Document


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 March 31, 2017
OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 001-38087
 
GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
 
Texas
 
75-1656431
(State or other jurisdiction of
 
(I.R.S. employer
incorporation or organization)
 
identification no.)
 
 
 
201 South Jefferson Avenue
 
 
Mount Pleasant, Texas
 
75455
(Address of principal executive offices)
 
(Zip code)
 
(903) 572 - 9881
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☐ No ☒

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ☐
 
Accelerated filer ☐
 
 
 
 
 
 
 
Non-accelerated filer ☒
 
Smaller reporting company ☐
 
 
(Do not check if a 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 ☒

As of June 20, 2017, there were 11,053,933 outstanding shares of the registrant’s common stock, par value $1.00 per share.




GUARANTY BANCSHARES, INC.
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION 
Item 1. Financial Statements
GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
 
 
(Unaudited)
 
(Audited)
 
(Unaudited)
Pro Forma
 
 
March 31,
2017
 
December 31,
2016
 
March 31,
2017
ASSETS
 
 
 
 
 
 
Cash and due from banks
 
$
32,576

 
$
39,605

 
$
32,576

Federal funds sold
 
83,175

 
60,600

 
83,175

Interest-bearing deposits
 
28,006

 
27,338

 
28,006

Total cash and cash equivalents
 
143,757

 
127,543

 
143,757

Securities available for sale
 
214,463

 
156,925

 
214,463

Securities held to maturity
 
185,837

 
189,371

 
185,837

Loans held for sale
 
1,446

 
2,563

 
1,446

Loans, net
 
1,241,215

 
1,233,651

 
1,241,215

Accrued interest receivable
 
6,304

 
7,419

 
6,304

Premises and equipment, net
 
44,823

 
44,810

 
44,823

Other real estate owned
 
1,637

 
1,692

 
1,637

Cash surrender value of life insurance
 
17,922

 
17,804

 
17,922

Deferred tax asset
 
4,426

 
4,892

 
4,426

Core deposit intangible, net
 
3,162

 
3,308

 
3,162

Goodwill
 
18,742

 
18,742

 
18,742

Other assets
 
17,465

 
19,616

 
17,465

Total assets
 
$
1,901,199

 
$
1,828,336

 
$
1,901,199

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
Noninterest-bearing
 
$
370,810

 
$
358,752

 
$
370,810

Interest-bearing
 
1,300,361

 
1,218,039

 
1,300,361

Total deposits
 
1,671,171

 
1,576,791

 
1,671,171

Securities sold under agreements to repurchase
 
12,663

 
10,859

 
12,663

Accrued interest and other liabilities
 
7,595

 
6,006

 
7,595

Other debt
 
18,929

 
18,286

 
18,929

Federal Home Loan Bank advances
 
25,165

 
55,170

 
25,165

Subordinated debentures
 
19,310

 
19,310

 
19,310

Total liabilities
 
1,754,833

 
1,686,422

 
1,754,833

 
 
 
 
 
 
 
Commitments and contingent liabilities
 


 

 

KSOP-owned shares
 
34,300

 
31,661

 

 
 
 
 
 
 
 


4.



GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
 
 
(Unaudited)
 
(Audited)
 
(Unaudited)
Pro Forma
 
 
March 31,
2017
 
December 31,
2016
 
March 31,
2017
 
 
 
 
 
 
 
Shareholders' equity
 
 
 
 
 
 
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued
 

 

 

Common stock, $1.00 par value, 50,000,000 shares authorized, 9,616,275 issued, 8,753,933 and 8,751,923 shares outstanding, respectively
 
9,616

 
9,616

 
9,616

Additional paid-in capital
 
101,796

 
101,736

 
101,796

Retained earnings
 
60,676

 
57,160

 
60,676

Treasury stock, 862,342 and 864,352 shares at cost
 
(20,087
)
 
(20,111
)
 
(20,087
)
Accumulated other comprehensive loss
 
(5,635
)
 
(6,487
)
 
(5,635
)
 
 
146,366

 
141,914

 
146,366

Less KSOP-owned shares
 
34,300

 
31,661

 

 
 
 
 
 
 
 
Total shareholders' equity
 
112,066

 
110,253

 
146,366

Total liabilities and shareholders' equity
 
$
1,901,199

 
$
1,828,336

 
$
1,901,199



 
 
 
See accompanying notes to consolidated financial statements.
5.



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

 
Three Months Ended
March 31,
 
2017
 
2016
Interest income
 
 
 
Loans, including fees
$
14,415

 
$
12,914

Securities
 
 
 
Taxable
1,311

 
1,867

Nontaxable
922

 
515

Federal funds sold and interest-bearing deposits
488

 
173

Total interest income
17,136

 
15,469

 
 
 
 
Interest expense
 
 
 
Deposits
2,404

 
2,186

FHLB advances and federal funds purchased
79

 
64

Subordinated debentures
207

 
222

Other borrowed money
205

 
194

Total interest expense
2,895

 
2,666

 
 
 
 
Net interest income
14,241

 
12,803

Provision for loan losses
650

 
450

Net interest income after provision for loan losses
13,591

 
12,353

 
 
 
 
Noninterest income
 
 
 
Service charges
877

 
823

Net realized gain on securities transactions

 
37

Net realized gain on sale of loans
429

 
226

Other operating income
1,976

 
1,805

Total noninterest income
3,282

 
2,891

 
 
 
 
Noninterest expense
 
 
 
Employee compensation and benefits
6,987

 
6,450

Occupancy expenses
1,748

 
1,747

Other operating expenses
3,310

 
3,280

Total noninterest expense
12,045

 
11,477

 
 
 
 
Income before income taxes
4,828

 
3,767

Income tax provision
1,312

 
1,090

 
 
 
 
Net earnings
$
3,516

 
$
2,677

Basic earnings per share
$
0.40

 
$
0.30

Diluted earnings per share
$
0.40

 
$
0.30





 
 
 
See accompanying notes to consolidated financial statements.
6.



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

 
 
Three Months Ended March 31,
 
 
2017
 
2016
Net earnings
 
$
3,516

 
$
2,677

Other comprehensive income:
 
 
 
 
Unrealized gains on securities
 
 
 
 
Unrealized holding gains arising during the period
 
1,229

 
2,492

Amortization of net unrealized gains on held to maturity securities
 
18

 
25

Reclassification adjustment for net gains included in net earnings
 

 
(37
)
Tax effect
 
(430
)
 
(859
)
Unrealized gains on securities, net of tax
 
817

 
1,621

Unrealized holding gains (losses) arising during the period on interest rate swaps
 
35

 
(225
)
Total other comprehensive income
 
852

 
1,396

Comprehensive income
 
$
4,368

 
$
4,073





 
 
 
See accompanying notes to consolidated financial statements.
7.



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

 
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Less: KSOP-Owned Shares
 
Total Shareholders’ Equity
For the Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
$

 
$
9,616

 
$
101,525

 
$
49,654

 
$
(16,486
)
 
$
(6,573
)
 
$
(35,384
)
 
$
102,352

Net earnings
 

 

 

 
2,677

 

 

 

 
2,677

Other comprehensive income
 

 

 

 

 

 
1,396

 

 
1,396

Purchase of treasury stock
 

 

 

 

 

 

 
(3,000
)
 
(3,000
)
Sale of treasury stock
 

 

 

 

 
8,557

 

 

 
8,557

Stock based compensation
 

 

 
39

 

 

 

 

 
39

Net change in fair value of KSOP shares
 

 

 

 

 

 

 
(1,538
)
 
(1,538
)
Balance at March 31, 2016
 

 
9,616

 
101,564

 
52,331

 
(7,929
)
 
(5,177
)
 
(39,922
)
 
110,483

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
 

 
9,616

 
101,736

 
57,160

 
(20,111
)
 
(6,487
)
 
(31,661
)
 
110,253

Net earnings
 

 

 

 
3,516

 

 

 

 
3,516

Other comprehensive income
 

 

 

 

 

 
852

 

 
852

Exercise of stock options
 

 

 

 

 
24

 

 

 
24

Stock based compensation
 

 

 
60

 

 

 

 

 
60

Net change in fair value of KSOP shares
 

 

 

 

 

 

 
(2,639
)
 
(2,639
)
Balance at March 31, 2017
 
$

 
$
9,616

 
$
101,796

 
$
60,676

 
$
(20,087
)
 
$
(5,635
)
 
$
(34,300
)
 
$
112,066





 
 
 
See accompanying notes to consolidated financial statements.
8.



GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) 
 
 
For the Three Months Ended
March 31,
 
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net earnings
 
$
3,516

 
$
2,677

Adjustments to reconcile net earnings to net cash provided from
operating activities:
 
 
 
 
Depreciation
 
801

 
777

Amortization
 
264

 
241

Deferred taxes
 
2,402

 
(496
)
Premium amortization, net of discount accretion
 
1,113

 
1,172

Net realized gain on securities transactions
 

 
(37
)
Gain on loans held for sale
 
(429
)
 
(226
)
Provision for loan losses
 
650

 
450

Origination of loans held for sale
 
(13,232
)
 
(13,726
)
Proceeds from loans held for sale
 
14,778

 
12,835

Net loss on sale of premises, equipment, other real estate
owned and other assets
 
27

 
(8
)
Stock based compensation
 
60

 
39

Net change in accrued interest receivable and other assets
 
2,265

 
(1,286
)
Net change in accrued interest payable and other liabilities
 
21

 
334

Net cash provided by operating activities
 
12,236

 
2,746

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Securities available for sale:
 
 
 
 
Purchases
 
(61,965
)
 
(18,252
)
Proceeds from sales
 

 
21,754

Proceeds from maturities and principal repayments
 
5,203

 
38,444

Securities held to maturity:
 
 
 
 
Purchases
 

 
(79,649
)
Proceeds from sales
 

 
1,866

Proceeds from maturities and principal repayments
 
2,892

 
3,419

Net purchases of premises and equipment
 
(814
)
 
(474
)
Net proceeds from sale of premises, equipment, other real estate
owned and other assets
 
191

 
353

Net increase in loans
 
(8,375
)
 
(73,629
)
Net cash used in investing activities
 
(62,868
)
 
(106,168
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Net change in deposits
 
94,380

 
56,521

Net change in securities sold under agreements to repurchase
 
1,804

 
(2,904
)
Proceeds from FHLB advances
 

 
50,000

Repayment of FHLB advances
 
(30,005
)
 
(5,051
)
Proceeds from other debt
 
1,000

 

Repayment of other debt
 
(357
)
 

Sale of treasury stock
 

 
8,557


 
 
 
See accompanying notes to consolidated financial statements.
9.



GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) 
 
 
For the Three Months Ended
March 31,
 
 
2017
 
2016
 
 
 
 
 
Exercise of stock options
 
24

 

Net cash provided by financing activities
 
66,846

 
107,123

Net change in cash and cash equivalents
 
16,214

 
3,701

Cash and cash equivalents at beginning of year
 
127,543

 
111,379

Cash and cash equivalents at end of period
 
$
143,757

 
$
115,080

 
 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
 
Interest paid
 
$
2,774

 
$
2,587

Income taxes paid
 

 
1,300

 
 
 
 
 
Supplemental schedule of noncash investing and financing activities
 
 
 
 
Transfer loans to other real estate owned and repossessed assets
 
$
161

 
$
185

Net change in fair value of KSOP shares
 
2,639

 
1,538


 
 
 
See accompanying notes to consolidated financial statements.
10.

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank, and their respective other direct and indirect subsidiaries and any other entities in which Guaranty has a controlling interest. The Bank has five wholly-owned non-bank subsidiaries, Guaranty Company, Inc., G B COM, INC., 2800 South Texas Avenue LLC, Pin Oak Realty Holdings, Inc. and Pin Oak Energy Holdings, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.  The accounting and financial reporting policies we follow conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.
The consolidated financial statements in this 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 our 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 our consolidated financial statements, and notes thereto, for the year ended December 31, 2016, included in our Prospectus filed with the SEC under Rule 424(b) on May 9, 2017, relating to our initial public offering. 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.

Unaudited Pro Forma Financial Information - KSOP Repurchase Right: In accordance with applicable provisions of the Internal Revenue Code, the terms of our employee stock ownership plan with 401(k) provisions (“KSOP”), provided that, for so long as we were a privately-held company, KSOP participants would have the right, for a specified period of time, to require us to repurchase shares of our common stock that are distributed to them by the KSOP. This repurchase obligation terminated upon the consummation of our initial public offering and listing of our common stock on the NASDAQ Global Select Market in May 2017. However, because we were privately-held during the periods covered by the Report, the shares of common stock held by the KSOP are reflected in our consolidated balance sheet as a line item called “KSOP-owned shares,” appearing between total liabilities and shareholders’ equity. As a result, the KSOP-owned shares are deducted from shareholders’ equity in our consolidated balance sheet for the periods included in this Report. The consolidated balance sheet in this Report

 
 
 
(Continued)
11.

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

includes a pro forma column, which assumes that the KSOP repurchase obligation has terminated as of the date presented in the Report. For all periods following our initial public offering and continued listing of our common stock on the NASDAQ Global Select Market, the KSOP-owned shares will be included in, and not be deducted from, shareholders’ equity.
Subsequent Events: During May 2017, the Company completed an initial public offering issuing 2,300,000 shares of common stock, par value $1.00 per share, at a purchase price of $27.00 per share, representing gross proceeds of $62,100. Net proceeds after underwriting discounts and expenses were approximately $57,600. The Company used a portion of the proceeds to repay in full the outstanding balance on our unsecured line of credit with a correspondent bank of $19,900 and repay $5,000 of the subordinated debentures. In addition, the Company contributed $15,000 of the proceeds to the Bank. The Company has retained the remaining proceeds of the offering for general corporate purposes.
Recent Accounting Pronouncements:
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The ASU is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. In addition, the amendments in this update provide a detailed framework to assist entities in evaluating whether a set of assets and activities constitutes a business, as well as clarify the definition of the term output so the term is consistent with how outputs are described in Topic 606. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods.

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

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. For public companies, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is in process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following nine specific cash flow issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned; 6) life insurance policies; 7) distributions received from equity method investees; 8) beneficial interests in securitization transactions; and 9) separately identifiable cash flows and application of the predominance principle. The amendments are effective for public companies for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of this guidance to be material to the consolidated financial statements.

 
 
 
(Continued)
12.

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

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a "current expected credit loss" ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently in the process of assembling a transition team to assess the adoption of this ASU, which will develop a project plan regarding implementation.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU permits early adoption of the instrument-specific credit risk provision. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

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

 
 
 
(Continued)
13.

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

NOTE 2 - ACQUISITIONS

On close of business August 6, 2016, the Company purchased certain assets and assumed certain liabilities associated with a former branch location of a non-related bank in Denton, Texas (Denton), which resulted in the addition of approximately $4,659 in assets and liabilities.   The Company acquired the bank premises at 4101 Wind River Lane in Denton and recorded it at fair market value of $2,075.  Other assets acquired, at fair value, included cash of $2,399, core deposit intangible of $42, goodwill of $141 and loans of $2.   Liabilities assumed included non-interest bearing deposits of $581, interest bearing deposits of $4,047 and other liabilities of $30.   Consideration paid by the Company for the acquired assets and assumed liabilities of $66 was netted against the cash received.     

Goodwill of $141 for Denton arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. Goodwill of $141 is expected to be deductible for income taxes purposes.
NOTE 3 - MARKETABLE SECURITIES

The following tables summarize the amortized cost and fair value of securities available for sale and securities held to maturity as of March 31, 2017 and December 31, 2016 and the corresponding amounts of gross unrealized gains and losses:
March 31, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:
 
 
 
 
 
 
 
Corporate bonds
$
25,223

 
$
73

 
$
123

 
$
25,173

Municipal securities
7,817

 

 
539

 
7,278

Mortgage-backed securities
80,766

 
15

 
1,236

 
79,545

Collateralized mortgage obligations
102,688

 
236

 
457

 
102,467

Total available for sale
$
216,494

 
$
324

 
$
2,355

 
$
214,463

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Municipal securities
$
148,520

 
$
1,428

 
$
2,621

 
$
147,327

Mortgage-backed securities
26,900

 
312

 
191

 
27,021

Collateralized mortgage obligations
10,417

 
249

 
602

 
10,064

Total held to maturity
$
185,837

 
$
1,989

 
$
3,414

 
$
184,412



 
 
 
(Continued)
14.

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

December 31, 2016
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:
 
 
 
 
 
 
 
Corporate bonds
$
25,254

 
$
6

 
$
377

 
$
24,883

Municipal securities
7,841

 

 
622

 
7,219

Mortgage-backed securities
61,298

 

 
1,608

 
59,690

Collateralized mortgage obligations
65,789

 
10

 
666

 
65,133

Total available for sale
$
160,182

 
$
16

 
$
3,273

 
$
156,925

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Municipal securities
$
149,420

 
$
901

 
$
3,889

 
$
146,432

Mortgage-backed securities
28,450

 
318

 
290

 
28,478

Collateralized mortgage obligations
11,501

 
265

 
521

 
11,245

Total held to maturity
$
189,371

 
$
1,484

 
$
4,700

 
$
186,155

The Company’s mortgage-backed securities portfolio includes non-agency collateralized mortgage obligations with a carrying value of $1,493 which had unrealized losses of $602 at March 31, 2017. These non-agency mortgage-backed securities were rated AAA at purchase. The Company monitors to ensure it has adequate credit support and the Company records OTTI as appropriate. The Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been 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 issuer for a period of time sufficient to allow for any anticipated recovery in fair value. There were no other than temporary impairment losses on debt securities related to credit losses recognized during the three months ended March 31, 2017 or for the year ended December 31, 2016.


 
 
 
(Continued)
15.

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

Information pertaining to securities with gross unrealized losses as of March 31, 2017 and December 31, 2016 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is detailed in the following tables:
 
Less Than 12 Months
 
12 Months or Longer
 
Total
March 31, 2017
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
(123
)
 
$
12,508

 
$

 
$

 
$
(123
)
 
$
12,508

Municipal securities
(539
)
 
7,278

 

 

 
(539
)
 
7,278

Mortgage-backed securities
(761
)
 
62,344

 
(475
)
 
14,870

 
(1,236
)
 
77,214

Collateralized mortgage obligations
(272
)
 
42,026

 
(185
)
 
8,645

 
(457
)
 
50,671

Total available for sale
$
(1,695
)
 
$
124,156

 
$
(660
)
 
$
23,515

 
$
(2,355
)
 
$
147,671

 
 
 
 
 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
(2,414
)
 
$
84,716

 
$
(207
)
 
$
5,965

 
$
(2,621
)
 
$
90,681

Mortgage-backed securities
(191
)
 
18,024

 

 

 
(191
)
 
18,024

Collateralized mortgage obligations

 

 
(602
)
 
2,237

 
(602
)
 
2,237

Total held to maturity
$
(2,605
)
 
$
102,740

 
$
(809
)
 
$
8,202

 
$
(3,414
)
 
$
110,942

 
Less Than 12 Months
 
12 Months or Longer
 
Total
December 31, 2016
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
(377
)
 
$
22,529

 
$

 
$

 
$
(377
)
 
$
22,529

Municipal securities
(622
)
 
7,219

 

 

 
(622
)
 
7,219

Mortgage-backed securities
(1,047
)
 
44,420

 
(561
)
 
15,270

 
(1,608
)
 
59,690

Collateralized mortgage obligations
(437
)
 
55,435

 
(229
)
 
9,049

 
(666
)
 
64,484

Total available for sale
$
(2,483
)
 
$
129,603

 
$
(790
)
 
$
24,319

 
$
(3,273
)
 
$
153,922

 
 
 
 
 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
(3,889
)
 
$
98,943

 
$

 
$

 
$
(3,889
)
 
$
98,943

Mortgage-backed securities
(290
)
 
19,983

 

 

 
(290
)
 
19,983

Collateralized mortgage obligations

 

 
(521
)
 
2,350

 
(521
)
 
2,350

Total held to maturity
$
(4,179
)
 
$
118,926

 
$
(521
)
 
$
2,350

 
$
(4,700
)
 
$
121,276


The number of investment positions in an unrealized loss position totaled 152 and 177 at March 31, 2017 and December 31, 2016, respectively. The securities in a loss position were composed of tax exempt municipal bonds, corporate bonds, collateralized mortgage obligations and mortgage backed securities. Management believes the unrealized loss on the remaining securities is a function of the movement of interest rates since the time of purchase. Based on evaluation of available evidence, including recent changes in interest rates, credit rating information and

 
 
 
(Continued)
16.

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

information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment would be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. The Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2017.
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 (FHLMC), the Federal National Mortgage Association (FNMA) or the Government National Mortgage Association (GNMA).

As of March 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with fair values of approximately $264,248 and $259,499 at March 31, 2017 and December 31, 2016, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

The proceeds from sales of securities and the associated gains and losses are listed below for:
 
Three Months Ended March 31,
 
2017
 
2016
Proceeds
$

 
$
23,620

Gross gains

 
75

Gross losses

 
(38
)

During the three months ended March 31, 2016, the Company sold three held to maturity securities. The Company sold these municipal securities based upon internal credit analysis, under the belief that they had experienced significant deterioration in creditworthiness. The risk exposure presented by these municipalities had increased beyond acceptable levels, and we determined that it was reasonably possible that all amounts due would not be collected. The credit analysis determined that the municipalities had been significantly impacted by the significant decline in market oil prices due to the fact that their tax bases are heavily reliant on the energy industry relative to other sectors of the economy. Specifically, the revenues of these municipalities had been adversely impacted by the sustained low-level of oil prices. The Company believes the sale of these securities were merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.

Sale of securities held to maturity were as follows for:
 
Three Months Ended March 31,
 
2017
 
2016
Proceeds from sales
$

 
$
1,866

Amortized cost

 
1,842

Gross realized gains

 
24

Tax expense related to securities gains/losses

 
(7
)


 
 
 
(Continued)
17.

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

The contractual maturities at March 31, 2017 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
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
Due within one year
$

 
$

 
$
1,050

 
$
1,055

Due after one year through five years
7,444

 
7,478

 
5,577

 
5,722

Due after five years through ten years
17,779

 
17,695

 
40,910

 
41,560

Due after ten years
7,817

 
7,278

 
100,983

 
98,990

Mortgage-backed securities
80,766

 
79,545

 
26,900

 
27,021

Collateralized mortgage obligations
102,688

 
102,467

 
10,417

 
10,064

 
$
216,494

 
$
214,463

 
$
185,837

 
$
184,412

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes our loan portfolio by type of loan as of:
 
March 31, 2017
 
December 31, 2016
Commercial and industrial
$
205,903

 
$
223,997

Real estate:
 
 
 
Construction and development
152,760

 
129,366

Commercial real estate
372,855

 
367,656

Farmland
62,130

 
62,362

1-4 family residential
360,873

 
362,952

Multi-family residential
23,943

 
26,079

Consumer
52,816

 
53,505

Agricultural
21,473

 
18,901

Overdrafts
390

 
317

Total loans
1,253,143

 
1,245,135

Less:
 
 
 
Allowance for loan losses
11,928

 
11,484

Total net loans
$
1,241,215

 
$
1,233,651

As of March 31, 2017 and December 31, 2016, included in total loans above were $1,055 and $1,210 in unamortized loan costs, net of loan fees, respectively.


 
 
 
(Continued)
18.

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

The following table presents the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the three months ended March 31, 2017, for the year ended December 31, 2016 and for the three months ended March 31, 2016:
For the three months ended March 31, 2017
Commercial
and
industrial
 
Construction
and
development
 
Commercial
real
estate
 
Farmland
 
1-4 family
residential
 
Multi-family
residential
 
Consumer
 
Agricultural
 
Overdrafts
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,592

 
$
1,161

 
$
3,264

 
$
482

 
$
3,960

 
$
281

 
$
585

 
$
153

 
$
6

 
$
11,484

Provision for loan losses
177

 
188

 
123

 
(10
)
 
(72
)
 
(53
)
 
280

 
2

 
15

 
650

Loans charged-off
(6
)
 

 

 

 
(118
)
 

 
(89
)
 

 
(35
)
 
(248
)
Recoveries

 

 

 

 

 

 
22

 

 
20

 
42

Ending balance
$
1,763

 
$
1,349

 
$
3,387

 
$
472

 
$
3,770

 
$
228

 
$
798

 
$
155

 
$
6

 
$
11,928

Allowance ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
129

 
$

 
$
31

 
$
41

 
$
40

 
$

 
$

 
$

 
$

 
$
241

Collectively evaluated for impairment
1,634

 
1,349

 
3,356

 
431

 
3,730

 
228

 
798

 
155

 
6

 
11,687

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
919

 

 
6,411

 
170

 
1,769

 
247

 
34

 
612

 

 
10,162

Collectively evaluated for impairment
204,984

 
152,760

 
366,444

 
61,960

 
359,104

 
23,696

 
52,782

 
20,861

 
390

 
1,242,981

Ending balance
$
205,903

 
$
152,760

 
$
372,855

 
$
62,130

 
$
360,873

 
$
23,943

 
$
52,816

 
$
21,473

 
$
390

 
$
1,253,143

For the year ended December 31, 2016
Commercial
and
industrial
 
Construction
and
development
 
Commercial
real
estate
 
Farmland
 
1-4 family
residential
 
Multi-family
residential
 
Consumer
 
Agricultural
 
Overdrafts
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,878

 
$
1,004

 
$
2,106

 
$
400

 
$
2,839

 
$
325

 
$
562

 
$
138

 
$
11

 
$
9,263

Provision for loan losses
910

 
162

 
1,158

 
82

 
1,117

 
(44
)
 
171

 
15

 
69

 
3,640

Loans charged-off
(1,213
)
 
(9
)
 

 

 
(71
)
 

 
(269
)
 

 
(200
)
 
(1,762
)
Recoveries
17

 
4

 

 

 
75

 

 
121

 

 
126

 
343

Ending balance
$
1,592

 
$
1,161

 
$
3,264

 
$
482

 
$
3,960

 
$
281

 
$
585

 
$
153

 
$
6

 
$
11,484

Allowance ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
64

 
$

 
$

 
$
47

 
$
108

 
$

 
$
34

 
$

 
$

 
$
253

Collectively evaluated for impairment
1,528

 
1,161

 
3,264

 
435

 
3,852

 
281

 
551

 
153

 
6

 
11,231

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
231

 
1,825

 
1,196

 
258

 
2,588

 
5

 
200

 
15

 

 
6,318

Collectively evaluated for impairment
223,766

 
127,541

 
366,460

 
62,104

 
360,364

 
26,074

 
53,305

 
18,886

 
317

 
1,238,817

Ending balance
$
223,997

 
$
129,366

 
$
367,656

 
$
62,362

 
$
362,952

 
$
26,079

 
$
53,505

 
$
18,901

 
$
317

 
$
1,245,135



 
 
 
(Continued)
19.

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

For the three months ended March 31, 2016
Commercial
and
industrial
 
Construction
and
development
 
Commercial
real
estate
 
Farmland
 
1-4 family
residential
 
Multi-family
residential
 
Consumer
 
Agricultural
 
Overdrafts
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,878

 
$
1,004

 
$
2,106

 
$
400

 
$
2,839

 
$
325

 
$
562

 
$
138

 
$
11

 
$
9,263

Provision for loan losses
(504
)
 
(200
)
 
145

 
(50
)
 
1,115

 
13

 
(83
)
 
(12
)
 
26

 
450

Loans charged-off

 

 

 

 
(14
)
 

 
(51
)
 

 
(39
)
 
(104
)
Recoveries
11

 
4

 

 

 

 

 
18

 

 
23

 
56

Ending balance
$
1,385

 
$
808

 
$
2,251

 
$
350

 
$
3,940

 
$
338

 
$
446

 
$
126

 
$
21

 
$
9,665

Allowance ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
288

 
$

 
$

 
$
47

 
$
92

 
$

 
$
84

 
$

 
$

 
$
511

Collectively evaluated for impairment
1,097

 
808

 
2,251

 
303

 
3,848

 
338

 
362

 
126

 
21

 
9,154

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
3,270

 
39

 
128

 
283

 
2,038

 
3

 
235

 

 

 
5,996

Collectively evaluated for impairment
213,659

 
92,792

 
336,871

 
54,038

 
332,385

 
34,652

 
51,317

 
19,808

 
546

 
1,136,068

Ending balance
$
216,929

 
$
92,831

 
$
336,999

 
$
54,321

 
$
334,423

 
$
34,655