Guaranty Bancshares, Inc. Reports Second Quarter 2021 Financial Results

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ADDISON, Texas, July 19, 2021--(BUSINESS WIRE)--Guaranty Bancshares, Inc. (NASDAQ: GNTY), the parent company of Guaranty Bank & Trust, N.A., today reported financial results for the fiscal quarter ended June 30, 2021. The Company's net income available to common shareholders was $10.4 million, or $0.87 per basic share, for the quarter ended June 30, 2021, compared to $11.0 million, or $0.91 per basic share, for the quarter ended March 31, 2021 and $1.1 million, or $0.09 per basic share, for the quarter ended June 30, 2020. Return on average assets and average equity for the second quarter of 2021 were 1.42% and 14.64%, respectively, compared to 1.60% and 16.01%, respectively, for the first quarter of 2021 and 0.16% and 1.67%, respectively, for the second quarter of 2020. The decrease in earnings during the second quarter of 2021, compared to the first quarter of 2021, was primarily due to lower origination fee income recognized during the quarter for the Paycheck Protection Program - round one ("PPP1") and round two ("PPP2") loans, which was partially offset by a reverse provision for credit losses of $1.0 million. Our core earnings, excluding provisions for credit losses, income taxes and PPP1/PPP2 net origination income, as well as our core net interest margin, adjusted to exclude the effects of PPP1/PPP2 loans, are described further in tables below.

"We continue to be extremely pleased with our financial results for the second quarter and first half of 2021. Although not fully recovered, the Texas economy is rebounding very strongly from COVID effects and we've begun to refill our loan pipeline with increased demand across all loan types and regions. Our borrowers have shown strong resilience during this rebound, with many businesses having record years so far during 2021. Our non-performing assets as a percentage of total assets are very low at only 0.13%. Almost all of our borrowers who received a COVID-related deferral are back on regular payment schedules with only a handful of credits remaining in an interest-only deferral period that will end in third quarter of 2021 as they also return to contractual payment schedules. As our second quarter results indicate, like all banks we have experienced some headwinds in our net interest margin and are seeing elevated loan pay downs, but we are confident in our ability to defend our net interest margin in this unprecedented rate environment and are encouraged with the size and strength of our loan pipeline as we enter the second half of 2021," commented Ty Abston, the Company's Chairman and Chief Executive Officer.

QUARTERLY HIGHLIGHTS

  • Solid Net Earnings and Core Earnings. Net earnings have remained consistent for the past four quarters. Net core earnings, which exclude provisions for credit losses and income tax, net PPP income, and interest on PPP-related borrowings, have also remained solid over the last five quarters, illustrating a consistent core earnings stream. Net core earnings were $9.4 million for the second quarter, compared to $9.8 million for the first quarter of 2021, and $10.5 million during the second quarter of 2020.

  • Steady Net Interest Margin and Firm Loan Yields. The fully tax-equivalent ("FTE") net interest margin, net of PPP effects, was 3.38% for the second quarter of 2021, compared to 3.48% in the preceding quarter and 3.75% in the second quarter of 2020. The decrease in the current quarter is primarily due to higher liquidity levels, which had a lower average yield during the quarter of only 6 basis points. Net interest income decreased $1.0 million, or 4.1%, from $24.5 million in the first quarter of 2021 to $23.5 million in the second quarter of 2021. However, excluding the effects of PPP, net interest income increased $752,000, or 3.6%, from $21.0 million in the first quarter of 2021 to $21.7 million in the second quarter. Average loan yield, excluding PPP effects, increased three basis points, from 4.79% in the first quarter to 4.82% in the second quarter of 2021. Interest expense decreased $215,000, or 10.6%, from $2.0 million in the first quarter of 2021 to $1.8 million in second quarter of 2021. The Bank continues to decrease cost of funds as higher rate CDs mature and to reduce interest rates on non-maturing deposits as market conditions allow. In addition, 63.8% of the loan portfolio, or $1.16 billion, has interest rate floors and 57.5% of those loans are currently at their floors. The weighted average interest rate of loans currently at their floor is 4.37%.

  • Strong Credit Quality. Non-performing assets as a percentage of total assets were 0.13% at June 30, 2021 and March 31, 2021, compared to 0.56% at June 30, 2020. Net charge-offs to average loans (annualized) were 0.05% for the quarter ended June 30, 2021, compared to 0.18% for the quarter ended March 31, 2021, and (0.02%) for the quarter ended June 30, 2020. The decrease in non-performing assets and the increase in charge-offs during the second quarter of 2021 compared to the same period of 2020 resulted primarily from the resolution of three problem loans, made to two borrowers, with outstanding combined book balances of $8.7 million at December 31, 2020, that were acquired during the Westbound acquisition and which were fully reserved prior to the onset of COVID-19.

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

RESULTS OF OPERATIONS

Participation in the PPP1 and PPP2 program, as well as large provisions for credit losses in the second quarter of 2020 resulting from effects of COVID-19 have created temporary extraordinary results in the calculation of net earnings and related performance ratios. With some continued uncertainty as a result of COVID-19 and other economic factors, the following table illustrates net earnings and net core earnings results, which are pre-tax, pre-provision and pre-extraordinary PPP1/PPP2 income, as well as performance ratios for the prior five quarters:

Quarter Ended

2021

2020

(dollars in thousands, except per share data)

June 30

March 31

December 31

September 30

June 30

Net earnings

$

10,432

$

10,962

$

9,915

$

10,134

$

1,075

Adjustments:

Provision for credit losses

(1,000

)

(300

)

12,100

Income tax provision (benefit)

2,312

2,336

2,290

2,350

(190

)

PPP loan interest and fees

(2,346

)

(3,513

)

(2,654

)

(1,076

)

(2,540

)

Net interest expense on PPP-related borrowings

3

31

Net core earnings

$

9,398

$

9,785

$

9,551

$

11,111

$

10,476

Total average assets

$

2,938,944

$

2,775,567

$

2,659,725

$

2,639,335

$

2,657,609

Adjustments:

PPP loans average balance

(155,417

)

(137,251

)

(179,240

)

(209,506

)

(163,184

)

Excess fed funds sold due to PPP-related borrowings

(8,152

)

(84,066

)

Total average assets, adjusted

$

2,783,527

$

2,638,316

$

2,480,485

$

2,421,677

$

2,410,359

Total average equity

$

285,803

$

277,612

$

271,397

$

265,027

$

258,225

PERFORMANCE RATIOS

Net earnings to average assets (annualized)

1.42

%

1.60

%

1.48

%

1.53

%

0.16

%

Net earnings to average equity (annualized)

14.64

16.01

14.53

15.21

1.67

Net core earnings to average assets, as adjusted (annualized)

1.35

1.50

1.53

1.83

1.75

Net core earnings to average equity (annualized)

13.19

14.29

14.00

16.68

16.32

PER COMMON SHARE DATA*

Weighted-average common shares outstanding, basic

12,056,550

12,038,638

12,063,154

12,113,266

12,128,516

Earnings per common share, basic

$

0.87

$

0.91

$

0.82

$

0.84

$

0.09

Net core earnings per common share, basic

0.78

0.81

0.79

0.92

0.86

* Adjusted retroactively for all quarters presented to give effect to the 10% dividend issued during the first quarter of 2021.

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in the schedules accompanying this release.

Net interest income, before the provision for credit losses, in the second quarter of 2021 and 2020 was $23.5 million and $23.2 million, respectively, an increase of $295,000, or 1.3%. The increase was primarily due to a decrease in interest expense of $1.6 million, or 46.8%, compared to a decrease in interest income of only $1.3 million, or 4.9%. The decrease in interest expense is primarily attributable to lower deposit-related interest expense of $1.5 million, or 50.9%, compared to the same quarter of the prior year.

Net interest margin, on a taxable equivalent basis, for the second quarter of 2021 and 2020 was 3.44% and 3.78%, respectively. Loan yield decreased from 5.15% for the second quarter of 2020 to 4.79% for the second quarter of 2021, a change of 36 basis points, while the cost of interest-bearing deposits decreased from 0.83% to 0.37% during the same period, a change of 46 basis points. The decrease in loan yield was primarily due to the repricing of variable rate loans to lower interest rates during the period and lower recognized PPP origination fee income. Loan yield, excluding the effect of PPP loans, was 4.82% in the second quarter of 2021, compared to 5.04% in the same quarter of the prior year, a decrease of 22 basis points. The average yield on interest-bearing deposits in other banks, which consists of fed funds sold, also declined from 0.12% in the second quarter of 2020 to 0.06% in the current quarter while the average balance more than doubled in the current quarter. The decrease in average deposit rate was primarily due to continued reductions in interest rates for non-maturing deposits as market conditions have allowed.

Net interest income in the first quarter of 2021 was $24.5 million, resulting in a decrease of $1.0 million, or 4.1%, in the current quarter. The decrease resulted primarily from $3.2 million of PPP origination income recognized in the first quarter and only $1.4 million of PPP origination income in the current quarter.

Net interest margin, on a taxable equivalent basis, decreased from 3.85% for the first quarter of 2021 to 3.44% for the second quarter of 2021. Loan yield decreased from 5.20% for the first quarter of 2021 to 4.79% for the second quarter of 2021, a change of 41 basis points. Loan yield, excluding the effect of PPP loans, increased three basis points from 4.79% in the first quarter of 2021. The average yield on interest-bearing deposits in other banks also declined nine basis points from 0.15% in the first quarter of 2021 while the average balance increased by $91.7 million, or 27.4%, in the current quarter. The cost of interest-bearing deposits decreased from 0.42% to 0.37% during the same period, a change of five basis points. The decrease was due primarily to the maturity of higher-rate CDs during the second quarter of 2021, as well as continued reductions in interest rates for non-maturing deposits as market conditions have allowed.

The Bank’s continued participation in the PPP program has created temporary extraordinary results in the calculation of net interest margin. To illustrate core net interest margin, the table below excludes PPP1 and PPP2 loans and their associated fees and costs for the three and six months ended June 30, 2021:

For the Three Months Ended
June 30, 2021

For the Six Months Ended
June 30, 2021

(dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Total loans

$

1,912,722

$

22,864

4.79

%

$

1,899,864

$

47,059

4.99

%

Adjustments:

PPP1 loans average balance and net fees(1)

(57,573

)

(569

)

3.96

(79,414

)

(2,220

)

5.64

PPP2 loans average balance and net fees(2)

(97,844

)

(1,178

)

4.83

(66,689

)

(3,040

)

9.19

Total PPP loans(3)

$

(155,417

)

$

(1,747

)

4.51

%

$

(146,103

)

$

(5,260

)

7.26

%

Total loans, excluding PPP

$

1,757,305

$

21,117

4.82

%

$

1,753,761

$

41,799

4.81

%

Total interest-earning assets

2,769,054

25,284

3.66

2,689,617

51,797

3.88

Total interest-earning assets, net of PPP effects

$

2,613,637

$

23,537

3.61

%

$

2,543,514

$

46,537

3.69

%

Net interest income

$

23,477

$

47,968

Net interest margin(4)

3.40

%

3.60

%

Net interest margin, FTE(5)

3.44

3.64

Net interest income, net of PPP effects

21,730

42,708

Net interest margin, net of PPP effects†(6)

3.33

3.39

Net interest margin, FTE, net of PPP effects†(7)

3.38

3.43

Efficiency ratio(8)

60.12

58.30

Efficiency ratio, net of PPP effects†(9)

64.66

64.99

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in the schedules accompanying this release.

(1) Interest earned on PPP1 loans consists of interest income of $141,000 and $388,000, and net origination fees recognized in earnings of $428,000 and $1.8 million for the three and six months ended June 30, 2021, respectively.

(2) Interest earned on PPP2 loans consists of interest income of $244,000 and $332,000, and net origination fees recognized in earnings of $934,000 and $2.7 million for the three and six months ended June 30, 2021, respectively.

(3) Interest earned consists of interest income of $385,000 and $720,000, and net origination fees recognized in earnings of $1.4 million and $4.5 million for the three and six months ended June 30, 2021, respectively.

(4) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized. Taxes are not a part of this calculation.

(5) 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%.

(6) 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.

(7) 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%.

(8) 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.

(9) The efficiency ratio 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.

During the year ended December 31, 2020, a total allowance for credit losses provision of $13.2 million was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. There was no provision for credit losses recorded during the first quarter of 2021. A reverse provision of $1.0 million was recorded in the second quarter of 2021 in order to begin to capture the improvements that have occurred to macro-economic factors evaluated at the onset of the pandemic as part of the aforementioned COVID-specific Q-factors, as well as risk rating upgrades for specific loans, which impact the reserve calculations within our model. Although management is cautiously optimistic about improving vaccination and economic trends, it is possible that the economic effects of the pandemic could continue beyond 2021, although we expect the credit impact of the pandemic to be largely understood and accounted for by the end of 2021.

Noninterest income increased $983,000, or 19.7%, in the second quarter of 2021, to $6.0 million, compared to $5.0 million for the second quarter of 2020. The increase from the same quarter in 2020 was due primarily to an increase in merchant and debit card fees of $588,000, or 44.1%, and an increase in service charges of $284,000, or 49.7%. These increases were partially offset by a decrease in the gain on sale of loans of $264,000, or 17.5%, from the same quarter of the prior year.

Noninterest expense increased $2.5 million, or 16.6%, in the second quarter of 2021 to $17.7 million, compared to the second quarter of 2020. The increase in noninterest expense in the second quarter of 2021 was partially driven by an increase in employee compensation and benefits expense of $2.1 million, or 26.3%, to $10.2 million, from the same quarter of the prior year, resulting primarily from a reduction in bonus accrual during the second quarter of 2020 and from the effects of reduced deferred origination costs associated with fewer PPP loan originations than the prior year quarter. Other increases in non-interest expense resulted from an increase in occupancy expenses of $283,000, or 11.1%, from the same quarter of the prior year and an increase in legal and professional fees of $158,000, or 26.8%. Additionally, ATM and debit card expense increased $137,000, or 28.6%, resulting from increased usage of ATM and debit cards during the period. These increases were partially offset by a decrease in charitable contributions of $156,000 in the second quarter of 2021 compared to the same quarter of the prior year.

Noninterest income in the second quarter of 2021 decreased by $149,000, or 2.4%, from $6.1 million in the first quarter of 2021 due primarily to a decrease in gains on sales of loans of $154,000, or 11.0%. Merchant and debit card fees increased $416,000, or 27.6%, from the prior quarter, but was offset by a decrease in other noninterest income of $413,000, or 39.2%, caused by a first quarter gain of $277,000 on bank-owned life insurance proceeds resulting from the death of a former bank officer, a $95,000 decrease in the gain on sales of real estate and a $65,000 decrease in the Small Business Administration ("SBA") servicing asset fair value that occurred during the second quarter of 2021.

Noninterest expense increased $391,000, or 2.3%, in the second quarter of 2021, from $17.3 million in the quarter ended March 31, 2021. The increase was primarily due to a $261,000, or 2.6%, increase in employee compensation and benefits, along with a $146,000, or 5.4%, increase in occupancy expenses and a $143,000, or 23.7%, increase in legal and professional fees during the second quarter of 2021 compared to the previous quarter. These increases were partially offset by a $117,000, or 25.7%, decrease in advertising and promotion expense during the quarter.

The company’s efficiency ratio in the second quarter of 2021 was 60.12%, compared to 56.56% in the prior quarter and 53.90% in the same quarter last year. Adjusted to remove the effects of PPP-related transactions, the company’s efficiency ratio for the second quarter of 2021 was 64.66%, was 65.34% for the first quarter of 2021 and was 62.44% for the second quarter of 2020.

† Non GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in the schedules accompanying this release.

FINANCIAL CONDITION

Consolidated assets for the company totaled $2.93 billion at June 30, 2021, compared to $2.89 billion at March 31, 2021 and $2.67 billion at June 30, 2020.

Gross loans decreased 1.2%, or $22.2 million, to $1.89 billion at June 30, 2021, compared to loans of $1.91 billion at March 31, 2021. The decrease in gross loans from the first to the second quarter of 2021 is primarily due to the continued payoff and forgiveness of PPP loan balances, a decrease of $30.8 million from the $158.2 million of PPP loans outstanding at March 31, 2021 . Excluding the decrease in the balance of PPP loans, gross loans increased by 0.5%, or $8.6 million, from the prior quarter.

Gross loans decreased 3.4%, or $67.3 million, from $1.96 billion at June 30, 2020. The decrease in gross loans during the second quarter of 2021 compared to the second quarter of 2020 included a decrease in outstanding PPP loan balances from $208.8 million to 1,908 borrowers at June 30, 2020 to $127.4 million to 1,674 borrowers at June 30, 2021. Excluding the outstanding PPP balances as of June 30, 2021 and 2020, gross loans increased $14.1 million, or 0.8%, from the same quarter of the prior year.

Total deposits increased by 2.3%, or $57.8 million, to $2.53 billion at June 30, 2021, compared to $2.48 billion at March 31, 2021. Deposits increased 13.0%, or $291.0 million, from $2.24 billion at June 30, 2020. Changes in deposits during these periods were heavily impacted by the deposit of PPP loan proceeds into demand accounts at the Bank, as well as apparent changes in depositor spending habits in these periods resulting from economic and other uncertainties due to COVID-19.

Shareholders' equity totaled $287.7 million as of June 30, 2021, compared to $280.1 million at March 31, 2021 and $258.9 million at June 30, 2020. The increase from the previous quarter resulted primarily from net income of $10.4 million, offset by the payment of dividends of $2.4 million and a decrease in other comprehensive income of $663,000 during the second quarter of 2021.

Nonperforming assets as a percentage of total assets were 0.13% at June 30, 2021 and March 31, 2021, compared to 0.56% at June 30, 2020. The Bank’s nonperforming assets consist primarily of nonaccrual loans. During 2020, nonperforming assets included three SBA 7(a), partially guaranteed (75%) loans that were acquired in the June 2018 acquisition of Westbound Bank, with combined book balances of $8.7 million as of June 30, 2020. During the first quarter of 2021, one of these loans was resolved when the underlying collateral, a hotel, was sold to a third party. The bank charged off $475,000 in connection with the sale, all of which had previously been specifically reserved within the allowance for credit losses, or ACL. The other two loans, collateralized by a hotel and both to one borrower, were resolved through a bankruptcy judgement that allows the borrower to adequately service their debt coverage. The bankruptcy order resulted in a charge-off of $270,000, which had previously been fully reserved in the ACL. These loans were internally identified as problem assets prior to COVID-19 and were properly reserved.

During the first and second quarters of 2020, the Bank provided financial relief to many of its customers due to the COVID-19 outbreak through either 3-month principal and interest ("P&I") payment deferrals or through 6-month interest-only ("I/O") deferrals. Under the initial deferral program, the Bank provided 3-month P&I deferrals on 658 loans with principal balances of $247.8 million and provided up to 6-month I/O deferrals on 336 loans with principal balances of $183.7 million. As of June 30, 2021, there are no loans remaining in the P&I deferral program and there are seven loans totaling $41.9 million that remain in a subsequent I/O deferral program. We anticipate that all of these borrowers, who are primarily in the hotel and hospitality industry, will return to their contractual payment schedules at the end of their I/O deferral period in the third quarter of 2021 with no additional subsequent deferrals.

As of

2021

2020

(dollars in thousands)

June 30

March 31

December 31

September 30

June 30

ASSETS

Cash and due from banks

$

37,611

$

38,534

$

47,836

$

35,714

$

35,490

Federal funds sold

385,075

356,750

218,825

101,300

104,375

Interest-bearing deposits

24,532

28,188

85,130

56,357

51,129

Total cash and cash equivalents

447,218

423,472

351,791

193,371

190,994

Securities available for sale

446,636

407,736

380,795

368,887

376,381

Loans held for sale

5,088

4,663

5,542

9,148

7,194

Loans, net

1,856,277

1,876,985

1,831,737

1,921,234

1,919,201

Accrued interest receivable

8,801

8,064

9,834

8,361

11,864

Premises and equipment, net

54,405

54,903

55,212

55,468

55,251

Other real estate owned

227

312

404

310

402

Cash surrender value of life insurance

36,367

35,836

35,510

35,304

34,920

Core deposit intangible, net

2,573

2,786

2,999

3,213

3,426

Goodwill

32,160

32,160

32,160

32,160

32,160

Other assets

43,207

44,383

34,848

35,228

35,402

Total assets

$

2,932,959

$

2,891,300

$

2,740,832

$

2,662,684

$

2,667,195

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits

Noninterest-bearing

$

928,416

$

878,883

$

779,740

$

776,364

$

772,179

Interest-bearing

1,604,610

1,596,327

1,506,650

1,446,718

1,469,847

Total deposits

2,533,026

2,475,210

2,286,390

2,223,082

2,242,026

Securities sold under agreements to repurchase

15,336

24,007

15,631

20,520

17,414

Accrued interest and other liabilities

28,058

28,080

25,257

25,814

25,960

Line of credit

15,000

12,000

7,000

2,000

Federal Home Loan Bank advances

49,000

49,096

109,101

99,105

100,610

Subordinated debentures

19,810

19,810

19,810

20,310

20,310

Total liabilities

2,645,230

2,611,203

2,468,189

2,395,831

2,408,320

Total shareholders' equity

287,729

280,097

272,643

266,853

258,875

Total liabilities and shareholders' equity

$

2,932,959

$

2,891,300

$

2,740,832

$

2,662,684

$

2,667,195

Quarter Ended

2021

2020

(dollars in thousands)

June 30

March 31

December 31

September 30

June 30

STATEMENTS OF EARNINGS

Interest income

$

25,284

$

26,513

$

26,253

$

24,956

$

26,581

Interest expense

1,807

2,022

2,301

2,677

3,399

Net interest income

23,477

24,491

23,952

22,279

23,182

Provision for credit losses

(1,000

)

(300

)

12,100

Net interest income after provision for credit losses

24,477

24,491

23,952

22,579

11,082

Noninterest income

5,970

6,119

6,426

6,663

4,987

Noninterest expense

17,703

17,312

18,173

16,758

15,184

Income before income taxes

12,744

13,298

12,205

12,484

885

Income tax provision (benefit)

2,312

2,336

2,290

2,350

(190

)

Net earnings

$

10,432

$

10,962

$

9,915

$

10,134

$

1,075

PER COMMON SHARE DATA*

Earnings per common share, basic

$

0.87

$

0.91

$

0.82

$

0.84

$

0.09

Earnings per common share, diluted(1)

0.85

0.90

0.82

0.84

0.09

Cash dividends per common share

0.20

0.20

0.18

0.18

0.17

Book value per common share - end of quarter

23.86

23.24

22.67

22.08

21.37

Tangible book value per common share - end of quarter(2)

20.98

20.34

19.74

19.15

18.43

Common shares outstanding - end of quarter

12,057,937

12,053,597

12,028,957

12,087,063

12,115,184

Weighted-average common shares outstanding, basic

12,056,550

12,038,638

12,063,154

12,113,266

12,128,516

Weighted-average common shares outstanding, diluted(1)

12,251,587

12,177,776

12,121,221

12,113,266

12,128,516

PERFORMANCE RATIOS

Return on average assets (annualized)

1.42

%

1.60

%

1.48

%

1.53

%

0.16

%

Return on average equity (annualized)

14.64

16.01

14.53

15.21

1.67

Net interest margin, fully taxable equivalent (annualized)(3)

3.44

3.85

3.85

3.61

3.78

Efficiency ratio(4)

60.12

56.56

59.82

57.90

53.90

* Adjusted retroactively for all quarters presented to give effect to the 10% dividend issued during the first quarter of 2021.

(1) Outstanding options and the closing price of the company's stock as of September 30 and June 30, 2020 had an anti-dilutive effect on each respective quarter end's weighted-average common shares outstanding; therefore, the effect of their conversion has been excluded from the calculation of the diluted weighted-average common shares outstanding for those periods. The diluted EPS for those quarters has been calculated using the basic weighted-average shares outstanding in order to comply with GAAP. There was not an anti-dilutive effect for the quarters ended June 30 and March 31, 2021 and December 31, 2020.

(2) See Reconciliation of non-GAAP Financial Measures table.

(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) 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.

As of

2021

2020

(dollars in thousands)

June 30

March 31

December 31

September 30

June 30

LOAN PORTFOLIO COMPOSITION

Commercial and industrial

$

424,624

$

460,491

$

445,771

$

531,152

$

522,248

Real estate:

Construction and development

264,002

257,886

270,407

269,101

265,982

Commercial real estate

608,464

630,479

594,216

602,664

606,061

Farmland

94,525

76,867

78,508

80,197

77,625

1-4 family residential

389,616

389,542

389,096

385,783

383,590

Multi-family residential

42,086

32,090

21,701

19,499

29,692

Consumer

51,795

49,780

51,044

52,855

52,986

Agricultural

14,608

14,905

15,734

17,004

18,981

Overdrafts

444

327

342

379

275

Total loans(1)(2)

$

1,890,164

$

1,912,367

$

1,866,819

$

1,958,634

$

1,957,440

Quarter Ended

2021

2020

(dollars in thousands)

June 30

March 31

December 31

September 30

June 30

ALLOWANCE FOR CREDIT LOSSES

Balance at beginning of period

$

32,770

$

33,619

$

33,757

$

34,119

$

21,948

Loans charged-off

(283

)

(875

)

(159

)

(101

)

(59

)

Recoveries

61

26

21

39

130

Provision for credit loss expense

(1,000

)

(300

)

12,100

Balance at end of period

$

31,548

$

32,770

$

33,619

$

33,757

$

34,119

Allowance for credit losses / period-end loans

1.67

%

1.71

%

1.80

%

1.72

%

1.74

%

Allowance for credit losses / nonperforming loans

878.0

968.7

264.6

245.0

235.6

Net charge-offs (recoveries) / average loans (annualized)

0.05

0.18

0.03

0.01

(0.02

)

NON-PERFORMING ASSETS

Non-accrual loans(3)

$

3,593

$

3,383

$

12,705

$

13,780

$

14,480

Other real estate owned

227

312

404

310

402

Repossessed assets owned

9

4

6

3

38

Total non-performing assets

$

3,829

$

3,699

$

13,115

$

14,093

$

14,920

Non-performing assets as a percentage of:

Total loans(1)(2)

0.20

%

0.19

%

0.70

%

0.72

%

0.76

%

Total loans, excluding PPP(1)(2)

0.22

0.21

0.76

0.81

0.85

Total assets

0.13

0.13

0.48

0.53

0.56

TDR loans - nonaccrual

$

86

$

87

$

90

$

92

$

95

TDR loans - accruing

9,535

9,598

9,626

7,891

7,216

(1) Excludes outstanding balances of loans held for sale of $5.1 million, $4.7 million, $5.5 million, $9.1 million, and $7.2 million as of June 30 and March 31, 2021 and December 31, September 30, June 30, 2020, respectively.

(2) Excludes deferred loan fees of $(2.3) million, $(2.6) million, $(1.5) million, $(3.6) million, and $(4.1) million as of June 30 and March 31, 2021 and December 31, September 30, June 30, 2020, respectively.

(3) TDR loans - nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.

Quarter Ended

2021

2020

(dollars in thousands)

June 30

March 31

December 31

September 30

June 30

NONINTEREST INCOME

Service charges

$

855

$

829

$

868

$

717

$

571

Net realized gain on sale of loans

1,244

1,398

2,023

2,114

1,508

Fiduciary and custodial income

570

549

513

511

474

Bank-owned life insurance income

206

212

205

208

207

Merchant and debit card fees

1,922

1,506

1,396

1,654

1,334

Loan processing fee income

164

153

167

181

130

Warehouse lending fees

211

241

262

288

243

Mortgage fee income

157

177

197

272

204

Other noninterest income

641

1,054

795

718

316

Total noninterest income

$

5,970

$

6,119

$

6,426

$

6,663

$

4,987

NONINTEREST EXPENSE

Employee compensation and benefits

$

10,204

$

9,943

$

10,211

$

9,439

$

8,077

Occupancy expenses

2,833

2,687

2,596

2,597

2,550

Legal and professional fees

747

604

968

574

589

Software and technology

1,055

1,114

1,127

1,093

945

Amortization

336

343

340

338

338

Director and committee fees

167

255

251

211

165

Advertising and promotions

338

455

356

301

408

ATM and debit card expense

616

540

545

509

479

Telecommunication expense

180

234

244

231

209

FDIC insurance assessment fees

168

169

252

252

122

Other noninterest expense

1,059

968

1,283

1,213

1,302

Total noninterest expense

$

17,703

$

17,312

$

18,173

$

16,758

$

15,184

For the Three Months Ended June 30,

2021

2020

(dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

ASSETS

Interest-earning assets:

Total loans(1)

$

1,912,722

$

22,864

4.79

%

$

1,885,959

$

24,139

5.15

%

Securities available for sale

420,202

2,191

2.09

379,803

2,273

2.41

Nonmarketable equity securities

10,056

164

6.54

11,869

108

3.66

Interest-bearing deposits in other banks

426,074

65

0.06

209,005

61

0.12

Total interest-earning assets

2,769,054

25,284

3.66

2,486,636

26,581

4.30

Allowance for loan losses

(32,664

)

(27,720

)

Noninterest-earning assets

202,554

198,693

Total assets

$

2,938,944

$

2,657,609

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:

Interest-bearing deposits

$

1,623,351

$

1,493

0.37

%

$

1,480,106

$

3,040

0.83

%

Advances from FHLB and fed funds purchased

49,063

102

0.83

134,677

123

0.37

Line of credit

2,374

21

3.55

7,791

47

2.43

Subordinated debentures

19,810

188

3.81

17,618

176

4.02

Securities sold under agreements to repurchase

14,887

3

0.08

18,106

13

0.29

Total interest-bearing liabilities

1,709,485

1,807

0.42

1,658,298

3,399

0.82

Noninterest-bearing liabilities:

Noninterest-bearing deposits

916,631

718,378

Accrued interest and other liabilities

27,025

22,708

Total noninterest-bearing liabilities

943,656

741,086

Shareholders’ equity

285,803

258,225

Total liabilities and shareholders’ equity

$

2,938,944

$

2,657,609

Net interest rate spread(2)

3.24

%

3.48

%

Net interest income

$

23,477

$

23,182

Net interest margin(3)

3.40

%

3.75

%

Net interest margin, fully taxable equivalent(4)

3.44

%

3.78

%

(1) Includes average outstanding balances of loans held for sale of $3.2 million and $6.5 million for the three months ended June 30, 2021 and 2020, 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%.

For the Six Months Ended June 30,

2021

2020

(dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

ASSETS

Interest-earning assets:

Total loans(1)

$

1,899,864

$

47,059

4.99

%

$

1,793,742

$

46,656

5.23

%

Securities available for sale

399,255

4,282

2.16

300,053

3,586

2.40

Securities held to maturity

72,266

956

2.66

Nonmarketable equity securities

10,043

265

5.32

10,545

222

4.23

Interest-bearing deposits in other banks

380,455

191

0.10

142,341

413

0.58

Total interest-earning assets

2,689,617

51,797

3.88

2,318,947

51,833

4.49

Allowance for credit losses

(32,951

)

(24,250

)

Noninterest-earning assets

201,041

196,917

Total assets

$

2,857,707

$

2,491,614

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:

Interest-bearing deposits

$

1,591,784

$

3,096

0.39

%

$

1,477,806

$

7,461

1.02

%

Advances from FHLB and fed funds purchased

50,075

201

0.81

78,957

205

0.52

Line of credit

8,470

149

3.55

5,599

75

2.69

Subordinated debentures

19,810

376

3.83

14,214

319

4.51

Securities sold under agreements to repurchase

18,013

7

0.08

15,466

22

0.29

Total interest-bearing liabilities

1,688,152

3,829

0.46

1,592,042

8,082

1.02

Noninterest-bearing liabilities:

Noninterest-bearing deposits

862,619

618,176

Accrued interest and other liabilities

25,206

22,121

Total noninterest-bearing liabilities

887,825

640,297

Shareholders’ equity

281,730

259,275

Total liabilities and shareholders’ equity

$

2,857,707

$

2,491,614

Net interest rate spread(2)

3.42

%

3.47

%

Net interest income

$

47,968

$

43,751

Net interest margin(3)

3.60

%

3.79

%

Net interest margin, fully taxable equivalent(4)

3.64

%

3.78

%

(1) Includes average outstanding balances of loans held for sale of $3.7 million and $4.5 million for the six months ended June 30, 2021 and 2020, 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%.

NON-GAAP RECONCILING TABLES

Tangible Book Value per Common Share

As of

2021

2020

(dollars in thousands, except per share data)

June 30

March 31

December 31

September 30

June 30

Total shareholders’ equity

$

287,729

$

280,097

$

272,643

$

266,853

$

258,875

Adjustments:

Goodwill

(32,160

)

(32,160

)

(32,160

)

(32,160

)

(32,160

)

Core deposit intangible, net

(2,573

)

(2,786

)

(2,999

)

(3,213

)

(3,426

)

Total tangible common equity

$

252,996

$

245,151

$

237,484

$

231,480

$

223,289

Common shares outstanding - end of quarter(1)

12,057,937

12,053,597

12,028,957

12,087,063

12,115,184

Book value per common share

$

23.86

$

23.24

$

22.67

$

22.08

$

21.37

Tangible book value per common share

20.98

20.34

19.74

19.15

18.43

(1) Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise of outstanding stock options.

Net Core Earnings and Net Core Earnings per Common Share

Quarter Ended

2021

2020

(dollars in thousands, except per share data)

June 30

March 31

December 31

September 30

June 30

Net earnings

$

10,432

$

10,962

$

9,915

$

10,134

$

1,075

Adjustments:

Provision for credit losses

(1,000

)

(300

)

12,100

Income tax provision (benefit)

2,312

2,336

2,290

2,350

(190

)

PPP loans, including fees

(2,346

)

(3,513

)

(2,654

)

(1,076

)

(2,540

)

Net interest expense on PPP-related borrowings

3

31

Net core earnings

$

9,398

$

9,785

$

9,551

$

11,111

$

10,476

Weighted-average common shares outstanding, basic*

12,056,550

12,038,638

12,063,154

12,113,266

12,128,516

Earnings per common share, basic*

$

0.87

$

0.91

$

0.82

$

0.84

$

0.09

Net core earnings per common share, basic*

0.78

0.81

0.79

0.92

0.86

* Adjusted to give effect to the 10% stock dividend issued during the first quarter of 2021.

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

Quarter Ended

2021

2020

(dollars in thousands)

June 30

March 31

December 31

September 30

June 30

Net core earnings

$

9,398

$

9,785

$

9,551

$

11,111

$

10,476

Total average assets

$

2,938,944

$

2,775,567

$

2,659,725

$

2,639,335

$

2,657,609

Adjustments:

PPP loan average balance

(155,417

)

(137,251

)

(179,240

)

(209,506

)

(163,184

)

Excess fed funds sold due to PPP-related borrowings

(8,152

)

(84,066

)

Total average assets, adjusted

$

2,783,527

$

2,638,316

$

2,480,485

$

2,421,677

$

2,410,359

Net core earnings to average assets, as adjusted (annualized)

1.35

1.50

1.53

1.83

1.75

Total average equity

$

285,803

$

277,612

$

271,397

$

265,027

$

258,225

Net core earnings to average equity (annualized)

13.19

14.29

14.00

16.68

16.32

NON-GAAP RECONCILING TABLES

Total Non-Performing Assets to Total Loans, Excluding PPP

Quarter Ended

2021

2020

(dollars in thousands)

June 30

March 31

December 31

September 30

June 30

Total loans(1)(2)

$

1,890,164

$

1,912,367

$

1,866,819

$

1,958,634

$

1,957,440

Adjustments:

PPP loans balance

(127,390

)

(158,236

)

(139,808

)

(209,609

)

(208,793

)

Total loans, excluding PPP(1)(2)

$

1,762,774

$

1,754,131

$

1,727,011

$

1,749,025

$

1,748,647

Total non-performing assets

$

3,829

$

3,699

$

13,115

$

14,093

$

14,920

Non-performing assets as a percentage of:

Total loans(1)(2)

0.20

%

0.19

%

0.70

%

0.72

%

0.76

%

Total loans, excluding PPP(1)(2)

0.22

0.21

0.76

0.81

0.85

(1) Excludes outstanding balances of loans held for sale of $5.1 million, $4.7 million, $5.5 million, $9.1 million, and $7.2 million as of June 30 and March 31, 2021 and December 31, September 30, June 30, 2020, respectively.

(2) Excludes deferred loan fees of $(2.3) million, $(2.6) million, $(1.5) million, $(3.6) million, and $(4.1) million as of June 30 and March 31, 2021 and December 31, September 30, June 30, 2020, respectively.

Total Interest-Earning Assets, Net of PPP Effects

For the Three Months Ended
June 30, 2021

For the Six Months Ended
June 30, 2021

(dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Total interest-earning assets

$

2,769,054

$

25,284

3.66

%

$

2,689,617

$

51,797

3.88

%

Total loans

1,912,722

22,864

4.79

1,899,864

47,059

4.99

Adjustments:

PPP loan average balance and net fees(1)

(155,417

)

(1,747

)

4.51

(146,103

)

(5,260

)

7.26

Total loans, net of PPP effects

1,757,305

21,117

4.82

1,753,761

41,799

4.81

Total interest-earning assets, net of PPP effects

$

2,613,637

$

23,537

3.61

%

$

2,543,514

$

46,537

3.69

%

(1) Interest earned consists of interest income of $385,000 and $720,000, and net origination fees recognized in earnings of $1.4 million and $4.5 million for the three and six months ended June 30, 2021, respectively.

NON-GAAP RECONCILING TABLES

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

(dollars in thousands)

Three Months
Ended
June 30, 2021

Six Months
Ended
June 30, 2021

Three Months Ended
March 31, 2021

Three Months Ended
June 30, 2020

Net interest income

$

23,477

$

47,968

$

24,491

$

23,182

Adjustments:

PPP-related interest income

(385

)

(720

)

(335

)

(407

)

PPP-related net origination fees

(1,362

)

(4,540

)

(3,178

)

(2,133

)

PPP-related borrowings

31

Net interest income, net of PPP effects

$

21,730

$

42,708

$

20,978

$

20,673

Total average interest-earning assets

$

2,769,054

$

2,689,617

$

2,609,299

$

2,486,636

Total average interest-earning assets, net of PPP effects

2,613,637

2,543,514

2,472,048

2,239,386