Guaranty Bancshares, Inc. Reports Third Quarter 2020 Financial Results

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Guaranty Bancshares, Inc. (NASDAQ: GNTY), the parent company of Guaranty Bank & Trust, N.A., today reported financial results for the fiscal quarter ended September 30, 2020. The Company's net income available to common shareholders was $10.1 million, or $0.92 per basic share, for the quarter ended September 30, 2020, compared to $1.1 million, or $0.10 per basic share, for the quarter ended June 30, 2020 and $7.5 million, or $0.65 per basic share, for the quarter ended September 30, 2019. Return on average assets and average equity for the third quarter of 2020 were 1.53% and 15.21%, respectively, compared to 0.16% and 1.67%, respectively, for the second quarter of 2020 and 1.28% and 11.73%, respectively, for the third quarter of 2019. The increase in earnings during the third quarter of 2020 was largely due to a significant decline in loan loss provision from the prior quarter, as well as increased non-interest income from mortgage and warehouse lending activities and decreases in interest expense relative to interest income. Net core earnings, excluding provisions for loan losses and income taxes and Paycheck Protection Program ("PPP") net origination income, as well as our core net interest margin, adjusted to exclude the effects of PPP loans, are described further in tables below.

"We are pleased with our third quarter results. We have analyzed our loan portfolio and believe our loans are risk rated appropriately and our allowance for credit losses is adequate to absorb potential future loan losses resulting from the pandemic. Temporary payment or interest-only deferrals offered at the onset of the pandemic have declined significantly as borrowers have returned to contractual payment schedules. Requests for additional deferrals have been minimal thus far and have occurred primarily in the hospitality industry. Despite the various business challenges posed as a result of COVID-19, the Texas economy went into the downturn in a very strong positon and the resilience of the Texas economy has been very clear this quarter. Our bank has a solid core earnings foundation, with a sustainable net interest margin, controlled expense structure and growing non-interest income departments. Asset quality remains strong even while our loan loss reserves remain defensive from earlier quarter provisions," commented Ty Abston, the Company's Chairman and Chief Executive Officer.

QUARTERLY HIGHLIGHTS

  • Strong Net Earnings. Net earnings for the quarter were $10.1 million, up from $1.1 million for the immediately prior quarter and $7.5 million for the same quarter of 2019. Net core earnings, which exclude provisions for loan losses and income tax, net PPP income, and interest on PPP-related borrowings, were $11.1 million for the third quarter, compared to $10.5 million for the second quarter of 2020, and $9.3 million during the third quarter of 2019.

The Bank had a $300,000 provision reversal for loan losses during the quarter, compared to a $12.1 million provision expense in the second quarter of 2020 and $100,000 provision expense in the third quarter of 2019. The $300,000 provision reversal resulted primarily from lower loan balances in segments with higher allowance factors as of September 30, 2020, compared to prior quarters. Additionally, in the second quarter of 2020, qualitative factor adjustments were made in our Current Expected Credit Losses ("CECL") model, primarily derived from changes in national GDP, Texas unemployment rates and national industry-related CRE trends, all of which are impacted by the effects of COVID-19 and resulted in the $12.1 million provision expense during second quarter. Qualitative factor adjustments made in the second quarter remained consistent in the third quarter because our CECL model assumes a six-to-nine month lag in estimated losses as a result of economic factors present during the second quarter and continued uncertainty surrounding the virus and timing of economic recovery. As of September 30, 2020, the Bank’s allowance for credit losses to gross loans is 1.72%, or 1.93% excluding PPP loan balances.

  • Solid Net Interest Margin. The fully tax-equivalent net interest margin was 3.61% for the third quarter of 2020, compared to 3.78% in the preceding quarter and 3.71% in the third quarter of 2019. Net interest income decreased $903,000, or 3.9%, from $23.2 million in the second quarter of 2020 to $22.3 million in the third quarter of 2020. Interest expense decreased $722,000, or 21.2%, from $3.4 million in the second quarter of 2020 to $2.7 million in third quarter of 2020. 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, 54.0% of the loan portfolio, or $1.0 billion, has interest rate floors and 49.9% of those loans are currently at their loan floor. The weighted average interest rate of loans currently at their floor is 4.55%.

  • Steady Credit Quality and Reduced Deferrals. Non-performing assets as a percentage of total loans were 0.72% at September 30, 2020, compared to 0.76% at June 30, 2020 and 0.69% at September 30, 2019. Net charge-offs (recoveries) to average loans (annualized) were 0.01% at September 30, 2020, compared to (0.02)% at June 30, 2020 and (0.13)% at September 30, 2019.

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 payment deferrals or through 6-month interest-only deferrals. Outstanding balances of loans on the initial 3-month principal and interest ("P&I") deferral program declined from $247.8 million on 658 loans as of June 30, 2020 to $5.3 million on 20 loans as of September 30, 2020. Outstanding balances of loans on the initial 6-month interest-only ("I/O") deferral program declined from $183.7 million on 336 loans as of June 30, 2020 to $141.9 million on 203 loans as of September 30, 2020. Of the initial 3-month P&I deferrals, 12.4%, or $30.6 million, were approved for a second 6-month I/O payment period. As of October 15, 2020, outstanding balances and number of loans for the initial P&I deferral program and initial I/O deferral program were $3.7 million on 11 loans and $114.5 million on 140 loans, respectively, not including the $30.6 million in additional I/O deferrals. Detailed information about both deferral programs, by loan type and certain higher risk industries, in provided later in this earnings release.

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

RESULTS OF OPERATIONS

Large provisions for credit losses in the second quarter of 2020 resulting from effects of COVID-19 and participation in the PPP program have created temporary extraordinary results in the calculation of net earnings and related performance ratios. With the credit outlook still uncertain as a result of COVID-19 and other economic factors, the following table illustrates net earnings and net core earnings results, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as performance ratios for the prior five quarters:

Quarter Ended

2020

2019

$ in thousands ('000s)

September 30

June 30

March 31

December 31

September 30

Net earnings

$

10,134

$

1,075

$

6,278

$

7,369

$

7,530

Adjustments:

Provision for credit losses

(300

)

12,100

1,400

100

Income tax provision (benefit)

2,350

(190

)

1,445

1,573

1,634

PPP loans, including fees

(1,076

)

(2,540

)

Net interest expense on PPP-related borrowings

3

31

Net core earnings

$

11,111

$

10,476

$

9,123

$

8,942

$

9,264

Total average assets

$

2,639,335

$

2,657,609

$

2,325,618

$

2,341,766

$

2,328,603

Adjustments:

PPP loans average balance

(209,506

)

(163,184

)

Excess fed funds sold due to PPP-related borrowings

(8,152

)

(84,066

)

Total average assets, adjusted

$

2,421,677

$

2,410,359

$

2,325,618

$

2,341,766

$

2,328,603

Total average equity

$

265,021

$

258,225

$

251,159

$

260,160

$

254,788

PERFORMANCE RATIOS

Net earnings to average assets (annualized)

1.53

%

0.16

%

1.09

%

1.25

%

1.28

%

Net earnings to average equity (annualized)

15.21

1.67

9.94

11.24

11.73

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

1.83

1.75

1.56

1.51

1.58

Net core earnings to average equity (annualized)

16.68

16.32

14.45

13.64

14.43

PER COMMON SHARE DATA

Weighted-average common shares outstanding, basic

11,012,630

11,025,924

11,432,391

11,533,849

11,550,335

Earnings per common share, basic

$

0.92

$

0.10

$

0.55

$

0.64

$

0.65

Net core earnings per common share, basic

1.01

0.95

0.80

0.78

0.80

† 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 loan losses, in the third quarter of 2020 and 2019 was $22.3 million and $20.1 million, respectively, an increase of $2.2 million, or 10.9%, resulting primarily from a decrease in deposit-related interest expense of $3.0 million, or 58.6%, compared to the same quarter of the prior year. Net interest income, before the provision for loan losses, in the second and third quarters of 2020 was $23.2 million and $22.3 million, respectively; a decrease of $903,000, or 3.9%, resulting primarily from a decrease of $1.6 million in PPP origination income in the third quarter compared to the prior quarter, partially offset by a $722,000 decrease in interest expense.

Net interest margin, on a taxable equivalent basis, for the third quarter of 2020 and 2019 was 3.61% and 3.71%, respectively. Net interest margin, on a taxable equivalent basis, decreased from 3.78% in the second quarter of 2020 to 3.61% in the third quarter of 2020, primarily due to the effects of the PPP loan origination income recognized during the second quarter of $2.1 million, which increased net interest margin during that quarter, but recognized only $549,000 during the third quarter. Loan yield decreased from 5.37% for the third quarter of 2019 to 4.59% for the third quarter of 2020, a change of 78 basis points, while the cost of interest bearing deposits decreased from 1.43% to 0.63% during the same period, a change of 80 basis points. The decrease in loan yield was comprised of a 31 basis point reduction attributable to the dilutive effect of the 1.00% yield on PPP loans, with the remainder of the decrease due to repricing of variable rate loans to lower interest rates during the period. Loan yield decreased from 5.15% for the second quarter of 2020 to 4.59% for the third quarter of 2020, a change of 56 basis points due primarily to higher recognition of PPP loan origination income during the second quarter than during the third quarter and continued repricing of variable rate loans. The cost of interest bearing deposits also decreased from 0.83% to 0.63% during the same period, a change of 20 basis points. These decreases were due primarily to maturity of higher-rate CDs during the third quarter of 2020, 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. In order to prepare for participation in this program during the second quarter of 2020, the Bank borrowed $100.0 million from the FHLB at an interest rate of 0.25%. However, the Bank discovered that PPP loans mostly self-funded as many PPP borrowers deposited their loan proceeds into non-interest bearing demand accounts at the Bank and largely maintained those deposits during the quarter. As a result, the Bank invested the FHLB borrowings in fed funds sold, earning an interest rate of 0.10%, and paid off $50.0 million during the second quarter and the remaining $50.0 million in mid-July of 2020. To illustrate core net interest margin and remove the noise resulting from the PPP, the table below excludes PPP loans and their associated fees and costs, as well as the average balance of related FHLB borrowings and fed funds sold, for the three and nine months ended September 30, 2020:

For the Three Months Ended September 30,
2020

For the Nine Months Ended September 30,
2020

$ in thousands ('000s)

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Total interest-earnings assets

$

2,481,453

$

24,956

4.00

%

$

2,373,511

$

76,789

4.32

%

Adjustments:

PPP loans average balance and net fees(1)

(209,506

)

(1,076

)

2.04

(124,541

)

(3,617

)

3.88

Excess fed funds sold due to PPP-related borrowings

(8,152

)

(2

)

0.10

(30,657

)

(8

)

0.03

Total interest-earnings assets, net of PPP effects

$

2,263,795

$

23,878

4.20

%

$

2,218,313

$

73,164

4.41

%

Interest expense adjustment:

PPP-related FHLB borrowings

(8,152

)

(5

)

0.24

(30,657

)

(58

)

0.25

Net interest income

$

22,279

$

66,030

Net interest margin(2)

3.57

%

3.72

%

Net interest income, net of PPP effects

21,206

62,463

Net interest margin, net of PPP effects

3.73

3.76

Efficiency ratio(3)

57.90

58.50

Efficiency ratio, net of PPP effects†(4)

60.22

62.23

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

(1) Interest earned consists of interest income of $527,000 and $935,000, and net origination fees recognized in earnings of $549,000 and $2.7 million for the three and nine months ended September 30, 2020, respectively.

(2) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized

(3) 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.

(4) 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.

The Bank adopted the CECL standard (Accounting Standards Update 2016-13 or ASC 326) on January 1, 2020. The day one impact of adopting CECL resulted in an allowance increase of $4.5 million, or 28.1%, from December 31, 2019. There was a $300,000 reversal in the provision for loan losses during the third quarter of 2020, compared to provision expense of $12.1 million in the second quarter of 2020 and $100,000 in the third quarter of 2019. The provision expense recorded during the first half of 2020 resulted largely from additional 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. Other provision increases in the first half of 2020 resulted from detailed review of the loan portfolio and from discussions with borrowers about their financial hardships, if any, which led to downgrades of loans in loans and industries affected by the crisis to appropriate risk ratings given the expected impacts of COVID-19. Management believes the provisions made in both the first and second quarter, as a result of risk rating downgrades and qualitative factor adjustments in the CECL model, appropriately capture the current credit risks associated with COVID-19. During the third quarter of 2020, qualitative factor adjustments remained consistent because our CECL model assumes a six-to-month lag in estimated losses as a result of economic factors present during the second quarter. However, loan balances declined in certain pooled segments that contain higher allowance allocation factors, resulting in a lower calculated allowance for credit losses and a reverse provision of $300,000 during the third quarter. Although we do not anticipate additional provision expenses for the remainder of 2020 at this time, the outbreak could worsen in the short term, leading to possible changes in customer and consumer behavior and stronger response measures by government officials, and the long term economic impacts of COVID-19 are still very much unknown.

Noninterest income increased $2.0 million, or 44.3%, in the third quarter of 2020, to $6.7 million, compared to $4.6 million for the third quarter of 2019. The increase from the same quarter in 2019 was due primarily to an increase in the gain on sale of loans of $1.2 million, or 132.3%, and an increase in merchant and debit card fees of $558,000, or 50.9%, from the same quarter of the prior year. Other increases resulted from a $268,000 increase in mortgage and warehouse fee income and a $149,000 improvement in the fair value of the SBA servicing assets. These increases were partially offset by a $261,000, or 26.7%, decrease in service charges during the third quarter of 2020, as compared to the same quarter of 2019, due primarily to temporary service charge waivers as a result of COVID-19.

Noninterest income increased $1.7 million, or 33.6%, to $6.7 million in the third quarter of 2020, compared to $5.0 million for the quarter ended June 30, 2020. This was primarily attributable to an increase in the gain on sale of loans of $606,000, or 40.2%, an increase in merchant and debit card fees of $320,000, or 24.0%, and an increase in service charges of $146,000, or 25.6%. Other noninterest income increased $515,000, or 67.5%, attributable primarily to a $115,000 increase in mortgage and warehouse fee income and a $118,000 increase in gains on sales of other assets and OREO. There was also a $256,000 write-down included in other non-interest income in the second quarter of 2020 that did not occur during the third quarter of 2020.

Noninterest expense increased $1.3 million, or 8.6%, in the third quarter of 2020, compared to the third quarter of 2019. The increase in noninterest expense in the third quarter of 2020 was primarily driven by an increase in employee compensation and benefits expense of $543,000, or 6.1%, to $9.4 million, from the same quarter of the prior year, as well as the effects of a $252,000, or 100%, increase in FDIC insurance assessment fees during the third quarter of 2020 due to FDIC assessment credits of $534,000 that were received and recognized during the prior year. Software and technology expense also increased $208,000, or 23.5%, as a result of new software and hardware investments to allow employees to securely work from home and to improve online deposit account opening. There was an increase in ATM and debit card expense of $199,000, or 64.2%, resulting from increased usage of ATM and debit cards during the period. Occupancy expenses increased $149,000, or 6.1%, from the same quarter of the prior year. The company’s efficiency ratio in the third quarter of 2020 was 57.90%, compared to 62.49% in the same quarter last year. Adjusted to remove the effects of PPP-related transactions, the company’s efficiency ratio for the third quarter of 2020 was 60.22%.

Noninterest expense increased $1.6 million, or 10.4%, in the third quarter of 2020 to $16.8 million, compared to the quarter ended June 30, 2020. The increase was primarily due to a $1.4 million, or 16.9%, increase in employee compensation and benefits as employee bonus accruals were reduced during the second quarter of 2020 but were resumed at normal levels during the third quarter. Additionally, during the second quarter, compensation expense was reduced by approximately $862,000 due to deferred origination costs associated with PPP loans, which did not occur during the third quarter. The company’s efficiency ratio in the third quarter of 2020 was 57.90%, compared to 53.90% in the prior quarter. Adjusted to remove the effects of PPP-related transactions, the company’s efficiency ratio for the third quarter of 2020 was 60.22% and for the second quarter of 2020 was 62.44%.

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 $2.66 billion at September 30, 2020, compared to $2.67 billion at June 30, 2020 and $2.33 billion at September 30, 2019. Gross loans increased 0.1%, or $1.2 million, to $1.96 billion at September 30, 2020, compared to loans of $1.96 billion at June 30, 2020. Gross loans increased 12.8%, or $222.2 million, from $1.74 billion at September 30, 2019. The increase in gross loans during the third quarter of 2020, as compared to 2019, included outstanding PPP loan balances of $209.6 million, to 1,944 borrowers, as of September 30, 2020. Excluding the increase in the balance of PPP loans, gross loans increased 0.02%, or $378,000, from the prior quarter and 0.72%, or $12.6 million, from September 30, 2019. Deposits decreased by 0.8%, or $18.9 million, to $2.22 billion at September 30, 2020, compared to $2.24 billion at June 30, 2020. Total deposits increased 13.2%, or $259.8 million, from $1.96 billion at September 30, 2019. Changes in gross loans and deposits during these periods resulted primarily from PPP loans and the deposit of related PPP funds into demand accounts at the Bank, as well as apparent changes in depositor spending habits during the quarter resulting from economic and other uncertainties due to COVID-19. Shareholders' equity totaled $266.9 million as of September 30, 2020, compared to $258.9 million at June 30, 2020 and $255.9 million at September 30, 2019. The increase from the previous quarter resulted primarily from an increase in net income of $10.1 million and the purchase of treasury stock during the quarter of $633,000, partially offset by the payment of dividends of $2.2 million. The company also resumed its stock repurchase plan during the third quarter of 2020.

Nonperforming assets as a percentage of total loans were 0.72% at September 30, 2020, compared to 0.76% at June 30, 2020, and 0.69% at September 30, 2019. The Bank’s nonperforming assets consist primarily of nonaccrual loans, three of which 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 $8.7 million as of September 30, 2020. These loans were internally identified as problem assets prior to COVID-19 and are properly reserved. Management expects these three loans to be resolved in the final quarter of 2020. Excluding these partially guaranteed SBA loans, non-performing assets as a percentage of total loans at September 30, 2020 would be 0.28% and would be 0.31%, excluding PPP loans.

Through June 30, 2020, the Bank provided COVID-19 related financial relief to many of its customers through a 3-month principal and interest ("P&I") deferral program or an up to 6-month interest-only ("I/O") program. The initial deferral program was not underwritten in a needs-based manner. Rather, it was provided to borrowers who believed it prudent to request such a deferral to assist during the initial uncertainty of the pandemic. For future subsequent deferral requests, the Bank will study opportunity for improved underwriting, consider the reasons for the request, look at the strength of the guarantors, other sources of repayment ability and additional collateral available, prior to approval of a second deferral.

As of September 30, 2020, 85.5% of the total amount of the loans under 3-month P&I deferrals have returned to their contractual payment agreement and there were no borrowers in this group approved or in underwriting for a second P&I deferral. However, 12.4% of the total amount of the loans under 3-month P&I deferrals, or $30.6 million, have been approved for an additional 6-month I/O payment period. Of the $30.6 million, $680,000 are considered to be troubled debt restructurings ("TDRs") under Accounting Standards Codification 310-40 and Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") as of September 30, 2020.

The table below provides detail about the initial P&I deferral program as of June 30, 2020 and September 30, 2020:

As of 6/30/2020

As of 9/30/2020

$ in thousands ('000s)

Original

P&I Deferred

Remaining

P&I Deferred

CRE - Owner Occupied

$

50,078

$

CRE - Non-Owner Occupied

38,779

2,706

Construction & Development

32,925

768

Commercial & Industrial

2,834

64

1-4 Family

32,834

1,057

Consumer

2,030

15

Other

3,468

Subtotal - deferrals excluding COVID higher risk industries

$

162,948

$

4,610

COVID higher risk industries (excluded from segment subtotals above):

Retail - Strip Center

$

18,956

$

Retail - Other

2,548

641

Restaurant

6,143

Hotel

57,222

Subtotal - deferrals of COVID higher risk industries

$

84,869

$

641

Total of all P&I deferrals

$

247,817

$

5,251

% of Total Loans (excluding PPP)

14.2

%

0.3

%

For the initial up to 6-month I/O program, most of our borrowers chose the full 6-month option and remain in their initial I/O deferral period. We do not currently have any reason to believe that a material portion will not return to normal payments at the end of their deferral. Additionally, with our ratio of allowance for credit losses to total loans (excluding PPP loans) of 1.93%, as of September 30, 2020, management believes the Bank is well positioned to withstand potential/estimated future credit losses. As of September 30, 2020, there have been no borrowers in this group approved for, nor in underwriting for, a second P&I or I/O deferral.

The table below provides detail about the initial I/O deferral program as of June 30, 2020 and September 30, 2020:

As of 6/30/2020

As of 9/30/2020(1)

$ in thousands ('000s)

Original
I/O Deferred

Remaining
I/O Deferred

CRE - Owner Occupied

$

35,733

$

22,081

CRE - Non-Owner Occupied

34,375

31,231

Construction & Development

13,359

12,669

Commercial & Industrial

7,990

5,807

1-4 Family

32,845

25,912

Consumer

1,257

645

Other

4,674

114

Subtotal - deferrals excluding COVID higher risk industries

$

130,233

$

98,459

COVID higher risk industries (excluded from segment subtotals above):

Retail - Strip Center

$

18,177

$

16,349

Retail - Other

1,725

911

Restaurant

10,698

8,387

Hotel

22,822

17,765

Subtotal - deferrals of COVID higher risk industries

$

53,422

$

43,412

Total of all I/O deferrals

$

183,655

$

141,871

% of Total Loans (excluding PPP)

10.5

%

8.1

%

(1) Does not include the $30.6 million in I/O deferrals as of September 30, 2020 that were initially granted 3-month P&I deferrals.

Finally, management continues to closely monitor loans and concentrations in COVID-19 affected industries. Social distancing, stay-at-home orders and other measures as a result of the virus have particularly affected the restaurant, hospitality, retail commercial real estate ("CRE") and energy sectors. Excluding SBA partially guaranteed (75%) loans, the Bank has direct exposure, through total loan commitments with weighted average loan-to-values ("LTV"), as of September 30, 2020, of $34.6 million with 61.1% weighted average LTV to restaurants, $57.6 million with 51.7% weighted average LTV to retail CRE and $69.9 million with 56.9% weighted average LTV to hotel/hospitality borrowers.

Guaranty Bancshares, Inc.

Consolidated Financial Summary (Unaudited)

(In thousands, except share and per share data)

As of

2020

2019

September 30

June 30

March 31

December 31

September 30

ASSETS

Cash and due from banks

$

35,714

$

35,490

$

40,354

$

39,907

$

42,051

Federal funds sold

101,300

104,375

81,250

45,246

14,250

Interest-bearing deposits

56,357

51,129

25,324

5,561

2,347

Total cash and cash equivalents

193,371

190,994

146,928

90,714

58,648

Securities available for sale

368,887

376,381

377,062

212,716

221,345

Securities held to maturity

155,458

156,925

Loans held for sale

9,148

7,194

4,024

2,368

3,841

Loans, net

1,921,234

1,919,201

1,696,861

1,690,794

1,720,595

Accrued interest receivable

8,361

11,864

8,148

9,151

7,825

Premises and equipment, net

55,468

55,251

54,496

53,431

52,956

Other real estate owned

310

402

605

603

551

Cash surrender value of life insurance

35,304

34,920

34,713

34,495

34,280

Deferred tax asset

2,363

Core deposit intangible, net

3,213

3,426

3,639

3,853

4,066

Goodwill

...

32,160

32,160

32,160

32,160

32,160

Other assets

35,228

35,402

32,348

32,701

30,467

Total assets

$

2,662,684

$

2,667,195

$

2,390,984

$

2,318,444

$

2,326,022

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits

Noninterest-bearing

$

776,364

$

772,179

$

528,817

$

525,865

$

528,301

Interest-bearing

1,446,718

1,469,847

1,471,609

1,430,939

1,435,012

Total deposits

2,223,082

2,242,026

2,000,426

1,956,804

1,963,313

Securities sold under agreements to repurchase

20,520

17,414

11,843

11,100

11,363

Accrued interest and other liabilities

25,813

25,960

23,645

23,061

23,508

Line of credit

7,000

2,000

20,000

Federal Home Loan Bank advances

99,105

100,610

70,614

55,118

60,623

Subordinated debentures

20,310

20,310

10,810

10,810

11,310

Total liabilities

2,395,830

2,408,320

2,137,338

2,056,893

2,070,117

Total shareholders' equity

266,854

258,875

253,646

261,551

255,905

Total liabilities and shareholders' equity

$

2,662,684

$

2,667,195

$

2,390,984

$

2,318,444

$

2,326,022

Guaranty Bancshares, Inc.

Consolidated Financial Summary (Unaudited)

(In thousands, except share and per share data)

Quarter Ended

2020

2019

September 30

June 30

March 31

December 31

September 30

STATEMENTS OF EARNINGS

Interest income

$

24,956

$

26,581

$

25,252

$

25,848

$

25,853

Interest expense

2,677

3,399

4,683

5,354

5,770

Net interest income

22,279

23,182

20,569

20,494

20,083

Provision for credit losses

(300

)

12,100

1,400

100

Net interest income after provision for loan losses

22,579

11,082

19,169

20,494

19,983

Noninterest income

6,663

4,987

4,961

4,674

4,616

Noninterest expense

16,758

15,184

16,407

16,226

15,435

Income before income taxes

12,484

885

7,723

8,942

9,164

Income tax provision (benefit)

2,350

(190

)

1,445

1,573

1,634

Net earnings

$

10,134

$

1,075

$

6,278

$

7,369

$

7,530

PER COMMON SHARE DATA

Earnings per common share, basic

$

0.92

$

0.10

$

0.55

$

0.64

$

0.65

Earnings per common share, diluted(1)

0.92

0.10

0.55

0.63

0.65

Cash dividends per common share

0.20

0.19

0.19

0.18

0.18

Book value per common share - end of quarter

24.29

23.50

22.79

22.65

22.19

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

21.07

20.27

19.58

19.53

19.05

Common shares outstanding - end of quarter

10,988,239

11,013,804

11,128,556

11,547,443

11,534,393

Weighted-average common shares outstanding, basic

11,012,630

11,025,924

11,432,391

11,533,849

11,550,335

Weighted-average common shares outstanding, diluted(1)

11,012,630

11,025,924

11,432,391

11,621,887

11,612,873

PERFORMANCE RATIOS

Return on average assets (annualized)

1.53

%

0.16

%

1.09

%

1.25

%

1.28

%

Return on average equity (annualized)

15.21

1.67

9.94

11.24

11.73

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

3.61

3.78

3.87

3.77

3.71

Efficiency ratio(4)

57.90

53.90

64.27

64.47

62.49

(1) Outstanding options and the closing price of the company's stock as of September 30, June 30 and March 31, 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 has been calculated using the basic weighted-average shares outstanding in order to comply with GAAP.

(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.

Guaranty Bancshares, Inc.

Selected Financial Data (Unaudited)

(In thousands)

As of

2020

2019

September 30

June 30

March 31

December 31

September 30

LOAN PORTFOLIO COMPOSITION

Commercial and industrial

$

531,152

$

522,248

$

297,163

$

279,583

$

299,714

Real estate:

Construction and development

269,101

265,982

263,973

280,498

256,459

Commercial real estate

602,664

606,061

584,883

567,360

581,742

Farmland

80,197

77,625

78,635

57,476

61,073

1-4 family residential

385,783

383,590

400,605

412,166

406,880

Multi-family residential

19,499

29,692

20,430

37,379

58,198

Consumer

52,855

52,986

52,996

53,245

53,315

Agricultural

17,004

18,981

19,314

18,359

18,728

Overdrafts

379

275

354

329

330

Total loans(1)(2)

$

1,958,634

$

1,957,440

$

1,718,353

$

1,706,395

$

1,736,439

Quarter Ended

2020

2019

September 30

June 30

March 31

December 31

September 30

ALLOWANCE FOR LOAN LOSSES

Balance at beginning of period(3)

$

34,119

$

21,948

$

20,750

$

16,394

$

15,743

Loans charged-off

(101

)

(59

)

(224

)

(221

)

(67

)

Recoveries

39

130

22

29

618

Provision for loan loss expense

(300

)

12,100

1,400

100

Balance at end of period

$

33,757

$

34,119

$

21,948

$

16,202

$

16,394

Allowance for loan losses / period-end loans

1.72

%

1.74

%

1.28

%

0.95

%

0.94

%

Allowance for loan losses / nonperforming loans

245.0

235.6

135.2

143.9

150.7

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

0.01

(0.02

)

0.05

0.04

(0.13

)

NON-PERFORMING ASSETS

Non-accrual loans(4)

$

13,780

$

14,480

$

16,232

$

11,262

$

10,881

Other real estate owned

310

402

605

603

551

Repossessed assets owned

3

38

292

392

500

Total non-performing assets

$

14,093

$

14,920

$

17,129

$

12,257

$

11,932

Non-performing assets as a percentage of:

Total loans(1)(2)

0.72

%

0.76

%

1.00

%

0.72

%

0.69

%

Total assets

0.53

0.56

0.72

0.53

0.51

TDR loans - nonaccrual

$

92

$

95

$

97

$

101

$

118

TDR loans - accruing

7,891

7,216

7,220

7,240

7,297

(1) Excludes outstanding balances of loans held for sale of $9.1 million, $7.2 million, $4.0 million, $2.4 million, and $3.8 million as of September 30, June 30 and March 31, 2020 and December 31, and September 30, 2019, respectively.

(2) Excludes deferred loan (fees) costs of $(3.6) million, $(4.1) million, $456,000, $601,000, and $550,000 as of September 30, June 30 and March 31, 2020 and December 31, and September 30, 2019, respectively.

(3) The balance at the beginning of the period ended March 31, 2020 includes a $4.5 million impact of adopting ASC 326.

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

Guaranty Bancshares, Inc.

Selected Financial Data (Unaudited)

(In thousands)

Quarter Ended

2020

2019

September 30

June 30

March 31

December 31

September 30

NONINTEREST INCOME

Service charges

$

717

$

571

$

908

$

1,022

$

978

Net realized gain on sale of loans

2,114

1,508

1,189

780

910

Fiduciary and custodial income

511

474

514

455

446

Bank-owned life insurance income

208

207

218

214

247

Merchant and debit card fees

1,654

1,334

1,131

1,140

1,096

Loan processing fee income

181

130

150

157

157

Other noninterest income

1,278

763

851

906

782

Total noninterest income

$

6,663

$

4,987

$

4,961

$

4,674

$

4,616

NONINTEREST EXPENSE

Employee compensation and benefits

$

9,439

$

8,077

$

9,466

$

9,332

$

8,896

Occupancy expenses

2,597

2,550

2,477

2,498

2,448

Legal and professional fees

574

589

519

611

686

Software and technology

1,093

945

939

902

885

Amortization

338

338

333

338

342

Director and committee fees

211

165

219

188

220

Advertising and promotions

301

408

433

523

339

ATM and debit card expense

509

479

418

456

310

Telecommunication expense

231

209

180

168

165

FDIC insurance assessment fees

252

122

195

Other noninterest expense

1,213

1,302

1,228

1,210

1,144

Total noninterest expense

$

16,758

$

15,184

$

16,407

$

16,226

$

15,435

Guaranty Bancshares, Inc.

Selected Financial Data (Unaudited)

(In thousands)

For the Three Months Ended September 30,

2020

2019

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

ASSETS

Interest-earnings assets:

Total loans(1)

$

1,964,894

$

22,681

4.59

%

$

1,698,742

$

22,996

5.37

%

Securities available for sale

378,735

2,125

2.23

225,714

1,371

2.41

Securities held to maturity

158,000

1,001

2.51

Nonmarketable equity securities

12,332

111

3.58

12,011

162

5.35

Interest-bearing deposits in other banks

125,492

39

0.12

56,174

323

2.28

Total interest-earning assets

2,481,453

24,956

4.00

2,150,641

25,853

4.77

Allowance for loan losses

(34,083

)

(16,082

)

Noninterest-earnings assets

191,965

194,044

Total assets

$

2,639,335

$

2,328,603

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:

Interest-bearing deposits

$

1,448,117

$

2,285

0.63

%

$

1,467,502

$

5,304

1.43

%

Advances from FHLB and fed funds purchased

79,580

141

0.70

50,016

298

2.36

Line of credit

4,989

44

3.51

Subordinated debentures

20,310

192

3.76

11,527

161

5.54

Securities sold under agreements to repurchase

20,568

15

0.29

10,549

7

0.26

Total interest-bearing liabilities

1,573,564

2,677

0.68

1,539,594

5,770

1.49

Noninterest-bearing liabilities:

Noninterest-bearing deposits

775,341

511,343

Accrued interest and other liabilities

25,409

22,878

Total noninterest-bearing liabilities

800,750

534,221

Shareholders’ equity

265,021

254,788

Total liabilities and shareholders’ equity

$

2,639,335

$

2,328,603

Net interest rate spread(2)

3.32

%

3.28

%

Net interest income

$

22,279

$

20,083

Net interest margin(3)

3.57

%

3.71

%

Net interest margin, fully taxable equivalent(4)

3.61

%

3.71

%

(1) Includes average outstanding balances of loans held for sale of $9.3 million and $3.0 million for the three months ended September 30, 2020 and 2019, 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%.

Guaranty Bancshares, Inc.

Selected Financial Data (Unaudited)

(In thousands)

For the Nine Months Ended September 30,

2020

2019

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/
Rate

ASSETS

Interest-earnings assets:

Total loans(1)

$

1,851,209

$

69,337

5.00

%

$

1,676,047

$

67,821

5.41

%

Securities available for sale

326,472

5,711

2.34

230,816

4,372

2.53

Securities held to maturity

48,001

956

2.66

160,061

3,042

2.54

Nonmarketable equity securities

11,145

333

3.99

12,106

471

5.20

Interest-bearing deposits in other banks

136,684

452

0.44

56,755

1,007

2.37

Total interest-earning assets

2,373,511

76,789

4.32

2,135,785

76,713

4.80

Allowance for credit losses

(27,552

)

(15,483

)

Noninterest-earning assets

195,255

191,189

Total assets

$

2,541,214

$

2,311,491

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:

Interest-bearing deposits

$

1,467,838

$

9,746

0.89

%

$

1,463,457

$

16,681

1.52

%

Advances from FHLB and fed funds purchased

79,166

346

0.58

62,268

1,126

2.42

Line of credit

5,394

119

2.95

Subordinated debentures

16,261

511

4.20

12,107

502

5.54

Securities sold under agreements to repurchase

17,179

37

0.29

10,710

28

0.35

Total interest-bearing liabilities

1,585,838

10,759

0.91

1,548,542

18,337

1.58

Noninterest-bearing liabilities:

Noninterest-bearing deposits

670,947

490,088

Accrued interest and other liabilities

23,225

21,575

Total noninterest-bearing liabilities

694,172

511,663

Shareholders’ equity

261,204

251,286

Total liabilities and shareholders’ equity

$

2,541,214

$

2,311,491

Net interest rate spread(2)

3.41

%

3.22

%

Net interest income

$

66,030

$

58,376

Net interest margin(3)

3.72

%

3.65

%

Net interest margin, fully taxable equivalent(4)

3.75

%

3.66

%

(1) Includes average outstanding balances of loans held for sale of $6.1 million and $2.3 million for the nine months ended September 30, 2020 and 2019, 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%.

Guaranty Bancshares, Inc.

Reconciliation of Non-GAAP Financial Measures (Unaudited)

(In thousands, except share and per share data)

Tangible Book Value per Common Share

As of

2020

2019

September 30

June 30

March 31

December 31

September 30

Total shareholders’ equity

$

266,854

$

258,875

$

253,646

$

261,551

$

255,905

Adjustments:

Goodwill

(32,160

)

(32,160

)

(32,160

)

(32,160

)

(32,160

)

Core deposit intangible, net

(3,213

)

(3,426

)

(3,639

)

(3,853

)

(4,066

)

Total tangible common equity

$

231,481

$

223,289

$

217,847

$

225,538

$

219,679

Common shares outstanding - end of quarter(1)

10,988,239

11,013,804

11,128,556

11,547,443

11,534,393

Book value per common share

$

24.29

$

23.50

$

22.79

$

22.65

$

22.19

Tangible book value per common share

21.07

20.27

19.58

19.53

19.05

(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

2020

2019

September 30

June 30

March 31

December 31

September 30

Net earnings

$

10,134

$

1,075

$

6,278

$

7,369

$

7,530

Adjustments:

Provision for credit losses

(300

)

12,100

1,400

100

Income tax provision (benefit)

2,350

(190

)

1,445

1,573

1,634

PPP loans, including fees

(1,076

)

(2,540

)

Net interest expense on PPP-related borrowings

3

31

Net core earnings

$

11,111

$

10,476

$

9,123

$

8,942

$

9,264

Weighted-average common shares outstanding, basic

11,012,630

11,025,924

11,432,391

11,533,849

11,550,335

Earnings per common share, basic

$

0.92

$

0.10

$

0.55

$

0.64

$

0.65

Net core earnings per common share, basic

1.01

0.95

0.80

0.78

0.80

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

Quarter Ended

2020

2019

September 30

June 30

March 31

December 31

September 30

Net core earnings

$

11,111

$

10,476

$

9,123

$

8,942

$

9,264

Total average assets

$

2,639,335

$

2,657,609

$

2,325,618

$

2,341,766

$

2,328,603

Adjustments:

PPP loan average balance

(209,506

)

(163,184

)

Excess fed funds sold due to PPP-related borrowings

(8,152

)

(84,066

)

Total average assets, adjusted

$

2,421,677

$

2,410,359

$

2,325,618

$

2,341,766

$

2,328,603

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

1.83

1.75

1.56

1.51

1.58

Total average equity

$

265,021

$

258,225

$

251,159

$

260,160

$

254,788

Net core earnings to average equity (annualized)

16.68

16.32

14.45

13.64

14.43

Guaranty Bancshares, Inc.

Reconciliation of Non-GAAP Financial Measures (Unaudited)

(In thousands, except share and per share data)

Total Interest-Earning Assets and Borrowings, net of PPP Effects

For the Three Months Ended September 30,
2020

For the Nine Months Ended September 30,
2020

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate