, with combined book balances of $8.7 million as of December 31, 2016. We had $5.8 million in nonperforming2020. During the first quarter of 2021, one of these loans as of September 30, 2017, comparedwas resolved when the underlying collateral, a hotel, was sold to $4.4 million as of December 31, 2016.a third party. The $1.3 million, or 30.5%, increase in our nonperforming (nonaccrual)other two loans, from December 31, 2016both to September 30, 2017 primarily relates to an increase in nonaccrual loans in our 1-4 family residential portfolio of $1.0 million, of which $612,000 is related to onethe same borrower and severalsecured by the same hotel, were resolved through a bankruptcy judgement that allows the borrower to adequately service their debt coverage. These loans that are in the process of foreclosure. We also had an increase in our nonaccrual commercial real estate portfolio of $1.7 million, of which $1.5 million is relatedwere internally identified as problem assets prior to two borrowers. The increase in nonaccrual loans was partially offset by a decrease in our constructionCOVID-19 and development nonaccrual portfolio, all of which was attributable to one borrower that was returned to accrual status in accordance with our loan policy.


55.

were properly reserved.

The following table presents information regarding nonperforming assets and loans as of:
(dollars in thousands)
        June 30, 2021          December 31, 2020   
Nonaccrual loans
  $3,593  $12,705 
Accruing loans 90 or more days past due
   —   — 
  
 
 
  
 
 
 
Total nonperforming loans
   3,593   12,705 
Other real estate owned:
   
Residential real estate
   227   404 
  
 
 
  
 
 
 
Total other real estate owned
   227   404 
Repossessed assets owned
   9   6 
  
 
 
  
 
 
 
Total other assets owned
   236   410 
  
 
 
  
 
 
 
Total nonperforming assets
  $3,829  $13,115 
  
 
 
  
 
 
 
TDR loans - nonaccrual
  $86  $90 
TDR loans - accruing
  $9,535  $9,626 
Ratio of nonperforming loans to total loans
(1)(2)
   0.19%   0.68% 
Ratio of nonperforming assets to total loans
(1)(2)
   0.20%   0.70% 
Ratio of nonperforming assets to total assets
   0.13%   0.48% 
 September 30, 2017 December 31, 2016
 (Dollars in thousands)
Nonaccrual loans$5,755
 $4,409
Accruing loans 90 or more days past due—
 —
Total nonperforming loans5,755
 4,409
Other real estate owned:   
Commercial real estate, construction and development, and farmland1,003
 1,074
Residential real estate926
 618
Total other real estate owned1,929
 1,692
Repossessed assets owned2,479
 3,530
Total other assets owned4,408
 5,222
Total nonperforming assets$10,163
 $9,631
Restructured loans-nonaccrual$—
 $43
Restructured loans-accruing316
 462
Ratio of nonperforming loans to total loans(1)(2) 
0.44% 0.35%
Ratio of nonperforming assets to total assets0.53% 0.53%
(1) Excludes loans held for sale of $3.4$5.1 million and $2.6$5.5 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
(2) Restructured loans-nonaccrualloans on nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.

The following table presents nonaccrual loans by category as of:
(in thousands)
        June 30, 2021          December 31, 2020   
Commercial and industrial
  $86  $27 
Real estate:
   
Construction and development
   230   — 
Commercial real estate
   722   10,604 
Farmland
   109   115 
1-4 family residential
   2,177      1,667 
Consumer and overdrafts
   246   212    
Agricultural
   23   80 
  
 
 
  
 
 
 
Total
  $3,593  $12,705 
  
 
 
  
 
 
 
 September 30, 2017 December 31, 2016
 (Dollars in thousands)
Nonaccrual loans by category:   
Real estate:   
Construction and development$—
 $1,825
Commercial real estate2,113
 415
Farmland162
 176
1-4 family residential2,716
 1,699
Multi-family residential228
 5
Commercial and industrial57
 82
Consumer164
 192
Agricultural315
 15
Total$5,755
 $4,409

(Continued)
66. 
Table of Contents
Potential Problem Loans
From a credit risk standpoint, we classify loans in one of five categories:risk ratings: pass, special mention, substandard, doubtful or loss. Within the pass category,rating, we classify loans into one of the following fourfive subcategories based on perceived credit risk, including repayment capacity and collateral security: superior, excellent, good, acceptable and acceptable.acceptable/watch. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings on credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is believed to be inherent in each credit as of each monthly reporting period. Our methodology is structured so that specific reserveACL allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Credits rated special mention show clear signs of financial weaknesses or deterioration in creditworthiness; however, such concerns are not so pronounced that we generally expect to experience significant loss within the short-


56.


term.short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating. The increase in special mention loans from December 31, 2016 to September 30, 2017 is attributable to one borrower, with an outstanding balance of $19.0 million, whose cash flow was adversely impacted by hurricane Harvey, thus was added to our special mention/watch list until the cash flow returns to normal levels. The physical collateral was not impacted and we do not expect any long term impairment or losses as a result of the hurricane for this loan.
Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
Credits rated as doubtful have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values.
Credits rated as loss are charged-off. We have no expectation of the recovery of any payments in respect of credits rated as loss.
Loans that were modified for reasons related to the COVID-19 pandemic that avoided TDR status are not currently required to pay, or are paying with interest only, but they are nevertheless considered performing so long as they are compliant with the terms of their modifications. They will be evaluated for classification, but the existence of a loan modification in accordance with the CARES Act does not necessarily result in an adverse classification.
The following tables summarizetable summarizes the internal ratings of our performing, classified and nonaccrual (as well as substandard) loans, by category, as of:
  June 30, 2021 
(in thousands)
 Pass  Special
Mention		  Substandard    Doubtful    Loss  Nonaccrual   Total 
Commercial and industrial
 $423,725  $162  $651  $            —  $            —  $86   $424,624 
Real estate:
     
Construction and development
  261,400   1,760   612   —   —   230    264,002 
Commercial real estate
  544,135   11,787   51,820   —   —   722    608,464 
Farmland
  94,265   30   121   —   —   109    94,525 
1-4 family residential
  387,412   27   —   —   —   2,177    389,616 
Multi-family residential
  41,405   —   681   —   —   —    42,086 
Consumer and overdrafts
  51,983   10   —   —   —   246    52,239 
Agricultural
  14,457   27   101   —   —   23    14,608 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Total
 $    1,818,782  $    13,803  $    53,986  $—  $—  $      3,593   $      1,890,164 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
 September 30, 2017
 Pass Special Mention Substandard Doubtful Loss Total
 (Dollars in thousands)
Real estate:           
Construction and development$181,879
 $19,188
 $—
 $—
 $—
 $201,067
Commercial real estate388,007
 1,030
 4,277
 —
 —
 393,314
Farmland53,649
 413
 287
 —
 —
 54,349
1-4 family residential357,814
 3,059
 5,016
 —
 —
 365,889
Multi-family residential21,659
 1,348
 228
 —
 —
 23,235
Commercial and industrial188,440
 3,705
 518
 —
 —
 192,663
Consumer and overdrafts51,631
 362
 416
 —
 —
 52,409
Agricultural22,525
 1,147
 777
 —
 —
 24,449
Total$1,265,604
 $30,252
 $11,519
 $—
 $—
 $1,307,375
(Continued)
 December 31, 2016
 Pass Special Mention Substandard Doubtful Loss Total
 (Dollars in thousands)
Real estate:           
Construction and development$127,537
 $4
 $1,825
 $—
 $—
 $129,366
Commercial real estate360,264
 1,927
 5,465
 —
 —
 367,656
Farmland61,713
 248
 401
 —
 —
 62,362
1-4 family residential353,483
 4,311
 5,121
 37
 —
 362,952
Multi-family residential25,871
 —
 208
 —
 —
 26,079
Commercial and industrial218,975
 4,299
 706
 17
 —
 223,997
Consumer and overdrafts52,648
 524
 568
 82
 —
 53,822
Agricultural17,965
 478
 458
 —
 —
 18,901
Total$1,218,456
 $11,791
 $14,752
 $136
 $—
 $1,245,135
67. 


57.
Table of Contents

The following table summarizes the internal ratings of our performing, classified and nonaccrual (as well as substandard) loans, by category, as of:

  December 31, 2020 
(in thousands)
 Pass  Special
Mention		  Substandard  Doubtful  Loss   Nonaccrual  Total 
Commercial and industrial
 $438,975  $5,829  $940  $—  $—   $27  $445,771 
Real estate:
     
Construction and development
  267,767   1,346   1,294   —   —    —   270,407 
Commercial real estate
  550,724   13,280   19,608   —   —    10,604   594,216 
Farmland
  78,229   35   129   —   —    115   78,508 
1-4 family residential
  387,261   168   —   —   —    1,667   389,096 
Multi-family residential
  21,701   —   —   —   —    —   21,701 
Consumer and overdrafts
  51,059   115   —   —   —    212   51,386 
Agricultural
  15,577   36   41   —   —    80   15,734 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Total
 $    1,811,293  $    20,809  $    22,012  $        —  $        —   $      12,705  $    1,866,819 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 

Allowance for LoanCredit Losses
We maintain an allowance for loancredit losses (“ACL”) that represents management’s best estimate of the loanappropriate level of losses and risks inherent in our loan portfolio.applicable financial assets under the current expected credit loss model. The amount of the allowance for loancredit losses should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. The determination of the amount of allowance involves a high degree of judgement and subjectivity. Refer to Note 1 of the notes to the financial statements for discussion regarding our ACL methodologies for loans held for investment and available for sale securities.
For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings through provision for credit loss expense. As of June 30, 2021, the Company determined that all available for sale securities that experienced a decline in fair value below the amortized costs basis were due to noncredit-related factors, therefore no related ACL was recorded and there was no related provision expense recognized during the six months ended June 30, 2021.
In determining the allowanceACL for loan losses,loans held for investment, we primarily estimate losses on specific loans, or groupssegments of loans with similar risk characteristics and where the probablepotential loss can be identified and reasonably determined. For loans that do not share similar risk characteristics with our existing segments, they are evaluated individually for an ACL. Our portfolio is segmented by regulatory call report codes, with additional segments for warehouse mortgage loans, SBA loans acquired from Westbound Bank, SBA loans originated by us and SBA PPP loans. The segments are further disaggregated by internally assigned risk rating classifications. The balance of the allowance for loan lossesACL is based on internally assigned risk classifications of loans,determined using the current expected credit loss model, which considers historical loan loss rates, changes in the nature of our loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and reasonable and supportable forecasts of the estimated impact of currentfuture economic conditions on certain historical loan loss rates. Please see “-Critical“
Critical Accounting Policies-AllowancePolicies - Allowance for Loan Losses.Credit Losses
.”
In connection with the review of our loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:
●
for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;
(Continued)
68. 
Table of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;Contents
●
for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio, operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;
●
for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and
●
for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio.
for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and
for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio.

As of SeptemberJune 30, 2017,2021, the allowance for loancredit losses totaled $12.5$31.5 million, or 0.96%1.67%, of total loans, excluding those held for sale, and totaled 1.79%, excluding PPP loans and loans held for sale. As of December 31, 2016,2020, the allowance for loan losses totaled $11.5$33.6 million, or 0.92%1.80%, of total loans, excluding those held for sale, and totaled 1.95%, excluding PPP loans and loans held for sale. The increasedecrease in allowancethe ACL of $2.1 million, or 6.2%, is due to general reserves for organic loan growth, specific allocations on impaired assets and slightly higherCOVID-specific qualitative factors established during 2020 that were reduced during the first half of 2021 from 55 basis points across the loan portfolio to 27.5 basis points in general allocation in recognitionorder to conservatively capture some of certain macroeconomicthe improvements that have occurred to macro-economic factors evaluated at the onset of the pandemic. Although management is cautiously optimistic about improving economic trends, in consumer and commercial real estate lending.


58.

it is likely that the economic effects of the pandemic could continue beyond 2021.

The following table presents, as of and for the periods indicated, an analysis of the allowance for loancredit losses and other related data:
 For the Nine Months Ended September 30, For the Year Ended December 31,
 2017 2016 2016
 (Dollars in thousands)
Average loans outstanding(1)
$1,269,387
 $1,158,807
 $1,179,938
Gross loans outstanding at end of period(2)
$1,307,375
 $1,229,341
 $1,245,135
Allowance for loan losses at beginning of the period11,484
 9,263
 9,263
Provision for loan losses2,250
 3,240
 3,640
Charge-offs:     
Real Estate:     
Construction and development—
 9
 9
Commercial real estate84
 —
 —
Farmland—
 —
 —
1-4 family residential307
 25
 71
Multi-family residential—
 —
 —
Commercial and industrial737
 1,196
 1,213
Consumer230
 170
 269
Agriculture4
 —
 —
Overdrafts117
 119
 200
Total charge-offs1,479
 1,519
 1,762
Recoveries:     
Real Estate:     
Construction and development—
 4
 4
Commercial real estate—
 —
 —
Farmland—
 —
 —
1-4 family residential21
 —
 75
Multi-family residential—
 —
 —
Commercial and industrial116
 14
 17
Consumer95
 103
 121
Agriculture—
 —
 —
Overdrafts41
 61
 126
Total recoveries273
 182
 343
Net charge-offs1,206
 1,337
 1,419
Allowance for loan losses at end of period$12,528
 $11,166
 $11,484
Ratio of allowance to end of period loans(2)
0.96% 0.91% 0.92%
Ratio of net charge-offs to average loans(1)
0.13% 0.15% 0.12%
   As of and for the Six Months
Ended June 30,		  As of and
for the Year
Ended
December 31,		 
(dollars in thousands)
  2021  2020  2020 
Average loans outstanding
(1)
  $1,899,864  $1,793,742  $1,872,914 
  
 
 
  
 
 
  
 
 
 
Gross loans outstanding at end of period
(2)
   1,890,164   1,957,440   1,866,819 
  
 
 
  
 
 
  
 
 
 
Allowance for credit losses at beginning of the period
   33,619   16,202   16,202 
Impact of adopting ASC 326
   —   4,548   4,548 
Provision for credit losses
   (1,000)   13,500   13,200 
Charge offs:
    
Commercial and industrial
   238   43   68 
Real estate:
    
Commercial real estate
   760   —   — 
1-4 family residential
   —   59   68 
Consumer
   76   80   155 
Agriculture
   —   18   18 
Overdrafts
   84   83   234 
  
 
 
  
 
 
  
 
 
 
Total charge-offs
   1,158   283   543 
Recoveries:
    
Commercial and industrial
   11   86   101 
Real estate:
    
Construction and development
   1   —   — 
Commercial real estate
   11   —   1 
1-4 family residential
   —   2   2 
Consumer
   28   17   37 
Agriculture
   —   20   20 
Overdrafts
   36   27   51 
  
 
 
  
 
 
  
 
 
 
Total recoveries
   87   152   212 
Net charge-offs (recoveries)
   1,071   131   331 
  
 
 
  
 
 
  
 
 
 
Allowance for credit losses at end of period
  $            31,548  $            34,119  $            33,619 
  
 
 
  
 
 
  
 
 
 
Ratio of allowance to end of period loans
(2)
   1.67%   1.74%   1.80% 
Ratio of net charge-offs (recoveries) to average loans
(1)
   0.06%   0.01%   0.02% 
(1) Includes average outstanding balances of loans held for sale of $2.8$3.7 million, $3.0$4.5 million and $3.0$6.0 million for the ninesix months ended SeptemberJune 30, 20172021 and 20162020, and for the year ended December 31, 2016,2020, respectively.
(2) Excludes loans held for sale of $3.4$5.1 million, $3.1$7.2 million and $2.6$5.5 million for the ninesix months ended SeptemberJune 30, 20172021 and 20162020, and for the year ended December 31, 2016,2020, respectively.

(Continued)
69. 
Table of Contents
The ratio of allowance for loancredit losses to non-performing loans has decreasedincreased from 260.5%264.6% at December 31, 20162020 to 217.7%878.0% at SeptemberJune 30, 2017.2021. Non-performing loans increaseddecreased to $5.8$3.6 million at SeptemberJune 30, 20172021, compared to $4.4$12.7 million at December 31, 2016, which is attributable primarily2020 due to an increasesthe resolution of three Small Business Administration (“SBA”) 7(a) partially guaranteed (75%) problem loans that were acquired in nonaccrual loans in our 1-4 family residential and commercial real estate portfolios, and partially offset by a decrease in nonaccrual loans in our construction and development portfolio.


59.

the June 2018 acquisition of Westbound Bank, with combined book balances of $8.7 million as of December 31, 2020.

Although we believe that we have established our allowance for loancredit losses in accordance with GAAP and that the allowance for loancredit losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for loancredit losses will be subject to ongoing evaluations of the risks in our loan portfolio. If our primary market areas experience economic declines, if asset quality deteriorates or if we are successful in growing the size of our loan portfolio, our allowance could become inadequate and material additional provisions for loancredit losses could be required.
The following table shows the allocation of the allowance for loancredit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for loancredit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.
   As of June 30, 2021  As of December 31, 2020 
(in thousands)
  Amount   Percent to
Total Loans		  Amount   Percent to
Total Loans		 
Commercial and industrial
  $3,477    11.02%  $4,033    12.00% 
Real estate:
       
Construction and development
   3,822    12.11%   4,735    14.08% 
Commercial real estate
   15,198    48.17%   15,780    46.94% 
Farmland
   1,239    3.93%   1,220    3.63% 
1-4 family residential
   6,151    19.50%   6,313    18.78% 
Multi-family residential
   618    1.96%   363    1.08% 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total real estate
   27,028    85.67%   28,411    84.51% 
Consumer and overdrafts
   853    2.71%   936    2.78% 
Agricultural
   190    0.60%   239    0.71% 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total allowance for credit losses
  $            31,548                  100.00%  $            33,619                  100.00% 
  
 
 
   
 
 
  
 
 
   
 
 
 
Securities
 As of September 30, 2017 As of December 31, 2016
 Amount Percent to Total Loans Amount Percent to Total Loans
 (Dollars in thousands)
Real estate:       
Construction and development$1,923
 0.15% $1,161
 0.09%
Commercial real estate4,199
 0.32% 3,264
 0.26%
Farmland458
 0.04% 482
 0.04%
1-4 family residential3,089
 0.24% 3,960
 0.32%
Multi-family residential266
 0.02% 281
 0.02%
Total real estate9,935
 0.77% 9,148
 0.73%
Commercial and industrial1,573
 0.12% 1,592
 0.13%
Consumer613
 0.05% 591
 0.05%
Agricultural407
 0.03% 153
 0.01%
Total allowance for loan losses$12,528
 0.97% $11,484
 0.92%

Securities
We use our securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of SeptemberJune 30, 2017,2021, the carrying amount of our investment securities totaled $417.2$446.6 million, an increase of $70.9$65.8 million, or 20.5%17.3%, compared to $346.3$380.8 million as of December 31, 2016.2020. Investment securities represented 21.7%15.2% and 18.9%13.9% of total assets as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
Our investment portfolio consists of securities classified as available for sale and held to maturity. Assale. During the first quarter of September 30, 2017, securities available for sale and securities held to maturity totaled $238.1 million and $179.1 million, respectively. As of December 31, 2016, securities available for sale and securities in held to maturity totaled $156.9 million and $189.4 million, respectively. Held to maturity percentages represented 42.9%2020, we transferred all of our investment portfoliosecurities classified as of September 30, 2017held-to-maturity to available-for-sale in order to provide maximum flexibility to address liquidity and 54.7% as of December 31, 2016. While we generally seekcapital needs that have resulted from COVID-19. We believe these transfers are allowable under existing GAAP due to maintain 50.0% or less of our portfolio in held to maturity securities, the Company hasisolated, non-recurring and usual events resulting from the intent and ability to hold its held to maturity securities until maturity or call and the December 31, 2016 policy exception was approved by our board of directors. pandemic.
The carrying values of our investment securities classified as available for sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity. As of June 30, 2021, the Company determined that all available for sale securities that experienced a decline in fair value below their amortized cost basis were impacted by noncredit-related factors; therefore the Company carried no ACL with respect to our securities portfolio at June 30, 2021.


60.
(Continued)
70. 

Table of Contents

The following tables summarize the amortized cost and estimated fair value of our investment securities:
 As of September 30, 2017
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
 (Dollars in thousands)
Corporate bonds$18,842
 $178
 $—
 $19,020
Municipal securities154,762
 2,696
 821
 156,637
Mortgage-backed securities115,138
 298
 929
 114,507
Collateralized mortgage obligations129,331
 674
 885
 129,120
Total$418,073
 $3,846
 $2,635
 $419,284
   As of June 30, 2021 
(in thousands)
  Amortized Cost   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 
U.S. Government agencies
  $10,014   $134   $—   $10,148 
Corporate bonds
   39,153    1,356    78    40,431 
Municipal securities
   162,219    9,634    40    171,813 
Mortgage-backed securities
   155,970    2,140    794    157,316 
Collateralized mortgage obligations
   65,282    1,660    14    66,928 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $        432,638   $      14,924   $        926   $    446,636 
  
 
 
   
 
 
   
 
 
   
 
 
 
 As of December 31, 2016
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
 (Dollars in thousands)
Corporate bonds$25,254
 $6
 $377
 $24,883
Municipal securities157,261
 901
 4,511
 153,651
Mortgage-backed securities89,748
 318
 1,898
 88,168
Collateralized mortgage obligations77,290
 275
 1,187
 76,378
Total$349,553
 $1,500
 $7,973
 $343,080

   As of December 31, 2020 
(in thousands)
  Amortized Cost   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 
Corporate bonds
  $29,608   $1,382   $8   $30,982 
Municipal securities
   164,668    11,036    —    175,704 
Mortgage-backed securities
   104,210    3,041    87    107,164 
Collateralized mortgage obligations
   64,611    2,335    1    66,945 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $        363,097   $      17,794   $          96   $    380,795 
  
 
 
   
 
 
   
 
 
   
 
 
 
We do not hold any Fannie Mae or Freddie Mac preferred stock, collateralized debt obligations, structured investment vehicles or second lien elements in our investment portfolio. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages. The Bank owns nomortgages, non-U.S. agency mortgage-backed securities and only one non-U.S. agencyor corporate collateralized mortgage obligation, which is categorized as held to maturity and had a $1.5 million carrying value as of September 30, 2017.obligations.
Our management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In 2013, we recognized OTTI with respect to the non-U.S. agency corporate collateralized mortgage obligation that we hold. As of September 30, 2017, $461,307 of OTTI was recorded.
The following tables setsset forth the amortized cost of held to maturity securities and the fair value of available for sale securities and maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of our securities portfolio as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.
  As of June 30, 2021 
        Within One Year        After One Year but
Within Five Years		  After Five Years but
Within Ten Years		  After Ten Years  Total 
(dollars in thousands)
 Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield  Total  Yield 
U.S. government agencies
 $—   —  $—   —  $10,148   1.35%  $—   —  $10,148   1.35% 
Corporate bonds
  —   —   20,719   3.09%   19,712   4.04%   —   —   40,431   3.55% 
Municipal securities
  2,850   3.19%   36,506   3.30%   52,449   3.37%   80,008   3.21%   171,813   3.28% 
Mortgage-backed securities
  123   3.42%   83,153   1.67%   48,741   1.74%   25,299   1.93%   157,316   1.73% 
Collateralized mortgage obligations
  4,832   1.25%   43,285   2.78%   —   —   18,811   1.04%   66,928   2.18% 
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
Total
 $      7,805   1.99%  $  183,663   2.42%  $  131,050   2.60%  $  124,118   2.62%  $  446,636   2.52% 
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
  As of December 31, 2020 
        Within One Year        After One Year but
Within Five Years		  After Five Years but
Within Ten Years		  After Ten Years  Total 
(dollars in thousands)
 Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield  Total  Yield 
Corporate bonds
 $—   —  $18,839   2.96%  $12,143   4.31%  $—   —  $30,982   3.49% 
Municipal securities
  4,154   2.84%   35,849   3.13%   51,823   3.39%   83,878   3.23%   175,704   3.25% 
Mortgage-backed securities
  170   3.37%   74,450   2.04%   22,104   2.05%   10,440   1.81%   107,164   2.02% 
Collateralized mortgage obligations
  9,641   1.49%   57,304   2.74%   —   —   —   —   66,945   2.56% 
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
Total
 $    13,965   1.91%  $  186,442   2.56%  $  86,070   3.17%  $  94,318   3.07%  $  380,795   2.80% 
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 As of September 30, 2017
 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total
 Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
 (Dollars in thousands)
Corporate bonds$—
 —% $1,096
 2.59% $17,924
 2.93% $—
 —% $19,020
 2.91%
Municipal securities2,683
 2.27% 5,126
 3.56% 43,228
 3.63% 103,420
 3.63% $154,457
 3.60%
Mortgage-backed securities—
 —% 58,496
 2.25% 55,799
 2.54% —
 —% $114,295
 2.39%
Collateralized mortgage obligations381
 —% 84,374
 2.55% 44,687
 2.67% —
 2.69% $129,442
 2.61%
Total$3,064
 2.27% $149,092
 2.46% $161,638
 2.89% $103,420
 3.48% $417,214
 2.92%


(Continued)
61.
71. 


Table of Contents
 As of December 31, 2016
 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total
 Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
 (Dollars in thousands)
Corporate bonds$—
 —% $7,453
 2.30% $17,430
 2.93% $—
 —% $24,883
 2.75%
Municipal securities732
 3.98% 6,103
 3.45% 38,634
 3.49% 111,170
 3.62% $156,639
 3.58%
Mortgage-backed securities—
 —% 74,047
 2.02% 14,093
 2.27% —
 —% $88,140
 2.06%
Collateralized mortgage obligations—
 —% 27,668
 2.92% 26,184
 2.68% 22,782
 2.98% $76,634
 2.81%
Total$732
 3.98% $115,271
 2.33% $96,341
 3.00% $133,952
 3.50% $346,296
 2.97%

The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and collateralized mortgage obligations are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities typically cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and, consequently, the average life of this security is typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 7.427.13 years with an estimated effective duration of 4.634.33 years as of SeptemberJune 30, 2017.2021.
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively, we did not own securities of any one issuer, other than the U.S. government and its agencies, for which aggregate adjusted cost exceeded 10.0% of the consolidated shareholders’ equity.
The average yield of our securities portfolio was 2.92%2.52% as of SeptemberJune 30, 2017 compared to 2.97%2021, down from 2.80% as of December 31, 2016.2020. The decreasedecline in average yield as of September 30, 2017, compared to December 31, 2016, wasresulted primarily due to purchases of new mortgage-backedfrom decreases in yields on mortgage backed securities and collateralized mortgage obligations which typically have a lower yield than do theof 2.02% and 2.56% at December 31, 2020, respectively, to 1.73% and 2.18% at June 30, 2021, respectively. As of June 30, 2021, municipal securities in our portfolio. Municipaland mortgage-backed securities decreased slightly from $156.6 million at a yieldcomprised 38.5% and 35.2% of 3.58%, asthe portfolio, respectively. As of December 31, 2016, to $154.5 million at a yield of 3.60% as of September 30, 2017, however,2020, municipal securities represent only 37.0%and mortgage-backed securities comprised 46.1% and 28.1% of the total investment portfolio, as September 30, 2017, compared to 45.2% of the total investment portfolio as of December 31, 2016.respectively.

Deposits
We offer a variety of deposit products, which have a wide range of interest rates and terms, including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.
Total deposits as of SeptemberJune 30, 20172021 were $1.62$2.53 billion, an increase of $40.5$246.6 million, or 2.6%10.8%, compared to $1.58$2.29 billion as of December 31, 2016.


62.

2020. The majority of the deposit balance increase was due to the deposit of government stimulus payments and PPP funds into demand and money market accounts at the Bank, as well as apparent changes in depositor spending habits resulting from economic and other uncertainties due to COVID-19.

The following table presents the average balances on deposits for the periods indicated:
(dollars in thousands)
  For the Six
 Months Ended 
June 30, 2021		   For the Year
Ended
    December 31,    
2020		   Increase
    (Decrease)    
($)		  Increase
    (Decrease)    
(%)		 
NOW and interest-bearing demand accounts
  $377,153   $293,111   $84,042   28.67% 
Savings accounts
   112,936    87,092    25,844   29.67% 
Money market accounts
   736,307    642,239    94,068   14.65% 
Certificates and other time deposits
   365,388    445,911    (80,523)   (18.06%) 
  
 
 
   
 
 
   
 
 
  
 
 
 
Total interest-bearing deposits
   1,591,784    1,468,353    123,431   8.41% 
  
 
 
   
 
 
   
 
 
  
 
 
 
Noninterest-bearing demand accounts
   862,619    696,454    166,165   23.86% 
  
 
 
   
 
 
   
 
 
  
 
 
 
Total deposits
  $2,454,403   $2,164,807   $289,596   13.38% 
  
 
 
   
 
 
   
 
 
  
 
 
 
 For the Nine Months Ended September 30, 2017 For the Year Ended December 31, 2016 Dollar Change Percent Change
 (Dollars in thousands)
Now and interest-bearing demand accounts$264,502
 $278,521
 $(14,019) (5.03)%
Savings accounts64,705
 59,961
 4,744
 7.91 %
Money market accounts589,763
 482,089
 107,674
 22.33 %
Certificates and other time deposits324,566
 354,949
 (30,383) (8.56)%
Total interest-bearing deposits1,243,536
 1,175,520
 68,016
 5.79 %
Noninterest-bearing demand accounts375,655
 340,240
 35,415
 10.41 %
Total deposits$1,619,191
 $1,515,760
 $103,431
 6.82 %

The aggregate amount of certificates and other time deposits in denominations of $100,000 or more as of SeptemberJune 30, 20172021 and December 31, 20162020 was $190.4$241.6 million and $218.6$266.3 million, respectively.

(Continued)
72. 
Table of Contents
The scheduled maturities of certificates and other time deposits greater than $100,000 were as follows:
   As of June 30, 2021 
(dollars in thousands)
  Amount       Weighted Average    
Interest Rate		 
Under 3 months
  $60,773    0.64% 
3 to 6 months
   55,483    0.64% 
6 to 12 months
   92,395    0.67% 
12 to 24 months
   22,790    1.16% 
24 to 36 months
   6,933    1.92% 
36 to 48 months
   1,592    1.90% 
Over 48 months
   1,641    0.56% 
  
 
 
   
 
 
 
Total
  $                    241,607                        0.74% 
  
 
 
   
 
 
 
Borrowings
 As of September 30, 2017
 Amount Weighted Average Interest Rate
 (Dollars in thousands)
Under 3 months$41,718
 0.95%
3 to 6 months42,231
 1.02%
6 to 12 months61,233
 1.04%
12 to 24 months24,091
 1.24%
24 to 36 months4,574
 1.49%
36 to 48 months11,936
 1.56%
Over 48 months4,638
 1.63%
Total$190,421
 1.10%

Borrowings
We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
Federal Home Loan Bank (FHLB) Advances
. The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, total borrowing capacity of $471.4$548.7 million and $400.4$476.5 million, respectively, was available under this arrangement. Our outstanding FHLB advances mature within 5three years. As of SeptemberJune 30, 2017,2021, approximately $1.0$1.39 billion in real estate loans were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to fund certain fixedhedge interest rate loans in our portfolio. risk.
The following table presents our FHLB borrowings by maturity and weighted average rate as of SeptemberJune 30, 2017:2021:
(dollars in thousands)
  Balance       Weighted Average    
Interest Rate		 
Less than 90 days
  $41,500    0.19% 
90 days to less than one year
   —    — 
One to three years
   7,500    1.81% 
After three to five years
   —    — 
After five years
   —    — 
  
 
 
   
 
 
 
Total
  $                      49,000                        0.43% 
  
 
 
   
 
 
 
 Balance Weighted Average Rate
 (Dollars in thousands)
Less than 90 days$20,000
 1.17%
90 days to less than one year25,000
 1.12%
Three to five years20,157
 1.11%
Total$65,157
 1.13%


63.


Federal Reserve Bank of Dallas
. The Federal Reserve Bank of Dallas has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain commercial and industrial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. As of SeptemberJune 30, 20172021 and December 31, 2016, $142.02020, $166.7 million and $168.3$158.8 million, respectively, were available under this arrangement. As of SeptemberJune 30, 2017,2021 and December 31, 2020, approximately $184.4$223.3 million and $214.5 million, respectively, in consumer and commercial and industrial loans were pledged as collateral. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, no borrowings were outstanding under this arrangement.
Trust Preferred Securities and Other Debentures.
We have issued subordinated debentures relating to the issuance of trust preferred securities. In October 2002, we formed Guaranty (TX) Capital Trust II, which issued $3.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $93,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $3.1 million of the Company’s junior subordinated debentures, which will mature on October 30, 2032. In July 2006, we formed Guaranty (TX) Capital Trust III, which issued $2.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $62,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $2.1 million of the Company’s junior subordinated debentures, which will mature on October 1, 2036. In March 2015, we acquired DCB Trust I, which issued $5.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $155,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $5.2 million of the Company’s junior subordinated debentures, which will mature on June 15, 2037.
(Continued)
73. 
Table of Contents
With certain exceptions, the amount of the principal and any accrued and unpaid interest on the debentures are subordinated in right of payment to the prior payment in full of all of our senior indebtedness. The terms of the debentures are such that they qualify as Tier 1 capital under the Federal Reserve’s regulatory capital guidelines applicable to bank holding companies. Interest on Trust II Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 3.35%, thereafter.. Interest on the Trust III Debentures was payable at a fixed rate per annum equal to 7.43% until October 1, 2016 and is a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.67%, thereafter.. Interest on the DCB Trust I Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.80%. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the debentures.

On any interest payment date on or after (1) June 15, 2012 for the DCB Trust I Debentures, (2) October 30, 2012 for the Trust II Debentures and (3) October 1, 2016 for the Trust III Debentures, and before their respective maturity dates, the debentures are redeemable, in whole or in part, for cash at our option on at least 30, but not more than 60, days’ notice at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
Beginning in July 2015, we have from time to time
On May 1, 2020, the Company issued subordinated debentures. All of the debentures pay interest semi-annually and are redeemable before their maturity date at our option, with 30 days’ notice to the holder, for a cash amount equal to the principal amount and all accrued interest. In July 2015, we issued $4.0$10.0 million in debentures of which $3.0 million were issued to directors and other related parties. The $3.0 million of debentures to related parties were repaidhave stated maturity dates between November 1, 2020 and November 1, 2024, and bear interest at fixed annual rates between 1.00% and 4.00%. The Company pays interest semi-annually on May 1st and November 1st in May 2017 with a portionarrears during the term of the proceedsdebentures. $500,000 matured in November of our initial public offering2020 and a $500,000 par value debenture, which carried a rate$9.5 million remains as of 2.5%, matured and was repaidJune 30, 2021. The debentures are redeemable by the Company at its option, in July 2017.whole in or part, at any time on or before the due date of any debenture. The remaining $500,000 debenture has a rate of 4.0% and matures in January 2019. In December 2015, we issued $5.0 million in debentures, of which $2.5 million were issuedredemption price is equal to directors and other related parties. In May 2017, $2.0 million100% of the $2.5 million of debentures issued to related parties were repaid with a portionface amount of the proceeds of our initial public offering. The remaining $3.0 million in debentures were issued in the principal amount of $500,000 each with rates ranging from 3.00% to 5.00% depending on maturity dates, which range from July 1, 2018 to July 1, 2020.debenture redeemed, plus all accrued but unpaid interest.

Other Borrowings.
We have historically used a line of credit with a correspondent bank as a source of funding for working capital needs, the payment of dividends when there is a temporary timing difference in cash flows, and repurchases of equity securities. As of December 31, 2016,In March 2017, we had a $15.0 millionentered into an unsecured revolving line of credit for $25.0 million, and $10.0 million amortizing note with our correspondent bank.  In March 2017, we renegotiated the loan agreement suchrenewed that the outstanding balance of our revolving line of credit and amortizing note was converted to a $25.0 million unsecured


64.


revolving line of credit.in March 2021. The line of credit bears interest at the prime rate plus 0.50%(3.25% as of June 30, 2021) subject to a floor of 3.50%, with quarterly interest payments, and matures in March 2018. During the second quarter2022. As of 2017, we used a portion of the proceeds from our initial public offering to repay the outstanding balance of the revolving line of credit. Therefore, as of SeptemberJune 30, 2017,2021, there was no outstanding balance on the line of credit.

Liquidity and Capital Resources
Liquidity
Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events.events, such as COVID-19. For the ninesix months ended SeptemberJune 30, 20172021 and the year ended December 31, 2016,2020, liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Although access to purchased funds from correspondent banks and overnight or longer term advances from the FHLB and the Federal Reserve Bank of Dallas are available, and have been utilized on occasion to take advantage of investment opportunities, we do not generally rely on these external funding sources. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, we maintained threetwo federal funds lines of credit with commercial banks that provide for the availability to borrow up to an aggregate $70$60.0 million in federal funds. There were no funds under these lines of credit outstanding as of SeptemberJune 30, 20172021 and December 31, 2016.2020. In addition to these federal funds lines of credit, our $25.0 million revolving line of credit discussed above in “
Other Borrowings”
provides an additional source of liquidity.
(Continued)
74. 
Table of Contents
The following table illustrates, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the period indicated. Average assets were $1.9$2.86 billion for the ninesix months ended SeptemberJune 30, 20172021 and $1.8$2.57 billion for the year ended December 31, 2016.2020.


       For the Six Months    
Ended
June 30, 2021		      For the Year Ended    
    December 31, 2020    		 
Sources of Funds:
   
Deposits:
   
Noninterest-bearing
   30.19%   27.09% 
Interest-bearing
   55.70%   57.11% 
Advances from FHLB
   1.75%   2.95% 
Line of credit
   0.30%   0.26% 
Subordinated debentures
   0.69%   0.67% 
Securities sold under agreements to repurchase
   0.63%   0.70% 
Accrued interest and other liabilities
   0.88%   0.96% 
Shareholders’ equity
   9.86%   10.26% 
  
 
 
  
 
 
 
Total
   100.00%   100.00% 
  
 
 
  
 
 
 
   
Uses of Funds:
   
Loans
   65.33%   71.72% 
Securities available for sale
   13.97%   13.17% 
Securities held to maturity
   0.00%   1.40% 
Nonmarketable equity securities
   0.35%   0.42% 
Federal funds sold
   12.36%   4.82% 
Interest-bearing deposits in other banks
   0.95%   5.70% 
Other noninterest-earning assets
   7.04%   2.77% 
  
 
 
  
 
 
 
Total
   100.00%   100.00% 
  
 
 
  
 
 
 
   
Average noninterest-bearing deposits to average deposits
   35.15%   32.17% 
Average loans to average deposits
   77.41%   86.52% 
65.


 For the Nine Months Ended For the Year Ended
 September 30, 2017 December 31, 2016
Sources of Funds:   
Deposits:   
Noninterest-bearing19.95% 19.15%
Interest-bearing66.03% 66.16%
Federal funds purchased—% 0.01%
Advances from FHLB2.21% 3.53%
Other debt0.48% 0.74%
Subordinated denentures0.88% 1.14%
Securities sold under agreements to repurchase0.69% 0.73%
Accrued interest and other liabilities0.34% 0.36%
Shareholders’ equity9.42% 8.18%
Total100.00% 100.00%
    
Uses of Funds:   
Loans66.76% 65.80%
Securities available for sale11.52% 11.17%
Securities held to maturity9.78% 10.29%
Nonmarketable equity securities0.37% 0.48%
Federal funds sold2.61% 2.96%
Interest-bearing deposits in other banks1.26% 1.44%
Other noninterest-earning assets7.70% 7.86%
Total100.00% 100.00%
    
Average noninterest-bearing deposits to average deposits23.20% 22.45%
Average loans to average deposits78.40% 77.84%

Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average loans, including average loans held for sale, increased $110.6$106.1 million, or 9.5%5.9%, for the ninesix months ended SeptemberJune 30, 20172021 compared to the same period in 2016.2020, while our average deposits increased $358.4 million, or 17.1%, for the same time periods. We predominantly invest excess deposits in overnight deposits with our correspondent banks, federal funds sold, securities, interest-bearing deposits at other banks or other short-term liquid investments until needed to fund loan growth.
As of SeptemberJune 30, 2017,2021, we had $339.9$358.7 million in outstanding commitments to extend credit and $9.3$8.5 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2016,2020, we had $297.6$324.3 million in outstanding commitments to extend credit and $8.9$8.5 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature, except for the put option associated with shares distributed from our KSOP, which terminated upon consummation of our initial public offering and listing on the NASDAQ Global Select Market in May 2017.nature. As of SeptemberJune 30, 2017,2021, we had cash and cash equivalents of $95.1$447.2 million, compared to $127.5$351.8 million as of December 31, 2016.2020. The decreaseincrease was primarily due to a decreasean increase in federal funds sold of $26.4$166.3 million, offset by a decrease in interest-bearing deposits held at other banks of $60.6 million.



66.


Capital Resources
Total shareholders’ equity increased to $207.3$287.7 million as of SeptemberJune 30, 2017,2021, compared to $141.9$272.6 million as of December 31, 2016 (including KSOP-owned shares),2020, an increase of $65.3$15.1 million, or 46.0%5.5%. The increase from December 31, 20162020 was primarily the result of net earnings, partially offset by a decrease in other comprehensive income and payment of dividends. The Company also issued a 10.0% stock dividend in the issuancefirst quarter of new2021 that resulted in an additional 1,093,932 shares of common stock in connection with our initial public offering in May 2017, as well as $11.6 million in net earnings for the nine months ended September 30, 2017 and the decrease in accumulated other comprehensive lossissued.
(Continued)
75. 
Table of $1.6 million, related primarily to increased value in the unrealized gains on securities held for sale and partially offset by the payment of dividends of $4.0 million.Contents
Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to certain regulatory capital requirements at the bank holding company and bank levels. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, we were in compliance with all applicable regulatory capital requirements at the bank and bank holding company levels, and the Bank was classified as “well capitalized,” for purposes of the prompt corrective action regulations. As we deploy our capital and continue to grow our operations,learn about the economic impacts of COVID-19, our regulatory capital levels may decrease depending on our level of earnings.earnings and provisions for credit losses. However, we expect to closely monitor our loan portfolio, operating expenses and control our growthoverall capital levels in order to remain in compliance with all regulatory capital standards applicable to us.


67.


The following table presents our regulatory capital ratios as of:
                                                        
   June 30, 2021  December 31, 2020 
(dollars in thousands)
      Amount           Ratio          Amount           Ratio     
Guaranty Bancshares, Inc. (consolidated)
       
       
Total capital (to risk weighted assets)
  $280,300    14.52%  $263,144    13.20% 
Tier 1 capital (to risk weighted assets)
   256,077    13.26%   238,115    11.94% 
Tier 1 capital (to average assets)
   256,077    8.86%   238,115    9.13% 
Common equity tier 1 risk-based capital
   245,767    12.73%   227,805    11.43% 
       
Guaranty Bank & Trust, N.A.
       
       
Total capital (to risk weighted assets)
  $    289,779    15.01%  $    285,490    14.32% 
Tier 1 capital (to risk weighted assets)
   265,556    13.76%   260,459    13.06% 
Tier 1 capital (to average assets)
   265,556    9.19%   260,459    9.99% 
Common equity tier 1 risk-based capital
   265,556    13.76%   260,459    13.06% 
 September 30, 2017 December 31, 2016
 Amount Ratio Amount Ratio
 (Dollars in thousands)
Guaranty Bancshares, Inc.       
        
  Total capital (to risk weighted assets)$213,905
 14.62% $149,468
 10.86%
  Tier 1 capital (to risk weighted assets)201,377
 13.76% 137,984
 10.03%
  Tier 1 capital (to average assets)201,377
 10.68% 137,984
 7.71%
  Common equity tier 1 risk-based capital191,067
 13.06% 127,674
 9.28%
        
Guaranty Bank & Trust       
        
  Total capital (to risk weighted assets)$202,722
 13.85% $173,528
 12.63%
  Tier 1 capital (to risk weighted assets)190,194
 13.00% 162,044
 11.79%
  Tier 1 capital (to average assets)190,194
 10.08% 162,044
 9.06%
  Common equity tier 1 risk-based capital190,195
 13.00% 162,044
 11.79%

Contractual Obligations
The following table summarizes contractual obligations and other commitments to make future payments as of SeptemberJune 30, 20172021 (other than non-time deposit obligations), which consist of future cash payments associated with our contractual obligations.
   As of June 30, 2021 
(in thousands)
  1 year
or less		   More than 1
year but less
than 3 years		   3 years or
more but less
than 5 years		   5 years
or more		   Total 
Time deposits
  $296,868    44,545   $7,218   $—   $348,631 
Advances from FHLB
   41,500    7,500    —    —    49,000 
Subordinated debentures
   —    7,500    2,000    10,310    19,810 
Operating leases
   843    3,538    3,607    7,563    15,551 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $    339,211   $63,083   $12,825   $    17,873   $    432,992 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 As of September 30, 2017
 1 year or  less More than 1 year but less than 3 years 3 years or more but less than 5 years 5 years or more Total
 (Dollars in thousands)
Time deposits$232,964
 $46,392
 $23,726
 $—
 $303,082
Advances from FHLB45,000
 —
 20,157
 —
 65,157
Subordinated debentures1,000
 2,500
 —
 10,310
 13,810
Total$278,964
 $48,892
 $43,883
 $10,310
 $382,049

Off-Balance Sheet Items
In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.
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Table of Contents
Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of the date indicatedJune 30, 2021 are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.


   As of June 30, 2021 
(in thousands)
  1 year
or less		   More than
1 year but
less than
3 years		   3 years or
more but
less than
5 years		   5 years
or more		   Total 
Standby and commercial letters of credit
  $3,623   $1,678   $375   $2,835   $8,511 
Commitments to extend credit
   194,829    80,640    981    82,275    358,725 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $198,452   $82,318   $1,356   $85,110   $367,236 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
68.


 As of September 30, 2017
 1 year or  less More than 1 year but less than 3 years 3 years or more but less than 5 years 5 years or more Total
 (Dollars in thousands)
Standby and commercial letters of credit$7,465
 $212
 $91
 $1,566
 $9,334
Commitments to extend credit154,305
 45,252
 74,833
 65,482
 339,872
Total$161,770
 $45,464
 $74,924
 $67,048
 $349,206

Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. Our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers. Management evaluated the likelihood of funding the standby and commercial letters of credit as of June 30, 2021, and determined the likelihood to be improbable. Therefore, no ACL was recorded for standby and commercial letters of credit as of June 30, 2021.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer.
Loan agreements executed in connection with construction loans and commercial lines of credit have standard conditions which must be met prior to the Company being required to provide additional funding, including conditions precedent that typically include: (i) no event of default or potential default has occurred; (ii) that no material adverse events have taken place that would materially affect the borrower or the value of the collateral, (iii) that the borrower remains in compliance with all loan obligations and covenants and has made no misrepresentations; (iv) that the collateral has not been damaged or impaired; (v) that the project remains on budget and in compliance with all laws and regulations; and (vi) that all management agreements, lease agreements and franchise agreements that affect the value of the collateral remain in force. If the conditions precedent have not been met, the Company retains the option to cease current draws and/or future funding. As a result of these conditions within our loan agreements, management believes the credit risk of these off balance sheet items is minimal and we recorded no ACL with respect to these loan agreements as of June 30, 2021.
Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
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77. 
Table of Contents
Our exposure to interest rate risk is managed by the asset-liability committee of the Bank, in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model.
We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio. Average life of non-maturity deposit accounts are based on


69.


standard regulatory decay assumptions and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
On a quarterly basis, we run two simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rate changes over a twelve-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 15.0% for a 100 basis point shift, 20.0% for a 200 basis point shift and 30.0% for a 300 basis point shift.
The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of:
   June 30, 2021  December 31, 2020 
Change in Interest Rates (Basis Points)  Percent Change
in Net Interest
Income		  Percent Change
in Fair Value
of Equity		  Percent Change
in Net Interest
Income		  Percent Change
in Fair Value
of Equity		 
+300
   7.10%   7.76%   4.40%   5.04% 
+200
   4.23%   7.20%   2.62%   4.45% 
+100
   1.55%   3.51%   1.42%   3.35% 
Base
   —   —   —   — 
-100
   (1.96)%   7.38%   (1.92)%   3.96% 
 September 30, 2017 December 31, 2016
Change in Interest Rates (Basis Points)Percent Change in Net Interest Income Percent Change in Fair Value of Equity Percent Change in Net Interest Income Percent Change in Fair Value of Equity
+3001.83% (15.87%)
 1.44% (18.99%)
+2001.92% (7.71%)
 1.42% (9.58%)
+1001.71% (2.41%)
 1.19% (3.45%)
Base—% —% —% —%
-100(0.54%)
 (4.72%)
 (0.29%)
 (1.80%)

The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.
Impact of Inflation
Our consolidated financial statements and related notes included elsewhere in this Report have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.deflation.
Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
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78. 
Table of Contents
Non-GAAP Financial Measures
Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional financial measures discussed in this Report as being non-GAAP financial measures. We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements


70.


of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.
The non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Report may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this Report when comparing such non-GAAP financial measures.
Tangible Book Value Per Common Share
. Tangible book value per common share is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. We calculate (1) tangible common equity as total shareholders’ equity, less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.
We believe that the tangible book value per common share measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.
The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and presents tangible book value per common share compared to book value per common share:
 As of September 30, As of December 31,
 2017 2016 2016
 (Dollars in thousands, except per share data)
Tangible Common Equity     
Total shareholders’ equity, including KSOP-owned shares$207,263
 $148,005
 $141,914
Adjustments:     
Goodwill(18,742) (18,742) (18,742)
Core deposit and other intangibles(2,870) (3,453) (3,308)
Total tangible common equity$185,651
 $125,810
 $119,864
Common shares outstanding(1)
11,058,956
 8,955,476
 8,751,923
Book value per common share$18.74
 $16.53
 $16.22
Tangible book value per common share$16.79
 $14.05
 $13.70
   As of June 30,  As of December 31, 
(dollars in thousands, except per share data)
  2021  2020  2020 
Tangible Common Equity
    
Total shareholders’ equity
  $287,729  $258,875  $272,643 
Adjustments:
    
Goodwill
   (32,160)   (32,160)   (32,160) 
Core deposit intangible, net
   (2,573)   (3,426)   (2,999) 
  
 
 
  
 
 
  
 
 
 
Total tangible common equity
  $252,996  $223,289  $237,484 
  
 
 
  
 
 
  
 
 
 
Common shares outstanding*
(1)
               12,057,937               12,115,184               12,028,957 
Book value per common share*
  $23.86  $21.37  $22.67 
Tangible book value per common share*
  $20.98  $18.43  $19.74 
(1) Excludes the dilutive effect, if any, of 75,505, 9,581168,311, 0 and 8,06632,781 shares of common stock issuable upon exercise of outstanding stock options as of SeptemberJune 30, 2017, September 30, 20162021 and 2020, and December 31, 2016,2020, respectively.
Tangible Common Equity to Tangible Assets
. Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. We calculate tangible common equity, as described above, and tangible assets as total assets less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders’ equity to total assets.
We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing both total shareholders’ equity and assets while not increasing our tangible common equity or tangible assets.


71.
(Continued)
79. 

Table of Contents

The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and total assets to tangible assets:
(dollars in thousands)
      As of June 30, 2021      As of December 31, 2020 
Total tangible common equity
  $252,996  $237,484 
Tangible Assets
   
Total assets
   2,932,959   2,740,832 
Adjustments:
   
Goodwill
   (32,160)   (32,160) 
Core deposit intangible, net
   (2,573)   (2,999) 
  
 
 
  
 
 
 
Total tangible assets
  $2,898,226  $2,705,673 
  
 
 
  
 
 
 
   
Total Shareholders’ Equity to Total Assets
   9.81%   9.95% 
Tangible Common Equity to Tangible Assets
   8.73%   8.78% 
The following tables reconcile, as of and for the dates set forth below, various metrics impacted by the effects of COVID-19 on reported data.
 As of September 30, 2017 As of December 31, 2016
 (Dollars in thousands)
Tangible Common Equity   
Total shareholders’ equity, including KSOP-owned shares$207,263
 $141,914
Adjustments:   
Goodwill(18,742) (18,742)
Core deposit and other intangibles(2,870) (3,308)
Total tangible common equity$185,651
 $119,864
Tangible Assets   
Total assets$1,924,053
 $1,828,336
Adjustments:   
Goodwill(18,742) (18,742)
Core deposit and other intangibles$(2,870) $(3,308)
Total tangible assets$1,902,441
 $1,806,286
Net Core Earnings and Net Core Earnings per Common Share
   
Six Months Ended

June 30,
  
Three Months Ended

June 30,
  
Three Months
Ended

March 31,
 
(dollars in thousands, except per share data)
  
2021
  
2020
  
2021
  
2020
  
2021
 
Net earnings
  $21,394  $7,353  $10,432  $1,075  $10,962 
Adjustments:
      
Provision for credit losses
   (1,000)   13,500   (1,000)   12,100   — 
Income tax provision
   4,648   1,255   2,312   (190)   2,336 
PPP loans, including fees
   (5,859)   (2,540)   (1,954)   (2,540)   (3,905) 
Net interest expense on PPP-related borrowings
   —   31   —   31   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net core earnings
  $19,183  $19,599  $9,790  $10,476  $9,393 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Weighted-average common shares outstanding, basic*           12,047,643       12,352,074       12,056,550       12,128,516       12,038,638 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Earnings per common share, basic*  $1.78  $0.59  $0.87  $0.09  $0.91 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net core earnings per common share, basic*   1.59   1.59   0.81   0.86   0.78 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
* Adjusted to give effect to the 10% stock dividend issued during the first quarter of 2021.
Net Core Earnings to Average Assets, as Adjusted, and Average Equity
   
Six Months Ended

June 30,
  
Three Months Ended

June 30,
  
Three Months
Ended

March 31,
 
(dollars in thousands)
  
2021
  
2020
  
2021
  
2020
  
2021
 
Net core earnings
  $19,183  $19,599  $9,790  $10,476  $9,393 
Total average assets
       2,857,707       2,491,614       2,938,944       2,657,609           2,775,567 
Adjustments:
      
PPP loans average balance
   (146,103)   (81,592)   (155,417)   (163,184)   (137,251) 
Excess fed funds sold due to PPP-related borrowings
   —   (42,033)   —   (84,066)   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total average assets, adjusted
  $2,711,604  $2,367,989  $2,783,527  $2,410,359  $2,638,316 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net core earnings to average assets, as adjusted   1.43   1.66   1.41   1.75   1.44 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total average equity
  $281,730  $259,275  $285,803  $258,225  $277,612 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net core earnings to average equity
   13.73   15.20   13.74   16.32   13.72 
(Continued)
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Table of Contents
Total Interest-Earning Assets, net of PPP Effects
  For the Three Months Ended
June 30, 2021		  For the Six Months Ended
June 30, 2021		 
(dollars in thousands)
 Average
Outstanding
Balance		  Interest
Earned/
Interest
Paid		  Average
Yield/Rate		  Average
Outstanding
Balance		  Interest
Earned/
Interest
Paid		  Average
Yield/Rate		 
Total interest-earning assets
 $2,769,054  $25,284   3.66%  $2,689,617  $51,797   3.88% 
      
Total loans
  1,912,722   22,864   4.79   1,899,864   47,059   4.99 
Adjustments:
      
PPP loan average balance and net fees
(1)
  (155,417)   (1,747)   4.51   (146,103)   (5,260)   7.26 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total loans, net of PPP effects
  1,757,305   21,117   4.82   1,753,761   41,799   4.81 
      
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-earning assets, net of PPP effects
 $    2,613,637  $        23,537   3.61%  $    2,543,514  $        46,537   3.69% 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
(1) Interest earned consists of interest income of $385,000 and $720,000, and net origination fees recognized in earnings of $1.4 million and $4.5 million for the three and six months ended June 30, 2021, respectively.
Net Interest Income and Net Interest Margin, Net of PPP Effects
(dollars in thousands)
 Three Months
Ended
  June 30, 2021  		  Six Months
Ended
  June 30, 2021  		  Three Months
Ended
  March 31, 2021  		  Three Months
Ended
  June 30, 2020  		 
Net interest income
 $23,477  $47,968  $24,491  $23,182 
Adjustments:
    
PPP-related interest income
  (385)   (720)   (335)   (407) 
PPP-related net origination fees
  (1,362)   (4,540)   (3,178)   (2,133) 
PPP-related borrowings
  —   —   —   31 
 
 
 
  
 
 
  
 
 
  
 
 
 
Net interest income, net of PPP effects
 $21,730  $42,708  $20,978  $20,673 
 
 
 
  
 
 
  
 
 
  
 
 
 
    
Total average interest-earning assets
 $2,769,054  $2,689,617  $2,609,299  $2,486,636 
 
 
 
  
 
 
  
 
 
  
 
 
 
Total average interest-earning assets, net of PPP effects
  2,613,637   2,543,514   2,472,048   2,239,386 
 
 
 
  
 
 
  
 
 
  
 
 
 
    
Net interest margin
(1)
  3.40%   3.60%   3.81%   3.75% 
 
 
 
  
 
 
  
 
 
  
 
 
 
Net interest margin, net of PPP effects
(2)
  3.33   3.39   3.44   3.71 
 
 
 
  
 
 
  
 
 
  
 
 
 
    
Net interest income
 $23,477  $47,968  $24,491  $23,182 
Interest income tax adjustments
  269   520   250   212 
 
 
 
  
 
 
  
 
 
  
 
 
 
Net interest income, fully taxable equivalent (“FTE”)
 $23,746  $48,488  $24,741  $23,394 
 
 
 
  
 
 
  
 
 
  
 
 
 
Net interest income, FTE, net of PPP effects
  21,999   43,228   21,228   20,885 
 
 
 
  
 
 
  
 
 
  
 
 
 
    
Net interest margin, FTE
(3)
  3.44   3.64   3.85   3.78 
 
 
 
  
 
 
  
 
 
  
 
 
 
Net interest margin, FTE, net of PPP effects
(4)
  3.38   3.43   3.48   3.75 
 
 
 
  
 
 
  
 
 
  
 
 
 
(1) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(2) Net interest margin is equal to net interest income, net of PPP effects, divided by average interest-earning assets, excluding average PPP loans, annualized. Taxes are not a part of this calculation.
(3) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.
(4) Net interest margin on a taxable equivalent basis is equal to net interest income, net of PPP effects, adjusted for nontaxable income divided by average interest-earning assets, excluding average PPP loans, annualized, using a marginal tax rate of 21%.
(Continued)
81. 
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Efficiency Ratio, Net of PPP Effects
(dollars in thousands)
 Three Months
Ended
  June 30, 2021  		  Six Months
Ended
  June 30, 2021  		  Three Months
Ended
  March 31, 2021  		  Three Months
Ended
  June 30, 2020  		 
Total noninterest expense
 $17,703  $35,015  $17,312  $15,184 
Adjustments:
    
PPP-related deferred costs
  207   599   392   838 
 
 
 
  
 
 
  
 
 
  
 
 
 
Total noninterest expense, net of PPP effects
 $17,910  $35,614  $17,704  $16,022 
 
 
 
  
 
 
  
 
 
  
 
 
 
    
Net interest income
  23,477   47,968   24,491   23,182 
 
 
 
  
 
 
  
 
 
  
 
 
 
Net interest income, net of PPP effects
  21,730   42,708   20,978   20,673 
 
 
 
  
 
 
  
 
 
  
 
 
 
    
Total noninterest income
 $5,970  $12,089  $6,119  $4,987 
    
Efficiency ratio
(1)
  60.12%   58.30%   56.56%   53.90% 
 
 
 
  
 
 
  
 
 
  
 
 
 
Efficiency ratio, net of PPP effects
(2)
  64.66   64.99   65.34   62.44 
 
 
 
  
 
 
  
 
 
  
 
 
 
(1) The efficiency ratio was calculated by dividing total noninterest expense by net interest income plus noninterest income, excluding securities gains or losses. Taxes are not part of this calculation.
(2) The efficiency ratio, net of PPP effects, was calculated by dividing total noninterest expense, net of PPP-related deferred costs, by net interest income, net of PPP effects, plus noninterest income, excluding securities gains or losses. Taxes are not part of this calculation.
ACL to Total Loans, Excluding PPP
(dollars in thousands)
 As of
    June 30, 2021    		  As of
    December 31, 2020    		 
Total loans
 $1,890,164  $1,866,819 
Adjustments:
  
PPP loans
  (127,390)   (139,808) 
 
 
 
  
 
 
 
Total loans, excluding PPP
 $1,762,774  $1,727,011 
  
Allowance for credit losses
 $31,548  $33,619 
  
Allowance for credit losses / period-end loans
  1.67%   1.80% 
Allowance for credit losses / period-end loans. excluding PPP
  1.79   1.95 
Loan Yield, Net of PPP Effects
  Three Months Ended June 30, 2021  Three Months Ended March 31, 2021 
(dollars in thousands)
 Average
Outstanding
Balance		  Interest
Earned/
    Interest    
Paid		  Average
  Yield/ Rate  		  Average
Outstanding
Balance		  Interest
Earned/
    Interest    
Paid		  Average
  Yield/ Rate  		 
Total loans
 $1,912,722  $22,864   4.79%  $1,886,863  $24,195   5.20% 
Adjustments:
      
PPP loans average balance and net fees
  (155,417)   (1,747)   4.51   (137,251)   (3,513)   10.38 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total loans, net of PPP effects
 $      1,757,305  $21,117   4.82%  $      1,749,612  $20,682   4.79% 
   
 
 
    
 
 
 
Effect of removing PPP loans on loan yield
    0.03%     -0.41% 
  Three Months Ended June 30, 2021  Three Months Ended June 30, 2020 
(dollars in thousands)
 Average
Outstanding
Balance		  Interest
Earned/
    Interest    
Paid		  Average
  Yield/ Rate  		  Average
Outstanding
Balance		  Interest
Earned/
    Interest    
Paid		  Average
  Yield/ Rate  		 
Total loans
 $1,912,722  $22,864   4.79%  $1,885,959  $24,139   5.15% 
Adjustments:
      
PPP loans average balance and net fees
  (155,417)   (1,747)   4.51   (163,184)   (2,540)   6.26 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total loans, net of PPP effects
 $      1,757,305  $21,117   4.82%  $      1,722,775  $21,599   5.04% 
   
 
 
    
 
 
 
Effect of removing PPP loans on loan yield
    0.03%     -0.11% 
  Six Months Ended June 30, 2021  Six Months Ended June 30, 2020 
(dollars in thousands)
 Average
Outstanding
Balance		  Interest
Earned/
    Interest    
Paid		  Average
  Yield/ Rate  		  Average
Outstanding
Balance		  Interest
Earned/
    Interest    
Paid		  Average
  Yield/ Rate  		 
Total loans
 $1,912,722  $22,864   4.79%  $1,899,864  $47,059   4.99% 
Adjustments:
      
PPP loans average balance and net fees
  (155,417)   (1,747)   4.51   (146,103)   (5,260)   7.26 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total loans, net of PPP effects
 $      1,757,305  $21,117   4.82%  $      1,753,761  $41,799   4.81% 
   
 
 
    
 
 
 
Effect of removing PPP loans on loan yield
    0.03%     -0.18% 
(Continued)
82. 
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Cautionary Notice Regarding Forward-Looking Statements
This Report, our other filings with the SEC, and other press releases, documents, reports and announcements that we make, issue or publish may contain statements that we believe are “forward-looking statements” within the meaning of section 27A of the Securities Act and section 21E of the Exchange Act. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance, including our future revenues, income, expenses, provision for taxes, effective tax rate, earnings per share and cash flows, our future capital expenditures and dividends, our future financial condition and changes therein, including changes in our loan portfolio and allowance for loancredit losses, our future capital structure or changes therein, the plan and objectives of management for future operations, our future or proposesproposed acquisitions, the future or expected effect of acquisitions on our operations, results of the operations and financial condition, our future economic performance and the statements of the assumptions underlying any such statement. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
 
●
the impact of COVID-19, including any variants thereof, on our business, including the impact of the actions taken by federal, state and local governmental authorities in response to COVID-19 (including, without limitation, interest rate policy, restrictions on the operation of businesses, the CARES Act and any other economic stimulus and recovery measures), and the resulting effect of all such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;
our ability to prudently manage our growth and execute our strategy;
●
our ability to prudently manage our growth and execute our strategy;
risks associated with our acquisition and de novo branching strategy;
●
risks associated with our acquisition and de novo branching strategy;
business and economic conditions generally and in the financial services industry, nationally and within our primary Texas markets;
●
business and economic conditions generally and in the financial services industry, nationally and within our primary Texas markets;
concentration of our business within our geographic areas of operation in Texas;
●
concentration of our business within our geographic areas of operation in Texas;
deterioration of our asset quality and higher loan charge-offs;
●
deterioration of our asset quality and higher loan charge-offs;
changes in the value of collateral securing our loans;
●
changes in the value of collateral securing our loans;
inaccuracies in the assumptions and estimate we make in establishing the allowance for loan losses reserve and other estimates;
●
inaccuracies in the assumptions and estimate we make in establishing the allowance for credit losses reserve and other estimates;
changes in management personnel and our ability to attract, motivate and retain qualified personnel;
●
changes in management personnel and our ability to attract, motivate and retain qualified personnel;

●
liquidity risks associated with our business;
●
interest rate risk associated with our business that could decrease net interest income;
●
our ability to maintain important deposit customer relationships and our reputation;
●
operational risks associated with our business;
●
volatility and direction of market interest rates;
●
change in regulatory requirements to maintain minimum capital levels;
●
increased competition in the financial services industry, particularly from regional and national institutions;
●
institution and outcome of litigation and other legal proceeding against us or to which we become subject;
●
changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters;
●
further government intervention in the U.S. financial system;
●
changes in the scope and cost of FDIC insurance and other coverage;
●
natural disasters and adverse weather, acts of terrorism (including cyberattacks), an outbreak of hostilities or public health outbreaks (such as COVID-19), or other international or domestic calamities, and other matters beyond our control;

72.
(Continued)
83. 

Table of Contents

●
risks that the financial institutions we may acquire or de novo branches we may open will not be integrated successfully, or the integrations may be more time consuming or costly than expected;
●
technology related changes are difficult to make or are more expensive than expected; and
●
the other factors that are described under the caption “Risk Factors” or referenced in this report, our Annual Report on Form 10-K for the year ended December 31, 2020, and other risks included in the Company’s filings with the SEC.
liquidity risks associated with our business;
interest rate risk associated with our business that could decrease net interest income;
our ability to maintain important deposit customer relationships and our reputation;
operational risks associated with our business;
volatility and direction of market interest rates;
change in regulatory requirements to maintain minimum capital levels;
increased competition in the financial services industry, particularly from regional and national institutions;
institution and outcome of litigation and other legal proceeding against us or to which we become subject;
changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters;
further government intervention in the U.S. financial system;
changes in the scope and cost of FDIC insurance and other coverage;
natural disasters and adverse weather, acts of terrorism (including cyber attacks), an outbreak of hostilities or other international or domestic calamities, catastrophic events including storms, droughts, tornados and flooding, and other matters beyond our control;
risks that the financial institutions we may acquire or de novo branches we may open will not be integrated successfully, or the integrations may be more time consuming or costly than expected;
technology related changes are difficult to make or are more expensive than expected;
the other factors that are described or referenced in our IPO Prospectus under the caption “Risk Factors”;
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.


73.



Item 3.Quantitative and Qualitative Disclosures About Market Risk

The Company manages market risk, which, as a financial institution is primarily interest rate volatility, through the Asset-Liability Committee of the Bank, in accordance with policies approved by its board of directors. The Company uses an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Interest Rate Sensitivity and Market Risk” herein for a discussion of how we manage market risk.

Item 4.Controls and Procedures

Evaluation of disclosure controls and procedures:
As of the end of the period covered by this Report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this Report.

Changes in internal control over financial reporting:
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended SeptemberJune 30, 20172021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


74.
(Continued)
84. 
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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. The Company intends to defend itself vigorously against any pending or future claims and litigation.

At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on the CompanyCompany’s combined results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against the Company could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect the Company’s reputation, even if resolved in ourthe Company’s favor.

Item 1A.Risk Factors

In evaluating an investment in the Company’s common stock, investors should consider carefully, among other things, the risk factors previously disclosed in under the caption “Risk Factors” in the Company’s IPO Prospectus filedAnnual Report on Form 10-K for the year ended December 31, 2020, and other risks included in the Company’s filings with the Securities and Exchange Commission on May 9, 2017 pursuant to Rule 424(b) of the Securities Act, in connection with the initial public offering of the Company’s common stock.SEC. The Company’s business could be harmed by any of these risks. The trading price of the Company’s common stock could decline due to any of these risks, and you may lose all or part of your investment. There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

(Continued)
85. 
Table of Contents
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

On March 13, 2020, the Company announced the adoption of a new stock repurchase program that authorized the repurchase of up to 1,000,000 shares of the Company common stock. The stock repurchase program will be effective until the earlier of March 13, 2022, or the date all shares authorized for repurchase under the program have been repurchased, unless shortened or extended by the board of directors. There were no salesrepurchases made through the second quarter of equity securities by the Company during the period covered by this Report that were not registered with the SEC under the Securities Act. In May 2017, during the period covered by this Report, the Company issued and sold 2,300,000 shares of our common stock, including 300,000 shares of common stock sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, in the Company’s initial public offering at an offering price of $27.00 per share, for aggregate net proceeds of approximately $57.6 million. All of the shares issued and sold in the initial public offering were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (File No. 333-217176), which was declared effective by the Securities and Exchange Commission on May 8, 2017. Sandler O’Neill + Partners, L.P. and Stephens Inc. acted as underwriters. There has been no material change in the planned use of proceeds from our initial public offering as described in our IPO Prospectus (File No. 333-217176), filed with the Securities and Exchange Commission on May 9, 2017 pursuant to Rule 424(b) of the Securities Act.2021.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.


75.
(Continued)
86. 
Table of Contents

Item 6. Exhibits

Item 6.Exhibits
 
Exhibit
Number
  
Description of Exhibit
  
3.1
  
Amended and Restated Certificate of Formation of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed May 1, 2017 (File No. 333-217176)).

  
3.2
  
Amended and Restated Bylaws of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed April 6, 2017 (File No. 333-217176)).

4.1Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
   The other instruments defining the rights of the long-term debt securities of Guaranty Bancshares, Inc. and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. Guaranty Bancshares, Inc. hereby agrees to furnish copies of these instruments to the SEC upon request.
31.1*
31.1*  Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2*
31.2*		  Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
32.132.1***
  Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
32.232.2***
  Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.INSXBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
101*101.SCH  The following materials from Guaranty Bancshares’
Inline
XBRL Taxonomy Extension Schema Document*
101.CAL
Inline
XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
Inline
XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
Inline
 XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
Inline
XBRL Taxonomy Extension Presentation Linkbase Document*

104           Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)*
*
Filed with this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (Extensible Business Reporting Language), furnished herewith: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

**
Furnished with this Quarterly Report on Form 10-Q
* Filed with this Quarterly Report on Form 10-Q
** Furnished with this Quarterly Report on Form 10-Q



76.
(Continued)
87. 
Table of Contents


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  GUARANTY BANCSHARES, INC.
  (Registrant)
GUARANTY BANCSHARES, INC.
   
(Registrant)
   
Date: November 13, 2017August 6, 2021
 
/s/ Tyson T. Abston
  
Tyson T. Abston
  
Chairman of the Board & Chief Executive Officer
   
Date: August 6, 2021
   
/s/ Clifton A. Payne
   
   
Clifton A. Payne
   
Date: November 13, 2017/s/ Clifton A. Payne
  Clifton A. Payne
 
Chief Financial Officer & Director


77.
88.