GUARANTY BANCSHARES INC /TX/ - Quarter Report: 2022 June (Form 10-Q)

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, 2022


☐	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.)
16475 Dallas Parkway, Suite 600 Addison, Texas		75001
(Address of Principal Executive Offices)		(Zip Code)

(888) 572 - 9881

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	GNTY	NASDAQ Global Select Market

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 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 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.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting 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. ☒

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 August 1, 2022, there were 11,907,414 outstanding shares of the registrant’s common stock, par value $1.00 per share.

GUARANTY BANCSHARES, INC.


	PART I — FINANCIAL INFORMATION	Page

Item 1.	Financial Statements – (Unaudited)	1
	Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	1
	Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2022 and 2021	2
	Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2022 and 2021	3
	Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2022 and 2021	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	69
Item 4.	Controls and Procedures	70

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	71

SIGNATURES		72

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GUARANTY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)


	(Unaudited)			(Audited)
	June 30, 2022			December 31, 2021
ASSETS
Cash and due from banks	$	56,545		$	42,979
Federal funds sold		2,425			431,975
Interest-bearing deposits		12,053			24,651
Total cash and cash equivalents		71,023			499,605
Securities available for sale		196,095			342,206
Securities held to maturity		713,390			184,263
Loans held for sale		2,770			4,129
Loans, net of allowance for credit losses of $28,997 and $30,433, respectively		2,107,658			1,876,076
Accrued interest receivable		10,144			8,901
Premises and equipment, net		54,437			53,470
Cash surrender value of life insurance		37,979			37,141
Core deposit intangible, net		2,086			2,313
Goodwill		32,160			32,160
Other assets		53,171			45,806
Total assets	$	3,280,913		$	3,086,070
LIABILITIES AND EQUITY
Liabilities
Deposits
Noninterest-bearing	$	1,105,756		$	1,014,518
Interest-bearing		1,673,865			1,656,309
Total deposits		2,779,621			2,670,827
Securities sold under agreements to repurchase		7,871			14,151
Accrued interest and other liabilities		28,033			26,568
Line of credit		—			5,000
Federal Home Loan Bank advances		131,500			47,500
Subordinated debt		51,053			19,810
Total liabilities		2,998,078			2,783,856
Commitments and contingencies (see Note 11)
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, 14,159,928 and 14,138,978 shares issued, and 11,912,249 and 12,122,717 shares outstanding, respectively		14,160			14,139
Additional paid-in capital		226,318			225,544
Retained earnings		123,888			107,645
Treasury stock, 2,247,679 and 2,016,261 shares at cost		(59,570	)		(51,419	)
Accumulated other comprehensive (loss) income		(22,541	)		6,305
Equity attributable to Guaranty Bancshares, Inc.		282,255			302,214
Noncontrolling interest		580			—
Total equity		282,835			302,214
Total liabilities and equity	$	3,280,913		$	3,086,070

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022			2021
Interest income
Loans, including fees	$	24,587	$	22,864		$	46,859		$	47,059
Securities
Taxable		2,849		1,138			4,802			2,190
Nontaxable		1,290		1,053			2,440			2,092
Federal funds sold and interest-bearing deposits		394		229			912			456
Total interest income		29,120		25,284			55,013			51,797

Interest expense
Deposits		1,623		1,493			2,865			3,096
FHLB advances and federal funds purchased		190		102			236			201
Subordinated debt		453		188			699			376
Other borrowed money		3		24			39			156
Total interest expense		2,269		1,807			3,839			3,829

Net interest income		26,851		23,477			51,174			47,968
(Reversal of) provision for credit losses		—		(1,000	)		(1,250	)		(1,000	)
Net interest income after provision for credit losses		26,851		24,477			52,424			48,968

Noninterest income
Service charges		1,070		855			2,046			1,684
Net realized gain on sale of loans		882		1,244			1,787			2,642
Merchant and debit card fees		2,061		1,922			3,672			3,428
Other income		2,068		1,949			5,055			4,335
Total noninterest income		6,081		5,970			12,560			12,089

Noninterest expense
Employee compensation and benefits		11,730		10,204			23,262			20,147
Occupancy expenses		2,848		2,833			5,559			5,520
Other expenses		5,116		4,666			9,952			9,348
Total noninterest expense		19,694		17,703			38,773			35,015

Income before income taxes		13,238		12,744			26,211			26,042
Income tax provision		2,472		2,312			4,707			4,648
Net earnings	$	10,766	$	10,432		$	21,504		$	21,394
Net loss attributable to noncontrolling interest		18		—			18			—
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,784	$	10,432		$	21,522		$	21,394
Basic earnings per share	$	0.90	$	0.87		$	1.79		$	1.78
Diluted earnings per share	$	0.89	$	0.85		$	1.77		$	1.75

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(Dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net earnings	$	10,766		$	10,432		$	21,504		$	21,394
Other comprehensive loss:
Unrealized losses on securities, net of tax		(11,669	)		(687	)		(28,658	)		(2,922	)

Unrealized gains (losses) on interest rate swaps:
Unrealized holding gains arising during the period		—			23			497			472
Reclassification of realized gains on interest rate swap termination from accumulated other comprehensive income		—			—			(685	)		—
Unrealized gains (losses) on interest rate swaps		—			23			(188	)		472

Total other comprehensive loss		(11,669	)		(664	)		(28,846	)		(2,450	)

Comprehensive (loss) income		(903	)		9,768			(7,342	)		18,944
Less comprehensive loss attributable to noncontrolling interest		18			—			18			—
Comprehensive (loss) income attributable to Guaranty Bancshares, Inc.	$	(885	)	$	9,768		$	(7,324	)	$	18,944

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(Dollars in thousands, except per share data)


	Attributable to Guaranty Bancshares, Inc.
	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Equity
For the Six Months Ended June 30, 2022
Balance at December 31, 2021	$	—	$	14,139	$	225,544	$	107,645		$	(51,419	)	$	6,305		$	—		$	302,214
Net earnings		—		—		—		21,522			—			—			(18	)		21,504
Other comprehensive loss		—		—		—		—			—			(28,846	)		—			(28,846	)
Contributions from noncontrolling interest		—		—		—		—			—			—			598			598
Exercise of stock options		—		21		453		—			—			—			—			474
Purchase of treasury stock		—		—		—		—			(8,151	)		—			—			(8,151	)
Stock based compensation		—		—		321		—			—			—			—			321
Cash dividends:
Common - $0.44 per share		—		—		—		(5,279	)		—			—			—			(5,279	)
Total equity at June 30, 2022	$	—	$	14,160	$	226,318	$	123,888		$	(59,570	)	$	(22,541	)	$	580		$	282,835

For the Three Months Ended June 30, 2022
Balance at March 31, 2022	$	—	$	14,139	$	225,700	$	115,727		$	(53,412	)	$	(10,872	)	$	598		$	291,880
Net earnings		—		—		—		10,784			—			—			(18	)		10,766
Other comprehensive loss		—		—		—		—			—			(11,669	)		—			(11,669	)
Exercise of stock options		—		21		453		—			—			—			—			474
Purchase of treasury stock		—		—		—		—			(6,158	)		—			—			(6,158	)
Stock based compensation		—		—		165		—			—			—			—			165
Cash dividends:
Common - $0.22 per share		—		—		—		(2,623	)		—			—			—			(2,623	)
Total equity at June 30, 2022	$	—	$	14,160	$	226,318	$	123,888		$	(59,570	)	$	(22,541	)	$	580		$	282,835

See accompanying notes to consolidated financial statements.


	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
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.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	For the Six Months Ended June 30,
	2022			2021
Cash flows from operating activities
Net earnings	$	21,504		$	21,394
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		2,146			2,210
Amortization		397			679
Deferred taxes		(3,742	)		(235	)
Premium amortization, net of discount accretion		2,914			2,200
Gain on sale of loans		(1,787	)		(2,642	)
Reversal of provision for credit losses		(1,250	)		(1,000	)
Origination of loans held for sale		(48,365	)		(60,289	)
Proceeds from loans held for sale		51,511			63,385
Write-down of other real estate and repossessed assets		—			4
Net (gain) loss on sale of premises, equipment, other real estate owned and other assets		(38	)		1
Stock based compensation		321			329
Net change in accrued interest receivable and other assets		(1,983	)		(7,420	)
Net change in accrued interest payable and other liabilities		1,067			3,049
Net cash provided by operating activities	$	22,695		$	21,665

Cash flows from investing activities
Securities available for sale:
Purchases	$	(17,201	)	$	(112,178	)
Proceeds from maturities and principal repayments		24,465			40,437
Securities held to maturity:
Purchases		(1,033,052	)		—
Proceeds from maturities and principal repayments		607,338			—
Net originations of loans		(230,359	)		(23,984	)
Purchases of premises and equipment		(2,882	)		(1,409	)
Proceeds from BOLI death benefit		—			464
Proceeds from sale of premises, equipment, other real estate owned and other assets		77			155
Net cash used in investing activities	$	(651,614	)	$	(96,515	)

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	For the Six Months Ended June 30,
	2022			2021
Cash flows from financing activities
Net change in deposits	$	109,131		$	246,636
Net change in securities sold under agreements to repurchase		(6,280	)		(295	)
Proceeds from FHLB advances		124,000			80,000
Repayment of FHLB advances		(40,000	)		(140,101	)
Proceeds from line of credit		1,000			5,000
Repayment of line of credit		(6,000	)		(17,000	)
Proceeds from issuance of subordinated debt		34,336			—
Repayments of debentures		(3,093	)		—
Purchase of treasury stock		(8,151	)		—
Exercise of stock options		474			636
Cash dividends paid		(5,080	)		(4,599	)
Net cash provided by financing activities	$	200,337		$	170,277
Net change in cash and cash equivalents		(428,582	)		95,427
Cash and cash equivalents at beginning of period		499,605			351,791
Cash and cash equivalents at end of period	$	71,023		$	447,218

Supplemental disclosures of cash flow information
Interest paid	$	3,312		$	4,068
Income taxes paid		4,400			6,850

Supplemental schedule of noncash investing and financing activities
Cash dividends accrued	$	2,623		$	2,412
Lease right of use assets obtained in exchange for lease liabilities		337			1,384
Available for sale securities transferred to held to maturity, net of unrealized loss of $13,186		106,157			—
Transfer of loans to other real estate owned and repossessed assets		27			444
Contributions from noncontrolling interest		580			—
Stock dividend		—			35,947

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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, Dallas/Fort Worth, 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 or guaranteed 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, Dallas/Fort Worth, 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.

Principles of Consolidation: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank and indirect subsidiaries that are wholly-owned or controlled. Subsidiaries that are less than wholly owned are fully consolidated if they are controlled by Guaranty or one of its subsidiaries, and the portion of any subsidiary not owned by Guaranty is reported as noncontrolling interest. All significant intercompany balances and transactions have been eliminated in consolidation. The Bank has seven wholly-owned or controlled non-bank subsidiaries, Guaranty Company, Inc., G B COM, INC., 2800 South Texas Avenue LLC, Pin Oak Realty Holdings, Inc., Pin Oak Asset Management, LLC, White Oak Aviation, LLC and Caliber Guaranty Private Account, LLC, the entity which has a noncontrolling interest. 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.

Basis of Presentation: The consolidated financial statements in this report 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, 2021, included in Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2021. 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 report 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.

Recent Accounting Pronouncements: In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, "Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). ASU 2022-02 eliminates the current guidance on troubled debt restructurings ("TDRs"), enhances current and introduces new disclosure requirements related to loan modifications. ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022. The Company has the option to early adopt, and is in the process of evaluating the impact this ASU will have on its consolidated financial statements and

(Continued)

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

related disclosures.

NOTE 2 - MARKETABLE SECURITIES

The following tables summarize the amortized cost and fair value of available for sale and held to maturity securities as of June 30, 2022 and December 31, 2021 and the corresponding amounts of gross unrealized gains and losses:


June 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	35,029	$	—	$	1,455	$	33,574
Municipal securities		9,500		10		62		9,448
Mortgage-backed securities		144,128		18		14,962		129,184
Collateralized mortgage obligations		25,256		17		1,384		23,889
Total available for sale	$	213,913	$	45	$	17,863	$	196,095

Held to maturity:
U.S. government agencies	$	9,066	$	—	$	1,181	$	7,885
Treasury securities		324,510		—		2,832		321,678
Municipal securities		196,262		518		8,446		188,334
Mortgage-backed securities		138,802		2		12,807		125,997
Collateralized mortgage obligations		44,750		—		6,147		38,603
Total held to maturity	$	713,390	$	520	$	31,413	$	682,497


December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
U.S. government agencies	$	10,013	$	—	$	42	$	9,971
Corporate bonds		35,080		940		85		35,935
Mortgage-backed securities		221,610		1,477		1,779		221,308
Collateralized mortgage obligations		74,925		971		904		74,992
Total available for sale	$	341,628	$	3,388	$	2,810	$	342,206

Held to maturity:
Municipal securities	$	181,310	$	8,364	$	118	$	189,556
Mortgage-backed securities		2,953		—		37		2,916
Total held to maturity	$	184,263	$	8,364	$	155	$	192,472

From time to time, we have reclassified certain securities from available for sale to held to maturity. Such transfers are made at fair value at the date of transfer. The net unrealized holding gains or losses at the date of transfer are retained in other comprehensive income and in the carrying value of the held to maturity securities and are amortized over the remaining life of the security. During the second quarter of 2022, we transferred $106,157 of securities from available for sale to held to maturity, which included a net unrealized loss on the date of transfer of $13,186. The net unamortized, unrealized loss remaining on transferred securities included in accumulated other comprehensive loss in the accompanying balance sheets totaled $5,263 at June 30, 2022, compared to a net unamortized, unrealized gain of $8,860 at December 31, 2021. This amount will be amortized out of accumulated other comprehensive loss over the remaining life of the underlying securities as an adjustment of the yield on those securities.

There is no allowance for credit losses recorded for our available for sale or held to maturity debt securities as of June 30, 2022 or December 31, 2021.

(Continued)

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Information pertaining to securities with gross unrealized losses as of June 30, 2022 and December 31, 2021, 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:


	Less Than 12 Months					12 Months or Longer					Total
June 30, 2022	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(1,455	)	$	33,574	$	—		$	—	$	(1,455	)	$	33,574
Municipal securities		(62	)		8,024		—			—		(62	)		8,024
Mortgage-backed securities		(12,272	)		113,242		(2,690	)		14,774		(14,962	)		128,016
Collateralized mortgage obligations		(1,384	)		22,706		—			—		(1,384	)		22,706
Total available for sale	$	(15,173	)	$	177,546	$	(2,690	)	$	14,774	$	(17,863	)	$	192,320

Held to maturity:
U.S. government agencies	$	(1,181	)	$	8,830	$	—		$	—	$	(1,181	)	$	8,830
Treasury securities		(2,832	)		321,678		—			—		(2,832	)		321,678
Municipal securities		(8,446	)		103,252		—			—		(8,446	)		103,252
Mortgage-backed securities		(11,834	)		104,888		(973	)		5,627		(12,807	)		110,515
Collateralized mortgage obligations		(6,147	)		43,104		—			—		(6,147	)		43,104
Total held to maturity	$	(30,440	)	$	581,752	$	(973	)	$	5,627	$	(31,413	)	$	587,379


	Less Than 12 Months					12 Months or Longer					Total
December 31, 2021	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
U.S. government agencies	$	(42	)	$	9,971	$	—		$	—	$	(42	)	$	9,971
Corporate bonds		(85	)		11,418		—			—		(85	)		11,418
Mortgage-backed securities		(1,383	)		144,367		(396	)		11,317		(1,779	)		155,684
Collateralized mortgage obligations		(904	)		40,172		—			—		(904	)		40,172
Total available for sale	$	(2,414	)	$	205,928	$	(396	)	$	11,317	$	(2,810	)	$	217,245

Held to maturity:
Municipal securities	$	(37	)	$	7,772	$	(81	)	$	2,996	$	(118	)	$	10,768
Mortgage-backed securities		(37	)		2,916		—			—		(37	)		2,916
Total held to maturity	$	(74	)	$	10,688	$	(81	)	$	2,996	$	(155	)	$	13,684

There were 265 investments in an unrealized loss position, of which 81 were available for sale debt securities in an unrealized loss position with no recorded allowance for credit losses as of June 30, 2022. The available for sale securities in a loss position were composed of corporate bonds, municipal securities, collateralized mortgage obligations and mortgage-backed securities. Management evaluates available for sale debt securities in an unrealized loss 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 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 the credit quality of other debt securities through the use of credit ratings and other factors specific to an 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 been downgraded and falls below an A credit rating, and the security’s unrealized loss exceeds 20% of its book value. Consideration is given to (1) the extent to which fair value is 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 security for a period of time sufficient to allow for any anticipated recovery in fair value. Based on evaluation of available evidence, management believes the unrealized losses on the securities as of June 30, 2022 are not credit-related. Management does

(Continued)

10.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

not have the intent to sell any of these securities and believes that it is more likely than not the Company will not have to sell any such securities before recovery of cost. The fair values are expected to recover as the securities approach their maturity date or repricing date or if market yields for the investments decline. Accordingly, no allowance for credit losses has been recorded for these securities.

Management assesses held to maturity securities sharing similar risk characteristics on a collective basis for expected credit losses under CECL. As of June 30, 2022, our held to maturity securities consisted of U.S. government agencies, municipal bonds, treasury securities and mortgage-backed securities issued by the U.S. Government and its agencies. With regard to the treasuries, collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. For municipal securities, management reviewed key risk indicators, including ratings by credit agencies when available, and determined that there is no current expectation of credit loss. Accordingly, no allowance for credit losses has been recorded for these securities.

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 June 30, 2022, there were no holdings of securities of any one issuer, other than the collateralized mortgage obligations, treasuries and mortgage-backed securities issued by the U.S. government and its agencies, in an amount greater than 10% of total equity attributable to Guaranty Bancshares, Inc.

Securities with fair values of approximately $397,018 and $310,958 at June 30, 2022 and December 31, 2021, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

There were no securities sold during the six months ended June 30, 2022 or 2021.

The contractual maturities at June 30, 2022 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				Held to Maturity
June 30, 2022	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	—	$	—	$	276,151	$	274,879
Due after one year through five years		17,279		16,826		162,627		160,856
Due after five years through ten years		27,250		26,196		62,262		58,025
Due after ten years		—		—		28,798		24,137
Mortgage-backed securities		144,128		129,184		138,802		125,997
Collateralized mortgage obligations		25,256		23,889		44,750		38,603
Total securities	$	213,913	$	196,095	$	713,390	$	682,497

(Continued)

11.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the Company’s loan portfolio by type of loan as of:


	June 30, 2022			December 31, 2021
Commercial and industrial	$	268,812		$	280,569
Real estate:
Construction and development		350,024			307,797
Commercial real estate		749,603			622,842
Farmland		166,309			145,501
1-4 family residential		450,929			410,673
Multi-family residential		55,985			30,971
Consumer		56,433			50,965
Agricultural		14,502			14,639
Warehouse lending(1)		25,344			43,720
Overdrafts		435			363
Total loans(2)		2,138,376			1,908,040
Net of:
Deferred loan fees, net		(1,721	)		(1,531	)
Allowance for credit losses		(28,997	)		(30,433	)
Total net loans(2)	$	2,107,658		$	1,876,076

(1) Warehouse lending is presented as a component of commercial and industrial loans in remaining tables.
(2) Excludes accrued interest receivable on loans of $5.7 million and $5.8 million as of June 30, 2022 and December 31, 2021, respectively, which is presented separately on the consolidated balance sheets.

(Continued)

12.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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 ACL by class of loans for the six months ended June 30, 2022, for the year ended December 31, 2021 and for the six months ended June 30, 2021:


Six Months Ended June 30, 2022	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	$	3,600		$	4,221	$	13,765		$	1,698	$	5,818	$	396	$	762		$	169		$	4		$	30,433
(Reversal of) provision for credit losses		462			27		(2,420	)		55		121		208		209			(8	)		96			(1,250	)
Loans charged-off		(154	)		—		—			—		—		—		(36	)		—			(138	)		(328	)
Recoveries		45			—		1			—		30		—		23			—			43			142
Ending balance	$	3,953		$	4,248	$	11,346		$	1,753	$	5,969	$	604	$	958		$	161		$	5		$	28,997


For the Year Ended December 31, 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
(Reversal of) provision for credit losses		(43	)		(515	)		(1,229	)		478		(495	)		33		(51	)		(78	)		200			(1,700	)
Loans charged-off		(411	)		—			(816	)		—		—			—		(151	)		—			(263	)		(1,641	)
Recoveries		21			1			30			—		—			—		35			8			60			155
Ending balance	$	3,600		$	4,221		$	13,765		$	1,698	$	5,818		$	396	$	762		$	169		$	4		$	30,433


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

(Continued)

13.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

During the year ended December 31, 2020, a total allowance for credit losses provision of $13,200 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. During 2021, we recorded no provision in the first quarter, a $1,000 reverse provision in the second quarter and a $700 reverse provision in the third quarter. No provision was recorded in the fourth quarter of 2021. These provision reversals captured improvements that occurred to macroeconomic factors evaluated at the onset of the pandemic as part of the aforementioned COVID-specific qualitative factors, as well as risk rating upgrades for specific loans, which impacted the reserve calculations within our model. In the first quarter of 2022, we unwound the remaining COVID-specific qualitative factors and recorded an additional reverse provision of $1,250 to account for significant improvements in COVID-related health statistics and economic impacts.

The Company uses 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 judgment 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 portfolio is segmented first by regulatory call report code, and second, 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 loss drivers are used across the loan 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 carrying amount of the loan exceeds the discounted estimated cash flows using the loan's initial effective interest rate or the fair value of collateral 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 closely monitors economic conditions and loan performance trends to manage and evaluate the exposure to credit risk. Key factors tracked by the Company and utilized in evaluating the credit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral coverage.

(Continued)

14.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of June 30, 2022:


June 30, 2022	2022		2021		2020			2019		2018		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	72,035	$	74,565	$	22,755		$	13,675	$	5,010	$	15,538	$	89,101		$	292,679
Special mention		—		148		—			—		—		—		—			148
Substandard		—		—		258			653		204		30		—			1,145
Nonaccrual		—		32		57			—		—		—		95			184
Total commercial and industrial loans	$	72,035	$	74,745	$	23,070		$	14,328	$	5,214	$	15,568	$	89,196		$	294,156

Charge-offs	$	—	$	—	$	(30	)	$	—	$	—	$	—	$	(124	)	$	(154	)
Recoveries		—		—		—			—		—		33		12			45
Current period net	$	—	$	—	$	(30	)	$	—	$	—	$	33	$	(112	)	$	(109	)

Construction and development:
Pass	$	90,460	$	178,336	$	30,558		$	17,497	$	5,771	$	17,007	$	9,474		$	349,103
Special mention		—		—		—			—		—		920		—			920
Substandard		—		—		—			—		1		—		—			1
Nonaccrual		—		—		—			—		—		—		—			—
Total construction and development loans	$	90,460	$	178,336	$	30,558		$	17,497	$	5,772	$	17,927	$	9,474		$	350,024

Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—

Commercial real estate:
Pass	$	160,736	$	144,217	$	108,522		$	68,311	$	50,281	$	162,261	$	16,445		$	710,773
Special mention		—		—		950			—		8,841		17,536		—			27,327
Substandard		—		—		—			—		1,030		3,047		—			4,077
Nonaccrual		—		—		248			106		63		7,009		—			7,426
Total commercial real estate loans	$	160,736	$	144,217	$	109,720		$	68,417	$	60,215	$	189,853	$	16,445		$	749,603

Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		1		—		—			1
Current period net	$	—	$	—	$	—		$	—	$	1	$	—	$	—		$	1

(Continued)

15.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


June 30, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	65,506	$	57,309	$	11,768	$	7,164	$	6,828	$	12,908	$	4,630	$	166,113
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		32		—		67		—		99
Nonaccrual		—		—		—		—		—		97		—		97
Total farmland loans	$	65,506	$	57,309	$	11,768	$	7,196	$	6,828	$	13,072	$	4,630	$	166,309

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential:
Pass	$	79,199	$	132,508	$	55,175	$	34,883	$	29,142	$	100,769	$	17,572	$	449,248
Special mention		—		—		—		—		22		109		—		131
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		159		—		—		118		1,273		—		1,550
Total 1-4 family residential loans	$	79,199	$	132,667	$	55,175	$	34,883	$	29,282	$	102,151	$	17,572	$	450,929

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		30		—		30
Current period net	$	—	$	—	$	—	$	—	$	—	$	30	$	—	$	30

Multi-family residential:
Pass	$	25,629	$	18,566	$	2,511	$	6,334	$	893	$	1,961	$	91	$	55,985
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	25,629	$	18,566	$	2,511	$	6,334	$	893	$	1,961	$	91	$	55,985

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(Continued)

16.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


June 30, 2022	2022			2021			2020			2019		2018		Prior		Revolving Loans Amortized Cost			Total
Consumer and overdrafts:
Pass	$	18,010		$	17,136		$	8,071		$	2,865	$	3,674	$	660	$	6,028		$	56,444
Special mention		8			32			2			—		—		—		—			42
Substandard		—			—			—			—		—		—		—			—
Nonaccrual		—			68			17			8		31		8		250			382
Total consumer loans and overdrafts	$	18,018		$	17,236		$	8,090		$	2,873	$	3,705	$	668	$	6,278		$	56,868

Charge-offs	$	(138	)	$	(14	)	$	(22	)	$	—	$	—	$	—	$	—		$	(174	)
Recoveries		43			1			—			11		—		11		—			66
Current period net	$	(95	)	$	(13	)	$	(22	)	$	11	$	—	$	11	$	—		$	(108	)

Agricultural:
Pass	$	1,719		$	2,392		$	1,377		$	680	$	665	$	540	$	6,865		$	14,238
Special mention		—			—			—			—		—		6		—			6
Substandard		—			—			14			3		—		32		—			49
Nonaccrual		—			—			—			71		6		53		79			209
Total agricultural loans	$	1,719		$	2,392		$	1,391		$	754	$	671	$	631	$	6,944		$	14,502

Charge-offs	$	—		$	—		$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—			—			—			—		—		—		—			—
Current period net	$	—		$	—		$	—		$	—	$	—	$	—	$	—		$	—

Total loans:
Pass	$	513,294		$	625,029		$	240,737		$	151,409	$	102,264	$	311,644	$	150,206		$	2,094,583
Special mention		8			180			952			—		8,863		18,571		—			28,574
Substandard		—			—			272			688		1,235		3,176		—			5,371
Nonaccrual		—			259			322			185		218		8,440		424			9,848
Total loans	$	513,302		$	625,468		$	242,283		$	152,282	$	112,580	$	341,831	$	150,630		$	2,138,376

Charge-offs	$	(138	)	$	(14	)	$	(52	)	$	—	$	—	$	—	$	(124	)	$	(328	)
Recoveries		43			1			—			11		1		74		12			142
Total current period net (charge-offs) recoveries	$	(95	)	$	(13	)	$	(52	)	$	11	$	1	$	74	$	(112	)	$	(186	)

(Continued)

17.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2021:


December 31, 2021	2021		2020		2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	176,972	$	31,337	$	16,207		$	6,449		$	3,493		$	14,657		$	74,364		$	323,479
Special mention		—		88		—			—			14			—			—			102
Substandard		—		272		55			192			40			1			—			560
Nonaccrual		14		101		—			22			—			11			—			148
Total commercial and industrial loans	$	176,986	$	31,798	$	16,262		$	6,663		$	3,547		$	14,669		$	74,364		$	324,289

Charge-offs	$	—	$	—	$	(168	)	$	(67	)	$	(115	)	$	—		$	(61	)	$	(411	)
Recoveries		—		—		—			—			—			—			21			21
Current period net	$	—	$	—	$	(168	)	$	(67	)	$	(115	)	$	—		$	(40	)	$	(390	)

Construction and development:
Pass	$	180,056	$	68,765	$	20,499		$	6,507		$	8,235		$	13,565		$	8,615		$	306,242
Special mention		—		—		—			—			944			—			—			944
Substandard		—		—		609			2			—			—			—			611
Nonaccrual		—		—		—			—			—			—			—			—
Total construction and development loans	$	180,056	$	68,765	$	21,108		$	6,509		$	9,179		$	13,565		$	8,615		$	307,797

Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			1			—			1
Current period net	$	—	$	—	$	—		$	—		$	—		$	1		$	—		$	1

Commercial real estate:
Pass	$	134,617	$	93,806	$	80,733		$	59,380		$	43,457		$	145,477		$	16,065		$	573,535
Special mention		—		765		—			—			4,550			788			—			6,103
Substandard		—		6,987		—			10,041			12,981			12,553			—			42,562
Nonaccrual		—		—		124			69			32			337			80			642
Total commercial real estate loans	$	134,617	$	101,558	$	80,857		$	69,490		$	61,020		$	159,155		$	16,145		$	622,842

Charge-offs	$	—	$	—	$	(17	)	$	(56	)	$	(472	)	$	(271	)	$	—		$	(816	)
Recoveries		—		—		19			—			11			—			—			30
Current period net	$	—	$	—	$	2		$	(56	)	$	(461	)	$	(271	)	$	—		$	(786	)

(Continued)

18.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	94,491	$	11,868	$	8,664	$	7,456	$	5,191	$	11,145	$	6,290	$	145,105
Special mention		—		—		—		—		—		26		—		26
Substandard		—		—		—		—		—		72		—		72
Nonaccrual		—		195		—		—		—		103		—		298
Total farmland loans	$	94,491	$	12,063	$	8,664	$	7,456	$	5,191	$	11,346	$	6,290	$	145,501

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential:
Pass	$	132,448	$	64,590	$	43,016	$	36,501	$	26,987	$	91,864	$	13,714	$	409,120
Special mention		—		—		—		—		—		18		—		18
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		170		—		—		180		58		1,127		—		1,535
Total 1-4 family residential loans	$	132,618	$	64,590	$	43,016	$	36,681	$	27,045	$	93,009	$	13,714	$	410,673

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family residential:
Pass	$	16,663	$	4,286	$	6,436	$	908	$	474	$	2,113	$	91	$	30,971
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	16,663	$	4,286	$	6,436	$	908	$	474	$	2,113	$	91	$	30,971

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(Continued)

19.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


December 31, 2021	2021			2020			2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
Consumer and overdrafts:
Pass	$	24,715		$	11,589		$	4,557		$	4,647		$	558		$	543		$	4,478		$	51,087
Special mention		76			—			5			—			—			—			—			81
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		56			27			10			62			5			—			—			160
Total consumer loans and overdrafts	$	24,847		$	11,616		$	4,572		$	4,709		$	563		$	543		$	4,478		$	51,328

Charge-offs	$	(285	)	$	(36	)	$	(57	)	$	(32	)	$	(2	)	$	(2	)	$	—		$	(414	)
Recoveries		61			3			—			8			2			21			—			95
Current period net	$	(224	)	$	(33	)	$	(57	)	$	(24	)	$	—		$	19		$	—		$	(319	)

Agricultural:
Pass	$	3,557		$	1,866		$	927		$	917		$	221		$	526		$	6,492		$	14,506
Special mention		—			—			—			—			13			—			—			13
Substandard		—			14			4			15			39			—			—			72
Nonaccrual		—			—			—			8			—			40			—			48
Total agricultural loans	$	3,557		$	1,880		$	931		$	940		$	273		$	566		$	6,492		$	14,639

Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			8			—			8
Current period net	$	—		$	—		$	—		$	—		$	—		$	8		$	—		$	8

Total loans:
Pass	$	763,519		$	288,107		$	181,039		$	122,765		$	88,616		$	279,890		$	130,109		$	1,854,045
Special mention		76			853			5			—			5,521			832			—			7,287
Substandard		—			7,273			668			10,250			13,060			12,626			—			43,877
Nonaccrual		240			323			134			341			95			1,618			80			2,831
Total loans	$	763,835		$	296,556		$	181,846		$	133,356		$	107,292		$	294,966		$	130,189		$	1,908,040

Charge-offs	$	(285	)	$	(36	)	$	(242	)	$	(155	)	$	(589	)	$	(273	)	$	(61	)	$	(1,641	)
Recoveries		61			3			19			8			13			30			21			155
Total current period net charge-offs	$	(224	)	$	(33	)	$	(223	)	$	(147	)	$	(576	)	$	(243	)	$	(40	)	$	(1,486	)

There were no loans classified in the “doubtful” or “loss” risk rating categories as of June 30, 2022 and December 31, 2021.

The following tables presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loan, and their impact on the ACL, as of June 30, 2022 and December 31, 2021:


June 30, 2022	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	718	$	—	$	718	$	246
Real estate:
Commercial real estate		1,030		—		1,030		354
Consumer		—		250		250		250
Total	$	1,748	$	250	$	1,998	$	850


December 31, 2021	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	116	$	—	$	116	$	40
Real estate:
Construction and development		609		—		609		207
Commercial real estate		4,319		—		4,319		553
Total	$	5,044	$	—	$	5,044	$	800

(Continued)

20.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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 as of:


June 30, 2022	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	1,900	$	97	$	145	$	2,142	$	292,014	$	294,156	$	—
Real estate:
Construction and development		94		—		—		94		349,930		350,024		—
Commercial real estate		8		87		6,734		6,829		742,774		749,603		—
Farmland		20		—		—		20		166,289		166,309		—
1-4 family residential		784		186		411		1,381		449,548		450,929		—
Multi-family residential		—		—		—		—		55,985		55,985		—
Consumer		60		47		306		413		56,020		56,433		—
Agricultural		71		6		71		148		14,354		14,502		—
Overdrafts		—		—		—		—		435		435		—
Total	$	2,937	$	423	$	7,667	$	11,027	$	2,127,349	$	2,138,376	$	—


December 31, 2021	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	969	$	38	$	134	$	1,141	$	323,148	$	324,289	$	—
Real estate:
Construction and development		885		132		—		1,017		306,780		307,797		—
Commercial real estate		—		360		350		710		622,132		622,842		—
Farmland		114		87		195		396		145,105		145,501		—
1-4 family residential		1,650		123		410		2,183		408,490		410,673		—
Multi-family residential		—		—		—		—		30,971		30,971		—
Consumer		189		113		68		370		50,595		50,965		—
Agricultural		41		8		—		49		14,590		14,639		—
Overdrafts		—		—		—		—		363		363		—
Total	$	3,848	$	861	$	1,157	$	5,866	$	1,902,174	$	1,908,040	$	—

The following table presents information regarding nonaccrual loans as of:


	June 30, 2022		December 31, 2021
Commercial and industrial	$	184	$	148
Real estate:
Commercial real estate		7,426		642
Farmland		97		298
1-4 family residential		1,550		1,535
Consumer and overdrafts		382		160
Agricultural		209		48
Total	$	9,848	$	2,831

Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.

There were no loans modified as TDRs during the six months ended June 30, 2022.

(Continued)

21.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table presents loans, by class, modified as TDRs during the year ended December 31, 2021:


Year Ended December 31, 2021	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		1		17		14
Total		1	$	17	$	14

There were four TDRs that subsequently defaulted during 2022 and remained on nonaccrual status as of June 30, 2022. There were no TDRs that subsequently defaulted during 2021. The TDRs described above did not increase the allowance for credit losses and resulted in no charge-offs during the six months ended June 30, 2022 or the year ended December 31, 2021.

NOTE 4 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT

At June 30, 2022 and December 31, 2021, securities sold under agreements to repurchase totaled $7,871 and $14,151, respectively.

The Company has an unsecured $25,000 revolving line of credit, which had no outstanding balance at June 30, 2022, bears interest at the greater of (i) the prime rate, which was 4.75% at June 30, 2022, or (ii) the rate floor of 3.50%, with interest payable quarterly, and matures in March 2023. As of December 31, 2021, there was a $5,000 outstanding balance on the line of credit.

Federal Home Loan Bank (FHLB) advances, as of June 30, 2022, were as follows:

Fixed rate advances, with monthly interest payments, principal due in:


Year	Current Weighted Average Rate			Principal Due
2022		1.70	%	$	131,500
				$	131,500

There are no fixed rate advances, with monthly principal and interest payments outstanding as of June 30, 2022.

NOTE 5 - SUBORDINATED DEBT

Subordinated debt was made up of the following as of:


	June 30, 2022		December 31, 2021
Trust II Debentures	$	—	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Subordinated note		34,336		—
Other debentures		9,500		9,500
	$	51,053	$	19,810

The Company has two active trusts, Guaranty (TX) Capital Trust III (“Trust III”) and DCB Financial Trust I (“DCB Trust I”). The subordinated debentures of a third trust, Guaranty (TX) Capital Trust II (“Trust II”, and together with Trust III and DCB Trust III, the "Trusts"), were redeemed in May 2022, for $3,093. 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)

22.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


	Trust III		DCB Trust I
Formation date	July 25, 2006		March 29, 2007
Capital trust pass-through securities
Number of shares		2,000		5,000
Original liquidation value	$	2,000	$	5,000
Common securities liquidation value		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, 2022 and December 31, 2021. 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 III Debentures		DCB Trust I Debentures
Original amount	$	2,062	$	5,155
Maturity date	October 1, 2036		June 15, 2037
Interest due	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

These debentures were redeemed in May 2022.

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.

Subordinated Note

On March 4, 2022, the Company completed a private placement of $35,000 aggregate principal amount of its fixed-to-floating rate subordinated note due April 1, 2032. The subordinated note initially bears a fixed interest rate of 3.625% per year, due semi-annually in arrears on April 1 and October 1. Commencing on April 1, 2027, the interest rate on the subordinated note will reset each quarter at a floating interest rate equal to the then-current three-month term Secured

(Continued)

23.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Overnight Financing Rate ("SOFR") plus 192 basis points. The Company may at its option redeem in whole or in part the subordinated note on or after March 4, 2027 without a premium. The subordinated note is treated as Tier 2 capital for regulatory purposes (subject to reductions in the amount includable as Tier 2 capital in the final five years prior to maturity), and is presented net of $664 in related unamortized issuance costs on the consolidated balance sheets.

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, 2022. 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 maturity 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 the subordinated note and 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
Thereafter		3.63	%		34,336
				$	43,836

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)

24.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

A summary of stock option activity in the Plan during the six months ended June 30, 2022 and 2021 follows:


Six Months Ended June 30, 2022	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		502,780		$	25.77		5.59	$	5,936
Granted		60,000			35.84
Exercised		(20,950	)		22.60
Forfeited		(20,900	)		25.95
Balance, June 30, 2022		520,930		$	27.05		5.62	$	4,815

Exercisable at end of period		289,920		$	24.52		4.07	$	3,401


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
Exercised		(28,590	)		22.28
Forfeited		(19,020	)		26.01
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

A summary of nonvested stock option activity in the Plan during the six months ended June 30, 2022 and 2021 follows:


Six Months Ended June 30, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		207,084		$	5.23
Granted		60,000			6.40
Vested		(29,694	)		(6.24	)
Forfeited		(6,380	)		(14.82	)
Balance, June 30, 2022		231,010		$	5.38


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

Information related to stock options in the Plan is as follows for the six months ended:


	June 30, 2022		June 30, 2021
Intrinsic value of options exercised	$	286	$	337
Cash received from options exercised		474		636
Weighted average fair value of options granted		6.40		5.67

(Continued)

25.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Restricted Stock Awards and Units

A summary of restricted stock activity in the Plan during the six months ended June 30, 2022 and 2021 follows:


Six Months Ended June 30, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		30,190		$	27.52
Vested		(4,070	)		(27.50	)
Balance, June 30, 2022		26,120		$	27.52


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
Vested		(4,840	)		(30.25	)
Balance, June 30, 2021		33,990		$	26.95

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, 2022, there was $1,778 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 3.24 years.

The Company granted options under the Plan during the first six months of 2022 and 2021. Expense of $321 and $329 was recorded during the six months ended June 30, 2022 and 2021, respectively, 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, 2022 and 2021 totaled $784 and $737, respectively, and is included in employee compensation and benefits on the Company’s consolidated statements of earnings.

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.

As of June 30, 2022, the number of shares held by the KSOP was 1,139,941. There were no unallocated shares to plan participants as of June 30, 2022, and all shares held by the KSOP were treated as outstanding.

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 $37,979 and $37,141 as of June 30, 2022 and December 31, 2021, respectively.

Expense related to these plans totaled $508 and $471 for the six months ended June 30, 2022 and 2021, respectively. This expense is included in employee compensation and benefits on the Company’s consolidated statements of earnings. The

(Continued)

26.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

recorded liability totaled approximately $5,238 and $4,969 as of June 30, 2022 and December 31, 2021, 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 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 six months ended June 30, 2022 and 2021 totaled $2,695 and $2,153, 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, 2022, operating lease right-of-use assets were $13,762 and liabilities were $14,353, and as of December 31, 2021, lease assets and liabilities were $14,376 and $14,882, 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, 2022 and 2021 was approximately $1,104 and $1,146, respectively, and is included as a component of occupancy expenses within the accompanying consolidated statements of earnings.

The table below summarizes other information related to our operating leases as of:


	June 30, 2022			December 31, 2021
Operating leases
Operating lease right-of-use assets	$	13,762		$	14,376
Operating lease liabilities		14,353			14,882

Weighted average remaining lease term
Operating leases	8 years			8 years
Weighted average discount rate
Operating leases		1.99	%		1.95	%

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2026 and thereafter. Minimum future lease payments under these non-cancelable operating leases as of June 30, 2022, are as follows:


Year Ended December 31,	Amount
2022	$	1,100
2023		2,166
2024		2,111
2025		1,942
2026		1,714
Thereafter		5,898
Total lease payments		14,931
Less: interest		(578	)
Present value of lease liabilities	$	14,353

(Continued)

27.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

NOTE 9 - INCOME TAXES

Income tax expense was as follows for:


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Income tax expense for the period	$	2,472		$	2,312		$	4,707		$	4,648
Effective tax rate		18.67	%		18.14	%		17.96	%		17.85	%

The effective tax rates differ from the statutory federal tax rate of 21% for the three and six months ended June 30, 2022 and 2021 largely due to tax exempt interest income earned on certain investment securities and loans.

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 sheets in other liabilities.

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 5. Management believed 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 was the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that were appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in the liability to other liabilities of the Company. During the quarter ended September 30, 2021, Guaranty terminated these interest rate swaps with notional amounts totaling $5,000 at the time of termination, as the risk exposure declined to acceptable levels.

In the first quarter of 2022, the Company also terminated interest rate swaps that were originally designed to receive payments at a floating rate in exchange for paying a fixed rate, the objective of which was to reduce the overall cost of short-term 3-month FHLB advances that were renewed consistent with the reset terms on the interest rate swaps. The swaps were cancelled at a net gain of $685, which is included in other non-interest income in the Consolidated Statement of Earnings. The interest rate swaps, with notional amounts totaling $40,000 as of December 31, 2021, were designated as cash flow hedges of the FHLB advances.

As of December 31, 2021, the aggregate fair value of these swaps was recorded in accrued interest and other liabilities within the Company’s Consolidated Balance Sheet, with changes in fair value recorded in other comprehensive income.

The information pertaining to outstanding interest rate swap agreements used to hedge floating rate debentures and FHLB advances was as follows as of:


December 31, 2021
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses (Gains)
$	15,000		0.668	%	3 month LIBOR	3/18/2020		1.22		8
	15,000		0.790	%	3 month LIBOR	3/18/2020		3.22		(184	)
	10,000		0.530	%	3 month LIBOR	3/23/2020		1.23		(12	)

(Continued)

28.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Interest expense recorded on these swap transactions totaled $119 and $320 during the six months ended June 30, 2022 and 2021, respectively. This expense is reported as a component of interest expense on the debentures and the FHLB advances and federal funds purchased.

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.

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 considers 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 is minimal and there is no recorded ACL with respect to these commitments as of June 30, 2022 and December 31, 2021.

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 June 30, 2022 and December 31, 2021, no amounts 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, 2022		December 31, 2021
Commitments to extend credit	$	489,737	$	405,269
Letters of credit		10,505		8,357

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 June 30, 2022, the Company had letters of credit of $29,033 pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law.

(Continued)

29.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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.

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 minimum amounts and ratios (set forth in the table 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 June 30, 2022 and December 31, 2021, that the Bank met all capital adequacy requirements to which it was subject.

The Basel III Capital Rules, among other things, have (i) introduced a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specified that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, (iv) expanded the scope of the deductions/adjustments as compared to existing regulations, 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 certain activities including payment of dividends, share repurchases and discretionary bonuses to executive officers.

As of June 30, 2022 and December 31, 2021, the Company’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 Company must maintain minimum total risk-based, CET1, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since June 30, 2022 that management believes have changed the Company’s category.

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, 2022
Total capital to risk-weighted assets:
Consolidated	$	340,931	15.06%	$	181,117	8.00%	$	237,716	10.50%	n/a
Bank		337,604	14.92%		181,052	8.00%		237,631	10.50%	$	226,315	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		278,297	12.29%		135,838	6.00%		192,437	8.50%	n/a
Bank		309,306	13.67%		135,789	6.00%		192,368	8.50%		181,052	8.00%
Tier 1 capital to average assets:(1)
Consolidated		278,297	8.72%		127,594	4.00%		127,594	4.00%	n/a
Bank		309,306	9.68%		127,761	4.00%		127,761	4.00%		159,701	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		271,080	11.97%		101,878	4.50%		158,478	7.00%	n/a
Bank		309,306	13.67%		101,842	4.50%		158,421	7.00%		147,105	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.

(Continued)

30.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


	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, 2021
Total capital to risk-weighted assets:
Consolidated	$	297,370	14.51%	$	163,986	8.00%	$	215,232	10.50%	n/a
Bank		311,335	15.19%		163,936	8.00%		215,166	10.50%	$	204,920	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		271,696	13.25%		122,990	6.00%		174,235	8.50%	n/a
Bank		285,661	13.94%		122,952	6.00%		174,182	8.50%		163,936	8.00%
Tier 1 capital to average assets:(1)
Consolidated		271,696	9.18%		118,369	4.00%		118,369	4.00%	n/a
Bank		285,661	9.66%		118,345	4.00%		118,345	4.00%		147,931	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		261,386	12.75%		92,242	4.50%		143,488	7.00%	n/a
Bank		285,661	13.94%		92,214	4.50%		143,444	7.00%		133,198	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.

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: 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).

(Continued)

31.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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).

The following tables summarize quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value:


June 30, 2022	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 at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	129,184	$	—	$	129,184	$	—
Collateralized mortgage obligations		23,889		—		23,889		—
Municipal securities		9,448		—		9,448		—
Corporate bonds		33,574		—		33,574		—
Loans held for sale		2,770		—		—		2,770
Cash surrender value of life insurance		37,979		—		37,979		—
SBA servicing assets		1,025		—		—		1,025

Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		1,148		—		—		1,148


December 31, 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 at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	221,308		$	—	$	221,308		$	—
Collateralized mortgage obligations		74,992			—		74,992			—
Corporate bonds		35,935			—		35,935			—
U.S. government agencies		9,971			—		9,971			—
Loans held for sale		4,129			—		—			4,129
Cash surrender value of life insurance		37,141			—		37,141			—
SBA servicing assets		877			—		—			877
Derivative instrument assets		(196	)		—		(196	)		—
Derivative instrument liabilities		8			—		8			—

Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		4,244			—		—			4,244

(Continued)

32.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

There were no transfers between Level 2 and Level 3 during the six months ended June 30, 2022 or for the year ended December 31, 2021.

Nonfinancial Assets and Nonfinancial Liabilities

Nonfinancial assets measured at fair value on a nonrecurring basis usually include certain foreclosed assets which, upon initial recognition, are 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, are remeasured at fair value through a write-down included in current earnings. The fair value of a foreclosed asset is usually estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

As of June 30, 2022 and 2021, and December 31, 2021, there were no foreclosed assets that were remeasured and recorded at fair value.

As of June 30, 2022 and December 31, 2021, there were no nonrecurring level 3 fair value measurements requiring quantitative information.

The following table presents information on individually evaluated collateral dependent loans as of June 30, 2022 and December 31, 2021:


	Fair Value Measurements Using
June 30, 2022	Level 1		Level 2		Level 3		Total Fair Value
Commercial and industrial	$	—	$	—	$	472	$	472
Real estate:
Construction and development		—		—		—		—
Commercial real estate		—		—		676		676
Total	$	—	$	—	$	1,148	$	1,148


	Fair Value Measurements Using
December 31, 2021	Level 1		Level 2		Level 3		Total Fair Value
Commercial and industrial	$	—	$	—	$	76	$	76
Real estate:
Construction and development		—		—		402		402
Commercial real estate		—		—		3,766		3,766
Total	$	—	$	—	$	4,244	$	4,244

The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of June 30, 2022 and December 31, 2021, are as follows:


	Fair value measurements as of June 30, 2022 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	$	71,023	$	71,023	$	—	$	—	$	71,023
Marketable securities held to maturity		713,390		—		682,497		—		682,497
Loans, net		2,107,658		—		—		2,056,757		2,056,757
Accrued interest receivable		10,144		—		10,144		—		10,144
Nonmarketable equity securities		17,753		—		17,753		—		17,753
Financial liabilities:
Deposits	$	2,779,621	$	2,452,997	$	326,237	$	—	$	2,779,234
Securities sold under repurchase agreements		7,871		—		7,871		—		7,871
Accrued interest payable		1,008		—		1,008		—		1,008
Federal Home Loan Bank advances		131,500		—		131,450		—		131,450
Subordinated debt		51,053		—		49,306		—		49,306

(Continued)

33.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


	Fair value measurements as of December 31, 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	$	499,605	$	499,605	$	—	$	—	$	499,605
Marketable securities held to maturity		184,263		—		192,472		—		192,472
Loans, net		1,876,076		—		—		1,883,756		1,883,756
Accrued interest receivable		8,901		—		8,901		—		8,901
Nonmarketable equity securities		15,344		—		15,344		—		15,344
Financial liabilities:
Deposits	$	2,670,827	$	2,341,048	$	330,356	$	—	$	2,671,404
Securities sold under repurchase agreements		14,151		—		14,151		—		14,151
Accrued interest payable		481		—		481		—		481
Federal Home Loan Bank advances		47,500		—		47,501		—		47,501
Subordinated debt		19,810		—		17,833		—		17,833

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).

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).

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 debt 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. There were no net earnings attributable to the noncontrolling interest during the quarter ended June 30, 2022. 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.

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34.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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.

The computations of basic and diluted earnings per share for the Company were as follows for the:


	Quarter Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,784	$	10,432	$	21,522	$	21,394

Denominator:
Weighted-average shares outstanding (basic)		11,968,227		12,056,550		12,038,261		12,047,643
Effect of dilutive securities:
Common stock equivalent shares from stock options		130,756		195,037		135,252		168,311
Weighted-average shares outstanding (diluted)		12,098,983		12,251,587		12,173,513		12,215,954

Net earnings attributable to Guaranty Bancshares, Inc. per share
Basic	$	0.90	$	0.87	$	1.79	$	1.78
Diluted	$	0.89	$	0.85	$	1.77	$	1.75

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35.

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, 2021. 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 32 banking locations in the East Texas, Dallas/Fort Worth, Houston and Central Texas 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 www.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 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.

Quarterly Highlights

Quarterly highlights of the Company include:

•

Strong Loan Growth. The second quarter of 2022 saw strong organic loan growth, increasing $124.3 million, or 6.2%, during the quarter. Excluding PPP and warehouse lending changes, our loans grew $139.9 million, or 7.1%, during the quarter. Our loan growth is a result of internally generated sources and is not from loan purchases from other originators.

•

Solid Net Earnings and Core Earnings. Net earnings have remained consistent quarter-over-quarter. Net core earnings†, which exclude provisions for credit losses and income tax, and net PPP income, have trended upwards, demonstrating a solid and consistent core earnings stream. Net core earnings† were $12.8 million for the second quarter, compared to $10.9 million for the first quarter of 2022, and $9.8 million during the second quarter of 2021.

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36.

•

Good Asset Quality. Non-performing assets as a percentage of total assets were 0.30% at June 30, 2022, compared to 0.08% at March 31, 2022 and 0.13% at June 30, 2021. Net charge-offs to average loans (annualized) were 0.02% for the quarter ended June 30, 2022, compared to 0.02% for the quarter ended March 31, 2022, and 0.05% for the quarter ended June 30, 2021.

•

Repricing Loans. The Bank is slightly asset-sensitive and should see benefits from expected rate increases by the Federal Reserve. As of June 30, 2022, $267.8 million, or 12.5%, of our loan portfolio is fully floating and $1.1 billion, or 51.8%, are adjustable rate term loans, repricing at defined future time periods or at maturity. With the rate increase of 75 bps that occurred during the July FOMC meeting, approximately $322.7 million, or 23.5%, of our floating and variable rate loans repriced. Total rate increases of 175 bps between June 30, 2022 and December 31, 2022 would result in repricing of approximately $453.6 million, or 33.0%, of our total floating and adjustable rate loans by December 31, 2022. Although we have raised interest rates paid on deposit accounts, we continue to maintain a conservative approach to increases. A total of 39.8% of our deposits are noninterest-bearing and total cost of funds on total deposits during the second quarter was 0.23%.

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.

Discussion and Analysis of Results of Operations for the Six Months Ended June 30, 2022 and 2021

Results of Operations

The following discussion and analysis compares our results of operations for the six months ended June 30, 2022 with the six months ended June 30, 2021. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

Net earnings attributable to Guaranty Bancshares, Inc. (which excludes the minority interest of consolidated subsidiaries) were $21.5 million for the six months ended June 30, 2022, as compared to $21.4 million for the six months ended June 30, 2021. The following table presents key earnings data for the periods indicated:


	Six Months Ended June 30,
(dollars in thousands, except per share data)	2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	21,522		$	21,394
Net earnings attributable to Guaranty Bancshares, Inc. per common share
-basic		1.79			1.78
-diluted		1.77			1.75
Net interest margin(1)		3.45	%		3.60	%
Net interest rate spread(2)		3.28	%		3.42	%
Return on average assets		1.37	%		1.51	%
Return on average equity		14.65	%		15.31	%
Average equity to average total assets		9.32	%		9.86	%
Cash dividend payout ratio		24.58	%		22.47	%

(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 changes in the provision for credit losses, 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. The following table illustrates net earnings attributable to Guaranty Bancshares, Inc. and net core earnings attributable to

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37.

Guaranty Bancshares, Inc. per share, 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, 2022 and 2021.


	Six Months Ended June 30,
(dollars in thousands, except per share data)	2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	21,522		$	21,394
Adjustments:
Reversal of provision for credit losses		(1,250	)		(1,000	)
Income tax provision		4,707			4,648
PPP interest income, including fees		(1,219	)		(5,260	)
Net core earnings attributable to Guaranty Bancshares, Inc.†	$	23,760		$	19,782

Total average assets	$	3,177,969		$	2,857,707
Adjustments:
PPP loans average balance		(22,794	)		(146,103	)
Total average assets, adjusted†	$	3,155,175		$	2,711,604
Total average equity	$	296,220		$	281,730

PERFORMANCE RATIOS
Net earnings attributable to Guaranty Bancshares, Inc. to average assets (annualized)		1.37	%		1.51	%
Net earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)	$	14.65		$	15.31
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted (annualized)†		1.52			1.47
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)†		16.18			14.16

PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic		12,038,261			12,047,643
Earnings per common share, basic	$	1.79		$	1.78
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic†		1.97			1.64

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".

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 reversal of the provision for credit losses, was $51.2 million compared to $48.0 million for the six months ended June 30, 2021, an increase of $3.2 million, or 6.7%. The increase in net interest income, before the reversal of the provision for credit losses, resulted primarily from a $3.0 million, or 69.1%, increase in interest earned on securities for the six months ended June 30, 2022 compared to the same period in 2021.

Average loans outstanding, excluding PPP loans, for the six months ended June 30, 2022 was $1.98 billion, compared to $1.75 billion for the same period in 2021, an increase of $226.5 million, or 12.9%. The increase in average loans outstanding was primarily due to organic growth. The $10,000 increase in interest expense for the six months ended June 30, 2022 was primarily related to a $323,000, or 85.9%, increase in expense related to our subordinated debentures and a $110.4 million, or 6.9%, increase in average interest-bearing deposits over the same period in 2021. These were partially offset by a decrease in the cost of interest-bearing deposits of five basis points. The average deposit balance increase is also the result of organic growth, apparent changes in consumer and business spending habits, and lack of stable investment alternatives for some depositors.

For the six months ended June 30, 2022, net interest margin on a taxable equivalent basis and net interest spread were 3.49% and 3.28%, respectively, compared to 3.64% and 3.42% for the same period in 2021, which reflects a 17 basis point decrease in the yield on interest-earning assets, partially offset by a three basis point decrease on interest-bearing liabilities from the prior period. The decrease in yield on interest-earning assets from the prior period is primarily due to $5.3 million of PPP-related interest and origination fee income included in the six months ended June 30, 2021 compared to $1.2 million for the six months ended June 30, 2022.

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38.

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 all major categories of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rates 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 six months ended June 30, 2022 and 2021, 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.


	Six Months Ended June 30,
	2022								2021
(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)	$	2,003,053		$	46,859		4.72	%	$	1,899,864		$	47,059		4.99	%
Securities available for sale		377,132			3,091		1.65			399,255			4,282		2.16
Securities held to maturity		393,110			4,151		2.13			—			—		—
Nonmarketable equity securities		14,678			698		9.59			10,043			265		5.32
Interest-bearing deposits in other banks		203,738			214		0.21			380,455			191		0.10
Total interest-earning assets		2,991,711			55,013		3.71			2,689,617			51,797		3.88
Allowance for credit losses		(29,628	)							(32,951	)
Noninterest-earning assets		215,886								201,041
Total assets	$	3,177,969							$	2,857,707
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Interest-bearing deposits	$	1,702,216		$	2,865		0.34	%	$	1,591,784		$	3,096		0.39	%
Advances from FHLB and fed funds purchased		42,395			236		1.12			50,075			201		0.81
Line of credit		1,878			34		3.65			8,470			149		3.55
Subordinated debt		41,572			699		3.39			19,810			376		3.83
Securities sold under agreements to repurchase		9,976			5		0.10			18,013			7		0.08
Total interest-bearing liabilities		1,798,037			3,839		0.43			1,688,152			3,829		0.46
Noninterest-bearing liabilities:
Noninterest-bearing deposits		1,059,032								862,619
Accrued interest and other liabilities		24,680								25,206
Total noninterest-bearing liabilities		1,083,712								887,825
Equity		296,220								281,730
Total liabilities and equity	$	3,177,969							$	2,857,707
Net interest rate spread(2)							3.28	%							3.42	%
Net interest income				$	51,174							$	47,968
Net interest margin(3)							3.45	%							3.60	%
Net interest margin, fully taxable equivalent(4)							3.49	%							3.64	%

(1) Includes average outstanding balances of loans held for sale of $2.9 million and $3.7 million for the six months ended June 30, 2022 and 2021, respectively.
(2) Net interest 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, 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%.

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39.

The Bank’s participation in the PPP program created temporary extraordinary results in the calculation of net interest margin. To illustrate the impact of the PPP program on net interest margin, the table below excludes PPP loans and their associated fees and costs for the six months ended June 30, 2022 and 2021:


	Six Months Ended June 30, 2022									Six Months Ended June 30, 2021
(dollars in thousands)	Average Outstanding Balance			Interest Earned			Average Yield			Average Outstanding Balance			Interest Earned			Average Yield
Total interest-earning assets	$	2,991,711		$	55,013			3.71	%	$	2,689,617		$	51,797			3.88	%

Total loans		2,003,053			46,859			4.72			1,899,864			47,059			4.99
Adjustments:
PPP loans average balance and net fees(1)		(22,794	)		(1,219	)		10.78			(146,103	)		(5,260	)		7.26
Total loans, net of PPP effects	$	1,980,259		$	45,640			4.65	%	$	1,753,761		$	41,799			4.81	%

Total interest-earning assets, net of PPP effects†	$	2,968,917		$	53,794			3.65	%	$	2,543,514		$	46,537			3.69	%

Net interest income, fully taxable equivalent ("FTE")				$	51,776								$	23,746
Net interest margin, FTE								3.49	%								3.64	%
Net interest income, net of PPP effects†					50,557									18,236
Net interest margin, FTE, net of PPP effects†								3.43	%								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 $110,000 and $720,000, and net origination fees recognized in earnings of $1.1 million and $4.5 million for the six months ended June 30, 2022 and 2021, respectively.

The following table presents the change in interest income and interest expense for the periods indicated for all major components 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.


	For the Six Months Ended June 30, 2022 vs. 2021
	Increase (Decrease)
	Due to Change in						Total Increase
(in thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Total loans	$	2,575		$	(2,775	)	$	(200	)
Securities available for sale		(237	)		(954	)		(1,191	)
Securities held to maturity		4,151			—			4,151
Nonmarketable equity securities		122			311			433
Interest-earning deposits in other banks		(88	)		111			23
Total increase (decrease) in interest income	$	6,523		$	(3,307	)	$	3,216

Interest-bearing liabilities:
Interest-bearing deposits	$	214		$	(445	)	$	(231	)
Advances from FHLB and fed funds purchased		(31	)		66			35
Line of credit		(116	)		1			(115	)
Subordinated debt		413			(90	)		323
Securities sold under agreements to repurchase		(3	)		1			(2	)
Total increase (decrease) in interest expense		477			(467	)		10
Increase (decrease) in net interest income	$	6,046		$	(2,840	)	$	3,206

Provision for Credit Losses

The provision for credit losses is a charge to income in order to bring our allowance for credit 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 credit losses when determined appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for credit losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the determination.

During the six months ended June 30, 2022, we recorded a reverse (negative) provision for credit losses of $1.25 million, compared to a reverse provision of $1.0 million during the same period in 2021. At the onset of the COVID pandemic

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40.

in 2020, we established COVID-specific qualitative factors to estimate the potential impact of the pandemic to our loan portfolio as a whole, which led to a provision during 2020 of $13.2 million. As the economic, health and other impacts of the virus became more clear and cases began to decline, we reduced the COVID-specific qualitative factors during 2021 and fully unwound these specific factors during the first quarter of 2022, which resulted in the $1.25 million reverse provision during the period. The impact of unwinding the remaining COVID-specific qualitative factors was offset by growth in our loan portfolio; however, we also decreased certain of our standard qualitative factors in the second quarter to capture current macro-economic conditions that we believe are more similar to the environment prior to the COVID-19 pandemic (i.e. near the end of a long up-cycle with a downturn expected) and consistent with our day-one CECL methodology. As of June 30, 2022, our allowance for credit losses as a percentage of total loans was 1.36%.

As of June 30, 2022, there were $11.0 million in loan balances past due 30 or more days, including $9.8 million in loan balances for nonperforming (nonaccrual) loans, compared to $5.9 million and $2.8 million, respectively, as of December 31, 2021, and $15.5 million and $3.6 million, respectively, as of June 30, 2021.

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. 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 six months ended June 30, 2022 and 2021 and the period-over-period variations in the categories of noninterest income:


	Six Months Ended June 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021
Noninterest income:
Service charges	$	2,046	$	1,684	$	362
Gain on sale of loans		1,787		2,642		(855	)
Fiduciary and custodial income		1,280		1,119		161
Bank-owned life insurance income		418		418		—
Merchant and debit card fees		3,672		3,428		244
Loan processing fee income		419		317		102
Warehouse lending fees		195		452		(257	)
Mortgage fee income		233		334		(101	)
Other noninterest income		2,510		1,695		815
Total noninterest income	$	12,560	$	12,089	$	471

Total noninterest income increased $471,000, or 3.9%, for the six months ended June 30, 2022 compared to the same period in 2021. 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 typically constitute a significant and generally predictable component of our non-interest income. Service fee income was $2.0 million for the six months ended June 30, 2022 compared to $1.7 million for the same period in 2021, an increase of $362,000, or 21.5%, resulting primarily from an increase in the number of demand deposit accounts from 51,955 as of June 30, 2021 to 54,147 as of June 30, 2022, an increase of 2,192 accounts, and from an increase in insufficient funds fees of $312,000, from $1.3 million for the six months ended June 30, 2021 to $1.6 million for the six months ended June 30, 2022, due primarily to a reduction in NSF related refunds from the prior period.

Gain on Sale of Loans. We originate long-term fixed-rate mortgage loans and Small Business Administration (SBA) loans for resale into the secondary market. We sold 179 mortgage loans for $47.7 million during the six months ended June 30, 2022 compared to 279 mortgage loans for $63.4 million for the quarter ended June 30, 2021. Gain on sale of loans was $1.8 million for the six months ended June 30, 2022, a decrease of $855,000, or 32.4%, compared to $2.6 million for the six months ended June 30, 2021. $1.4 million and $392,000 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 prior year consisted of $2.5 million in mortgage loan sales and $165,000 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 $1.3 million and $1.1 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $161,000, or 14.4%. The revenue increase resulted primarily from 33 new accounts that opened during the first six months of 2022, which have generated additional income. Furthermore, revenue

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41.

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 tiered percentage rate fee schedule charged against market value.

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 $3.7 million for the six months ended June 30, 2022, compared to $3.4 million for the same period in 2021, an increase of $244,000, or 7.1%. The increase was primarily due to growth in the number of DDAs and debit card usage volume during 2022. The total number of DDAs increased by 2,192 accounts, from 51,955 as of June 30, 2021 to 54,147 as of June 30, 2022.

Loan Processing Fee Income. Revenue earned from collection of loan processing fees was $419,000 for the six months ended June 30, 2022, compared to $317,000 for the same period in 2021, an increase of $102,000, or 32.2%. The increase in loan processing fee income is primarily attributable to an increase in the volume of newly originated, renewed or extended loans during the period.

Warehouse Lending Fees. A portion of our lending involves the origination of mortgage warehouse lines of credit.
The decrease in warehouse lending fees of $257,000, or 56.9%, results from a decrease in overall warehouse lending activity in 2022. The average balance of mortgage warehouse lines decreased from $78.1 million for the six months ended June 30, 2021, to $27.9 million for the six months ended June 30, 2022, a $50.3 million, or 64.4%, decrease.

Mortgage Fee Income. Mortgage fee income consists of lender processing fees such as underwriting fees, administrative fees and funding fees that are collected from mortgage loans that the Bank intends to sell on the secondary
market. The decrease of $101,000, or 30.2%, from June 30, 2021 was primarily due to a lower volume of mortgage purchases and refinances during the period in 2022.

Other. This category includes a variety of other income producing activities, including loan origination fees, wire transfer fees, loan administration fees, and other fee income. Other noninterest income increased $815,000, or 48.1%, for the six months ended June 30, 2022, compared to the same period in 2021 resulting primarily from a net gain of $685,000 from the termination of three interest rate swaps during the first quarter of 2022.

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 six months ended June 30, 2022, noninterest expense totaled $38.8 million, an increase of $3.8 million, or 10.7%, compared to $35.0 million for the six months ended June 30, 2021. The following table presents, for the periods indicated, the major categories of noninterest expense:


	Six Months Ended June 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021
Employee compensation and benefits	$	23,262	$	20,147	$	3,115
Non-staff expenses:
Occupancy expenses		5,559		5,520		39
Legal and professional fees		1,543		1,351		192
Software and technology		2,548		2,169		379
Amortization		397		679		(282	)
Director and committee fees		424		422		2
Advertising and promotions		727		793		(66	)
ATM and debit card expense		1,252		1,156		96
Telecommunication expense		373		414		(41	)
FDIC insurance assessment fees		470		337		133
Other noninterest expense		2,218		2,027		191
Total noninterest expense	$	38,773	$	35,015	$	3,758

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42.

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 $23.3 million for the six months ended June 30, 2022, an increase of $3.1 million, or 15.5%, compared to $20.1 million for the same period in 2021. Employee compensation and benefits expense increased due to increased salaries, higher insurance expense accruals due to increased claims experience and increased bonus accruals due to higher net earnings.

Legal and Professional Fees. Legal and professional fees, which include audit, loan review and regulatory assessments, were $1.5 million and $1.4 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $192,000, or 14.2%. The increase was primarily the result of more professional recruiting fees paid during the six months ended June 30, 2022 than were paid during the same period of 2021.

Software and Technology. Software and technology expenses increased $379,000, or 17.5%, from $2.2 million for the six months ended June 30, 2021 to $2.5 million for the six months ended June 30, 2022. The increase is attributable primarily to new software investments to enhance automation and efficiencies, digital banking initiatives, cybersecurity monitoring and tools, and other technology capabilities.

Amortization. Amortization costs include amortization of software and core deposit intangibles. Amortization costs were $397,000 for the six months ended June 30, 2022, a decrease of $282,000, or 41.5%, compared to $679,000 for the same period in 2021. The primary reason for the decrease in amortization was due to a decline in amortization expense on core deposit intangibles from $427,000 to $227,000 during the six months ended June 30, 2021 and 2022, respectively.

ATM and Debit Card Expense. We pay processing fees related to the activity of our customers' ATM and debit card usage. ATM and debit card expenses were $1.3 million for the six months ended June 30, 2022, compared to $1.2 million for the same period in 2021, an increase of $96,000, or 8.3%, as a result of incrased ATM and debit card usage by our customers.

FDIC Insurance Assessment Fees. FDIC insurance assessment fees were $470,000 for the six months ended June 30, 2022, compared to $337,000 for the same period in 2021. The increase of $133,000, or 39.5%, was primarily due to an increase in the insurance assessment rate resulting from changes in certain financial ratios used in the calculation and an overall increase in our assessment base, which is calculated as average total assets less average tangible equity.

Other. This category includes operating and administrative expenses, such as stock option expense, expenses related to repossession of assets, small hardware and software purchases, expense of the value of stock appreciation rights, losses incurred on problem assets, losses on sale of 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 $191,000, or 9.4%, from $2.0 million for the six months ended June 30, 2021 to $2.2 million for the six months ended June 30, 2022 due to an $82,000 increase in contributions, a $43,000 increase in travel and lodging and a $57,000 increase in meals and entertainment.

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 six months ended June 30, 2022 and 2021, income tax expense totaled $4.7 million and $4.6 million, respectively. The increase in income tax expense was primarily due to a increase in net earnings before taxes of $169,000. Our effective tax rates for the six months ended June 30, 2022 and 2021 were 17.96% and 17.85%, respectively.

Discussion and Analysis of Results of Operations for the Three Months Ended June 30, 2022 and 2021

Results of Operations

The following discussion and analysis of our results of operations compares our results of operations for the three months ended June 30, 2022 with the three months ended June 30, 2021. The results of operations for the three months

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43.

ended June 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

Net earnings attributable to Guaranty Bancshares Inc. were $10.8 million for the three months ended June 30, 2022, as compared to $10.4 million for the three months ended June 30, 2021. Basic earnings attributable to Guaranty Bancshares, Inc. per share were $0.90 for the three months ended June 30, 2022 compared to $0.87 during the same period in 2021.

The following table presents key earnings data for the periods indicated:


	Quarter Ended June 30,
(dollars in thousands, except per share data)	2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,784		$	10,432
Net earnings attributable to Guaranty Bancshares, Inc. per common share
-basic		0.90			0.87
-diluted		0.89			0.85
Net interest margin(1)		3.57	%		3.40	%
Net interest rate spread(2)		3.37	%		3.24	%
Return on average assets		1.35	%		1.42	%
Return on average equity		14.85	%		14.64	%
Average equity to average total assets		9.08	%		9.72	%
Cash dividend payout ratio		24.44	%		22.99	%

(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.

The following table illustrates net earnings attributable to Guaranty Bancshares, Inc. and net core earnings attributable to Guaranty Bancshares, Inc. results, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as performance ratios for the three months ended June 30, 2022 and 2021:


	Quarter Ended June 30,
(dollars in thousands, except per share data)	2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,784		$	10,432
Adjustments:
Reversal of provision for credit losses		—			(1,000	)
Income tax provision		2,472			2,312
PPP interest income, including fees		(436	)		(1,954	)
Net core earnings attributable to Guaranty Bancshares, Inc.†	$	12,820		$	9,790

Total average assets	$	3,209,440		$	2,938,944
Adjustments:
PPP loans average balance		(8,885	)		(155,417	)
Total average assets, adjusted†	$	3,200,555		$	2,783,527
Total average equity	$	291,312		$	285,803

PERFORMANCE RATIOS
Net earnings attributable to Guaranty Bancshares, Inc. to average assets (annualized)		1.35	%		1.42	%
Net earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)	$	14.85		$	14.64
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted (annualized)†		1.61			1.41
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)†		17.65			13.74

PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic		11,968,227			12,056,550
Earnings per common share, basic	$	0.90		$	0.87
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic†		1.07			0.81

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".

Net Interest Income

Net interest income, before the provision for credit losses, for the second quarter of 2022 and 2021 was $26.9 million and $23.5 million, respectively, an increase of $3.4 million, or 14.4%. The increase in net interest income resulted from an increase in interest income of $3.8 million, or 15.2%, which was partially offset by an increase in interest expense

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44.

of $462,000, or 25.6%, quarter over quarter. Interest and fee income from PPP loans decreased $1.5 million, or 77.7%, while all loan and other interest income increased $3.4 million, or 14.8%, during the current quarter compared to the prior year quarter. In addition, interest income from investment securities increased $1.9 million, or 88.9%, from the same quarter in the prior year.

For the three months ended June 30, 2022, net interest margin, on a taxable equivalent basis, for the second quarter of 2022 and 2021 was 3.61% and 3.44%, respectively. Net interest margin increased 17 basis points primarily due to a 21 basis point yield increase on total interest-earning assets that was offset by an eight basis point increase in cost of interest-bearing liabilities. The increase in yield on interest-earning assets resulted primarily due to the reinvestment of interest-bearing deposits held at other banks, which earned a yield of 0.06% in the prior year quarter, into higher yielding investment securities and loans. There was a slight decrease in loan yield from 4.79% for the second quarter of 2021 to 4.77% for the second quarter of 2022, a change of two basis points, caused primarily due to PPP origination fee and interest income of $2.0 million recognized during the prior year quarter, compared to $436,000 in the current year quarter. The increase in net interest margin was offset slightly by an increase in the cost of interest-bearing deposits from 0.37% to 0.38% during the same period, a change of one basis point, and an increase in the overall cost of interest-bearing liabilities of eight basis points, from 0.42% in the second quarter of 2021 to 0.50% in the second quarter of 2022.

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 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 June 30, 2022 and 2021, the amount of interest

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45.

income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield.


	Quarter Ended June 30,
	2022								2021
(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)	$	2,068,379		$	24,587		4.77	%	$	1,912,722		$	22,864		4.79	%
Securities available for sale		267,823			1,473		2.21			420,202			2,191		2.09
Securities held to maturity		596,013			2,666		1.79			—			—		—
Nonmarketable equity securities		14,128			289		8.20			10,056			164		6.54
Interest-bearing deposits in other banks		74,047			105		0.57			426,074			65		0.06
Total interest-earning assets		3,020,390			29,120		3.87			2,769,054			25,284		3.66
Allowance for credit losses		(29,056	)							(32,664	)
Noninterest-earning assets		218,106								202,554
Total assets	$	3,209,440							$	2,938,944
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Interest-bearing deposits	$	1,694,363		$	1,623		0.38	%	$	1,623,351		$	1,493		0.37	%
Advances from FHLB and fed funds purchased		47,016			190		1.62			49,063			102		0.83
Line of credit		—			—		—			2,374			21		3.55
Subordinated debt		52,326			453		3.47			19,810			188		3.81
Securities sold under agreements to repurchase		9,045			3		0.13			14,887			3		0.08
Total interest-bearing liabilities		1,802,750			2,269		0.50			1,709,485			1,807		0.42
Noninterest-bearing liabilities:
Noninterest-bearing deposits		1,090,288								916,631
Accrued interest and other liabilities		25,090								27,025
Total noninterest-bearing liabilities		1,115,378								943,656
Equity		291,312								285,803
Total liabilities and equity	$	3,209,440							$	2,938,944
Net interest rate spread(2)							3.37	%							3.24	%
Net interest income				$	26,851							$	23,477
Net interest margin(3)							3.57	%							3.40	%
Net interest margin, fully taxable equivalent(4)							3.61	%							3.44	%

(1) Includes average outstanding balances of loans held for sale of $2.6 million and $3.2 million for the quarter ended June 30, 2022 and 2021, respectively.
(2) Net interest 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, 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%.

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46.

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, 2022:


	Quarter Ended June 30, 2022
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total interest-earning assets	$	3,020,390		$	29,120			3.87	%

Total loans		2,068,379			24,587			4.77
Adjustments:
PPP loans average balance and net fees(1)		(8,885	)		(436	)		19.68
Total loans, net of PPP effects	$	2,059,494		$	24,151			4.70	%

Total interest-earning assets, net of PPP effects†	$	3,011,505		$	28,684			3.82	%


Net interest income, fully taxable equivalent ("FTE")				$	27,150
Net interest margin, FTE								3.61	%
Net interest income, net of PPP effects†					26,714
Net interest margin, FTE, net of PPP effects†								3.56	%

† 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 $21,000 and net origination fees recognized in earnings of $415,000 for the quarter ended June 30, 2022.

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.


	For the Quarter Ended June 30, 2022 vs. 2021
	Increase (Decrease)
	Due to Change in						Total Increase
(in thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Total loans	$	3,728		$	(2,005	)	$	1,723
Securities available for sale		(794	)		76			(718	)
Securities held to maturity		2,666			—			2,666
Nonmarketable equity securities		66			59			125
Interest-earning deposits in other banks		(53	)		93			40
Total increase (decrease) in interest income	$	5,613		$	(1,777	)	$	3,836

Interest-bearing liabilities:
Interest-bearing deposits	$	66		$	64		$	130
Advances from FHLB and fed funds purchased		(4	)		92			88
Line of credit		(21	)		—			(21	)
Subordinated debt		309			(44	)		265
Securities sold under agreements to repurchase		(1	)		1			—
Total increase in interest expense		349			113			462
Increase (decrease) in net interest income	$	5,264		$	(1,890	)	$	3,374

Provision for Credit Losses

During the second quarter of 2022, we recorded no provision for credit losses, compared to a reverse (negative) provision expense of $1.0 million for the three months ended June 30, 2021. At the onset of the COVID pandemic in 2020, we established COVID-specific qualitative factors to estimate the potential impact of the pandemic to our loan portfolio as a whole, which led to a provision during 2020 of $13.2 million. As the economic, health and other impacts of the virus became more clear and cases began to decline, we reduced the COVID-specific qualitative factors during 2021 and fully unwound these specific factors during the first quarter of 2022. The impact of unwinding the remaining COVID-specific qualitative factors was offset by growth in our loan portfolio, however, we also decreased certain of our standard qualitative factors in the second quarter to capture current macro-economic conditions that we believe are more similar to the environment prior to the COVID-19 pandemic (i.e. near the end of a long up-cycle with a downturn expected) and consistent

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47.

with our day-one CECL methodology. As of June 30, 2022, our allowance for credit losses as a percentage of total loans was 1.36%.

Noninterest Income

The following table presents components of noninterest income for the three months ended June 30, 2022 and 2021 and the period-over-period variations in the categories of noninterest income:


	Quarter Ended June 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021
Noninterest income:
Service charges	$	1,070	$	855	$	215
Gain on sale of loans		882		1,244		(362	)
Fiduciary and custodial income		638		570		68
Bank-owned life insurance income		207		206		1
Merchant and debit card fees		2,061		1,922		139
Loan processing fee income		232		164		68
Warehouse lending fees		79		211		(132	)
Mortgage fee income		102		157		(55	)
Other noninterest income		810		641		169
Total noninterest income	$	6,081	$	5,970	$	111

Total noninterest income increased $111,000, or 1.9%, for the three months ended June 30, 2022 compared to the same period in 2021. Material changes in the components of noninterest income are discussed below.

Service Charges on Deposit Accounts. Service fee income was $1.1 million for the three months ended June 30, 2022 compared to $855,000 for the same period in 2021, an increase of $215,000, or 25.1%. The increase was primarily due to an increase in the number of DDAs subject to service charges from the prior year and a reduction in the amount of insufficient fund charge refunds period over period.

Gain on Sale of Loans. We sold 71 mortgage loans for $19.5 million for the three months ended June 30, 2022 compared to 125 mortgage loans for $28.3 million for the three months ended June 30, 2021. Gain on sale of loans was $882,000 for the three months ended June 30, 2022, a decrease of $362,000, or 29.1%, compared to $1.2 million for the same period in 2021. The total gain on loans sold during the quarter ended June 30, 2022 consisted of $665,000 in mortgage loans and $227,000 in SBA 7(a) loans sold, compared to $1.1 million and $165,000 for mortgage and SBA loans sold, respectively, 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 $638,000 and $570,000 for the three months ended June 30, 2022 and 2021, respectively, an increase of $68,000, or 11.9%. The revenue increase resulted primarily from 12 new accounts that opened during the quarter, which have generated additional income.

Merchant and Debit Card Fees. We earn interchange income related to activity of our customers' merchant debit card usage. Debit card interchange income was $2.1 million for the quarter ended June 30, 2022, compared to $1.9 million in 2021, an increase of $139,000, or 7.2%. The increase was primarily due to growth in the number of DDAs and debit card usage volume during the current quarter as compared to the prior year quarter.

Warehouse Lending Fees. A portion of our lending involves the origination of mortgage warehouse lines of credit. Warehouse lending fees decreased from $211,000 to $79,000 for the quarters ended June 30, 2021 and 2022, respectively. The decrease in warehouse lending fees of $132,000, or 62.6%, results from a decrease in overall warehouse lending activity in the current quarter compared to the prior year quarter. The average quarterly balance of mortgage warehouse lines decreased from $71.5 million for the quarter ended June 30, 2021, to $23.3 million for the same quarter in 2021, a decrease of $48.2 million, or 67.4%.

Mortgage Fee Income. Mortgage fee income consists of lender processing fees such as underwriting fees,
administrative fees and funding fees that are collected from mortgage loans that the Bank intends to sell on the secondary
market. Mortgage fee income decreased from $157,000 to $102,000 for the quarters ended June 30, 2021 and 2022, respectively. The decrease of $55,000, or 35.0%, from June 30, 2021 was primarily due to a lower volume of mortgage purchases and refinances in the current quarter.

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48.

Noninterest Expense

For the three months ended June 30, 2022, noninterest expense totaled $19.7 million, an increase of $2.0 million, or 11.2%, compared to $17.7 million for the three months ended June 30, 2021. The following table presents, for the periods indicated, the major categories of noninterest expense:


	Quarter Ended June 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021
Employee compensation and benefits	$	11,730	$	10,204	$	1,526
Non-staff expenses:
Occupancy expenses		2,848		2,833		15
Legal and professional fees		773		747		26
Software and technology		1,339		1,055		284
Amortization		178		336		(158	)
Director and committee fees		219		167		52
Advertising and promotions		320		338		(18	)
ATM and debit card expense		674		616		58
Telecommunication expense		187		180		7
FDIC insurance assessment fees		237		168		69
Other noninterest expense		1,189		1,059		130
Total noninterest expense	$	19,694	$	17,703	$	1,991

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 $11.7 million for the three months ended June 30, 2022, an increase of $1.5 million, or 15.0%, compared to $10.2 million for the same period in 2021. The increase resulted from higher salary expense, higher insurance expense accruals due to increased claims experience and increased bonus accruals due to higher net earnings in the current year.

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 $1.3 million for the three months ended June 30, 2022, compared to $1.1 million for the same period in 2021, an increase of $284,000, or 26.9%. The increase is attributable primarily to new software investments to improve efficiencies and automation, digital banking initiatives and other technology capabilities.

Amortization. Amortization costs include amortization of software and core deposit intangibles from prior acquisitions. Amortization costs were $178,000 for the three months ended June 30, 2022, a decrease of $158,000, or 47.0%, compared to $336,000 for the same period in 2021. The primary reason for the decrease in amortization was due to a decline in amortization expense on core deposit intangibles from $213,000 during the three months ended June 30, 2021 to $113,000 during the three months ended June 30, 2022.

Director and Committee Fees. Director and committee fees were $219,000 for the three months ended June 30, 2022, compared to $167,000 for the same period in 2021. The increase of $52,000, or 31.1%, was primarily due to an under-accrual of director bonus expense during the three months ended June 30, 2021 as compared to the same period in 2022.

ATM and Debit Card Expense. ATM and debit card expenses were $674,000 for the three months ended June 30, 2022, an increase of $58,000, or 9.4%, compared to $616,000 for the same period in 2021 as a result of increased ATM and debit card usage by our customers.

FDIC Insurance Assessment Fees. FDIC insurance assessment fees were $237,000 for the three months ended June 30, 2022, compared to $168,000 for the same period in 2021. The increase of $69,000, or 41.1%, was primarily due to an increase in the assessment rate resulting from changes in financial ratios used in the calculation as well a higher assessment base, which is calculated as average total assets, less average tangible equity.

Other. Other noninterest expense increased $130,000, or 12.3%, from $1.1 million for the three months ended June 30, 2021 to $1.2 million for the three months ended June 30, 2022. The increase was primarily due to a $54,000 increase in charitable contributions, a $42,000 increase in meals and entertainment, a $41,000 increase in deposit and debit card-related losses sustained and a $29,000 increase in loan and filing fees.

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49.

Income Tax Expense

For the three months ended June 30, 2022, income tax expense totaled $2.5 million, in contrast to the $2.3 million of income tax expense for the same period of 2021. The effective tax rates for the three months ended June 30, 2022 and 2021 were 18.67% and 18.14%, respectively. The effective tax rates differ from the statutory federal tax rate of 21% for the three months ended June 30, 2022 and 2021, largely due to tax exempt interest income earned on certain investment securities and loans and the nontaxable earnings on bank-owned life insurance.

Discussion and Analysis of Financial Condition as of June 30, 2022

Assets

Our total assets increased $194.8 million, or 6.3%, from $3.09 billion as of December 31, 2021 to $3.28 billion as of June 30, 2022. Our asset growth was primarily due to an increase in gross loans of $230.3 million. Our cash and cash equivalents decreased by $428.6 million as we deployed excess cash during the year primarily into investment securities which increased $383.0 million, and loan growth. The increase in loans was due to organic growth. Excluding PPP and mortgage warehouse loan balances, our loans have grown $296.7 million, or 16.4%, during the first half of the year.

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 June 30, 2022, total loans held for investment were $2.14 billion, an increase of $230.3 million, or 12.1%, from the December 31, 2021 balance of $1.91 billion. Excluding the outstanding balance of PPP loans, gross loans increased $278.3 million, or 15.0%, from December 31, 2021, primarily the result of organic growth and period-end increases in all segments of real estate lending. In addition to these amounts, $2.8 million and $4.1 million in loans were classified as held for sale as of June 30, 2022 and December 31, 2021, respectively.

Total loans, excluding those held for sale, as a percentage of deposits, were 76.9% and 71.4% as of June 30, 2022 and December 31, 2021, respectively. Total loans, excluding those held for sale, as a percentage of total assets, were 65.2% and 61.8% as of June 30, 2022 and December 31, 2021, respectively.

The following table summarizes our loan portfolio by type of loan and dollar change and percentage change from December 31, 2021 to June 30, 2022:


(in thousands)	As of June 30, 2022		As of December 31, 2021		Increase (Decrease)			Percent Change
Commercial and industrial(1)	$	294,156	$	324,289	$	(30,133	)		(9.29	%)
Real estate:
Construction and development		350,024		307,797		42,227			13.72	%
Commercial real estate		749,603		622,842		126,761			20.35	%
Farmland		166,309		145,501		20,808			14.30	%
1-4 family residential		450,929		410,673		40,256			9.80	%
Multi-family residential		55,985		30,971		25,014			80.77	%
Consumer and overdrafts		56,868		51,328		5,540			10.79	%
Agricultural		14,502		14,639		(137	)		(0.94	%)
Total loans held for investment	$	2,138,376	$	1,908,040	$	230,336			12.07	%

Total loans held for sale	$	2,770	$	4,129	$	(1,359	)		(32.91	%)

(1) Warehouse lending is presented as a component of commercial and industrial loans in this table and remaining tables.

(Continued)

50.

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of June 30, 2022 are summarized in the following table:


	As of June 30, 2022
(in thousands)	One Year or Less		After One Through Five Years		After Five Through Fifteen Years		After Fifteen Years		Total
Commercial and industrial	$	121,442	$	106,221	$	56,993	$	9,500	$	294,156
Real estate:
Construction and development		154,796		99,283		59,650		36,295		350,024
Commercial real estate		31,420		219,679		243,368		255,136		749,603
Farmland		12,371		75,019		45,250		33,669		166,309
1-4 family residential		30,579		27,721		176,429		216,200		450,929
Multi-family residential		92		30,688		19,224		5,981		55,985
Consumer		12,814		40,197		1,813		2,044		56,868
Agricultural		9,455		4,774		273		—		14,502
Total loans	$	372,969	$	603,582	$	603,000	$	558,825	$	2,138,376
Amounts with fixed rates	$	226,865	$	453,988	$	44,759	$	37,817	$	763,429
Amounts with adjustable rates	$	146,104	$	149,594	$	558,241	$	521,008	$	1,374,947

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.

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.

Nonperforming assets as a percentage of total loans were 0.46% at June 30, 2022, compared to 0.15% at December 31, 2021. The Bank's non-performing assets consist primarily of non-accrual loans. Four loans were added to non-accrual status in the current quarter and are Small Business Administration (SBA) 7(a), partially guaranteed (75%) loans acquired in the June 2018 acquisition of Westbound Bank with combined book balances of $6.7 million as of June 30, 2022. These loans, collateralized by two hotels, were identified as problem assets prior to COVID-19 but obtained government stimulus and other relief which allowed the two related borrowers to remain current through early 2022. Management continues to work toward a satisfactory resolution for these four loans, however, in the event of foreclosure, a significant loss is not expected due to estimated current collateral values and the SBA partial guarantees.

(Continued)

51.

The following table presents information regarding nonperforming assets and loans as of:


(dollars in thousands)	June 30, 2022			December 31, 2021
Nonaccrual loans(1)	$	9,848		$	2,831
Accruing loans 90 or more days past due		—			—
Total nonperforming loans		9,848			2,831
Other real estate owned:
Residential real estate		—			—
Total other real estate owned		—			—
Repossessed assets owned		27			14
Total other assets owned		27			14
Total nonperforming assets	$	9,875		$	2,845
TDR loans - nonaccrual(1)	$	6,764		$	103
TDR loans - accruing		2,652			9,466
Ratio of nonaccrual loans to total loans(2)		0.46	%		0.15	%
Ratio of nonperforming loans to total loans(2)		0.46	%		0.15	%
Ratio of nonperforming assets to total loans(2)		0.46	%		0.15	%
Ratio of nonperforming assets to total assets		0.30	%		0.09	%

(1) Restructured loans on nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.
(2) Excludes loans held for sale of $2.8 million and $4.1 million as of June 30, 2022 and December 31, 2021, respectively.

The following table presents nonaccrual loans by category as of:


(in thousands)	June 30, 2022		December 31, 2021
Commercial and industrial	$	184	$	148
Real estate:
Commercial real estate		7,426		642
Farmland		97		298
1-4 family residential		1,550		1,535
Consumer and overdrafts		382		160
Agricultural		209		48
Total	$	9,848	$	2,831

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of five risk ratings: pass, special mention, substandard, doubtful or loss. Within the pass rating, we classify loans into one of the following five subcategories based on perceived credit risk, including repayment capacity and collateral security: superior, excellent, good, acceptable and 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 ACL 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-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.

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.

(Continued)

52.

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


	June 30, 2022
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	292,679	$	148	$	1,145	$	—	$	—	$	184	$	294,156
Real estate:
Construction and development		349,103		920		1		—		—		—		350,024
Commercial real estate		710,773		27,327		4,077		—		—		7,426		749,603
Farmland		166,113		—		99		—		—		97		166,309
1-4 family residential		449,248		131		—		—		—		1,550		450,929
Multi-family residential		55,985		—		—		—		—		—		55,985
Consumer and overdrafts		56,444		42		—		—		—		382		56,868
Agricultural		14,238		6		49		—		—		209		14,502
Total	$	2,094,583	$	28,574	$	5,371	$	—	$	—	$	9,848	$	2,138,376


	December 31, 2021
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	323,479	$	102	$	560	$	—	$	—	$	148	$	324,289
Real estate:
Construction and development		306,242		944		611		—		—		—		307,797
Commercial real estate		573,535		6,103		42,562		—		—		642		622,842
Farmland		145,105		26		72		—		—		298		145,501
1-4 family residential		409,120		18		—		—		—		1,535		410,673
Multi-family residential		30,971		—		—		—		—		—		30,971
Consumer and overdrafts		51,087		81		—		—		—		160		51,328
Agricultural		14,506		13		72		—		—		48		14,639
Total	$	1,854,045	$	7,287	$	43,877	$	—	$	—	$	2,831	$	1,908,040

Allowance for Credit Losses

We maintain an allowance for credit losses (“ACL”) that represents management’s best estimate of the appropriate level of losses and risks inherent in our applicable financial assets under the current expected credit loss model. The amount of the allowance for credit 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 judgment 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, 2022, 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, 2022.

For held to maturity debt securities, the Company evaluates expected credit losses on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage backed securities issued by the U.S. governments, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to municipal securities, management considers 1) issuer bond ratings, 2) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, 3) internal forecasts and 4) whether or not such securities are guaranteed by the Texas Permanent School Fund or pre-refunded by the issuers.

(Continued)

53.

As of June 30, 2022, the Company determined there were no credit related concerns that warrant an ACL for the held to maturity portfolio.

In determining the ACL for loans held for investment, we primarily estimate losses on segments of loans with similar risk characteristics and where the potential 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 ACL is 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 impact of future economic conditions on loan loss rates. Please see “Critical Accounting Policies - Allowance for 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;

•

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.

As of June 30, 2022, the allowance for credit losses totaled $29.0 million, or 1.36%, of total loans, excluding those held for sale, and also totaled 1.36%, excluding PPP loans and loans held for sale. As of December 31, 2021, the allowance for credit losses totaled $30.4 million, or 1.59%, of total loans, excluding those held for sale, and totaled 1.64%, excluding PPP loans and loans held for sale. The decrease in the ACL of $1.4 million, or 4.7%, is partially the result of fully unwinding the COVID-specific qualitative factor during the first quarter of 2022 that was established during 2020. The effects of unwinding the COVID-specific qualitative factor was partially offset by growth in the loan portfolio and by adjustments to standard qualitative factors in order to capture uncertainties related to high inflation, likely negative impacts of rising rates on the economy and geopolitical uncertainty that exists.

(Continued)

54.

The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:


	As of and For The Six Months Ended June 30,						As of and For The Year Ended December 31,
(dollars in thousands)	2022			2021			2021
Average loans outstanding(1)	$	2,003,053		$	1,899,864		$	1,911,540
Gross loans outstanding at end of period(2)		2,138,376			1,890,164			1,908,040
Allowance for credit losses at beginning of the period		30,433			33,619			33,619
Reversal of provision for credit losses		(1,250	)		(1,000	)		(1,700	)
Charge offs:
Commercial and industrial		154			238			411
Real estate:
Commercial real estate		—			760			816
Consumer		36			76			151
Overdrafts		138			84			263
Total charge-offs		328			1,158			1,641
Recoveries:
Commercial and industrial		45			11			21
Real estate:
Construction and development		—			1			1
Commercial real estate		1			11			30
1-4 family residential		30			—			—
Consumer		23			28			35
Agriculture		—			—			8
Overdrafts		43			36			60
Total recoveries		142			87			155
Net charge-offs (recoveries)		186			1,071			1,486
Allowance for credit losses at end of period	$	28,997		$	31,548		$	30,433
Ratio of allowance to end of period loans(2)		1.36	%		1.67	%		1.59	%
Ratio of net charge-offs (recoveries) to average loans(1)		0.01	%		0.06	%		0.08	%

Total nonaccrual loans	$	9,848		$	3,593		$	2,831
Ratio of allowance to nonaccrual loans		294.4	%		878.0	%		1075.0	%

(1) Includes average outstanding balances of loans held for sale of $2.9 million, $3.7 million and $3.4 million for the six months ended June 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.
(2) Excludes loans held for sale of $2.8 million, $5.1 million and $4.1 million for the six months ended June 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.

The ratio of allowance for credit losses to non-performing loans decreased from 1075.0% at December 31, 2021 to 294.4% at June 30, 2022. Non-performing loans increased to $9.8 million at June 30, 2022, compared to $2.8 million at December 31, 2021.

The following table shows the ratio of net charge-offs (recoveries) to average loans outstanding by loan category for the dates indicated:


	Six Months Ended June 30,
	2022			2021
Commercial and industrial		0.04	%		0.05	%
Real estate:
Commercial real estate		—			0.12	%
1-4 family residential		(0.01	%)		—
Consumer		0.02	%		0.10	%
Overdrafts		22.41	%		11.94	%
Net charge-offs (recoveries) to total loans		0.01	%		0.06	%

Although we believe that we have established our allowance for credit losses in accordance with GAAP and that the allowance for credit losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for credit 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 credit losses could be required.

(Continued)

55.

The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for credit 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, 2022					As of December 31, 2021
(in thousands)	Amount		Percent to Total Loans			Amount		Percent to Total Loans
Commercial and industrial	$	3,953		13.63	%	$	3,600		11.83	%
Real estate:
Construction and development		4,248		14.65	%		4,221		13.87	%
Commercial real estate		11,346		39.13	%		13,765		45.23	%
Farmland		1,753		6.05	%		1,698		5.58	%
1-4 family residential		5,969		20.58	%		5,818		19.12	%
Multi-family residential		604		2.08	%		396		1.30	%
Total real estate		23,920		82.49	%		25,898		85.10	%
Consumer and overdrafts		963		3.32	%		766		2.51	%
Agricultural		161		0.56	%		169		0.56	%
Total allowance for credit losses	$	28,997		100.00	%	$	30,433		100.00	%

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 June 30, 2022, the carrying amount of our investment securities totaled $909.5 million, an increase of $383.0 million, or 72.8%, compared to $526.5 million as of December 31, 2021. Investment securities represented 27.7% and 17.1% of total assets as of June 30, 2022 and December 31, 2021, respectively.

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 equity. As of June 30, 2022, 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 and that securities held to maturity have not experienced credit deterioration; therefore, the Company carried no ACL with respect to our securities portfolio at June 30, 2022.

From time to time, we have reclassified certain securities from available for sale to held to maturity. Such transfers are made at fair value at the date of transfer. The net unrealized holding gains or losses at the date of transfer are retained in other comprehensive income and in the carrying value of the held to maturity securities and are amortized over the remaining life of the security. The net unamortized, unrealized loss remaining on transferred securities included in accumulated other comprehensive loss in the accompanying balance sheets totaled $5.3 million at June 30, 2022, compared to a net unamortized, unrealized gain of $8.9 million at December 31, 2021. This amount will be amortized out of accumulated other comprehensive loss over the remaining life of the underlying securities as an adjustment of the yield on those securities. During the second quarter of 2022, we transferred $106.2 million of securities from available for sale to held to maturity, which included an unrealized loss on the date of transfer of $13.2 million.

The following tables summarize the amortized cost and estimated fair value of our investment securities:


	As of June 30, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	9,066	$	—	$	1,181	$	7,885
Treasury securities		324,510		—		2,832		321,678
Corporate bonds		35,029		—		1,455		33,574
Municipal securities		205,762		528		8,508		197,782
Mortgage-backed securities		282,930		20		27,769		255,181
Collateralized mortgage obligations		70,006		17		7,531		62,492
Total	$	927,303	$	565	$	49,276	$	878,592

(Continued)

56.


	As of December 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	10,013	$	—	$	42	$	9,971
Corporate bonds		35,080		940		85		35,935
Municipal securities		181,310		8,364		118		189,556
Mortgage-backed securities		224,563		1,477		1,816		224,224
Collateralized mortgage obligations		74,925		971		904		74,992
Total	$	525,891	$	11,752	$	2,965	$	534,678

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 June 30, 2022 and December 31, 2021, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages, non-U.S. agency mortgage-backed securities or corporate collateralized mortgage obligations.

The following tables set forth the fair value of available for sale securities and the amortized cost of held to maturity 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, 2022
	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	$	—	—	$	—	—	$	9,066	1.35%	$	—	—	$	9,066	1.35%
Treasury securities		245,681	0.81%		78,829	2.13%		—	—		—	—		324,510	1.13%
Corporate bonds		—	—		16,826	3.21%		16,748	4.12%		—	—		33,574	3.67%
Municipal securities		30,470	3.85%		83,798	3.28%		62,644	3.30%		28,798	2.78%		205,710	3.32%
Mortgage-backed securities		3,116	2.44%		60,915	1.83%		194,467	2.26%		9,488	1.87%		267,986	2.15%
Collateralized mortgage obligations		686	2.81%		27,454	2.73%		40,499	1.63%		—	—		68,639	2.09%
Total	$	279,953	1.17%	$	267,822	2.54%	$	323,424	2.45%	$	38,286	2.52%	$	909,485	2.07%


	As of December 31, 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	$	—	—	$	—	—	$	9,971	1.35%	$	—	—	$	9,971	1.35%
Corporate bonds		—	—		15,223	3.21%		20,712	4.01%		—	—		35,935	3.68%
Municipal securities		13,471	3.43%		57,858	3.31%		44,342	2.92%		65,639	3.19%		181,310	3.18%
Mortgage-backed securities		70	3.33%		129,327	1.38%		78,468	1.73%		16,396	2.08%		224,261	1.55%
Collateralized mortgage obligations		1,491	3.22%		65,897	1.99%		7,604	1.18%		—	—		74,992	1.93%
Total	$	15,032	3.41%	$	268,305	2.04%	$	161,097	2.29%	$	82,035	2.95%	$	526,469	2.29%

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,

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57.

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 3.99 years with an estimated effective duration of 3.34 years as of June 30, 2022.

As of June 30, 2022 and December 31, 2021, 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 equity.

The average yield of our securities portfolio was 2.07% as of June 30, 2022, down from 2.29% as of December 31, 2021. The decline in average yield resulted primarily from the purchase during the first half of 2022 of short term treasury securities with a book value of $324.5 million as of June 30, 2022, that earn an average yield of 1.13%. As of June 30, 2022, treasury securities comprised 35.7% of the portfolio. No treasury securities were held as of December 31, 2021.

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 June 30, 2022 were $2.78 billion, an increase of $108.8 million, or 4.1%, compared to $2.67 billion as of December 31, 2021. The deposit balance increase was due to organic growth.

The following table presents the average balances on deposits for the periods indicated:


(dollars in thousands)	For the Six Months Ended June 30, 2022		For the Year Ended December 31, 2021		Increase (Decrease) ($)			Increase (Decrease) (%)
NOW and interest-bearing demand accounts	$	409,311	$	355,171	$	54,140			15.24	%
Savings accounts		138,388		119,818		18,570			15.50	%
Money market accounts		829,846		773,553		56,293			7.28	%
Certificates and other time deposits		324,671		352,833		(28,162	)		(7.98	%)
Total interest-bearing deposits		1,702,216		1,601,375		100,841			6.30	%
Noninterest-bearing demand accounts		1,059,032		916,562		142,470			15.54	%
Total deposits	$	2,761,248	$	2,517,937	$	243,311			9.66	%

The aggregate amount of certificates and other time deposits in denominations greater than $250,000 as of June 30, 2022 and December 31, 2021 was $113.6 million and $228.1 million, respectively.

The scheduled maturities of uninsured certificates and other time deposits greater than $250,000 were as follows:


(dollars in thousands)	As of June 30, 2022
Under 3 months	$	31,236
3 to 6 months		16,001
6 to 12 months		41,087
Over 12 months		10,556
Total	$	98,880

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 June 30, 2022 and December 31, 2021, total borrowing capacity of $698.8 million and $638.7 million, respectively, was available under this arrangement. Our outstanding FHLB advances mature within one year. As of June 30, 2022, approximately $1.65 billion in real estate loans were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to hedge interest rate risk.

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58.

The following table presents our FHLB borrowings by maturity and weighted average rate as of June 30, 2022:


(dollars in thousands)	Balance		Weighted Average Interest Rate
Less than 90 days	$	91,500		1.40	%
90 days to less than one year		40,000		2.38	%
Total	$	131,500		1.70	%

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 June 30, 2022 and December 31, 2021, $214.9 million and $182.9 million, respectively, were available under this arrangement. As of June 30, 2022 and December 31, 2021, approximately $269.2 million and $236.4 million, respectively, in consumer and commercial and industrial loans were pledged as collateral. As of June 30, 2022 and December 31, 2021, no borrowings were outstanding under this arrangement.

Subordinated Debt, 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. These debentures were redeemed in May 2022.

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.

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 the Trust III Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.67%. 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.

Both the DCB Trust I Debentures and the Trust III Debentures are redeemable, in whole or in part, at our option after at least 30, but not more than 60, days' notice, on any interest payment date, at a redemption price equal to 100% of the amount to be redeemed, plus accrued interest to the date of redemption.

On March 4, 2022, the Company completed a private placement of $35.0 million aggregate principal amount of its fixed-to-floating rate subordinated note due April 1, 2032. The subordinated note initially bears a fixed interest rate of 3.625% per year, due semi-annually in arrears on April 1 and October 1. Commencing on April 1, 2027, the interest rate on the subordinated note will reset each quarter at a floating interest rate equal to the then-current three month term SOFR plus 192 basis points. The Company may at its option redeem in whole or in part the subordinated note on or after March 4, 2027 without a premium. The subordinated note is treated as Tier 2 Capital for regulatory purposes (subject to reductions in the amount includable as Tier 2 capital in the final five years prior to maturity), and is presented net of $664,000 in related issuance costs on the consolidated balance sheets.

On May 1, 2020, the Company issued $10.0 million in debentures to directors and other related parties. The debentures have 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 arrears during the term of the debentures. $500,000 matured in November of 2020 and $9.5 million remains outstanding as of June 30, 2022. The debentures are redeemable by the Company at its option, in whole in or part, at any time on or before the due

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date of any debenture. The redemption price is equal to 100% of the face amount of the 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. In March 2017, we entered into an unsecured revolving line of credit for $25.0 million, and we renewed that line of credit in March 2022. The line of credit bears interest at the prime rate (4.75% as of June 30, 2022) subject to a floor of 3.50%, with quarterly interest payments, and matures in March 2023. As of June 30, 2022, 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. For the six months ended June 30, 2022 and the year ended December 31, 2021, 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 June 30, 2022 and December 31, 2021, we maintained two federal funds lines of credit with commercial banks that provide for the availability to borrow up to an aggregate $60.0 million in federal funds. There were no funds under these lines of credit outstanding as of June 30, 2022 and December 31, 2021. 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.

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 $3.18 billion for the six months ended June 30, 2022 and $2.92 billion for the year ended December 31, 2021.


	Six Months Ended June 30, 2022			Year Ended December 31, 2021
Sources of Funds:
Deposits:
Noninterest-bearing		33.32	%		31.36	%
Interest-bearing		53.56	%		54.79	%
Advances from FHLB		1.33	%		1.68	%
Line of credit		0.06	%		0.21	%
Subordinated debt		1.31	%		0.68	%
Securities sold under agreements to repurchase		0.31	%		0.51	%
Accrued interest and other liabilities		0.79	%		0.85	%
Equity		9.32	%		9.92	%
Total		100.00	%		100.00	%

Uses of Funds:
Loans		62.10	%		64.31	%
Securities available for sale		11.87	%		12.19	%
Securities held to maturity		12.37	%		2.54	%
Nonmarketable equity securities		0.46	%		0.34	%
Federal funds sold		5.74	%		12.75	%
Interest-bearing deposits in other banks		0.67	%		0.91	%
Other noninterest-earning assets		6.79	%		6.96	%
Total		100.00	%		100.00	%

Average noninterest-bearing deposits to average deposits		38.35	%		36.40	%
Average loans to average deposits		72.54	%		75.92	%

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 $103.2 million, or 5.4%, for the six months ended June 30, 2022 compared to the same period in 2021, while our average deposits increased $306.8 million, or 12.5%, for the same time period. We predominantly invest excess deposits

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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 June 30, 2022, we had $489.7 million in outstanding commitments to extend credit and $10.5 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2021, we had $405.3 million in outstanding commitments to extend credit and $8.4 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 June 30, 2022 and December 31, 2021, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. As of June 30, 2022, we had cash and cash equivalents of $71.0 million, compared to $499.6 million as of December 31, 2021. The decrease was primarily due to a decrease in federal funds sold of $429.6 million, which was primarily used to purchase additional investment securities and fund loan growth during the period.

Capital Resources

Total equity decreased to $282.8 million as of June 30, 2022, compared to $302.2 million as of December 31, 2021, a decrease of $19.4 million, or 6.4%. The decrease from December 31, 2021 was due to repurchase of treasury stock for $8.1 million, payment of dividends of $5.3 million and a decrease in other comprehensive income during the year of $28.8 million, resulting from fluctuations in the fair market value of securities. These decreases were partially offset by net earnings attributable to Guaranty Bancshares, Inc. of $21.5 million for the first half of 2022.

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 June 30, 2022 and December 31, 2021, 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, our regulatory capital levels may decrease depending on our level of earnings and provisions for credit losses. However, we expect to closely monitor our loan portfolio, operating expenses and overall capital levels in order to remain in compliance with all regulatory capital standards applicable to us.

The following table presents our regulatory capital ratios as of:


	June 30, 2022					December 31, 2021
(dollars in thousands)	Amount		Ratio			Amount		Ratio
Guaranty Bancshares, Inc. (consolidated)

Total capital (to risk weighted assets)	$	340,931		15.06	%	$	297,370		14.51	%
Tier 1 capital (to risk weighted assets)		278,297		12.29	%		271,696		13.25	%
Tier 1 capital (to average assets)		278,297		8.72	%		271,696		9.18	%
Common equity tier 1 risk-based capital		271,080		11.97	%		261,386		12.75	%

Guaranty Bank & Trust, N.A.

Total capital (to risk weighted assets)	$	337,604		14.92	%	$	311,335		15.19	%
Tier 1 capital (to risk weighted assets)		309,306		13.67	%		285,661		13.94	%
Tier 1 capital (to average assets)		309,306		9.68	%		285,661		9.66	%
Common equity tier 1 risk-based capital		309,306		13.67	%		285,661		13.94	%

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Contractual Obligations

The following table summarizes contractual obligations and other commitments to make future payments as of June 30, 2022 (other than non-time deposit obligations), which consist of future cash payments associated with our contractual obligations.


	As of June 30, 2022
(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	$	275,530	$	40,418	$	10,539	$	—	$	326,487
Advances from FHLB		131,500		—		—		—		131,500
Subordinated debt		3,500		6,000		—		44,646		54,146
Operating leases		1,886		3,873		3,291		5,303		14,353
Total	$	412,416	$	50,291	$	13,830	$	49,949	$	526,486

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.

Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of June 30, 2022 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, 2022
(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	$	8,000	$	1,575	$	6	$	924	$	10,505
Commitments to extend credit		242,550		111,742		10,452		124,993		489,737
Total	$	250,550	$	113,317	$	10,458	$	125,917	$	500,242

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, 2022, and determined the likelihood to be improbable. Therefore, no ACL was recorded for standby and commercial letters of credit as of June 30, 2022.

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

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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, 2022.

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.

Annualized inflation in the U.S. accelerated to 9.1% in June 2022, the highest level in over 40 years, primarily as a result of lingering effects from the COVID-19 pandemic and related governmental policies and exacerbated by the war in Ukraine. However, unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature, which means that interest rates have a more significant impact on our performance than the effects of general levels of inflation.

To combat record levels of inflation, the Federal Reserve approved its first interest rate increase in more than three years in March 2022, and has since raised interest rates by 225 basis points through July 31, 2022. Members of the Federal Open Markets Committee have signaled expectations for further rate increases that could result in an approximately 100 basis point increase in the federal funds rate during the remainder of 2022, with potential additional increases in 2023. If the Federal Reserve does ultimately increase interest rates, we expect those increases to have a net positive impact on our net income, despite likely absolute increases in our operating expenses due to inflation

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.

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 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

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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, 2022						December 31, 2021
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		2.74	%		(9.00	%)		13.70	%		1.57	%
+200		1.85	%		(4.28	%)		8.38	%		2.75	%
+100		0.84	%		(1.50	%)		2.66	%		1.27	%
Base		—			—			—			—
-100		(0.85	%)		(1.66	%)		(5.11	%)		(1.92	%)
-200		(0.70	%)		(11.33	%)		(14.47	%)		(0.36	%)

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 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.

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 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

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(1) tangible common equity as total equity attributable to Guaranty Bancshares, Inc., 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 equity attributable to Guaranty Bancshares, Inc. to tangible common equity and presents tangible book value per common share compared to book value per common share:


	As of June 30,						As of December 31,
(dollars in thousands, except per share data)	2022			2021			2021
Tangible common equity
Equity attributable to Guaranty Bancshares, Inc.	$	282,255		$	287,729		$	302,214
Adjustments:
Goodwill		(32,160	)		(32,160	)		(32,160	)
Core deposit intangible, net		(2,086	)		(2,573	)		(2,313	)
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	248,009		$	252,996		$	267,741
Common shares outstanding(1)		11,912,249			12,057,937			12,122,717
Book value per common share	$	23.69		$	23.86		$	24.93
Tangible book value per common share		20.82			20.98			22.09

(1) Excludes the dilutive effect, if any, of 135,252, 168,311 and 146,576 shares of common stock issuable upon exercise of outstanding stock options as of June 30, 2022 and 2021, and December 31, 2021, 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 equity attributable to Guaranty Bancshares, Inc. 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 equity attributable to Guaranty Bancshares, Inc. and assets while not increasing our tangible common equity or tangible assets.

The following table reconciles, as of the dates set forth below, total tangible common equity and total assets to tangible assets:


(dollars in thousands)	As of June 30, 2022			As of December 31, 2021
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	248,009		$	267,741
Tangible assets
Total assets		3,280,913			3,086,070
Adjustments:
Goodwill		(32,160	)		(32,160	)
Core deposit intangible, net		(2,086	)		(2,313	)
Total tangible assets	$	3,246,667		$	3,051,597

Total equity to total assets		8.60	%		9.79	%
Tangible common equity to tangible assets		7.64	%		8.77	%

(Continued)

65.

The following tables reconcile, as of and for the dates set forth below, net earnings, a GAAP measure, and net core earnings, a non-GAAP measure that excludes provisions for credit losses and income tax and net PPP income.

Net Core Earnings and Net Core Earnings per Common Share


	Six Months Ended June 30,
(dollars in thousands, except per share data)	2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	21,522		$	21,394
Adjustments:
Reversal of provision for credit losses		(1,250	)		(1,000	)
Income tax provision		4,707			4,648
PPP loans, including fees		(1,219	)		(5,859	)
Net interest expense on PPP-related borrowings		—			—
Net core earnings attributable to Guaranty Bancshares, Inc.	$	23,760		$	19,183

Weighted-average common shares outstanding, basic		12,038,261			12,047,643
Earnings per common share, basic	$	1.79		$	1.78
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic		1.97			1.59

Net Core Earnings to Average Assets, as Adjusted, and Average Equity


	Six Months Ended June 30,
(dollars in thousands)	2022			2021
Net core earnings attributable to Guaranty Bancshares, Inc.	$	23,760		$	19,183
Total average assets		3,177,969			2,857,707
Adjustments:
PPP loans average balance		(22,794	)		(146,103	)
Excess fed funds sold due to PPP-related borrowings		—			—
Total average assets, adjusted	$	3,155,175		$	2,711,604
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted		1.52			1.43
Total average equity	$	296,220		$	281,730
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity		16.18			13.73

Total Interest-Earning Assets, net of PPP Effects


	Quarter Ended June 30, 2022									Quarter 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	$	3,020,390		$	29,120			3.87	%	$	2,769,054		$	25,284			3.66	%

Total loans		2,068,379			24,587			4.77			1,912,722			22,864			4.79
Adjustments:
PPP loan average balance and net fees(1)		(8,885	)		(436	)		19.68			(155,417	)		(1,747	)		4.51
Total loans, net of PPP effects		2,059,494			24,151			4.70			1,757,305			21,117			4.82

Total interest-earning assets, net of PPP effects	$	3,011,505		$	28,684			3.82	%	$	2,613,637		$	23,537			3.61	%

(1) Interest earned consists of interest income of $21,000 and $385,000, and net origination fees recognized in earnings of $415,000 and $1.4 million for the quarter ended June 30, 2022 and 2021, respectively.

(Continued)

66.

Net Interest Income and Net Interest Margin, Net of PPP Effects


(dollars in thousands)	Quarter Ended June 30, 2022			Quarter Ended March 31, 2022			Quarter Ended June 30, 2021
Net interest income	$	26,851		$	24,323		$	23,477
Adjustments:
PPP-related interest income		(21	)		(89	)		(385	)
PPP-related net origination fees		(415	)		(694	)		(1,362	)
Net interest income, net of PPP effects	$	26,415		$	23,540		$	21,730

Total average interest-earning assets	$	3,020,390		$	2,963,030		$	2,769,054
Total average interest-earning assets, net of PPP effects		3,011,505			2,926,310			2,613,637

Net interest margin(1)		3.57	%		3.33	%		3.40	%
Net interest margin, net of PPP effects(2)		3.52			3.26			3.33

Net interest income	$	26,851		$	24,323		$	23,477
Interest income tax adjustments		299			301			269
Net interest income, fully taxable equivalent ("FTE")	$	27,150		$	24,624		$	23,746
Net interest income, FTE, net of PPP effects		26,714			23,841			21,999

Net interest margin, FTE(3)		3.61	%		3.37	%		3.44	%
Net interest margin, FTE, net of PPP effects(4)		3.56			3.30			3.38

(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%.

Efficiency Ratio, Net of PPP Effects


(dollars in thousands)	Quarter Ended June 30, 2022			Quarter Ended March 31, 2022			Quarter Ended June 30, 2021
Total noninterest expense	$	19,694		$	19,079		$	17,703
Adjustments:
PPP-related deferred costs		—			—			207
Total noninterest expense, net of PPP effects	$	19,694		$	19,079		$	17,910

Net interest income		26,851			24,323			23,477
Net interest income, net of PPP effects		26,415			23,540			21,730

Total noninterest income	$	6,081		$	6,479		$	5,970
Securities gains (losses)		—			—			—
Noninterest income, as adjusted	$	6,081		$	6,479		$	5,970

Efficiency ratio(1)		59.80	%		61.94	%		60.12	%
Efficiency ratio, net of PPP effects(2)		60.60			63.56			64.66

(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.

(Continued)

67.

ACL to Total Loans, Excluding PPP


(dollars in thousands)	As of June 30, 2022			As of March 31, 2022			As of June 30, 2021
Total loans	$	2,138,376		$	2,014,061		$	1,890,164
Adjustments:
PPP loans		(2,605	)		(19,302	)		(127,390	)
Total loans, excluding PPP	$	2,135,771		$	1,994,759		$	1,762,774

Allowance for credit losses	$	28,997		$	29,096		$	31,548

Allowance for credit losses / period-end loans		1.36	%		1.44	%		1.67	%
Allowance for credit losses / period-end loans. excluding PPP		1.36			1.46			1.79

Loan Yield, Net of PPP Effects


	Quarter Ended June 30, 2022									Quarter Ended March 31, 2022
(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	$	2,068,379		$	24,587			4.77	%	$	1,937,000		$	22,272			4.66	%
Adjustments:
PPP loans average balance and net fees		(8,885	)		(436	)		19.68			(36,720	)		(783	)		8.65
Total loans, net of PPP effects	$	2,059,494		$	24,151			4.70	%	$	1,900,280		$	21,489			4.59	%
Effect of removing PPP loans on loan yield								(0.07	%)								(0.07	%)


	Quarter Ended June 30, 2022									Quarter 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 loans	$	2,068,379		$	24,587			4.77	%	$	1,912,722		$	22,864			4.79	%
Adjustments:
PPP loans average balance and net fees		(8,885	)		(436	)		19.68			(155,417	)		(1,747	)		4.51
Total loans, net of PPP effects	$	2,059,494		$	24,151			4.70	%	$	1,757,305		$	21,117			4.82	%
Effect of removing PPP loans on loan yield								(0.07	%)								0.03	%

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 credit losses, our future capital structure or changes therein, the plan and objectives of management for future operations, our future or proposed 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.

(Continued)

68.

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:

•

our ability to prudently manage our growth and execute our 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;

•

concentration of our business within our geographic areas of operation in Texas;

•

deterioration of our asset quality and higher loan charge-offs;

•

changes in the value of collateral securing our loans;

•

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;

•

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;

•

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, 2021, and other risks included in the Company’s filings with the SEC.

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.

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.

(Continued)

69.

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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 Company’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 the 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 under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and other risks included in the Company’s filings with the 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, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On April 21, 2022, 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 April 21, 2024, or the date all shares authorized for repurchase under the program have been repurchased, unless shortened or extended by the board of directors. The repurchase plan permits shares to be acquired from time to time in the open market or negotiated transactions at prices management considers to be attractive and in the best interest of both the Company and its shareholders, subject to compliance with applicable laws and regulations, general market and economic conditions, the financial and regulatory condition of the Company, liquidity and other factors.

(Continued)

70.

The table below contains information regarding all shares repurchased by the Company during the periods indicated.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April, 2022		65,990	$	35.09		65,990		934,010
May, 2022		81,611		35.10		81,611		852,399
June, 2022		27,580		35.47		27,580		824,819
Total		175,181	$	35.16		175,181

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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).

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).

4.1		Specimen 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).

		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*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL 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.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		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

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

(Continued)

71.

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)

Date: August 5, 2022		/s/ Tyson T. Abston
		Tyson T. Abston
		Chairman of the Board & Chief Executive Officer

Date: August 5, 2022		/s/ Clifton A. Payne
		Clifton A. Payne
		Chief Financial Officer & Director

72.