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 September 30, 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 November 13, 2017, there were 11,058,956 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)
 
 
September 30,
2017
 
December 31,
2016
ASSETS
 
 
 
 
Cash and due from banks
 
$
33,736

 
$
39,605

Federal funds sold
 
34,250

 
60,600

Interest-bearing deposits
 
27,075

 
27,338

Total cash and cash equivalents
 
95,061

 
127,543

Securities available for sale
 
238,133

 
156,925

Securities held to maturity
 
179,081

 
189,371

Loans held for sale
 
3,400

 
2,563

Loans, net
 
1,294,847

 
1,233,651

Accrued interest receivable
 
6,440

 
7,419

Premises and equipment, net
 
43,958

 
44,810

Other real estate owned
 
1,929

 
1,692

Cash surrender value of life insurance
 
18,376

 
17,804

Deferred tax asset
 
4,267

 
4,892

Core deposit intangible, net
 
2,870

 
3,308

Goodwill
 
18,742

 
18,742

Other assets
 
16,949

 
19,616

Total assets
 
$
1,924,053

 
$
1,828,336

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
Liabilities
 
 
 
 
  Deposits
 
 
 
 
    Noninterest-bearing
 
$
405,678

 
$
358,752

    Interest-bearing
 
1,211,624

 
1,218,039

          Total deposits
 
1,617,302

 
1,576,791

   Securities sold under agreements to repurchase
 
12,920

 
10,859

   Accrued interest and other liabilities
 
7,601

 
6,006

   Other debt
 

 
18,286

   Federal Home Loan Bank advances
 
65,157

 
55,170

   Subordinated debentures
 
13,810

 
19,310

      Total liabilities
 
1,716,790

 
1,686,422

 
 
 
 
 
Commitments and contingent liabilities
 


 

KSOP-owned shares
 

 
31,661

 
 
 
 
 

 
 
 
See accompanying notes to consolidated financial statements.
4.



GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
 
 
(Unaudited)
 
(Audited)
 
 
September 30,
2017
 
December 31,
2016
 
 
 
 
 
Shareholders' equity
 
 
 
 
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued
 

 

Common stock, $1.00 par value, 50,000,000 shares authorized, 11,921,298 and 9,616,275 shares issued, 11,058,956 and 8,751,923 shares outstanding, respectively
 
11,921

 
9,616

Additional paid-in capital
 
155,493

 
101,736

Retained earnings
 
64,778

 
57,160

Treasury stock, 862,342 and 864,352 shares at cost
 
(20,087
)
 
(20,111
)
Accumulated other comprehensive loss
 
(4,842
)
 
(6,487
)
 
 
207,263

 
141,914

Less KSOP-owned shares
 

 
31,661

 
 
 
 
 
Total shareholders' equity
 
207,263

 
110,253

Total liabilities and shareholders' equity
 
$
1,924,053

 
$
1,828,336



 
 
 
See accompanying notes to consolidated financial statements.
5.



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

 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Interest income
 
 
 
 
 
 
 
Loans, including fees
$
15,486

 
$
14,294

 
$
45,115

 
$
40,857

Securities
 
 
 
 
 
 
 
Taxable
1,545

 
1,038

 
4,257

 
4,298

Nontaxable
919

 
923

 
2,761

 
2,308

Federal funds sold and interest-bearing deposits
215

 
172

 
960

 
528

Total interest income
18,165

 
16,427

 
53,093

 
47,991

 
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
Deposits
2,730

 
2,329

 
7,761

 
6,791

FHLB advances and federal funds purchased
157

 
109

 
294

 
277

Subordinated debentures
164

 
217

 
559

 
656

Other borrowed money
12

 
104

 
337

 
452

Total interest expense
3,063

 
2,759

 
8,951

 
8,176

 
 
 
 
 
 
 
 
Net interest income
15,102

 
13,668

 
44,142

 
39,815

Provision for loan losses
800

 
840

 
2,250

 
3,240

Net interest income after provision for loan losses
14,302

 
12,828

 
41,892

 
36,575

 
 
 
 
 
 
 
 
Noninterest income
 
 
 
 
 
 
 
Service charges
986

 
914

 
2,801

 
2,625

Net realized gain on securities transactions

 
64

 
25

 
82

Net realized gain on sale of loans
589

 
486

 
1,490

 
1,231

Other income
2,127

 
1,938

 
6,184

 
5,664

Total noninterest income
3,702

 
3,402

 
10,500

 
9,602

 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
Employee compensation and benefits
6,729

 
6,370

 
20,156

 
19,057

Occupancy expenses
1,938

 
1,720

 
5,552

 
5,196

Other expenses
3,499

 
3,390

 
10,409

 
10,087

Total noninterest expense
12,166

 
11,480

 
36,117

 
34,340

 
 
 
 
 
 
 
 
Income before income taxes
5,838

 
4,750

 
16,275

 
11,837

Income tax provision
1,699

 
1,380

 
4,644

 
3,290

Net earnings
$
4,139

 
$
3,370

 
$
11,631

 
$
8,547

Basic earnings per share
$
0.37

 
$
0.38

 
$
1.17

 
$
0.95

Diluted earnings per share
$
0.37

 
$
0.38

 
$
1.16

 
$
0.95





 
 
 
See accompanying notes to consolidated financial statements.
6.



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

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net earnings
 
$
4,139

 
$
3,370

 
$
11,631

 
$
8,547

Other comprehensive income:
 
 
 
 
 
 
 
 
Unrealized (losses) gains on securities
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains arising during the period
 
(264
)
 
(115
)
 
2,422

 
3,990

Amortization of net unrealized gains on held to maturity securities
 
23

 
48

 
58

 
98

Reclassification adjustment for net gains included in net earnings
 

 
(105
)
 
(25
)
 
(123
)
Tax effect
 
92

 

 
(839
)
 
(1,083
)
Unrealized (losses) gains on securities, net of tax
 
(149
)
 
(172
)
 
1,616

 
2,882

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

 
34

 
29

 
(289
)
Total other comprehensive (loss) income
 
(114
)
 
(138
)
 
1,645

 
2,593

Comprehensive income
 
$
4,025

 
$
3,232

 
$
13,276

 
$
11,140





 
 
 
See accompanying notes to consolidated financial statements.
7.



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

 
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Less: KSOP-Owned Shares
 
Total Shareholders’ Equity
For the Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
$

 
$
9,616

 
$
101,525

 
$
49,654

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

Net earnings
 

 

 

 
8,547

 

 

 

 
8,547

Other comprehensive income
 

 

 

 

 

 
2,593

 

 
2,593

Purchase of treasury stock
 

 

 

 

 
(7,261
)
 

 
(3,000
)
 
(10,261
)
Sale of treasury stock
 

 

 

 

 
8,557

 

 

 
8,557

Stock based compensation
 

 

 
162

 

 

 

 

 
162

Net change in fair value of KSOP shares
 

 

 

 

 

 

 
(1,539
)
 
(1,539
)
Dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common - $0.26 per share
 

 

 

 
(2,328
)
 

 

 

 
(2,328
)
Balance at September 30, 2016
 
$

 
$
9,616

 
$
101,687

 
$
55,873

 
$
(15,190
)
 
$
(3,980
)
 
$
(39,923
)
 
$
108,083

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
 
$

 
$
9,616

 
$
101,736

 
$
57,160

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

Net earnings
 

 

 

 
11,631

 

 

 

 
11,631

Other comprehensive income
 

 

 

 

 

 
1,645

 

 
1,645

Terminated KSOP put option
 

 

 

 

 

 

 
34,300

 
34,300

Exercise of stock options
 

 
5

 
55

 

 
24

 

 

 
84

Sale of common stock
 

 
2,300

 
53,455

 

 

 

 

 
55,755

Stock based compensation
 

 

 
247

 

 

 

 

 
247

Net change in fair value of KSOP shares
 

 

 

 

 

 

 
(2,639
)
 
(2,639
)
Dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common - $0.39 per share
 

 

 

 
(4,013
)
 

 

 

 
(4,013
)
Balance at September 30, 2017
 
$

 
$
11,921


$
155,493


$
64,778


$
(20,087
)

$
(4,842
)
 
$

 
$
207,263





 
 
 
See accompanying notes to consolidated financial statements.
8.



GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) 
 
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net earnings
 
$
11,631

 
$
8,547

Adjustments to reconcile net earnings to net cash provided from operating activities:
 
 
 
 
Depreciation
 
2,385

 
2,262

Amortization
 
782

 
779

Deferred taxes
 
(214
)
 
(1,228
)
Premium amortization, net of discount accretion
 
3,581

 
3,528

Net realized gain on securities transactions
 
(25
)
 
(82
)
Gain on sale of loans
 
(1,490
)
 
(1,231
)
Provision for loan losses
 
2,250

 
3,240

Origination of loans held for sale
 
(50,230
)
 
(43,146
)
Proceeds from loans held for sale
 
50,883

 
45,158

Write-down of other real estate and repossessed assets
 
9

 
107

Net loss (gain) on sale of premises, equipment, other real estate owned and other assets
 
111

 
(1,214
)
Stock based compensation
 
247

 
162

Net change in accrued interest receivable and other assets
 
1,680

 
(1,633
)
Net change in accrued interest payable and other liabilities
 
1,624

 
1,342

Net cash provided by operating activities
 
23,224

 
16,591

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Securities available for sale:
 
 
 
 
Purchases
 
(313,177
)
 
(26,140
)
Proceeds from sales
 
213,813

 
103,942

Proceeds from maturities and principal repayments
 
18,925

 
54,021

Securities held to maturity:
 
 
 
 
Purchases
 

 
(86,642
)
Proceeds from sales
 
923

 
1,866

Proceeds from maturities and principal repayments
 
7,497

 
15,121

Acquisition of Denton branch, net of cash paid
 

 
2,399

Net purchases of premises and equipment
 
(1,678
)
 
(634
)
Net proceeds from sale of premises, equipment, other real estate owned and other assets
 
1,830

 
2,826

Net increase in loans
 
(64,438
)
 
(168,154
)
Net cash used in investing activities
 
(136,305
)
 
(101,395
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Net change in deposits
 
40,511

 
64,536

Net change in securities sold under agreements to repurchase
 
2,061

 
(254
)
Proceeds from FHLB advances
 
60,000

 
120,178

Repayment of FHLB advances
 
(50,013
)
 
(81,346
)
Proceeds from other debt
 
2,000

 
10,000

Repayment of other debt
 
(20,286
)
 
(18,357
)
Repayments of debentures
 
(5,500
)
 
(1,000
)
Purchase of treasury stock
 

 
(7,261
)

 
 
 
See accompanying notes to consolidated financial statements.
9.



GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) 
 
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
Sale of treasury stock
 

 
8,557

Exercise of stock options
 
84

 

Sale of common stock
 
55,755

 

Cash dividends
 
(4,013
)
 
(2,329
)
Net cash provided by financing activities
 
80,599

 
92,724

Net change in cash and cash equivalents
 
(32,482
)
 
7,920

Cash and cash equivalents at beginning of period
 
127,543

 
111,379

Cash and cash equivalents at end of period
 
$
95,061

 
$
119,299


 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
 
Interest paid
 
$
8,958

 
$
1,839

Income taxes paid
 
4,910

 
4,610


 
 
 
 
Supplemental schedule of noncash investing and financing activities
 
 
 
 
Transfer loans to other real estate owned and repossessed assets
 
$
992

 
$
5,862

Terminated KSOP put option
 
34,300

 

Net change in fair value of KSOP shares
 
2,639

 
1,539


 
 
 
See accompanying notes to consolidated financial statements.
10.

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


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 followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.
The consolidated financial statements in this Report have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2016, included in the Guaranty’s Prospectus filed with the SEC under Rule 424(b) on May 9, 2017, relating to its 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.

KSOP Repurchase Right: In accordance with applicable provisions of the Internal Revenue Code, the terms of Guaranty’s employee stock ownership plan with 401(k) provisions (“KSOP”), provided that, for so long as Guaranty was a privately-held company without a public market for its common stock, KSOP participants would have the right, for a specified period of time, to require Guaranty to repurchase shares of its common stock that are distributed to them by the KSOP. This repurchase obligation terminated upon the consummation of Guaranty’s initial public offering and listing of its common stock on the NASDAQ Global Select Market in May 2017. However, because Guaranty was privately-held without a public market for its common stock as of and for the year ended December 31, 2016, the shares of common stock held by the KSOP are reflected in the Company’s consolidated balance sheet as of December 31, 2016 as a line item called “KSOP-owned shares,” appearing between total liabilities and shareholders’ equity. As a result, the KSOP-owned shares are deducted from shareholders’ equity in the Company’s consolidated balance sheet

 
 
 
(Continued)
11.

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

as of December 31, 2016. For all periods following Guaranty’s initial public offering and continued listing of the Company’s common stock on the NASDAQ Global Select Market, the KSOP-owned shares will be included in, and not be deducted from, shareholders’ equity. The termination of the repurchase obligation following the listing of Guaranty’s common stock on the NASDAQ Global Select Market is also reflected in the statement of changes in shareholders’ equity as “terminated KSOP put option.”
Recent Accounting Pronouncements:
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. In addition, the amendments in this ASU provide a detailed framework to assist entities in evaluating whether a set of assets and activities constitutes a business, 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. The Company does not expect this pronouncement to have a significant impact on its consolidated financial statements.

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

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. For public companies, ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following nine specific cash flow issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned; 6) life insurance policies; 7) distributions received from equity method investees; 8) beneficial interests in securitization transactions; and 9) separately identifiable cash flows and application of the predominance principle. The amendments are effective for public companies for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of this guidance to be material to its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a "current expected credit loss" ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model 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

 
 
 
(Continued)
12.

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

years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has assembled a transition team to assess the adoption of this ASU, and has developed 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 adoption of this ASU is permitted for all entities. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value 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 in the process of evaluating the impact of this pronouncement, which is not expected to have a significant impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), followed by various amendments: ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in these updates amend existing guidance related to revenue from contracts with customers. The amendments supersede and replace nearly all existing revenue recognition guidance, including industry-specific guidance, establish a new control-based revenue recognition model, change the basis for deciding when revenue is recognized over a time or point in time, provide new and more detailed guidance on specific topics and expand and improve disclosures about revenue. In addition, these amendments specify the accounting for some costs to obtain or fulfill a contract with a customer. The amendments are effective for annual and interim periods beginning after December 15, 2017, and must be retrospectively applied.  The majority of the Company's income consists of net interest income on financial assets and financial liabilities, which is explicitly excluded from the 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 its 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 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 the assumption of approximately $4,658 in 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.   As a result of the transaction, the Company paid $66 to the seller, representing the difference in the value of the acquired assets less the value of the liabilities assumed by the Company in the transaction.      

Goodwill of $141 arising from the Denton acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies and 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 September 30, 2017 and December 31, 2016 and the corresponding amounts of gross unrealized gains and losses:
September 30, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:
 
 
 
 
 
 
 
Corporate bonds
$
18,842

 
$
178

 
$

 
$
19,020

Municipal securities
7,769

 

 
305

 
7,464

Mortgage-backed securities
91,801

 
20

 
863

 
90,958

Collateralized mortgage obligations
120,580

 
493

 
382

 
120,691

Total available for sale
$
238,992

 
$
691

 
$
1,550

 
$
238,133

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Municipal securities
$
146,993

 
$
2,696

 
$
516

 
$
149,173

Mortgage-backed securities
23,337

 
278

 
66

 
23,549

Collateralized mortgage obligations
8,751

 
181

 
503

 
8,429

Total held to maturity
$
179,081

 
$
3,155

 
$
1,085

 
$
181,151



 
 
 
(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 held to maturity mortgage-backed securities portfolio includes non-agency collateralized mortgage obligations with a carrying value of $1,470, which had unrealized losses of $503 as of September 30, 2017. These non-agency mortgage-backed securities were rated AAA at purchase. The Company monitors these securities to ensure it has adequate credit support, and the Company records other than temporary impairment (OTTI) as appropriate. The Company does not have the intent to sell these securities and does not expect to sell the securities before their anticipated recovery.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. 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. The Company did not record any OTTI losses on any of its securities during the nine months ended September 30, 2017 or for the year ended December 31, 2016.


 
 
 
(Continued)
15.

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

Information pertaining to securities with gross unrealized losses as of September 30, 2017 and December 31, 2016 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is detailed in the following tables:
 
Less Than 12 Months
 
12 Months or Longer
 
Total
September 30, 2017
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$

 
$

 
$

 
$

 
$

 
$

Municipal securities

 

 
(305
)
 
7,464

 
(305
)
 
7,464

Mortgage-backed securities
(556
)
 
72,802

 
(307
)
 
13,913

 
(863
)
 
86,715

Collateralized mortgage obligations
(244
)
 
42,825

 
(138
)
 
7,522

 
(382
)
 
50,347

Total available for sale
$
(800
)
 
$
115,627

 
$
(750
)
 
$
28,899

 
$
(1,550
)
 
$
144,526

 
 
 
 
 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
(258
)
 
$
39,090

 
$
(258
)
 
$
13,085

 
$
(516
)
 
$
52,175

Mortgage-backed securities
(66
)
 
10,562

 

 

 
(66
)
 
10,562

Collateralized mortgage obligations

 

 
(503
)
 
2,272

 
(503
)
 
2,272

Total held to maturity
$
(324
)
 
$
49,652

 
$
(761
)
 
$
15,357

 
$
(1,085
)
 
$
65,009

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

 
$

 
$

 
$
(377
)
 
$
22,529

Municipal securities
(622
)
 
7,219

 

 

 
(622
)
 
7,219

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

 
(561
)
 
15,270

 
(1,608
)
 
59,690

Collateralized mortgage obligations
(437
)
 
55,435

 
(229
)
 
9,049

 
(666
)
 
64,484

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

 
$
(790
)
 
$
24,319

 
$
(3,273
)
 
$
153,922

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

 
$

 
$

 
$
(3,889
)
 
$
98,943

Mortgage-backed securities
(290
)
 
19,983

 

 

 
(290
)
 
19,983

Collateralized mortgage obligations

 

 
(521
)
 
2,350

 
(521
)
 
2,350

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

 
$
(521
)
 
$
2,350

 
$
(4,700
)
 
$
121,276


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

 
 
 
(Continued)
16.

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

information obtained from regulatory filings, management believes the declines in fair value for 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 OTTI 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 OTTI at September 30, 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, the Federal National Mortgage Association or the Government National Mortgage Association.

As of September 30, 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 $221,777 and $259,499 at September 30, 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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Proceeds
$
199,974

 
$
31,969

 
$
214,736

 
$
109,056

Gross gains

 
96

 
38

 
243

Gross losses

 
(32
)
 
(13
)
 
(161
)

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

Sale of securities held to maturity were as follows for:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Proceeds from sales
$

 
$

 
$
923

 
$
1,866

Amortized cost

 

 
907

 
1,842

Gross realized gains

 

 
16

 
24

Tax expense related to securities gains/losses

 

 
(4
)
 
(7
)


 
 
 
(Continued)
17.

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

The contractual maturities at September 30, 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
$

 
$

 
$
2,683

 
$
2,693

Due after one year through five years
1,086

 
1,096

 
5,126

 
5,292

Due after five years through ten years
17,756

 
17,924

 
43,228

 
44,785

Due after ten years
7,769

 
7,464

 
95,956

 
96,403

Mortgage-backed securities
91,801

 
90,958

 
23,337

 
23,549

Collateralized mortgage obligations
120,580

 
120,691

 
8,751

 
8,429

Total Securities
$
238,992

 
$
238,133

 
$
179,081

 
$
181,151

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the Company’s loan portfolio by type of loan as of:
 
September 30, 2017
 
December 31, 2016
Commercial and industrial
$
192,663

 
$
223,997

Real estate:
 
 
 
Construction and development
201,067

 
129,366

Commercial real estate
393,314

 
367,656

Farmland
54,349

 
62,362

1-4 family residential
365,889

 
362,952

Multi-family residential
23,235

 
26,079

Consumer
51,711

 
53,505

Agricultural
24,449

 
18,901

Overdrafts
698

 
317

Total loans
1,307,375

 
1,245,135

Less:
 
 
 
Allowance for loan losses
12,528

 
11,484

Total net loans
$
1,294,847

 
$
1,233,651

As of September 30, 2017 and December 31, 2016, included in total loans above were $1,089 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 tables present the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the nine months ended September 30, 2017, for the year ended December 31, 2016 and for the nine months ended September 30, 2016:
For the nine months ended September 30, 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
602

 
762

 
1,019

 
(24
)
 
(585
)
 
(15
)
 
149

 
258

 
84

 
2,250

Loans charged-off
(737
)
 

 
(84
)
 

 
(307
)
 

 
(230
)
 
(4
)
 
(117
)
 
(1,479
)
Recoveries
116

 

 

 

 
21

 

 
95

 

 
41

 
273

Ending balance
$
1,573

 
$
1,923

 
$
4,199

 
$
458

 
$
3,089

 
$
266

 
$
599

 
$
407

 
$
14

 
$
12,528

Allowance ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
19

 
$

 
$
31

 
$
85

 
$
145

 
$

 
$

 
$
240

 
$

 
$
520

Collectively evaluated for impairment
1,554

 
1,923

 
4,168

 
373

 
2,944

 
266

 
599

 
167

 
14

 
12,008

Ending balance
$
1,573

 
$
1,923

 
$
4,199

 
$
458

 
$
3,089

 
$
266

 
$
599

 
$
407

 
$
14

 
$
12,528

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
354

 
$

 
$
4,029

 
$
276

 
$
1,097

 
$
228

 
$

 
$
696

 
$

 
$
6,680

Collectively evaluated for impairment
192,309

 
201,067

 
389,285

 
54,073

 
364,792

 
23,007

 
51,711

 
23,753

 
698

 
1,300,695

Ending balance
$
192,663

 
$
201,067

 
$
393,314

 
$
54,349

 
$
365,889

 
$
23,235

 
$
51,711

 
$
24,449

 
$
698

 
$
1,307,375

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

Ending balance
$
1,592

 
$
1,161

 
$
3,264

 
$
482

 
$
3,960

 
$
281

 
$
585

 
$
153

 
$
6

 
$
11,484

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
231

 
$
1,825

 
$
1,196

 
$
258

 
$
2,588

 
$
5

 
$
200

 
$
15