GUARANTY BANCSHARES INC /TX/ (Form: 10-Q, Received: 05/05/2023 16:14:13)

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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, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-38087

GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)



Texas	001-38087	75-1656431
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
16475 Dallas Parkway, Suite 600 Addison, Texas		75001
(Address of Principal Executive Offices)		(Zip Code)

(888) 572 - 9881

(Registrant’s telephone number, including area code)

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


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	GNTY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the

Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒

As of May 3, 2023, there were 11,800,776 outstanding shares of the registrant’s common stock, par value $1.00 per share.

GUARANTY BANCSHARES, INC.


	PART I — FINANCIAL INFORMATION	Page

Item 1.	Financial Statements – (Unaudited)	1
	Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Consolidated Statements of Earnings for the Three Months Ended March 31, 2023 and 2022	2
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022	3
	Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2023 and 2022	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	62

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65

SIGNATURES		66

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GUARANTY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)


	(Unaudited)			(Audited)
	March 31, 2023			December 31, 2022
ASSETS
Cash and due from banks	$	59,030		$	52,390
Federal funds sold		95,400			47,275
Interest-bearing deposits		3,695			6,802
Total cash and cash equivalents		158,125			106,467
Securities available for sale		173,744			188,927
Securities held to maturity		476,105			509,008
Loans held for sale		1,260			3,156
Loans, net of allowance for credit losses of $31,953 and $31,974, respectively		2,344,240			2,344,245
Accrued interest receivable		10,443			11,555
Premises and equipment, net		55,457			54,291
Other real estate owned		38			38
Cash surrender value of life insurance		38,619			38,404
Core deposit intangible, net		1,746			1,859
Goodwill		32,160			32,160
Other assets		64,350			61,385
Total assets	$	3,356,287		$	3,351,495
LIABILITIES AND EQUITY
Liabilities
Deposits
Noninterest-bearing	$	992,527		$	1,052,144
Interest-bearing		1,630,841			1,629,010
Total deposits		2,623,368			2,681,154
Securities sold under agreements to repurchase		13,338			7,221
Accrued interest and other liabilities		30,125			28,409
Federal Home Loan Bank advances and Federal Funds Purchased		340,000			290,000
Subordinated debt, net		49,186			49,153
Total liabilities		3,056,017			3,055,937
Commitments and contingencies (see Note 11)
Equity
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued		—			—
Common stock, $1.00 par value, 50,000,000 shares authorized, 14,217,952 and 14,208,558 shares issued, and 11,925,357 and 11,941,672 shares outstanding, respectively		14,218			14,209
Additional paid-in capital		228,091			227,727
Retained earnings		143,102			137,565
Treasury stock, 2,292,595 and 2,266,886 shares, respectively, at cost		(61,001	)		(60,257	)
Accumulated other comprehensive loss		(24,710	)		(24,260	)
Equity attributable to Guaranty Bancshares, Inc.		299,700			294,984
Noncontrolling interest		570			574
Total equity		300,270			295,558
Total liabilities and equity	$	3,356,287		$	3,351,495

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended March 31,
	2023		2022
Interest income
Loans, including fees	$	32,157	$	22,272
Securities
Taxable		2,814		1,953
Nontaxable		1,304		1,150
Nonmarketable equity securities		419		408
Federal funds sold and interest-bearing deposits		450		110
Total interest income		37,144		25,893

Interest expense
Deposits		7,655		1,242
FHLB advances and federal funds purchased		3,774		46
Subordinated debt		540		246
Other borrowed money		13		36
Total interest expense		11,982		1,570

Net interest income		25,162		24,323
Provision for (reversal of) credit losses		—		(1,250	)
Net interest income after provision for (reversal of) credit losses		25,162		25,573

Noninterest income
Service charges		1,077		976
Net realized gain on sales of securities available for sale		93		—
Net realized gain on sale of loans		314		905
Merchant and debit card fees		1,674		1,611
Other income		1,747		2,987
Total noninterest income		4,905		6,479

Noninterest expense
Employee compensation and benefits		12,264		11,532
Occupancy expenses		2,830		2,711
Other expenses		4,873		4,836
Total noninterest expense		19,967		19,079

Income before income taxes		10,100		12,973
Income tax provision		1,823		2,235
Net earnings	$	8,277	$	10,738
Net loss attributable to noncontrolling interest		4		—
Net earnings attributable to Guaranty Bancshares, Inc.	$	8,281	$	10,738
Basic earnings per share	$	0.69	$	0.89
Diluted earnings per share	$	0.69	$	0.88

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2023			2022
Net earnings	$	8,277		$	10,738
Other comprehensive loss:
Unrealized losses on securities:
Unrealized holding losses arising during the period, net of tax	$	(37	)	$	(16,213	)
Reclassification adjustment for net gains included in net earnings, net of tax		(73	)		—
Amortization of net unrealized losses on held to maturity securities		(340	)		(776	)
Unrealized losses on securities, net of tax		(450	)		(16,989	)

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

Total other comprehensive loss		(450	)		(17,177	)

Comprehensive income (loss)		7,827			(6,439	)
Less comprehensive loss attributable to noncontrolling interest		4			—
Comprehensive income (loss) attributable to Guaranty Bancshares, Inc.	$	7,831		$	(6,439	)

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(Dollars in thousands, except per share data)


	Attributable to Guaranty Bancshares, Inc.
	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Equity
For the Three Months Ended March 31, 2023
Balance at December 31, 2022	$	—	$	14,209	$	227,727		$	137,565		$	(60,257	)	$	(24,260	)	$	574		$	295,558
Net earnings		—		—		—			8,281			—			—			(4	)		8,277
Other comprehensive loss		—		—		—			—			—			(450	)		—			(450	)
Exercise of stock options		—		8		217			—			—			—			—			225
Purchase of treasury stock		—		—		—			—			(744	)		—			—			(744	)
Restricted stock grants		—		1		(1	)		—			—			—			—			—
Stock based compensation		—		—		148			—			—			—			—			148
Cash dividends:
Common - $0.23 per share		—		—		—			(2,744	)		—			—			—			(2,744	)
Total equity at March 31, 2023	$	—	$	14,218	$	228,091		$	143,102		$	(61,001	)	$	(24,710	)	$	570		$	300,270


	Attributable to Guaranty Bancshares, Inc.
	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest		Total Equity
For the Three Months Ended March 31, 2022
Balance at December 31, 2021	$	—	$	14,139	$	225,544	$	107,645		$	(51,419	)	$	6,305		$	—	$	302,214
Net earnings		—		—		—		10,738			—			—			—		10,738
Other comprehensive loss		—		—		—		—			—			(17,177	)		—		(17,177	)
Purchase of treasury stock		—		—		—		—			(1,993	)		—			—		(1,993	)
Stock based compensation		—		—		156		—			—			—			—		156
Cash dividends:
Common - $0.22 per share		—		—		—		(2,656	)		—			—			—		(2,656	)
Equity attributable to Guaranty Bancshares, Inc. at March 31, 2022	$	—	$	14,139	$	225,700	$	115,727		$	(53,412	)	$	(10,872	)	$	—	$	291,282
Contributions from noncontrolling interest		—		—		—		—			—			—			598		598
Total equity at March 31, 2022	$	—	$	14,139	$	225,700	$	115,727		$	(53,412	)	$	(10,872	)	$	598	$	291,880

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	For the Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net earnings	$	8,277		$	10,738
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		1,018			1,069
Amortization		194			219
Deferred taxes		(1,157	)		(4,188	)
Premium amortization, net of discount accretion		760			1,399
Net realized gain on sales of securities available for sale		(93	)		—
Gain on sale of loans		(314	)		(905	)
Provision for (reversal of) credit losses		—			(1,250	)
Origination of loans held for sale		(10,488	)		(25,758	)
Proceeds from loans held for sale		12,698			29,626
Net gain on sale of premises, equipment, other real estate owned and other assets		—			(39	)
Stock based compensation		148			156
Net change in accrued interest receivable and other assets		(930	)		6,792
Net change in accrued interest payable and other liabilities		1,599			804
Net cash provided by operating activities	$	11,712		$	18,663

Cash flows from investing activities
Securities available for sale:
Proceeds from sales	$	7,239		$	—
Proceeds from maturities and principal repayments		7,396			14,431
Securities held to maturity:
Purchases		—			(915,587	)
Proceeds from maturities and principal repayments		32,305			603,937
Net originations of loans		5			(106,123	)
Purchases of premises and equipment		(2,184	)		(1,685	)
Proceeds from sale of premises, equipment, other real estate owned and other assets		—			72
Net cash provided by (used in) investing activities	$	44,761		$	(404,955	)

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	For the Three Months Ended March 31,
	2023			2022
Cash flows from financing activities
Net change in deposits	$	(57,786	)	$	126,920
Net change in securities sold under agreements to repurchase		6,117			(3,061	)
Proceeds from FHLB advances		1,585,000			—
Repayment of FHLB advances		(1,535,000	)		(40,000	)
Proceeds from line of credit		—			1,000
Repayment of line of credit		—			(6,000	)
Proceeds from issuance of subordinated debt		—			34,336
Purchase of treasury stock		(744	)		(1,993	)
Exercise of stock options		225			—
Cash dividends paid		(2,627	)		(2,424	)
Net cash (used in) provided by financing activities	$	(4,815	)	$	108,778
Net change in cash and cash equivalents		51,658			(277,514	)
Cash and cash equivalents at beginning of period		106,467			499,605
Cash and cash equivalents at end of period	$	158,125		$	222,091

Supplemental disclosures of cash flow information
Interest paid	$	10,467		$	1,460

Supplemental schedule of noncash investing and financing activities
Cash dividends accrued	$	2,744		$	2,656
Lease right of use assets obtained in exchange for lease liabilities		568			—
Contributions from noncontrolling interest		—			598

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank and indirect subsidiaries that are wholly-owned or controlled. Subsidiaries that are less than wholly owned are fully consolidated if they are controlled by Guaranty or one of its subsidiaries, and the portion of any subsidiary not owned by Guaranty is reported as noncontrolling interest. All significant intercompany balances and transactions have been eliminated in consolidation. The Bank has eight wholly-owned or controlled non-bank subsidiaries, Guaranty Company, Inc., G B COM, INC., 2800 South Texas Avenue LLC, Pin Oak Realty Holdings, Inc., Pin Oak Asset Management, LLC, Guaranty Bank & Trust Political Action Committee, White Oak Aviation, LLC and Caliber Guaranty Private Account, LLC, the entity which has a noncontrolling interest. The accounting and financial reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

Basis of Presentation: The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2022, included in Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

All dollar amounts referenced and discussed in the notes to the consolidated financial statements in this report are presented in thousands, unless noted otherwise.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recent Accounting Pronouncements: In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the recognition and measurement guidance for troubled debt restructurings ("TDRs") by creditors in ASC 310-40. The update also enhances disclosure requirements for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will apply the loan refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan or a continuation of an existing loan. Finally, the amendments in this ASU require a public business entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases in the existing vintage disclosures. The Company adopted this ASU effective on January 1, 2023, and used the modified retrospective method, which did not have a significant impact on its consolidated financial statements. The new modification disclosure

(Continued)

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

requirements are applied on a prospective basis.

NOTE 2 - MARKETABLE SECURITIES

The following tables summarize the amortized cost and fair value of available for sale and held to maturity securities as of March 31, 2023 and December 31, 2022 and the corresponding amounts of gross unrealized gains and losses:


March 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	29,943	$	—	$	2,302	$	27,641
Municipal securities		3,186		216		—		3,402
Mortgage-backed securities		139,187		—		15,609		123,578
Collateralized mortgage obligations		20,805		3		1,685		19,123
Total available for sale	$	193,121	$	219	$	19,596	$	173,744

Held to maturity:
U.S. government agencies	$	9,178	$	—	$	1,166	$	8,012
Treasury securities		113,939		—		1,915		112,024
Municipal securities		181,986		670		7,575		175,081
Mortgage-backed securities		130,138		—		14,726		115,412
Collateralized mortgage obligations		40,864		—		7,089		33,775
Total held to maturity	$	476,105	$	670	$	32,471	$	444,304


December 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	29,964	$	—	$	2,177	$	27,787
Municipal securities		10,324		326		8		10,642
Mortgage-backed securities		145,896		1		15,556		130,341
Collateralized mortgage obligations		21,981		3		1,827		20,157
Total available for sale	$	208,165	$	330	$	19,568	$	188,927

Held to maturity:
U.S. government agencies	$	9,141	$	—	$	1,259	$	7,882
Treasury securities		133,735		—		2,921		130,814
Municipal securities		191,680		658		8,285		184,053
Mortgage-backed securities		132,693		—		14,708		117,985
Collateralized mortgage obligations		41,759		—		7,425		34,334
Total held to maturity	$	509,008	$	658	$	34,598	$	475,068

From time to time, we have reclassified certain securities from available for sale to held to maturity. Such transfers are made at fair value at the date of transfer. The unrealized holding gains and losses at the date of transfer are retained in other comprehensive loss and in the carrying value of the held to maturity securities and are amortized or accreted over the remaining life of the security. During the second quarter of 2022, we transferred $106,157 of securities from available for sale to held to maturity, which included a net unrealized loss on the date of transfer of $13,186. During the third quarter of 2021, we transferred $172,292 of securities from available for sale to held to maturity, which included a net unrealized gain on the date of transfer of $10,235. These unamortized unrealized losses and unaccreted unrealized gains on our transferred securities are included in accumulated other comprehensive loss on our balance sheet and they netted to an unrealized loss of $6,201 at March 31, 2023 compared to an unrealized loss of $5,861 at December 31, 2022. This amount will continue to be amortized and accreted out of accumulated other comprehensive (loss) income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

There is no allowance for credit losses recorded for our available for sale or held to maturity debt securities as of March 31, 2023 or December 31, 2022.

(Continued)

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Information pertaining to securities with gross unrealized losses as of March 31, 2023 and December 31, 2022, for which no allowance for credit losses has been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is detailed in the following tables:


	Less Than 12 Months					12 Months or Longer					Total
March 31, 2023	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(550	)	$	8,975	$	(1,752	)	$	18,666	$	(2,302	)	$	27,641
Mortgage-backed securities		(441	)		17,739		(15,168	)		105,836		(15,609	)		123,575
Collateralized mortgage obligations		(124	)		5,037		(1,561	)		13,927		(1,685	)		18,964
Total available for sale	$	(1,115	)	$	31,751	$	(18,481	)	$	138,429	$	(19,596	)	$	170,180

Held to maturity:
U.S. government agencies	$	—		$	—	$	(1,166	)	$	8,012	$	(1,166	)	$	8,012
Treasury securities		(1,915	)		112,024		—			—		(1,915	)		112,024
Municipal securities		(1,543	)		88,278		(6,032	)		37,920		(7,575	)		126,198
Mortgage-backed securities		(2,851	)		47,028		(11,875	)		68,384		(14,726	)		115,412
Collateralized mortgage obligations		(384	)		4,706		(6,705	)		29,069		(7,089	)		33,775
Total held to maturity	$	(6,693	)	$	252,036	$	(25,778	)	$	143,385	$	(32,471	)	$	395,421


	Less Than 12 Months					12 Months or Longer					Total
December 31, 2022	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(1,518	)	$	20,323	$	(659	)	$	7,464		(2,177	)		27,787
Municipal securities		(8	)		1,659		—			—		(8	)		1,659
Mortgage-backed securities		(6,150	)		74,146		(9,406	)		55,826		(15,556	)		129,972
Collateralized mortgage obligations		(908	)		16,575		(919	)		3,411		(1,827	)		19,986
Total available for sale	$	(8,584	)	$	112,703	$	(10,984	)	$	66,701	$	(19,568	)	$	179,404

Held to maturity:
U.S. government agencies	$	(1,259	)	$	7,882	$	—		$	—	$	(1,259	)	$	7,882
Treasury securities		(2,921	)		130,814		—			—		(2,921	)		130,814
Municipal securities		(7,071	)		118,117		(1,214	)		3,701		(8,285	)		121,818
Mortgage-backed securities		(8,355	)		80,556		(6,353	)		37,429		(14,708	)		117,985
Collateralized mortgage obligations		(1,031	)		10,750		(6,394	)		23,584		(7,425	)		34,334
Total held to maturity	$	(20,637	)	$	348,119	$	(13,961	)	$	64,714	$	(34,598	)	$	412,833

There were 278 investments in an unrealized loss position at March 31, 2023, of which 83 were available for sale debt securities in an unrealized loss position with no recorded allowance for credit losses. The available for sale securities in a loss position were composed of U.S. government agencies, corporate bonds, collateralized mortgage obligations and mortgage-backed securities. Management evaluates available for sale debt securities in an unrealized loss position to determine whether the impairment is due to credit-related factors or noncredit-related factors. With respect to the collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government and its agencies, the Company has determined that a decline in fair value is not due to credit-related factors. The Company monitors the credit quality of other debt securities through the use of credit ratings and other factors specific to an individual security in assessing whether or not the decline in fair value of municipal or corporate securities, relative to their amortized cost, is due to credit-related factors. Triggers to prompt further investigation of securities when the fair value is less than the amortized cost are when a security has been downgraded and falls below an A credit rating, and the security’s unrealized loss exceeds 20% of its book value. Consideration is given to (1) the extent to which fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. Based on evaluation of available evidence, management believes the unrealized losses on the securities as of March 31, 2023 and 2022 are not credit-related. Management does not have the intent to sell any of these securities and believes that it is more likely than not the Company will not have to sell any such securities before recovery of cost. The fair values are expected to recover as the securities

(Continued)

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

approach their maturity date or repricing date or if market yields for the investments decline. Accordingly, no allowance for credit losses has been recorded for these securities.

Management assesses held to maturity securities sharing similar risk characteristics on a collective basis for expected credit losses under CECL. As of March 31, 2023 and December 31, 2022, our held to maturity securities consisted of U.S. government agencies, municipal bonds, treasury securities and mortgage-backed securities issued by the U.S. government and its agencies. With regard to the treasuries, collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. For municipal securities, management reviewed key risk indicators, including ratings by credit agencies when available, and determined that there is no current expectation of credit loss. Accordingly, no allowance for credit losses has been recorded for these securities.

As of March 31, 2023, there were no holdings of securities of any one issuer, other than the collateralized mortgage obligations, treasuries and mortgage-backed securities issued by the U.S. government and its agencies, in an amount greater than 10% of total equity attributable to Guaranty Bancshares, Inc.

Securities with fair values of approximately $348,750 and $396,584 at March 31, 2023 and December 31, 2022, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

The proceeds from sales of available for sale securities and the associated gains and losses are listed below for the:


	Three Months Ended March 31,
	2023			2022
Proceeds from sales	$	7,239		$	—
Gross gains		119			—
Gross losses		(26	)		—

The contractual maturities at March 31, 2023 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
March 31, 2023	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	—	$	—	$	74,980	$	73,848
Due after one year through five years		11,063		10,578		70,556		69,126
Due after five years through ten years		18,880		17,063		86,353		83,208
Due after ten years		3,186		3,402		73,214		68,935
Mortgage-backed securities		139,187		123,578		130,138		115,412
Collateralized mortgage obligations		20,805		19,123		40,864		33,775
Total securities	$	193,121	$	173,744	$	476,105	$	444,304

(Continued)

10.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

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


	March 31, 2023			December 31, 2022
Commercial and industrial	$	295,936		$	314,067
Real estate:
Construction and development		372,203			377,135
Commercial real estate		900,190			887,587
Farmland		190,802			185,817
1-4 family residential		499,944			493,061
Multi-family residential		44,760			45,147
Consumer		60,163			61,394
Agricultural		13,545			13,686
Overdrafts		270			282
Total loans		2,377,813			2,378,176
Net of:
Deferred loan fees, net		(1,620	)		(1,957	)
Allowance for credit losses		(31,953	)		(31,974	)
Total net loans(1)	$	2,344,240		$	2,344,245

(1) Excludes accrued interest receivable on loans of $7.7 million and $7.6 million as of March 31, 2023 and December 31, 2022, respectively, which is presented separately on the consolidated balance sheets.

(Continued)

11.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The Company’s estimate of the allowance for credit losses (“ACL”) reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider possible extensions, renewals or modifications. The following tables present the activity in the ACL by class of loans for the three months ended March 31, 2023, for the year ended December 31, 2022 and for the three months ended March 31, 2022:


For the Three Months Ended March 31, 2023	Commercial and industrial			Construction and development			Commercial real estate		Farmland		1-4 family residential		Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for credit losses:
Beginning balance	$	4,382		$	4,889		$	12,658	$	2,008	$	6,617	$	490		$	778		$	149		$	3		$	31,974
Provision for (reversal of) for credit losses		(239	)		(25	)		32		78		24		(11	)		82			(4	)		63			—
Loans charged-off		(3	)		—			—		—		—		—			(7	)		(3	)		(81	)		(94	)
Recoveries		8			—			—		—		—		—			45			2			18			73
Ending balance	$	4,148		$	4,864		$	12,690	$	2,086	$	6,641	$	479		$	898		$	144		$	3		$	31,953


For the Year Ended December 31, 2022	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential		Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for credit losses:
Beginning balance	$	3,600		$	4,221	$	13,765		$	1,698	$	5,818	$	396	$	762		$	169		$	4		$	30,433
(Reversal of) provision for credit losses		902			668		(1,108	)		310		769		94		283			(20	)		252			2,150
Loans charged-off		(192	)		—		—			—		—		—		(322	)		—			(335	)		(849	)
Recoveries		72			—		1			—		30		—		55			—			82			240
Ending balance	$	4,382		$	4,889	$	12,658		$	2,008	$	6,617	$	490	$	778		$	149		$	3		$	31,974


For the Three Months Ended March 31, 2022	Commercial and industrial			Construction and development			Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for credit losses:
Beginning balance	$	3,600		$	4,221		$	13,765		$	1,698	$	5,818		$	396	$	762		$	169		$	4			30,433
Provision for (reversal of) credit losses		230			(323	)		(1,569	)		302		(119	)		60		146			(13	)		36			(1,250	)
Loans charged-off		(119	)		—			—			—		—			—		(17	)		—			(67	)		(203	)
Recoveries		39			—			1			—		30			—		16			—			30			116
Ending balance	$	3,750		$	3,898		$	12,197		$	2,000	$	5,729		$	456	$	907		$	156		$	3		$	29,096

(Continued)

12.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

In the first quarter of 2022, all remaining COVID-specific qualitative factors were removed and a reverse provision of $1,250 was recorded to account for significant improvements in COVID-related health statistics and economic impacts through that time period. However, growth in the loan portfolio during subsequent quarters, as well as declines in economic outlooks in 2022 and an adjustment to qualitative factors for an expected 2023 recession resulted in a $2,150 provision expense for the year ended December 31, 2022. There was no provision for loan losses recorded in during the first quarter of 2023.

The Company uses the weighted-average remaining maturity ("WARM") method as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate containing loss content over a historical lookback period and is used as a foundation for estimating the credit loss reserve for the remaining outstanding balances of loans in a segment at the balance sheet date. The average annual charge-off rate is applied to the contractual term, further adjusted for estimated prepayments, to determine the unadjusted historical charge-off rate. The calculation of the unadjusted historical charge-off rate is then adjusted, using qualitative factors, for current conditions and for reasonable and supportable forecast periods. Qualitative loss factors are based on the Company’s judgment of company, market, industry or business specific data, differences in loan-specific risk characteristics such as underwriting standards, portfolio mix, risk grades, delinquency level, or term. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors. Additionally, we have adjusted for changes in expected environmental and economic conditions, such as changes in unemployment rates, property values, and other relevant factors over the next 12 to 24 months. Management adjusted the historical loss experience for these expectations. No reversion adjustments were necessary, as the starting point for the Company’s estimate was a cumulative loss rate covering the expected contractual term of the portfolio.

The ACL is measured on a collective segment basis when similar risk characteristics exist. Our loan portfolio is segmented first by regulatory call report code, and second, by internally identified risk grades for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separate segments for our warehouse lines of credit, for our internally originated SBA loans and for our SBA loans acquired from Westbound Bank. Consistent forecasts of the loss drivers are used across the loan segments. For loans that do not share general risk characteristics with segments, we estimate a specific reserve on an individual basis. A reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan's initial effective interest rate or the fair value of collateral for collateral-dependent loans.

Assets are graded “pass” when the relationship exhibits acceptable credit risk and indicates repayment ability, tolerable collateral coverage and reasonable performance history. Lending relationships exhibiting potentially significant credit risk and marginal repayment ability and/or asset protection are graded “special mention.” Assets classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. Substandard graded loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets graded “doubtful” are substandard graded loans that have added characteristics that make collection or liquidation in full improbable. Loans that are on nonaccrual status are generally classified as substandard.

In general, the loans in our portfolio have low historical credit losses. The Company closely monitors economic conditions and loan performance trends to manage and evaluate the exposure to credit risk. Key factors tracked by the Company and utilized in evaluating the credit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral coverage.

(Continued)

13.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of March 31, 2023:


March 31, 2023	2023		2022		2021		2020		2019		Prior			Revolving Loans Amortized Cost		Total
Commercial and industrial:
Pass	$	20,706	$	86,053	$	53,172	$	17,774	$	10,891	$	16,203		$	88,735	$	293,534
Special mention		—		—		—		—		287		—			640		927
Substandard		—		13		—		240		410		204			—		867
Nonaccrual		—		135		343		75		—		31			24		608
Total commercial and industrial loans	$	20,706	$	86,201	$	53,515	$	18,089	$	11,588	$	16,438		$	89,399	$	295,936

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	(3	)	$	—	$	(3	)
Recoveries		—		—		—		—		—		4			4		8
Current period net	$	—	$	—	$	—	$	—	$	—	$	1		$	4	$	5

Construction and development:
Pass	$	12,877	$	177,829	$	127,875	$	16,879	$	8,031	$	13,573		$	11,750	$	368,814
Special mention		—		893		—		—		—		—			—		893
Substandard		—		—		—		—		—		—			—		—
Nonaccrual		—		262		799		—		—		1,435			—		2,496
Total construction and development loans	$	12,877	$	178,984	$	128,674	$	16,879	$	8,031	$	15,008		$	11,750	$	372,203

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

Commercial real estate:
Pass	$	19,634	$	356,222	$	148,170	$	85,555	$	59,890	$	194,906		$	15,545	$	879,922
Special mention		—		—		—		1,291		—		5,961			—		7,252
Substandard		—		1,617		—		262		—		4,181			—		6,060
Nonaccrual		—		—		—		—		87		6,869			—		6,956
Total commercial real estate loans	$	19,634	$	357,839	$	148,170	$	87,108	$	59,977	$	211,917		$	15,545	$	900,190

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

(Continued)

14.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


March 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	10,605	$	91,287	$	50,961	$	9,384	$	6,530	$	17,194	$	4,642	$	190,603
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		30		60		—		90
Nonaccrual		—		—		—		—		—		109		—		109
Total farmland loans	$	10,605	$	91,287	$	50,961	$	9,384	$	6,560	$	17,363	$	4,642	$	190,802

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

1-4 family residential:
Pass	$	13,428	$	144,109	$	130,185	$	48,171	$	29,331	$	110,684	$	20,781	$	496,689
Special mention		—		—		45		—		47		123		—		215
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		300		429		183		112		1,316		700		3,040
Total 1-4 family residential loans	$	13,428	$	144,409	$	130,659	$	48,354	$	29,490	$	112,123	$	21,481	$	499,944

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

Multi-family residential:
Pass	$	—	$	18,146	$	18,225	$	2,438	$	4,182	$	1,678	$	91	$	44,760
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	—	$	18,146	$	18,225	$	2,438	$	4,182	$	1,678	$	91	$	44,760

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

(Continued)

15.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


March 31, 2023	2023			2022			2021			2020		2019		Prior			Revolving Loans Amortized Cost		Total
Consumer and overdrafts:
Pass	$	7,309		$	27,868		$	9,807		$	4,593	$	1,370	$	3,084		$	6,201	$	60,232
Special mention		—			10			9			—		19		9			—		47
Substandard		—			—			—			—		—		—			—		—
Nonaccrual		—			22			79			25		10		18			—		154
Total consumer loans and overdrafts	$	7,309		$	27,900		$	9,895		$	4,618	$	1,399	$	3,111		$	6,201	$	60,433

Charge-offs	$	(81	)	$	(4	)	$	(3	)	$	—	$	—	$	—		$	—	$	(88	)
Recoveries		18			—			1			—		—		4			40		63
Current period net	$	(63	)	$	(4	)	$	(2	)	$	—	$	—	$	4		$	40	$	(25	)

Agricultural:
Pass	$	652		$	2,503		$	1,483		$	929	$	459	$	716		$	6,736	$	13,478
Special mention		—			—			—			—		—		—			—		—
Substandard		—			—			—			—		—		25			—		25
Nonaccrual		—			—			—			—		—		42			—		42
Total agricultural loans	$	652		$	2,503		$	1,483		$	929	$	459	$	783		$	6,736	$	13,545

Charge-offs	$	—		$	—		$	—		$	—	$	—	$	(3	)	$	—	$	(3	)
Recoveries		—			—			—			—		—		2			—		2
Current period net	$	—		$	—		$	—		$	—	$	—	$	(1	)	$	—	$	(1	)

Total loans:
Pass	$	85,211		$	904,017		$	539,878		$	185,723	$	120,684	$	358,038		$	154,481	$	2,348,032
Special mention		—			903			54			1,291		353		6,093			640		9,334
Substandard		—			1,630			—			502		440		4,470			—		7,042
Nonaccrual		—			719			1,650			283		209		9,820			724		13,405
Total loans	$	85,211		$	907,269		$	541,582		$	187,799	$	121,686	$	378,421		$	155,845	$	2,377,813

Charge-offs	$	(81	)	$	(4	)	$	(3	)	$	—	$	—	$	(6	)	$	—	$	(94	)
Recoveries		18			—			1			—		—		10			44		73
Total current period net (charge-offs) recoveries	$	(63	)	$	(4	)	$	(2	)	$	—	$	—	$	4		$	44	$	(21	)

(Continued)

16.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2022:


December 31, 2022	2022		2021		2020			2019		2018		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	99,750	$	57,854	$	19,577		$	11,797	$	4,172	$	12,907	$	105,628		$	311,685
Special mention		—		131		—			333		—		—		905			1,369
Substandard		14		—		246			423		192		23		—			898
Nonaccrual		72		33		10			—		—		—		—			115
Total commercial and industrial loans	$	99,836	$	58,018	$	19,833		$	12,553	$	4,364	$	12,930	$	106,533		$	314,067

Charge-offs	$	—	$	—	$	(67	)	$	—	$	—	$	—	$	(125	)	$	(192	)
Recoveries		—		—		—			—		—		32		40			72
Current period net	$	—	$	—	$	(67	)	$	—	$	—	$	32	$	(85	)	$	(120	)

Construction and development:
Pass	$	179,501	$	138,388	$	17,361		$	8,697	$	3,443	$	10,535	$	16,870		$	374,795
Special mention		905		—		—			—		—		—		—			905
Substandard		—		—		—			—		—		—		—			—
Nonaccrual		—		—		—			—		1,435		—		—			1,435
Total construction and development loans	$	180,406	$	138,388	$	17,361		$	8,697	$	4,878	$	10,535	$	16,870		$	377,135

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

Commercial real estate:
Pass	$	347,162	$	147,986	$	86,897		$	63,988	$	51,002	$	158,384	$	12,007		$	867,426
Special mention		—		—		1,300			—		2,594		3,427		—			7,321
Substandard		1,336		—		—			—		26		4,207		—			5,569
Nonaccrual		—		—		251			96		—		6,924		—			7,271
Total commercial real estate loans	$	348,498	$	147,986	$	88,448		$	64,084	$	53,622	$	172,942	$	12,007		$	887,587

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

(Continued)

17.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	93,128	$	51,912	$	10,284	$	6,646	$	5,956	$	11,741	$	5,948	$	185,615
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		31		—		62		—		93
Nonaccrual		—		—		—		—		—		109		—		109
Total farmland loans	$	93,128	$	51,912	$	10,284	$	6,677	$	5,956	$	11,912	$	5,948	$	185,817

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

1-4 family residential:
Pass	$	143,268	$	128,957	$	50,140	$	30,068	$	27,104	$	89,678	$	21,956	$	491,171
Special mention		—		—		43		—		—		156		—		199
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		148		—		116		118		1,309		—		1,691
Total 1-4 family residential loans	$	143,268	$	129,105	$	50,183	$	30,184	$	27,222	$	91,143	$	21,956	$	493,061

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

Multi-family residential:
Pass	$	18,183	$	18,331	$	2,463	$	4,216	$	878	$	985	$	91	$	45,147
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	18,183	$	18,331	$	2,463	$	4,216	$	878	$	985	$	91	$	45,147

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

(Continued)

18.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


December 31, 2022	2022			2021			2020			2019			2018		Prior		Revolving Loans Amortized Cost			Total
Consumer and overdrafts:
Pass	$	32,817		$	11,789		$	5,455		$	1,835		$	3,079	$	473	$	6,008		$	61,456
Special mention		14			4			—			28			4		—		—			50
Substandard		—			—			—			—			—		—		—			—
Nonaccrual		17			93			21			12			23		4		—			170
Total consumer loans and overdrafts	$	32,848		$	11,886		$	5,476		$	1,875		$	3,106	$	477	$	6,008		$	61,676

Charge-offs	$	(335	)	$	(26	)	$	(25	)	$	(21	)	$	—	$	—	$	(250	)	$	(657	)
Recoveries		83			3			6			11			1		33		—			137
Current period net	$	(252	)	$	(23	)	$	(19	)	$	(10	)	$	1	$	33	$	(250	)	$	(520	)

Agricultural:
Pass	$	3,148		$	1,914		$	984		$	491		$	392	$	422	$	6,243		$	13,594
Special mention		—			—			—			—			—		3		—			3
Substandard		—			—			—			—			—		32		—			32
Nonaccrual		—			—			—			—			4		53		—			57
Total agricultural loans	$	3,148		$	1,914		$	984		$	491		$	396	$	510	$	6,243		$	13,686

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

Total loans:
Pass	$	916,957		$	557,131		$	193,161		$	127,738		$	96,026	$	285,125	$	174,751		$	2,350,889
Special mention		919			135			1,343			361			2,598		3,586		905			9,847
Substandard		1,350			—			246			454			218		4,324		—			6,592
Nonaccrual		89			274			282			224			1,580		8,399		—			10,848
Total loans	$	919,315		$	557,540		$	195,032		$	128,777		$	100,422	$	301,434	$	175,656		$	2,378,176

Charge-offs	$	(335	)	$	(26	)	$	(92	)	$	(21	)	$	—	$	—	$	(375	)	$	(849	)
Recoveries		83			3			6			11			2		95		40			240
Total current period net charge-offs	$	(252	)	$	(23	)	$	(86	)	$	(10	)	$	2	$	95	$	(335	)	$	(609	)

There were no loans classified in the “doubtful” or “loss” risk rating categories as of March 31, 2023 and December 31, 2022.

(Continued)

19.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

There were no individually evaluated collateral-dependent loans within the ACL model as of March 31, 2023 or December 31, 2022.

The following tables summarize the payment status of loans in the Company’s total loan portfolio, including an aging of delinquent loans and loans 90 days or more past due continuing to accrue interest as of:


March 31, 2023	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	449	$	79	$	208	$	736	$	295,200	$	295,936	$	—
Real estate:
Construction and development		1,347		—		2,306		3,653		368,550		372,203		—
Commercial real estate		353		—		6,675		7,028		893,162		900,190		—
Farmland		129		97		—		226		190,576		190,802		—
1-4 family residential		2,586		290		1,840		4,716		495,228		499,944		—
Multi-family residential		—		—		—		—		44,760		44,760		—
Consumer		697		78		81		856		59,307		60,163		—
Agricultural		—		40		—		40		13,505		13,545		—
Overdrafts		—		—		—		—		270		270		—
Total	$	5,561	$	584	$	11,110	$	17,255	$	2,360,558	$	2,377,813	$	—


December 31, 2022	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	440	$	44	$	105	$	589	$	313,478	$	314,067	$	—
Real estate:
Construction and development		258		73		1,435		1,766		375,369		377,135		—
Commercial real estate		882		354		6,708		7,944		879,643		887,587		—
Farmland		129		79		—		208		185,609		185,817		—
1-4 family residential		2,101		547		572		3,220		489,841		493,061		—
Multi-family residential		—		—		—		—		45,147		45,147		—
Consumer		164		118		70		352		61,042		61,394		—
Agricultural		37		10		—		47		13,639		13,686		—
Overdrafts		—		—		—		—		282		282		—
Total	$	4,011	$	1,225	$	8,890	$	14,126	$	2,364,050	$	2,378,176	$	—

The following table presents information regarding nonaccrual loans as of:


	March 31, 2023		December 31, 2022
Commercial and industrial	$	608	$	115
Real estate:
Construction and development		2,496		1,435
Commercial real estate		6,956		7,271
Farmland		109		109
1-4 family residential		3,040		1,691
Consumer and overdrafts		154		170
Agricultural		42		57
Total	$	13,405	$	10,848

There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual.

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in

(Continued)

20.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The following table presents the amortized cost basis of loans made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023:


For the Three Months Ended March 31, 2023	Term Extension		Total Class of Financing Receivable
Consumer	$	49		0.1	%
Total loans	$	49		0.1	%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three months ended March 31, 2023:


Term Extension
Loan Type		Financial Effect
Consumer		Amortization period was extended by a weighted-average period of 7.2 years.

The following table provides an age analysis of loans made to borrowers experiencing financial difficult that were modified on or after our ASU 2022-02 adoption date of January 1, 2023:


	Current		30 to 89 Days Past Due		90 Days or Greater Past Due
Consumer		49		—		—
Total loans	$	49	$	—	$	—

As of March 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2023 that subsequently defaulted.

There were no loans restructured during the three months ended March 31, 2022.

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

Securities sold under agreements to repurchase were $13,338 and $7,221 as of March 31, 2023 and December 31, 2022, respectively, and are secured by mortgage-backed securities and collateralized mortgage obligations.

The Company has an unsecured $25,000 revolving line of credit, which had no outstanding balance at March 31, 2023 or December 31, 2022, bears interest at the greater of (i) the prime rate, which was 8.00% at March 31, 2023, or (ii) the rate floor of 3.50%, with interest payable quarterly, and matures in March 2024.

Federal Home Loan Bank (FHLB) advances bear interest based on a fixed or variable rate, payable monthly, with all principal due at maturity. The following table presents the scheduled maturities of fixed and variable rate FHLB advances and their weighted average rates, as of March 31, 2023:


Year	Current Weighted Average Rate			Principal Due
Fixed rate advances
2023		5.03	%	$	260,000
2024		4.38	%		10,000
Total fixed rate FHLB advances				$	270,000
Variable rate advances
2023		4.98	%	$	70,000
Total variable rate FHLB advances					70,000
Total FHLB advances				$	340,000

(Continued)

21.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

NOTE 5 - SUBORDINATED DEBT

Subordinated debt was made up of the following as of:


	March 31, 2023		December 31, 2022
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Subordinated note		34,469		34,436
Other debentures		7,500		7,500
	$	49,186	$	49,153

As of March 31, 2023, the Company has two active trusts, Guaranty (TX) Capital Trust III (“Trust III”) and DCB Financial Trust I (“DCB Trust I”). Upon formation, the Trusts issued pass-through securities (“TruPS”) with a liquidation value of $1,000 per share to third parties in private placements. Concurrently with the issuance of the TruPS, the Trusts (comprised of Trust III and DCB Trust I) issued common securities to the Company. The Trusts invested the proceeds of the sales of securities to the Company (“Debentures”). The Debentures mature approximately 30 years after the formation date, which may be shortened if certain conditions are met (including the Company having received prior approval of the Federal Reserve and any other required regulatory approvals).


	Trust III		DCB Trust I
Formation date	July 25, 2006		March 29, 2007
Capital trust pass-through securities
Number of shares		2,000		5,000
Original liquidation value	$	2,000	$	5,000
Common securities liquidation value		62		155

The securities held by the Trusts qualify as Tier 1 capital for the Company under Federal Reserve Board guidelines. The Federal Reserve’s guidelines restrict core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier 1 capital, net of goodwill, the full amount is includable in Tier 1 capital at March 31, 2023 and December 31, 2022. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier 1 capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the junior subordinated debentures.

With certain exceptions, the amount of the principal and any accrued and unpaid interest on the Debentures are subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company. Interest on the Debentures is payable quarterly. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the Debentures.


	Trust III Debentures		DCB Trust I Debentures
Original amount	$	2,062	$	5,155
Maturity date	October 1, 2036		June 15, 2037
Interest due	Quarterly		Quarterly

In accordance with ASC 810, "Consolidation," the junior subordinated debentures issued by the Company to the subsidiary trusts are shown as liabilities in the consolidated balance sheets and interest expense associated with the junior subordinated debentures is shown in the consolidated statements of earnings.

Trust III Debentures

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

On any interest payment date on or after October 1, 2016 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

(Continued)

22.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

DCB Trust I Debentures

Interest is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.80%.

On any interest payment date on or after June 15, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

Subordinated Note

In March 2022, the Company completed a private placement of $35,000 aggregate principal amount of its fixed-to-floating rate subordinated note due April 1, 2032. The subordinated note initially bears a fixed interest rate of 3.625% per year, due semi-annually in arrears on April 1 and October 1. Commencing on April 1, 2027, the interest rate on the subordinated note will reset each quarter at a floating interest rate equal to the then-current three-month term Secured Overnight Financing Rate ("SOFR") plus 192 basis points. The Company may at its option redeem in whole or in part the subordinated note on or after March 4, 2027 without a premium. The subordinated note is treated as Tier 2 capital for regulatory purposes (subject to reductions in the amount includable as Tier 2 capital in the final five years prior to maturity), and is presented net of related unamortized issuance costs on the consolidated balance sheets.

Other Debentures

In May 2020, the Company issued $10,000 in debentures to directors and other related parties. The debentures were issued at a par value of $500 each with fixed annual rates between 1.00% and 4.00% and maturity dates between November 1, 2020 and November 1, 2024. Various of these debentures have matured since issuance and $7,500 remains as of March 31, 2023. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the maturity date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.

The scheduled principal payments and weighted average rates of the Debentures, the subordinated note and other debentures are as follows:


Year	Current Weighted Average Rate			Principal Due
2023		2.85	%		3,500
2024		3.74	%		4,000
Thereafter		4.20	%		42,217
Total scheduled principal payments				$	49,717
Unamortized debt issuance costs					(531	)
				$	49,186

NOTE 6 – EQUITY AWARDS

The Company’s 2015 Equity Incentive Plan (the “Plan”) was adopted by the Company and approved by its shareholders in April 2015. The maximum number of shares of common stock that may be issued pursuant to stock-based awards under the Plan equals 1,100,000 shares, all of which may be subject to incentive stock option treatment. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from 5 to 10 years and have 10-year contractual terms. Restricted stock awards vest under the period of restriction specified within their respective award agreements as determined by the Company. Forfeitures are recognized as they occur, subject to a 90-day grace period for vested options.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer group averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The dividend yield is the total dividends per share paid during the period divided by the average of the

(Continued)

23.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Company's stock price on each date a grant was issued. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant.

A summary of stock option activity in the Plan during the three months ended March 31, 2023 and 2022 follows:


Three Months Ended March 31, 2023	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		497,820		$	28.07		5.87	$	3,402
Granted		15,500			29.91
Exercised		(8,800	)		25.57
Forfeited		(15,440	)		30.42
Balance, March 31, 2023		489,080		$	28.10		5.77	$	1,037

Exercisable at end of period		281,500		$	25.57		4.26	$	850


Three Months Ended March 31, 2022	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		502,780		$	25.77		5.59	$	5,936
Granted		39,000			35.89
Forfeited		(5,060	)		26.92
Balance, March 31, 2022		536,720		$	26.50		5.65	$	4,626

Exercisable at end of period		307,086		$	24.30		4.28	$	3,285

A summary of nonvested stock option activity in the Plan during the three months ended March 31, 2023 and 2022 follows:


Three Months Ended March 31, 2023	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		216,480		$	5.95
Granted		15,500			6.02
Vested		(18,200	)		5.62
Forfeited		(6,200	)		13.10
Balance, March 31, 2023		207,580		$	5.99


Three Months Ended March 31, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		207,084		$	5.23
Granted		39,000			6.03
Vested		(14,030	)		5.21
Forfeited		(2,420	)		9.13
Balance, March 31, 2022		229,634		$	5.38

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


	March 31, 2023		March 31, 2022
Intrinsic value of options exercised	$	22	$	—
Cash received from options exercised		225		—
Weighted average fair value of options granted		6.02		6.03

(Continued)

24.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Restricted Stock Awards

A summary of restricted stock activity in the Plan during the three months ended March 31, 2023 and 2022 follows:


Three Months Ended March 31, 2023	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		18,930		$	27.51
Granted		1,474			34.10
Vested		(2,970	)		27.50
Forfeited		(880	)		27.78
Balance, March 31, 2023		16,554		$	29.03


Three Months Ended March 31, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		30,190		$	27.52
Vested		(4,070	)		27.50
Balance, March 31, 2022		26,120		$	27.52

Restricted stock granted to employees typically vests over five years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.

As of March 31, 2023, there was $1,610 of total unrecognized compensation expense related to nonvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 3.25 years.

The Company granted options under the Plan during the first three months of 2022 and 2022. Expense of $148 and $156 was recorded during the three months ended March 31, 2023 and 2022, respectively, which represents the fair value of shares, restricted stock and stock options vested during those periods.

NOTE 7 - EMPLOYEE BENEFITS

KSOP

The Company maintains an Employee Stock Ownership Plan containing Section 401(k) provisions covering substantially all employees (“KSOP”). The plan provides for a matching contribution of up to 5% of a participant’s qualified compensation starting January 1, 2016. Guaranty’s total contributions accrued or paid during the three months ended March 31, 2023 and 2022 totaled $493 and $436, respectively, and is included in employee compensation and benefits on the Company’s consolidated statements of earnings.

Upon separation from service or other distributable event, a participant’s account under the KSOP may be distributed in kind in the form of the GNTY common shares allocated to his or her account (with the balance payable in cash), or the entire account can be liquidated and distributed in cash.

As of March 31, 2023, the number of shares held by the KSOP was 996,529. There were no unallocated shares to plan participants as of March 31, 2023, and all shares held by the KSOP were treated as outstanding.

Executive Incentive Retirement Plan

The Company established a nonqualified, non-contributory executive incentive retirement plan covering a selected group of key personnel to provide benefits equal to amounts computed under an “award criteria” at various targeted salary levels as adjusted for annual earnings performance of the Company. The plan is non-funded.

In connection with the Executive Incentive Retirement Plan, the Company has purchased life insurance policies on the respective officers. The cash surrender value of life insurance policies held by the Company totaled $38,619 and $38,404 as of March 31, 2023 and December 31, 2022, respectively.

(Continued)

25.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Expense related to these plans totaled $360 and $322 for the three months ended March 31, 2023 and 2022, respectively. This expense is included in employee compensation and benefits on the Company’s consolidated statements of earnings. The recorded liability totaled approximately $5,694 and $5,388 as of March 31, 2023 and December 31, 2022, respectively and is included in accrued interest and other liabilities on the Company’s consolidated balance sheets.

Bonus Plan

The Company has a bonus plan that rewards officers and employees based on performance of individual business units of the Company. Earnings and growth performance goals for each business unit and for the Company as a whole are established at the beginning of the calendar year and approved annually by Guaranty’s board of directors. The bonus plan provides for a predetermined bonus amount to be contributed to the employee bonus pool based on (i) earnings target and growth for individual business units and (ii) achieving certain pre-tax return on average equity and pre-tax return on average asset levels for the Company as a whole. These bonus amounts are established annually by Guaranty’s board of directors. The bonus expense under this plan for the three months ended March 31, 2023 and 2022 totaled $875 and $1,267, respectively, which included accrued bonus expense at March 31, 2023 and December 31, 2022 of $575 and $2,332, respectively. This expense is included in employee compensation and benefits on the consolidated statements of earnings and the accrual is included in accrued interest and other liabilities on the consolidated balance sheets.

NOTE 8 – LEASES

The Company has operating leases for bank locations, ATMs, corporate offices, and certain other arrangements, which have remaining lease terms of 1 year to 13 years. Some of the Company’s operating leases include options to extend the leases for up to 10 years.

Operating leases in which we are the lessee must be recorded as right-of-use assets with corresponding lease liabilities. The right-of-use asset represents our right to utilize the underlying asset during the lease term, while the lease liability represents the present value of the obligation of the Company to make periodic lease payments over the life of the lease. The associated operating lease costs are comprised of the amortization of the right-of-use asset and the implicit interest accreted on the lease liability, which is recognized on a straight-line basis over the life of the lease. As of March 31, 2023, operating lease right-of-use assets were $12,958 and liabilities were $13,592, and as of December 31, 2022, lease assets and liabilities were $12,896 and $13,520, respectively, and were included within the accompanying consolidated balance sheets as components of other assets and accrued interest and other liabilities, respectively.

Operating lease expense for operating leases accounted for under ASC 842 for the three months ended March 31, 2023 and 2022 was approximately $578 and $549, respectively, and is included as a component of occupancy expenses within the accompanying consolidated statements of earnings.

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


	March 31, 2023			December 31, 2022
Operating leases
Operating lease right-of-use assets	$	12,958		$	12,896
Operating lease liabilities		13,592			13,520

Weighted average remaining lease term
Operating leases	7 years			8 years
Weighted average discount rate
Operating leases		2.04	%		2.00	%

(Continued)

26.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2027 and thereafter. Minimum future lease payments under these non-cancelable operating leases as of March 31, 2023, are as follows:


Year Ended December 31,	Amount
2023	$	2,208
2024		2,134
2025		1,962
2026		1,727
2027		1,536
Thereafter		4,370
Total lease payments		13,937
Less: interest		(345	)
Present value of lease liabilities	$	13,592

NOTE 9 - INCOME TAXES

Income tax expense was as follows for:


	Three Months Ended March 31,
	2023			2022
Income tax expense for the period	$	1,823		$	2,235
Effective tax rate		18.05	%		17.23	%

The effective tax rates differ from the statutory federal tax rate of 21% for the three and three months ended March 31, 2023 and 2022 largely due to tax exempt interest income earned on certain investment securities and loans.

NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes certain derivative financial instruments. Stand-alone derivative financial instruments such as interest rate swaps, are used to economically hedge interest rate risk related to the Company’s liabilities. These derivative instruments involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instruments, is reflected on the Company’s consolidated balance sheets in other liabilities, if applicable.

The Company is exposed to credit related losses in the event of nonperformance by the counterparties to those agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail to perform their respective obligations.

In the first quarter of 2022, the Company terminated interest rate swaps that were originally designed to receive payments at a floating rate in exchange for paying a fixed rate, the objective of which was to reduce the overall cost of short-term 3-month FHLB advances that were renewed consistent with the reset terms on the interest rate swaps. The swaps were cancelled at a net gain of $685, which is included in other noninterest income in the Consolidated Statement of Earnings.

Interest expense recorded on these swap transactions totaled $63 during the three months ended March 31, 2022. This expense is reported as a component of interest expense on the debentures and the FHLB advances and federal funds purchased.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company enters into various transactions, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions are referred to as “off-balance sheet commitments.” The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and letters of credit, which involve elements of credit risk in excess of the amounts recognized

(Continued)

27.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Management considers the likelihood of commitments and letters of credit to be funded, along with credit related conditions present in the loan agreements when estimating an ACL for off-balance sheet commitments. Loan agreements executed in connection with construction loans and commercial lines of credit have standard conditions which must be met prior to the Company being required to provide additional funding, including conditions precedent that typically include: (i) no event of default or potential default has occurred; (ii) that no material adverse events have taken place that would materially affect the borrower or the value of the collateral, (iii) that the borrower remains in compliance with all loan obligations and covenants and has made no misrepresentations; (iv) that the collateral has not been damaged or impaired; (v) that the project remains on budget and in compliance with all laws and regulations; and (vi) that all management agreements, lease agreements and franchise agreements that affect the value of the collateral remain in force. If the conditions precedent have not been met, the Company retains the option to cease current draws and/or future funding. As a result of these conditions within our loan agreements, management has determined that credit risk is minimal and there is no recorded ACL with respect to these commitments as of March 31, 2023 and December 31, 2022.

Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the table below. If the commitment were funded, the Company would be entitled to seek recovery from the customer. Our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers. As of March 31, 2023 and December 31, 2022, no amounts have been recorded as an ACL for the Bank’s potential obligations under these guarantees.

Commitments and letters of credit outstanding were as follows as of:


	Contract or Notional Amount
	March 31, 2023		December 31, 2022
Commitments to extend credit	$	464,307	$	474,745
Letters of credit		8,272		8,289

Litigation

The Company is involved in certain claims and lawsuits occurring in the normal course of business. Management, after consultation with legal counsel, does not believe that the outcome of these actions, if determined adversely, would have a material impact on the consolidated financial statements of the Company.

FHLB Letters of Credit

At March 31, 2023, the Company had letters of credit of $15,000 pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law.

NOTE 12 - REGULATORY MATTERS

The Company on a consolidated basis and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

(Continued)

28.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Company and Bank on January 1, 2015, with certain transition provisions that were fully phased in on January 1, 2019. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and or Tier 1 capital to adjusted quarterly average assets (as defined). Management believes, as of March 31, 2023 and December 31, 2022, that the Bank met all capital adequacy requirements to which it was subject.

The Basel III Capital Rules, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specified that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, (iv) expanded the scope of the deductions/adjustments as compared to existing regulations, and (v) imposed a "capital conservation buffer" of 2.5% above minimum risk-based capital requirements, below which an institution would be subject to limitations on certain activities including payment of dividends, share repurchases and discretionary bonuses to executive officers.

As of March 31, 2023 and December 31, 2022, the Company’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the Company must maintain minimum capital ratios as set forth in the table. There are no conditions or events since March 31, 2023 that management believes have changed the Company’s category.

The Federal Reserve’s guidelines regarding the capital treatment of trust preferred securities limits restricted core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier 1 capital, net of goodwill, the rules permit the inclusion of $7,217 of trust preferred securities in Tier 1 capital as of both March 31, 2023 and December 31, 2022. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier 1 capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the subordinated debentures.

A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios are presented in the following tables as of:


	Actual			Minimum Required For Capital Adequacy Purposes			Minimum Required Under Basel III (Including Buffer)			To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
March 31, 2023
Total capital to risk-weighted assets:
Consolidated	$	363,916	14.57%	$	199,775	8.00%	$	262,204	10.50%	$	249,718	10.00%
Bank		370,244	14.84%		199,659	8.00%		262,053	10.50%		249,574	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		298,241	11.94%		149,831	6.00%		212,260	8.50%		149,831	6.00%
Bank		339,038	13.58%		149,744	6.00%		212,138	8.50%		199,659	8.00%
Tier 1 capital to average assets:(1)
Consolidated		298,241	9.00%		132,598	4.00%		132,598	4.00%	n/a
Bank		339,038	10.24%		132,501	4.00%		132,501	4.00%		165,626	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		291,024	11.65%		112,373	4.50%		174,803	7.00%	n/a
Bank		339,038	13.58%		112,308	4.50%		174,702	7.00%		162,223	6.50%
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.

(Continued)

29.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


	Actual			Minimum Required For Capital Adequacy Purposes			Minimum Required Under Basel III (Including Buffer)			To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
December 31, 2022
Total capital to risk-weighted assets:
Consolidated	$	358,702	14.37%	$	199,687	8.00%	$	262,089	10.50%	$	249,608	10.00%
Bank		361,125	14.48%		199,570	8.00%		261,936	10.50%		249,463	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		292,966	11.74%		149,765	6.00%		212,167	8.50%		149,765	6.00%
Bank		329,933	13.23%		149,678	6.00%		212,044	8.50%		199,570	8.00%
Tier 1 capital to average assets:(1)
Consolidated		292,966	8.77%		133,614	4.00%		133,614	4.00%	n/a
Bank		329,933	9.89%		133,375	4.00%		133,375	4.00%		166,718	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		285,749	11.45%		112,324	4.50%		174,726	7.00%	n/a
Bank		329,933	13.23%		112,258	4.50%		174,624	7.00%		162,151	6.50%
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.

Dividends paid by Guaranty are mainly provided by dividends from its subsidiaries. However, certain regulatory restrictions exist regarding the ability of its bank subsidiary to transfer funds to Guaranty in the form of cash dividends, loans or advances. The amount of dividends that a subsidiary bank organized as a national banking association, such as the Bank, may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period.

NOTE 13 - FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

Marketable Securities: The fair values for marketable securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans Held For Sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost

(Continued)

30.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly (Level 3).

Individually Evaluated Collateral Dependent Loans: The fair value of individually evaluated collateral dependent loans is generally based on the fair value of collateral, less costs to sell. The fair value of real estate collateral is determined using recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant (Level 3). Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business (Level 3).

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


March 31, 2023	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	123,578	$	—	$	123,578	$	—
Collateralized mortgage obligations		19,123		—		19,123		—
Municipal securities		3,402		—		3,402		—
Corporate bonds		27,641		—		27,641		—
Loans held for sale		1,260		—		—		1,260
Cash surrender value of life insurance		38,619		—		38,619		—
SBA servicing assets		808		—		—		808

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


December 31, 2022	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	130,341	$	—	$	130,341	$	—
Collateralized mortgage obligations		20,157		—		20,157		—
Municipal securities		10,642		—		10,642		—
Corporate bonds		27,787		—		27,787		—
Loans held for sale		3,156		—		—		3,156
Cash surrender value of life insurance		38,404		—		38,404		—
SBA servicing assets		874		—		—		874

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

There were no transfers between Level 2 and Level 3 during the three months ended March 31, 2023 or during the year ended December 31, 2022.

(Continued)

31.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Nonfinancial Assets and Nonfinancial Liabilities

Nonfinancial assets measured at fair value on a nonrecurring basis include certain foreclosed assets which, upon initial recognition, are remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in current earnings. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

As of March 31, 2023 and 2022, and December 31, 2022, there were no foreclosed assets that were remeasured and recorded at fair value.

As of March 31, 2023 and December 31, 2022, there were no nonrecurring level 3 fair value measurements requiring quantitative information.

There were no individually evaluated collateral dependent loans included in the ACL model as of March 31, 2023 or December 31, 2022.

The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of March 31, 2023 and December 31, 2022, are as follows:


	Fair value measurements as of March 31, 2023 using:
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	$	158,125	$	158,125	$	—	$	—	$	158,125
Marketable securities held to maturity		476,105		—		444,304		—		444,304
Loans, net		2,344,240		—		—		2,197,175		2,197,175
Accrued interest receivable		10,443		—		10,443		—		10,443
Nonmarketable equity securities		29,211		—		29,211		—		29,211
Financial liabilities:
Deposits	$	2,623,368	$	2,150,050	$	470,651	$	—	$	2,620,701
Securities sold under repurchase agreements		13,338		—		13,338		—		13,338
Accrued interest payable		3,863		—		3,863		—		3,863
Federal Home Loan Bank advances		340,000		—		339,952		—		339,952
Subordinated debt		49,186		—		49,601		—		49,601


	Fair value measurements as of December 31, 2022 using:
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	$	106,467	$	106,467	$	—	$	—	$	106,467
Marketable securities held to maturity		509,008		—		475,068		—		475,068
Loans, net		2,344,245		—		—		2,217,606		2,217,606
Accrued interest receivable		11,555		—		11,555		—		11,555
Nonmarketable equity securities		25,585		—		25,585		—		25,585
Financial liabilities:
Deposits	$	2,681,154	$	2,326,615	$	351,981	$	—	$	2,678,596
Securities sold under repurchase agreements		7,221		—		7,221		—		7,221
Accrued interest payable		2,348		—		2,348		—		2,348
Federal Home Loan Bank advances		290,000		—		289,926		—		289,926
Subordinated debt		49,153		—		50,025		—		50,025

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values (Level 1).

(Continued)

32.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Marketable Securities Held to Maturity: The fair values for marketable securities held to maturity are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Loans, net: The fair value of fixed-rate loans and variable-rate loans that reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality (Level 3).

Nonmarketable Equity Securities: It is not practical to determine the fair value of Independent Bankers Financial Corporation, Federal Home Loan Bank, Federal Reserve Bank and other stock due to restrictions placed on its transferability.

Deposits and Securities Sold Under Repurchase Agreements: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 1). The fair values of deposit liabilities with defined maturities are estimated by discounting future cash flows using interest rates currently offered for deposits of similar remaining maturities (Level 2).

Other Borrowings: The fair value of borrowings, consisting of lines of credit, Federal Home Loan Bank advances and subordinated debt is estimated by discounting future cash flows using currently available rates for similar financing (Level 2).

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest approximate their fair values (Level 2).

Off-balance Sheet Instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

NOTE 14 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average common shares outstanding for the period. Net losses attributable to the noncontrolling interest during the three months ended March 31, 2023 were $4, and is excluded from this calculation. There were no earnings or losses attributable to the noncontrolling interest during the three months ended March 31, 2022. Diluted earnings per share reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net earnings of the Company. Dilutive share equivalents include stock-based awards issued to employees.

Stock options granted by the Company are treated as potential shares in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

(Continued)

33.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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


	Three Months Ended March 31,
	2023		2022
Numerator:
Net earnings attributable to Guaranty Bancshares, Inc.	$	8,281	$	10,738

Denominator:
Weighted-average shares outstanding (basic)		11,939,593		12,109,074
Effect of dilutive securities:
Common stock equivalent shares from stock options		72,411		151,871
Weighted-average shares outstanding (diluted)		12,012,004		12,260,945

Net earnings attributable to Guaranty Bancshares, Inc. per share
Basic	$	0.69	$	0.89
Diluted	$	0.69	$	0.88

(Continued)

34.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) and any subsequent Quarterly Reports on Form 10-Q, the risk factors appearing in Item 1A of Part II of this Report, and the other risks and uncertainties listed from time to time in our reports and documents filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2022. Unless the context indicates otherwise, references in this Report to “we,” “our,” “us,” and the “Company” refer to Guaranty Bancshares, Inc., a Texas corporation, and its consolidated subsidiaries. References in this Report to “Guaranty Bank & Trust” and the “Bank” refer to Guaranty Bank & Trust, N.A., a national banking association and our wholly-owned consolidated subsidiary.

General

We were incorporated in 1990 to serve as the holding company for Guaranty Bank & Trust. Since our founding, we have built a reputation based on financial stability and community leadership. In May 2017, we consummated an initial public offering of our common stock, which began trading on the Nasdaq Global Select Market until March 7, 2023, at which time our listing was transferred to the New York Stock Exchange, where our common stock continues to trade under the symbol "GNTY".

We currently operate 32 banking locations in the East Texas, Dallas/Fort Worth, Houston and Central Texas regions of the state. Our principal executive office is located at 16475 Dallas Parkway, Suite 600, Addison, Texas, 75001 and our telephone number is (888) 572-9881. Our website address is www.gnty.com. Information contained on our website does not constitute a part of this Report and is not incorporated by reference into this filing or any other report.

As a bank holding company that operates through one segment, we generate most of our revenue from interest on loans and investments, customer service and loan fees, fees related to the sale of mortgage loans, and trust and wealth management services. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.

Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders' equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the State of Texas.

RISK MANAGEMENT HIGHLIGHTS

In light of recent events, we are providing additional information below to highlight various risk management practices, as well as additional detail around the lower risk nature, composition and size of our loans, deposits and investment securities. These highlights help illustrate the more traditional and stable nature of our Bank model.

•

Granular and Reliable Deposit Base. As of March 31, 2023, we have 84,233 total deposit accounts with an average balance of $31,148. Excluding time deposits, 56.8% of our depositors have been customers of our Bank for more than 5 years and 89.0% have been customers for more than one year. We have a historically reliable core deposit base, with strong and trusted banking relationships, which was illustrated by an increase in total deposits of $8.3 million during March, despite general consumer uncertainty caused by the two bank failures in mid-March. Total deposits decreased $57.3 million in January, decreased by $8.8 million in February and increased by $8.3 million in March of 2023.

(Continued)

35.

As of March 31, 2023, our deposits accounts consisted of the following:


	March 31, 2023
(dollars in thousands)	Balance		Number of Accounts		Average Balance		% of Total Deposits
Consumer	$	1,379,264		71,635	$	19		52.6	%
Commercial		960,904		12,040		80		36.6	%
Public funds		283,200		548		517		10.8	%
Total deposits	$	2,623,368		84,223	$	31		100.0	%

Our level of uninsured deposits, excluding affiliate deposits (Guaranty-owned funds), public funds (all of which are collateralized) and director/officer accounts, is 30.3%. As of March 31, 2023, our total uninsured deposits of $994.1 million consisted of the following:


	March 31, 2023
(dollars in thousands)	Balance			Uninsured Balance			% Uninsured of Total Deposits
Affiliate deposits	$	13,768		$	12,708			0.5	%
Customers		2,267,628			686,464			26.2	%
Public funds		283,200			267,072			10.2	%
Directors and officers		58,772			27,835			1.1	%
Total	$	2,623,368		$	994,079			37.9	%

Excluding public funds	$	(283,200	)	$	(267,072	)
Excluding affiliate deposits		(13,768	)		(12,708	)
Total, excluding public funds and affiliate deposits	$	2,326,400		$	714,299			30.7	%

Excluding directors and officers	$	(58,772	)	$	(27,835	)
Total, excluding public funds, affiliate deposits and directors and officers	$	2,267,628		$	686,464			30.3	%

As an additional resource to our uninsured depositors, we implemented the IntraFi CDARS program in late March 2023, which we began offering to our customers beginning April 1, 2023. This program allows deposit customers to obtain full FDIC deposit insurance while maintaining one time deposit relationship with our Bank.

We continued to increase interest rates paid on deposits during the quarter in order to pay competitive rates, however noninterest-bearing deposits continue to represent 37.8% of total deposits. Our cost of interest-bearing deposits increased 83 basis points during the quarter from 1.08% in the prior quarter to 1.91%, representing a beta on interest-bearing deposits of approximately 96.4% for the linked quarter. Our cost of total deposits (cost of funds) for the first quarter of 2023 increased 54 basis points from 0.64% in the prior quarter to 1.18%, representing a beta on total deposits of approximately 62.7% for the linked quarter.

On a trailing 12 month basis, our cost of interest-bearing deposits increased 66 basis points, from 0.32% at March 31, 2022 to 0.98% at March 31, 2023, representing a beta on interest-bearing deposits of approximately 24.5%. Our cost of total deposits increased 39 basis points from 0.20% at March 31, 2022 to 0.59%, representing a beta on total deposits of approximately 14.5%.

•

Granular Loan Portfolio and Concentration Risk. Loan concentrations create risk that should be closely monitored and limited. We do not have significant concentrations to any one borrower, industry or geography, other than loans within Texas. Our credit administration committee meets at least monthly and monitors the loan portfolio against internal guidelines and limits using NAICS codes, industry classifications, geography, call report codes and other metrics. Although our legal loan limit is nearly $54.2 million, we have an internal loan limit of $30.0 million and rarely approve large loans without a significant borrower relationship and robust underwriting. As shown in the table below, our large loan concentration commitments and outstanding balances as of March 31, 2023 are reasonable:


	March 31, 2023
(dollars in thousands)	Number of Accounts		Total Commitment		Balance		Weighted Average LTV
> $ 5 million		65	$	459,788	$	363,314		69.99	%
> $ 10 million		10		139,513		93,544		50.98	%
> $ 20 million		2		43,240		31,103		58.22	%
Total		77	$	642,541	$	487,961		65.07	%

(Continued)

36.

Commercial real estate (CRE) loans, particularly office related loans, have received increased scrutiny in recent months. Our CRE loans and real estate C&D loans represent 37.9% and 15.7% of the total loan portfolio, respectively. Office related loans represent 4.0% of the total loan portfolio, have an average balance of $504,000, 46.5% are owner occupied and only 21 of the 189 loans have committed balances over $1.0 million.

The table below illustrates the diversity of our portfolio as well as the relatively large number of lower average balance loans as of March 31, 2023:


	March 31, 2023
(dollars in thousands)	Balance		Number of Accounts		Average Balance		% of Total Loans
Commercial and industrial	$	295,936		1,893	$	156		12.4	%
Real estate:
Construction and development		372,203		902		413		15.7	%
Commercial real estate		900,190		1,057		852		37.9	%
Farmland		190,802		527		362		8.0	%
1-4 family residential		499,944		2,999		167		21.0	%
Multi-family residential		44,760		36		1,243		1.9	%
Consumer		60,163		4,331		14		2.5	%
Agricultural		13,545		336		40		0.6	%
Overdrafts		270		—		—		0.0	%
Total loans	$	2,377,813		12,081	$	197		100.0	%

•

Good Asset Quality. Nonperforming assets as a percentage of total assets were 0.40% at March 31, 2023, compared to 0.32% at December 31, 2022 and 0.08% at March 31, 2022. Net charge-offs (annualized) to average loans were 0.00% for the quarter ended March 31, 2023, compared to 0.01% for the quarter ended December 31, 2022, and 0.02% for the quarter ended March 31, 2022. Consistent with our CECL methodology, we calculated and recorded a provision for credit losses of $2.8 million during the fourth quarter of 2022, as we incorporated recession forecasts for 2023 into our CECL model at that time. Due to minimal loan growth, minimal net charge-offs and minimal downward risk rating migrations during the first quarter of 2023, no additional ACL provision was necessary.

•

Conservative Investment Portfolio. Our investment policies and strategies only allow for non-complex investments with little or no credit risk. Strategically, we strive to maintain an average life in the portfolio of five years or less, with longer duration securities usually in high quality municipal bonds in areas we are familiar with. We also monitor portfolio cash flows to ensure a good source of near term liquidity, as well as defensive cash flows as duration extends. During late 2021 and early 2022, we had significant excess cash but did not believe the low yields on investments at that time warranted the interest rate risk. To slightly improve the yields meant investing in securities with much longer lives. Because of this disciplined approach, our total unrealized losses, including both AFS and HTM securities are manageable and low. The table below presents total unrealized losses as of March 31, 2023, along with estimated unrealized losses if interest rates increase or decrease by 100 basis points.


	March 31, 2023				Net Unrealized Loss
(dollars in thousands)	Amortized Cost		Estimated Fair Value		-100 bps			Actual			+100 bps
Available for sale	$	193,121	$	173,744	$	(11,295	)	$	(19,377	)	$	(27,366	)
Held to maturity		476,105		444,304		(14,770	)		(31,801	)		(49,041	)

•

Strong Capital and Liquidity. Our capital and liquidity ratios, as well as contingent liquidity sources, remain solid. We are taking advantage of low stock prices to repurchase shares of Company stock. During the first quarter of 2023, we repurchased 25,709 shares at an average price of $28.95 per share. Our liquidity ratio, calculated as cash, fed funds sold and non-pledged investments divided by total liabilities, was 14.7% as of quarter-end. Contingent liquidity sources and availability as of March 31 are provided below. Although we do not plan to access the Federal Reserve's Bank Term Funding Program (BTFP), we have $282.3 million of borrowing capacity based on the value of unpledged, par-value, securities available as collateral for this line. The table below shows our total lines of credit, current borrowings as of March 31, 2023 and total amounts available for future borrowings, if necessary.

(Continued)

37.


	March 31, 2023				Total Available for Future Liquidity
(dollars in thousands)	Line of Credit		Borrowings
FHLB advances	$	1,097,558	$	340,000	$	757,558
Federal Reserve discount window		243,900		—		243,900
Federal funds lines of credit		55,000		—		55,000
Correspondent bank line of credit		25,000		—		25,000
Federal Reserve Bank Term Funding Program		282,342		—		282,342
Total liquidity lines					$	1,363,800

The table below provides total equity information as if the unrealized loss on HTM securities was recognized as a reduction in total equity. This information illustrates the strength of our capital, even with net unrealized losses on all investment securities considered.


(dollars in thousands)	March 31, 2023
Total equity(1)	$	300,270
Less: net unrealized loss on HTM securities, tax effected		(25,123	)
Total equity, including net unrealized loss on AFS and HTM securities†	$	275,147

Net unrealized loss on AFS securities, tax effected		15,308
Net unrealized loss on HTM securities, tax effected		25,123
Net unrealized loss on AFS and HTM securities, tax effected	$	40,431

Net unrealized loss on securities as % of total equity(1)		13.5	%
Total equity before impact of unrealized losses†	$	315,578
Net unrealized loss on securities as % of total equity before impact of unrealized losses†		12.8	%

Total average assets	$	3,325,005
Total equity to average assets		9.0	%
Total equity, adjusted for tax effected net unrealized loss, to average assets†		8.3	%

(1) Includes the net unrealized loss on AFS securities, tax effected, of $15,308.
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.

Discussion and Analysis of Results of Operations for the Three Months Ended March 31, 2023 and 2022

Results of Operations

The following discussion and analysis compares our results of operations for the three months ended March 31, 2023 with the three months ended March 31, 2022. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

Net earnings attributable to Guaranty Bancshares, Inc. (which excludes the minority interest of consolidated subsidiaries) were $8.3 million for the three months ended March 31, 2023, as compared to $10.7 million for the three months ended March 31, 2022. The following table presents key earnings data for the periods indicated:


	Quarter Ended March 31,
(dollars in thousands, except per share data)	2023			2022
Net earnings attributable to Guaranty Bancshares, Inc.	$	8,281		$	10,738
Net earnings attributable to Guaranty Bancshares, Inc. per common share
-basic		0.69			0.89
-diluted		0.69			0.88
Net interest margin(1)		3.25	%		3.33	%
Net interest rate spread(2)		2.36	%		3.18	%
Return on average assets		1.01	%		1.38	%
Return on average equity		11.18	%		14.44	%
Average equity to average total assets		9.04	%		9.59	%
Cash dividend payout ratio		33.33	%		24.72	%

(1) Net interest margin is equal to net interest income divided by average interest-earning assets.
(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

Participation in the PPP1 and PPP2 program, as well as economic and COVID-related provisions for credit losses, created temporary extraordinary results in the calculation of net earnings and related performance ratios in comparable

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38.

prior periods. The following table illustrates net earnings and net core earnings results, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as net core performance ratios for the three months ended March 31, 2023 and 2022.


	Quarter Ended March 31,
(dollars in thousands, except per share data)	2023			2022
Net earnings attributable to Guaranty Bancshares, Inc.	$	8,281		$	10,738
Adjustments:
Provision for (reversal of) credit losses		—			(1,250	)
Income tax provision		1,823			2,235
PPP interest income, including fees		(2	)		(783	)
Net core earnings attributable to Guaranty Bancshares, Inc.†	$	10,102		$	10,940

Total average assets	$	3,325,005		$	3,146,339
Adjustments:
PPP loans average balance		(519	)		(36,720	)
Total average assets, adjusted†	$	3,324,486		$	3,109,619
Total average equity	$	300,449		$	301,579

PERFORMANCE RATIOS
Net earnings attributable to Guaranty Bancshares, Inc. to average assets (annualized)		1.01	%		1.38	%
Net earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)	$	11.18		$	14.44
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted (annualized)†		1.23			1.43
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)†		13.64			14.71

PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic		11,939,593			12,109,074
Earnings per common share, basic	$	0.69		$	0.89
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic†		0.85			0.90

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

Net Interest Income

Our operating results depend primarily on our net interest income. Fluctuations in market interest rates impact the yield and rates paid on interest-earning assets and interest-bearing liabilities, respectively. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

Net interest income, before the provision for credit losses, for the three months ended March 31, 2023 and 2022 was $25.2 million and $24.3 million, respectively, an increase of $839,000, or 3.4%. The increase in net interest income resulted primarily from a $11.3 million, or 43.5%, increase in interest income, which was offset by an increase in interest expense of $10.4 million, or 663.2%. Interest income on loans increased $9.9 million, or 44.4%, during the three months ended March 31, 2023 compared to the same period in 2022. Average loans outstanding, excluding PPP loans, for the three months ended March 31, 2023 was $2.39 billion, compared to $1.90 billion for the same period in 2022, an increase of $487.2 million, or 25.6%. The increase in average loans outstanding was due to organic growth. In addition, interest income on securities increased $1.0 million, or 32.7%, during the same period.

The $10.4 million increase in interest expense for the three months ended March 31, 2023 was primarily related to a $3.7 million increase in interest on FHLB advances and a $6.4 million increase in interest expense on deposits despite a $85.5 million, or 5.0%, decrease in average interest-bearing deposits. The increase in deposit-related interest expense was due to a 162 basis point increase in average rate paid on these deposits over the same period in 2022.

For the three months ended March 31, 2023, net interest margin on a taxable equivalent basis and net interest spread were 3.24% and 2.36%, respectively, compared to 3.37% and 3.18% for the same period in 2022, which reflects a a 126 basis point increase in the yield on interest-earning assets offset by 208 basis point increase in the rate on interest-bearing liabilities from the prior period. The increase in rates from the prior period is primarily due to market rate conditions during the three months ended March 31, 2023 compared to the same period of the prior year.

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39.

Average Balance Sheet Amounts, Interest Earned and Yield Analysis

The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for all major categories of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rates earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended March 31, 2023 and 2022, the amount of interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield.


	Quarter Ended March 31,
	2023								2022
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
ASSETS
Interest-earning assets:
Total loans(1)	$	2,388,045		$	32,157		5.46	%	$	1,937,000		$	22,272		4.66	%
Securities available for sale		184,572			1,068		2.35			328,737			1,618		2.00
Securities held to maturity		502,760			3,050		2.46			347,188			1,485		1.73
Nonmarketable equity securities		28,381			419		5.99			15,234			408		10.86
Interest-bearing deposits in other banks		34,986			450		5.22			334,871			110		0.13
Total interest-earning assets		3,138,744			37,144		4.80			2,963,030			25,893		3.54
Allowance for credit losses		(31,934	)							(30,205	)
Noninterest-earning assets		218,195								213,514
Total assets	$	3,325,005							$	3,146,339
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Interest-bearing deposits	$	1,624,610		$	7,655		1.91	%	$	1,710,157		$	1,242		0.29	%
Advances from FHLB and fed funds purchased		310,103			3,774		4.94			37,722			46		0.49
Line of credit		—			—		—			3,778			34		3.65
Subordinated debt		49,164			540		4.45			30,492			246		3.27
Securities sold under agreements to repurchase		10,974			13		0.48			10,916			2		0.07
Total interest-bearing liabilities		1,994,851			11,982		2.44			1,793,065			1,570		0.36
Noninterest-bearing liabilities:
Noninterest-bearing deposits		1,002,793								1,027,429
Accrued interest and other liabilities		26,912								24,266
Total noninterest-bearing liabilities		1,029,705								1,051,695
Equity		300,449								301,579
Total liabilities and equity	$	3,325,005							$	3,146,339
Net interest rate spread(2)							2.36	%							3.18	%
Net interest income				$	25,162							$	24,323
Net interest margin(3)							3.25	%							3.33	%
Net interest margin, fully taxable equivalent(4)							3.24	%							3.37	%

(1) Includes average outstanding balances of loans held for sale of $1.7 million and $3.2 million for the three months ended March 31, 2023 and 2022, respectively.
(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(4) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.

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40.

The Bank’s participation in the PPP program created temporary extraordinary results in the calculation of net interest margin. To illustrate the impact of the PPP program on net interest margin, the table below excludes PPP loans and their associated fees and costs for the three months ended March 31, 2023 and 2022:


	For the Three Months Ended
	March 31, 2023									March 31, 2022
(dollars in thousands)	Average Outstanding Balance			Interest Earned			Average Yield			Average Outstanding Balance			Interest Earned			Average Yield
Total interest-earning assets	$	3,138,744		$	37,144			4.80	%	$	2,963,030		$	25,893			3.54	%

Total loans		2,388,045			32,157			5.46			1,937,000			22,272			4.66
Adjustments:
PPP loans average balance and net fees(1)		(519	)		(2	)		1.56			(36,720	)		(783	)		8.65
Total loans, net of PPP effects	$	2,387,526		$	32,155			5.46	%	$	1,900,280		$	21,489			4.59	%

Total interest-earning assets, net of PPP effects†	$	3,138,225		$	37,142			4.80	%	$	2,926,310		$	25,110			3.48	%

Net interest income, fully taxable equivalent ("FTE")				$	25,103								$	24,624
Net interest margin, FTE								3.24	%								3.37	%
Net interest income, FTE, net of PPP effects†					25,101									23,841
Net interest margin, FTE, net of PPP effects†								3.24	%								3.30	%

† Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in "—Non-GAAP Financial Measures"
(1) Interest earned consists of interest income of $1,000 and $89,000, and net origination fees recognized in earnings of $1,000 and $694,000 for the three months ended March 31, 2023 and 2022, respectively.

The following table presents the change in interest income and interest expense for the periods indicated for all major components of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.


	For the Three Months Ended March 31, 2023 vs. 2022
	Increase (Decrease)
	Due to Change in						Total Increase
(in thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Total loans	$	5,255		$	4,630		$	9,885
Securities available for sale		(711	)		161			(550	)
Securities held to maturity		660			905			1,565
Nonmarketable equity securities		352			(341	)		11
Interest-earning deposits in other banks		(96	)		436			340
Total increase in interest income	$	5,460		$	5,791		$	11,251

Interest-bearing liabilities:
Interest-bearing deposits	$	(61	)	$	6,474		$	6,413
Advances from FHLB and fed funds purchased		329			3,399			3,728
Line of credit		(34	)		—			(34	)
Subordinated debt		151			143			294
Securities sold under agreements to repurchase		—			11			11
Total increase in interest expense		385			10,027			10,412
Increase (decrease) in net interest income	$	5,075		$	(4,236	)	$	839

Provision for Credit Losses

The provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by management based on factors such as historical loss experience, trends in classified and past due loans, volume and growth in the loan portfolio, current economic conditions in our markets and value of the underlying collateral. Loans are charged off against the allowance for credit losses when determined appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for credit losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the determination.

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41.

During the three months ended March 31, 2023, we recorded no additional provision for credit losses, compared to a reverse provision of $1.3 million during the same period in 2022. During the fourth quarter of 2022, we recorded a $2.8 million provision to incorporate economic forecasts for a recession into our CECL model. The factors that were adjusted in the fourth quarter of 2022 are still relevant and the economic projections remain consistent. Furthermore, there was minimal growth in the loan portfolio during the quarter, risk ratings have remained consistent and no other qualitative factors necessitated significant changes during the first quarter 2023. As of March 31, 2023, our allowance for credit losses as a percentage of total loans was 1.34%.

As of March 31, 2023, there were $17.3 million in loan balances past due 30 or more days, including $11.9 million in loan balances for nonperforming (nonaccrual) loans, compared to $9.9 million and $7.5 million, respectively, as of December 31, 2022, and $13.1 million and $2.7 million, respectively, as of March 31, 2022.

Noninterest Income

Our primary sources of recurring noninterest income are service charges on deposit accounts, merchant and debit card fees, fiduciary income, gains on the sale of both mortgage and SBA loans, and income from bank-owned life insurance. Noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.

The following table presents components of noninterest income for the three months ended March 31, 2023 and 2022 and the period-over-period variations in the categories of noninterest income:


	Quarter Ended March 31,				Increase (Decrease)
(in thousands)	2023		2022		2023 vs. 2022
Noninterest income:
Service charges	$	1,077	$	976	$	101
Gain on sales of investment securities		93		—		93
Gain on sale of loans		314		905		(591	)
Fiduciary and custodial income		638		642		(4	)
Bank-owned life insurance income		214		211		3
Merchant and debit card fees		1,674		1,611		63
Loan processing fee income		134		187		(53	)
Mortgage fee income		68		131		(63	)
Other noninterest income		693		1,816		(1,123	)
Total noninterest income	$	4,905	$	6,479	$	(1,574	)

Total noninterest income decreased $1.6 million, or 24.3%, for the three months ended March 31, 2023 compared to the same period in 2022. Material changes in the components of noninterest income are discussed below.

Service Charges on Deposit Accounts. We earn fees from our customers for deposit related services, and these fees typically constitute a significant and generally predictable component of our noninterest income. Service fee income was $1.1 million for the three months ended March 31, 2023 compared to $976,000 for the same period in 2022, an increase of $101,000, or 10.3%, resulting primarily from an increase in insufficient fund fee income, commercial account analysis income and other fee income for the three months ended March 31, 2022 compared to the same period in 2022.

Net Realized Gain on Securities Transactions. We sell securities from time-to-time, which results in gains or losses being recognized in the income statement as noninterest income. During the three months ended March 31, 2023 we sold securities for a net gain of $93,000. No securities were sold during the three months ended March 31, 2022.

Gain on Sale of Loans. We originate long-term fixed-rate mortgage loans and Small Business Administration (SBA) loans for resale into the secondary market. We sold 44 mortgage loans for $12.7 million during the three months ended March 31, 2023 compared to 108 mortgage loans for $28.2 million for the quarter ended March 31, 2022, which is consistent with the industry-wide decline in overall mortgage volumes attributable to increased mortgage loan rates. Gain on sale of loans was $314,000 for the three months ended March 31, 2023, a decrease of $591,000, or 65.3%, compared to $905,000 for the three months ended March 31, 2022. The gain reported in the current period was attributable entirely to the sale of mortgage loans of $314,000 and there were no SBA 7(a) loan sales, while the gain during the same period in the prior year consisted of $740,000 in mortgage loan sales and $165,000 in SBA 7(a) loan sales.

Merchant and Debit Card Fees. We earn interchange income related to the activity of our customers’ merchant debit card usage. Debit card interchange income was $1.7 million for the three months ended March 31, 2023, compared to $1.6 million for the same period in 2022, an increase of $63,000, or 3.9%. The increase was primarily due to growth in

(Continued)

42.

the number of DDAs and debit card usage volume during 2023. The total number of DDAs increased by 1,688 accounts, from 53,479 as of March 31, 2022 to 55,167 as of March 31, 2023.

Loan Processing Fee Income. Revenue earned from collection of loan processing fees was $134,000 for the three months ended March 31, 2023, compared to $187,000 for the same period in 2022, a decrease of $53,000, or 28.3%. The decrease in loan processing fee income is primarily attributable to a decrease in the volume of newly originated, renewed or extended loans during the period.

Mortgage Fee Income. Mortgage fee income consists of lender processing fees such as underwriting fees, administrative fees and funding fees that are collected from mortgage loans that the Bank intends to sell on the secondary
market. The decrease of $63,000, or 48.1%, from March 31, 2022 was primarily due to a lower volume of mortgage purchases and refinances during the three months ended March 31, 2023.

Other. This category includes a variety of other income producing activities, including loan origination fees, wire transfer fees, loan administration fees, and other fee income. Other noninterest income decreased $1.1 million, or 61.8%, for the three months ended March 31, 2023, compared to the same period in 2022 resulting primarily from a net gain of $685,000 from the termination of three interest rate swaps during the first quarter of 2022 as well a $171,000 negative swing on the fair value of SBA servicing assets from the first quarter of 2022 to the current period. Additionally, there was a decrease in warehouse lending fees of $84,000 due to a decrease in overall warehouse lending activity in 2023.

Noninterest Expense

Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of our facilities and our furniture, fixtures and office equipment, professional and regulatory fees, including FDIC assessments, data processing expenses, and advertising and promotion expenses.

For the three months ended March 31, 2023, noninterest expense totaled $20.0 million, an increase of $888,000, or 4.7%, compared to $19.1 million for the three months ended March 31, 2022. The following table presents, for the periods indicated, the major categories of noninterest expense:


	Quarter Ended March 31,				Increase (Decrease)
(in thousands)	2023		2022		2023 vs. 2022
Employee compensation and benefits	$	12,264	$	11,532	$	732
Non-staff expenses:
Occupancy expenses		2,830		2,711		119
Legal and professional fees		583		770		(187	)
Software and technology		1,396		1,209		187
Amortization		161		219		(58	)
Director and committee fees		199		205		(6	)
Advertising and promotions		267		407		(140	)
ATM and debit card expense		599		578		21
Telecommunication expense		183		186		(3	)
FDIC insurance assessment fees		301		233		68
Other noninterest expense		1,184		1,029		155
Total noninterest expense	$	19,967	$	19,079	$	888

Material changes in the components of noninterest expense are discussed below.

Employee Compensation and Benefits. Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $12.3 million for the three months ended March 31, 2023, an increase of $732,000, or 6.3%, compared to $11.5 million for the same period in 2022. Employee compensation and benefits expense increased due to higher salaries of $610,000 and higher insurance expense of $261,000, partially offset by lower bonus expense of $392,000.

Legal and Professional Fees. Legal and professional fees, which include audit, loan review and regulatory assessments other than FDIC insurance assessment fees, were $583,000 and $770,000 for the three months ended March 31, 2023 and 2022, respectively, a decrease of $187,000, or 24.3%. The decrease resulted primarily from $120,000 in

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43.

recruitment fees to acquire experienced officers during the three months ended March 31, 2022 that did not experienced in the current year.

Software and Technology. Software and technology expenses increased $187,000, or 15.5%, from $1.2 million for the three months ended March 31, 2022 to $1.4 million for the three months ended March 31, 2023. The increase is attributable primarily to additional technology investments and an increase in the cost of our core processing software.

Amortization. Amortization costs include amortization of software and core deposit intangibles. Amortization costs were $161,000 for the three months ended March 31, 2023, a decrease of $58,000, or 26.5%, compared to $219,000 for the same period in 2022. The primary reason for the decrease in amortization was due to a reduction in software amortization from $106,000 to $48,000 for the three months ended March 31, 2022 and 2023, respectively.

Advertising and Promotions. Advertising and promotion-related expenses were $267,000 and $407,000 for the three months ended March 31, 2023 and 2022, respectively, a decrease of $140,000, or 34.4%. The decrease was primarily due to fewer advertising campaigns during the current period compared to the same period in the prior year.

FDIC Insurance Assessment Fees. FDIC insurance assessment fees were $301,000 for the three months ended March 31, 2023, compared to $233,000 for the same period in 2022. The increase of $68,000, or 29.2%, was primarily due to an increase in the insurance assessment rate resulting from changes in certain financial ratios used in the calculation and an overall increase in our assessment base, which is calculated as average total assets less average tangible equity.

Other. This category includes operating and administrative expenses, such as stock option expense, expenses related to repossession of assets, small hardware and software purchases, expense of the value of stock appreciation rights, losses incurred on problem assets, losses on sale of other real estate owned and other assets, other real estate owned expense and write-downs, business development expenses (i.e., travel and entertainment, charitable contributions and club memberships), insurance and security expenses. Other noninterest expense increased $155,000, or 15.1%, from $1.0 million for the three months ended March 31, 2022 to $1.2 million for the three months ended March 31, 2023 due to a $69,000 increase in customer related check and wire transfer losses, a $25,000 increase in contributions, a $19,000 increase in postage and an $18,000 increase in training and education during the three months ended March 31, 2023.

Income Tax Expense

The amount of income tax expense we incur is influenced by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

For the three months ended March 31, 2023 and 2022, income tax expense totaled $1.8 million and $2.2 million, respectively. The decrease in income tax expense was primarily due to a decrease in net earnings before taxes of $2.9 million. Our effective tax rates for the three months ended March 31, 2023 and 2022 were 18.05% and 17.23%, respectively.

Discussion and Analysis of Financial Condition as of March 31, 2023

Assets

Our total assets remained relatively flat, increasing $4.8 million, or 0.1%, from $3.35 billion as of December 31, 2022 to $3.36 billion as of March 31, 2023. Our asset growth was primarily due to a $51.7 million, or 48.5%, increase in fed funds sold, partially offset by a $48.1 million, or 6.9%, decrease in total investment securities. Gross loans decreased $363,000 during the quarter.

Loan Portfolio

Our primary source of income is derived through interest earned on loans to small- to medium-sized businesses, commercial companies, professionals and individuals located in our primary market areas. A substantial portion of our loan portfolio consists of commercial and industrial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning asset base.

Our loan portfolio is the largest category of our earning assets. As of March 31, 2023 and December 31, 2022 total loans held for investment were $2.38 billion, decreasing $363,000 between periods. Additionally, $1.3 million and $3.2 million in loans were classified as held for sale as of March 31, 2023 and December 31, 2022, respectively.

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44.

Total loans, excluding those held for sale, as a percentage of deposits, were 90.6% and 88.7% as of March 31, 2023 and December 31, 2022, respectively. Total loans, excluding those held for sale, as a percentage of total assets, were 70.8% and 71.0% as of March 31, 2023 and December 31, 2022, respectively.

The following table summarizes our loan portfolio by type of loan and dollar change and percentage change from December 31, 2022 to March 31, 2023:


(in thousands)	As of March 31, 2023		As of December 31, 2022		Increase (Decrease)			Percent Change
Commercial and industrial	$	295,936	$	314,067	$	(18,131	)		(5.77	%)
Real estate:
Construction and development		372,203		377,135		(4,932	)		(1.31	%)
Commercial real estate		900,190		887,587		12,603			1.42	%
Farmland		190,802		185,817		4,985			2.68	%
1-4 family residential		499,944		493,061		6,883			1.40	%
Multi-family residential		44,760		45,147		(387	)		(0.86	%)
Consumer and overdrafts		60,433		61,676		(1,243	)		(2.02	%)
Agricultural		13,545		13,686		(141	)		(1.03	%)
Total loans held for investment	$	2,377,813	$	2,378,176	$	(363	)		(0.02	%)

Total loans held for sale	$	1,260	$	3,156	$	(1,896	)		(60.08	%)

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of March 31, 2023 are summarized in the following table:


	As of March 31, 2023
(in thousands)	One Year or Less		After One Through Five Years		After Five Through Fifteen Years		After Fifteen Years		Total
Commercial and industrial	$	90,384	$	138,414	$	64,943	$	2,195	$	295,936
Real estate:
Construction and development		197,084		56,067		72,757		46,295		372,203
Commercial real estate		42,243		257,653		295,206		305,088		900,190
Farmland		16,823		87,512		44,662		41,805		190,802
1-4 family residential		26,804		42,047		182,118		248,975		499,944
Multi-family residential		1,447		21,007		16,472		5,834		44,760
Consumer		12,826		43,379		2,181		2,047		60,433
Agricultural		8,528		4,580		437		—		13,545
Total loans	$	396,139	$	650,659	$	678,776	$	652,239	$	2,377,813
Amounts with fixed rates	$	238,113	$	507,638	$	44,163	$	42,885	$	832,799
Amounts with adjustable rates	$	158,026	$	143,021	$	634,613	$	609,354	$	1,545,014

Nonperforming Assets

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured.

We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have several procedures in place to assist us in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

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45.

Nonperforming assets as a percentage of total loans were 0.56% at March 31, 2023, compared to 0.46% at December 31, 2022. The Bank's nonperforming assets consist primarily of nonaccrual loans. Four Small Business Administration (SBA) 7(a), partially guaranteed (75%) loans acquired in the June 2018 acquisition of Westbound Bank were added to nonaccrual status during the second quarter of 2022 and carried a combined book balance of $6.7 million as of March 31, 2023. Management continues to work toward a satisfactory resolution for these four loans, which are collateralized by two hotels. In the event of foreclosure, a significant loss is not expected due to their estimated current collateral values. There are an additional three nonaccrual loans that are secured by single family real estate and have combined total book balances of $2.9 million as of March 31, 2023. Management is working toward a satisfactory resolution on these loans and expects losses, if any, to be minimal due to low loan-to-value ratios and/or guarantor support.

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


(dollars in thousands)	March 31, 2023			December 31, 2022
Nonaccrual loans	$	13,405		$	10,848
Accruing loans 90 or more days past due		—			—
Total nonperforming loans		13,405			10,848
Other real estate owned:
Residential real estate		38			38
Total other real estate owned		38			38
Repossessed assets owned		—			—
Total other assets owned		38			38
Total nonperforming assets	$	13,443		$	10,886
Ratio of nonaccrual loans to total loans(1)		0.56	%		0.46	%
Ratio of nonperforming loans to total loans(1)		0.56	%		0.46	%
Ratio of nonperforming assets to total loans(1)		0.57	%		0.46	%
Ratio of nonperforming assets to total assets		0.40	%		0.32	%

(1) Excludes loans held for sale of $1.3 million and $3.2 million as of March 31, 2023 and December 31, 2022, respectively.

The following table presents nonaccrual loans by category as of:


(in thousands)	March 31, 2023		December 31, 2022
Commercial and industrial	$	608	$	115
Real estate:
Construction and development		2,496		1,435
Commercial real estate		6,956		7,271
Farmland		109		109
1-4 family residential		3,040		1,691
Consumer and overdrafts		154		170
Agricultural		42		57
Total	$	13,405	$	10,848

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of five risk ratings: pass, special mention, substandard, doubtful or loss. Within the pass rating, we classify loans into one of the following five subcategories based on perceived credit risk, including repayment capacity and collateral security: superior, excellent, good, acceptable and acceptable/watch. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings on credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is believed to be inherent in each credit as of each monthly reporting period. Our methodology is structured so that specific ACL allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

Credits rated special mention show clear signs of financial weaknesses or deterioration in creditworthiness; however, such concerns are not so pronounced that we generally expect to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to reduce exposure and to assure that adequate remedial measures are taken by the

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46.

borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

Credits rated as doubtful have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values.

Credits rated as loss are charged off. We have no expectation of the recovery of any payments in respect of credits rated as loss.

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


	March 31, 2023
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	293,534	$	927	$	867	$	—	$	—	$	608	$	295,936
Real estate:
Construction and development		368,814		893		—		—		—		2,496		372,203
Commercial real estate		879,922		7,252		6,060		—		—		6,956		900,190
Farmland		190,603		—		90		—		—		109		190,802
1-4 family residential		496,689		215		—		—		—		3,040		499,944
Multi-family residential		44,760		—		—		—		—		—		44,760
Consumer and overdrafts		60,232		47		—		—		—		154		60,433
Agricultural		13,478		—		25		—		—		42		13,545
Total	$	2,348,032	$	9,334	$	7,042	$	—	$	—	$	13,405	$	2,377,813


	December 31, 2022
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	311,685	$	1,369	$	898	$	—	$	—	$	115	$	314,067
Real estate:
Construction and development		374,795		905		—		—		—		1,435		377,135
Commercial real estate		867,426		7,321		5,569		—		—		7,271		887,587
Farmland		185,615		—		93		—		—		109		185,817
1-4 family residential		491,171		199		—		—		—		1,691		493,061
Multi-family residential		45,147		—		—		—		—		—		45,147
Consumer and overdrafts		61,456		50		—		—		—		170		61,676
Agricultural		13,594		3		32		—		—		57		13,686
Total	$	2,350,889	$	9,847	$	6,592	$	—	$	—	$	10,848	$	2,378,176

Allowance for Credit Losses

We maintain an allowance for credit losses (“ACL”) that represents management’s best estimate of the appropriate level of losses and risks inherent in our applicable financial assets under the current expected credit loss model. The amount of the allowance for credit losses should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. The determination of the amount of allowance involves a high degree of judgment and subjectivity.

For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings through provision for credit loss expense. As of March 31, 2023, the Company determined that all available for sale securities that experienced a decline in fair value below the amortized costs basis were due to noncredit-related factors, therefore no related ACL was recorded and there was no related provision expense recognized during the three months ended March 31, 2023.

For held to maturity debt securities, the Company evaluates expected credit losses on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is

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47.

adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage backed securities issued by the U.S. governments, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to municipal securities, management considers 1) issuer bond ratings, 2) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, 3) internal forecasts and 4) whether or not such securities are guaranteed by the Texas Permanent School Fund or pre-refunded by the issuers. As of March 31, 2023, the Company determined there were no credit related concerns that warrant an ACL for the held to maturity portfolio.

In determining the ACL for loans held for investment, we primarily estimate losses on segments of loans with similar risk characteristics and where the potential loss can be identified and reasonably determined. For loans that do not share similar risk characteristics with our existing segments, they are evaluated individually for an ACL. Our portfolio is segmented by regulatory call report codes, with additional segments for warehouse mortgage loans, SBA loans acquired from Westbound Bank and for SBA loans originated by us. The segments are further disaggregated by internally assigned risk rating classifications. The balance of the ACL is determined using the current expected credit loss model, which considers historical loan loss rates, changes in the nature of our loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and reasonable and supportable forecasts of the impact of future economic conditions on loan loss rates. Please see “Critical Accounting Policies - Allowance for Credit Losses.”

In connection with the review of our loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:

•

for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;

•

for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio, operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;

•

for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and

•

for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio.

As of March 31, 2023, the allowance for credit losses totaled $32.0 million, or 1.34%, of total loans, excluding those held for sale. As of December 31, 2022, the allowance for credit losses totaled $32.0 million, or 1.34%, of total loans, excluding those held for sale. There was no provision during the quarter and the relative consistency from the prior quarter, which decreased $21,000, or 0.1%, is primarily due to a $2.8 million provision made in the fourth quarter of 2022 to incorporate economic recession forecasts into our CECL model. The factors that were adjusted in the fourth quarter of 2022 are still relevant and the economic projections remained consistent through the first quarter of 2023. Furthermore, there was minimal growth in the loan portfolio, risk ratings have remained consistent and no other qualitative factors necessitated significant changes during the three months ended March 31, 2023.

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48.

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


	As of and For The Three Months Ended March 31,						As of and For The Year Ended December 31,
(dollars in thousands)	2023			2022			2022
Average loans outstanding(1)	$	2,388,045		$	1,937,000		$	2,126,810
Gross loans outstanding at end of period(2)		2,377,813			2,014,061			2,378,176
Allowance for credit losses at beginning of the period		31,974			30,433			30,433
Reversal of provision for credit losses		—			(1,250	)		2,150
Charge offs:
Commercial and industrial		3			119			192
Real estate:
Consumer		7			17			322
Agriculture		3			—			—
Overdrafts		81			67			335
Total charge-offs		94			203			849
Recoveries:
Commercial and industrial		8			39			72
Real estate:
Commercial real estate		—			1			1
1-4 family residential		—			30			30
Consumer		45			16			55
Agriculture		2			—			—
Overdrafts		18			30			82
Total recoveries		73			116			240
Net charge-offs		21			87			609
Allowance for credit losses at end of period	$	31,953		$	29,096		$	31,974
Ratio of allowance to end of period loans(2)		1.34	%		1.44	%		1.34	%
Ratio of net charge-offs to average loans(1)		0.00	%		0.00	%		0.03	%

Total nonaccrual loans	$	13,405		$	2,682		$	10,848
Ratio of allowance to nonaccrual loans		238.4	%		1084.9	%		294.7	%

(1) Includes average outstanding balances of loans held for sale of $1.7 million, $3.2 million and $2.4 million for the three months ended March 31, 2023 and 2022, and for the year ended December 31, 2022, respectively.
(2) Excludes loans held for sale of $1.3 million, $1.2 million and $3.2 million for the three months ended March 31, 2023 and 2022, and for the year ended December 31, 2022, respectively.

The ratio of allowance for credit losses to nonperforming loans decreased from 294.7% at December 31, 2022 to 238.4% at March 31, 2023. Nonperforming loans increased to $13.4 million at March 31, 2023, compared to $10.8 million at December 31, 2022.

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


	Quarter Ended March 31,
	2023			2022
Commercial and industrial		—			0.03	%
Real estate:
1-4 family residential		—			(0.01	%)
Consumer		(0.06	%)		—
Agricultural		0.01	%		—
Overdrafts		14.89	%		8.26	%
Net charge-offs to total loans		0.00	%		0.00	%

Although we believe that we have established our allowance for credit losses in accordance with GAAP and that the allowance for credit losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio. If our primary market areas experience economic declines, if asset quality deteriorates or if we are successful in growing the size of our loan portfolio, our allowance could become inadequate and material additional provisions for credit losses could be required.

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49.

The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for credit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.


	As of March 31, 2023					As of December 31, 2022
(in thousands)	Amount		Percent to Total Loans			Amount		Percent to Total Loans
Commercial and industrial	$	4,148		12.98	%	$	4,382		13.70	%
Real estate:
Construction and development		4,864		15.22	%		4,889		15.29	%
Commercial real estate		12,690		39.71	%		12,658		39.59	%
Farmland		2,086		6.53	%		2,008		6.28	%
1-4 family residential		6,641		20.78	%		6,617		20.69	%
Multi-family residential		479		1.50	%		490		1.53	%
Total real estate		26,760		83.74	%		26,662		83.38	%
Consumer and overdrafts		901		2.82	%		781		2.44	%
Agricultural		144		0.46	%		149		0.48	%
Total allowance for credit losses	$	31,953		100.00	%	$	31,974		100.00	%

Securities

We use our securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of March 31, 2023, the carrying amount of our investment securities totaled $649.8 million, a decrease of $48.1 million, or 6.9%, compared to $697.9 million as of December 31, 2022. Investment securities represented 19.4% and 20.8% of total assets as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, securities available for sale totaled $173.7 million and securities held to maturity, which includes certain securities transferred from our available for sale portfolio during the prior year, totaled $476.1 million. As of December 31, 2022, securities available for sale totaled $188.9 million and securities held to maturity totaled $509.0 million.

The carrying values of our investment securities classified as available for sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in equity. As of March 31, 2023, the Company determined that all available for sale securities that experienced a decline in fair value below their amortized cost basis were impacted by noncredit-related factors and that securities held to maturity have not experienced credit deterioration; therefore, the Company carried no ACL with respect to our securities portfolio at March 31, 2023.

From time to time, we have reclassified certain securities from available for sale to held to maturity. Such transfers are made at fair value at the date of transfer. The net unrealized holding gains or losses at the date of transfer are retained in other comprehensive income and in the carrying value of the held to maturity securities and are amortized over the remaining life of the security. The net unamortized, unrealized loss remaining on transferred securities included in accumulated other comprehensive loss in the accompanying balance sheets totaled $6.2 million at March 31, 2023, compared to a net unamortized, unrealized loss of $5.9 million at December 31, 2022. This amount will be amortized out of accumulated other comprehensive loss over the remaining life of the underlying securities as an adjustment of the yield on those securities.

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


	As of March 31, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	9,178	$	—	$	1,166	$	8,012
Treasury securities		113,939		—		1,915		112,024
Corporate bonds		29,943		—		2,302		27,641
Municipal securities		185,172		886		7,575		178,483
Mortgage-backed securities		269,325		—		30,335		238,990
Collateralized mortgage obligations		61,669		3		8,774		52,898
Total	$	669,226	$	889	$	52,067	$	618,048

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50.


	As of December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	9,141	$	—	$	1,259	$	7,882
Treasury securities		133,735		—		2,921		130,814
Corporate bonds		29,964		—		2,177		27,787
Municipal securities		202,004		984		8,293		194,695
Mortgage-backed securities		278,589		1		30,264		248,326
Collateralized mortgage obligations		63,740		3		9,252		54,491
Total	$	717,173	$	988	$	54,166	$	663,995

We do not hold any Fannie Mae or Freddie Mac preferred stock, collateralized debt obligations, structured investment vehicles or second lien elements in our investment portfolio. As of March 31, 2023 and December 31, 2022, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages, non-U.S. agency mortgage-backed securities or corporate collateralized mortgage obligations.

The following tables set forth the fair value of available for sale securities and the amortized cost of held to maturity securities, expected maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of our securities portfolio as of the dates indicated.


	As of March 31, 2023
	Within One Year			After One Year but Within Five Years			After Five Years but Within Ten Years			After Ten Years			Total
(dollars in thousands)	Amount		Yield	Amount		Yield	Amount		Yield	Amount		Yield	Total		Yield
U.S. government agencies	$	—	—	$	—	—	$	9,178	1.35%	$	—	—	$	9,178	1.35%
Treasury securities		74,828	1.79%		39,111	2.91%		—	—		—	—		113,939	2.18%
Corporate bonds		—	—		9,691	3.41%		17,950	4.00%		—	—		27,641	3.80%
Municipal securities		16,633	3.38%		43,041	2.94%		61,425	3.09%		64,289	3.31%		185,388	3.15%
Mortgage-backed securities		2,689	1.85%		65,982	1.83%		168,258	2.45%		16,787	2.91%		253,716	2.33%
Collateralized mortgage obligations		304	3.29%		10,628	2.96%		37,416	2.00%		11,639	1.24%		59,987	1.98%
Total	$	94,454	2.08%	$	168,453	2.50%	$	294,227	2.59%	$	92,715	2.89%	$	649,849	2.54%


	As of December 31, 2022
	Within One Year			After One Year but Within Five Years			After Five Years but Within Ten Years			After Ten Years			Total
(dollars in thousands)	Amount		Yield	Amount		Yield	Amount		Yield	Amount		Yield	Total		Yield
U.S. government agencies	$	—	—	$	—	—	$	9,141	1.35%	$	—	—	$	9,141	1.35%
Treasury securities		64,798	1.46%		68,937	2.51%		—	—		—	—		133,735	2.00%
Corporate bonds		—	—		9,690	3.41%		18,097	4.00%		—	—		27,787	3.80%
Municipal securities		19,151	3.48%		46,087	3.18%		56,844	3.21%		80,240	3.44%		202,322	3.32%
Mortgage-backed securities		3,042	2.43%		80,292	1.91%		170,487	2.51%		9,213	1.93%		263,034	2.31%
Collateralized mortgage obligations		626	3.82%		25,772	2.79%		32,107	1.47%		3,411	1.09%		61,916	1.98%
Total	$	87,617	1.95%	$	230,778	2.49%	$	286,676	2.57%	$	92,864	3.15%	$	697,935	2.54%

The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and collateralized mortgage obligations are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities typically cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing

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interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and, consequently, the average life of this security is typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 5.01 years with an estimated effective duration of 4.03 years as of March 31, 2023.

As of March 31, 2023 and December 31, 2022, respectively, we did not own securities of any one issuer, other than the U.S. government and its agencies, for which aggregate adjusted cost exceeded 10.0% of equity.

The average yield of our securities portfolio was 2.54% as of March 31, 2023 and December 31, 2022. Average yield remained flat primarily due to an 18 basis point increase in yield on treasury securities and a 16 basis point decrease in yield on municipal securities. As of March 31, 2023, the fair value of available for sale and amortized cost of held to maturity mortgage-backed securities and municipal securities comprised 39.0% and 28.5% of the portfolio, respectively. As of December 31, 2022, mortgage-backed securities and municipal securities comprised 37.7% and 29.0% of the portfolio, respectively.

Deposits

We offer a variety of deposit products, which have a wide range of interest rates and terms, including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.

Average total deposits for the three months ended March 31, 2023 were $2.63 billion, a decrease of $125.4 million, or 2.7%, compared to $2.75 billion for the year ended December 31, 2022. The average rate paid on total interest-bearing deposits was 1.91% and 0.58% for the three months ended March 31, 2023 and year ended December 31, 2022, respectively. The increase in average rates between periods was driven primarily by the cumulative 50 basis point increase in market rates made by the Federal Reserve during the first quarter of 2023, the 125 cumulative basis point during the fourth quarter of 2022 and the effect of increasing rates throughout 2022.

The following table presents the average balance of, and rate paid on, deposits for the periods indicated:


	Three Months Ended March 31,
	2023					2022
(dollars in thousands)	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
NOW and interest-bearing demand accounts	$	312,989		0.95	%	$	414,839		0.24	%
Savings accounts		138,690		0.75	%		134,974		0.10	%
Money market accounts		762,676		2.31	%		835,554		0.25	%
Certificates and other time deposits		410,255		2.29	%		324,790		0.58	%
Total interest-bearing deposits		1,624,610		1.91	%		1,710,157		0.29	%
Noninterest-bearing demand accounts		1,002,793		0	%		1,027,429		0	%
Total deposits	$	2,627,403		1.18	%	$	2,737,586		0.18	%

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


(dollars in thousands)	For the Three Months Ended March 31, 2023		For the Year Ended December 31, 2022		Increase (Decrease) ($)			Increase (Decrease) (%)
NOW and interest-bearing demand accounts	$	312,989	$	364,941	$	(51,952	)		(14.24	%)
Savings accounts		138,690		141,484		(2,794	)		(1.97	%)
Money market accounts		762,676		831,833		(69,157	)		(8.31	%)
Certificates and other time deposits		410,255		332,029		78,226			23.56	%
Total interest-bearing deposits		1,624,610		1,670,287		(45,677	)		(2.73	%)
Noninterest-bearing demand accounts		1,002,793		1,082,513		(79,720	)		(7.36	%)
Total deposits	$	2,627,403	$	2,752,800	$	(125,397	)		(4.56	%)

The ratio of average noninterest-bearing deposits to average total deposits for the three months ended March 31, 2023 and year ended December 31, 2022 was 38.2% and 39.3%, respectively.

Total deposits as of March 31, 2023 were $2.62 billion, a decrease of $57.8 million, or 2.2%, compared to $2.68 billion as of December 31, 2022.

Noninterest-bearing deposits as of March 31, 2023 were $992.5 million compared to $1.05 billion as of December 31, 2022, a decrease of $59.6 million, or 5.7%.

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Total interest-bearing deposits as of March 31, 2023 and December 31, 2022 were $1.63 billion, which represented a slight increase of $1.8 million, or 0.1%.

The aggregate amount of certificates and other time deposits in denominations greater than $250,000 as of March 31, 2023 and December 31, 2022 was $186.9 million and $130.0 million, respectively.

The amount of uninsured certificates of deposit will differ from the total amount of certificates of deposit greater than $250,000 due to various factors, including joint account ownership The following table sets forth the amount of uninsured certificates of deposit greater than $250,000 by time remaining until maturity as of:


(dollars in thousands)	March 31, 2023
Under 3 months	$	16,598
3 to 6 months		23,290
6 to 12 months		81,027
Over 12 months		33,425
Total	$	154,340

Borrowings

We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.

Federal Home Loan Bank (FHLB) Advances. The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of March 31, 2023 and December 31, 2022, total borrowing capacity of $757.6 million and $755.0 million, respectively, was available under this arrangement. Our outstanding FHLB advances mature within two years. As of March 31, 2023, approximately $1.99 billion in real estate loans were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to hedge interest rate risk.

The following table presents our FHLB borrowings by maturity and weighted average rate as of March 31, 2023:


(dollars in thousands)	Balance		Weighted Average Interest Rate
Less than 90 days	$	180,000		4.97	%
90 days to less than one year		150,000		5.07	%
One to three years		10,000		4.38	%
Total	$	340,000		4.74	%

Federal Reserve Bank of Dallas. The Federal Reserve Bank of Dallas has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain commercial and industrial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. As of March 31, 2023 and December 31, 2022, $243.9 million and $227.6 million, respectively, were available under this arrangement. As of March 31, 2023 and December 31, 2022, approximately $308.4 million and $289.5 million, respectively, in consumer and commercial and industrial loans were pledged as collateral. As of March 31, 2023 and December 31, 2022, no borrowings were outstanding under this arrangement.

Subordinated Debt, Trust Preferred Securities and Other Debentures. We have issued subordinated debentures relating to the issuance of trust preferred securities. In July 2006, we formed Guaranty (TX) Capital Trust III, which issued $2.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $62,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $2.1 million of the Company’s junior subordinated debentures, which will mature on October 1, 2036.

In March 2015, we acquired DCB Trust I, which issued $5.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $155,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $5.2 million of the Company’s junior subordinated debentures, which will mature on June 15, 2037.

With certain exceptions, the amount of the principal and any accrued and unpaid interest on the debentures are subordinated in right of payment to the prior payment in full of all of our senior indebtedness. The terms of the debentures are such that they qualify as Tier 1 capital under the Federal Reserve’s regulatory capital guidelines applicable to bank

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holding companies. Interest on the Trust III Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.67%. Interest on the DCB Trust I Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.80%. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the debentures.

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

On March 4, 2022, the Company completed a private placement of $35.0 million aggregate principal amount of its fixed-to-floating rate subordinated note due April 1, 2032. The subordinated note initially bears a fixed interest rate of 3.625% per year, due semi-annually in arrears on April 1 and October 1. Commencing on April 1, 2027, the interest rate on the subordinated note will reset each quarter at a floating interest rate equal to the then-current three month term SOFR plus 192 basis points. The Company may at its option redeem in whole or in part the subordinated note on or after March 4, 2027 without a premium. The subordinated note is treated as Tier 2 Capital for regulatory purposes (subject to reductions in the amount includable as Tier 2 capital in the final five years prior to maturity), and is presented net of $531,000 in related unamortized debt issuance costs on the consolidated balance sheets.

On May 1, 2020, the Company issued $10.0 million in debentures to directors and other related parties. The debentures have stated maturity dates between November 1, 2020 and November 1, 2024, and bear interest at fixed annual rates between 1.00% and 4.00%. The Company pays interest semi-annually on May 1st and November 1st in arrears during the term of the debentures. Various portions of these debentures have matured since issuance and $7.5 million remains outstanding as of March 31, 2023. The debentures are redeemable by the Company at its option, in whole in or part, at any time on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued but unpaid interest.

Other Borrowings. We have historically used a line of credit with a correspondent bank as a source of funding for working capital needs, the payment of dividends when there is a temporary timing difference in cash flows, and repurchases of equity securities. In March 2017, we entered into an unsecured revolving line of credit for $25.0 million, and we renewed that line of credit in March 2023. The line of credit bears interest at the prime rate (8.00% as of March 31, 2023) subject to a floor of 3.50%, with quarterly interest payments, and matures in March 2024. As of March 31, 2023, there was no outstanding balance on the line of credit.

Liquidity and Capital Resources

Liquidity

Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the three months ended March 31, 2023 and the year ended December 31, 2022, liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Although access to purchased funds from correspondent banks and overnight or longer term advances from the FHLB and the Federal Reserve Bank of Dallas are available, and have been utilized on occasion to take advantage of investment opportunities, we do not generally rely on these external funding sources. As of March 31, 2023 and December 31, 2022, we maintained two federal funds lines of credit with commercial banks that provide for the availability to borrow up to an aggregate $55.0 million in federal funds. There were no funds under these lines of credit outstanding as of March 31, 2023 and December 31, 2022. In addition to these federal funds lines of credit, our $25.0 million revolving line of credit discussed above in “Other Borrowings” provides an additional source of liquidity.

Contingent liquidity sources and availability as of March 31, 2023 are provided below. Although we do not plan to access the Federal Reserve's Bank Term Funding Program (BTFP), we have $282.3 million of borrowing capacity based

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on the value of unpledged, par value securities available as collateral for this line. The table below shows our total lines of credit, current borrowings as of March 31, 2023 and total amounts available for future borrowings, if necessary.


	March 31, 2023				Total Available for Future Liquidity
(dollars in thousands)	Line of Credit		Borrowings
FHLB advances	$	1,097,558	$	340,000	$	757,558
Federal Reserve discount window		243,900		—		243,900
Federal funds lines of credit		55,000		—		55,000
Correspondent bank line of credit		25,000		—		25,000
Federal Reserve Bank Term Funding Program		282,342		—		282,342
Total liquidity lines					$	1,363,800

The following table illustrates, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the period indicated. Average assets were $3.33 billion for the three months ended March 31, 2023 and $3.26 billion for the year ended December 31, 2022.


	Three Months Ended March 31, 2023			Year Ended December 31, 2022
Sources of Funds:
Deposits:
Noninterest-bearing		30.16	%		33.20	%
Interest-bearing		48.86	%		51.23	%
Advances from FHLB		9.33	%		4.07	%
Line of credit		0.00	%		0.00	%
Subordinated debt		1.48	%		1.44	%
Securities sold under agreements to repurchase		0.33	%		0.26	%
Accrued interest and other liabilities		0.80	%		0.79	%
Equity		9.04	%		9.01	%
Total		100.00	%		100.00	%

Uses of Funds:
Loans		70.86	%		64.33	%
Securities available for sale		5.55	%		8.83	%
Securities held to maturity		15.12	%		15.89	%
Nonmarketable equity securities		0.85	%		0.58	%
Federal funds sold		0.87	%		3.26	%
Interest-bearing deposits in other banks		0.18	%		0.47	%
Other noninterest-earning assets		6.57	%		6.64	%
Total		100.00	%		100.00	%

Average noninterest-bearing deposits to average deposits		38.17	%		39.32	%
Average loans to average deposits		90.89	%		77.26	%

Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average loans, including average loans held for sale, increased $451.0 million, or 23.3%, for the three months ended March 31, 2023 compared to the same period in 2022, while our average deposits decreased $110.2 million, or 4.0%, for the same time period. We predominantly invest excess deposits in overnight deposits with our correspondent banks, federal funds sold, securities, interest-bearing deposits at other banks or other short-term liquid investments until needed to fund loan growth.

As of March 31, 2023, we had $464.3 million in outstanding commitments to extend credit and $8.3 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2022, we had $474.7 million in outstanding commitments to extend credit and $8.3 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.

As of March 31, 2023 and December 31, 2022, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. As of March 31, 2023, we had cash and cash equivalents of $158.1 million, compared to $106.5 million as of December 31, 2022. The increase was primarily due to an increase in federal funds sold of $48.1 million, which is used for liquidity purposes.

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Capital Resources

Total equity increased to $300.3 million as of March 31, 2023, compared to $295.6 million as of December 31, 2022, a increase of $4.7 million, or 1.6%. The increase from December 31, 2022 was due to net earnings attributable to Guaranty Bancshares, Inc. of $8.3 million, offset by an increase in accumulated other comprehensive loss of $450,000 due to fluctuations in the fair value of available for sale securities during the period, by the payment of dividends of $2.7 million and repurchase of Company stock of $744,000 during the first quarter of 2023.

Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to certain regulatory capital requirements at the bank holding company and bank levels. As of March 31, 2023 and December 31, 2022, we were in compliance with all applicable regulatory capital requirements at the bank and bank holding company levels, and the Bank was classified as “well capitalized,” for purposes of the prompt corrective action regulations. As we deploy our capital, our regulatory capital levels may decrease depending on our level of earnings and provisions for credit losses. However, we expect to closely monitor our loan portfolio, operating expenses and overall capital levels in order to remain in compliance with all regulatory capital standards applicable to us.

The following table presents our regulatory capital ratios as of:


	March 31, 2023					December 31, 2022
(dollars in thousands)	Amount		Ratio			Amount		Ratio
Guaranty Bancshares, Inc. (consolidated)

Total capital (to risk-weighted assets)	$	363,916		14.57	%	$	358,702		14.37	%
Tier 1 capital (to risk-weighted assets)		298,241		11.94	%		292,966		11.74	%
Tier 1 capital (to average assets)		298,241		9.00	%		292,966		8.77	%
Common equity tier 1 capital (to risk-weighted assets)		291,024		11.65	%		285,749		11.45	%

Guaranty Bank & Trust, N.A.

Total capital (to risk weighted assets)	$	370,244		14.84	%	$	361,125		14.48	%
Tier 1 capital (to risk weighted assets)		339,038		13.58	%		329,933		13.23	%
Tier 1 capital (to average assets)		339,038		10.24	%		329,933		9.89	%
Common equity tier 1 capital (to risk-weighted assets)		339,038		13.58	%		329,933		13.23	%

Contractual Obligations

The following table summarizes contractual obligations and other commitments to make future payments as of March 31, 2023, which consist of future cash payments associated with our contractual obligations.


	As of March 31, 2023
(in thousands)	1 year or less		More than 1 year but less than 3 years		3 years or more but less than 5 years		5 years or more		Total
Time deposits	$	408,702	$	57,465	$	7,134	$	—	$	473,301
Advances from FHLB		330,000		10,000		—		—		340,000
Subordinated debt		3,500		4,000		—		35,000		42,500
Operating leases		1,998		3,845		3,227		4,522		13,592
Total	$	744,200	$	75,310	$	10,361	$	39,522	$	869,393

Off-Balance Sheet Items

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.

Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of March 31, 2023 are summarized below. Since commitments associated with letters of credit

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and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.


	As of March 31, 2023
(in thousands)	1 year or less		More than 1 year but less than 3 years		3 years or more but less than 5 years		5 years or more		Total
Standby and commercial letters of credit	$	6,344	$	1,000	$	34	$	894	$	8,272
Commitments to extend credit		252,004		96,621		17,889		97,793		464,307
Total	$	258,348	$	97,621	$	17,923	$	98,687	$	472,579

Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. Our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers. Management evaluated the likelihood of funding the standby and commercial letters of credit as of March 31, 2023, and determined the likelihood to be improbable. Therefore, no ACL was recorded for standby and commercial letters of credit as of March 31, 2023.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer.

Loan agreements executed in connection with construction loans and commercial lines of credit have standard conditions which must be met prior to the Company being required to provide additional funding, including conditions precedent that typically include: (i) no event of default or potential default has occurred; (ii) that no material adverse events have taken place that would materially affect the borrower or the value of the collateral, (iii) that the borrower remains in compliance with all loan obligations and covenants and has made no misrepresentations; (iv) that the collateral has not been damaged or impaired; (v) that the project remains on budget and in compliance with all laws and regulations; and (vi) that all management agreements, lease agreements and franchise agreements that affect the value of the collateral remain in force. If the conditions precedent have not been met, the Company retains the option to cease current draws and/or future funding. As a result of these conditions within our loan agreements, management believes the credit risk of these off balance sheet items is minimal and we recorded no ACL with respect to these loan agreements as of March 31, 2023.

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.

Inflation in the U.S. remains high, primarily as a result of lingering effects from the COVID-19 pandemic and related governmental policies, as well as other geo-political factors. However, unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature, which means that interest rates have a more significant impact on our performance than the effects of general levels of inflation.

To combat record levels of inflation, the Federal Reserve approved its first interest rate increase in the current cycle in March 2022, and has since raised interest rates by 475 basis points through March 31, 2023. Members of the Federal Open Markets Committee have signaled expectations for further rate increases that could result in an additional 25 basis point, or more, increase in the federal funds rate during the remainder of 2023. If the Federal Reserve does ultimately continue to increase interest rates, we expect those increases to have a negative impact on our net income in the short term due to timing differences in asset and liability repricing, but ultimately a net positive impact on our net income, despite likely absolute increases in our operating expenses due to inflation.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes.

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57.

These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Our exposure to interest rate risk is managed by the asset-liability committee of the Bank, in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model.

We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio. Average life of non-maturity deposit accounts are based on standard regulatory decay assumptions and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

On a quarterly basis, we run two simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rate changes over a twelve-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 10.0% for a 100 basis point shift, 15.0% for a 200 basis point shift and 25.0% for a 300 basis point shift.

The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of:


	March 31, 2023						December 31, 2022
Change in Interest Rates (Basis Points)	Percent Change in Net Interest Income			Percent Change in Fair Value of Equity			Percent Change in Net Interest Income			Percent Change in Fair Value of Equity
+300		(0.50	%)		(21.82	%)		0.43	%		(18.35	%)
+200		(0.51	%)		(13.38	%)		0.17	%		(10.87	%)
+100		(0.65	%)		(6.71	%)		(0.21	%)		(5.17	%)
Base		—			—			—			—
-100		0.60	%		2.97	%		0.34	%		1.48	%
-200		5.75	%		3.36	%		4.16	%		(0.70	%)

The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.

(Continued)

58.

Impact of Inflation

Our consolidated financial statements and related notes included elsewhere in this Report have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or deflation.

Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional financial measures discussed in this Report as being non-GAAP financial measures. We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

The non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Report may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this Report when comparing such non-GAAP financial measures.

Tangible Book Value Per Common Share. Tangible book value per common share is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. We calculate (1) tangible common equity as total equity attributable to Guaranty Bancshares, Inc., less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.

We believe that the tangible book value per common share measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.

The following table reconciles, as of the dates set forth below, total equity attributable to Guaranty Bancshares, Inc. to tangible common equity and presents tangible book value per common share compared to book value per common share:


	As of March 31,						As of December 31,
(dollars in thousands, except per share data)	2023			2022			2022
Tangible common equity
Equity attributable to Guaranty Bancshares, Inc.	$	299,700		$	291,880		$	295,558
Adjustments:
Goodwill		(32,160	)		(32,160	)		(32,160	)
Core deposit intangible, net		(1,746	)		(2,199	)		(1,859	)
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	265,794		$	257,521		$	261,539
Common shares outstanding(1)		11,925,357			12,066,480			11,941,672
Book value per common share	$	25.13		$	24.19		$	24.75
Tangible book value per common share		22.29			21.34			21.90

(1) Excludes the dilutive effect, if any, of 72,411, 151,871 and 112,638 shares of common stock issuable upon exercise of outstanding stock options as of March 31, 2023 and 2022, and December 31, 2022, respectively.

(Continued)

59.

Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. We calculate tangible common equity as described above and tangible assets as total assets less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total equity attributable to Guaranty Bancshares, Inc. to total assets.

We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing both total equity attributable to Guaranty Bancshares, Inc. and assets while not increasing our tangible common equity or tangible assets.

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


(dollars in thousands)	As of March 31, 2023			As of December 31, 2022
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	265,794		$	261,539
Tangible assets
Total assets		3,356,287			3,351,495
Adjustments:
Goodwill		(32,160	)		(32,160	)
Core deposit intangible, net		(1,746	)		(1,859	)
Total tangible assets	$	3,322,381		$	3,317,476

Total equity to total assets		8.93	%		8.80	%
Tangible common equity to tangible assets		8.00	%		7.88	%

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

Net Unrealized Loss on Securities, Tax Effected, as % of Total Equity


(dollars in thousands)	March 31, 2023
Total equity(1)	$	300,270
Less: net unrealized loss on HTM securities, tax effected		(25,123	)
Total equity, including net unrealized loss on AFS and HTM securities	$	275,147

Net unrealized loss on AFS securities, tax effected		15,308
Net unrealized loss on HTM securities, tax effected		25,123
Net unrealized loss on AFS and HTM securities, tax effected	$	40,431

Net unrealized loss on securities as % of total equity(1)		13.5	%
Total equity before impact of unrealized losses	$	315,578
Net unrealized loss on securities as % of total equity before impact of unrealized losses		12.8	%

Total average assets	$	3,325,005
Total equity to average assets		9.0	%
Total equity, adjusted for tax effected net unrealized loss, to average assets		8.3	%

(1) Includes the net unrealized loss on AFS securities, tax effected, of $15,308.

(Continued)

60.

Net Core Earnings and Net Core Earnings per Common Share


	Three Months Ended March 31,						Three Months Ended December 31,
(dollars in thousands, except per share data)	2023			2022			2023
Net earnings attributable to Guaranty Bancshares, Inc.	$	8,281		$	10,738		$	8,022
Adjustments:
Reversal of provision for credit losses		—			(1,250	)		2,800
Income tax provision		1,823			2,235			1,764
PPP loans, including fees		(2	)		(783	)		(1	)
Net core earnings attributable to Guaranty Bancshares, Inc.	$	10,102		$	10,940		$	12,585

Weighted-average common shares outstanding, basic		11,939,593			12,109,074			11,938,973
Earnings per common share, basic	$	0.69		$	0.89		$	0.67
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic		0.85			0.90			1.05

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


	Three Months Ended March 31,						Three Months Ended December 31,
(dollars in thousands)	2023			2022			2023
Net core earnings attributable to Guaranty Bancshares, Inc.	$	10,102		$	10,940		$	12,585
Total average assets		3,325,005			3,146,339			3,346,358
Adjustments:
PPP loans average balance		(519	)		(36,720	)		(539	)
Total average assets, adjusted	$	3,324,486		$	3,109,619		$	3,345,819
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted		1.23			1.43			1.49
Total average equity	$	300,449		$	301,579		$	292,471
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity		13.64			14.71			17.07

Cautionary Notice Regarding Forward-Looking Statements

This Report, our other filings with the SEC, and other press releases, documents, reports and announcements that we make, issue or publish may contain statements that we believe are “forward-looking statements” within the meaning of section 27A of the Securities Act and section 21E of the Exchange Act. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance, including our future revenues, income, expenses, provision for taxes, effective tax rate, earnings per share and cash flows, our future capital expenditures and dividends, our future financial condition and changes therein, including changes in our loan portfolio and allowance for credit losses, our future capital structure or changes therein, the plan and objectives of management for future operations, our future or proposed acquisitions, the future or expected effect of acquisitions on our operations, results of the operations and financial condition, our future economic performance and the statements of the assumptions underlying any such statement. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

•

our ability to prudently manage our growth and execute our strategy;

•

risks associated with our acquisition and de novo branching strategy;

•

business and economic conditions generally and in the financial services industry, nationally and within our primary Texas markets;

(Continued)

61.

•

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

•

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

•

changes in the value of collateral securing our loans;

•

inaccuracies in the assumptions and estimate we make in establishing the allowance for credit losses reserve and other estimates;

•

changes in management personnel and our ability to attract, motivate and retain qualified personnel;

•

liquidity risks associated with our business;

•

interest rate risk associated with our business that could decrease net interest income;

•

our ability to maintain important deposit customer relationships and our reputation;

•

operational risks associated with our business;

•

volatility and direction of market interest rates;

•

change in regulatory requirements to maintain minimum capital levels;

•

increased competition in the financial services industry, particularly from regional and national institutions;

•

institution and outcome of litigation and other legal proceeding against us or to which we become subject;

•

changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters;

•

further government intervention in the U.S. financial system;

•

changes in the scope and cost of FDIC insurance and other coverage;

•

natural disasters and adverse weather, acts of terrorism (including cyberattacks), an outbreak of hostilities or public health outbreaks (such as COVID-19), or other international or domestic calamities, and other matters beyond our control;

•

risks that the financial institutions we may acquire or de novo branches we may open will not be integrated successfully, or the integrations may be more time consuming or costly than expected;

•

technology related changes are difficult to make or are more expensive than expected; and

•

the other factors that are described under the caption “Risk Factors” or referenced in this report, our Annual Report on Form 10-K for the year ended December 31, 2022, and other risks included in the Company’s filings with the SEC.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company manages market risk, which, as a financial institution is primarily interest rate volatility, through the Asset-Liability Committee of the Bank, in accordance with policies approved by its board of directors. The Company uses an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Interest Rate Sensitivity and Market Risk” herein for a discussion of how we manage market risk.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures:

As of the end of the period covered by this Report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and

(Continued)

62.

procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this Report.

Changes in internal control over financial reporting:

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. The Company intends to defend itself vigorously against any pending or future claims and litigation.

At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on the Company’s combined results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against the Company could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect the Company’s reputation, even if resolved in the Company’s favor.

Item 1A. Risk Factors

In evaluating an investment in the Company’s common stock, investors should consider carefully, among other things, the risk factors previously disclosed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and other risks included in the Company’s filings with the SEC. The Company’s business could be harmed by any of these risks. The trading price of the Company’s common stock could decline due to any of these risks, and you may lose all or part of your investment. The following risk has been added to supplement the Company’s risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Recent volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Company and the Bank to increased government regulation and supervision.

The recent collapses of Silicon Valley Bank and Signature Bank have led to interventions by the FDIC, the Federal Reserve, and the U.S. Treasury Secretary in order to safeguard the depositors of these establishments. In light of these events, Congress and federal banking authorities have initiated assessments to pinpoint the causes of these failures, proposing various explanations such as insufficient regulation and oversight, as well as the institutions' inability to effectively manage interest rate and liquidity risks. Ongoing analysis of these developments might result in government-driven measures aimed at averting similar bank failures in the future, which could include changes to risk-based capital regulations. Federal banking authorities may also reconsider relevant liquidity risk management standards.

While it is impossible to definitively predict which measures lawmakers and regulatory bodies might adopt, or the specifics and extent of any such measures, any of the aforementioned potential changes could, among other consequences, impose additional costs on us, restrict the range of financial services and products the Bank is able to offer, and curtail the future expansion of both the Company and the Bank. These factors could substantially and negatively impact the Company's business, operational results, or financial standing.

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

On April 21, 2022, the Company announced the adoption of a new stock repurchase program that authorized the repurchase of up to 1,000,000 shares of the Company common stock. The stock repurchase program will be effective until the earlier of April 21, 2024, or the date all shares authorized for repurchase under the program have been repurchased, unless shortened or extended by the board of directors. The repurchase plan permits shares to be acquired from time to time in the open market or negotiated transactions at prices management considers to be attractive and in the best interest of both the Company and its shareholders, subject to compliance with applicable laws and regulations, general market and

(Continued)

63.

economic conditions, the financial and regulatory condition of the Company, liquidity and other factors.

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


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January, 2023		—	$	—		—		805,612
February, 2023		—		—		—		805,612
March, 2023		25,709		28.95		25,709		779,903
Total		25,709	$	28.95		25,709

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

(Continued)

64.

Item 6. Exhibits


Exhibit Number		Description of Exhibit

3.1		Amended and Restated Certificate of Formation of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed May 1, 2017).

3.2		Amended and Restated Bylaws of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed April 6, 2017).

4.1		Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed with the SEC on April 6, 2017).

		The other instruments defining the rights of the long-term debt securities of Guaranty Bancshares, Inc. and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. Guaranty Bancshares, Inc. hereby agrees to furnish copies of these instruments to the SEC upon request.

10.1		Renewal Revolving Promissory Note between Guaranty Bancshares, Inc and Frost Bank, dated March 31, 2023 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 31, 2023).

10.2		Loan Agreement between Guaranty Bancshares, Inc and Frost Bank, dated March 31, 2017, as amended (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 31, 2023).

10.3*		Employment Agreement, dated as of March 15, 2019, by and between Charles A. Cowell and Guaranty Bancshares, Inc.

10.4*		Employment Agreement, dated as of September 21, 2020, by and between Harold E. Lower, II, and Guaranty Bancshares, Inc.

10.5*		Executive Deferred Contribution Plan (adopted effective January 1, 2022)

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

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

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

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

101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)*

______________________________

* Filed with this Quarterly Report on Form 10-Q

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

(Continued)

65.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GUARANTY BANCSHARES, INC.
		(Registrant)

Date: May 5, 2023		/s/ Tyson T. Abston
		Tyson T. Abston
		Chairman of the Board & Chief Executive Officer

Date: May 5, 2023		/s/ Clifton A. Payne
		Clifton A. Payne
		Chief Financial Officer & Director

66.

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

THIS AGREEMENT (this “Agreement”), dated as of March 15, 2019 (the “Effective Date”) is by and between Guaranty Bank & Trust, N.A., Mount Pleasant, Texas (the “Bank”), and Charles A Cowell (“Executive”), and is joined by Guaranty Bancshares, Inc. (“Guaranty”), a Texas corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended, for purposes of Sections 5.2 and 6.2 of the Agreement.

RECITALS

WHEREAS, the Bank desires to continue to engage the services of Executive and Executive desires to continue to be employed by the Bank pursuant to this Agreement;

WHEREAS, the Bank desires to be assured that the unique and expert services of Executive will be substantially available to the Bank, and that Executive is willing and able to render such services on the terms and conditions hereinafter set forth; and

WHEREAS, the Bank desires to be assured that the existing, ongoing, and new confidential and proprietary information, specialized training, and goodwill of the Bank will be preserved for the exclusive benefit of the Bank.

AGREEMENT

NOW, THEREFORE, in consideration of the terms of and the mutual covenants and promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Bank and Executive agree as follows:

Section 1 Novation and Settlement of Rights with Executive. By this Agreement, the Bank is providing the Executive with a continued guaranteed term of employment and additional rights and benefits that the Executive did not previously have. In exchange for the foregoing and additional terms agreed upon in this Agreement, the Executive agrees: (a) that this Agreement will replace any existing employment arrangement between the parties and thereby act as a novation of any previous arrangement; (b) that all goodwill previously developed with the Bank’s clients, customers and other business contacts by the Executive during past or future employment with the Bank is, and shall be, the exclusive property of the Bank, and (c) all proprietary information and specialized training developed or received by the Executive during past or future employment with the Bank will be used exclusively for the benefit of the Bank as described herein, whether or not previously so agreed. The Executive waives and releases any claim or allegation that he should be able to use client or customer goodwill, specialized training, or proprietary information that was previously received or developed by the Executive while working for the Bank for the benefit of any person or entity other than the Bank.

Section 2 Employment and Position. The Bank hereby employs Executive as Vice Chairman of the Bank, and Executive hereby accepts such terms under and subject to the terms and conditions hereinafter set forth. The Bank shall provide Executive with an office at the Dallas, Texas location of the Bank, or such other offices of the Bank as the Bank and Executive may mutually agree from which to perform his employment for the duration of this Agreement. Executive hereby

represents and warrants that he has no agreements with, or obligations to, any party which conflict, or may conflict, with the interests of the Bank or with Executive’s duties as an employee of the Bank.

Section 3 Duration. This Agreement shall become effective on the Effective Date and will expire on the third (3rd) anniversary of the Effective Date (such period referred to as the “Original Term”), unless earlier terminated as provided herein. Thereafter, unless written notification is given by either party at least thirty (30) days before the expiration of the Original Term or any subsequent renewal term (each, a “Renewal Term”), this Agreement will automatically renew for three (3) year successive Renewal Terms upon terms more specifically set forth herein. For purposes of this Agreement, when the word “Term” is used alone, it collectively refers to the Original Term and all Renewal Term(s). Unless otherwise acknowledged by each party hereto in writing, a party’s decision not to extend the Term of this Agreement will also be considered a termination of Executive’s employment hereunder, effective upon the expiration of the Term of this Agreement.

Section 4 Duties. Executive will be employed as Vice Chairman of the Bank, or such other position as the Bank shall assign to Executive in its sole discretion. Executive will, in a professional manner, perform the authorized and customary duties associated with such office and such other reasonable duties and responsibilities as the Bank’s Board of Directors (“Board of Directors” or “Board”) may assign to Executive from time to time. Executive will at all times report directly to and be subject to the direction and control of the Chief Executive Officer and the Board. During Executive’s employment, Executive shall: (i) devote Executive’s full business time and effort to the furtherance of the business and affairs of the Bank; (ii) carry out and implement all proper direction and instruction from the Bank that conform with reasonable and sound business practices; (iii) abide by the Bank’s written policies and procedures, and by such other policies and procedures of which Executive has received notice; (iv) use best efforts to avoid any action that might maliciously damage, harm or discredit the reputation of the Bank’s products and services; (v) adhere to all fiduciary duties owed to the Bank; and (vi) not engage in any activity that competes in any way with the Bank’s business or interferes with the performance of Executive’s duties hereunder. All acts of Executive in the performance of Executive’s duties will be carried out in conformity with all applicable laws and regulations; all applicable directives, orders, and policies of any governmental agency or regulatory body having authority over the Bank and all policies, directions, and limitations as from time to time may be established in writing by the Bank through the Board. Executive will not be authorized or required to perform any duties, engage in any activities or exercise any powers or authority that would have the effect of violating any federal, state or local laws or regulations.

Section 5 Compensation. In consideration of the services rendered by Executive under this Agreement and in exchange for Executive’s compliance with the restrictions set forth in this Agreement, the Bank agrees to pay Executive as follows in the Subsections hereunder.

Section 5.1 Base Salary. Executive shall receive as compensation for services rendered an annual salary of not less than $267,500 (the “Base Salary”). The Base Salary shall be paid in such installments and at such times as the Bank pays its regularly salaried officers and shall be subject to all necessary withholding taxes, FICA contributions and similar deductions, as well as set-off against any amounts Executive owes the Bank. The Bank may review the Base Salary payable to Executive annually based on merit. Any increase in Base Salary will thereafter be and become the

“Base Salary” for purposes of this Agreement.

Section 5.2 Restricted Stock Grant. On the Effective Date, Executive will be granted 5,000 shares of restricted stock (“Restricted Stock”). The Restricted Stock will vest ratably over a period of five (5) years beginning on the first (1st) anniversary of the grant date, as set forth in the applicable award agreement, subject to vesting acceleration in certain events. The Restricted Stock will be evidenced by an award agreement that will contain such terms and conditions not inconsistent with the terms of this Section 5.2 and the terms of the Guaranty Bancshares, Inc. 2015 Equity Incentive Plan (the “Equity Incentive Plan”) under which the Restricted Stock is awarded.

Section 5.3 Annual Incentive Bonus. So long as Executive is employed by the Bank during the Term pursuant to this Agreement, Executive shall be eligible to participate in the applicable executive bonus plan(s) maintained by the Bank, the terms of which shall be contained in a separate arrangement.

Section 5.5 Medical Allowance/Reimbursement. The Bank will provide Executive with a medical allowance/reimbursement in the amount of $5,000 per year for a health examination and analysis by a health care specialist of Executive’s choice. The Corporate Governance Committee may in the exercise of its sole discretion increase the amount of the allowance should actual costs exceed the $5,000 cap.

Section 6 Other Benefits and Obligations. Executive will be eligible to participate in any benefit plans and programs applicable to similarly situated officers of the Bank, including, but not limited to, health insurance, dental insurance, life insurance and long-term disability insurance, in accordance with applicable employee benefit policies and the provisions, terms and conditions of such plans and programs. Nothing contained herein will obligate the Bank to institute, maintain or refrain from modifying, suspending or discontinuing any benefit plan or program, so long as such changes are similarly applicable to other employees generally.

Section 6.1 Vacation and Holidays. Executive will be entitled to paid vacation days each calendar year in accordance with the vacation accrual policies of the Bank in effect for similarly situated executives from time to time. Executive will also be entitled to the paid holidays set forth in the Bank’s then-current policies.

Section 6.2 401(k) Plan with ESOP Provisions. Executive shall be eligible to participate in Guaranty’s 401(k) Plan with ESOP Provisions (the “KSOP”). In connection with Executive’s participation in the KSOP, Executive shall be entitled to receive employer-matching contributions equal to one-hundred percent (100%) of the first five percent (5%) of Executive’s base salary, payable in accordance with, and subject to, the provisions, terms and conditions of the KSOP.

Section 6.3 Country Club Membership. The Bank will pay reasonable country club golf membership dues on behalf of the Executive, subject to such reasonable guidelines or limitations provided by the Bank from time to time.

Section 6.4 Automobile. The Bank will provide Executive with an automobile for

professional and personal use, and Executive may retain such automobile during the Term. The Bank will pay for repairs, insurance, and all gasoline expenses incurred in connection with business use. Executive is entitled to a new vehicle every three (3) years or 75,000 miles, whichever occurs first. Upon Executive’ termination of employment for any reason, Executive shall be provided the opportunity to purchase the issued automobile at the automobile’s then-current Kelly Blue Book Value, or such other value as may be mutually agreed upon by the parties hereto. Absent the purchase of said automobile, Executive shall surrender any automobile provided under this Agreement to the Bank within ten (10) days following the termination of Executive’s employment with the Bank.

Section 6.5 Reimbursement of Expenses. The Bank will reimburse Executive for documented business expenses, including, but not limited to, any state board and trade association dues, and fees and/or continuing education/professional development expenses. Executive shall comply with such reasonable limitations and reporting requirements with respect to such expenses as the Bank may establish from time to time. Notwithstanding anything in this Agreement to the contrary, reimbursement of reasonable Bank-related expenses incurred by the Executive will continue after the Original Term and for the remaining Term(s) of this Agreement.

Section 7. Termination.

Section 7.1 Upon Death. This Agreement and Executive’s employment shall automatically terminate upon the death of Executive and all rights of Executive and his heirs, executors and administrators to compensation and other benefits shall cease.

Section 7.2 Expiration and Non-Renewal of Term. This Agreement, and, unless otherwise agreed to in writing by each party hereto, Executive’s employment hereunder shall automatically terminate upon expiration or non-renewal the Term as described in Section 3 hereof, unless the Agreement and/or Executive’s employment are earlier terminated as provided herein.

Section 7.3 Without Cause. The Bank may terminate Executive’s employment at any time without Cause (as defined in Section 8.2) effective upon at least thirty (30) days prior written notice to Executive.

Section 7.4 With Cause. The Bank may terminate Executive’s employment at any time for Cause (as defined in Section 8.2).

Section 7.5 With Good Reason. Executive may terminate this Agreement at any time for Good Reason (as defined in Section 8.2).

Section 7.6 Without Good Reason. Executive may terminate this Agreement at any time without Good Reason (as defined in Section 8.2) effective upon at least thirty (30) days prior written notice to the Bank.

Section 7.7 Effect of Termination. In the event of termination of this Agreement by either party under this Section 7, neither party shall have any further obligation to the other party, except as specifically provided in this Agreement, including but not limited to the provisions of Section 8.8 and Section 9 of the Agreement. In addition, upon termination of this Agreement, Executive’s employment hereunder shall cease immediately unless otherwise agreed by each party hereto in

writing, and Executive shall also immediately resign from all positions on the Boards of Directors of the Bank, Guaranty and all subsidiaries and affiliates of Guaranty and the Bank (including all director positions and committee memberships). Executive agrees that for a period of no less than six (6) months following his termination date, he shall not serve, and he shall not nominate himself to serve, as a director, member or manager of the Bank, Guaranty, or any of their subsidiaries or affiliates.

Section 8. Termination Payments and Benefits.

Section 8.1 Upon Death, By the Bank with Cause, or By Executive Without Good Reason. Upon any termination of this Agreement either (i) by Executive without Good Reason (as defined in Section 8.2), (ii) by the Bank with Cause (as defined in Section 8.2), or (iii) because of Executive’s death, all payments, salary and other benefits hereunder shall cease at the effective date of termination. Notwithstanding the foregoing, Executive shall be entitled to receive from the Bank all salary and/or board fees earned or accrued through the date Executive’s employment is terminated, (b) reimbursement for any and all monies advanced in connection with Executive’s services for reasonable and necessary expenses incurred by Executive through the date Executive’s employment is terminated, and (c) all other payments and benefits to which Executive may be entitled under the terms of any applicable compensation arrangement or benefit plan or program of the Bank, including any earned and accrued, but unused paid time off pursuant to Bank policies (collectively, “Accrued Benefits”).

Notwithstanding the preceding, if Executive terminates employment from the Bank without Good Reason (including due to death or disability) at any time during the period beginning on the first anniversary of the Effective Date and ending before the occurrence of a Change in Control, and as long as the Executive does not violate the provisions of Section 9 hereof, in addition to the Accrued Benefits, the Bank will pay to Executive (or the Executive’s beneficiary or estate), at the election of Executive in his sole discretion, either (a) a payment equal to the quotient of the Executive’s then-current Base Salary, divided by four (4) (“Reduced Resignation Severance”); or (b) a payment (“Longevity Severance”) in an amount equal to the product of (x) Executive’s average annual Form W-2 compensation over the preceding three years (less any W-2 income received by Executive for the Restricted Stock granted by this Agreement), multiplied by (y) the “Vesting Multiplier,” as defined below, multiplied by (z) the number of full calendar years of employment with the Bank through the date of termination of employment.

For purposes of this Section 8.1, “Vesting Multiplier” means the following; provided, however that upon attainment of age sixty-five (65), death or occurrence of disability (as defined by the Social Security Administration), the Vesting Multiplier shall become three percent (3%):

If termination of employment occurs on after the first anniversary of 1% the Effective Date, but before the second anniversary of Effective

Date

If termination of employment occurs on after the second anniversary 2% of the Effective Date, but before the third anniversary of Effective

Date

If termination of employment occurs on after the third anniversary 3% of

the Effective Date

To be eligible to receive the Reduced Resignation Severance or Longevity Severance, as applicable, the Executive must provide the Bank with at least ninety (90) days’ notice of the Executive’s intent to voluntarily terminate employment from the Bank without Good Reason, with such notice stating whether Executive chooses to receive the Reduced Resignation Severance or Longevity Severance. If applicable, the Reduced Resignation Severance pursuant to this Section shall be paid in equal installments in accordance with the normal payroll practices of the Bank over a three (3) month period, beginning on the next regularly scheduled payroll date following the eighth (8th) day after Executive executes and does not revoke a general release and waiver of claims (the “Release”) in favor of the Bank, its parents, subsidiaries, affiliates, and their officers, directors, executives, agents, and attorneys, in a form provided to Executive at the time of his termination of services, and through which Executive releases the Bank and related parties from any and all claims as may relate to or arise out of his relationship with the Bank, or the termination thereof. If applicable, the Longevity Severance pursuant to this Section shall be paid in equal installments in accordance with the normal payroll practices of the Bank over a two (2) year period, beginning on the next regularly scheduled payroll date following the eighth (8th) day after Executive executes and does not revoke a Release. For the avoidance of doubt, if Executive is entitled to and receives the either Reduced Resignation Severance or Longevity Severance described in this Section 8.1, at no time thereafter will he also be entitled to any of the payments described in Section 8.2 or Section 8.3 hereof.

Section 8.2 By the Bank Without Cause or By Executive with Good Reason.

(a)

A termination for “Cause” means the good faith determination of the Bank, in the exercise of its reasonable judgment, that Executive (i) has engaged in grossly negligent or willful misconduct that violated a material provision of this Agreement; (ii) is grossly negligent in the performance of Executive’s duties hereunder; (iii) has engaged in grossly negligent or willful misconduct that violated any material written policy or directive of the Bank; (iv) has committed a fraudulent act or practice that could adversely affect the goodwill, reputation or business of the Bank; (v) has been convicted of, pled guilty or no contest to, or admitted in court to a felony or other criminal act involving dishonesty, fraud, misappropriation, or embezzlement, whether or not relating to Executive’s employment with the Bank; (vi) has engaged in grossly negligent or willful misconduct that is materially injurious to the Bank; or (vii) has been prohibited from engaging in the business of banking by any applicable governmental agency or regulatory body; provided that, before terminating this Agreement for Cause under clauses (i) or (iii) of this Section 8.2(a), Executive will be entitled to receive a notice specifying the alleged basis for termination, and Executive will have five (5) days from the receipt of such notice to cure the breach to the reasonable satisfaction of the Bank before this Agreement may be terminated with Cause on such basis. The Bank may elect to suspend Executive’s duties under this Agreement as of the date of such notice, although Executive will be entitled to receive any compensation that has been earned by him through the termination date.

(b)

responsibilities; (iii) a material diminution in the authority, duties or responsibilities of Executive’s supervisor; (iv) a material diminution in the budget over which Executive retains authority; (v) a material change in geographic location at which Executive must perform services; or (vi) any other action or inaction that constitutes a material breach of the terms of this Agreement, if any; provided that, any of these conditions shall be regarded as “Good Reason” only if (i) Executive actually terminates employment with the Bank prior to a date that is two (2) years following the initial existence of the condition described above, and (ii) only if Executive provides the Bank with notice of the existence of “Good Reason” within ninety (90) days of the initial existence of the applicable condition and the Bank does not remedy that condition within sixty (60) days of such notice from Executive.

If Executive’s employment is terminated by the Bank without Cause prior to the expiration of a Term, or if Executive terminates his services for Good Reason during a Term, as long as the Executive does not violate the provisions of Section 9 hereof, in addition to the Accrued Benefits, the Bank will pay to Executive a payment (“Severance Payment”) equal to the Executive’s average annual Form W-2 compensation over the preceding three years (less any W-2 income received by Executive for the Restricted Stock granted by this Agreement). The payment due pursuant to this Section shall be paid in equal installments in accordance with the normal payroll practices of the Bank over a twelve (12) month period, beginning on the next regularly scheduled payroll date following the eighth (8th) day after Executive executes and does not revoke the Release.

Section 8.3 Payment Upon a Change in Control. If a Change in Control occurs and either (a) the Executive remains with the Bank (or its successor) for twelve (12) months following such Change in Control (such date the “Stay Put Date”), or (b) the Executive terminates employment for Good Reason or the Bank terminates Executive’s employment other than for Cause after the Change in Control and prior to the Stay Put Date, as long as the Executive does not violate the provisions of Section 9 hereof, the Executive will be entitled to receive, as his exclusive right and remedy in respect of such termination, (i) his Accrued Benefits, except that, for this purpose, Accrued Benefits will not include any entitlement to severance under any Bank severance policy generally applicable to the Bank’s salaried employees, and (ii) a payment from the Bank equal to 1.50 times the Executive’s average annual Form W-2 compensation over the preceding three years (less any W-2 income received by Executive for the Restricted Stock granted by this Agreement) (the “Change in Control Payment”). The Change in Control Payment due hereunder is subject to the Executive’s compliance with the provisions of Section 9 of this Agreement. The payment that becomes due pursuant to this Section shall be paid in a single lump-sum payment on the next payroll date in accordance with the normal payroll practices of the Bank (or its successor) following the eighth (8th) day after Executive executes and does not revoke the Release. For the avoidance of doubt, if Executive is entitled to and receives the Change in Control Payments described in this, at no time thereafter will he also be entitled to any of the payments described in Section 8.1.

For purposes of this Agreement, “Change in Control” means (a) an acquisition by any individual, entity or group (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of 51% or more of either (1) the then outstanding stock of the Bank (the “Bank Stock”) or (2) the then outstanding voting securities of Guaranty (the “Guaranty Stock”); excluding, however, the following: (1) a transaction whose purpose is to change the legal jurisdiction or domicile of the Bank or Guaranty or the purpose of

which is to create a holding company or affiliate that will be owned in substantially the same proportions by the persons who held the securities of the Bank or Guaranty immediately before such transaction; (2) any acquisition of Bank Stock by the Bank or Guaranty or of Guaranty Stock by Guaranty; or (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Guaranty or any corporation controlled by Guaranty; or (b) the approval by the stockholders of the Bank or Guaranty of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Bank or Guaranty (“Company Transaction”); unless all or substantially all of the individuals and entities who are the beneficial owners of Bank Stock and Guaranty Stock, as applicable, immediately prior to such Company Transaction will beneficially own, directly or indirectly, more than 50% of the outstanding shares of Bank Stock or Guaranty Stock, as applicable, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, after the reorganization, merger, consolidation or sale of assets.

In the event that the Change in Control Payment provided for under this Agreement, or any other payments, awards, benefits or distributions (or any acceleration of any payment, award, benefit or distribution) made or provided to or for the benefit of Executive in connection with the Executive’s employment with the Bank or the termination thereof are determined to be subject to the excise tax imposed by Code Section 4999 or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the “Excise Tax”), then the Bank and Executive agree that the Change in Control Payment shall be either reduced (but not below zero) so that the present value of such total amounts and benefits received by Executive from the Bank will be $1.00 less than three (3) times Executive’s “base amount” (as defined in Code Section 280G(b)(3)) and so that no portion of such amounts and benefits received by Executive shall be subject to the Excise Tax imposed by Code Section 4999.

Section 8.4 Regulatory Restrictions on Payments. Notwithstanding the foregoing, the termination payments due under Section 8.1, Section 8.2 and (a “Restricted Payment”) of the Agreement shall not be paid to Executive, and Executive shall not be entitled to the Restricted Payment, unless, and then only to the extent that, the Restricted Payment is approved by the FDIC and any other regulatory body which has the authority to comment on the request for approval for the Restricted Payment. The Restricted Payment shall be made only in accordance with applicable law, including, without limitation, 12 C.F.R. Part 359. The Restricted Payment shall be subject to applicable federal, state, and local taxes and withholding and paid in accordance with normal payroll procedures of the Bank. In the event that the Bank determines at any time after payment of any portion of the Restricted Payment that Executive has committed or is substantially responsible for, or has violated, the respective acts or omissions, conditions or offenses outlined under 12 C.F.R. 359.4(a) (4), then the Bank shall have the right to demand the return of all or any portion of the Restricted Payment made to Executive, and Executive agrees to immediately return all such amounts of the Restricted Payment upon and in accordance with the Bank’s demand. Other than with respect to the Restricted Payment, this Agreement shall remain in full force and effect regardless of whether or not the Restricted Payment is approved or denied by any regulatory body.

separation from service. The terms “specified employee” and “separation from service” shall be interpreted in accordance with and consistent with Code Section 409A and the regulations thereunder.

Section 8.6 Accrued Benefits. Notwithstanding anything else herein to the contrary, all Accrued Benefits to which Executive (or his estate or beneficiary) is entitled shall be payable in cash promptly upon termination of this Agreement, except as otherwise specifically provided herein, or under the terms of any applicable policy, plan or program.

Section 8.7 No Other Benefits. Except as specifically provided in this Section 8, Executive shall not be entitled to any other compensation, severance or other benefits from the Bank or any of its subsidiaries or affiliates upon the termination of this Agreement for any reason whatsoever.

Section 8.8 Survival of Certain Provisions. Provisions of this Agreement shall survive any termination of services and the Agreement if so provided herein or if necessary or desirable fully to accomplish the purposes of such provision, including, without limitation, the obligations of Executive under Section 9 hereof. For the avoidance of doubt and notwithstanding anything to the contrary contained herein, Executive hereby acknowledges and agrees that the obligations of Section 9 shall survive termination of Executive’s services and this Agreement irrespective of the reason. Executive recognizes that, except as expressly provided in Section 8, no other compensation is earned after termination of services.

Section 9 Proprietary Information; Post-Termination Covenants.

Section 9.1 Proprietary Information. In the course of service to the Bank, Executive will have access to (i) the identities of the Bank’s existing and prospective customers or clients, including names, addresses, credit status, and pricing levels; (ii) the buying and selling habits and customs of the Bank’s existing and prospective customers or clients; (iii) non-public financial information about the Bank and its affiliates; (iv) product and systems specifications, concepts for new or improved products and other product or systems data; (v) the identities of, and special skills possessed by, the Bank’s and/or its affiliates’ executives; (vi) the identities of and pricing information about the Bank’s and/or its affiliates’ vendors; (vii) training programs developed by the Bank and/or its affiliates; (viii) pricing studies, information and analyses; (ix) current and prospective products and inventories; (x) financial models, business projections and market studies; (xi) the Bank’s and its affiliates’ financial results and business conditions; (xii) business plans and strategies; (xiii) special processes, procedures, and services of the Bank and its affiliates and their vendors; and (xiv) computer programs and software developed by the Bank and/or its affiliates or their consultants, all of which are confidential and may be proprietary and are owned or used by the Bank, or any of its subsidiaries or affiliates. Such information shall hereinafter be called “Proprietary Information” and shall include any and all items enumerated in the preceding sentence and coming within the scope of the business of the Bank or any of its subsidiaries or affiliates as to which Executive may have access, whether conceived or developed by others or by Executive alone or with others during the period of service to the Bank, whether or not conceived or developed during regular working hours. Proprietary Information shall not include any records, data or information which are in the public domain during or after the period of service by Executive provided the same are not in the public domain as a consequence of disclosure directly or indirectly by Executive in violation of this Agreement.

Section 9.2 Fiduciary Obligations. Executive agrees that Proprietary Information is of critical importance to the Bank and a violation of this Section would seriously and irreparably impair and damage the Bank’s business. Executive agrees that he shall keep all Proprietary Information in a fiduciary capacity for the sole benefit of the Bank.

Section 9.3 Non-Use and Non-Disclosure. Executive shall not during his time of service under this Agreement or at any time thereafter (a) disclose, directly or indirectly, any Proprietary Information to any person other than the Bank or officers thereof at the time of such disclosure who, in the reasonable judgment of Executive, need to know such Proprietary Information or such other persons to whom Executive has been specifically instructed to make disclosure by the Board of Directors and in all such cases only to the extent required in the course of Executive’s service to the Bank, or (b) use any Proprietary Information, directly or indirectly, for his own benefit or for the benefit of any other person or entity, other than the Bank and its affiliates. Within twenty-four (24) hours of the termination of his services hereunder, Executive shall deliver to the Bank all notes, letters, documents and records which may contain Proprietary Information which are then in his possession or control and shall destroy any and all copies and summaries thereof.

Section 9.4 Bank Property. Executive acknowledges that all digital files (including data and media files), memoranda, notes, records, reports, manuals, books, papers, letters, client lists, vendor lists, contracts, software programs, computers, other devices such as cellphones and tablets, information and records, drafts of instructions, guides and manuals, and other documentation (whether in draft or final form, and whether written on paper or digital file), and other sales or financial information and aids relating to the Bank’s business, and any and all other documents containing Proprietary Information furnished to Executive by any representative of the Bank or otherwise acquired or developed by Executive in connection with Executive’s association with the Bank (collectively, “Recipient Materials”) shall at all times be the property of the Bank. Within twenty-four (24) hours of the termination of Executive’s employment with the Bank, Executive shall return to the Bank any Recipient Materials that are in Executive’s possession, custody, or control.

Section 9.5 Non-Competition and Non-Solicitation.

(a)

Executive acknowledges that, as a result of Executive’s service with the Bank, a special relationship of trust and confidence will develop between Executive, the Bank and its clients and customers, and that this relationship will generate a substantial amount of goodwill between the Bank and its clients and customers. Executive further acknowledges and agrees that it is fair and reasonable for the Bank to take steps to protect it from the loss of customer goodwill. Executive further acknowledges that throughout his service with the Bank, Executive will be provided with access to and informed of confidential, proprietary and highly sensitive information relating to the Bank’s clients and customers, which is a competitive asset of the Bank, and which enables Executive to benefit from the goodwill and know-how of the Bank.

(b)

As a condition for Executive’s access to ongoing and new Proprietary Information, use of the Bank’s goodwill and in consideration for Executive’s services pursuant to the terms of this Agreement (including Restrictive Stock), Executive promises and agrees that during the Term and for a period of twelve (12) months following the date of the termination of services if the Executive’s employment is terminated under Section 8.1, 8.2 or any termination of

services following receipt of the Change in Control Payment, except in the event that termination of services is other than for Good Reason under Section 8.1 and the Executive is (a) receiving the Longevity Severance, in which case the period is twenty four (24) months or (b) receiving the Reduced Resignation Severance, in which case the period is six (6) months with respect to subsections (i) through (iii) of this Section 9.5(b) and twelve (12) months with respect to subsections (iv) through (v) of this Section 9.5(b), Executive will not, either for himself or in conjunction with others:

(i)

acquire any interest in (directly or indirectly), charter, operate or enter into any franchise or other management agreement with any depository institution that has a location within any county in which Guaranty, the Bank or any affiliate of Guaranty or the Bank maintains a banking center, loan production office, deposit production office or other

banking office, or any county immediately contiguous thereto (the “Noncompete Area”) (but Executive may acquire an ownership interest in any depository institution, so long as that ownership interest does not exceed 5% of the total number of shares outstanding of that depository institution, and/or invest in an existing mutual fund that invests, directly or indirectly, in such insured depository institutions).

(ii)

serve as an officer, director, executive, agent, employee, or consultant to any insured depository institution that has a location within the Noncompete Area, in a capacity that overlaps with any of the duties Executive performed for the Bank;

(iii)

establish or operate a branch or other office of an insured depository institution within the Noncompete Area;

(iv)

directly or indirectly induce, influence, solicit, encourage or advise any of the Bank’s executives, officers, employees, contractors, or agents, with whom Executive had contact within the twelve (12) months immediately preceding the termination of Executive's employment, to terminate their relationship with the Bank; or

(v)

directly or indirectly solicit, divert, take away or provide assistance to any person for the purpose of soliciting, diverting, taking away or doing banking business with, any of the customers, clients, or patrons of the Bank existing as of the date of termination of Executive’s services with Bank.

The restrictions contained in Subsection (v) hereof are limited to customers, clients, or patrons of the Bank with whom Executive has done business, performed services for or on behalf of within the twelve (12) month period preceding Executive’s termination of services with the Bank, or about whom Executive has Proprietary Information, including information about which Executive is aware because of service on the Bank’s Loan Committee. Nothing in this Subsection shall prevent Executive from calling upon or soliciting those customers, clients or other patrons having business relationships with the Bank to do business with Executive in any business of Executive not related to banking, investment, or financial services offered by Bank during the term of this Agreement.

(c)

Executive and Bank, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this covenant.

(d)

Executive agrees that if, at some later date, a court of competent jurisdiction determines that the restrictive covenants set forth in this Section 9.5 does not meet the criteria set forth by applicable law, this Section 9.5 may be reformed by the court and enforced to the maximum extent permitted under applicable law.

(e)

Further, if Executive is bound by or subject to any other agreement with the Bank that contains obligations that are inconsistent or in conflict with the terms of this Section 9.5, including but not limited to any obligations under a Confidentiality, Non- Competition and Non-Solicitation Agreement executed in connection with a Stock Option Award Agreement under the Equity Incentive Plan, then the terms of this Section 9.5 shall prevail over any such inconsistent or conflicting obligations.

Section 9.6 Executive Acknowledgement of Consideration. Executive acknowledges that (i) Executive is receiving valuable consideration under this Agreement in exchange for the restrictions set forth in this Agreement; and (ii) the limitations as to time and scope of activity to be restrained by this Agreement are reasonable and acceptable, and do not impose any greater restraint than is reasonably necessary to protect the goodwill and other business interests, and, on an ongoing basis, the Proprietary Information of the Bank.

Section 9.7 Tolling. In the event that the Bank shall file a lawsuit in any court of competent jurisdiction alleging a breach of any of the obligations under Section 8 of this Agreement, any time period that Executive is in breach of this Agreement shall be deemed tolled as of the time such lawsuit is filed and shall remain tolled until such dispute finally is resolved.

Section 9.8 Assignment of Inventions. Executive agrees that any Inventions devised or developed by Executive during and in connection with his employment with the Bank, whether during working hours or at any other time, will be the exclusive property of the Bank and he will take all steps necessary to assign any such Invention to the Bank, and that the Base Salary and other consideration provided for herein is full and adequate compensation for such any Invention, unless otherwise prohibited by law. Executive represents and warrants to the Bank that he is not subject to or bound by any contract or agreement, nor has he previously executed any documents whatsoever, with any other person, firm, association, or corporation that will, in any manner, prevent his assigning, and the Bank from receiving, the exclusive benefit of his services and of any and all Inventions that may be devised or developed by him or under his direction, in accordance with the terms of this Agreement. As used in this Agreement, the term “Invention” means any and all improvements, inventions, product, processes, practice, system, and other creative works of any kind whether or not patented or copyrightable that Executive may make or conceive solely, or that Executive may make or conceive jointly or commonly with others, during the Term, in any way relating to the Bank’s business or that of its affiliates.

Section 9.9 Defend Trade Secrets Act Disclosure. Executive hereby acknowledges the following notice in compliance with the Defend Trade Secrets Act of 2016, regarding Executive’s immunity from liability for limited disclosures of trade secrets as follows:

AN INDIVIDUAL SHALL NOT BE HELD CRIMINALLY OR CIVILLY

LIABLE UNDER ANY FEDERAL OR STATE TRADE SECRET LAW FOR THE DISCLOSURE OF A TRADE SECRET THAT—(A) IS MADE—(I) IN CONFIDENCE TO A FEDERAL, STATE, OR LOCAL GOVERNMENT OFFICIAL, EITHER DIRECTLY OR INDIRECTLY, OR TO AN ATTORNEY; AND (II) SOLELY FOR THE PURPOSE OF REPORTING OR INVESTIGATING A SUSPECTED VIOLATION OF LAW; OR (B) IS MADE

IN A COMPLAINT OR OTHER DOCUMENT FILED IN A LAWSUIT OR OTHER PROCEEDING, IF SUCH FILING IS MADE UNDER SEAL. . . . AN INDIVIDUAL WHO FILES A LAWSUIT FOR RETALIATION BY AN EMPLOYER FOR REPORTING A SUSPECTED VIOLATION OF LAW MAY DISCLOSE THE TRADE SECRET TO THE ATTORNEY OF THE INDIVIDUAL AND USE THE TRADE SECRET INFORMATION IN THE COURT PROCEEDING, IF THE INDIVIDUAL—(A) FILES ANY DOCUMENT CONTAINING THE TRADE SECRET UNDER SEAL; AND (B) DOES NOT DISCLOSE THE TRADE SECRET, EXCEPT PURSUANT TO COURT ORDER.

Section 10 Remedies. It is specifically understood and agreed that any breach of the provisions of Section 9 of this Agreement is likely to result in irreparable injury to the Bank and that the remedy at law alone will be an inadequate remedy for such breach, and that in addition to any other remedy it may have, the Bank shall be entitled to enforce the specific performance of this Agreement by Executive in any court of competent jurisdiction and to seek both temporary and permanent injunctive relief (to the extent permitted by law) without bond and without liability should such relief be denied, modified or violated. Neither the right to obtain such relief nor the obtaining of such relief shall be exclusive or preclude the Bank from any other remedy.

Section 11 Severable Provisions. The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in part because of the duration or scope thereof, the parties hereto agree that said court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the full extent permitted by law.

Section 12 409A Compliance. The parties intend for the payments and benefits under this Agreement to be exempt from Code Section 409A or, if not so exempt, to be paid or provided in a manner that complies with the requirements of such section and intend that this Agreement will be construed and administered in accordance with such intention. If any payments or benefits due to Executive hereunder would cause the application of an accelerated or additional tax under Code Section 409A, such payments or benefits will be restructured in a manner that does not cause such an accelerated or additional tax. To the extent any amount payable to Executive is subject to his entering into a release of claims with the Bank and any such amount is a deferral of compensation under Code Section 409A which amount could be payable in either of two (2) taxable years, and the timing of such payment is not subject to terms and conditions under another plan, program or agreement of the Bank that otherwise satisfies Code Section 409A, such payments will be made or commence, as applicable, on January 15 (or any later date that is not earlier than eight (8) days after the date that the release becomes irrevocable) of such later taxable year and will include all payments that otherwise would have been made before such date. In no event whatsoever will the

Bank be liable for any tax, interest or penalties that may be imposed on Executive under Code Section 409A or have any obligation to indemnify or otherwise hold Executive harmless from any and all such taxes, interest or penalties, or liability for any damages related thereto. Executive acknowledges that he has been advised to obtain independent legal, tax or other related counsel in connection with Code Section 409A and taxation.

Section 13 Restrictions Upon Funding. The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. Executive or any successor-in-interest to Executive shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general unsecured claim. For purposes of the Code, the Bank intends this Agreement to be an unfunded, unsecured promise to pay on the part of the Bank. For purposes of Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Bank intends that this Agreement not be subject to ERISA. If it is deemed subject to ERISA, it is intended to be an unfunded arrangement for the benefit of a select member of management, who is a highly compensated employee of the Bank for the purpose of qualifying this Agreement for the “top hat” plan exception under sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. At no time shall Executive have or be deemed to have any lien nor right, title or interest in or to any specific investment or to any assets of the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of Executive, Executive shall assist the Bank, as applicable, by freely submitting to a physical examination and supplying such additional information necessary to obtain such insurance or annuities.

Section 14 Notices. All notices hereunder, to be effective upon receipt, shall be in writing and shall be delivered by hand or mailed by certified mail, postage and fees prepaid, as follows:

If to the Bank: Guaranty Bank & Trust, N.A.

Attn: Chief Executive Officer 16475 Dallas Parkway, Suite 600

Addison, TX 75001

With a copy to: General Counsel

Guaranty Bank & Trust, N.A. 201 South Jefferson

Mt. Pleasant, TX 75455

If to Executive: Charles A. Cowell

***REDACTED PERSONAL INFORMATION***

or to such other address as a party may notify the other pursuant to a notice given in accordance with this Section 14.

Section 15 Voluntary Agreement. The Parties acknowledge that each has carefully read this agreement, that each has had an opportunity to consult with his or its attorney concerning the meaning, import and legal significance of this Agreement, that each understands its terms, that all understandings and agreements between Executive, the Bank relating to the subjects covered in this Agreement are contained in it, and that each has entered into the Agreement voluntarily and not in reliance on any promises or representations by the other than those contained in this

Agreement.

Section 16 Miscellaneous.

Section 16.1 Governing Law. This Agreement shall be construed under and enforced in accordance with the laws of the State of Texas, and the laws of Texas shall govern its validity and interpretation in the performance by the parties of their respective duties and obligations.

Section 16.2 Entire Agreement; Modification. This Agreement constitutes the complete and final agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, undertakings, negotiations and discussions, whether oral or written, of the parties. This Agreement may be modified or amended only by an instrument in writing signed by the parties.

Section 16.3 Assignment and Transfer. Neither the obligations of Executive nor the Bank may be delegated, and neither the Executive nor the Bank may, without the written consent of the other party hereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest herein. Any such attempted delegation or disposition shall be null and void and without effect. For purposes of this Agreement, however, an “assignment” of this Agreement does not mean or include the effect of a transfer to a successor to the Bank which, by merger, consolidation, stock purchase, purchase of the assets, or otherwise, acquires all or a material part of the Bank’s assets.

Section 16.4 Waiver of Breach. A waiver by the Bank or Executive of any breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other or subsequent breach by the other party. Under no circumstances shall Executive be deemed to have waived any rights that are non-waivable under applicable law.

Section 16.5 Withholding. The Bank shall be entitled to withhold from any amounts to be paid or benefits provided to Executive hereunder any federal, state, local, or foreign withholding or other taxes or charges which it is from time to time required to withhold. The Bank shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise.

Section 16.6 Assistance in Litigation. Executive shall make himself available, upon the request of the Bank, to testify or otherwise assist in litigation, arbitration, or other disputes involving the Bank, or any of the directors, officers, executives, subsidiaries, or parent corporations of either, at no additional cost during the term of this Agreement and for the reimbursement of reasonable expenses at any time following the termination of this Agreement.

Section 16.7 Attorney Fees. The prevailing party shall be entitled to all of its reasonable attorney fees and litigation costs in the event of litigation arising from or related to this Agreement.

court, arbitrator, or governmental agency applicable to Executive, or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which Executive is a party or by which Executive is or may be bound

Section 16.9 Jurisdiction and Venue. The parties agree any dispute, controversy or claim arising out of or relating to this Agreement or breach hereof or arising out of or relating in any way to the employment of Executive or the termination thereof, shall be adjudicated exclusively and solely in the District Court of Titus County, Texas. Executive understands this Agreement is made in Titus County, Texas, the location of the Bank’s headquarters, and unconditionally waives any right to object or contest venue or personal jurisdiction in said county and court. Jurisdiction and venue shall lie exclusively in such county and court.

Section 16.10 WAIVER OF TRIAL BY JURY. EXECUTIVE HEREBY UNCONDITIONALLY WAIVES THE RIGHT TO A JURY TRIAL OF ANY AND ALL CLAIMS AND CAUSES OF ACTION ARISING FROM OR RELATED IN ANY WAY TO EXECUTIVE’S RELATIONSHIP WITH THE BANK AND/OR THIS AGREEMENT. EXECUTIVE ACKNOWLEDGES THAT A RIGHT TO A JURY IS A CONSTITUTIONAL RIGHT, THAT EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL, AND THAT THIS JURY WAIVER HAS BEEN ENTERED INTO KNOWINGLY AND VOLUNTARILY. IN THE EVENT OF LITIGATION THIS WAIVER MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

Section 16.11 Protected Activity. Executive understands that nothing in this Agreement shall in any way limit or prohibit Executive from engaging for a lawful purpose in any Protected Activity. For purposes of this Agreement, “Protected Activity” shall mean filing a charge or complaint, or otherwise communicating, cooperating, or participating with, any state, federal, or other governmental agency, including the Securities and Exchange Commission, the Equal Employment Opportunity Commission and the National Labor Relations Board. Notwithstanding any restrictions set forth in this Agreement, Executive understands that Executive is not required to obtain authorization from the Bank prior to disclosing information to, or communicating with, such agencies, nor is Executive obligated to advise the Bank as to any such disclosures or communications. Notwithstanding, in making any such disclosures or communications, Executive agrees to take all reasonable precautions to prevent any unauthorized use or disclosure of any information that may constitute Confidential Information to any parties other than the relevant government agencies. Executive further understands that “Protected Activity” does not include the disclosure of any attorney-client privileged communications, and that any such disclosure without the Bank’s written consent shall constitute a material breach of this Agreement.

Section 16.12 Captions. Captions herein have been inserted solely for convenience of reference and in no way define, limit or describe the scope or substance of any provision of this Agreement.

Section 16.13 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and shall have the same effect as if the

signatures hereto and thereto were on the same instrument.

********

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a sealed instrument as of the day and year first above written.

Guaranty Bank & Trust, N.A.:

By: /s/ Tyson T. Abston

Print name: Tyson T. Abston__

Title: Chairman and CEO

Guaranty Bancshares, Inc.:

By: /s/ Tyson T. Abston

Print name: Tyson T. Abston__

Title: Chairman and CEO

Executive:

/s/ Charles A. Cowell

Charles A. Cowell

EXHIBIT 10.4

EMPLOYMENT AGREEMENT

THIS AGREEMENT (this “Agreement”), dated as of September 21, 2020 (the “Effective Date”) is by and between Guaranty Bank & Trust, N.A., Mount Pleasant, Texas (the “Bank”), and Harold E. Lower, II (“Executive”), and is joined by Guaranty Bancshares, Inc. (“Guaranty”), a Texas corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended, for purposes of Sections 5.2 and 6.2 of the Agreement.

RECITALS

WHEREAS, the Bank desires to continue to engage the services of Executive and Executive desires to continue to be employed by the Bank pursuant to this Agreement;

AGREEMENT

Section 2 Employment and Position. The Bank hereby employs Executive as Executive Vice President of the Bank, and Executive hereby accepts such terms under and subject to the terms and conditions hereinafter set forth. The Bank shall provide Executive with an office at the Texarkana, Texas location of the Bank, or such other offices of the Bank as the Bank and Executive may mutually agree from which to perform his employment for the duration of this Agreement.

Executive hereby represents and warrants that he has no agreements with, or obligations to, any party which conflict, or may conflict, with the interests of the Bank or with Executive’s duties as an employee of the Bank.

Section 4 Duties. Executive will be employed as an Executive Vice President of the Bank, or such other position as the Bank shall assign to Executive in its sole discretion. Executive will, in a professional manner, perform the authorized and customary duties associated with such office and such other reasonable duties and responsibilities as the Bank’s Board of Directors (“Board of Directors” or “Board”) may assign to Executive from time to time. Executive will at all times report directly to and be subject to the direction and control of the Chief Executive Officer and the Board. During Executive’s employment, Executive shall: (i) devote Executive’s full business time and effort to the furtherance of the business and affairs of the Bank; (ii) carry out and implement all proper direction and instruction from the Bank that conform with reasonable and sound business practices; (iii) abide by the Bank’s written policies and procedures, and by such other policies and procedures of which Executive has received notice; (iv) use best efforts to avoid any action that might maliciously damage, harm or discredit the reputation of the Bank’s products and services; (v) adhere to all fiduciary duties owed to the Bank; and (vi) not engage in any activity that competes in any way with the Bank’s business or interferes with the performance of Executive’s duties hereunder. All acts of Executive in the performance of Executive’s duties will be carried out in conformity with all applicable laws and regulations; all applicable directives, orders, and policies of any governmental agency or regulatory body having authority over the Bank and all policies, directions, and limitations as from time to time may be established in writing by the Bank through the Board. Executive will not be authorized or required to perform any duties, engage in any activities or exercise any powers or authority that would have the effect of violating any federal, state or local laws or regulations.

Section 5.1 Base Salary. Executive shall receive as compensation for services rendered an annual salary of not less than $250,000.00 (the “Base Salary”). The Base Salary shall be paid in such installments and at such times as the Bank pays its regularly salaried officers and shall be subject to all necessary withholding taxes, FICA contributions and similar deductions, as well as set-off against any amounts Executive owes the Bank. The Bank may review the Base Salary payable to Executive annually based on merit. Any increase in Base Salary will thereafter be and

become the “Base Salary” for purposes of this Agreement.

Section 5.2 Restricted Stock Grant. Effective October 22, 2020, Executive will be granted 3,500 shares of restricted stock (“Restricted Stock”). The Restricted Stock will vest ratably over a period of five (5) years beginning on the first (1st) anniversary of the grant date, as set forth in the applicable award agreement, subject to vesting acceleration in certain events. The Restricted Stock will be evidenced by an award agreement that will contain such terms and conditions not inconsistent with the terms of this Section 5.2 and the terms of the Guaranty Bancshares, Inc. 2015 Equity Incentive Plan (the “Equity Incentive Plan”) under which the Restricted Stock is awarded.

Section 5.4 Executive Supplemental Income Plan. If Executive meets eligibility requirements, Executive may participate in the Bank’s executive supplemental income plan in accordance with the policies, provisions, terms and conditions of such plan. The Bank will increase ESI contributions for Officer so that he will have an expected payout of $100,000 per year on an annual basis at age 65 if he remains employed at the Bank through that time.

Section 6.4 Automobile. The Bank will provide Executive with an automobile for professional and personal use, and Executive may retain such automobile during the Term. The

Bank will pay for repairs, insurance, and all gasoline expenses incurred in connection with business use. Executive is entitled to a new vehicle every three (3) years or 75,000 miles, whichever occurs first. Upon Executive’ termination of employment for any reason, Executive shall be provided the opportunity to purchase the issued automobile at the automobile’s then-current Kelly Blue Book Value, or such other value as may be mutually agreed upon by the parties hereto. Absent the purchase of said automobile, Executive shall surrender any automobile provided under this Agreement to the Bank within ten (10) days following the termination of Executive’s employment with the Bank.

Section 7. Termination.

Section 7.4 With Cause. The Bank may terminate Executive’s employment at any time for Cause (as defined in Section 8.2).

Section 7.5 With Good Reason. Executive may terminate this Agreement at any time for Good Reason (as defined in Section 8.2).

of the Bank, Guaranty and all subsidiaries and affiliates of Guaranty and the Bank (including all director positions and committee memberships). Executive agrees that for a period of no less than six (6) months following his termination date, he shall not serve, and he shall not nominate himself to serve, as a director, member or manager of the Bank, Guaranty, or any of their subsidiaries or affiliates.

Section 8. Termination Payments and Benefits.

If termination of employment occurs on after the first anniversary of 1% the Effective Date, but before the second anniversary of Effective

Date

If termination of employment occurs on after the second anniversary 2% of the Effective Date, but before the third anniversary of Effective

Date

If termination of employment occurs on after the third anniversary 3% of the Effective Date

Section 8.2 By the Bank Without Cause or By Executive with Good Reason.

(a)

(b)

A termination for “Good Reason” means the Executive’s voluntary termination of employment from the Bank due to any of the following conditions, provided that any interpretation of such conditions shall comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and all applicable guidance thereunder: (i) a material diminution of Executive’s Base Salary; (ii) a material diminution in Executive’s authority, duties or responsibilities; (iii) a material diminution in the authority, duties or responsibilities of Executive’s supervisor; (iv) a material diminution in the budget over which Executive retains authority; (v) a

material change in geographic location at which Executive must perform services; or (vi) any other action or inaction that constitutes a material breach of the terms of this Agreement, if any; provided that, any of these conditions shall be regarded as “Good Reason” only if (i) Executive actually terminates employment with the Bank prior to a date that is two (2) years following the initial existence of the condition described above, and (ii) only if Executive provides the Bank with notice of the existence of “Good Reason” within ninety (90) days of the initial existence of the applicable condition and the Bank does not remedy that condition within sixty (60) days of such notice from Executive.

such transaction; (2) any acquisition of Bank Stock by the Bank or Guaranty or of Guaranty Stock by Guaranty; or (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Guaranty or any corporation controlled by Guaranty; or (b) the approval by the stockholders of the Bank or Guaranty of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Bank or Guaranty (“Company Transaction”); unless all or substantially all of the individuals and entities who are the beneficial owners of Bank Stock and Guaranty Stock, as applicable, immediately prior to such Company Transaction will beneficially own, directly or indirectly, more than 50% of the outstanding shares of Bank Stock or Guaranty Stock, as applicable, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, after the reorganization, merger, consolidation or sale of assets.

Section 8.5 Specified Employees; Section 409A Compliance. To the extent applicable necessary to comply with Code Section 409A, any payments due to a “specified employee” hereunder as a result of a separation from service will, to the extent required by Code Section 409A, be payable no earlier than six (6) months following such specified employee’s separation from service. The terms “specified employee” and “separation from service” shall be interpreted in accordance with and consistent with Code Section 409A and the regulations

thereunder.

Section 9 Proprietary Information; Post-Termination Covenants.

Section 9.2 Fiduciary Obligations. Executive agrees that Proprietary Information is

of critical importance to the Bank and a violation of this Section would seriously and irreparably impair and damage the Bank’s business. Executive agrees that he shall keep all Proprietary Information in a fiduciary capacity for the sole benefit of the Bank.

Section 9.5 Non-Competition and Non-Solicitation.

(a)

(b)

Longevity Severance, in which case the period is twenty four (24) months or (b) receiving the Reduced Resignation Severance, in which case the period is six (6) months with respect to subsections (i) through (iii) of this Section 9.5(b) and twelve (12) months with respect to subsections (iv) through (v) of this Section 9.5(b), Executive will not, either for himself or in conjunction with others:

(i)

(ii)

(iii)

establish or operate a branch or other office of an insured depository institution within the Noncompete Area;

(iv)

(v)

(c)

Each of the covenants on the part of Executive contained in this Section shall be construed as an agreement independent of any other covenant set forth herein and independent of any other provision in this Agreement and the existence of any claim or cause of action of Executive and Bank, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this covenant.

(d)

(e)

AN INDIVIDUAL SHALL NOT BE HELD CRIMINALLY OR CIVILLY LIABLE UNDER ANY FEDERAL OR STATE TRADE SECRET LAW FOR THE DISCLOSURE OF A TRADE SECRET THAT—(A) IS MADE—(I) IN

CONFIDENCE TO A FEDERAL, STATE, OR LOCAL GOVERNMENT OFFICIAL, EITHER DIRECTLY OR INDIRECTLY, OR TO AN ATTORNEY; AND (II) SOLELY FOR THE PURPOSE OF REPORTING OR INVESTIGATING A SUSPECTED VIOLATION OF LAW; OR (B) IS MADE IN A COMPLAINT OR OTHER DOCUMENT FILED IN A LAWSUIT OR OTHER PROCEEDING, IF SUCH FILING IS MADE UNDER SEAL. . . . AN INDIVIDUAL WHO FILES A LAWSUIT FOR RETALIATION BY AN EMPLOYER FOR REPORTING A SUSPECTED VIOLATION OF LAW MAY DISCLOSE THE TRADE SECRET TO THE ATTORNEY OF THE INDIVIDUAL AND USE THE TRADE SECRET INFORMATION IN THE COURT PROCEEDING, IF THE INDIVIDUAL—(A) FILES ANY DOCUMENT CONTAINING THE TRADE SECRET UNDER SEAL; AND (B) DOES NOT DISCLOSE THE TRADE SECRET, EXCEPT PURSUANT TO COURT ORDER.

and all such taxes, interest or penalties, or liability for any damages related thereto. Executive acknowledges that he has been advised to obtain independent legal, tax or other related counsel in connection with Code Section 409A and taxation.

Section 14 Notices. All notices hereunder, to be effective upon receipt, shall be in writing and shall be delivered by hand or mailed by certified mail, postage and fees prepaid, as follows:

If to the Bank: Guaranty Bank & Trust, N.A.

Attn: Chief Executive Officer 16475 Dallas Parkway, Suite 600

Addison, TX 75001

With a copy to: General Counsel

Guaranty Bank & Trust, N.A. 201 South Jefferson

Mt. Pleasant, TX 75455

If to Executive: Harold E. Lower II

***REDACTED PERSONAL INFORMATION***

or to such other address as a party may notify the other pursuant to a notice given in accordance with this Section 14.

Section 16 Miscellaneous.

Section 16.7 Attorney Fees. The prevailing party shall be entitled to all of its reasonable attorney fees and litigation costs in the event of litigation arising from or related to this Agreement.

Section 16.8 Representations and Warranties by Executive. Executive represents and warrants to the Bank that the execution and delivery by Executive of this Agreement does not and the performance by Executive of his obligations hereunder will not, with or without the giving of notice or the passage of time (or both), (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to Executive, or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to

which Executive is a party or by which Executive is or may be bound

Section 16.12 Captions. Captions herein have been inserted solely for convenience of reference and in no way define, limit or describe the scope or substance of any provision of this Agreement.

Section 16.13 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and shall have the same effect as if the signatures hereto and thereto were on the same instrument.

********

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a sealed instrument as of the day and year first above written.

Guaranty Bank & Trust, N.A.:

By: /s/ Tyson T. Abston

Print name: Tyson T. Abston__

Title: Chairman and CEO

Guaranty Bancshares, Inc.:

By: /s/ Tyson T. Abston

Print name: Tyson T. Abston__

Title: Chairman and CEO

Executive:

/s/ Harold E. Lower II

Harold E. Lower II

EXHIBIT 10.5

GUARANTY BANCSHARES, INC.

GUARANTY BANK & TRUST, N.A.

ADDISON, TEXAS

EXECUTIVE DEFERRED CONTRIBUTION PLAN

The Executive Deferred Contribution Plan of Guaranty Bancshares, Inc. and Guaranty Bank & Trust, N.A. (the “Plan”) is adopted effective January 1, 2022 (“Effective Date”). The purpose of the Plan is to provide certain employees and Board members an opportunity to defer the receipt of compensation pursuant to Sections 409A and 451 of the Internal Revenue Code of 1986 (“Code”). It is intended to be an unfunded arrangement for the benefit of a select group of highly compensated or management employees.

Accordingly, Guaranty hereby adopts the Plan pursuant to the terms and provisions set forth below:

ARTICLE I

DEFINITIONS

Wherever used herein the following terms shall have the meanings hereinafter set forth. Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings used herein are included for the ease of reference only, and are not to be construed so as to alter the terms hereof.

1.1

BENEFICIARY means the person or persons designated by a Participant to receive benefits pursuant to Section 2.2 upon his death.

1.2

BOARD means the Board of Directors of the Company.

1.3

CODE means the Internal Revenue Code of 1986, as amended from time to time, and any regulations relating thereto.

1.4

COMMITTEE means the individuals appointed by the Board of Directors of the Company to administer the Plan.

1.5

COMPANY means Guaranty Bancshares, Inc. and its subsidiary Guaranty Bank & Trust, a national banking company domiciled in Texas, (combined “Guaranty”) and to the extent provided in Section 11.7 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company.

1.6

CONTRIBUTION means a credit made by the Company in the form of an Elective Contribution to a Participant’s Deferred Compensation Account.

1.7

DEFERRED COMPENSATION ACCOUNT OR ACCOUNT means the bookkeeping account established pursuant to Article V to reflect credits of Contributions pursuant to Article III and credits and debits pursuant to Article IV. The amount of Participant’s or Beneficiary’s Deferred Compensation Account shall be determined as of the date of reference.

1.8

DISABILITY means the participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the participant's employer. A service provider will be deemed disabled if the service provider is determined to be totally disabled by the Social Security Administration or the Railroad Retirement Board.

1.9

ELECTIVE CONTRIBUTIONS means a Contribution made to the Plan at the election of a Participant, in lieu of cash compensation, including contributions made pursuant to a salary reduction agreement or some other deferral mechanism.

1.10

ELIGIBLE PARTICIPANT means, for any Plan Year (or applicable portion thereof), a person employed by the Company or a member of the Board, who is determined by the Board to be a member of a select group of management or highly compensated employees and who is designated by the Board to be an Eligible Participant under the Plan. By each November 1, the Company shall notify those individuals, if any, who will be Eligible Participants for the next Plan Year. If the Board determines that an individual first becomes an Eligible Participant during a Plan Year, the Board shall notify such individual of its determination and of the date during the Plan Year on which the individual shall first become an Eligible Participant.

1.11

ENTRY DATE with respect to an individual means the first day of the pay period following the date on which the individual first becomes an Eligible Participant.

1.12

ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations relating thereto.

1.13

NORMAL RETIREMENT AGE means the date on which a Participant attains age 65 years.

1.14

PARTICIPANT means any person so designated in accordance with the provisions of Article II including, where appropriate according to the context of the Plan, any former employee who is or may become (or whose beneficiaries may become) eligible to receive a benefit under the Plan.

1.15

SEPARATION FROM SERVICE has the meaning described in Treas. Reg. Section 1.409A-1(h), which provides that an employee separates from service with the employer if the employee dies, retires, or otherwise has a termination of employment with the employer.

ARTICLE II

ELIGIBILITY AND PARTICIPATION

2.1

REQUIREMENTS. Every Eligible Participant shall be eligible to become a Participant on the first Entry Date occurring on or after the date on which he or she becomes an Eligible Participant. No individual shall become a Participant, however, if he or she is not an Eligible Participant on the Entry Date.

Participation in the Plan is voluntary. In order to participate, an Eligible Participant must make written application in such manner as may be required by Section 3.1 and by the Company and must agree to make Elective Contributions as provided in Article III.

2.2

DESIGNATION OF BENEFICIARY. Each Participant shall designate any person or persons (who may be named contingently or successively) to receive such benefits as may be payable under the Plan upon or after the Participant’s death, and such designation may be changed from time to time by the Participant by filing a new designation.

ARTICLE III

CONTRIBUTIONS

A Participant may authorize the Company to contribute to the Plan on his behalf Elective Contributions. Such Elective Contributions shall be stated as either a dollar amount or a whole percentage of Compensation to be earned by the Participant.

On adoption of the Plan and on a Participant’s initial Entry Date, each Participant shall be given thirty (30) days to elect Elective Contributions. Such written notice shall contain an election of the dollar amount or percentage of his Compensation to be contributed and authorization for the Company to reduce his Compensation by such amount. The election shall remain in force until suspended or revised by the

Participant. Elective Contributions may be suspended or revised at any time by giving prior written notice. After suspension, the Participant shall not be eligible for further Elective Contributions until the beginning of the next Plan Year, for which notice must be given at least thirty (30) days prior to such Plan Year.

ARTICLE IV

DEEMED INVESTMENT OF PARTICIPANTS ACCOUNT

Subject to such limitations as may from time to time be required by law, imposed by the Committee, or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Committee, each Participant may communicate to the Committee directions as to how his or her Deferred Compensation Account should be deemed to be invested among such categories of deemed investments as may be made available by the Committee hereunder. In such a case, the Participant’s Account will be credited or debited with the increase or decrease in the realizable net asset value or credited interest, as applicable, of the designated deemed investments.

ARTICLE V

ALLOCATION OF CONTRIBUTIONS AND EARNINGS

The Company will maintain on its books a Deferred Compensation Account for each Participant to which shall be credited Contributions under Article III and credits and debits under Article IV.

ARTICLE VI

VESTING

The Participants shall have a 100% vested right to the amounts credited to their Deferred Compensation Account, payable at the time and in the form specified in the Plan.

ARTICLE VII

DISTRIBUTIONS

7.1

AMOUNT. A Participant (or his or her Beneficiary if Participant is deceased) shall become entitled to receive from the Company, at the time described in Section 7.3 herein, the aggregate amount credited to the Participant’s Deferred Compensation Account. Any payment due hereunder will be paid by the Company from its general assets.

7.2

ELIGIBILITY FOR PAYMENT. Distribution of benefits from the Plan shall be made no earlier than the date of Participant’s Separation from Service.

7.3

COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to a Participant under the Plan shall commence 60 days after (i) a specific date specified in writing before the Entry date by the Participant, or (ii) the close of the Plan Year in which the Participant incurs a Separation from Service. In the event of a Separation from Service due to a Participant’s death or Disability, a Beneficiary shall be entitled to commence the receipt of benefits as soon as administratively feasible.

In the case of any key employee (as defined in Code section 416(i)) during a time at which the stock of the Company is publicly traded on an established securities market or otherwise, a payment upon a separation from service may not be made before the date that is six months after the date of separation from service (or, if earlier than the end of the six-month period, the date of death of the Participant).

7.4

HARDSHIP DISTRIBUTIONS. The Committee may, upon written application of the Participant, authorize a distribution of all or a portion of a Participant’s Account. Distributions will be permitted only for purposes described in Internal Revenue Code Section 409A(a)(2)(B)(ii) and Treas. Reg. Section 1.409A-3(i)(3), which establish standards deemed to satisfy the hardship condition for distribution of elective contributions for non-qualified cash or deferred arrangements. Specifically, these purposes are:

(a) expenses for medical care previously incurred by the Participant, the Participant’s spouse, or any dependents of the Participant, or necessary for these persons to obtain medical care; or

(B) payments necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure on the mortgage on that residence.

7.5

DE MINIMIS CASH-OUT. Notwithstanding the foregoing, in the event of a Separation from Service for any reason, a Participant shall be entitled to commence the receipt of benefits as soon as administratively feasible, provided the following:

•

The payment results in the termination of the Participant’s entire interest under the Plan or any other non-qualified deferred compensation plan maintained by the Company; and

•

The payment does not exceed the applicable dollar limit on elective contributions to a cash or deferred arrangement under Code Section 402(g)(1)(B) for the tax year.

ARTICLE VIII

FORM OF BENEFIT DISTRIBUTION

8.1

ELECTION. A Participant or Beneficiary may elect the form, subject to Section 8.2 herein, of distribution of his or her benefits and may revoke that election (with or without a new election) at any time at before his Entry Date, by notifying the Committee in writing of his or her election.

8.2

FORMS OF DISTRIBUTION. Distributions of benefits shall be made, subject to a Participant’s or Beneficiary’s election as set out below, in one of the following forms:

(a)

Date specified in writing before the Entry Date. . (i) Periodic payments over a specified period of time not to exceed 15 years, or (ii) a single lump sum payment of the entire balance in a Participant's Deferred Compensation Account.

(b)

Separation from Service (i) Periodic payments over a specified period of time not to exceed 15 years, or (ii) a single payment of the entire balance in a Participant's account.

(c)

Separation from Service at Death. (i) Periodic payments over a specified period of time not to exceed 15 years, or (ii) a single payment of the entire balance in a Participant's account.

8.3

FAILURE TO MAKE ELECTION. If a Participant or Beneficiary fails to elect a form of distribution before his Entry Date, benefits shall be paid in substantially equal installments over 15 years.

ARTICLE IX

ADMINISTRATION OF PLAN

9.1

ADMINISTRATION BY THE COMMITTEE. The Committee shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof.

9.2

GENERAL POWERS OF ADMINISTRATION. The Committee shall be entitled to rely exclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, controller, counsel or other person employed or engaged by the Committee with respect to the Plan.

ARTICLE X

AMENDMENT OR TERMINATION

10.1

AMENDMENT OR TERMINATION. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable.

10.2

AMENDMENTS TO ASSURE PROPER CHARACTERIZATION OF PLAN.

Notwithstanding the provisions of Section 10.1, the Plan may be amended by the Company at any time, retroactively if required, if found necessary, in the opinion of the Company, in order to assure that the Plan is characterized as a top-hat plan of deferred compensation maintained for a select group of management or highly compensated employees as described under ERISA Sections 201(2), 301(a)(3), and 401(a)(1) and to conform the Plan to the provisions and requirements of any applicable law (including ERISA and the Code). No such amendment shall be considered prejudicial to any interest of a Participant or a Beneficiary hereunder.

10.3

EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of the Plan shall directly or indirectly reduce the balance of the Deferred Compensation Account held hereunder as of the effective date of such amendment or termination, and the Deferred Compensation Account shall continue to be credited or debited with the increase or decrease in the realizable net asset value or credited interest, as applicable until distribution thereof. Notwithstanding the termination of the Plan, amounts in the Deferred Compensation Account shall continue to be held subject to the provisions of this Plan and distribution of amounts in the Deferred Compensation Account shall be made to the Participant or his beneficiary in the manner and at the time described in Article VII of the Plan.

ARTICLE XI

GENERAL PROVISIONS

11.1

PARTICIPANT’S RIGHTS UNSECURED. The Plan is intended to be and at all times shall be interpreted and administered so as to qualify as a nonqualified plan of deferred compensations subject to taxation under Sections 404(a)(5) and 409A of the Code.

11.2

NO GUARANTEE OF BENEFITS. Nothing contained in the Plan shall constitute a guaranty by the Company or any other person or entity that the assets of the Company will be sufficient to pay any benefit hereunder.

11.3

NO ENLARGEMENT OF RIGHTS. No Participant shall have any right to receive a distribution of contributions made under the Plan except in accordance with the terms of the Plan. The establishment of this Plan shall not, and nothing contained herein shall, be construed in any way to give any Participant the right to continued employment with the Company or the right to be retained as an independent contractor of the Company.

11.4

SPEND THRIFT PROVISIONS. No interest of any person or entity in, or right to receive a distribution under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a distribution be taken, either voluntarily or involuntarily for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance, and claim in bankruptcy proceedings.

11.5

APPLICABLE LAW. The Plan shall be construed and administered under the laws of the State of Texas.

11.6

INCAPACITY OF RECIPIENT. If any person entitled to a distribution under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor.

11.7

CORPORATE SUCCESSORS. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or any other entity, but the Plan shall be continued after such sale, merger, or consolidation only if and to the extent that the transferee, purchaser, or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser, or successor, entity, then the Plan shall terminate subject to the provisions of Section 10.3.

11.8

UNCLAIMED BENEFIT. Each Participant shall keep the Committee informed of his current address and the current address of his designated Beneficiary. The Committee shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Committee within three (3) years after the date on which payment of the Participant’s Deferred Compensation Account may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Committee is unable to locate any designated Beneficiary of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or designated Beneficiary and such benefit shall be irrevocably forfeited.

11.9

LIMITATIONS ON LIABILITY. Notwithstanding any of the preceding provisions of the Plan, neither the Company nor any shareholder, director, officer, employee or agent of the Company shall be liable to any Participant, former Participant, or other person for any claim, loss, liability, or expense incurred in connection with the Plan or the administration thereof.

IN WITNESS WHEREOF, the Company has formally adopted this Plan as of the date and year first above written.

GUARANTY BANCSHARES, INC GUARANTY BANK & TRUST N.A.

By: /s/ Ty Abston _

Ty Abston

Chairman of the Board and CEO

EXHIBIT 31.1

CERTIFICATION

I, Tyson T. Abston, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. for the three months ended March 31, 2023;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2023

/s/ Tyson T. Abston

Tyson T. Abston

Chairman of the Board & Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Clifton A. Payne, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. for the three months ended March 31, 2023;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2023

/s/ Clifton A. Payne

Chief Financial Officer & Director

Clifton A. Payne

EXHIBIT 32.1

CERTIFICATION

In connection with the Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. (the “Company”) for the three months ended March 31, 2023 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Tyson T. Abston, Chairman of the Board & Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Tyson T. Abston

Tyson T. Abston

Chairman of the Board & Chief Executive Officer

Date: May 5, 2023

EXHIBIT 32.2

CERTIFICATION

In connection with the Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. (the “Company”) for the three months ended March 31, 2023 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Clifton A. Payne, Chief Financial Officer & Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Clifton A. Payne

Clifton A. Payne

Chief Financial Officer & Director

Date: May 5, 2023