10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

OR

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

For the transition period from to .

Commission File Number: 001-38087

GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Texas	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	NASDAQ Global Select Market

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 November 1, 2021, there were 12,086,977 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)	3
	Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	3
	Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	86
Item 4.	Controls and Procedures	86
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	87
Item 1A.	Risk Factors	87
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 3.	Defaults Upon Senior Securities	88
Item 4.	Mine Safety Disclosures	88
Item 5.	Other Information	88
Item 6.	Exhibits	89
SIGNATURES		90

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GUARANTY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

	(Unaudited)			(Audited)
	September 30, 2021			December 31, 2020
ASSETS
Cash and due from banks	$	34,741		$	47,836
Federal funds sold		346,500			218,825
Interest-bearing deposits		27,634			85,130
Total cash and cash equivalents		408,875			351,791
Securities available for sale		269,070			380,795
Securities held to maturity		173,676			—
Loans held for sale		1,903			5,542
Loans, net of allowance for credit losses of $30,621 and $33,619, respectively		1,938,268			1,831,737
Accrued interest receivable		7,673			9,834
Premises and equipment, net		53,834			55,212
Other real estate owned		40			404
Cash surrender value of life insurance		36,582			35,510
Core deposit intangible, net		2,426			2,999
Goodwill		32,160			32,160
Other assets		43,761			34,848
Total assets	$	2,968,268		$	2,740,832
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	972,854		$	779,740
Interest-bearing		1,590,217			1,506,650
Total deposits		2,563,071			2,286,390
Securities sold under agreements to repurchase		11,195			15,631
Accrued interest and other liabilities		26,284			25,257
Line of credit		3,000			12,000
Federal Home Loan Bank advances		47,500			109,101
Subordinated debentures		19,810			19,810
Total liabilities		2,670,860			2,468,189
Commitments and contingencies (see Note 11)
Shareholders' equity
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued		—			—
Common stock, $1.00 par value, 50,000,000 shares authorized, 14,097,738 and 12,951,676 shares issued, and 12,081,477 and 10,935,415 shares outstanding, respectively		14,098			12,952
Additional paid-in capital		224,458			188,032
Retained earnings		100,910			113,449
Treasury stock, 2,016,261 shares at cost		(51,419	)		(51,419	)
Accumulated other comprehensive income		9,361			9,629
Total shareholders' equity		297,408			272,643
Total liabilities and shareholders' equity	$	2,968,268		$	2,740,832

See accompanying notes to consolidated financial statements.

3.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Interest income
Loans, including fees	$	22,605		$	22,681		$	69,664		$	69,337
Securities
Taxable		1,203			1,051			3,393			3,532
Nontaxable		1,050			1,074			3,142			3,135
Federal funds sold and interest-bearing deposits		377			150			833			785
Total interest income		25,235			24,956			77,032			76,789
Interest expense
Deposits		1,348			2,285			4,444			9,746
FHLB advances and federal funds purchased		107			141			308			346
Subordinated debentures		182			192			558			511
Other borrowed money		28			59			184			156
Total interest expense		1,665			2,677			5,494			10,759
Net interest income		23,570			22,279			71,538			66,030
Provision for credit losses		(700	)		(300	)		(1,700	)		13,200
Net interest income after provision for credit losses		24,270			22,579			73,238			52,830
Noninterest income
Service charges		1,003			717			2,687			2,196
Net realized gain on sale of loans		1,759			2,114			4,401			4,811
Other income		3,687			3,832			11,450			9,604
Total noninterest income		6,449			6,663			18,538			16,611
Noninterest expense
Employee compensation and benefits		10,998			9,439			31,145			26,982
Occupancy expenses		2,738			2,597			8,258			7,624
Other expenses		5,551			4,722			14,899			13,743
Total noninterest expense		19,287			16,758			54,302			48,349
Income before income taxes		11,432			12,484			37,474			21,092
Income tax provision		2,179			2,350			6,827			3,605
Net earnings	$	9,253		$	10,134		$	30,647		$	17,487
Basic earnings per share*	$	0.77		$	0.84		$	2.54		$	1.43
Diluted earnings per share*	$	0.76		$	0.84		$	2.51		$	1.43
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.

See accompanying notes to consolidated financial statements.

4.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021			2020
Net earnings	$	9,253	$	10,134	$	30,647		$	17,487
Other comprehensive income (loss):
Unrealized gains (losses) on securities, net of tax		1,654		397		(1,268	)		12,094
Unrealized gains (losses) on interest rate swaps
Unrealized holding gains (losses) arising during the period		62		99		534			(730	)
Reclassification of realized losses on interest rate swap termination from accumulated other comprehensive income		466		—		466			—
Unrealized gains (losses) on interest rate swaps		528		99		1,000			(730	)
Total other comprehensive income (loss)		2,182		496		(268	)		11,364
Comprehensive income	$	11,435	$	10,630	$	30,379		$	28,851

See accompanying notes to consolidated financial statements.

5.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except per share amounts)

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
For the Nine Months Ended September 30, 2021
Balance at December 31, 2020	$	—	$	12,952	$	188,032		$	113,449		$	(51,419	)	$	9,629		$	272,643
Net earnings		—		—		—			30,647			—			—			30,647
Other comprehensive loss		—		—		—			—			—			(268	)		(268	)
10% stock dividend		—		1,094		34,853			(35,947	)		—			—			—
Exercise of stock options		—		48		1,065			—			—			—			1,113
Restricted stock grants		—		4		(4	)		—			—			—			—
Stock based compensation		—		—		512			—			—			—			512
Cash dividends:
Common - $0.60 per share		—		—		—			(7,239	)		—			—			(7,239	)
Balance at September 30, 2021	$	—	$	14,098	$	224,458		$	100,910		$	(51,419	)	$	9,361		$	297,408
For the Three Months Ended September 30, 2021
Balance at June 30, 2021	$	—	$	14,074	$	223,822		$	94,073		$	(51,419	)	$	7,179		$	287,729
Net earnings		—		—		—			9,253			—			—			9,253
Other comprehensive income		—		—		—			—			—			2,182			2,182
Exercise of stock options		—		20		457			—			—			—			477
Restricted stock grants		—		4		(4	)		—			—			—			—
Stock based compensation		—		—		183			—			—			—			183
Cash dividends:
Common - $0.20 per share		—		—		—			(2,416	)		—			—			(2,416	)
Balance at September 30, 2021	$	—	$	14,098	$	224,458		$	100,910		$	(51,419	)	$	9,361		$	297,408

See accompanying notes to consolidated financial statements.

6.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except per share amounts)

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
For the Nine Months Ended September 30, 2020
Balance at December 31, 2019	$	—	$	12,905	$	186,692		$	98,239		$	(34,492	)	$	(1,793	)	$	261,551
Impact of adoption of ASC 326, net of tax of $955		—		—		—			(3,593	)		—			—			(3,593	)
Net earnings		—		—		—			17,487			—			—			17,487
Other comprehensive income		—		—		—			—			—			11,364			11,364
Exercise of stock options		—		4		68			—			—			—			72
Purchase of treasury stock		—		—		—			—			(14,110	)		—			(14,110	)
Stock based compensation		—		—		494			—			—			—			494
Cash dividends:
Common - $0.53 per share*		—		—		—			(6,412	)		—			—			(6,412	)
Balance at September 30, 2020	$	—	$	12,909	$	187,254		$	105,721		$	(48,602	)	$	9,571		$	266,853
For the Three Months Ended September 30, 2020
Balance at June 30, 2020	$	—	$	12,908	$	187,073		$	97,788		$	(47,969	)	$	9,075		$	258,875
Net earnings		—		—		—			10,134			—			—			10,134
Other comprehensive income		—		—		—			—			—			496			496
Exercise of stock options		—		1		(1	)		—			—			—			—
Purchase of treasury stock		—		—		—			—			(633	)		—			(633	)
Stock based compensation		—		—		182			—			—			—			182
Dividends:
Common - $0.18 per share*		—		—		—			(2,201	)		—			—			(2,201	)
Balance at September 30, 2020	$	—	$	12,909	$	187,254		$	105,721		$	(48,602	)	$	9,571		$	266,853

* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.

See accompanying notes to consolidated financial statements.

7.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	For the Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities
Net earnings	$	30,647		$	17,487
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		3,294			3,045
Amortization		932			1,010
Deferred taxes		(181	)		(2,949	)
Premium amortization, net of discount accretion		3,291			2,948
Gain on sale of loans		(4,401	)		(4,811	)
Provision for credit losses		(1,700	)		13,200
Origination of loans held for sale		(84,944	)		(121,628	)
Proceeds from loans held for sale		92,984			119,659
Write-down of other real estate and repossessed assets		6			358
Net gain on sale of premises, equipment, other real estate owned and other assets		16			103
Stock based compensation		512			494
Net change in accrued interest receivable and other assets		(5,034	)		(2,607	)
Net change in accrued interest payable and other liabilities		1,799			1,897
Net cash provided by operating activities	$	37,221		$	28,206
Cash flows from investing activities
Securities available for sale:
Purchases	$	(125,826	)	$	(333,838	)
Proceeds from maturities and principal repayments		63,264			342,452
Securities held to maturity:
Purchases		(7,797	)		—
Proceeds from maturities and principal repayments		938			3,024
Net originations of loans		(105,333	)		(248,409	)
Purchases of premises and equipment		(1,912	)		(5,148	)
Proceeds from BOLI death benefit		464			—
Proceeds from sale of premises, equipment, other real estate owned and other assets		319			509
Net cash used in investing activities	$	(175,883	)	$	(241,410	)

See accompanying notes to consolidated financial statements.

8.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	For the Nine Months Ended September 30,
	2021			2020
Cash flows from financing activities
Net change in deposits	$	276,681		$	266,278
Net change in securities sold under agreements to repurchase		(4,436	)		9,420
Proceeds from FHLB advances		120,000			290,000
Repayment of FHLB advances		(181,601	)		(246,013	)
Proceeds from line of credit		8,000			25,000
Repayment of line of credit		(17,000	)		(18,000	)
Proceeds from issuance of debentures		—			10,000
Repayments of debentures		—			(500	)
Purchase of treasury stock		—			(14,110	)
Exercise of stock options		1,113			72
Cash dividends		(7,011	)		(6,286	)
Net cash provided by financing activities	$	195,746		$	315,861
Net change in cash and cash equivalents		57,084			102,657
Cash and cash equivalents at beginning of period		351,791			90,714
Cash and cash equivalents at end of period	$	408,875		$	193,371
Supplemental disclosures of cash flow information
Interest paid	$	5,743		$	11,456
Income taxes paid		7,850			5,545
Supplemental schedule of noncash investing and financing activities
Cash dividends accrued		2,416			2,201
Held to maturity securities transferred to available for sale		—			152,486
Available for sale securities transferred to held to maturity		172,292			—
Transfer of loans to other real estate owned and repossessed assets		502			221
Stock dividend		35,947			—

See accompanying notes to consolidated financial statements.

9.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Guaranty Bancshares, Inc. (“Guaranty”) is a bank holding company headquartered in Mount Pleasant, Texas that provides, through its wholly-owned subsidiary, Guaranty Bank & Trust, N.A. (the “Bank”), a broad array of financial products and services to individuals and corporate customers, primarily in its markets of East Texas, 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 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.

Basis of Presentation: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank, and their respective other direct and indirect subsidiaries and any other entities in which Guaranty has a controlling interest. The Bank has six wholly-owned 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 (formerly Pin Oak Energy Holdings, LLC) and White Oak Aviation, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2020, included in Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2020. 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.

COVID-19: On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, of which virus variants continue to spread through the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19, and its subsequent variants, could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company.

Government leaders and the Federal Reserve have taken several actions designed to mitigate the economic fallout resulting from the coronavirus. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, signed into law on March 27, 2020, authorized more than $2 trillion to battle COVID-19 and its economic effects, including immediate cash relief for

(Continued)

10.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

individual citizens, loan programs for small businesses, support for hospitals and other medical providers, and various types of economic relief for impacted businesses and industries. The goal of CARES Act was to prevent severe economic downturn. The CARES Act also provided for temporary interest only or payment deferral modifications for loans without classifying them as troubled debt restructurings under current accounting rules. Additional government-backed hardship relief measures were signed into law in early 2021, as well as extension of many of the CARES Act provisions.

Due to the COVID-19 pandemic, market interest rates declined significantly, with the 10-year Treasury bond falling below 1.00% on March 3, 2020 for the first time. On March 16, 2020, the Federal Open Market Committee reduced the target federal funds rate range to 0.00% to 0.25%, at which it remains as of September 30, 2021. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations, as well as business and consumer confidence. As a result of the spread of COVID-19 and its variants, economic uncertainties have arisen which can negatively impact net interest income and noninterest income. Other financial impacts could occur though such potential impact remains unknown at this time.
 

Allowance for Credit Losses:

Held to Maturity Debt Securities

The allowance for credit losses on held to maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held to maturity securities to present management's best estimate of the net amount expected to be collected. Held to maturity securities are charged-off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses. Management measures expected credit losses on held to maturity securities on a collective basis by major security type with each types sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held to maturity securities from the estimate of credit losses.

Available for Sale Debt Securities

For available for sale debt securities in an unrealized loss position, the Company first assesses whether or not it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securities amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected are less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provisions for or reversal of credit loss expense. Losses are charged against the allowance when management believes a security is uncollectible or when either of the criteria regarding intent to sell or required to sell is met. Accrued interest receivable on securities is excluded from the estimate of credit losses.

(Continued)

11.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected over the lifetime of the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Subsequent recoveries, if any, are credited to the allowance.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We use the weighted-average remaining maturity method (WARM method) as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate. This average annual charge-off rate contains 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 for current conditions and for reasonable and supportable forecast periods. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors.

The allowance for credit losses is measured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan portfolio segments include both regulatory call report codes and by internally identified risk ratings for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separately identified our mortgage warehouse loans, internally originated SBA loans, SBA loans acquired from Westbound Bank in 2018 and loans originated under the Paycheck Protection Program ("PPP") for inherent risk analysis. Accrued interest receivable on loans is excluded from the estimate of credit losses.

(Continued)

12.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Below is a summary of the segments and certain of the inherent risks in the Company’s loan portfolio:

Commercial and industrial:	This portfolio segment includes general secured and unsecured commercial loans which are not secured by real estate or may be secured by real estate but made for the primary purpose of a short term revolving line of credit. Credit risk inherent in this portfolio segment include fluctuations in the local and national economy.
Construction and development:	This portfolio segment includes all loans for the purpose of construction, including both business and residential structures; and real estate development loans, including non-agricultural vacant land. Credit risk inherent in this portfolio include fluctuations in property values, unemployment, and changes in the local and national economy.
Commercial real estate:	The commercial real estate portfolio segment includes all commercial loans that are secured by real estate, other than those included in the construction and development, farmland, multi-family, and 1-4 family residential segments. Risks inherent in this portfolio segment include fluctuations in property values and changes in the local and national economy impacting the sale of the finished structures.
Farmland:	The farmland portfolio includes loans that are secured by real estate that is used or usable for agricultural purposes, including land used for crops, livestock production, grazing & pastureland and timberland. This segment includes land with a 1-4 family residential structure if the value of the land exceeds the value of the residence. Risks inherent in this portfolio segment include adverse changes in climate, fluctuations in feed and cattle prices and changes in property values.
Consumer:	This portfolio segment consists of non-real estate loans to consumers. This includes secured and unsecured loans such as auto and personal loans. The risks inherent in this portfolio segment include those factors that would impact the consumer’s ability to meet their obligations under the loan. These include increases in the local unemployment rate and fluctuations in consumer and business sales.
1-4 family residential:	This portfolio segment includes loans to both commercial and consumer borrowers secured by real estate for housing units of up to four families. Risks inherent in this portfolio segment include increases in the local unemployment rate, changes in the local economy and factors that would impact the value of the underlying collateral, such as changes in property values.
Multi-family residential:	This portfolio segment includes loans secured by structures containing five or more residential housing units. Risks inherent in this portfolio segment include increases to the local unemployment rate, changes in the local economy, and factors that would impact property values.
Agricultural:	The agricultural portfolio segment includes loans to individuals and companies in the dairy and cattle industries and farmers. Loans in the segment are secured by collateral including cattle, crops and equipment. Risks inherent in this portfolio segment include adverse changes in climate and fluctuations in feed and cattle prices.

(Continued)

13.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following groups of loans are considered to carry specific similar inherent risk characteristics, which the Bank considers separately during its calculation of the allowance for credit losses. These groups of loans are reported within the segments identified in the previous table.

Mortgage Warehouse:	The mortgage warehouse portfolio includes loans in which we purchase mortgage loan ownership interests from unaffiliated mortgage originators that are generally held by us for a period of less than 30-days, typically 5-10 days before they are sold to an approved investor. These loans are consistently underwritten based on standards established by the approved investor. Risks inherent in this portfolio include borrower or mortgage originator fraud.
SBA – Acquired Loans	The SBA – acquired loans segment consists of partially SBA guaranteed loans that were acquired from Westbound Bank in June 2018. These loans are commercial real estate and commercial and industrial in nature and were underwritten with guidelines that are less conservative than our Company. Risks inherent in this portfolio include increases in interest rates, as most are variable rate loans, generally lower levels of borrower equity, less conservative underwriting guidelines, fluctuations in real estate values and changes in the local and national economy.
SBA – Originated Loans	The SBA – originated loans segment consists of loans that are partially guaranteed by the SBA and were originated and underwritten by Guaranty Bank & Trust loan officers. Risks inherent in this portfolio include increases in interest rates due to variable rate structures, generally lower levels of borrower equity or net worth, fluctuations in real estate values and changes in the local and national economy.
SBA – Paycheck Protection Program Loans	Loans originated under the PPP are 100% government guaranteed by the SBA. As a result, the loans are excluded from the segments above and a minimal reserve estimate was applied to this segment of loans for purposes of calculating the credit loss provision.

In general, the loans in our portfolio have low historical credit losses. The credit quality of loans in our portfolio is impacted by delinquency status and debt service coverage generated by our borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the allowance for credit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for credit losses, which would adversely affect our results of operations and financial condition. Delinquency statistics are updated at least monthly.

Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor that impact management’s estimates of loss factors used in determining the amount of the allowance for credit losses. Internal risk ratings are updated on a continuous basis.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

(Continued)

14.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Credit Quality Indicators - The Company monitors the credit quality of the loans in the various segments by identifying and evaluating credit quality indicators specific to each segment class. This information is incorporated into management’s analysis of the adequacy of the allowance for credit losses. Information for the credit quality indicators is updated monthly or quarterly for classified assets and at least annually for the remainder of the portfolio.

The following is a discussion of the primary credit quality indicators most closely monitored for the loan portfolio, by class:

Commercial and industrial:	In assessing risk associated with commercial loans, management considers the business’s cash flow and the value of the underlying collateral to be the primary credit quality indicators.
Construction and development:	In assessing the credit quality of construction loans, management considers the ability of the borrower to make principal and interest payments in the event that they are unable to sell the completed structure to be a primary credit quality indicator. For real estate development loans, management also considers the likelihood of the successful sale of the constructed properties in the development.
Commercial real estate:	Management considers the strength of the borrower’s cash flows, changes in property values and occupancy status to be key credit quality indicators of commercial real estate loans.
Farmland:	In assessing risk associated with farmland loans, management considers the borrower’s cash flows and underlying property values to be key credit quality indicators.
Consumer:	Management considers delinquency status to be the primary credit quality indicator of consumer loans. Others include the debt to income ratio of the borrower, the borrower’s credit history, the availability of other credit to the borrower, the borrower’s past-due history, and, if applicable, the value of the underlying collateral to be primary credit quality indicators.
1-4 family residential:	Management considers delinquency status to be the primary credit quality indicator of 1-4 family residential loans. Others include changes in the local economy, changes in property values, and changes in local unemployment rates to be key credit quality indicators of the loans in the 1-4 family residential loan segment.
Multi-family residential:	Management considers changes in the local economy, changes in property values, vacancy rates and changes in local unemployment rates to be key credit quality indicators of the loans in the multifamily loan segment.
Agricultural:	In assessing risk associated with agricultural loans, management considers the borrower’s cash flows, the value of the underlying collateral and sources of secondary repayment to be primary credit quality indicators.

From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan can be grouped with its like segment for allowance consideration or whether it should be individually evaluated for a specific allowance for credit loss allocation. If individually evaluated, an

(Continued)

15.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

allowance for credit loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.

In response to the COVID-19 pandemic, the Bank provided financial relief to many of its customers through a 3-month principal and interest payment deferral program or an up to 6-month interest only program. Pursuant to the CARES Act and the April 7, 2020 Interagency guidance and GAAP, these loan modifications, and certain subsequent modifications, are not considered to be troubled debt restructurings.

Reserve for Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Effect of Stock Splits and Stock Dividends on Prior Period Presentation: Earnings and dividends per share and weighted average shares outstanding are presented as if all stock splits and stock dividends were effective from the earliest period presented through the date of issuance of the financial statements. Unless indicated otherwise, other share amounts have not been adjusted. 

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 September 30, 2021 and securities available for sale as of December 31, 2020 and the corresponding amounts of gross unrealized gains and losses:

September 30, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
U.S. government agencies	$	10,013	$	46	$	—	$	10,059
Corporate bonds		34,105		1,233		92		35,246
Mortgage-backed securities		157,846		2,143		847		159,142
Collateralized mortgage obligations		63,272		1,405		54		64,623
Total available for sale	$	265,236	$	4,827	$	993	$	269,070
Held to maturity:
Municipal securities	$	170,634	$	9,139	$	147	$	179,626
Mortgage-backed securities		3,042		—		37		3,005
Total held to maturity	$	173,676	$	9,139	$	184	$	182,631

December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	29,608	$	1,382	$	8	$	30,982
Municipal securities		164,668		11,036		—		175,704
Mortgage-backed securities		104,210		3,041		87		107,164
Collateralized mortgage obligations		64,611		2,335		1		66,945
Total available for sale	$	363,097	$	17,794	$	96	$	380,795

(Continued)

16.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

There is no allowance for credit losses recorded for our available for sale or held to maturity debt securities as of September 30, 2021 or December 31, 2020.

Information pertaining to securities with gross unrealized losses as of September 30, 2021 and December 31, 2020, 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
September 30, 2021	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(92	)	$	7,678	$	—		$	—	$	(92	)	$	7,678
Mortgage-backed securities		(803	)		68,150		(44	)		3,276		(847	)		71,426
Collateralized mortgage obligations		(54	)		18,203		—			—		(54	)		18,203
Total available for sale	$	(949	)	$	94,031	$	(44	)	$	3,276	$	(993	)	$	97,307
Held to maturity:
Municipal securities	$	(147	)	$	4,381	$	—		$	—	$	(147	)	$	4,381
Mortgage-backed securities		(37	)		3,006		—			—		(37	)		3,006
Total held to maturity	$	(184	)	$	7,387	$	—		$	—	$	(184	)	$	7,387

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2020	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(8	)	$	2,493	$	—		$	—	$	(8	)	$	2,493
Mortgage-backed securities		(87	)		25,775		—			—		(87	)		25,775
Collateralized mortgage obligations		—			—		(1	)		106		(1	)		106
Total available for sale	$	(95	)	$	28,268	$	(1	)	$	106	$	(96	)	$	28,374

There were 26 investments in an unrealized loss position, and 22 available for sale debt securities in an unrealized loss position with no recorded allowance for credit losses at September 30, 2021. The available for sale securities in a loss position were composed of 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 September 30, 2021 is 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

(Continued)

17.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

of cost. The fair values are expected to recover as the securities approach their maturity date or repricing date or if market yields for the investments decline.

Management assesses held to maturity securities sharing similar risk characteristics on a collective basis for expected credit losses under CECL. As of September 30, 2021, our held to maturity securities consisted of municipal bonds and mortgage-backed securities issued by the U.S. Government and its agencies. With regard to the 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.

Mortgage-backed securities and collateralized mortgage obligations are backed by pools of mortgages that are insured or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association or the Government National Mortgage Association.

As of September 30, 2021, there were no holdings of securities of any one issuer, other than the collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with fair values of approximately $279,726 and $314,962 at September 30, 2021 and December 31, 2020, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

There were no securities sold during the three or nine months ended September 30, 2021 or 2020.

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 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 gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $9,684 at September 30, 2021. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

The contractual maturities at September 30, 2021 of available for sale 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
September 30, 2021	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	—	$	—	$	4,802	$	4,868
Due after one year through five years		14,645		15,430		48,612		50,466
Due after five years through ten years		29,473		29,875		50,369		53,350
Due after ten years		—		—		66,851		70,942
Mortgage-backed securities		157,846		159,142		3,042		3,005
Collateralized mortgage obligations		63,272		64,623		—		—
Total securities	$	265,236	$	269,070	$	173,676	$	182,631

NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

(Continued)

18.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

	September 30, 2021			December 31, 2020
Commercial and industrial	$	308,647		$	356,291
Real estate:
Construction and development		309,746			270,407
Commercial real estate		633,353			594,216
Farmland		135,413			78,508
1-4 family residential		403,403			389,096
Multi-family residential		40,810			21,701
Consumer		52,992			51,044
Agricultural		14,199			15,734
Warehouse lending(1)		71,823			89,480
Overdrafts		495			342
Total loans(2)		1,970,881			1,866,819
Net of:
Deferred loan fees, net		(1,992	)		(1,463	)
Allowance for credit losses		(30,621	)		(33,619	)
Total net loans(2)	$	1,938,268		$	1,831,737
(1) Warehouse lending is presented as a component of commercial and industrial loans on remaining tables.
(2) Excludes accrued interest receivable on loans of $5.8 million and $7.0 million as of September 30, 2021 and December 31, 2020, respectively, which is presented separately on the consolidated balance sheets.

(Continued)

19.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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 extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The following tables present the activity in the ACL by class of loans for the nine months ended September 30, 2021, for the year ended December 31, 2020 and for the nine months ended September 30, 2020:

For the Nine Months Ended September 30, 2021	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	$	4,033		$	4,735		$	15,780		$	1,220	$	6,313		$	363	$	929		$	239		$	7		$	33,619
Provision for credit losses		(268	)		(774	)		(670	)		365		(559	)		213		(61	)		(73	)		127			(1,700	)
Loans charged-off		(300	)		—			(816	)		—		—			—		(113	)		—			(173	)		(1,402	)
Recoveries		15			1			11			—		—			—		32			—			45			104
Ending balance	$	3,480		$	3,962		$	14,305		$	1,585	$	5,754		$	576	$	787		$	166		$	6		$	30,621

For the Year Ended December 31, 2020	Commercial and industrial			Construction and development		Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance, prior to adoption of ASC 326	$	2,056		$	2,378	$	6,853	$	570	$	3,125		$	409		$	602		$	197		$	12		$	16,202
Impact of adopting ASC 326		546			323		2,228		26		1,339			(50	)		72			73			(9	)		4,548
Provision for credit losses		1,398			2,034		6,698		624		1,915			4			373			(33	)		187			13,200
Loans charged-off		(68	)		—		—		—		(68	)		—			(155	)		(18	)		(234	)		(543	)
Recoveries		101			—		1		—		2			—			37			20			51			212
Ending balance	$	4,033		$	4,735	$	15,780	$	1,220	$	6,313		$	363		$	929		$	239		$	7		$	33,619

For the Nine Months Ended September 30, 2020	Commercial and industrial			Construction and development		Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	2,056		$	2,378	$	6,853	$	570	$	3,125		$	409		$	602		$	197		$	12		$	16,202
Impact of adopting ASC 326		546			323		2,228		26		1,339			(50	)		72			73			(9	)		4,548
Provision for credit losses		1,366			2,228		6,613		694		1,778			(34	)		407			59			89			13,200
Loans charged-off		(43	)		—		—		—		(59	)		—			(136	)		(18	)		(128	)		(384	)
Recoveries		93			—		1		—		2			—			30			20			45			191
Ending balance	$	4,018		$	4,929	$	15,695	$	1,290	$	6,185		$	325		$	975		$	331		$	9		$	33,757

(Continued)

20.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

During the year ended December 31, 2020, a total allowance for credit losses provision of $13,200 was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. We recorded no provision in the first quarter of 2021, a $1,000 reverse provision in the second quarter and a $700 reverse provision in the third quarter. These provision reversals capture the improvements that have occurred to macroeconomic factors evaluated at the onset of the pandemic as part of the aforementioned COVID-specific qualitative factors, as well as risk rating upgrades for specific loans, which impact the reserve calculations within our model, offset by growth in our overall loan portfolio. Although management is cautiously optimistic about improving vaccination and hospitalization rates and economic trends, it is very likely that the economic effects of the pandemic will continue into 2022.

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, for our SBA loans acquired from Westbound Bank and for SBA-guaranteed PPP loans. 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)

21.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of September 30, 2021:

September 30, 2021	2021		2020		2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	199,537	$	40,901	$	20,982		$	9,595		$	4,333		$	17,616		$	86,768		$	379,732
Special mention		—		96		—			—			21			—			—			117
Substandard		—		278		60			196			43			5			—			582
Nonaccrual		—		—		—			25			—			14			—			39
Total commercial and industrial loans	$	199,537	$	41,275	$	21,042		$	9,816		$	4,397		$	17,635		$	86,768		$	380,470
Charge-offs	$	—	$	—	$	(167	)	$	(67	)	$	(19	)	$	—		$	(47	)	$	(300	)
Recoveries		—		—		—			—			—			—			15			15
Current period net	$	—	$	—	$	(167	)	$	(67	)	$	(19	)	$	—		$	(32	)	$	(285	)
Construction and development:
Pass	$	153,740	$	78,121	$	29,164		$	7,149		$	16,405		$	14,347		$	8,313		$	307,239
Special mention		—		710		—			—			955			—			—			1,665
Substandard		—		—		609			3			—			—			—			612
Nonaccrual		—		—		230			—			—			—			—			230
Total construction and development loans	$	153,740	$	78,831	$	30,003		$	7,152		$	17,360		$	14,347		$	8,313		$	309,746
Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			1			—			1
Current period net	$	—	$	—	$	—		$	—		$	—		$	1		$	—		$	1
Commercial real estate:
Pass	$	100,853	$	98,665	$	80,197		$	64,919		$	44,565		$	176,005		$	14,699		$	579,903
Special mention		398		—		—			2,439			4,591			1,629			—			9,057
Substandard		—		7,040		—			10,124			13,110			13,732			—			44,006
Nonaccrual		—		60		—			73			33			221			—			387
Total commercial real estate loans	$	101,251	$	105,765	$	80,197		$	77,555		$	62,299		$	191,587		$	14,699		$	633,353
Charge-offs	$	—	$	—	$	(17	)	$	(56	)	$	(472	)	$	(271	)	$	—		$	(816	)
Recoveries		—		—		—			—			11			—			—			11
Current period net	$	—	$	—	$	(17	)	$	(56	)	$	(461	)	$	(271	)	$	—		$	(805	)
Farmland:
Pass	$	72,382	$	12,776	$	8,683		$	8,541		$	5,345		$	21,626		$	5,777		$	135,130
Special mention		—		—		—			—			—			28			—			28
Substandard		—		—		—			—			—			118			—			118
Nonaccrual		—		—		—			—			—			109			28			137
Total farmland loans	$	72,382	$	12,776	$	8,683		$	8,541		$	5,345		$	21,881		$	5,805		$	135,413
Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			—			—			—
Current period net	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—

(Continued)

22.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

September 30, 2021	2021			2020			2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
1-4 family residential:
Pass	$	101,523		$	72,986		$	48,075		$	38,577		$	29,077		$	97,575		$	13,368		$	401,181
Special mention		—			—			—			—			—			57			—			57
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			184			383			254			1,344			—			2,165
Total 1-4 family residential loans	$	101,523		$	72,986		$	48,259		$	38,960		$	29,331		$	98,976		$	13,368		$	403,403
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Multi-family residential:
Pass	$	13,113		$	4,312		$	4,392		$	15,448		$	545		$	2,194		$	131		$	40,135
Special mention		—			—			—			—			—			—			—			—
Substandard		—			—			—			—			675			—			—			675
Nonaccrual		—			—			—			—			—			—			—			—
Total multi-family residential loans	$	13,113		$	4,312		$	4,392		$	15,448		$	1,220		$	2,194		$	131		$	40,810
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Consumer and overdrafts:
Pass	$	21,949		$	14,015		$	5,654		$	5,400		$	820		$	656		$	4,838		$	53,332
Special mention		—			1			9			—			—			—			—			10
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		8			25			22			70			9			11			—			145
Total consumer loans and overdrafts	$	21,957		$	14,041		$	5,685		$	5,470		$	829		$	667		$	4,838		$	53,487
Charge-offs	$	(180	)	$	(34	)	$	(38	)	$	(32	)	$	(2	)	$	—		$	—		$	(286	)
Recoveries		45			3			—			8			2			19			—			77
Current period net	$	(135	)	$	(31	)	$	(38	)	$	(24	)	$	—		$	19		$	—		$	(209	)
Agricultural:
Pass	$	2,611		$	2,081		$	1,052		$	1,082		$	275		$	592		$	6,366		$	14,059
Special mention		—			—			—			—			20			—			—			20
Substandard		—			—			5			31			39			13			—			88
Nonaccrual		—			20			—			9			3			—			—			32
Total agricultural loans	$	2,611		$	2,101		$	1,057		$	1,122		$	337		$	605		$	6,366		$	14,199
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Total loans:
Pass	$	665,708		$	323,857		$	198,199		$	150,711		$	101,365		$	330,611		$	140,260		$	1,910,711
Special mention		398			807			9			2,439			5,587			1,714			—			10,954
Substandard		—			7,318			674			10,354			13,867			13,868			—			46,081
Nonaccrual		8			105			436			560			299			1,699			28			3,135
Total loans	$	666,114		$	332,087		$	199,318		$	164,064		$	121,118		$	347,892		$	140,288		$	1,970,881
Charge-offs	$	(180	)	$	(34	)	$	(222	)	$	(155	)	$	(493	)	$	(271	)	$	(47	)	$	(1,402	)
Recoveries		45			3			—			8			13			20			15			104
Total current period net (charge-offs) recoveries	$	(135	)	$	(31	)	$	(222	)	$	(147	)	$	(480	)	$	(251	)	$	(32	)	$	(1,298	)

(Continued)

23.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2020:

December 31, 2020	2020		2019		2018			2017		2016		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	278,687	$	30,563	$	12,860		$	4,366	$	6,131	$	16,294	$	90,074		$	438,975
Special mention		124		119		222			4,040		1,324		—		—			5,829
Substandard		—		307		540			50		43		—		—			940
Nonaccrual		—		—		13			—		14		—		—			27
Total commercial and industrial loans	$	278,811	$	30,989	$	13,635		$	8,456	$	7,512	$	16,294	$	90,074		$	445,771
Charge-offs	$	—	$	—	$	(43	)	$	—	$	—	$	—	$	(25	)	$	(68	)
Recoveries		—		—		43			—		—		14		44			101
Current period net	$	—	$	—	$	—		$	—	$	—	$	14	$	19		$	33
Construction and development:
Pass	$	118,590	$	76,926	$	26,212		$	24,524	$	7,742	$	10,507	$	3,266		$	267,767
Special mention		356		—		—			990		—		—		—			1,346
Substandard		—		609		5			—		680		—		—			1,294
Nonaccrual		—		—		—			—		—		—		—			—
Total construction and development loans	$	118,946	$	77,535	$	26,217		$	25,514	$	8,422	$	10,507	$	3,266		$	270,407
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Commercial real estate:
Pass	$	91,819	$	80,753	$	89,542		$	72,311	$	86,946	$	123,463	$	5,890		$	550,724
Special mention		—		2,716		3,542			849		5,724		449		—			13,280
Substandard		—		—		2,010			4,913		4,445		8,240		—			19,608
Nonaccrual		—		1,140		151			4,158		4,769		386		—			10,604
Total commercial real estate loans	$	91,819	$	84,609	$	95,245		$	82,231	$	101,884	$	132,538	$	5,890		$	594,216
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		1		—			1
Current period net	$	—	$	—	$	—		$	—	$	—	$	1	$	—		$	1
Farmland:
Pass	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,402	$	5,864		$	78,229
Special mention		—		—		—			—		—		35		—			35
Substandard		—		—		—			—		—		129		—			129
Nonaccrual		—		—		—			—		—		115		—			115
Total farmland loans	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,681	$	5,864		$	78,508
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—

(Continued)

24.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

December 31, 2020	2020			2019			2018			2017			2016			Prior			Revolving Loans Amortized Cost			Total
1-4 family residential:
Pass	$	87,578		$	62,937		$	52,087		$	37,224		$	43,858		$	93,486		$	10,091		$	387,261
Special mention		—			—			—			—			—			168			—			168
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			326			44			163			1,134			—			1,667
Total 1-4 family residential loans	$	87,578		$	62,937		$	52,413		$	37,268		$	44,021		$	94,788		$	10,091		$	389,096
Charge-offs	$	—		$	—		$	—		$	—		$	(9	)	$	(59	)	$	—		$	(68	)
Recoveries		—			—			—			—			—			2			—			2
Current period net	$	—		$	—		$	—		$	—		$	(9	)	$	(57	)	$	—		$	(66	)
Multi-family residential:
Pass	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701
Special mention		—			—			—			—			—			—			—			—
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			—			—			—			—			—			—
Total multi-family residential loans	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Consumer and overdrafts:
Pass	$	24,740		$	11,176		$	9,369		$	1,701		$	735		$	513		$	2,825		$	51,059
Special mention		16			83			9			7			—			—			—			115
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		24			36			131			20			1			—			—			212
Total consumer loans and overdrafts	$	24,780		$	11,295		$	9,509		$	1,728		$	736		$	513		$	2,825		$	51,386
Charge-offs	$	(243	)	$	(63	)	$	(31	)	$	(43	)	$	(3	)	$	(6	)	$	—		$	(389	)
Recoveries		49			2			12			8			4			13			—			88
Current period net	$	(194	)	$	(61	)	$	(19	)	$	(35	)	$	1		$	7		$	—		$	(301	)
Agricultural:
Pass	$	3,489		$	1,718		$	1,893		$	607		$	273		$	189		$	7,408		$	15,577
Special mention		—			—			—			36			—			—			—			36
Substandard		—			7			10			—			24			—			—			41
Nonaccrual		—			—			33			—			45			2			—			80
Total agricultural loans	$	3,489		$	1,725		$	1,936		$	643		$	342		$	191		$	7,408		$	15,734
Charge-offs	$	—		$	—		$	(18	)	$	—		$	—		$	—		$	—		$	(18	)
Recoveries		—			—			—			—			20			—			—			20
Current period net	$	—		$	—		$	(18	)	$	—		$	20		$	—		$	—		$	2
Total loans:
Pass	$	628,236		$	281,239		$	205,907		$	148,724		$	157,326		$	264,245		$	125,616		$	1,811,293
Special mention		496			2,918			3,773			5,922			7,048			652			—			20,809
Substandard		—			923			2,565			4,963			5,192			8,369			—			22,012
Nonaccrual		24			1,176			654			4,222			4,992			1,637			—			12,705
Total loans	$	628,756		$	286,256		$	212,899		$	163,831		$	174,558		$	274,903		$	125,616		$	1,866,819
Charge-offs	$	(243	)	$	(63	)	$	(92	)	$	(43	)	$	(12	)	$	(65	)	$	(25	)	$	(543	)
Recoveries		49			2			55			8			24			30			44			212
Total current period net (charge-offs) recoveries	$	(194	)	$	(61	)	$	(37	)	$	(35	)	$	12		$	(35	)	$	19		$	(331	)

(Continued)

25.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

There were no loans classified in the “doubtful” or “loss” risk rating categories as of September 30, 2021 and December 31, 2020.

The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of September 30, 2021:

	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	119	$	—	$	119	$	40
Real estate:
Construction and development		609		—		609		207
Commercial real estate		4,540		—		4,540		603
Total	$	5,268	$	—	$	5,268	$	850

The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of December 31, 2020:

	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	129	$	—	$	129	$	44
Real estate:
Construction and development		609		—		609		208
Commercial real estate		9,989		—		9,989		2,048
Total	$	10,727	$	—	$	10,727	$	2,300

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:

September 30, 2021	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	874	$	—	$	38	$	912	$	379,558	$	380,470	$	—
Real estate:
Construction and development		—		—		230		230		309,516		309,746		—
Commercial real estate		197		777		258		1,232		632,121		633,353		—
Farmland		149		195		28		372		135,041		135,413		—
1-4 family residential		1,407		465		569		2,441		400,962		403,403		—
Multi-family residential		—		—		—		—		40,810		40,810		—
Consumer		206		33		47		286		52,706		52,992		—
Agricultural		31		9		20		60		14,139		14,199		—
Overdrafts		—		—		—		—		495		495		—
Total	$	2,864	$	1,479	$	1,190	$	5,533	$	1,965,348	$	1,970,881	$	—

(Continued)

26.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

December 31, 2020	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	385	$	25	$	22	$	432	$	445,339	$	445,771	$	—
Real estate:
Construction and development		256		—		—		256		270,151		270,407		—
Commercial real estate		1,094		—		10,105		11,199		583,017		594,216		—
Farmland		117		3		—		120		78,388		78,508		—
1-4 family residential		2,097		556		127		2,780		386,316		389,096		—
Multi-family residential		—		—		—		—		21,701		21,701		—
Consumer		383		124		97		604		50,440		51,044		—
Agricultural		50		46		45		141		15,593		15,734		—
Overdrafts		—		—		—		—		342		342		—
Total	$	4,382	$	754	$	10,396	$	15,532	$	1,851,287	$	1,866,819	$	—

Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.

The outstanding balances of TDRs are shown below:

	September 30, 2021		December 31, 2020
Nonaccrual TDRs	$	84	$	90
Performing TDRs		9,522		9,626
Total	$	9,606	$	9,716
Specific reserves on TDRs	$	—	$	—

There was one loan modified as a TDR during the nine months ended September 30, 2021. No TDRs have subsequently defaulted during 2021, and the TDRs described above did not increase the allowance for credit losses and did not result in any charge-offs during the nine months ended September 30, 2021.

The following table presents the loan, by class, modified as a TDR during the nine months ended September 30, 2021:

Nine Months Ended September 30, 2021	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		1	$	17	$	17
Total		1	$	17	$	17

The following table presents loans, by class, modified as TDRs during the year ended December 31, 2020:

Year Ended December 31, 2020	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Construction and development		2	$	1,289	$	1,081
Commercial and industrial		1		129		85
Commercial real estate		1		1,017		670
Total		4	$	2,435	$	1,836

(Continued)

27.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

There were no TDRs that subsequently defaulted during 2020, and the TDRs described above did not increase the allowance for credit losses and resulted in no charge-offs during the year ended December 31, 2020.

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

At September 30, 2021 and December 31, 2020, securities sold under agreements to repurchase totaled $11,195 and $15,631, respectively.

The Company has an unsecured $25,000 revolving line of credit, which had a $3,000 outstanding balance at September 30, 2021, bears interest at the greater of (i) the prime rate, which was 3.25% at September 30, 2021, or (ii) the rate floor of 3.50%, with interest payable quarterly, and matures in March 2022.

Federal Home Loan Bank (FHLB) advances, as of September 30, 2021, were as follows:

Fixed rate advances, with monthly interest payments, principal due in:

Year	Current Weighted Average Rate			Principal Due
2021		0.13	%	$	40,000
2022		1.99	%		1,500
2023		—			—
2024		1.76	%		6,000
2025		—			—
				$	47,500

There are no fixed rate advances, with monthly principal and interest payments outstanding as of September 30, 2021.

NOTE 5 - SUBORDINATED DEBENTURES

Subordinated debentures were made up of the following as of:

	September 30, 2021		December 31, 2020
Trust II Debentures	$	3,093	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Other debentures		9,500		9,500
	$	19,810	$	19,810

The Company has three trusts, Guaranty (TX) Capital Trust II (“Trust II”), Guaranty (TX) Capital Trust III (“Trust III”), and DCB Financial Trust I (“DCB Trust I”) (“Trust II”, “Trust III” and together with “DCB Trust I,” the “Trusts”). 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 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).

(Continued)

28.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

	Trust II		Trust III		DCB Trust I
Formation date	October 30, 2002		July 25, 2006		March 29, 2007
Capital trust pass-through securities
Number of shares		3,000		2,000		5,000
Original liquidation value	$	3,000	$	2,000	$	5,000
Common securities liquidation value		93		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 September 30, 2021 and December 31, 2020. 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 II Debentures		Trust III Debentures		DCB Trust I Debentures
Original amount	$	3,093	$	2,062	$	5,155
Maturity date	October 30, 2032		October 1, 2036		June 15, 2037
Interest due	Quarterly		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 II Debentures

Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 3.35%.

On any interest payment date on or after October 30, 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.

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.

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.

(Continued)

29.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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. $500 matured in November of 2020 and $9,500 remain as of September 30, 2021. 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 due 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 other debentures are as follows:

Year	Current Weighted Average Rate			Principal Due
2022		2.45	%	$	2,000
2023		2.85	%		3,500
2024		3.74	%		4,000
				$	9,500

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 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 nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		506,200		$	26.81		5.82	$	1,805
Effect of 10% stock dividend		50,770
Granted		45,500			33.49		9.59		107
Exercised		(48,630	)		22.89		3.82		630
Forfeited		(19,020	)		26.01		6.84		187
Balance, September 30, 2021		534,820		$	25.22		5.53	$	5,684
Exercisable at end of period		307,786		$	23.78		4.33	$	3,715

(Continued)

30.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Nine Months Ended September 30, 2020	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		508,000		$	26.68		6.24	$	3,159
Granted		39,000			27.43		9.51		24
Exercised		(3,000	)		24.00		2.04		3
Forfeited		(37,600	)		29.68		8.12		24
Balance, September 30, 2020		506,400		$	26.53		5.62	$	304
Exercisable at end of period		302,220		$	25.55		4.77	$	244

A summary of nonvested stock option activity in the Plan during the nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		214,680		$	4.46
Effect of 10% stock dividend		23,218
Granted		45,500			5.82
Vested		(47,344	)		(5.72	)
Forfeited		(9,020	)		(8.06	)
Balance, September 30, 2021		227,034		$	5.11

Nine Months Ended September 30, 2020	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		251,120		$	4.97
Granted		39,000			3.86
Vested		(53,340	)		(6.07	)
Forfeited		(32,600	)		(2.20	)
Balance, September 30, 2020		204,180		$	5.54

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

	September 30, 2021		September 30, 2020
Intrinsic value of options exercised	$	630	$	3
Cash received from options exercised		1,113		72
Weighted average fair value of options granted		5.82		3.86

(Continued)

31.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Restricted Stock Awards and Units

A summary of restricted stock activity in the Plan during the nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted-Average  Grant Date Fair Value
Outstanding at beginning of year		35,300		$	29.72
Effect of 10% stock dividend		3,530			—
Granted		3,500			33.09
Vested		(7,850	)		27.26
Forfeited		—			—
Balance, September 30, 2021		34,480		$	27.41

Nine Months Ended September 30, 2020	Number of Shares			Weighted-Average Grant  Date Fair Value
Outstanding at beginning of year		31,459		$	30.29
Granted		—			—
Vested		(13,380	)		30.30
Forfeited		—			—
Balance, September 30, 2020		18,079		$	30.28

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 September 30, 2021, there was $1,831 of total unrecognized compensation expense related to unvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 3.16 years.

The Company granted options and restricted stock under the Plan during the first nine months of 2021 and 2020. Expense of $512 and $494 was recorded during the nine months ended September 30, 2021 and 2020, respectively, which represents the fair value of shares 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 nine months ended September 30, 2021 and 2020 totaled $1,146 and $1,031, respectively.

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 September 30, 2021, the number of shares held by the KSOP was 1,287,897. There were no unallocated shares to plan participants as of September 30, 2021, and all shares held by the KSOP were treated as outstanding.

(Continued)

32.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Executive Incentive Retirement Plan

The Company established a non-qualified, 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 $36,582 and $35,510 as of September 30, 2021 and December 31, 2020, respectively. A gain of $277,000 on proceeds from these life insurance policies resulting from the death of a former bank officer was recorded for the nine months ended September 30, 2021. No such gains were recorded during the nine months ended September 31, 2020.

Expense related to these plans totaled $588 and $500 for the nine months ended September 30, 2021 and 2020, respectively, and $592 for the year ended December 31, 2020. This expense is included in employee compensation and benefits on the Company’s consolidated statements of earnings. The recorded liability totaled approximately $4,861 and $4,383 as of September 30, 2021 and December 31, 2020, 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 nine months ended September 30, 2021 and 2020 totaled $3,529 and $1,610, respectively. This expense is included in employee compensation and benefits on the consolidated statements of earnings.

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 14 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 September 30, 2021, operating lease right-of-use assets were $14,810 and liabilities were $15,243, and as of December 31, 2020, lease assets and liabilities were $13,291 and $13,539, 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 nine months ended September 30, 2021 and 2020 was approximately $1,715 and $1,416, respectively, and is included as a component of occupancy expenses within the accompanying consolidated statements of earnings.

(Continued)

33.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

	September 30, 2021			December 31, 2020
Operating leases
Operating lease right-of-use assets	$	14,810		$	13,291
Operating lease liabilities		15,243			13,539
Weighted average remaining lease term
Operating leases	9 years			9 years
Weighted average discount rate
Operating leases		1.95	%		2.19	%

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2025 and thereafter. Minimum future lease payments under these non-cancelable operating leases as of September 30, 2021, are as follows:

Year Ended December 31,	Amount
2021	$	554
2022		2,152
2023		2,090
2024		2,035
2025		1,868
Thereafter		7,441
Total lease payments		16,140
Less: interest		(897	)
Present value of lease liabilities	$	15,243

NOTE 9 - INCOME TAXES

Income tax expense was as follows for:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Income tax expense for the period	$	2,179		$	2,350		$	6,827		$	3,605
Effective tax rate		19.06	%		18.82	%		18.22	%		17.09	%

The effective tax rates differ from the statutory federal tax rate of 21% for the three and nine months ended September 30, 2021 and 2020, largely due to tax exempt interest income earned on certain investment securities and loans and the nontaxable earnings on bank owned life insurance.

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.

(Continued)

34.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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.

The Company entered into interest rate swaps to receive payments at a fixed rate in exchange for paying a floating rate on the debentures discussed in Note 5. Management believed that entering into the interest rate swaps exposed the Company to variability in their fair value due to changes in the level of interest rates. It was the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that were appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in the liability to other liabilities of the Company. During the quarter ended September 30, 2021, Guaranty terminated these interest rate swaps with notional amounts totaling $5,000 as of December 31, 2020, as the risk exposure declined to acceptable levels. The swaps were cancelled at an expense of $466, which is included in non-interest expense in the Consolidated Statement of Earnings.

The Company also entered into interest rate swaps to receive payments at a floating rate in exchange for paying a fixed rate, the objective of which is to reduce the overall cost of short-term 3-month FHLB advances that will be renewed consistent with the reset terms on the interest rate swap and that are included in the amounts in Note 4. Interest rate swaps with notional amounts totaling $40,000 as of September 30, 2021 and December 31, 2020 were designated as cash flow hedges of the FHLB advances.

The aggregate fair value of the swaps is recorded in accrued interest and other liabilities within the Company’s consolidated balance sheets with changes in fair value recorded in other comprehensive income.

The information pertaining to outstanding interest rate swap agreements used to hedge floating rate debentures and FHLB advances was as follows as of:

September 30, 2021
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses
$	15,000		0.668	%	3 month LIBOR	3/18/2020		1.47	$	93
	15,000		0.790	%	3 month LIBOR	3/18/2020		3.47		17
	10,000		0.530	%	3 month LIBOR	3/23/2020		1.48		41

December 31, 2020
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses
$	2,000		5.979	%	3 month LIBOR plus 1.67%	10/1/2016		5.25	$	408
	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		1.83		221
	15,000		0.668	%	3 month LIBOR	3/18/2020		2.22		159
	15,000		0.790	%	3 month LIBOR	3/18/2020		4.22		288
	10,000		0.530	%	3 month LIBOR	3/23/2020		2.23		75

Interest expense recorded on these swap transactions totaled $483 and $509 during the nine months ended September 30, 2021 and 2020, respectively. This expense is reported as a component of interest expense on the debentures and the FHLB advances and federal funds purchased. At September 30, 2021, the Company expected none of the unrealized loss to be reclassified as a reduction of interest expense during the remainder of 2021.

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)

35.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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 as of September 30, 2021 and December 31, 2020.

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. As of September 30, 2021 and December 31, 2020, no amounts have been recorded as liabilities for the Bank’s potential obligations under these guarantees.

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

	Contract or Notional Amount
	September 30, 2021		December 31, 2020
Commitments to extend credit	$	392,332	$	324,277
Letters of credit		9,922		8,488

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 September 30, 2021, the Company had letters of credit of $35,833 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

(Continued)

36.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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 September 30, 2021 and December 31, 2020, that the Bank met all capital adequacy requirements to which it was subject.

The Basel III Capital Rules, among other things, have (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 September 30, 2021 and December 31, 2020, 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 total risk-based, CET1, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since September 30, 2021 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 $10,310 of trust preferred securities in Tier 1 capital as of September 30, 2021 and December 31, 2020. 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.

(Continued)

37.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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
September 30, 2021
Total capital to risk-weighted assets:
Consolidated	$	289,390	14.13%	$	163,886	8.00%	$	215,100	10.50%	n/a
Bank		301,528	14.71%		164,015	8.00%		215,270	10.50%	$	205,019	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		263,721	12.87%		122,914	6.00%		174,129	8.50%	n/a
Bank		275,839	13.45%		123,011	6.00%		174,266	8.50%		164,015	8.00%
Tier 1 capital to average assets:(1)
Consolidated		263,721	9.06%		116,422	4.00%		116,422	4.00%	n/a
Bank		275,839	9.48%		116,418	4.00%		116,418	4.00%		145,523	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		253,411	12.37%		92,186	4.50%		143,400	7.00%	n/a
Bank		275,839	13.45%		92,259	4.50%		143,513	7.00%		133,262	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.

	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, 2020
Total capital to risk-weighted assets:
Consolidated	$	263,144	13.20%	$	159,496	8.00%	$	209,338	10.50%	n/a
Bank		285,490	14.32%		159,514	8.00%		209,362	10.50%	$	199,392	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		238,115	11.94%		119,622	6.00%		169,464	8.50%	n/a
Bank		260,459	13.06%		119,635	6.00%		169,483	8.50%		159,514	8.00%
Tier 1 capital to average assets:(1)
Consolidated		238,115	9.13%		104,293	4.00%		104,293	4.00%	n/a
Bank		260,459	9.99%		104,293	4.00%		104,293	4.00%		130,366	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		227,805	11.43%		89,716	4.50%		139,559	7.00%	n/a
Bank		260,459	13.06%		89,726	4.50%		139,574	7.00%		129,605	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.

(Continued)

38.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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).

Derivative Instruments: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (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 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).

(Continued)

39.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

As of September 30, 2021	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 (liabilities) at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	159,142		$	—	$	159,142		$	—
Collateralized mortgage obligations		64,623			—		64,623			—
Corporate bonds		35,246			—		35,246			—
U.S. government agencies		10,059			—		10,059			—
Loans held for sale		1,903			—		—			1,903
Cash surrender value of life insurance		36,582			—		36,582			—
SBA servicing assets		808			—		—			808
Derivative instrument liabilities		(151	)		—		(151	)		—
Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		4,418			—		—			4,418

As of December 31, 2020	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 (liabilities) at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	107,164		$	—	$	107,164		$	—
Collateralized mortgage obligations		66,945			—		66,945			—
Municipal securities		175,704			—		175,704			—
Corporate bonds		30,982			—		30,982			—
Loans held for sale		5,542			—		—			5,542
Cash surrender value of life insurance		35,510			—		35,510			—
SBA servicing assets		763			—		—			763
Derivative instrument assets		629			—		629			—
Derivative instrument liabilities		(1,151	)		—		(1,151	)		—
Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		8,427			—		—			8,427

There were no transfers between Level 2 and Level 3 during the nine months ended September 30, 2021 or for the year ended December 31, 2020.

Nonfinancial Assets and Nonfinancial Liabilities

Nonfinancial assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2021 and 2020 include certain foreclosed assets which, upon initial recognition, were 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,

(Continued)

40.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

were 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.

The following table presents foreclosed assets that were remeasured and recorded at fair value as of:

	September 30, 2021		December 31, 2020			September 30, 2020
Other real estate owned remeasured at initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	—	$	42		$	—
Charge-offs recognized in the allowance for credit losses		—		(9	)		—
Fair value of other real estate owned remeasured at initial recognition	$	—	$	33		$	—
Other real estate owned remeasured subsequent to initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	—	$	62		$	62
Write-downs included in collection and other real estate owned expense		—		(1	)		(1	)
Fair value of other real estate owned remeasured subsequent to initial recognition	$	—	$	61		$	61

The following table presents quantitative information about nonrecurring Level 3 fair value measurements as of:

September 30, 2021	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Other real estate owned	$	40	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

December 31, 2020	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Other real estate owned	$	404	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

The following table presents information on individually evaluated collateral dependent loans as of September 30, 2021:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total Fair Value
Commercial and industrial	$	—	$	—	$	79	$	79
Real estate:
Construction and development		—		—		402		402
Commercial real estate		—		—		3,937		3,937
Total	$	—	$	—	$	4,418	$	4,418

(Continued)

41.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of September 30, 2021 and December 31, 2020, are as follows:

	Fair value measurements as of September 30, 2021 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	$	408,875	$	408,875	$	—	$	—	$	408,875
Marketable securities held to maturity		173,676		—		182,631		—		182,631
Loans, net		1,938,268		—		—		1,949,191		1,949,191
Accrued interest receivable		7,673		—		7,673		—		7,673
Nonmarketable equity securities		14,061		—		14,061		—		14,061
Financial liabilities:
Deposits	$	2,563,071	$	2,221,716	$	342,153	$	—	$	2,563,869
Securities sold under repurchase agreements		11,195		—		11,195		—		11,195
Accrued interest payable		555		—		555		—		555
Federal Home Loan Bank advances		47,500		—		47,653		—		47,653
Subordinated debentures		19,810		—		17,813		—		17,813

	Fair value measurements as of December 31, 2020 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	$	351,792	$	351,792	$	—	$	—	$	351,792
Loans, net		1,831,737		—		—		1,846,868		1,846,868
Accrued interest receivable		9,834		—		9,834		—		9,834
Nonmarketable equity securities		14,095		—		14,095		—		14,095
Financial liabilities:
Deposits	$	2,286,390	$	1,907,587	$	380,570	$	—	$	2,288,157
Securities sold under repurchase agreements		15,631		—		15,631		—		15,631
Accrued interest payable		804		—		804		—		804
Federal Home Loan Bank advances		109,101		—		109,381		—		109,381
Subordinated debentures		19,810		—		17,406		—		17,406

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).

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).

Cash Surrender Value of Life Insurance

The carrying amounts of bank-owned life insurance approximate their fair value (Level 2).

(Continued)

42.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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 debentures 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. 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 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)

43.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Net earnings (basic)	$	9,253	$	10,134	$	30,647	$	17,487
Net earnings (diluted)	$	9,253	$	10,134	$	30,647	$	17,487
Denominator:
Weighted-average shares outstanding (basic)*		12,067,769		12,113,266		12,054,426		12,271,889
Effect of dilutive securities:
Common stock equivalent shares from stock options		143,620		—		155,058		—
Weighted-average shares outstanding (diluted)*		12,211,389		12,113,266		12,209,484		12,271,889
Net earnings per share
Basic	$	0.77	$	0.84	$	2.54	$	1.43
Diluted	$	0.76	$	0.84	$	2.51	$	1.43
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.

(Continued)

44.

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, 2020. 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 is traded on the NASDAQ Global Select Market under the symbol “GNTY.”

We currently operate 32 banking locations in the East Texas, Dallas/Fort Worth, Central Texas and Greater Houston 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 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.

Impact of COVID-19 and Quarterly Highlights

In March 2020, the outbreak of the novel coronavirus disease 2019 ("COVID-19") was recognized as a pandemic by the World Health Organization. Global health concerns relating to COVID-19 and variants of the virus, have had, and will likely continue to have, a severe impact on the macroeconomic environment, leading to lower interest rates, depressed equity market valuations, heightened financial market volatility and significant disruption in banking and other financial activity in the areas we serve. Since March 2020, governmental responses to the pandemic included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, resulted in rapid decreases in commercial and consumer activity, temporary or permanent closures of many businesses that led to a loss of revenues and a rapid increase in unemployment, material decreases in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. Despite the wide availability of vaccines in early 2021, these risks and uncertainties remain as the extent to which the

(Continued)

45.

American public is willing to receive the vaccines remains unknown, and more contagious strains of the virus mutate both in the US and abroad.

The financial performance of the Company generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services that the Company offers and whose success it relies on to drive growth, are highly dependent upon the business environment in the primary markets in which we operate and in the United States as a whole. Unfavorable market conditions and uncertainty due to the COVID-19 pandemic may result in a deterioration in the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for credit losses, adverse asset values of the collateral securing loans and an overall material adverse effect on the quality of the loan portfolio.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program ("PPP"), a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. PPP loans were intended to provide eligible businesses with funding for payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. PPP loans are forgivable to the extent that the borrower can demonstrate that the funds were used for such costs. Any amounts not forgiven will bear interest at 1% and be repayable over a term of 24 to 60 months from origination. PPP has been subject to amendments to increase the size of the program, extend the period in which loans could be made, extend the period for which costs could be forgiven and to provide additional flexibility to borrowers. In December 2020, several portions of the CARES Act were extended as part of the Consolidated Appropriations Act, including additional stimulus payments to consumers and a second round of PPP loans for small businesses.

Significant uncertainties as to future economic conditions exist, and we have taken measured actions during the pandemic, to ensure that we have the balance sheet strength to serve our clients and communities, including increases in liquidity and reserves supported by a strong capital position. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from government stimulus and relief programs; however, the extent to which the COVID-19 pandemic will continue to impact our operations and financial results, as well as timing of economic recovery, remains uncertain.

Quarterly highlights of the Company include:

Solid Net Earnings and Core Earnings. Net earnings have remained solid for the past four quarters. Net core earnings†, which exclude provisions for credit losses and income tax, net PPP income, and interest on PPP-related borrowings, have also remained strong over the last four quarters, demonstrating consistent core earnings stream. Net core earnings† were $9.7 million for the third quarter, compared to $9.8 million for the second quarter of 2021, and $11.1 million during the third quarter of 2020.

Producing Loan Pipeline. During 2020 and early 2021, we added new loan producers throughout our footprint and continued to experience strong loan demand within our loan pipeline. Excluding PPP loans, our loans grew $132.8 million, or 7.5%, during the third quarter and have grown $168.6 million, or 9.8%, since December 31, 2020. Our loan growth is a result of internally generated sources and is not from loan purchases from other originators.

Strong Credit Quality. Non-performing assets as a percentage of total assets were 0.11% at September 30, 2021, compared to 0.13% at June 30, 2021 and 0.53% at September 30, 2020. Net charge-offs to average loans (annualized) were 0.05% for the quarter ended September 30, 2021, compared to 0.05% for the quarter ended June 30, 2021, and 0.01% for the quarter ended September 30, 2020. The decrease in non-performing assets during the third quarter of 2021 compared to the same period of 2020 resulted primarily from the resolution of three problem loans, made to two borrowers, with outstanding combined book balances of $8.7 million at December 31, 2020, that were acquired during the Westbound acquisition and which were fully reserved prior to the onset of COVID-19.

Paycheck Protection Program. As of September 30, 2021, there are outstanding PPP2 balances of $71.4 million to 664 borrowers, down from the $100.8 million to 1,349 borrowers originally extended loans under the PPP2 program during 2021. Those PPP2 loans have resulted in recognition of $3.7 million of net origination fees for the nine months ended September 30, 2021. The Bank also recognized $2.1 million in PPP1 deferred origination fees for the nine months ended September 30, 2021 through both amortization and forgiveness of the related PPP1 loans. As of September 30, 2021, there are outstanding PPP1

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46.

balances of $4.0 million to 109 borrowers, down from the $209.6 million to 1,944 borrowers that was originated under the PPP1 program. Net deferred origination fees remaining as of September 30, 2021 are $47,000 and $1.8 million for PPP1 and PPP2, respectively.

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates, and the potential sensitivity of our consolidated financial statements to those judgments and assumptions, is critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate.

Loans and Allowance for Credit Losses (ACL)

Loans are stated at the amount of unpaid principal, reduced by unearned income and an allowance for credit losses. Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. Fees associated with the origination of loans and certain direct loan origination costs are netted and the net amount is deferred and recognized over the life of the loan as an adjustment of yield.

The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. A loan may continue to accrue interest, even if it is more than 90 days past due, if the loan is both well collateralized and it is in the process of collection. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be collectible. If collectability is questionable, then cash payments are applied to principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured in accordance with the terms of the loan agreement.

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries will not exceed the aggregate of loan amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We use the weighted-average remaining maturity method (WARM method) as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate. This average annual charge-off rate contains 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 pool or segment of our loan portfolio 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 for current conditions and for reasonable and supportable forecast periods. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors. In early 2020, to address the uncertainties resulting from COVID-19, an additional qualitative factor was added to specifically address COVID-related economic factors and potential credit losses, in addition to our standard qualitative factors.

The allowance for credit losses is measured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan portfolio segments include both regulatory call report codes and internally identified risk ratings for our

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commercial loan segments and delinquency status for our consumer loan segments. We also have separate segments for our warehouse lines of credit, for our internally originated SBA loans, for our SBA loans acquired from Westbound Bank, and for loans originated under the PPP program.

In general, the loans in our portfolio have low historical credit losses. The credit quality of loans in our portfolio is impacted by delinquency status and debt service coverage generated by our borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the allowance for credit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition. Delinquency statistics are updated at least monthly.

Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor that impacts management’s estimates of loss factors used in determining the amount of the allowance for credit losses. Internal risk ratings are updated on a continuous basis.

Loans with unique risk characteristics are evaluated on an individual basis. Loans evaluated individually are excluded from the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

For off-balance sheet credit exposures, we estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring (TDR) when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan can be grouped with its like segment for allowance consideration or whether it should be individually evaluated for a specific allowance for credit loss allocation. If individually evaluated, an allowance for credit loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral. Most modifications made as a direct result of COVID-19 were not TDRs pursuant to the CARES Act and the April 7, 2020 Interagency guidance and GAAP.

We have certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.

Real estate loans are also subject to underwriting standards and processes similar to commercial and industrial loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate collateral. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real

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estate portfolio are generally diverse in terms of type and geographic location throughout the State of Texas. This diversity helps us reduce the exposure to adverse economic events that affect any single market or industry.

We utilize methodical credit standards and analysis to supplement our policies and procedures in underwriting consumer loans. Our loan policy addresses types of consumer loans that may be originated as well as the underlying collateral, if secured, which must be perfected. The relatively small individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes risk.

Marketable Securities

Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Management determines the appropriate classification of securities at the time of purchase. Interest income includes amortization and accretion of purchase premiums and discounts. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

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 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 gain remaining on transferred securities included in accumulated other comprehensive income on our balance sheet totaled $9.7 million at September 30, 2021. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

Management evaluates securities for an allowance for credit losses based on whether they are classified as held to maturity or available for sale. For held to maturity securities, management measures expected credit losses on a collective basis by major security type and credit rating. The estimate of expected credit losses considers historical credit loss information that is then adjusted for current conditions and reasonable and supportable forecasts. For available for sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically relate to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit losses expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on and off-balance sheet financial instruments do not include the value of anticipated future business or the value of assets and liabilities not considered financial instruments.

Emerging Growth Company

The Jumpstart our Business Startups Act of 2012 (“JOBS Act”) permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public

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companies. However, we have “opted out” of this provision. As a result, we will comply with new or revised accounting standards to the same extent that compliance is required for non-emerging growth companies. Our decision to opt out of the extended transition period under the JOBS Act is irrevocable.

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Discussion and Analysis of Results of Operations for the Nine Months Ended September 30, 2021 and 2020

Results of Operations

The following discussion and analysis compares our results of operations for the nine months ended September 30, 2021 with the nine months ended September 30, 2020. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

Net earnings were $30.6 million for the nine months ended September 30, 2021, as compared to $17.5 million for the nine months ended September 30, 2020. The following table presents key earnings data for the periods indicated:

	For the Nine Months Ended September 30,
(dollars in thousands, except per share data)	2021			2020
Net earnings	$	30,647		$	17,487
Net earnings per common share*
-basic		2.54			1.43
-diluted		2.51			1.43
Net interest margin(1)		3.52	%		3.72	%
Net interest rate spread(2)		3.35	%		3.41	%
Return on average assets		1.42	%		0.92	%
Return on average equity		14.32	%		8.94	%
Average equity to average total assets		9.90	%		10.28	%
Cash dividend payout ratio*		23.62	%		36.94	%
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
(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.

Large provisions for credit losses in the prior period, resulting from effects of COVID-19, and participation in the PPP program, have created temporary extraordinary results in the calculation of net earnings and related performance ratios. The following table illustrates net earnings and net core earnings per share, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as net core performance ratios for the nine months ended September 30, 2021 and 2020.

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	For the Nine Months Ended September 30,
(dollars in thousands, except per share data)	2021			2020
Net earnings	$	30,647		$	17,487
Adjustments:
Provision for credit losses		(1,700	)		13,200
Income tax provision		6,827			3,605
PPP interest income, including fees		(6,864	)		(3,616	)
Net interest expense on PPP-related borrowings		—			34
Net core earnings†	$	28,910		$	30,710
Total average assets	$	2,889,882		$	2,541,214
Adjustments:
PPP loans average balance		(133,309	)		(124,541	)
Excess fed funds sold due to PPP-related borrowings		—			(30,657	)
Total average assets, adjusted†	$	2,756,573		$	2,386,016
Total average equity		286,228			261,205
PERFORMANCE RATIOS
Net earnings to average assets (annualized)		1.42	%		0.92	%
Net earnings to average equity (annualized)		14.32			8.94
Net core earnings to average assets, as adjusted (annualized)†		1.40			1.72
Net core earnings to average equity (annualized)†		13.50			15.70
PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic*		12,054,426			12,271,889
Earnings per common share, basic*	$	2.54		$	1.43
Net core earnings per common share, basic*†		2.40			2.50
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".

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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 reverse provision for credit losses, was $71.5 million compared to $66.0 million for the nine months ended September 30, 2020, an increase of $5.5 million, or 8.3%. The increase in net interest income before the provision (or reverse provision) for credit losses resulted primarily from a $5.3 million, or 48.9%, decrease in interest expense. Although there was a $55.8 million, or 3.0%, increase in average loans outstanding for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, that increase was offset by a 12 basis point decrease in the average yield on total loans driven by lower rates on PPP loans and new and variable rate loans, partially offset by recognition of PPP origination fees, which are described in more detail in a table below.

The increase in average loans outstanding was primarily due to organic growth from the same quarter in the prior year. Excluding PPP loans, the average loans outstanding for the nine months ending September 30, 2021 increased $47.0 million, or 2.7%, from the same period in the prior year. The $5.3 million decrease in interest expense for the nine months ended September 30, 2021 was primarily related to a decrease in the cost of interest-bearing deposits of 52 basis points, despite a $126.4 million, or 8.6%, increase in average interest-bearing deposits over the same period in 2020. The average deposit balance increase is the result of continued reductions in interest rates for interest-bearing deposits as markets have allowed and general changes in consumer spending habits.

For the nine months ended September 30, 2021, net interest margin on a taxable equivalent basis and net interest spread were 3.56% and 3.35%, respectively, compared to 3.75% and 3.41% for the same period in 2020, which reflects a 53 basis point decrease in interest-earning assets, and was partially offset by a 47 basis point decrease on interest-bearing liabilities from the prior period.

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 nine months ended September 30, 2021 and 2020, 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.

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	For the Nine Months Ended September 30,
	2021								2020
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
ASSETS
Interest-earning assets:
Total loans(1)	$	1,906,989		$	69,664		4.88	%	$	1,851,209		$	69,337		5.00	%
Securities available for sale		372,707			5,481		1.97			326,472			5,711		2.34
Securities held to maturity		39,269			1,054		3.59			48,001			956		2.66
Nonmarketable equity securities		10,042			612		8.15			11,145			333		3.99
Interest-bearing deposits in other banks		391,096			221		0.08			136,684			452		0.44
Total interest-earning assets		2,720,103			77,032		3.79			2,373,511			76,789		4.32
Allowance for credit losses		(32,338	)							(27,552	)
Noninterest-earning assets		202,117								195,255
Total assets	$	2,889,882							$	2,541,214
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits	$	1,594,219		$	4,444		0.37	%	$	1,467,838		$	9,746		0.89	%
Advances from FHLB and fed funds purchased		49,581			308		0.83			79,166			346		0.58
Line of credit		6,506			174		3.58			5,394			119		2.95
Subordinated debentures		19,810			558		3.77			16,261			511		4.20
Securities sold under agreements to repurchase		16,044			10		0.08			17,179			37		0.29
Total interest-bearing liabilities		1,686,160			5,494		0.44			1,585,838			10,759		0.91
Noninterest-bearing liabilities:
Noninterest-bearing deposits		892,260								670,947
Accrued interest and other liabilities		25,234								23,224
Total noninterest-bearing liabilities		917,494								694,171
Shareholders’ equity		286,228								261,205
Total liabilities and shareholders’ equity	$	2,889,882							$	2,541,214
Net interest rate spread(2)							3.35	%							3.41	%
Net interest income				$	71,538							$	66,030
Net interest margin(3)							3.52	%							3.72	%
Net interest margin, fully taxable equivalent(4)							3.56	%							3.75	%
(1) Includes average outstanding balances of loans held for sale of $3.7 million and $6.1 million for the nine months ended September 30, 2021 and 2020, respectively.
(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(4) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.

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To illustrate core net interest margin, fully taxable equivalent, and remove the extraordinary impacts resulting from the PPP program, the table below excludes PPP loans and their associated fees and costs for the nine months ended September 30, 2021:

	For the Nine Months Ended September 30, 2021
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total interest-earning assets	$	2,720,103		$	77,032			3.79	%
Total loans		1,906,989			69,664			4.88
Adjustments:
PPP loans average balance and net fees(1)		(133,309	)		(6,265	)		6.28
Total loans, net of PPP effects	$	1,773,680		$	63,399			4.78	%
Total interest-earning assets, net of PPP effects†	$	2,586,794		$	70,767			3.66	%
Net interest income, fully taxable equivalent ("FTE")				$	72,336
Net interest margin, FTE								3.56	%
Net interest income, net of PPP effects†					66,071
Net interest margin, FTE, net of PPP effects†								3.41	%
† 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 $990,000 and net origination fees recognized in earnings of $5.3 million for the nine months ended September 30, 2021.

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 Nine Months Ended September 30, 2021 vs. 2020
	Increase (Decrease)
	Due to Change in						Total Increase
(in thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Total loans	$	2,092		$	(1,765	)	$	327
Securities available for sale		811			(1,041	)		(230	)
Securities held to maturity		(174	)		272			98
Nonmarketable equity securities		(33	)		312			279
Interest-earning deposits in other banks		840			(1,071	)		(231	)
Total increase (decrease) in interest income	$	3,536		$	(3,293	)	$	243
Interest-bearing liabilities:
Interest-bearing deposits	$	844		$	(6,146	)	$	(5,302	)
Advances from FHLB and fed funds purchased		(129	)		91			(38	)
Line of credit		25			30			55
Subordinated debentures		112			(65	)		47
Securities sold under agreements to repurchase		(2	)		(25	)		(27	)
Total increase (decrease) in interest expense		850			(6,115	)		(5,265	)
Increase in net interest income	$	2,686		$	2,822		$	5,508

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 loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the determination.

A reverse provision of $1.7 million was recorded for the nine months ended September 30, 2021 in order to capture the improvements that have occurred to macroeconomic factors evaluated at the onset of the COVID-19 pandemic, as well as risk rating upgrades for specific loans, which impact the reserve calculations within our model, and were offset by growth in our overall loan portfolio.

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For the year ended December 31, 2020, a total allowance for credit losses provision of $13.2 million was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. These COVID-specific qualitative factors, established during 2020, were reduced during the first three quarters of 2021 from 55 basis points across the loan portfolio to 14.75 basis points across the portfolio in order to conservatively capture the improvements that have occurred to macroeconomic factors mentioned. Although management is cautiously optimistic about improving vaccination and hospitalization rates and economic trends, it is very likely that the economic effects of the pandemic will continue into 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 nine months ended September 30, 2021 and 2020 and the period-over-period variations in the categories of noninterest income:

	For The Nine Months Ended September 30,				Increase (Decrease)
(in thousands)	2021		2020		2021 vs. 2020
Noninterest income:
Service charges	$	2,687	$	2,196	$	491
Gain on sale of loans		4,401		4,811		(410	)
Fiduciary and custodial income		1,718		1,499		219
Bank-owned life insurance income		633		633		—
Merchant and debit card fees		5,048		4,119		929
Loan processing fee income		481		461		20
Warehouse lending fees		648		695		(47	)
Mortgage fee income		479		574		(95	)
Other noninterest income		2,443		1,623		820
Total noninterest income	$	18,538	$	16,611	$	1,927

Total noninterest income increased $1.9 million, or 11.6%, for the nine months ended September 30, 2021 compared to the same period in 2020. 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 non-interest income. Service fee income was $2.7 million for the nine months ended September 30, 2021 compared to $2.2 million for the same period in 2020, an increase of $491,000, or 22.4%, resulting from the expiration of COVID-related fee waivers and consumer spending activity and habits returning to more normal, pre-pandemic, levels.

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 402 mortgage loans for $93.0 million during the nine months ended September 30, 2021 compared to 514 mortgage loans for $119.7 million for the nine months ended September 30, 2020. Gain on sale of loans was $4.4 million for the nine months ended September 30, 2021, a decrease of $410,000, or 8.5%, compared to $4.8 million for the same period in 2020. $3.7 million and $706,000 of the gain in the current year was attributable to the sales of mortgage loans and SBA 7(a) loans, respectively, while the gain during the nine month period of the prior year consisted of $4.2 million in mortgage loan sales and $629,000 in SBA 7(a) loan sales.

Fiduciary and Custodial Income. We have trust powers and provide fiduciary and custodial services through our trust and wealth management division. Fiduciary income was $1.7 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively, an increase of $219,000, or 14.6%. The revenue increase resulted primarily from 28 new accounts that opened during the first nine months of 2021, which have generated additional income. Furthermore, revenue for our services fluctuates by month with the market value for all publicly-traded assets, which are

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56.

primarily held in irrevocable trusts and investment management accounts that carry higher fees. Additionally, our custody-only assets are carried in a tiered percentage rate fee schedule charged against market value.

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 $5.0 million for the nine months ended September 30, 2021, compared to $4.1 million for the same period in 2020, an increase of $929,000, or 22.6%. The increase was primarily due to a change in contract terms, an annual earnings credit received from our debit card vendor and growth in the number of DDAs and debit card usage volume during 2021. The total number of DDAs increased by 2,897 accounts, from 49,427 as of September 30, 2020 to 52,457 as of September 30, 2021.

Other. This category includes a variety of other income producing activities, including mortgage loan origination fees, wire transfer fees, loan administration fees, and other fee income. Other noninterest income increased $820,000, or 50.5%, for the nine months ended September 30, 2021, compared to the same period in 2020 due primarily to a gain of $277,000 on bank-owned life insurance proceeds resulting from the death of a former bank officer, as well as the write-off of repossessed assets of $356,000 in the prior year that was not present in the current year.

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 nine months ended September 30, 2021, noninterest expense totaled $54.3 million, an increase of $6.0 million, or 12.3%, compared to $48.3 million for the nine months ended September 30, 2020. The following table presents, for the periods indicated, the major categories of noninterest expense:

	For The Nine Months Ended September 30,				Increase (Decrease)
(in thousands)	2021		2020		2021 vs. 2020
Employee compensation and benefits	$	31,145	$	26,982	$	4,163
Non-staff expenses:
Occupancy expenses		8,258		7,624		634
Legal and professional fees		1,995		1,682		313
Software and technology		3,427		2,977		450
Amortization		932		1,009		(77	)
Director and committee fees		619		595		24
Advertising and promotions		1,288		1,142		146
ATM and debit card expense		1,802		1,406		396
Telecommunication expense		611		620		(9	)
FDIC insurance assessment fees		551		569		(18	)
Other noninterest expense		3,674		3,743		(69	)
Total noninterest expense	$	54,302	$	48,349	$	5,953

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 $31.1 million for the nine months ended September 30, 2021, an increase of $4.2 million, or 15.4%, compared to $27.0 million for the same period in 2020. Employee compensation and benefits expense increased due to higher salaries, higher insurance expense accruals due to increased claims experience, higher payroll tax expense due to bonuses paid in July and bonus accruals. The bonus accrual in the prior year was lower during the first nine months of 2020 because of lower net income resulting from the effects of the COVID-19 pandemic.

Occupancy Expenses. Occupancy expenses are mainly comprised of depreciation expense on fixed assets, and lease expense related to ASC 842 accounting. Occupancy expenses increased $634,000, or 8.3%, for the nine months

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57.

ended September 30, 2021 compared to the same period of the prior year. Depreciation expense and ASC 842 lease expense increased $249,000 and $299,000, respectively, compared to the prior year period.

Legal and Professional Fees. Legal and professional fees, which include audit, loan review and regulatory assessments, were $2.0 million and $1.7 million for the nine months ended September 30, 2021 and 2020, respectively, an increase of $313,000, or 18.6%. The increase was primarily the result of professional recruiting fees paid during the nine months ended September 30, 2021 that were not paid during the same period of 2020.

Software and Technology. Software and technology expenses increased $450,000, or 15.1%, from $3.0 million for the nine months ended September 30, 2020 to $3.4 million for the nine months ended September 30, 2021. The increase is attributable primarily to new software investments to improve online deposit account opening, further enhance treasury management capabilities, improve cybersecurity monitoring and tools, and improve connectivity to support remote working and other technology capabilities.

ATM and Debit Card Expense. We pay processing fees related to the activity of our customers’ ATM and debit card usage. ATM and debit card expenses were $1.8 million for the nine months ended September 30, 2021, an increase of $396,000, or 28.2%, compared to $1.4 million for the same period in 2020 as a result of increased ATM and debit card usage by our customers.

Other. This category includes operating and administrative expenses, such as stock option expense, expenses and losses 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 remained consistent with the prior year and decreased only $69,000, or 1.8%, from $3.7 million for the nine months ended September 30, 2020 to $3.7 million for the nine months ended September 30, 2021.

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 nine months ended September 30, 2021 and 2020, income tax expense totaled $6.8 million and $3.6 million, respectively. The increase in income tax expense was primarily due to an increase in net earnings before taxes of $16.4 million. Our effective tax rates for the nine months ended 2021 and 2020 were 18.22% and 17.09%, respectively.

Discussion and Analysis of Results of Operations for the Three Months Ended September 30, 2021 and 2020

Results of Operations

The following discussion and analysis of our results of operations compares our results of operations for the three months ended September 30, 2021 with the three months ended September 30, 2020. The results of operations for the three months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

Net earnings were $9.3 million for the three months ended September 30, 2021, as compared to $10.1 million for the three months ended September 30, 2020. Basic earnings per share were $0.77 for the three months ended September 30, 2021 compared to $0.84 during the same period in 2020.

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58.

The following table presents key earnings data for the periods indicated:

	For the Three Months Ended September 30,
(dollars in thousands, except per share data)	2021			2020
Net earnings	$	9,253		$	10,134
Net earnings per common share*
-basic		0.77			0.84
-diluted		0.76			0.84
Net interest margin(1)		3.36	%		3.57	%
Net interest rate spread(2)		3.21	%		3.32	%
Return on average assets		1.24	%		1.53	%
Return on average equity		12.44	%		15.21	%
Average equity to average total assets		9.99	%		10.04	%
Cash dividend payout ratio*		25.97	%		21.74	%
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
(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.

The following table illustrates net earnings and net core earnings results, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as performance ratios for the three months ended September 30, 2021 and 2020:

	For the Three Months Ended September 30,
	2021			2020
Net earnings	$	9,253		$	10,134
Adjustments:
Provision for credit losses		(700	)		(300	)
Income tax provision		2,179			2,350
PPP loans, including fees		(1,005	)		(1,076	)
Net interest expense on PPP-related borrowings		—			3
Net core earnings†	$	9,727		$	11,111
Total average assets	$	2,953,181		$	2,639,335
Adjustments:
PPP loans average balance		(107,931	)		(209,506	)
Excess fed funds sold due to PPP-related borrowings		—			(8,152	)
Total average assets, adjusted†	$	2,845,250		$	2,421,677
Total average equity	$	295,076		$	265,027
PERFORMANCE RATIOS
Net earnings to average assets (annualized)		1.24	%		1.53	%
Net earnings to average equity (annualized)		12.44			15.21
Net core earnings to average assets, as adjusted (annualized)†		1.36			1.83
Net core earnings to average equity (annualized)†		13.08			16.68
PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic*		12,067,769			12,113,266
Earnings per common share, basic*	$	0.77		$	0.84
Net core earnings per common share, basic*†		0.81			0.92
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".

Net Interest Income

Net interest income, before the provision for credit losses, for the third quarter of 2021 and 2020 was $23.6 million and $22.3 million, respectively, an increase of $1.3 million, or 5.8%, resulting primarily from a decrease in deposit-related interest expense of $937,000, or 41.0%, compared to the same quarter of the prior year.

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59.

Loan yield increased from 4.59% for the third quarter of 2020 to 4.67% for the third quarter of 2021, a change of eight basis points, while the cost of interest-bearing deposits decreased from 0.63% to 0.33% during the same period, a change of 30 basis points. The increase in loan yield was primarily due to increased origination fee income recognized during the current quarter.

For the three months ended September 30, 2021, net interest margin on a taxable equivalent basis and net interest spread were 3.40% and 3.21%, respectively, compared to 3.61% and 3.32% for the same period in 2020. The decrease in net interest margin was due to a decrease in the average yield on interest-bearing deposits in other banks, which consists primarily of fed funds sold, from 0.12% in the third quarter of 2020 to 0.10% in the current quarter, while the average balance increased 228.3%, or $286,500, from the prior year average balance. The decrease in average deposit rate was primarily due to continued reductions in interest rates for interest-bearing deposits as market conditions have allowed.

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 each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate 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 September 30, 2021 and 2020, 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.

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60.

	For the Three Months Ended September 30,
	2021								2020
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
ASSETS
Interest-earning assets:
Total loans(1)	$	1,921,005		$	22,605		4.67	%	$	1,964,894		$	22,681		4.59	%
Securities available for sale		320,476			1,199		1.48			378,735			2,125		2.23
Securities held to maturity		116,527			1,054		3.59			—			—		—
Nonmarketable equity securities		10,040			268		10.59			12,332			111		3.58
Interest-bearing deposits in other banks		412,033			109		0.10			125,492			39		0.12
Total interest-earning assets		2,780,081			25,235		3.60			2,481,453			24,956		4.00
Allowance for credit losses		(31,133	)							(34,083	)
Noninterest-earning assets		204,233								191,965
Total assets	$	2,953,181							$	2,639,335
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits	$	1,599,012		$	1,348		0.33	%	$	1,448,117		$	2,285		0.63	%
Advances from FHLB and fed funds purchased		48,609			107		0.87			79,580			141		0.70
Line of credit		2,641			25		3.76			4,989			44		3.51
Subordinated debentures		19,810			182		3.64			20,310			192		3.76
Securities sold under agreements to repurchase		12,171			3		0.10			20,568			15		0.29
Total interest-bearing liabilities		1,682,243			1,665		0.39			1,573,564			2,677		0.68
Noninterest-bearing liabilities:
Noninterest-bearing deposits		950,574								775,341
Accrued interest and other liabilities		25,288								25,403
Total noninterest-bearing liabilities		975,862								800,744
Shareholders’ equity		295,076								265,027
Total liabilities and shareholders’ equity	$	2,953,181							$	2,639,335
Net interest rate spread(2)							3.21	%							3.32	%
Net interest income				$	23,570							$	22,279
Net interest margin(3)							3.36	%							3.57	%
Net interest margin, fully taxable equivalent(4)							3.40	%							3.61	%
(1) Includes average outstanding balances of loans held for sale of $3.7 million and $9.3 million for the three months ended September 30, 2021 and 2020, respectively.
(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(4) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.

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61.

To illustrate core net interest margin and remove the extraordinary impacts resulting from the PPP program, the table below excludes PPP loans and their associated fees and costs for the three months ended September 30, 2021:

	For the Three Months Ended September 30, 2021
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total interest-earning assets	$	2,780,081		$	25,235			3.60	%
Total loans		1,921,005			22,605			4.67
Adjustments:
PPP loans average balance and net fees(1)		(107,931	)		(1,005	)		3.69
Total loans, net of PPP effects	$	1,813,074		$	21,600			4.73	%
Total interest-earning assets, net of PPP effects†	$	2,672,150		$	24,230			3.60	%
Net interest income, fully taxable equivalent ("FTE")				$	23,848
Net interest margin, FTE								3.40	%
Net interest income, net of PPP effects†					22,843
Net interest margin, FTE, net of PPP effects†								3.39	%
† 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 $270,000 and net origination fees recognized in earnings of $735,000 million for the three months ended September 30, 2021.

The following table presents the change in interest income and interest expense for the periods indicated for each major component 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 September 30, 2021 vs. 2020
	Increase (Decrease)
	Due to Change in						Total Increase
(in thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Total loans	$	(504	)	$	428		$	(76	)
Securities available for sale		(325	)		(601	)		(926	)
Securities held to maturity		—			1,054			1,054
Nonmarketable equity securities		(21	)		178			157
Interest-earning deposits in other banks		86			(16	)		70
Total (decrease) increase in interest income	$	(764	)	$	1,043		$	279
Interest-bearing liabilities:
Interest-bearing deposits	$	238		$	(1,175	)	$	(937	)
Advances from FHLB and fed funds purchased		(54	)		20			(34	)
Line of credit		(21	)		2			(19	)
Subordinated debentures		(5	)		(5	)		(10	)
Securities sold under agreements to repurchase		(6	)		(6	)		(12	)
Total increase (decrease) in interest expense		152			(1,164	)		(1,012	)
(Decrease) increase in net interest income	$	(916	)	$	2,207		$	1,291

Provision for Credit Losses

There was a reverse provision for credit losses of $700,000 for the three months ended September 30, 2021, compared to a provision expense of $300,000 for the three months ended September 30, 2020. During the second quarter of 2020, a COVID-specific qualitative factor was added to the CECL model, primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. The COVID-19 qualitative factor was reduced during the current year quarter by 12.75 basis points to reflect the continued improvement of those macroeconomic factors used to establish the initial COVID-specific qualitative factor at the onset of the pandemic. The reduction in the COVID-specific qualitative factor, along with risk grade improvements on specific loans, resulted in the reverse provision during the current quarter.

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62.

Noninterest Income

The following table presents components of noninterest income for the three months ended September 30, 2021 and 2020 and the period-over-period variations in the categories of noninterest income:

	For The Three Months Ended September 30,				Increase (Decrease)
(in thousands)	2021		2020		2021 vs. 2020
Noninterest income:
Service charges	$	1,003	$	717	$	286
Gain on sale of loans		1,759		2,114		(355	)
Fiduciary and custodial income		599		511		88
Bank-owned life insurance income		215		208		7
Merchant and debit card fees		1,620		1,654		(34	)
Loan processing fee income		164		181		(17	)
Warehouse lending fees		196		288		(92	)
Mortgage fee income		145		272		(127	)
Other noninterest income		748		718		30
Total noninterest income	$	6,449	$	6,663	$	(214	)

Total noninterest income decreased $214,000, or 3.2%, for the three months ended September 30, 2021 compared to the same period in 2020. Material changes in the components of noninterest income are discussed below.

Service Charges on Deposit Accounts. Service fee income was $1.0 million for the three months ended September 30, 2021 compared to $717,000 for the same period in 2020, an increase of $286,000, or 39.9%. The increase was primarily due to the expiration of COVID-related fee waivers and increases in customer spending activity during the current year quarter.

Gain on Sale of Loans. We sold 123 mortgage loans for $29.6 million for the three months ended September 30, 2021 compared to 227 mortgage loans for $52.6 million for the three months ended September 30, 2020. Gain on sale of loans was $1.8 million for the three months ended September 30, 2021, a decrease of $355,000, or 16.8%, compared to $2.1 million for the same period in 2020. The total gain on loans sold during the quarter ended September 30, 2021 consisted of $1.2 million in mortgage loans and $541,000 in SBA 7(a) loans sold during the quarter ended September 30, 2021 compared to $1.9 million and $210,000 for mortgage and SBA loans sold, respectively, during the quarter ended September 31, 2020.

Fiduciary and Custodial Income. We have trust powers and provide fiduciary and custodial services through our trust and wealth management division. Fiduciary income was $599,000 and $511,000 for the three months ended September 30, 2021 and 2020, respectively, an increase of $88,000, or 17.2%. The revenue increase resulted primarily from 12 new accounts that opened during the quarter, which have generated additional income.

Warehouse Lending Fees. A portion of our lending involves the origination of mortgage warehouse lines of credit.

The decrease in warehouse lending fees of $92,000, or 31.9%, results from a decrease in overall warehouse lending activity in current quarter compared to prior year quarter. The average quarterly balance of mortgage warehouse lines decreased from $99.1 million for the quarter ended September 30, 2020, to $57.5 million for the same quarter in 2021, a decrease of $41.6 million or 42.0%.

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 $127,000, or 46.7%, from September 30, 2020 was primarily due to a lower volume of mortgage purchases and refinances due primarily to increased mortgage loan rates in the current quarter.

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63.

Noninterest Expense

For the three months ended September 30, 2021, noninterest expense totaled $19.3 million, an increase of $2.5 million, or 15.1%, compared to $16.8 million for the three months ended September 30, 2020. The following table presents, for the periods indicated, the major categories of noninterest expense:

	For The Three Months Ended September 30,				Increase (Decrease)
(in thousands)	2021		2020		2021 vs. 2020
Employee compensation and benefits	$	10,998	$	9,439	$	1,559
Non-staff expenses:
Occupancy expenses		2,738		2,597		141
Legal and professional fees		644		574		70
Software and technology		1,258		1,093		165
Amortization		253		338		(85	)
Director and committee fees		197		211		(14	)
Advertising and promotions		495		301		194
ATM and debit card expense		646		509		137
Telecommunication expense		197		231		(34	)
FDIC insurance assessment fees		214		252		(38	)
Other noninterest expense		1,647		1,213		434
Total noninterest expense	$	19,287	$	16,758	$	2,529

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 $11.0 million for the three months ended September 30, 2021, an increase of $1.6 million, or 16.5%, compared to $9.4 million for the same period in 2020. The increase resulted from higher salary expense, higher insurance expense accruals due to increased claims experience, higher payroll tax expense due to larger bonuses paid in July and bonus accruals. The bonus accrual in the prior year was lower due to lower net income.

Occupancy Expenses. Occupancy expenses increased $141,000, or 5.4% during the third quarter of 2021 compared to the same period of the prior year primarily due to new leases entered into during 2021.

Legal and Professional Fees. Legal and professional fees, which include audit, loan review and regulatory assessments, were $644,000 for the three months ended September 30, 2021, an increase of $70,000, or 12.2%, compared to $574,000 for the same period in 2020. The increase was primarily the result of professional recruiting fees paid during the three months ended September 30, 2021, that were not paid during the same period of the prior year.

Software and Technology Fees. Software and technology fees consist of fees paid to third parties for support of software and technology products. Software support fee expense was $1.3 million for the three months ended September 30, 2021, compared to $1.1 million for the same period in 2020, an increase of $165,000, or 15.1%. The increase is attributable primarily to new software investments to improve online deposit account opening, further enhance treasury management capabilities, upgrade cybersecurity monitoring and tools, and improve connectivity to support remote working and other technology capabilities.

Advertising and Promotions. Advertising and promotion-related expenses increased $194,000, or 64.5%, during the three months ended September 30, 2021 compared to the same period in 2020, primarily due to the the resumption of Bank-sponsored promotional events and advertising campaigns that were halted or delayed during the prior year due to the pandemic.

ATM and Debit Card Expense. ATM and debit card expenses were $646,000 for the three months ended September 30, 2021, an increase of $137,000, or 26.9%, compared to $509,000 for the same period in 2020 as a result of increased ATM and debit card usage by our customers.

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64.

Other. Other noninterest expense increased $434,000, or 35.8%, from $1.2 million for the three months ended September 30, 2020 to $1.6 million for the three months ended September 30, 2021. The increase was primarily due to a one-time expense of $434,000 to terminate two swap agreements associated with our trust preferred securities.

Income Tax Expense

For the three months ended September 30, 2021, income tax expense totaled $2.2 million, in contrast to a tax benefit of $2.4 million received in the same period of 2020. The effective tax rates for the three months ended September 30, 2021 and 2020 were 19.06% and 18.82%, respectively. The effective tax rates differ from the statutory federal tax rate of 21% for the three months ended September 30, 2021 and 2020, largely due to tax exempt interest income earned on certain investment securities and loans and the nontaxable earnings on bank-owned life insurance.

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65.

Discussion and Analysis of Financial Condition as of September 30, 2021

Assets

Our total assets increased $227.4 million, or 8.3%, from $2.74 billion as of December 31, 2020 to $2.97 billion as of September 30, 2021. Our asset growth was primarily due to increases in cash and cash equivalents of $57.1 million, total securities of $62.0 million and gross loans of $104.1 million. The increase in cash and cash equivalents is due to a $127.7 million increase in federal funds sold, partially offset by decreases in interest-bearing cash deposits and due from balances of $57.5 million and $13.1 million, respectively. The increase in loans resulted largely from our participation in the PPP2 loan program, as well as organic loan growth, and the increase in cash and cash equivalents resulted largely from increases in deposit balances that resulted from government stimulus payments, PPP2 loan proceeds and general changes in consumer spending and saving habits.

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 September 30, 2021, total loans held for investment were $1.97 billion, an increase of $104.1 million, or 5.6%, from the December 31, 2020 balance of $1.87 billion. In addition to these amounts, $1.9 million and $5.5 million in loans were classified as held for sale as of September 30, 2021 and December 31, 2020, respectively.

The increase in gross loans during the period included outstanding PPP loan balances of $75.3 million, to 773 borrowers, as of September 30, 2021. Excluding the outstanding balance of PPP loans, gross loans increased 9.8%, or $168.6 million, from December 31, 2020, primarily the result of organic growth and period-end increases in commercial real estate and multi-family residential portfolios.

Total loans, excluding those held for sale, as a percentage of deposits, were 76.9% and 81.6% as of September 30, 2021 and December 31, 2020, respectively. Total loans, excluding those held for sale, as a percentage of total assets, were 66.4% and 68.1% as of September 30, 2021 and December 31, 2020, respectively.

The following table summarizes our loan portfolio by type of loan and dollar change and percentage change from December 31, 2020 to September 30, 2021:

(in thousands)	As of September 30, 2021		As of December 31, 2020		Increase (Decrease)			Percent Change
Commercial and industrial	$	380,470	$	445,771	$	(65,301	)		(14.65	%)
Real estate:
Construction and development		309,746		270,407		39,339			14.55	%
Commercial real estate		633,353		594,216		39,137			6.59	%
Farmland		135,413		78,508		56,905			72.48	%
1-4 family residential		403,403		389,096		14,307			3.68	%
Multi-family residential		40,810		21,701		19,109			88.06	%
Consumer and overdrafts		53,487		51,386		2,101			4.09	%
Agricultural		14,199		15,734		(1,535	)		(9.76	%)
Total loans held for investment	$	1,970,881	$	1,866,819	$	104,062			5.57	%
Total loans held for sale	$	1,903	$	5,542	$	(3,639	)		(65.66	%)

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

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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.

Nonperforming assets as a percentage of total loans were 0.16% at September 30, 2021, compared to 0.70% at December 31, 2020. The Bank’s nonperforming assets consist primarily of nonaccrual loans. During 2020, nonperforming

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

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

(dollars in thousands)	September 30, 2021			December 31, 2020
Nonaccrual loans	$	3,135		$	12,705
Accruing loans 90 or more days past due		—			—
Total nonperforming loans		3,135			12,705
Other real estate owned:
Residential real estate		40			404
Total other real estate owned		40			404
Repossessed assets owned		63			6
Total other assets owned		103			410
Total nonperforming assets	$	3,238		$	13,115
TDR loans - nonaccrual	$	84		$	90
TDR loans - accruing	$	9,522		$	9,626
Ratio of nonperforming loans to total loans(1)(2)		0.16	%		0.68	%
Ratio of nonperforming assets to total loans(1)(2)		0.16	%		0.70	%
Ratio of nonperforming assets to total assets		0.11	%		0.48	%
(1) Excludes loans held for sale of $1.9 million and $5.5 million as of September 30, 2021 and December 31, 2020, respectively.
(2) Restructured loans on nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.

The following table presents nonaccrual loans by category as of:

(in thousands)	September 30, 2021		December 31, 2020
Commercial and industrial	$	39	$	27
Real estate:
Construction and development		230		—
Commercial real estate		387		10,604
Farmland		137		115
1-4 family residential		2,165		1,667
Consumer and overdrafts		145		212
Agricultural		32		80
Total	$	3,135	$	12,705

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67.

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 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.

Loans that were modified for reasons related to the COVID-19 pandemic that avoided TDR status have all returned to contractual payment schedules are are monitoring for risk rating classification consistent with all other loans.

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

	September 30, 2021
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	379,732	$	117	$	582	$	—	$	—	$	39	$	380,470
Real estate:
Construction and development		307,239		1,665		612		—		—		230		309,746
Commercial real estate		579,903		9,057		44,006		—		—		387		633,353
Farmland		135,130		28		118		—		—		137		135,413
1-4 family residential		401,181		57		—		—		—		2,165		403,403
Multi-family residential		40,135		—		675		—		—		—		40,810
Consumer and overdrafts		53,332		10		—		—		—		145		53,487
Agricultural		14,059		20		88		—		—		32		14,199
Total	$	1,910,711	$	10,954	$	46,081	$	—	$	—	$	3,135	$	1,970,881

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	December 31, 2020
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	438,975	$	5,829	$	940	$	—	$	—	$	27	$	445,771
Real estate:
Construction and development		267,767		1,346		1,294		—		—		—		270,407
Commercial real estate		550,724		13,280		19,608		—		—		10,604		594,216
Farmland		78,229		35		129		—		—		115		78,508
1-4 family residential		387,261		168		—		—		—		1,667		389,096
Multi-family residential		21,701		—		—		—		—		—		21,701
Consumer and overdrafts		51,059		115		—		—		—		212		51,386
Agricultural		15,577		36		41		—		—		80		15,734
Total	$	1,811,293	$	20,809	$	22,012	$	—	$	—	$	12,705	$	1,866,819

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. Refer to Note 1 of the notes to the financial statements for discussion regarding our ACL methodologies for loans held for investment and available for sale securities.

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 September 30, 2021, 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 nine months ended September 30, 2021.

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 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 September 30, 2021, 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, SBA loans originated by us and SBA PPP loans. 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

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69.

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 September 30, 2021, the allowance for credit losses totaled $30.6 million, or 1.55%, of total loans, excluding those held for sale, and totaled 1.62%, excluding PPP loans and loans held for sale. As of December 31, 2020, the allowance for loan losses totaled $33.6 million, or 1.80%, of total loans, excluding those held for sale, and totaled 1.95%, excluding PPP loans and loans held for sale. The decrease in the ACL of $3.0 million, or 8.9%, is due to COVID-specific qualitative factors established during 2020 that were reduced during the first three quarters of 2021 from 55 basis points across the loan portfolio to 14.75 basis points in order to conservatively capture some of the improvements that have occurred to macroeconomic factors evaluated at the onset of the pandemic as part of the aforementioned COVID-specific qualitative factors, as well as risk rating upgrades for specific loans, which impact the reserve calculations within our model, offset by growth in our overall loan portfolio. Although management is cautiously optimistic about improving vaccination and hospitalization rates and economic trends, it is very likely that the economic effects of the pandemic will continue into 2022.

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70.

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 Nine Months Ended September 30,						As of and for the Year Ended December 31,
(dollars in thousands)	2021			2020			2020
Average loans outstanding(1)	$	1,906,989		$	1,851,209		$	1,872,914
Gross loans outstanding at end of period(2)		1,970,881			1,958,634			1,866,819
Allowance for credit losses at beginning of the period		33,619			16,202			16,202
Impact of adopting ASC 326		—			4,548			4,548
Provision for credit losses		(1,700	)		13,200			13,200
Charge offs:
Commercial and industrial		300			43			68
Real estate:
Commercial real estate		816			—			—
1-4 family residential		—			59			68
Consumer		113			136			155
Agriculture		—			18			18
Overdrafts		173			128			234
Total charge-offs		1,402			384			543
Recoveries:
Commercial and industrial		15			93			101
Real estate:
Construction and development		1			—			—
Commercial real estate		11			1			1
1-4 family residential		—			2			2
Consumer		32			30			37
Agriculture		—			20			20
Overdrafts		45			45			51
Total recoveries		104			191			212
Net charge-offs (recoveries)		1,298			193			331
Allowance for credit losses at end of period	$	30,621		$	33,757		$	33,619
Ratio of allowance to end of period loans(2)		1.55	%		1.72	%		1.80	%
Ratio of net charge-offs (recoveries) to average loans(1)		0.07	%		0.01	%		0.02	%
(1) Includes average outstanding balances of loans held for sale of $3.7 million, $6.1 million and $6.0 million for the nine months ended September 30, 2021 and 2020, and for the year ended December 31, 2020, respectively.
(2) Excludes loans held for sale of $1.9 million, $9.1 million and $5.5 million for the nine months ended September 30, 2021 and 2020, and for the year ended December 31, 2020, respectively.

The ratio of allowance for credit losses to non-performing loans increased from 264.6% at December 31, 2020 to 976.7% at September 30, 2021. Non-performing loans decreased to $3.1 million at September 30, 2021, compared to $12.7 million at December 31, 2020 due to the resolution of three Small Business Administration ("SBA") 7(a) partially guaranteed (75%) problem loans that were acquired in the June 2018 acquisition of Westbound Bank, with combined book balances of $8.7 million as of December 31, 2020.

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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71.

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 September 30, 2021					As of December 31, 2020
(in thousands)	Amount		Percent to Total Loans			Amount		Percent to Total Loans
Commercial and industrial	$	3,480		11.36	%	$	4,033		12.00	%
Real estate:
Construction and development		3,962		12.94	%		4,735		14.08	%
Commercial real estate		14,305		46.72	%		15,780		46.94	%
Farmland		1,585		5.18	%		1,220		3.63	%
1-4 family residential		5,754		18.79	%		6,313		18.78	%
Multi-family residential		576		1.88	%		363		1.08	%
Total real estate		26,182		85.51	%		28,411		84.51	%
Consumer and overdrafts		793		2.59	%		936		2.78	%
Agricultural		166		0.54	%		239		0.71	%
Total allowance for credit losses	$	30,621		100.00	%	$	33,619		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 September 30, 2021, the carrying amount of our investment securities totaled $442.7 million, an increase of $62.0 million, or 16.3%, compared to $380.8 million as of December 31, 2020. Investment securities represented 14.9% and 13.9% of total assets as of September 30, 2021 and December 31, 2020, respectively.

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 shareholders’ equity. As of September 30, 2021, 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 September 30, 2021.

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 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 gain remaining on transferred securities included in accumulated other comprehensive income on our balance sheet totaled $9.7 million at September 30, 2021. This amount will be amortized out of accumulated other comprehensive income 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 September 30, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies	$	10,013	$	46	$	—	$	10,059
Corporate bonds		34,105		1,233		92		35,246
Municipal securities		170,634		9,139		147		179,626
Mortgage-backed securities		160,888		2,143		884		162,147
Collateralized mortgage obligations		63,272		1,405		54		64,623
Total	$	438,912	$	13,966	$	1,177	$	451,701

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72.

	As of December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate bonds	$	29,608	$	1,382	$	8	$	30,982
Municipal securities		164,668		11,036		—		175,704
Mortgage-backed securities		104,210		3,041		87		107,164
Collateralized mortgage obligations		64,611		2,335		1		66,945
Total	$	363,097	$	17,794	$	96	$	380,795

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 September 30, 2021 and December 31, 2020, 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, and 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. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.

	As of September 30, 2021
	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	$	—	—	$	—	—	$	10,059	1.35%	$	—	—	$	10,059	1.35%
Corporate bonds		—	—		15,430	3.21%		19,816	4.04%		—	—		35,246	3.68%
Municipal securities		4,802	3.86%		48,612	3.23%		50,369	3.35%		66,851	3.23%		170,634	3.28%
Mortgage-backed    securities		98	3.39%		92,073	1.56%		53,818	1.71%		16,195	1.93%		162,184	1.65%
Collateralized mortgage    obligations		2,310	3.09%		55,350	2.26%		—	—		6,963	1.02%		64,623	2.15%
Total	$	7,210	3.61%	$	211,465	2.24%	$	134,062	2.62%	$	90,009	2.80%	$	442,746	2.49%

	As of December 31, 2020
	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
Corporate bonds	$	—	—	$	18,839	2.96%	$	12,143	4.31%	$	—	—	$	30,982	3.49%
Municipal securities		4,154	2.84%		35,849	3.13%		51,823	3.39%		83,878	3.23%		175,704	3.25%
Mortgage-backed    securities		170	3.37%		74,450	2.04%		22,104	2.05%		10,440	1.81%		107,164	2.02%
Collateralized mortgage    obligations		9,641	1.49%		57,304	2.74%		—	—		—	—		66,945	2.56%
Total	$	13,965	1.91%	$	186,442	2.56%	$	86,070	3.17%	$	94,318	3.07%	$	380,795	2.80%

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 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 6.45 years with an estimated effective duration of 3.71 years as of September 30, 2021.

As of September 30, 2021 and December 31, 2020, 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 the consolidated shareholders’ equity.

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73.

The average yield of our securities portfolio was 2.49% as of September 30, 2021, down from 2.80% as of December 31, 2020. The decline in average yield resulted primarily from decreases in yields on mortgage backed securities and collateralized mortgage obligations of 2.02% and 2.56% at December 31, 2020, respectively, to 1.65% and 2.15% at September 30, 2021, respectively. As of September 30, 2021, municipal securities and mortgage-backed securities comprised 39.8% and 35.9% of the portfolio, respectively. As of December 31, 2020, municipal securities and mortgage-backed securities comprised 46.1% and 28.1% 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.

Total deposits as of September 30, 2021 were $2.56 billion, an increase of $276.7 million, or 12.1%, compared to $2.29 billion as of December 31, 2020. The majority of the deposit balance increase was due to the deposit of government stimulus payments and PPP funds into demand and money market accounts at the Bank, as well as apparent changes in depositor spending habits resulting from economic and other uncertainties due to COVID-19.

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

(dollars in thousands)	For the Nine Months Ended September 30, 2021		For the Year Ended December 31, 2020		Increase (Decrease) ($)			Increase (Decrease) (%)
NOW and interest-bearing demand accounts	$	361,445	$	293,111	$	68,334			23.31	%
Savings accounts		116,604		87,092		29,512			33.89	%
Money market accounts		757,472		642,239		115,233			17.94	%
Certificates and other time deposits		358,698		445,911		(87,213	)		(19.56	%)
Total interest-bearing deposits		1,594,219		1,468,353		125,866			8.57	%
Noninterest-bearing demand accounts		892,260		696,454		195,806			28.11	%
Total deposits	$	2,486,479	$	2,164,807	$	321,672			14.86	%

The aggregate amount of certificates and other time deposits in denominations of $100,000 or more as of September 30, 2021 and December 31, 2020 was $236.4 million and $266.3 million, respectively.

The scheduled maturities of certificates and other time deposits greater than $100,000 were as follows:

	As of September 30, 2021
(dollars in thousands)	Amount		Weighted Average Interest Rate
Under 3 months	$	69,838		0.64	%
3 to 6 months		72,207		0.64	%
6 to 12 months		60,566		0.67	%
12 to 24 months		23,288		1.16	%
24 to 36 months		6,612		1.92	%
36 to 48 months		734		1.90	%
Over 48 months		3,193		0.56	%
Total	$	236,438		0.74	%

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.

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74.

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 September 30, 2021 and December 31, 2020, total borrowing capacity of $570.4 million and $476.5 million, respectively, was available under this arrangement. Our outstanding FHLB advances mature within three years. As of September 30, 2021, approximately $1.40 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 September 30, 2021:

(dollars in thousands)	Balance		Weighted Average Interest Rate
Less than 90 days	$	40,000		0.13	%
90 days to less than one year		1,500		1.99	%
One to three years		6,000		1.76	%
After three to five years		—		—
After five years		—		—
Total	$	47,500		0.39	%

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 September 30, 2021 and December 31, 2020, $184.8 million and $158.8 million, respectively, were available under this arrangement. As of September 30, 2021 and December 31, 2020, approximately $240.4 million and $214.5 million, respectively, in consumer and commercial and industrial loans were pledged as collateral. As of September 30, 2021 and December 31, 2020, no borrowings were outstanding under this arrangement.

Trust Preferred Securities and Other Debentures. We have issued subordinated debentures relating to the issuance of trust preferred securities. In October 2002, we formed Guaranty (TX) Capital Trust II, which issued $3.0 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 $93,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $3.1 million of the Company’s junior subordinated debentures, which will mature on October 30, 2032. 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 holding companies. Interest on Trust II Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 3.35%. Interest on the Trust III Debentures was payable at a fixed rate per annum equal to 7.43% until October 1, 2016 and is 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.

On any interest payment date on or after (1) June 15, 2012 for the DCB Trust I Debentures, (2) October 30, 2012 for the Trust II Debentures and (3) October 1, 2016 for the Trust III Debentures, and before their respective maturity dates, the debentures are redeemable, in whole or in part, for cash at our option on at least 30, but not more than 60, days’ notice at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

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

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75.

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. $500,000 matured in November of 2020 and $9.5 million remains as of September 30, 2021. 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 2021. The line of credit bears interest at the prime rate (3.25% as of September 30, 2021) subject to a floor of 3.50%, with quarterly interest payments, and matures in March 2022. As of September 30, 2021, 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, such as COVID-19. For the nine months ended September 30, 2021 and the year ended December 31, 2020, 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 September 30, 2021 and December 31, 2020, we maintained two federal funds lines of credit with commercial banks that provide for the availability to borrow up to an aggregate $60.0 million in federal funds. There were no funds under these lines of credit outstanding as of September 30, 2021 and December 31, 2020. 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.

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76.

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 $2.89 billion for the nine months ended September 30, 2021 and $2.57 billion for the year ended December 31, 2020.

	For the Nine Months Ended September 30, 2021			For the Year Ended December 31, 2020
Sources of Funds:
Deposits:
Noninterest-bearing		30.88	%		27.09	%
Interest-bearing		55.17	%		57.11	%
Advances from FHLB		1.72	%		2.95	%
Line of credit		0.23	%		0.26	%
Subordinated debentures		0.69	%		0.67	%
Securities sold under agreements to repurchase		0.56	%		0.70	%
Accrued interest and other liabilities		0.85	%		0.96	%
Shareholders’ equity		9.90	%		10.26	%
Total		100.00	%		100.00	%
Uses of Funds:
Loans		64.87	%		71.72	%
Securities available for sale		12.90	%		13.17	%
Securities held to maturity		1.36	%		1.40	%
Nonmarketable equity securities		0.35	%		0.42	%
Federal funds sold		12.62	%		4.82	%
Interest-bearing deposits in other banks		0.92	%		5.70	%
Other noninterest-earning assets		6.98	%		2.77	%
Total		100.00	%		100.00	%
Average noninterest-bearing deposits to average deposits		35.88	%		32.17	%
Average loans to average deposits		76.69	%		86.52	%

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 $55.8 million, or 3.0%, for the nine months ended September 30, 2021 compared to the same period in 2020, while our average deposits increased $347.7 million, or 16.3%, for the same time periods. 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 September 30, 2021, we had $392.3 million in outstanding commitments to extend credit and $9.9 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2020, we had $324.3 million in outstanding commitments to extend credit and $8.5 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 September 30, 2021 and December 31, 2020, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. As of September 30, 2021, we had cash and cash equivalents of $408.9 million, compared to $351.8 million as of December 31, 2020. The increase was primarily due to an increase in federal funds sold of $127.7 million, offset by a decrease in interest-bearing deposits held at other banks of $57.5 million.

Capital Resources

Total shareholders’ equity increased to $297.4 million as of September 30, 2021, compared to $272.6 million as of December 31, 2020, an increase of $24.8 million, or 9.1%. The increase from December 31, 2020 was primarily the result of net earnings, partially offset by a decrease in other comprehensive income and payment of dividends. The Company also issued a 10.0% stock dividend in the first quarter of 2021 that resulted in an additional 1,093,932 shares of common stock issued.

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77.

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 September 30, 2021 and December 31, 2020, 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 and continue to learn about the economic impacts of COVID-19, 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:

	September 30, 2021					December 31, 2020
(dollars in thousands)	Amount		Ratio			Amount		Ratio
Guaranty Bancshares, Inc. (consolidated)
Total capital (to risk weighted assets)	$	289,390		14.13	%	$	263,144		13.20	%
Tier 1 capital (to risk weighted assets)		263,721		12.87	%		238,115		11.94	%
Tier 1 capital (to average assets)		263,721		9.06	%		238,115		9.13	%
Common equity tier 1 risk-based capital		253,411		12.37	%		227,805		11.43	%
Guaranty Bank & Trust, N.A.
Total capital (to risk weighted assets)	$	301,528		14.71	%	$	285,490		14.32	%
Tier 1 capital (to risk weighted assets)		275,839		13.45	%		260,459		13.06	%
Tier 1 capital (to average assets)		275,839		9.48	%		260,459		9.99	%
Common equity tier 1 risk-based capital		275,839		13.45	%		260,459		13.06	%

Contractual Obligations

The following table summarizes contractual obligations and other commitments to make future payments as of September 30, 2021 (other than non-time deposit obligations), which consist of future cash payments associated with our contractual obligations.

	As of September 30, 2021
(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	$	288,124		44,214	$	7,705	$	—	$	340,043
Advances from FHLB		41,500		6,000		—		—		47,500
Subordinated debentures		—		7,500		2,000		10,310		19,810
Operating leases		423		3,622		3,636		7,562		15,243
Total	$	330,047	$	61,336	$	13,341	$	17,872	$	422,596

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.

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78.

Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of September 30, 2021 are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.

	As of September 30, 2021
(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	$	6,962	$	54	$	381	$	2,525	$	9,922
Commitments to extend credit		205,931		85,924		10,574		89,903		392,332
Total	$	212,893	$	85,978	$	10,955	$	92,428	$	402,254

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 September 30, 2021, and determined the likelihood to be improbable. Therefore, no ACL was recorded for standby and commercial letters of credit as of September 30, 2021.

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 September 30, 2021.

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.

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. 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.

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79.

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 15.0% for a 100 basis point shift, 20.0% for a 200 basis point shift and 30.0% 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:

	September 30, 2021						December 31, 2020
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		6.69	%		4.75	%		4.40	%		5.04	%
+200		4.02	%		5.14	%		2.62	%		4.45	%
+100		1.53	%		2.50	%		1.42	%		3.35	%
Base		—			—			—			—
-100		(2.32	)%		6.20	%		(1.92	)%		3.96	%

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.

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.

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80.

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 shareholders’ equity, 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 shareholders’ equity to tangible common equity and presents tangible book value per common share compared to book value per common share:

	As of September 30,						As of December 31,
(dollars in thousands, except per share data)	2021			2020			2020
Tangible Common Equity
Total shareholders’ equity	$	297,408		$	266,853		$	272,643
Adjustments:
Goodwill		(32,160	)		(32,160	)		(32,160	)
Core deposit intangible, net		(2,426	)		(3,213	)		(2,999	)
Total tangible common equity	$	262,822		$	231,480		$	237,484
Common shares outstanding*(1)		12,081,477			12,087,063			12,028,957
Book value per common share*	$	24.62		$	22.08		$	22.67
Tangible book value per common share*	$	21.75		$	19.15		$	19.74
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.
(1) Excludes the dilutive effect, if any, of 155,058, 0 and 32,781 shares of common stock issuable upon exercise of outstanding stock options as of September 30, 2021 and 2020, and December 31, 2020, respectively.

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 common shareholders’ equity 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 shareholders’ equity and assets while not increasing our tangible common equity or tangible assets.

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81.

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 September 30, 2021			As of December 31, 2020
Total tangible common equity	$	262,822		$	237,484
Tangible Assets
Total assets		2,968,268			2,740,832
Adjustments:
Goodwill		(32,160	)		(32,160	)
Core deposit intangible, net		(2,426	)		(2,999	)
Total tangible assets	$	2,933,682		$	2,705,673
Total Shareholders' Equity to Total Assets		10.02	%		9.95	%
Tangible Common Equity to Tangible Assets		8.96	%		8.78	%

The following tables reconcile, as of and for the dates set forth below, various metrics impacted by the effects of COVID-19 on reported data.

Net Core Earnings and Net Core Earnings per Common Share

	Nine Months Ended September 30,						Three Months Ended September 30,						Three Months Ended June 30,
(dollars in thousands, except per share data)	2021			2020			2021			2020			2021
Net earnings	$	30,647		$	17,487		$	9,253		$	10,134		$	10,432
Adjustments:
Provision for credit losses		(1,700	)		13,200			(700	)		(300	)		(1,000	)
Income tax provision		6,827			3,605			2,179			2,350			2,312
PPP loans, including fees		(6,864	)		(3,616	)		(1,005	)		(1,076	)		(1,954	)
Net interest expense on PPP-related borrowings		—			34			—			3			—
Net core earnings	$	28,910		$	30,710		$	9,727		$	11,111		$	9,790
Weighted-average common shares outstanding, basic*		12,054,426			12,271,889			12,067,769			12,113,266			12,056,550
Earnings per common share, basic*	$	2.54		$	1.43		$	0.77		$	0.84		$	0.87
Net core earnings per common share, basic*		2.40			2.50			0.81			0.92			0.81
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.

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

	Nine Months Ended September 30,						Three Months Ended September 30,						Three Months Ended June 30,
(dollars in thousands)	2021			2020			2021			2020			2021
Net core earnings	$	28,910		$	30,710		$	9,727		$	11,111		$	9,790
Total average assets		2,889,882			2,541,214			2,953,181			2,639,335			2,938,944
Adjustments:
PPP loans average balance		(133,309	)		(124,541	)		(107,931	)		(209,506	)		(155,417	)
Excess fed funds sold due to PPP-related borrowings		—			(30,657	)		—			(8,152	)		—
Total average assets, adjusted	$	2,756,573		$	2,386,016		$	2,845,250		$	2,421,677		$	2,783,527
Net core earnings to average assets, as adjusted		1.40			1.72			1.36			1.83			1.41
Total average equity	$	286,228		$	261,205		$	295,076		$	265,027		$	285,803
Net core earnings to average equity		13.50			15.70			13.08			16.68			13.74

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82.

Total Interest-Earning Assets, net of PPP Effects

	For the Three Months Ended September 30, 2021									For the Nine Months Ended September 30, 2021
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total interest-earning assets	$	2,780,081		$	25,235			3.60	%	$	2,720,103		$	77,032			3.79	%
Total loans		1,921,005			22,605			4.67			1,906,989			69,664			4.88
Adjustments:
PPP loan average balance and net fees(1)		(107,931	)		(1,005	)		3.69			(133,309	)		(6,265	)		6.28
Total loans, net of PPP effects		1,813,074			21,600			4.73			1,773,680			63,399			4.78
Total interest-earning assets, net of PPP effects	$	2,672,150		$	24,230			3.60	%	$	2,586,794		$	70,767			3.66	%
(1) Interest earned consists of interest income of $270,000 and $990,000, and net origination fees recognized in earnings of $661,000 and $5.3 million for the three and nine months ended September 30, 2021, respectively.

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

(dollars in thousands)	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021			Three Months Ended June 30, 2021			Three Months Ended September 30, 2020
Net interest income	$	23,570		$	71,538		$	23,477		$	22,279
Adjustments:
PPP-related interest income		(270	)		(990	)		(385	)		(527	)
PPP-related net origination fees		(735	)		(5,275	)		(1,362	)		(549	)
PPP-related borrowings		—			—			—			3
Net interest income, net of PPP effects	$	22,565		$	65,273		$	21,730		$	21,206
Total average interest-earning assets	$	2,780,081		$	2,720,103		$	2,769,054		$	2,481,453
Total average interest-earning assets, net of PPP effects		2,672,150			2,586,794			2,613,637			2,263,795
Net interest margin(1)		3.36	%		3.52	%		3.40	%		3.57	%
Net interest margin, net of PPP effects(2)		3.35			3.37			3.33			3.73
Net interest income	$	23,570		$	71,538		$	23,477		$	22,279
Interest income tax adjustments		278			798			269			233
Net interest income, fully taxable equivalent ("FTE")	$	23,848		$	72,336		$	23,746		$	22,512
Net interest income, FTE, net of PPP effects		22,843			66,071			21,999			21,439
Net interest margin, FTE(3)		3.40			3.56			3.44			3.61
Net interest margin, FTE, net of PPP effects(4)		3.39			3.41			3.38			3.77
(1) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(2) Net interest margin is equal to net interest income, net of PPP effects, divided by average interest-earning assets, excluding average PPP loans, annualized. Taxes are not a part of this calculation.
(3) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.
(4) Net interest margin on a taxable equivalent basis is equal to net interest income, net of PPP effects, adjusted for nontaxable income divided by average interest-earning assets, excluding average PPP loans, annualized, using a marginal tax rate of 21%.

(Continued)

83.

Efficiency Ratio, Net of PPP Effects

(dollars in thousands)	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021			Three Months Ended June 30, 2021			Three Months Ended September 30, 2020
Total noninterest expense	$	19,287		$	54,302		$	17,703		$	16,758
Adjustments:
PPP-related deferred costs		—			599			207			24
Total noninterest expense, net of PPP effects	$	19,287		$	54,901		$	17,910		$	16,782
Net interest income		23,570			71,538			23,477			22,279
Net interest income, net of PPP effects		22,565			65,273			21,730			21,206
Total noninterest income	$	6,449		$	18,538		$	5,970		$	6,663
Efficiency ratio(1)		64.25	%		60.28	%		60.12	%		57.90	%
Efficiency ratio, net of PPP effects(2)		66.47			65.51			64.66			60.22
(1) The efficiency ratio was calculated by dividing total noninterest expense by net interest income plus noninterest income, excluding securities gains or losses. Taxes are not part of this calculation.
(2) The efficiency ratio, net of PPP effects, was calculated by dividing total noninterest expense, net of PPP-related deferred costs, by net interest income, net of PPP effects, plus noninterest income, excluding securities gains or losses. Taxes are not part of this calculation.

ACL to Total Loans, Excluding PPP

(dollars in thousands)	As of September 30, 2021			As of June 30, 2021			As of September 30, 2020
Total loans	$	1,970,881		$	1,890,164		$	1,958,634
Adjustments:
PPP loans		(75,304	)		(127,390	)		(209,609	)
Total loans, excluding PPP	$	1,895,577		$	1,762,774		$	1,749,025
Allowance for credit losses	$	30,621		$	31,548		$	33,757
Allowance for credit losses / period-end loans		1.55	%		1.67	%		1.72	%
Allowance for credit losses / period-end loans. excluding PPP		1.62			1.79			1.93

Loan Yield, Net of PPP Effects

	Three Months Ended September 30, 2021									Three Months Ended June 30, 2021
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total loans	$	1,921,005		$	22,605			4.67	%	$	1,912,722		$	22,864			4.79	%
Adjustments:
PPP loans average balance and net fees		(107,931	)		(1,005	)		3.69			(155,417	)		(1,747	)		4.51
Total loans, net of PPP effects	$	1,813,074		$	21,600			4.73	%	$	1,757,305		$	21,117			4.82	%
Effect of removing PPP loans on loan yield								0.06	%								0.03	%

	Three Months Ended September 30, 2021									Three Months Ended September 30, 2020
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total loans	$	1,921,005		$	22,605			4.67	%	$	1,964,894		$	22,681			4.59	%
Adjustments:
PPP loans average balance and net fees		(107,931	)		(1,005	)		3.69			(209,506	)		(1,076	)		2.04
Total loans, net of PPP effects	$	1,813,074		$	21,600			4.73	%	$	1,755,388		$	21,605			4.90	%
Effect of removing PPP loans on loan yield								0.06	%								0.31	%

(Continued)

84.

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:

the impact of COVID-19, including any variants thereof, on our business, including the impact of the actions taken by federal, state and local governmental authorities in response to COVID-19 (including, without limitation, interest rate policy, restrictions on the operation of businesses, the CARES Act and any other economic stimulus and recovery measures), and the resulting effect of all such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;

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;

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;

(Continued)

85.

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, 2020, 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 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 September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(Continued)

86.

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, 2020, 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. There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

(Continued)

87.

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

On March 13, 2020, 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 March 13, 2022, or the date all shares authorized for repurchase under the program have been repurchased, unless shortened or extended by the board of directors. There were no repurchases made through the third quarter of 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

(Continued)

88.

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 (File No. 333-217176)).
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 (File No. 333-217176)).
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, file number 333-217176).
	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.
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)

89.

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: November 5, 2021	/s/ Tyson T. Abston
	Tyson T. Abston
	Chairman of the Board & Chief Executive Officer
Date: November 5, 2021	/s/ Clifton A. Payne
	Clifton A. Payne
	Chief Financial Officer & Director

90.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Tyson T. Abston, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. for the nine months ended September 30, 2021;

2.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;

3.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;

4.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:

a)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;

b)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;

c)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

d)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

5.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):

a)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

b)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: November 5, 2021

/s/ Tyson T. Abston

Tyson T. Abston

Chairman of the Board & Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Clifton A. Payne, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. for the nine months ended September 30, 2021;

2.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;

3.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;

4.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:

a)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;

b)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;

c)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

d)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

5.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):

a)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

b)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: November 5, 2021

/s/ Clifton A. Payne

Chief Financial Officer & Director

Clifton A. Payne

EX-32.1

EXHIBIT 32.1

CERTIFICATION

In connection with the Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. (the “Company”) for the nine months ended September 30, 2021 (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:

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

2.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: November 5, 2021

EX-32.2

EXHIBIT 32.2

CERTIFICATION

In connection with the Quarterly Report on Form 10-Q of Guaranty Bancshares, Inc. (the “Company”) for the nine months ended September 30, 2021 (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:

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

2.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: November 5, 2021

XML

DOCUMENT AND ENTITY INFORMATION - shares	9 Months Ended
	Sep. 30, 2021	Nov. 01, 2021
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Trading Symbol	GNTY
Entity Registrant Name	GUARANTY BANCSHARES, INC.
Entity Central Index Key	0001058867
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		12,086,977
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity File Number	001-38087
Entity Tax Identification Number	75-1656431
Entity Address, Address Line One	16475 Dallas Parkway, Suite 600
Entity Address, City or Town	Addison
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75001
City Area Code	888
Local Phone Number	572 - 9881
Entity Shell Company	false
Title of 12(b) Security	Common Stock, par value $1.00 per share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	TX
Document Quarterly Report	true
Document Transition Report	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
ASSETS
Cash and due from banks	$ 34,741	$ 47,836
Federal funds sold	346,500	218,825
Interest-bearing deposits	27,634	85,130
Total cash and cash equivalents	408,875	351,791
Securities available for sale	269,070	380,795
Securities held to maturity	173,676	0
Loans held for sale	1,903	5,542
Loans, net of allowance for credit losses of $30,621 and $33,619, respectively	1,938,268	1,831,737
Accrued interest receivable	7,673	9,834
Premises and equipment, net	53,834	55,212
Other real estate owned	40	404
Cash surrender value of life insurance	36,582	35,510
Core deposit intangible, net	2,426	2,999
Goodwill	32,160	32,160
Other assets	43,761	34,848
Total assets	2,968,268	2,740,832
Deposits
Noninterest-bearing	972,854	779,740
Interest-bearing	1,590,217	1,506,650
Total deposits	2,563,071	2,286,390
Securities sold under agreements to repurchase	11,195	15,631
Accrued interest and other liabilities	26,284	25,257
Line of credit	3,000	12,000
Federal Home Loan Bank advances	47,500	109,101
Subordinated debentures	19,810	19,810
Total liabilities	2,670,860	2,468,189
Commitments and contingencies (see Note 11)
Shareholders' equity
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued	0	0
Common stock, $1.00 par value, 50,000,000 shares authorized, 14,097,738 and 12,951,676 shares issued, and 12,081,477 and 10,935,415 shares outstanding, respectively	14,098	12,952
Additional paid-in capital	224,458	188,032
Retained earnings	100,910	113,449
Treasury stock, 2,016,261 shares at cost	(51,419)	(51,419)
Accumulated other comprehensive income	9,361	9,629
Total shareholders' equity	297,408	272,643
Total liabilities and shareholders' equity	$ 2,968,268	$ 2,740,832

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Statement Of Financial Position [Abstract]
Allowance for credit losses	$ 30,621	$ 33,619
Preferred stock, par value (in USD per share)	$ 5.00	$ 5.00
Preferred stock, shares authorized (in shares)	15,000,000	15,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in USD per share)	$ 1.00	$ 1.00
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	14,097,738	12,951,676
Common stock, shares outstanding (in shares)	12,081,477	10,935,415
Treasury stock (in shares)	2,016,261	2,016,261

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CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Interest income
Loans, including fees	$ 22,605	$ 22,681	$ 69,664	$ 69,337
Securities
Taxable	1,203	1,051	3,393	3,532
Nontaxable	1,050	1,074	3,142	3,135
Federal funds sold and interest-bearing deposits	377	150	833	785
Total interest income	25,235	24,956	77,032	76,789
Interest expense
Deposits	1,348	2,285	4,444	9,746
FHLB advances and federal funds purchased	107	141	308	346
Subordinated debentures	182	192	558	511
Other borrowed money	28	59	184	156
Total interest expense	1,665	2,677	5,494	10,759
Net interest income	23,570	22,279	71,538	66,030
Provision for credit losses	(700)	(300)	(1,700)	13,200
Net interest income after provision for credit losses	24,270	22,579	73,238	52,830
Noninterest income
Service charges	1,003	717	2,687	2,196
Net realized gain on sale of loans	1,759	2,114	4,401	4,811
Other income	3,687	3,832	11,450	9,604
Total noninterest income	6,449	6,663	18,538	16,611
Noninterest expense
Employee compensation and benefits	10,998	9,439	31,145	26,982
Occupancy expenses	2,738	2,597	8,258	7,624
Other expenses	5,551	4,722	14,899	13,743
Total noninterest expense	19,287	16,758	54,302	48,349
Income before income taxes	11,432	12,484	37,474	21,092
Income tax provision	2,179	2,350	6,827	3,605
Net earnings	$ 9,253	$ 10,134	$ 30,647	$ 17,487
Basic earnings per share (in USD per share)	$ 0.77	$ 0.84	$ 2.54	$ 1.43
Diluted earnings per share (in USD per share)	$ 0.76	$ 0.84	$ 2.51	$ 1.43

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CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Parenthetical)	3 Months Ended
	Mar. 31, 2021
Income Statement [Abstract]
Percentage of adjusted effect of stock dividend issued	10.00%

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Statement Of Income And Comprehensive Income [Abstract]
Net earnings	$ 9,253	$ 10,134	$ 30,647	$ 17,487
Other comprehensive income (loss):
Unrealized gains (losses) on securities, net of tax	1,654	397	(1,268)	12,094
Unrealized gains (losses) on interest rate swaps
Unrealized holding gains (losses) arising during the period	62	99	534	(730)
Reclassification of realized losses on interest rate swap termination from accumulated other comprehensive income	466		466
Unrealized gains (losses) on interest rate swaps	528	99	1,000	(730)
Total other comprehensive income (loss)	2,182	496	(268)	11,364
Comprehensive income	$ 11,435	$ 10,630	$ 30,379	$ 28,851

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Impact of adoption of ASC 326	Common Stock	Additional Paid-in Capital	Retained Earnings	Retained Earnings Impact of adoption of ASC 326	Treasury Stock	Accumulated Other Comprehensive Income
Beginning balance at Dec. 31, 2019	$ 261,551	$ (3,593)	$ 12,905	$ 186,692	$ 98,239	$ (3,593)	$ (34,492)	$ (1,793)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings	17,487				17,487
Other comprehensive income (loss)	11,364							11,364
10% stock dividend
Exercise of stock options	72		4	68
Purchase of treasury stock	(14,110)						(14,110)
Stock based compensation	494			494
Dividends: Common Stock	(6,412)				(6,412)
Ending balance at Sep. 30, 2020	266,853		12,909	187,254	105,721		(48,602)	9,571
Beginning balance at Jun. 30, 2020	258,875		12,908	187,073	97,788		(47,969)	9,075
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings	10,134				10,134
Other comprehensive income (loss)	496							496
Exercise of stock options	0		1	(1)
Purchase of treasury stock	(633)						(633)
Stock based compensation	182			182
Dividends: Common Stock	(2,201)				(2,201)
Ending balance at Sep. 30, 2020	266,853		12,909	187,254	105,721		(48,602)	9,571
Beginning balance at Dec. 31, 2020	272,643		12,952	188,032	113,449		(51,419)	9,629
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings	30,647				30,647
Other comprehensive income (loss)	(268)							(268)
10% stock dividend	35,947		1,094	34,853	(35,947)
Exercise of stock options	1,113		48	1,065
Restricted stock grants			4	(4)
Stock based compensation	512			512
Dividends: Common Stock	(7,239)				(7,239)
Ending balance at Sep. 30, 2021	297,408		14,098	224,458	100,910		(51,419)	9,361
Beginning balance at Jun. 30, 2021	287,729		14,074	223,822	94,073		(51,419)	7,179
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings	9,253				9,253
Other comprehensive income (loss)	2,182							2,182
Exercise of stock options	477		20	457
Restricted stock grants	0		4	(4)
Stock based compensation	183			183
Dividends: Common Stock	(2,416)				2,416
Ending balance at Sep. 30, 2021	$ 297,408		$ 14,098	$ 224,458	$ 100,910		$ (51,419)	$ 9,361

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2021	Mar. 31, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Statement Of Stockholders Equity [Abstract]
Common stock dividends (in USD per share)	$ 0.20		$ 0.18	$ 0.60	$ 0.53
Impact of adoption of ASC 326, tax					$ 955
Stock dividend rate percentage		10.00%		10.00%

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Cash flows from operating activities
Net earnings	$ 9,253	$ 10,134	$ 30,647	$ 17,487
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			3,294	3,045
Amortization			932	1,010
Deferred taxes			(181)	(2,949)
Premium amortization, net of discount accretion			3,291	2,948
Gain on sale of loans	(1,759)	(2,114)	(4,401)	(4,811)
Provision for credit losses	(700)	(300)	(1,700)	13,200
Origination of loans held for sale			(84,944)	(121,628)
Proceeds from loans held for sale			92,984	119,659
Write-down of other real estate and repossessed assets			6	358
Net gain on sale of premises, equipment, other real estate owned and other assets			16	103
Stock based compensation			512	494
Net change in accrued interest receivable and other assets			(5,034)	(2,607)
Net change in accrued interest payable and other liabilities			1,799	1,897
Net cash provided by operating activities			37,221	28,206
Securities available for sale:
Purchases			(125,826)	(333,838)
Proceeds from maturities and principal repayments			63,264	342,452
Securities held to maturity:
Purchases			(7,797)
Proceeds from maturities and principal repayments			938	3,024
Net originations of loans			(105,333)	(248,409)
Purchases of premises and equipment			(1,912)	(5,148)
Proceeds from BOLI death benefit			464	0
Proceeds from sale of premises, equipment, other real estate owned and other assets			319	509
Net cash used in investing activities			(175,883)	(241,410)
Cash flows from financing activities
Net change in deposits			276,681	266,278
Net change in securities sold under agreements to repurchase			(4,436)	9,420
Proceeds from FHLB advances			120,000	290,000
Repayment of FHLB advances			(181,601)	(246,013)
Proceeds from line of credit			8,000	25,000
Repayment of line of credit			(17,000)	(18,000)
Proceeds from issuance of debentures			0	10,000
Repayments of debentures			0	(500)
Purchase of treasury stock			0	(14,110)
Exercise of stock options			1,113	72
Cash dividends			(7,011)	(6,286)
Net cash provided by financing activities			195,746	315,861
Net change in cash and cash equivalents			57,084	102,657
Cash and cash equivalents at beginning of period			351,791	90,714	$ 90,714
Cash and cash equivalents at end of period	408,875	193,371	408,875	193,371	$ 351,791
Supplemental disclosures of cash flow information
Interest paid			5,743	11,456
Income taxes paid			7,850	5,545
Supplemental schedule of noncash investing and financing activities
Cash dividends accrued	$ 2,416	$ 2,201	2,416	2,201
Held to maturity securities transferred to available for sale			0	152,486
Available for sale securities transferred to held to maturity			172,292	0
Transfer of loans to other real estate owned and repossessed assets			502	221
Stock dividend			$ 35,947

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 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.

Basis of Presentation: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank, and their respective other direct and indirect subsidiaries and any other entities in which Guaranty has a controlling interest. The Bank has six wholly-owned 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 (formerly Pin Oak Energy Holdings, LLC) and White Oak Aviation, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2020, included in Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2020. 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.

COVID-19: On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, of which virus variants continue to spread through the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19, and its subsequent variants, could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company.

Government leaders and the Federal Reserve have taken several actions designed to mitigate the economic fallout resulting from the coronavirus. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, signed into law on March 27, 2020, authorized more than $2 trillion to battle COVID-19 and its economic effects, including immediate cash relief for

individual citizens, loan programs for small businesses, support for hospitals and other medical providers, and various types of economic relief for impacted businesses and industries. The goal of CARES Act was to prevent severe economic downturn. The CARES Act also provided for temporary interest only or payment deferral modifications for loans without classifying them as troubled debt restructurings under current accounting rules. Additional government-backed hardship relief measures were signed into law in early 2021, as well as extension of many of the CARES Act provisions.

Due to the COVID-19 pandemic, market interest rates declined significantly, with the 10-year Treasury bond falling below 1.00% on March 3, 2020 for the first time. On March 16, 2020, the Federal Open Market Committee reduced the target federal funds rate range to 0.00% to 0.25%, at which it remains as of September 30, 2021. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations, as well as business and consumer confidence. As a result of the spread of COVID-19 and its variants, economic uncertainties have arisen which can negatively impact net interest income and noninterest income. Other financial impacts could occur though such potential impact remains unknown at this time.
 

Allowance for Credit Losses:

Held to Maturity Debt Securities

The allowance for credit losses on held to maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held to maturity securities to present management's best estimate of the net amount expected to be collected. Held to maturity securities are charged-off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses. Management measures expected credit losses on held to maturity securities on a collective basis by major security type with each types sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held to maturity securities from the estimate of credit losses.

Available for Sale Debt Securities

For available for sale debt securities in an unrealized loss position, the Company first assesses whether or not it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securities amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected are less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provisions for or reversal of credit loss expense. Losses are charged against the allowance when management believes a security is uncollectible or when either of the criteria regarding intent to sell or required to sell is met. Accrued interest receivable on securities is excluded from the estimate of credit losses.

Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected over the lifetime of the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Subsequent recoveries, if any, are credited to the allowance.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We use the weighted-average remaining maturity method (WARM method) as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate. This average annual charge-off rate contains 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 for current conditions and for reasonable and supportable forecast periods. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors.

The allowance for credit losses is measured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan portfolio segments include both regulatory call report codes and by internally identified risk ratings for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separately identified our mortgage warehouse loans, internally originated SBA loans, SBA loans acquired from Westbound Bank in 2018 and loans originated under the Paycheck Protection Program ("PPP") for inherent risk analysis. Accrued interest receivable on loans is excluded from the estimate of credit losses.

Below is a summary of the segments and certain of the inherent risks in the Company’s loan portfolio:

Commercial and industrial:	This portfolio segment includes general secured and unsecured commercial loans which are not secured by real estate or may be secured by real estate but made for the primary purpose of a short term revolving line of credit. Credit risk inherent in this portfolio segment include fluctuations in the local and national economy.
Construction and development:	This portfolio segment includes all loans for the purpose of construction, including both business and residential structures; and real estate development loans, including non-agricultural vacant land. Credit risk inherent in this portfolio include fluctuations in property values, unemployment, and changes in the local and national economy.
Commercial real estate:	The commercial real estate portfolio segment includes all commercial loans that are secured by real estate, other than those included in the construction and development, farmland, multi-family, and 1-4 family residential segments. Risks inherent in this portfolio segment include fluctuations in property values and changes in the local and national economy impacting the sale of the finished structures.
Farmland:	The farmland portfolio includes loans that are secured by real estate that is used or usable for agricultural purposes, including land used for crops, livestock production, grazing & pastureland and timberland. This segment includes land with a 1-4 family residential structure if the value of the land exceeds the value of the residence. Risks inherent in this portfolio segment include adverse changes in climate, fluctuations in feed and cattle prices and changes in property values.
Consumer:	This portfolio segment consists of non-real estate loans to consumers. This includes secured and unsecured loans such as auto and personal loans. The risks inherent in this portfolio segment include those factors that would impact the consumer’s ability to meet their obligations under the loan. These include increases in the local unemployment rate and fluctuations in consumer and business sales.
1-4 family residential:	This portfolio segment includes loans to both commercial and consumer borrowers secured by real estate for housing units of up to four families. Risks inherent in this portfolio segment include increases in the local unemployment rate, changes in the local economy and factors that would impact the value of the underlying collateral, such as changes in property values.
Multi-family residential:	This portfolio segment includes loans secured by structures containing five or more residential housing units. Risks inherent in this portfolio segment include increases to the local unemployment rate, changes in the local economy, and factors that would impact property values.
Agricultural:	The agricultural portfolio segment includes loans to individuals and companies in the dairy and cattle industries and farmers. Loans in the segment are secured by collateral including cattle, crops and equipment. Risks inherent in this portfolio segment include adverse changes in climate and fluctuations in feed and cattle prices.

The following groups of loans are considered to carry specific similar inherent risk characteristics, which the Bank considers separately during its calculation of the allowance for credit losses. These groups of loans are reported within the segments identified in the previous table.

Mortgage Warehouse:	The mortgage warehouse portfolio includes loans in which we purchase mortgage loan ownership interests from unaffiliated mortgage originators that are generally held by us for a period of less than 30-days, typically 5-10 days before they are sold to an approved investor. These loans are consistently underwritten based on standards established by the approved investor. Risks inherent in this portfolio include borrower or mortgage originator fraud.
SBA – Acquired Loans	The SBA – acquired loans segment consists of partially SBA guaranteed loans that were acquired from Westbound Bank in June 2018. These loans are commercial real estate and commercial and industrial in nature and were underwritten with guidelines that are less conservative than our Company. Risks inherent in this portfolio include increases in interest rates, as most are variable rate loans, generally lower levels of borrower equity, less conservative underwriting guidelines, fluctuations in real estate values and changes in the local and national economy.
SBA – Originated Loans	The SBA – originated loans segment consists of loans that are partially guaranteed by the SBA and were originated and underwritten by Guaranty Bank & Trust loan officers. Risks inherent in this portfolio include increases in interest rates due to variable rate structures, generally lower levels of borrower equity or net worth, fluctuations in real estate values and changes in the local and national economy.
SBA – Paycheck Protection Program Loans	Loans originated under the PPP are 100% government guaranteed by the SBA. As a result, the loans are excluded from the segments above and a minimal reserve estimate was applied to this segment of loans for purposes of calculating the credit loss provision.

In general, the loans in our portfolio have low historical credit losses. The credit quality of loans in our portfolio is impacted by delinquency status and debt service coverage generated by our borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the allowance for credit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for credit losses, which would adversely affect our results of operations and financial condition. Delinquency statistics are updated at least monthly.

Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor that impact management’s estimates of loss factors used in determining the amount of the allowance for credit losses. Internal risk ratings are updated on a continuous basis.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Credit Quality Indicators - The Company monitors the credit quality of the loans in the various segments by identifying and evaluating credit quality indicators specific to each segment class. This information is incorporated into management’s analysis of the adequacy of the allowance for credit losses. Information for the credit quality indicators is updated monthly or quarterly for classified assets and at least annually for the remainder of the portfolio.

The following is a discussion of the primary credit quality indicators most closely monitored for the loan portfolio, by class:

Commercial and industrial:	In assessing risk associated with commercial loans, management considers the business’s cash flow and the value of the underlying collateral to be the primary credit quality indicators.
Construction and development:	In assessing the credit quality of construction loans, management considers the ability of the borrower to make principal and interest payments in the event that they are unable to sell the completed structure to be a primary credit quality indicator. For real estate development loans, management also considers the likelihood of the successful sale of the constructed properties in the development.
Commercial real estate:	Management considers the strength of the borrower’s cash flows, changes in property values and occupancy status to be key credit quality indicators of commercial real estate loans.
Farmland:	In assessing risk associated with farmland loans, management considers the borrower’s cash flows and underlying property values to be key credit quality indicators.
Consumer:	Management considers delinquency status to be the primary credit quality indicator of consumer loans. Others include the debt to income ratio of the borrower, the borrower’s credit history, the availability of other credit to the borrower, the borrower’s past-due history, and, if applicable, the value of the underlying collateral to be primary credit quality indicators.
1-4 family residential:	Management considers delinquency status to be the primary credit quality indicator of 1-4 family residential loans. Others include changes in the local economy, changes in property values, and changes in local unemployment rates to be key credit quality indicators of the loans in the 1-4 family residential loan segment.
Multi-family residential:	Management considers changes in the local economy, changes in property values, vacancy rates and changes in local unemployment rates to be key credit quality indicators of the loans in the multifamily loan segment.
Agricultural:	In assessing risk associated with agricultural loans, management considers the borrower’s cash flows, the value of the underlying collateral and sources of secondary repayment to be primary credit quality indicators.

From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan can be grouped with its like segment for allowance consideration or whether it should be individually evaluated for a specific allowance for credit loss allocation. If individually evaluated, an

allowance for credit loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.

In response to the COVID-19 pandemic, the Bank provided financial relief to many of its customers through a 3-month principal and interest payment deferral program or an up to 6-month interest only program. Pursuant to the CARES Act and the April 7, 2020 Interagency guidance and GAAP, these loan modifications, and certain subsequent modifications, are not considered to be troubled debt restructurings.

Reserve for Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Effect of Stock Splits and Stock Dividends on Prior Period Presentation: Earnings and dividends per share and weighted average shares outstanding are presented as if all stock splits and stock dividends were effective from the earliest period presented through the date of issuance of the financial statements. Unless indicated otherwise, other share amounts have not been adjusted. 

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MARKETABLE SECURITIES

9 Months Ended

Sep. 30, 2021

Investments Debt And Equity Securities [Abstract]

MARKETABLE SECURITIES

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 September 30, 2021 and securities available for sale as of December 31, 2020 and the corresponding amounts of gross unrealized gains and losses:

September 30, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
U.S. government agencies	$	10,013	$	46	$	—	$	10,059
Corporate bonds		34,105		1,233		92		35,246
Mortgage-backed securities		157,846		2,143		847		159,142
Collateralized mortgage obligations		63,272		1,405		54		64,623
Total available for sale	$	265,236	$	4,827	$	993	$	269,070
Held to maturity:
Municipal securities	$	170,634	$	9,139	$	147	$	179,626
Mortgage-backed securities		3,042		—		37		3,005
Total held to maturity	$	173,676	$	9,139	$	184	$	182,631

December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	29,608	$	1,382	$	8	$	30,982
Municipal securities		164,668		11,036		—		175,704
Mortgage-backed securities		104,210		3,041		87		107,164
Collateralized mortgage obligations		64,611		2,335		1		66,945
Total available for sale	$	363,097	$	17,794	$	96	$	380,795

There is no allowance for credit losses recorded for our available for sale or held to maturity debt securities as of September 30, 2021 or December 31, 2020.

Information pertaining to securities with gross unrealized losses as of September 30, 2021 and December 31, 2020, 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
September 30, 2021	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(92	)	$	7,678	$	—		$	—	$	(92	)	$	7,678
Mortgage-backed securities		(803	)		68,150		(44	)		3,276		(847	)		71,426
Collateralized mortgage obligations		(54	)		18,203		—			—		(54	)		18,203
Total available for sale	$	(949	)	$	94,031	$	(44	)	$	3,276	$	(993	)	$	97,307
Held to maturity:
Municipal securities	$	(147	)	$	4,381	$	—		$	—	$	(147	)	$	4,381
Mortgage-backed securities		(37	)		3,006		—			—		(37	)		3,006
Total held to maturity	$	(184	)	$	7,387	$	—		$	—	$	(184	)	$	7,387

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2020	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(8	)	$	2,493	$	—		$	—	$	(8	)	$	2,493
Mortgage-backed securities		(87	)		25,775		—			—		(87	)		25,775
Collateralized mortgage obligations		—			—		(1	)		106		(1	)		106
Total available for sale	$	(95	)	$	28,268	$	(1	)	$	106	$	(96	)	$	28,374

There were 26 investments in an unrealized loss position, and 22 available for sale debt securities in an unrealized loss position with no recorded allowance for credit losses at September 30, 2021. The available for sale securities in a loss position were composed of 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 September 30, 2021 is 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 approach their maturity date or repricing date or if market yields for the investments decline.

Management assesses held to maturity securities sharing similar risk characteristics on a collective basis for expected credit losses under CECL. As of September 30, 2021, our held to maturity securities consisted of municipal bonds and mortgage-backed securities issued by the U.S. Government and its agencies. With regard to the 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.

Mortgage-backed securities and collateralized mortgage obligations are backed by pools of mortgages that are insured or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association or the Government National Mortgage Association.

As of September 30, 2021, there were no holdings of securities of any one issuer, other than the collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with fair values of approximately $279,726 and $314,962 at September 30, 2021 and December 31, 2020, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

There were no securities sold during the three or nine months ended September 30, 2021 or 2020.

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 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 gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $9,684 at September 30, 2021. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

The contractual maturities at September 30, 2021 of available for sale 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
September 30, 2021	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	—	$	—	$	4,802	$	4,868
Due after one year through five years		14,645		15,430		48,612		50,466
Due after five years through ten years		29,473		29,875		50,369		53,350
Due after ten years		—		—		66,851		70,942
Mortgage-backed securities		157,846		159,142		3,042		3,005
Collateralized mortgage obligations		63,272		64,623		—		—
Total securities	$	265,236	$	269,070	$	173,676	$	182,631

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LOANS AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2021

Receivables [Abstract]

LOANS AND ALLOWANCE FOR CREDIT LOSSES

NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

	September 30, 2021			December 31, 2020
Commercial and industrial	$	308,647		$	356,291
Real estate:
Construction and development		309,746			270,407
Commercial real estate		633,353			594,216
Farmland		135,413			78,508
1-4 family residential		403,403			389,096
Multi-family residential		40,810			21,701
Consumer		52,992			51,044
Agricultural		14,199			15,734
Warehouse lending(1)		71,823			89,480
Overdrafts		495			342
Total loans(2)		1,970,881			1,866,819
Net of:
Deferred loan fees, net		(1,992	)		(1,463	)
Allowance for credit losses		(30,621	)		(33,619	)
Total net loans(2)	$	1,938,268		$	1,831,737
(1) Warehouse lending is presented as a component of commercial and industrial loans on remaining tables.
(2) Excludes accrued interest receivable on loans of $5.8 million and $7.0 million as of September 30, 2021 and December 31, 2020, respectively, which is presented separately on the consolidated balance sheets.

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 extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The following tables present the activity in the ACL by class of loans for the nine months ended September 30, 2021, for the year ended December 31, 2020 and for the nine months ended September 30, 2020:

For the Nine Months Ended September 30, 2021	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	$	4,033		$	4,735		$	15,780		$	1,220	$	6,313		$	363	$	929		$	239		$	7		$	33,619
Provision for credit losses		(268	)		(774	)		(670	)		365		(559	)		213		(61	)		(73	)		127			(1,700	)
Loans charged-off		(300	)		—			(816	)		—		—			—		(113	)		—			(173	)		(1,402	)
Recoveries		15			1			11			—		—			—		32			—			45			104
Ending balance	$	3,480		$	3,962		$	14,305		$	1,585	$	5,754		$	576	$	787		$	166		$	6		$	30,621

For the Year Ended December 31, 2020	Commercial and industrial			Construction and development		Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance, prior to adoption of ASC 326	$	2,056		$	2,378	$	6,853	$	570	$	3,125		$	409		$	602		$	197		$	12		$	16,202
Impact of adopting ASC 326		546			323		2,228		26		1,339			(50	)		72			73			(9	)		4,548
Provision for credit losses		1,398			2,034		6,698		624		1,915			4			373			(33	)		187			13,200
Loans charged-off		(68	)		—		—		—		(68	)		—			(155	)		(18	)		(234	)		(543	)
Recoveries		101			—		1		—		2			—			37			20			51			212
Ending balance	$	4,033		$	4,735	$	15,780	$	1,220	$	6,313		$	363		$	929		$	239		$	7		$	33,619

For the Nine Months Ended September 30, 2020	Commercial and industrial			Construction and development		Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	2,056		$	2,378	$	6,853	$	570	$	3,125		$	409		$	602		$	197		$	12		$	16,202
Impact of adopting ASC 326		546			323		2,228		26		1,339			(50	)		72			73			(9	)		4,548
Provision for credit losses		1,366			2,228		6,613		694		1,778			(34	)		407			59			89			13,200
Loans charged-off		(43	)		—		—		—		(59	)		—			(136	)		(18	)		(128	)		(384	)
Recoveries		93			—		1		—		2			—			30			20			45			191
Ending balance	$	4,018		$	4,929	$	15,695	$	1,290	$	6,185		$	325		$	975		$	331		$	9		$	33,757

During the year ended December 31, 2020, a total allowance for credit losses provision of $13,200 was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. We recorded no provision in the first quarter of 2021, a $1,000 reverse provision in the second quarter and a $700 reverse provision in the third quarter. These provision reversals capture the improvements that have occurred to macroeconomic factors evaluated at the onset of the pandemic as part of the aforementioned COVID-specific qualitative factors, as well as risk rating upgrades for specific loans, which impact the reserve calculations within our model, offset by growth in our overall loan portfolio. Although management is cautiously optimistic about improving vaccination and hospitalization rates and economic trends, it is very likely that the economic effects of the pandemic will continue into 2022.

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, for our SBA loans acquired from Westbound Bank and for SBA-guaranteed PPP loans. 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.

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of September 30, 2021:

September 30, 2021	2021		2020		2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	199,537	$	40,901	$	20,982		$	9,595		$	4,333		$	17,616		$	86,768		$	379,732
Special mention		—		96		—			—			21			—			—			117
Substandard		—		278		60			196			43			5			—			582
Nonaccrual		—		—		—			25			—			14			—			39
Total commercial and industrial loans	$	199,537	$	41,275	$	21,042		$	9,816		$	4,397		$	17,635		$	86,768		$	380,470
Charge-offs	$	—	$	—	$	(167	)	$	(67	)	$	(19	)	$	—		$	(47	)	$	(300	)
Recoveries		—		—		—			—			—			—			15			15
Current period net	$	—	$	—	$	(167	)	$	(67	)	$	(19	)	$	—		$	(32	)	$	(285	)
Construction and development:
Pass	$	153,740	$	78,121	$	29,164		$	7,149		$	16,405		$	14,347		$	8,313		$	307,239
Special mention		—		710		—			—			955			—			—			1,665
Substandard		—		—		609			3			—			—			—			612
Nonaccrual		—		—		230			—			—			—			—			230
Total construction and development loans	$	153,740	$	78,831	$	30,003		$	7,152		$	17,360		$	14,347		$	8,313		$	309,746
Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			1			—			1
Current period net	$	—	$	—	$	—		$	—		$	—		$	1		$	—		$	1
Commercial real estate:
Pass	$	100,853	$	98,665	$	80,197		$	64,919		$	44,565		$	176,005		$	14,699		$	579,903
Special mention		398		—		—			2,439			4,591			1,629			—			9,057
Substandard		—		7,040		—			10,124			13,110			13,732			—			44,006
Nonaccrual		—		60		—			73			33			221			—			387
Total commercial real estate loans	$	101,251	$	105,765	$	80,197		$	77,555		$	62,299		$	191,587		$	14,699		$	633,353
Charge-offs	$	—	$	—	$	(17	)	$	(56	)	$	(472	)	$	(271	)	$	—		$	(816	)
Recoveries		—		—		—			—			11			—			—			11
Current period net	$	—	$	—	$	(17	)	$	(56	)	$	(461	)	$	(271	)	$	—		$	(805	)
Farmland:
Pass	$	72,382	$	12,776	$	8,683		$	8,541		$	5,345		$	21,626		$	5,777		$	135,130
Special mention		—		—		—			—			—			28			—			28
Substandard		—		—		—			—			—			118			—			118
Nonaccrual		—		—		—			—			—			109			28			137
Total farmland loans	$	72,382	$	12,776	$	8,683		$	8,541		$	5,345		$	21,881		$	5,805		$	135,413
Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			—			—			—
Current period net	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—

September 30, 2021	2021			2020			2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
1-4 family residential:
Pass	$	101,523		$	72,986		$	48,075		$	38,577		$	29,077		$	97,575		$	13,368		$	401,181
Special mention		—			—			—			—			—			57			—			57
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			184			383			254			1,344			—			2,165
Total 1-4 family residential loans	$	101,523		$	72,986		$	48,259		$	38,960		$	29,331		$	98,976		$	13,368		$	403,403
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Multi-family residential:
Pass	$	13,113		$	4,312		$	4,392		$	15,448		$	545		$	2,194		$	131		$	40,135
Special mention		—			—			—			—			—			—			—			—
Substandard		—			—			—			—			675			—			—			675
Nonaccrual		—			—			—			—			—			—			—			—
Total multi-family residential loans	$	13,113		$	4,312		$	4,392		$	15,448		$	1,220		$	2,194		$	131		$	40,810
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Consumer and overdrafts:
Pass	$	21,949		$	14,015		$	5,654		$	5,400		$	820		$	656		$	4,838		$	53,332
Special mention		—			1			9			—			—			—			—			10
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		8			25			22			70			9			11			—			145
Total consumer loans and overdrafts	$	21,957		$	14,041		$	5,685		$	5,470		$	829		$	667		$	4,838		$	53,487
Charge-offs	$	(180	)	$	(34	)	$	(38	)	$	(32	)	$	(2	)	$	—		$	—		$	(286	)
Recoveries		45			3			—			8			2			19			—			77
Current period net	$	(135	)	$	(31	)	$	(38	)	$	(24	)	$	—		$	19		$	—		$	(209	)
Agricultural:
Pass	$	2,611		$	2,081		$	1,052		$	1,082		$	275		$	592		$	6,366		$	14,059
Special mention		—			—			—			—			20			—			—			20
Substandard		—			—			5			31			39			13			—			88
Nonaccrual		—			20			—			9			3			—			—			32
Total agricultural loans	$	2,611		$	2,101		$	1,057		$	1,122		$	337		$	605		$	6,366		$	14,199
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Total loans:
Pass	$	665,708		$	323,857		$	198,199		$	150,711		$	101,365		$	330,611		$	140,260		$	1,910,711
Special mention		398			807			9			2,439			5,587			1,714			—			10,954
Substandard		—			7,318			674			10,354			13,867			13,868			—			46,081
Nonaccrual		8			105			436			560			299			1,699			28			3,135
Total loans	$	666,114		$	332,087		$	199,318		$	164,064		$	121,118		$	347,892		$	140,288		$	1,970,881
Charge-offs	$	(180	)	$	(34	)	$	(222	)	$	(155	)	$	(493	)	$	(271	)	$	(47	)	$	(1,402	)
Recoveries		45			3			—			8			13			20			15			104
Total current period net (charge-offs) recoveries	$	(135	)	$	(31	)	$	(222	)	$	(147	)	$	(480	)	$	(251	)	$	(32	)	$	(1,298	)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2020:

December 31, 2020	2020		2019		2018			2017		2016		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	278,687	$	30,563	$	12,860		$	4,366	$	6,131	$	16,294	$	90,074		$	438,975
Special mention		124		119		222			4,040		1,324		—		—			5,829
Substandard		—		307		540			50		43		—		—			940
Nonaccrual		—		—		13			—		14		—		—			27
Total commercial and industrial loans	$	278,811	$	30,989	$	13,635		$	8,456	$	7,512	$	16,294	$	90,074		$	445,771
Charge-offs	$	—	$	—	$	(43	)	$	—	$	—	$	—	$	(25	)	$	(68	)
Recoveries		—		—		43			—		—		14		44			101
Current period net	$	—	$	—	$	—		$	—	$	—	$	14	$	19		$	33
Construction and development:
Pass	$	118,590	$	76,926	$	26,212		$	24,524	$	7,742	$	10,507	$	3,266		$	267,767
Special mention		356		—		—			990		—		—		—			1,346
Substandard		—		609		5			—		680		—		—			1,294
Nonaccrual		—		—		—			—		—		—		—			—
Total construction and development loans	$	118,946	$	77,535	$	26,217		$	25,514	$	8,422	$	10,507	$	3,266		$	270,407
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Commercial real estate:
Pass	$	91,819	$	80,753	$	89,542		$	72,311	$	86,946	$	123,463	$	5,890		$	550,724
Special mention		—		2,716		3,542			849		5,724		449		—			13,280
Substandard		—		—		2,010			4,913		4,445		8,240		—			19,608
Nonaccrual		—		1,140		151			4,158		4,769		386		—			10,604
Total commercial real estate loans	$	91,819	$	84,609	$	95,245		$	82,231	$	101,884	$	132,538	$	5,890		$	594,216
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		1		—			1
Current period net	$	—	$	—	$	—		$	—	$	—	$	1	$	—		$	1
Farmland:
Pass	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,402	$	5,864		$	78,229
Special mention		—		—		—			—		—		35		—			35
Substandard		—		—		—			—		—		129		—			129
Nonaccrual		—		—		—			—		—		115		—			115
Total farmland loans	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,681	$	5,864		$	78,508
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—

December 31, 2020	2020			2019			2018			2017			2016			Prior			Revolving Loans Amortized Cost			Total
1-4 family residential:
Pass	$	87,578		$	62,937		$	52,087		$	37,224		$	43,858		$	93,486		$	10,091		$	387,261
Special mention		—			—			—			—			—			168			—			168
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			326			44			163			1,134			—			1,667
Total 1-4 family residential loans	$	87,578		$	62,937		$	52,413		$	37,268		$	44,021		$	94,788		$	10,091		$	389,096
Charge-offs	$	—		$	—		$	—		$	—		$	(9	)	$	(59	)	$	—		$	(68	)
Recoveries		—			—			—			—			—			2			—			2
Current period net	$	—		$	—		$	—		$	—		$	(9	)	$	(57	)	$	—		$	(66	)
Multi-family residential:
Pass	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701
Special mention		—			—			—			—			—			—			—			—
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			—			—			—			—			—			—
Total multi-family residential loans	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Consumer and overdrafts:
Pass	$	24,740		$	11,176		$	9,369		$	1,701		$	735		$	513		$	2,825		$	51,059
Special mention		16			83			9			7			—			—			—			115
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		24			36			131			20			1			—			—			212
Total consumer loans and overdrafts	$	24,780		$	11,295		$	9,509		$	1,728		$	736		$	513		$	2,825		$	51,386
Charge-offs	$	(243	)	$	(63	)	$	(31	)	$	(43	)	$	(3	)	$	(6	)	$	—		$	(389	)
Recoveries		49			2			12			8			4			13			—			88
Current period net	$	(194	)	$	(61	)	$	(19	)	$	(35	)	$	1		$	7		$	—		$	(301	)
Agricultural:
Pass	$	3,489		$	1,718		$	1,893		$	607		$	273		$	189		$	7,408		$	15,577
Special mention		—			—			—			36			—			—			—			36
Substandard		—			7			10			—			24			—			—			41
Nonaccrual		—			—			33			—			45			2			—			80
Total agricultural loans	$	3,489		$	1,725		$	1,936		$	643		$	342		$	191		$	7,408		$	15,734
Charge-offs	$	—		$	—		$	(18	)	$	—		$	—		$	—		$	—		$	(18	)
Recoveries		—			—			—			—			20			—			—			20
Current period net	$	—		$	—		$	(18	)	$	—		$	20		$	—		$	—		$	2
Total loans:
Pass	$	628,236		$	281,239		$	205,907		$	148,724		$	157,326		$	264,245		$	125,616		$	1,811,293
Special mention		496			2,918			3,773			5,922			7,048			652			—			20,809
Substandard		—			923			2,565			4,963			5,192			8,369			—			22,012
Nonaccrual		24			1,176			654			4,222			4,992			1,637			—			12,705
Total loans	$	628,756		$	286,256		$	212,899		$	163,831		$	174,558		$	274,903		$	125,616		$	1,866,819
Charge-offs	$	(243	)	$	(63	)	$	(92	)	$	(43	)	$	(12	)	$	(65	)	$	(25	)	$	(543	)
Recoveries		49			2			55			8			24			30			44			212
Total current period net (charge-offs) recoveries	$	(194	)	$	(61	)	$	(37	)	$	(35	)	$	12		$	(35	)	$	19		$	(331	)

There were no loans classified in the “doubtful” or “loss” risk rating categories as of September 30, 2021 and December 31, 2020.

The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of September 30, 2021:

	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	119	$	—	$	119	$	40
Real estate:
Construction and development		609		—		609		207
Commercial real estate		4,540		—		4,540		603
Total	$	5,268	$	—	$	5,268	$	850

The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of December 31, 2020:

	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	129	$	—	$	129	$	44
Real estate:
Construction and development		609		—		609		208
Commercial real estate		9,989		—		9,989		2,048
Total	$	10,727	$	—	$	10,727	$	2,300

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:

September 30, 2021	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	874	$	—	$	38	$	912	$	379,558	$	380,470	$	—
Real estate:
Construction and development		—		—		230		230		309,516		309,746		—
Commercial real estate		197		777		258		1,232		632,121		633,353		—
Farmland		149		195		28		372		135,041		135,413		—
1-4 family residential		1,407		465		569		2,441		400,962		403,403		—
Multi-family residential		—		—		—		—		40,810		40,810		—
Consumer		206		33		47		286		52,706		52,992		—
Agricultural		31		9		20		60		14,139		14,199		—
Overdrafts		—		—		—		—		495		495		—
Total	$	2,864	$	1,479	$	1,190	$	5,533	$	1,965,348	$	1,970,881	$	—

December 31, 2020	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	385	$	25	$	22	$	432	$	445,339	$	445,771	$	—
Real estate:
Construction and development		256		—		—		256		270,151		270,407		—
Commercial real estate		1,094		—		10,105		11,199		583,017		594,216		—
Farmland		117		3		—		120		78,388		78,508		—
1-4 family residential		2,097		556		127		2,780		386,316		389,096		—
Multi-family residential		—		—		—		—		21,701		21,701		—
Consumer		383		124		97		604		50,440		51,044		—
Agricultural		50		46		45		141		15,593		15,734		—
Overdrafts		—		—		—		—		342		342		—
Total	$	4,382	$	754	$	10,396	$	15,532	$	1,851,287	$	1,866,819	$	—

Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.

The outstanding balances of TDRs are shown below:

	September 30, 2021		December 31, 2020
Nonaccrual TDRs	$	84	$	90
Performing TDRs		9,522		9,626
Total	$	9,606	$	9,716
Specific reserves on TDRs	$	—	$	—

There was one loan modified as a TDR during the nine months ended September 30, 2021. No TDRs have subsequently defaulted during 2021, and the TDRs described above did not increase the allowance for credit losses and did not result in any charge-offs during the nine months ended September 30, 2021.

The following table presents the loan, by class, modified as a TDR during the nine months ended September 30, 2021:

Nine Months Ended September 30, 2021	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		1	$	17	$	17
Total		1	$	17	$	17

The following table presents loans, by class, modified as TDRs during the year ended December 31, 2020:

Year Ended December 31, 2020	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Construction and development		2	$	1,289	$	1,081
Commercial and industrial		1		129		85
Commercial real estate		1		1,017		670
Total		4	$	2,435	$	1,836

There were no TDRs that subsequently defaulted during 2020, and the TDRs described above did not increase the allowance for credit losses and resulted in no charge-offs during the year ended December 31, 2020.

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT

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

At September 30, 2021 and December 31, 2020, securities sold under agreements to repurchase totaled $11,195 and $15,631, respectively.

The Company has an unsecured $25,000 revolving line of credit, which had a $3,000 outstanding balance at September 30, 2021, bears interest at the greater of (i) the prime rate, which was 3.25% at September 30, 2021, or (ii) the rate floor of 3.50%, with interest payable quarterly, and matures in March 2022.

Federal Home Loan Bank (FHLB) advances, as of September 30, 2021, were as follows:

Fixed rate advances, with monthly interest payments, principal due in:

Year	Current Weighted Average Rate			Principal Due
2021		0.13	%	$	40,000
2022		1.99	%		1,500
2023		—			—
2024		1.76	%		6,000
2025		—			—
				$	47,500

There are no fixed rate advances, with monthly principal and interest payments outstanding as of September 30, 2021.

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SUBORDINATED DEBENTURES

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

SUBORDINATED DEBENTURES

NOTE 5 - SUBORDINATED DEBENTURES

Subordinated debentures were made up of the following as of:

	September 30, 2021		December 31, 2020
Trust II Debentures	$	3,093	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Other debentures		9,500		9,500
	$	19,810	$	19,810

The Company has three trusts, Guaranty (TX) Capital Trust II (“Trust II”), Guaranty (TX) Capital Trust III (“Trust III”), and DCB Financial Trust I (“DCB Trust I”) (“Trust II”, “Trust III” and together with “DCB Trust I,” the “Trusts”). 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 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 II		Trust III		DCB Trust I
Formation date	October 30, 2002		July 25, 2006		March 29, 2007
Capital trust pass-through securities
Number of shares		3,000		2,000		5,000
Original liquidation value	$	3,000	$	2,000	$	5,000
Common securities liquidation value		93		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 September 30, 2021 and December 31, 2020. 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 II Debentures		Trust III Debentures		DCB Trust I Debentures
Original amount	$	3,093	$	2,062	$	5,155
Maturity date	October 30, 2032		October 1, 2036		June 15, 2037
Interest due	Quarterly		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 II Debentures

Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 3.35%.

On any interest payment date on or after October 30, 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.

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.

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.

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. $500 matured in November of 2020 and $9,500 remain as of September 30, 2021. 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 due 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 other debentures are as follows:

Year	Current Weighted Average Rate			Principal Due
2022		2.45	%	$	2,000
2023		2.85	%		3,500
2024		3.74	%		4,000
				$	9,500

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EQUITY AWARDS

9 Months Ended

Sep. 30, 2021

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

EQUITY AWARDS

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 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 nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		506,200		$	26.81		5.82	$	1,805
Effect of 10% stock dividend		50,770
Granted		45,500			33.49		9.59		107
Exercised		(48,630	)		22.89		3.82		630
Forfeited		(19,020	)		26.01		6.84		187
Balance, September 30, 2021		534,820		$	25.22		5.53	$	5,684
Exercisable at end of period		307,786		$	23.78		4.33	$	3,715

Nine Months Ended September 30, 2020	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		508,000		$	26.68		6.24	$	3,159
Granted		39,000			27.43		9.51		24
Exercised		(3,000	)		24.00		2.04		3
Forfeited		(37,600	)		29.68		8.12		24
Balance, September 30, 2020		506,400		$	26.53		5.62	$	304
Exercisable at end of period		302,220		$	25.55		4.77	$	244

A summary of nonvested stock option activity in the Plan during the nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		214,680		$	4.46
Effect of 10% stock dividend		23,218
Granted		45,500			5.82
Vested		(47,344	)		(5.72	)
Forfeited		(9,020	)		(8.06	)
Balance, September 30, 2021		227,034		$	5.11

Nine Months Ended September 30, 2020	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		251,120		$	4.97
Granted		39,000			3.86
Vested		(53,340	)		(6.07	)
Forfeited		(32,600	)		(2.20	)
Balance, September 30, 2020		204,180		$	5.54

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

	September 30, 2021		September 30, 2020
Intrinsic value of options exercised	$	630	$	3
Cash received from options exercised		1,113		72
Weighted average fair value of options granted		5.82		3.86

Restricted Stock Awards and Units

A summary of restricted stock activity in the Plan during the nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted-Average  Grant Date Fair Value
Outstanding at beginning of year		35,300		$	29.72
Effect of 10% stock dividend		3,530			—
Granted		3,500			33.09
Vested		(7,850	)		27.26
Forfeited		—			—
Balance, September 30, 2021		34,480		$	27.41

Nine Months Ended September 30, 2020	Number of Shares			Weighted-Average Grant  Date Fair Value
Outstanding at beginning of year		31,459		$	30.29
Granted		—			—
Vested		(13,380	)		30.30
Forfeited		—			—
Balance, September 30, 2020		18,079		$	30.28

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 September 30, 2021, there was $1,831 of total unrecognized compensation expense related to unvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 3.16 years.

The Company granted options and restricted stock under the Plan during the first nine months of 2021 and 2020. Expense of $512 and $494 was recorded during the nine months ended September 30, 2021 and 2020, respectively, which represents the fair value of shares vested during those periods.

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EMPLOYEE BENEFITS

9 Months Ended

Sep. 30, 2021

Compensation And Retirement Disclosure [Abstract]

EMPLOYEE BENEFITS

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 nine months ended September 30, 2021 and 2020 totaled $1,146 and $1,031, respectively.

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 September 30, 2021, the number of shares held by the KSOP was 1,287,897. There were no unallocated shares to plan participants as of September 30, 2021, and all shares held by the KSOP were treated as outstanding.

Executive Incentive Retirement Plan

The Company established a non-qualified, 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 $36,582 and $35,510 as of September 30, 2021 and December 31, 2020, respectively. A gain of $277,000 on proceeds from these life insurance policies resulting from the death of a former bank officer was recorded for the nine months ended September 30, 2021. No such gains were recorded during the nine months ended September 31, 2020.

Expense related to these plans totaled $588 and $500 for the nine months ended September 30, 2021 and 2020, respectively, and $592 for the year ended December 31, 2020. This expense is included in employee compensation and benefits on the Company’s consolidated statements of earnings. The recorded liability totaled approximately $4,861 and $4,383 as of September 30, 2021 and December 31, 2020, 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 nine months ended September 30, 2021 and 2020 totaled $3,529 and $1,610, respectively. This expense is included in employee compensation and benefits on the consolidated statements of earnings.

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LEASES

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

LEASES

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 14 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 September 30, 2021, operating lease right-of-use assets were $14,810 and liabilities were $15,243, and as of December 31, 2020, lease assets and liabilities were $13,291 and $13,539, 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 nine months ended September 30, 2021 and 2020 was approximately $1,715 and $1,416, 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:

	September 30, 2021			December 31, 2020
Operating leases
Operating lease right-of-use assets	$	14,810		$	13,291
Operating lease liabilities		15,243			13,539
Weighted average remaining lease term
Operating leases	9 years			9 years
Weighted average discount rate
Operating leases		1.95	%		2.19	%

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2025 and thereafter. Minimum future lease payments under these non-cancelable operating leases as of September 30, 2021, are as follows:

Year Ended December 31,	Amount
2021	$	554
2022		2,152
2023		2,090
2024		2,035
2025		1,868
Thereafter		7,441
Total lease payments		16,140
Less: interest		(897	)
Present value of lease liabilities	$	15,243

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INCOME TAXES

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9 - INCOME TAXES

Income tax expense was as follows for:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Income tax expense for the period	$	2,179		$	2,350		$	6,827		$	3,605
Effective tax rate		19.06	%		18.82	%		18.22	%		17.09	%

The effective tax rates differ from the statutory federal tax rate of 21% for the three and nine months ended September 30, 2021 and 2020, largely due to tax exempt interest income earned on certain investment securities and loans and the nontaxable earnings on bank owned life insurance.

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DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2021

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

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.

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.

The Company entered into interest rate swaps to receive payments at a fixed rate in exchange for paying a floating rate on the debentures discussed in Note 5. Management believed that entering into the interest rate swaps exposed the Company to variability in their fair value due to changes in the level of interest rates. It was the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that were appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in the liability to other liabilities of the Company. During the quarter ended September 30, 2021, Guaranty terminated these interest rate swaps with notional amounts totaling $5,000 as of December 31, 2020, as the risk exposure declined to acceptable levels. The swaps were cancelled at an expense of $466, which is included in non-interest expense in the Consolidated Statement of Earnings.

The Company also entered into interest rate swaps to receive payments at a floating rate in exchange for paying a fixed rate, the objective of which is to reduce the overall cost of short-term 3-month FHLB advances that will be renewed consistent with the reset terms on the interest rate swap and that are included in the amounts in Note 4. Interest rate swaps with notional amounts totaling $40,000 as of September 30, 2021 and December 31, 2020 were designated as cash flow hedges of the FHLB advances.

The aggregate fair value of the swaps is recorded in accrued interest and other liabilities within the Company’s consolidated balance sheets with changes in fair value recorded in other comprehensive income.

The information pertaining to outstanding interest rate swap agreements used to hedge floating rate debentures and FHLB advances was as follows as of:

September 30, 2021
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses
$	15,000		0.668	%	3 month LIBOR	3/18/2020		1.47	$	93
	15,000		0.790	%	3 month LIBOR	3/18/2020		3.47		17
	10,000		0.530	%	3 month LIBOR	3/23/2020		1.48		41

December 31, 2020
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses
$	2,000		5.979	%	3 month LIBOR plus 1.67%	10/1/2016		5.25	$	408
	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		1.83		221
	15,000		0.668	%	3 month LIBOR	3/18/2020		2.22		159
	15,000		0.790	%	3 month LIBOR	3/18/2020		4.22		288
	10,000		0.530	%	3 month LIBOR	3/23/2020		2.23		75

Interest expense recorded on these swap transactions totaled $483 and $509 during the nine months ended September 30, 2021 and 2020, respectively. This expense is reported as a component of interest expense on the debentures and the FHLB advances and federal funds purchased. At September 30, 2021, the Company expected none of the unrealized loss to be reclassified as a reduction of interest expense during the remainder of 2021.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2021

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

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

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 as of September 30, 2021 and December 31, 2020.

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. As of September 30, 2021 and December 31, 2020, no amounts have been recorded as liabilities for the Bank’s potential obligations under these guarantees.

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

	Contract or Notional Amount
	September 30, 2021		December 31, 2020
Commitments to extend credit	$	392,332	$	324,277
Letters of credit		9,922		8,488

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 September 30, 2021, the Company had letters of credit of $35,833 pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law.

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REGULATORY MATTERS

9 Months Ended

Sep. 30, 2021

Banking And Thrifts [Abstract]

REGULATORY MATTERS

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.

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 September 30, 2021 and December 31, 2020, that the Bank met all capital adequacy requirements to which it was subject.

The Basel III Capital Rules, among other things, have (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 September 30, 2021 and December 31, 2020, 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 total risk-based, CET1, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since September 30, 2021 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 $10,310 of trust preferred securities in Tier 1 capital as of September 30, 2021 and December 31, 2020. 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
September 30, 2021
Total capital to risk-weighted assets:
Consolidated	$	289,390	14.13%	$	163,886	8.00%	$	215,100	10.50%	n/a
Bank		301,528	14.71%		164,015	8.00%		215,270	10.50%	$	205,019	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		263,721	12.87%		122,914	6.00%		174,129	8.50%	n/a
Bank		275,839	13.45%		123,011	6.00%		174,266	8.50%		164,015	8.00%
Tier 1 capital to average assets:(1)
Consolidated		263,721	9.06%		116,422	4.00%		116,422	4.00%	n/a
Bank		275,839	9.48%		116,418	4.00%		116,418	4.00%		145,523	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		253,411	12.37%		92,186	4.50%		143,400	7.00%	n/a
Bank		275,839	13.45%		92,259	4.50%		143,513	7.00%		133,262	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.

	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, 2020
Total capital to risk-weighted assets:
Consolidated	$	263,144	13.20%	$	159,496	8.00%	$	209,338	10.50%	n/a
Bank		285,490	14.32%		159,514	8.00%		209,362	10.50%	$	199,392	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		238,115	11.94%		119,622	6.00%		169,464	8.50%	n/a
Bank		260,459	13.06%		119,635	6.00%		169,483	8.50%		159,514	8.00%
Tier 1 capital to average assets:(1)
Consolidated		238,115	9.13%		104,293	4.00%		104,293	4.00%	n/a
Bank		260,459	9.99%		104,293	4.00%		104,293	4.00%		130,366	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		227,805	11.43%		89,716	4.50%		139,559	7.00%	n/a
Bank		260,459	13.06%		89,726	4.50%		139,574	7.00%		129,605	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.

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FAIR VALUE

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE

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).

Derivative Instruments: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (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 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:

As of September 30, 2021	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 (liabilities) at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	159,142		$	—	$	159,142		$	—
Collateralized mortgage obligations		64,623			—		64,623			—
Corporate bonds		35,246			—		35,246			—
U.S. government agencies		10,059			—		10,059			—
Loans held for sale		1,903			—		—			1,903
Cash surrender value of life insurance		36,582			—		36,582			—
SBA servicing assets		808			—		—			808
Derivative instrument liabilities		(151	)		—		(151	)		—
Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		4,418			—		—			4,418

As of December 31, 2020	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 (liabilities) at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	107,164		$	—	$	107,164		$	—
Collateralized mortgage obligations		66,945			—		66,945			—
Municipal securities		175,704			—		175,704			—
Corporate bonds		30,982			—		30,982			—
Loans held for sale		5,542			—		—			5,542
Cash surrender value of life insurance		35,510			—		35,510			—
SBA servicing assets		763			—		—			763
Derivative instrument assets		629			—		629			—
Derivative instrument liabilities		(1,151	)		—		(1,151	)		—
Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		8,427			—		—			8,427

There were no transfers between Level 2 and Level 3 during the nine months ended September 30, 2021 or for the year ended December 31, 2020.

Nonfinancial Assets and Nonfinancial Liabilities

Nonfinancial assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2021 and 2020 include certain foreclosed assets which, upon initial recognition, were 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,

were 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.

The following table presents foreclosed assets that were remeasured and recorded at fair value as of:

	September 30, 2021		December 31, 2020			September 30, 2020
Other real estate owned remeasured at initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	—	$	42		$	—
Charge-offs recognized in the allowance for credit losses		—		(9	)		—
Fair value of other real estate owned remeasured at initial recognition	$	—	$	33		$	—
Other real estate owned remeasured subsequent to initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	—	$	62		$	62
Write-downs included in collection and other real estate owned expense		—		(1	)		(1	)
Fair value of other real estate owned remeasured subsequent to initial recognition	$	—	$	61		$	61

The following table presents quantitative information about nonrecurring Level 3 fair value measurements as of:

September 30, 2021	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Other real estate owned	$	40	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

December 31, 2020	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Other real estate owned	$	404	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

The following table presents information on individually evaluated collateral dependent loans as of September 30, 2021:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total Fair Value
Commercial and industrial	$	—	$	—	$	79	$	79
Real estate:
Construction and development		—		—		402		402
Commercial real estate		—		—		3,937		3,937
Total	$	—	$	—	$	4,418	$	4,418

The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of September 30, 2021 and December 31, 2020, are as follows:

	Fair value measurements as of September 30, 2021 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	$	408,875	$	408,875	$	—	$	—	$	408,875
Marketable securities held to maturity		173,676		—		182,631		—		182,631
Loans, net		1,938,268		—		—		1,949,191		1,949,191
Accrued interest receivable		7,673		—		7,673		—		7,673
Nonmarketable equity securities		14,061		—		14,061		—		14,061
Financial liabilities:
Deposits	$	2,563,071	$	2,221,716	$	342,153	$	—	$	2,563,869
Securities sold under repurchase agreements		11,195		—		11,195		—		11,195
Accrued interest payable		555		—		555		—		555
Federal Home Loan Bank advances		47,500		—		47,653		—		47,653
Subordinated debentures		19,810		—		17,813		—		17,813

	Fair value measurements as of December 31, 2020 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	$	351,792	$	351,792	$	—	$	—	$	351,792
Loans, net		1,831,737		—		—		1,846,868		1,846,868
Accrued interest receivable		9,834		—		9,834		—		9,834
Nonmarketable equity securities		14,095		—		14,095		—		14,095
Financial liabilities:
Deposits	$	2,286,390	$	1,907,587	$	380,570	$	—	$	2,288,157
Securities sold under repurchase agreements		15,631		—		15,631		—		15,631
Accrued interest payable		804		—		804		—		804
Federal Home Loan Bank advances		109,101		—		109,381		—		109,381
Subordinated debentures		19,810		—		17,406		—		17,406

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).

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).

Cash Surrender Value of Life Insurance

The carrying amounts of bank-owned life insurance approximate their fair value (Level 2).

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 debentures 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.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2021

Earnings Per Share [Abstract]

EARNINGS PER SHARE

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. 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 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.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Net earnings (basic)	$	9,253	$	10,134	$	30,647	$	17,487
Net earnings (diluted)	$	9,253	$	10,134	$	30,647	$	17,487
Denominator:
Weighted-average shares outstanding (basic)*		12,067,769		12,113,266		12,054,426		12,271,889
Effect of dilutive securities:
Common stock equivalent shares from stock options		143,620		—		155,058		—
Weighted-average shares outstanding (diluted)*		12,211,389		12,113,266		12,209,484		12,271,889
Net earnings per share
Basic	$	0.77	$	0.84	$	2.54	$	1.43
Diluted	$	0.76	$	0.84	$	2.51	$	1.43
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank, and their respective other direct and indirect subsidiaries and any other entities in which Guaranty has a controlling interest. The Bank has six wholly-owned 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 (formerly Pin Oak Energy Holdings, LLC) and White Oak Aviation, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2020, included in Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2020. 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.

Covid- 19

COVID-19: On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, of which virus variants continue to spread through the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19, and its subsequent variants, could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company.

Government leaders and the Federal Reserve have taken several actions designed to mitigate the economic fallout resulting from the coronavirus. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, signed into law on March 27, 2020, authorized more than $2 trillion to battle COVID-19 and its economic effects, including immediate cash relief for

individual citizens, loan programs for small businesses, support for hospitals and other medical providers, and various types of economic relief for impacted businesses and industries. The goal of CARES Act was to prevent severe economic downturn. The CARES Act also provided for temporary interest only or payment deferral modifications for loans without classifying them as troubled debt restructurings under current accounting rules. Additional government-backed hardship relief measures were signed into law in early 2021, as well as extension of many of the CARES Act provisions.

Due to the COVID-19 pandemic, market interest rates declined significantly, with the 10-year Treasury bond falling below 1.00% on March 3, 2020 for the first time. On March 16, 2020, the Federal Open Market Committee reduced the target federal funds rate range to 0.00% to 0.25%, at which it remains as of September 30, 2021. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations, as well as business and consumer confidence. As a result of the spread of COVID-19 and its variants, economic uncertainties have arisen which can negatively impact net interest income and noninterest income. Other financial impacts could occur though such potential impact remains unknown at this time.

Allowance for Credit Losses

Allowance for Credit Losses:

Held to Maturity Debt Securities

The allowance for credit losses on held to maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held to maturity securities to present management's best estimate of the net amount expected to be collected. Held to maturity securities are charged-off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses. Management measures expected credit losses on held to maturity securities on a collective basis by major security type with each types sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held to maturity securities from the estimate of credit losses.

Available for Sale Debt Securities

For available for sale debt securities in an unrealized loss position, the Company first assesses whether or not it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securities amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected are less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provisions for or reversal of credit loss expense. Losses are charged against the allowance when management believes a security is uncollectible or when either of the criteria regarding intent to sell or required to sell is met. Accrued interest receivable on securities is excluded from the estimate of credit losses.

Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected over the lifetime of the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Subsequent recoveries, if any, are credited to the allowance.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We use the weighted-average remaining maturity method (WARM method) as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate. This average annual charge-off rate contains 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 for current conditions and for reasonable and supportable forecast periods. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors.

The allowance for credit losses is measured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan portfolio segments include both regulatory call report codes and by internally identified risk ratings for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separately identified our mortgage warehouse loans, internally originated SBA loans, SBA loans acquired from Westbound Bank in 2018 and loans originated under the Paycheck Protection Program ("PPP") for inherent risk analysis. Accrued interest receivable on loans is excluded from the estimate of credit losses.

Below is a summary of the segments and certain of the inherent risks in the Company’s loan portfolio:

Commercial and industrial:	This portfolio segment includes general secured and unsecured commercial loans which are not secured by real estate or may be secured by real estate but made for the primary purpose of a short term revolving line of credit. Credit risk inherent in this portfolio segment include fluctuations in the local and national economy.
Construction and development:	This portfolio segment includes all loans for the purpose of construction, including both business and residential structures; and real estate development loans, including non-agricultural vacant land. Credit risk inherent in this portfolio include fluctuations in property values, unemployment, and changes in the local and national economy.
Commercial real estate:	The commercial real estate portfolio segment includes all commercial loans that are secured by real estate, other than those included in the construction and development, farmland, multi-family, and 1-4 family residential segments. Risks inherent in this portfolio segment include fluctuations in property values and changes in the local and national economy impacting the sale of the finished structures.
Farmland:	The farmland portfolio includes loans that are secured by real estate that is used or usable for agricultural purposes, including land used for crops, livestock production, grazing & pastureland and timberland. This segment includes land with a 1-4 family residential structure if the value of the land exceeds the value of the residence. Risks inherent in this portfolio segment include adverse changes in climate, fluctuations in feed and cattle prices and changes in property values.
Consumer:	This portfolio segment consists of non-real estate loans to consumers. This includes secured and unsecured loans such as auto and personal loans. The risks inherent in this portfolio segment include those factors that would impact the consumer’s ability to meet their obligations under the loan. These include increases in the local unemployment rate and fluctuations in consumer and business sales.
1-4 family residential:	This portfolio segment includes loans to both commercial and consumer borrowers secured by real estate for housing units of up to four families. Risks inherent in this portfolio segment include increases in the local unemployment rate, changes in the local economy and factors that would impact the value of the underlying collateral, such as changes in property values.
Multi-family residential:	This portfolio segment includes loans secured by structures containing five or more residential housing units. Risks inherent in this portfolio segment include increases to the local unemployment rate, changes in the local economy, and factors that would impact property values.
Agricultural:	The agricultural portfolio segment includes loans to individuals and companies in the dairy and cattle industries and farmers. Loans in the segment are secured by collateral including cattle, crops and equipment. Risks inherent in this portfolio segment include adverse changes in climate and fluctuations in feed and cattle prices.

The following groups of loans are considered to carry specific similar inherent risk characteristics, which the Bank considers separately during its calculation of the allowance for credit losses. These groups of loans are reported within the segments identified in the previous table.

Mortgage Warehouse:	The mortgage warehouse portfolio includes loans in which we purchase mortgage loan ownership interests from unaffiliated mortgage originators that are generally held by us for a period of less than 30-days, typically 5-10 days before they are sold to an approved investor. These loans are consistently underwritten based on standards established by the approved investor. Risks inherent in this portfolio include borrower or mortgage originator fraud.
SBA – Acquired Loans	The SBA – acquired loans segment consists of partially SBA guaranteed loans that were acquired from Westbound Bank in June 2018. These loans are commercial real estate and commercial and industrial in nature and were underwritten with guidelines that are less conservative than our Company. Risks inherent in this portfolio include increases in interest rates, as most are variable rate loans, generally lower levels of borrower equity, less conservative underwriting guidelines, fluctuations in real estate values and changes in the local and national economy.
SBA – Originated Loans	The SBA – originated loans segment consists of loans that are partially guaranteed by the SBA and were originated and underwritten by Guaranty Bank & Trust loan officers. Risks inherent in this portfolio include increases in interest rates due to variable rate structures, generally lower levels of borrower equity or net worth, fluctuations in real estate values and changes in the local and national economy.
SBA – Paycheck Protection Program Loans	Loans originated under the PPP are 100% government guaranteed by the SBA. As a result, the loans are excluded from the segments above and a minimal reserve estimate was applied to this segment of loans for purposes of calculating the credit loss provision.

In general, the loans in our portfolio have low historical credit losses. The credit quality of loans in our portfolio is impacted by delinquency status and debt service coverage generated by our borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the allowance for credit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for credit losses, which would adversely affect our results of operations and financial condition. Delinquency statistics are updated at least monthly.

Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor that impact management’s estimates of loss factors used in determining the amount of the allowance for credit losses. Internal risk ratings are updated on a continuous basis.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Credit Quality Indicators - The Company monitors the credit quality of the loans in the various segments by identifying and evaluating credit quality indicators specific to each segment class. This information is incorporated into management’s analysis of the adequacy of the allowance for credit losses. Information for the credit quality indicators is updated monthly or quarterly for classified assets and at least annually for the remainder of the portfolio.

The following is a discussion of the primary credit quality indicators most closely monitored for the loan portfolio, by class:

Commercial and industrial:	In assessing risk associated with commercial loans, management considers the business’s cash flow and the value of the underlying collateral to be the primary credit quality indicators.
Construction and development:	In assessing the credit quality of construction loans, management considers the ability of the borrower to make principal and interest payments in the event that they are unable to sell the completed structure to be a primary credit quality indicator. For real estate development loans, management also considers the likelihood of the successful sale of the constructed properties in the development.
Commercial real estate:	Management considers the strength of the borrower’s cash flows, changes in property values and occupancy status to be key credit quality indicators of commercial real estate loans.
Farmland:	In assessing risk associated with farmland loans, management considers the borrower’s cash flows and underlying property values to be key credit quality indicators.
Consumer:	Management considers delinquency status to be the primary credit quality indicator of consumer loans. Others include the debt to income ratio of the borrower, the borrower’s credit history, the availability of other credit to the borrower, the borrower’s past-due history, and, if applicable, the value of the underlying collateral to be primary credit quality indicators.
1-4 family residential:	Management considers delinquency status to be the primary credit quality indicator of 1-4 family residential loans. Others include changes in the local economy, changes in property values, and changes in local unemployment rates to be key credit quality indicators of the loans in the 1-4 family residential loan segment.
Multi-family residential:	Management considers changes in the local economy, changes in property values, vacancy rates and changes in local unemployment rates to be key credit quality indicators of the loans in the multifamily loan segment.
Agricultural:	In assessing risk associated with agricultural loans, management considers the borrower’s cash flows, the value of the underlying collateral and sources of secondary repayment to be primary credit quality indicators.

From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan can be grouped with its like segment for allowance consideration or whether it should be individually evaluated for a specific allowance for credit loss allocation. If individually evaluated, an

allowance for credit loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.

In response to the COVID-19 pandemic, the Bank provided financial relief to many of its customers through a 3-month principal and interest payment deferral program or an up to 6-month interest only program. Pursuant to the CARES Act and the April 7, 2020 Interagency guidance and GAAP, these loan modifications, and certain subsequent modifications, are not considered to be troubled debt restructurings.

Reserve for Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Effect of Stock Splits and Stock Dividends on Prior Period Presentation: Earnings and dividends per share and weighted average shares outstanding are presented as if all stock splits and stock dividends were effective from the earliest period presented through the date of issuance of the financial statements. Unless indicated otherwise, other share amounts have not been adjusted. 

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MARKETABLE SECURITIES (Tables)

9 Months Ended

Sep. 30, 2021

Investments Debt And Equity Securities [Abstract]

Schedule of Amortized Cost and Fair Value of Securities Available for Sale and Held to Maturity Securities

The following tables summarize the amortized cost and fair value of available for sale and held to maturity securities as of September 30, 2021 and securities available for sale as of December 31, 2020 and the corresponding amounts of gross unrealized gains and losses:

September 30, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
U.S. government agencies	$	10,013	$	46	$	—	$	10,059
Corporate bonds		34,105		1,233		92		35,246
Mortgage-backed securities		157,846		2,143		847		159,142
Collateralized mortgage obligations		63,272		1,405		54		64,623
Total available for sale	$	265,236	$	4,827	$	993	$	269,070
Held to maturity:
Municipal securities	$	170,634	$	9,139	$	147	$	179,626
Mortgage-backed securities		3,042		—		37		3,005
Total held to maturity	$	173,676	$	9,139	$	184	$	182,631

December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	29,608	$	1,382	$	8	$	30,982
Municipal securities		164,668		11,036		—		175,704
Mortgage-backed securities		104,210		3,041		87		107,164
Collateralized mortgage obligations		64,611		2,335		1		66,945
Total available for sale	$	363,097	$	17,794	$	96	$	380,795

Schedule of Securities with Gross Unrealized Losses

Information pertaining to securities with gross unrealized losses as of September 30, 2021 and December 31, 2020, 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
September 30, 2021	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(92	)	$	7,678	$	—		$	—	$	(92	)	$	7,678
Mortgage-backed securities		(803	)		68,150		(44	)		3,276		(847	)		71,426
Collateralized mortgage obligations		(54	)		18,203		—			—		(54	)		18,203
Total available for sale	$	(949	)	$	94,031	$	(44	)	$	3,276	$	(993	)	$	97,307
Held to maturity:
Municipal securities	$	(147	)	$	4,381	$	—		$	—	$	(147	)	$	4,381
Mortgage-backed securities		(37	)		3,006		—			—		(37	)		3,006
Total held to maturity	$	(184	)	$	7,387	$	—		$	—	$	(184	)	$	7,387

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2020	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(8	)	$	2,493	$	—		$	—	$	(8	)	$	2,493
Mortgage-backed securities		(87	)		25,775		—			—		(87	)		25,775
Collateralized mortgage obligations		—			—		(1	)		106		(1	)		106
Total available for sale	$	(95	)	$	28,268	$	(1	)	$	106	$	(96	)	$	28,374

Investments Classified by Contractual Maturity Date

The contractual maturities at September 30, 2021 of available for sale 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
September 30, 2021	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	—	$	—	$	4,802	$	4,868
Due after one year through five years		14,645		15,430		48,612		50,466
Due after five years through ten years		29,473		29,875		50,369		53,350
Due after ten years		—		—		66,851		70,942
Mortgage-backed securities		157,846		159,142		3,042		3,005
Collateralized mortgage obligations		63,272		64,623		—		—
Total securities	$	265,236	$	269,070	$	173,676	$	182,631

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LOANS AND ALLOWANCE FOR CREDIT LOSSES (Tables)

9 Months Ended

Sep. 30, 2021

Receivables [Abstract]

Summary of Loan Portfolio by Type of Loan

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

	September 30, 2021			December 31, 2020
Commercial and industrial	$	308,647		$	356,291
Real estate:
Construction and development		309,746			270,407
Commercial real estate		633,353			594,216
Farmland		135,413			78,508
1-4 family residential		403,403			389,096
Multi-family residential		40,810			21,701
Consumer		52,992			51,044
Agricultural		14,199			15,734
Warehouse lending(1)		71,823			89,480
Overdrafts		495			342
Total loans(2)		1,970,881			1,866,819
Net of:
Deferred loan fees, net		(1,992	)		(1,463	)
Allowance for credit losses		(30,621	)		(33,619	)
Total net loans(2)	$	1,938,268		$	1,831,737
(1) Warehouse lending is presented as a component of commercial and industrial loans on remaining tables.
(2) Excludes accrued interest receivable on loans of $5.8 million and $7.0 million as of September 30, 2021 and December 31, 2020, respectively, which is presented separately on the consolidated balance sheets.

Schedule of Allowance for Credit Losses Activity

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 extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The following tables present the activity in the ACL by class of loans for the nine months ended September 30, 2021, for the year ended December 31, 2020 and for the nine months ended September 30, 2020:

For the Nine Months Ended September 30, 2021	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	$	4,033		$	4,735		$	15,780		$	1,220	$	6,313		$	363	$	929		$	239		$	7		$	33,619
Provision for credit losses		(268	)		(774	)		(670	)		365		(559	)		213		(61	)		(73	)		127			(1,700	)
Loans charged-off		(300	)		—			(816	)		—		—			—		(113	)		—			(173	)		(1,402	)
Recoveries		15			1			11			—		—			—		32			—			45			104
Ending balance	$	3,480		$	3,962		$	14,305		$	1,585	$	5,754		$	576	$	787		$	166		$	6		$	30,621

For the Year Ended December 31, 2020	Commercial and industrial			Construction and development		Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance, prior to adoption of ASC 326	$	2,056		$	2,378	$	6,853	$	570	$	3,125		$	409		$	602		$	197		$	12		$	16,202
Impact of adopting ASC 326		546			323		2,228		26		1,339			(50	)		72			73			(9	)		4,548
Provision for credit losses		1,398			2,034		6,698		624		1,915			4			373			(33	)		187			13,200
Loans charged-off		(68	)		—		—		—		(68	)		—			(155	)		(18	)		(234	)		(543	)
Recoveries		101			—		1		—		2			—			37			20			51			212
Ending balance	$	4,033		$	4,735	$	15,780	$	1,220	$	6,313		$	363		$	929		$	239		$	7		$	33,619

For the Nine Months Ended September 30, 2020	Commercial and industrial			Construction and development		Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	2,056		$	2,378	$	6,853	$	570	$	3,125		$	409		$	602		$	197		$	12		$	16,202
Impact of adopting ASC 326		546			323		2,228		26		1,339			(50	)		72			73			(9	)		4,548
Provision for credit losses		1,366			2,228		6,613		694		1,778			(34	)		407			59			89			13,200
Loans charged-off		(43	)		—		—		—		(59	)		—			(136	)		(18	)		(128	)		(384	)
Recoveries		93			—		1		—		2			—			30			20			45			191
Ending balance	$	4,018		$	4,929	$	15,695	$	1,290	$	6,185		$	325		$	975		$	331		$	9		$	33,757

Summary of Credit Exposure

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of September 30, 2021:

September 30, 2021	2021		2020		2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	199,537	$	40,901	$	20,982		$	9,595		$	4,333		$	17,616		$	86,768		$	379,732
Special mention		—		96		—			—			21			—			—			117
Substandard		—		278		60			196			43			5			—			582
Nonaccrual		—		—		—			25			—			14			—			39
Total commercial and industrial loans	$	199,537	$	41,275	$	21,042		$	9,816		$	4,397		$	17,635		$	86,768		$	380,470
Charge-offs	$	—	$	—	$	(167	)	$	(67	)	$	(19	)	$	—		$	(47	)	$	(300	)
Recoveries		—		—		—			—			—			—			15			15
Current period net	$	—	$	—	$	(167	)	$	(67	)	$	(19	)	$	—		$	(32	)	$	(285	)
Construction and development:
Pass	$	153,740	$	78,121	$	29,164		$	7,149		$	16,405		$	14,347		$	8,313		$	307,239
Special mention		—		710		—			—			955			—			—			1,665
Substandard		—		—		609			3			—			—			—			612
Nonaccrual		—		—		230			—			—			—			—			230
Total construction and development loans	$	153,740	$	78,831	$	30,003		$	7,152		$	17,360		$	14,347		$	8,313		$	309,746
Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			1			—			1
Current period net	$	—	$	—	$	—		$	—		$	—		$	1		$	—		$	1
Commercial real estate:
Pass	$	100,853	$	98,665	$	80,197		$	64,919		$	44,565		$	176,005		$	14,699		$	579,903
Special mention		398		—		—			2,439			4,591			1,629			—			9,057
Substandard		—		7,040		—			10,124			13,110			13,732			—			44,006
Nonaccrual		—		60		—			73			33			221			—			387
Total commercial real estate loans	$	101,251	$	105,765	$	80,197		$	77,555		$	62,299		$	191,587		$	14,699		$	633,353
Charge-offs	$	—	$	—	$	(17	)	$	(56	)	$	(472	)	$	(271	)	$	—		$	(816	)
Recoveries		—		—		—			—			11			—			—			11
Current period net	$	—	$	—	$	(17	)	$	(56	)	$	(461	)	$	(271	)	$	—		$	(805	)
Farmland:
Pass	$	72,382	$	12,776	$	8,683		$	8,541		$	5,345		$	21,626		$	5,777		$	135,130
Special mention		—		—		—			—			—			28			—			28
Substandard		—		—		—			—			—			118			—			118
Nonaccrual		—		—		—			—			—			109			28			137
Total farmland loans	$	72,382	$	12,776	$	8,683		$	8,541		$	5,345		$	21,881		$	5,805		$	135,413
Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			—			—			—
Current period net	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—

September 30, 2021	2021			2020			2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
1-4 family residential:
Pass	$	101,523		$	72,986		$	48,075		$	38,577		$	29,077		$	97,575		$	13,368		$	401,181
Special mention		—			—			—			—			—			57			—			57
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			184			383			254			1,344			—			2,165
Total 1-4 family residential loans	$	101,523		$	72,986		$	48,259		$	38,960		$	29,331		$	98,976		$	13,368		$	403,403
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Multi-family residential:
Pass	$	13,113		$	4,312		$	4,392		$	15,448		$	545		$	2,194		$	131		$	40,135
Special mention		—			—			—			—			—			—			—			—
Substandard		—			—			—			—			675			—			—			675
Nonaccrual		—			—			—			—			—			—			—			—
Total multi-family residential loans	$	13,113		$	4,312		$	4,392		$	15,448		$	1,220		$	2,194		$	131		$	40,810
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Consumer and overdrafts:
Pass	$	21,949		$	14,015		$	5,654		$	5,400		$	820		$	656		$	4,838		$	53,332
Special mention		—			1			9			—			—			—			—			10
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		8			25			22			70			9			11			—			145
Total consumer loans and overdrafts	$	21,957		$	14,041		$	5,685		$	5,470		$	829		$	667		$	4,838		$	53,487
Charge-offs	$	(180	)	$	(34	)	$	(38	)	$	(32	)	$	(2	)	$	—		$	—		$	(286	)
Recoveries		45			3			—			8			2			19			—			77
Current period net	$	(135	)	$	(31	)	$	(38	)	$	(24	)	$	—		$	19		$	—		$	(209	)
Agricultural:
Pass	$	2,611		$	2,081		$	1,052		$	1,082		$	275		$	592		$	6,366		$	14,059
Special mention		—			—			—			—			20			—			—			20
Substandard		—			—			5			31			39			13			—			88
Nonaccrual		—			20			—			9			3			—			—			32
Total agricultural loans	$	2,611		$	2,101		$	1,057		$	1,122		$	337		$	605		$	6,366		$	14,199
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Total loans:
Pass	$	665,708		$	323,857		$	198,199		$	150,711		$	101,365		$	330,611		$	140,260		$	1,910,711
Special mention		398			807			9			2,439			5,587			1,714			—			10,954
Substandard		—			7,318			674			10,354			13,867			13,868			—			46,081
Nonaccrual		8			105			436			560			299			1,699			28			3,135
Total loans	$	666,114		$	332,087		$	199,318		$	164,064		$	121,118		$	347,892		$	140,288		$	1,970,881
Charge-offs	$	(180	)	$	(34	)	$	(222	)	$	(155	)	$	(493	)	$	(271	)	$	(47	)	$	(1,402	)
Recoveries		45			3			—			8			13			20			15			104
Total current period net (charge-offs) recoveries	$	(135	)	$	(31	)	$	(222	)	$	(147	)	$	(480	)	$	(251	)	$	(32	)	$	(1,298	)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2020:

December 31, 2020	2020		2019		2018			2017		2016		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	278,687	$	30,563	$	12,860		$	4,366	$	6,131	$	16,294	$	90,074		$	438,975
Special mention		124		119		222			4,040		1,324		—		—			5,829
Substandard		—		307		540			50		43		—		—			940
Nonaccrual		—		—		13			—		14		—		—			27
Total commercial and industrial loans	$	278,811	$	30,989	$	13,635		$	8,456	$	7,512	$	16,294	$	90,074		$	445,771
Charge-offs	$	—	$	—	$	(43	)	$	—	$	—	$	—	$	(25	)	$	(68	)
Recoveries		—		—		43			—		—		14		44			101
Current period net	$	—	$	—	$	—		$	—	$	—	$	14	$	19		$	33
Construction and development:
Pass	$	118,590	$	76,926	$	26,212		$	24,524	$	7,742	$	10,507	$	3,266		$	267,767
Special mention		356		—		—			990		—		—		—			1,346
Substandard		—		609		5			—		680		—		—			1,294
Nonaccrual		—		—		—			—		—		—		—			—
Total construction and development loans	$	118,946	$	77,535	$	26,217		$	25,514	$	8,422	$	10,507	$	3,266		$	270,407
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Commercial real estate:
Pass	$	91,819	$	80,753	$	89,542		$	72,311	$	86,946	$	123,463	$	5,890		$	550,724
Special mention		—		2,716		3,542			849		5,724		449		—			13,280
Substandard		—		—		2,010			4,913		4,445		8,240		—			19,608
Nonaccrual		—		1,140		151			4,158		4,769		386		—			10,604
Total commercial real estate loans	$	91,819	$	84,609	$	95,245		$	82,231	$	101,884	$	132,538	$	5,890		$	594,216
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		1		—			1
Current period net	$	—	$	—	$	—		$	—	$	—	$	1	$	—		$	1
Farmland:
Pass	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,402	$	5,864		$	78,229
Special mention		—		—		—			—		—		35		—			35
Substandard		—		—		—			—		—		129		—			129
Nonaccrual		—		—		—			—		—		115		—			115
Total farmland loans	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,681	$	5,864		$	78,508
Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—

December 31, 2020	2020			2019			2018			2017			2016			Prior			Revolving Loans Amortized Cost			Total
1-4 family residential:
Pass	$	87,578		$	62,937		$	52,087		$	37,224		$	43,858		$	93,486		$	10,091		$	387,261
Special mention		—			—			—			—			—			168			—			168
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			326			44			163			1,134			—			1,667
Total 1-4 family residential loans	$	87,578		$	62,937		$	52,413		$	37,268		$	44,021		$	94,788		$	10,091		$	389,096
Charge-offs	$	—		$	—		$	—		$	—		$	(9	)	$	(59	)	$	—		$	(68	)
Recoveries		—			—			—			—			—			2			—			2
Current period net	$	—		$	—		$	—		$	—		$	(9	)	$	(57	)	$	—		$	(66	)
Multi-family residential:
Pass	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701
Special mention		—			—			—			—			—			—			—			—
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			—			—			—			—			—			—
Total multi-family residential loans	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701
Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Consumer and overdrafts:
Pass	$	24,740		$	11,176		$	9,369		$	1,701		$	735		$	513		$	2,825		$	51,059
Special mention		16			83			9			7			—			—			—			115
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		24			36			131			20			1			—			—			212
Total consumer loans and overdrafts	$	24,780		$	11,295		$	9,509		$	1,728		$	736		$	513		$	2,825		$	51,386
Charge-offs	$	(243	)	$	(63	)	$	(31	)	$	(43	)	$	(3	)	$	(6	)	$	—		$	(389	)
Recoveries		49			2			12			8			4			13			—			88
Current period net	$	(194	)	$	(61	)	$	(19	)	$	(35	)	$	1		$	7		$	—		$	(301	)
Agricultural:
Pass	$	3,489		$	1,718		$	1,893		$	607		$	273		$	189		$	7,408		$	15,577
Special mention		—			—			—			36			—			—			—			36
Substandard		—			7			10			—			24			—			—			41
Nonaccrual		—			—			33			—			45			2			—			80
Total agricultural loans	$	3,489		$	1,725		$	1,936		$	643		$	342		$	191		$	7,408		$	15,734
Charge-offs	$	—		$	—		$	(18	)	$	—		$	—		$	—		$	—		$	(18	)
Recoveries		—			—			—			—			20			—			—			20
Current period net	$	—		$	—		$	(18	)	$	—		$	20		$	—		$	—		$	2
Total loans:
Pass	$	628,236		$	281,239		$	205,907		$	148,724		$	157,326		$	264,245		$	125,616		$	1,811,293
Special mention		496			2,918			3,773			5,922			7,048			652			—			20,809
Substandard		—			923			2,565			4,963			5,192			8,369			—			22,012
Nonaccrual		24			1,176			654			4,222			4,992			1,637			—			12,705
Total loans	$	628,756		$	286,256		$	212,899		$	163,831		$	174,558		$	274,903		$	125,616		$	1,866,819
Charge-offs	$	(243	)	$	(63	)	$	(92	)	$	(43	)	$	(12	)	$	(65	)	$	(25	)	$	(543	)
Recoveries		49			2			55			8			24			30			44			212
Total current period net (charge-offs) recoveries	$	(194	)	$	(61	)	$	(37	)	$	(35	)	$	12		$	(35	)	$	19		$	(331	)

Summary of Amortized Cost Basis of Collateral-dependent Loans

The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of September 30, 2021:

	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	119	$	—	$	119	$	40
Real estate:
Construction and development		609		—		609		207
Commercial real estate		4,540		—		4,540		603
Total	$	5,268	$	—	$	5,268	$	850

The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on the ACL, as of December 31, 2020:

	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	129	$	—	$	129	$	44
Real estate:
Construction and development		609		—		609		208
Commercial real estate		9,989		—		9,989		2,048
Total	$	10,727	$	—	$	10,727	$	2,300

Summary of Payment Status of Loans

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:

September 30, 2021	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	874	$	—	$	38	$	912	$	379,558	$	380,470	$	—
Real estate:
Construction and development		—		—		230		230		309,516		309,746		—
Commercial real estate		197		777		258		1,232		632,121		633,353		—
Farmland		149		195		28		372		135,041		135,413		—
1-4 family residential		1,407		465		569		2,441		400,962		403,403		—
Multi-family residential		—		—		—		—		40,810		40,810		—
Consumer		206		33		47		286		52,706		52,992		—
Agricultural		31		9		20		60		14,139		14,199		—
Overdrafts		—		—		—		—		495		495		—
Total	$	2,864	$	1,479	$	1,190	$	5,533	$	1,965,348	$	1,970,881	$	—

December 31, 2020	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	385	$	25	$	22	$	432	$	445,339	$	445,771	$	—
Real estate:
Construction and development		256		—		—		256		270,151		270,407		—
Commercial real estate		1,094		—		10,105		11,199		583,017		594,216		—
Farmland		117		3		—		120		78,388		78,508		—
1-4 family residential		2,097		556		127		2,780		386,316		389,096		—
Multi-family residential		—		—		—		—		21,701		21,701		—
Consumer		383		124		97		604		50,440		51,044		—
Agricultural		50		46		45		141		15,593		15,734		—
Overdrafts		—		—		—		—		342		342		—
Total	$	4,382	$	754	$	10,396	$	15,532	$	1,851,287	$	1,866,819	$	—

Summary of Troubled Debt Restructuring

The outstanding balances of TDRs are shown below:

	September 30, 2021		December 31, 2020
Nonaccrual TDRs	$	84	$	90
Performing TDRs		9,522		9,626
Total	$	9,606	$	9,716
Specific reserves on TDRs	$	—	$	—

There was one loan modified as a TDR during the nine months ended September 30, 2021. No TDRs have subsequently defaulted during 2021, and the TDRs described above did not increase the allowance for credit losses and did not result in any charge-offs during the nine months ended September 30, 2021.

The following table presents the loan, by class, modified as a TDR during the nine months ended September 30, 2021:

Nine Months Ended September 30, 2021	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		1	$	17	$	17
Total		1	$	17	$	17

The following table presents loans, by class, modified as TDRs during the year ended December 31, 2020:

Year Ended December 31, 2020	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Construction and development		2	$	1,289	$	1,081
Commercial and industrial		1		129		85
Commercial real estate		1		1,017		670
Total		4	$	2,435	$	1,836

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT (Tables)

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Schedule of Debt Maturities

Fixed rate advances, with monthly interest payments, principal due in:

Year	Current Weighted Average Rate			Principal Due
2021		0.13	%	$	40,000
2022		1.99	%		1,500
2023		—			—
2024		1.76	%		6,000
2025		—			—
				$	47,500

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SUBORDINATED DEBENTURES (Tables)

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Schedule of Subordinated Debentures and Other Debentures

Subordinated debentures were made up of the following as of:

	September 30, 2021		December 31, 2020
Trust II Debentures	$	3,093	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Other debentures		9,500		9,500
	$	19,810	$	19,810

	Trust II Debentures		Trust III Debentures		DCB Trust I Debentures
Original amount	$	3,093	$	2,062	$	5,155
Maturity date	October 30, 2032		October 1, 2036		June 15, 2037
Interest due	Quarterly		Quarterly		Quarterly

Schedule of Trusts

	Trust II		Trust III		DCB Trust I
Formation date	October 30, 2002		July 25, 2006		March 29, 2007
Capital trust pass-through securities
Number of shares		3,000		2,000		5,000
Original liquidation value	$	3,000	$	2,000	$	5,000
Common securities liquidation value		93		62		155

Schedule of Principal Payments and Weighted Average Rates of Other Debentures

The scheduled principal payments and weighted average rates of other debentures are as follows:

Year	Current Weighted Average Rate			Principal Due
2022		2.45	%	$	2,000
2023		2.85	%		3,500
2024		3.74	%		4,000
				$	9,500

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EQUITY AWARDS (Tables)

9 Months Ended

Sep. 30, 2021

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Stock Option Activity

A summary of stock option activity in the Plan during the nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		506,200		$	26.81		5.82	$	1,805
Effect of 10% stock dividend		50,770
Granted		45,500			33.49		9.59		107
Exercised		(48,630	)		22.89		3.82		630
Forfeited		(19,020	)		26.01		6.84		187
Balance, September 30, 2021		534,820		$	25.22		5.53	$	5,684
Exercisable at end of period		307,786		$	23.78		4.33	$	3,715

Nine Months Ended September 30, 2020	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		508,000		$	26.68		6.24	$	3,159
Granted		39,000			27.43		9.51		24
Exercised		(3,000	)		24.00		2.04		3
Forfeited		(37,600	)		29.68		8.12		24
Balance, September 30, 2020		506,400		$	26.53		5.62	$	304
Exercisable at end of period		302,220		$	25.55		4.77	$	244

Schedule of Nonvested Stock Option Activity

A summary of nonvested stock option activity in the Plan during the nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		214,680		$	4.46
Effect of 10% stock dividend		23,218
Granted		45,500			5.82
Vested		(47,344	)		(5.72	)
Forfeited		(9,020	)		(8.06	)
Balance, September 30, 2021		227,034		$	5.11

Nine Months Ended September 30, 2020	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		251,120		$	4.97
Granted		39,000			3.86
Vested		(53,340	)		(6.07	)
Forfeited		(32,600	)		(2.20	)
Balance, September 30, 2020		204,180		$	5.54

Plan Information

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

	September 30, 2021		September 30, 2020
Intrinsic value of options exercised	$	630	$	3
Cash received from options exercised		1,113		72
Weighted average fair value of options granted		5.82		3.86

Summary of Restricted Stock Awards and Units Activity

A summary of restricted stock activity in the Plan during the nine months ended September 30, 2021 and 2020 follows:

Nine Months Ended September 30, 2021	Number of Shares			Weighted-Average  Grant Date Fair Value
Outstanding at beginning of year		35,300		$	29.72
Effect of 10% stock dividend		3,530			—
Granted		3,500			33.09
Vested		(7,850	)		27.26
Forfeited		—			—
Balance, September 30, 2021		34,480		$	27.41

Nine Months Ended September 30, 2020	Number of Shares			Weighted-Average Grant  Date Fair Value
Outstanding at beginning of year		31,459		$	30.29
Granted		—			—
Vested		(13,380	)		30.30
Forfeited		—			—
Balance, September 30, 2020		18,079		$	30.28

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LEASES (Tables)

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

Schedule of Summarizes Other Information Related to Operating Leases

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

	September 30, 2021			December 31, 2020
Operating leases
Operating lease right-of-use assets	$	14,810		$	13,291
Operating lease liabilities		15,243			13,539
Weighted average remaining lease term
Operating leases	9 years			9 years
Weighted average discount rate
Operating leases		1.95	%		2.19	%

Schedule of Minimum Future Lease Payments Under Non-Cancelable Operating Leases

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2025 and thereafter. Minimum future lease payments under these non-cancelable operating leases as of September 30, 2021, are as follows:

Year Ended December 31,	Amount
2021	$	554
2022		2,152
2023		2,090
2024		2,035
2025		1,868
Thereafter		7,441
Total lease payments		16,140
Less: interest		(897	)
Present value of lease liabilities	$	15,243

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INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Schedule of Income Tax Expense and Effective Tax Rate

Income tax expense was as follows for:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Income tax expense for the period	$	2,179		$	2,350		$	6,827		$	3,605
Effective tax rate		19.06	%		18.82	%		18.22	%		17.09	%

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2021

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Schedule of Information Pertaining to Outstanding Interest Rate Swap Agreements

The information pertaining to outstanding interest rate swap agreements used to hedge floating rate debentures and FHLB advances was as follows as of:

September 30, 2021
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses
$	15,000		0.668	%	3 month LIBOR	3/18/2020		1.47	$	93
	15,000		0.790	%	3 month LIBOR	3/18/2020		3.47		17
	10,000		0.530	%	3 month LIBOR	3/23/2020		1.48		41

December 31, 2020
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses
$	2,000		5.979	%	3 month LIBOR plus 1.67%	10/1/2016		5.25	$	408
	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		1.83		221
	15,000		0.668	%	3 month LIBOR	3/18/2020		2.22		159
	15,000		0.790	%	3 month LIBOR	3/18/2020		4.22		288
	10,000		0.530	%	3 month LIBOR	3/23/2020		2.23		75

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2021

Commitments And Contingencies Disclosure [Abstract]

Schedule of Commitments and Letters of Credit Outstanding

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

	Contract or Notional Amount
	September 30, 2021		December 31, 2020
Commitments to extend credit	$	392,332	$	324,277
Letters of credit		9,922		8,488

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REGULATORY MATTERS (Tables)

9 Months Ended

Sep. 30, 2021

Banking And Thrifts [Abstract]

Comparison of the Company's and Bank's Actual Capital Amounts and Ratios to Required Capital Amounts and Ratios

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
September 30, 2021
Total capital to risk-weighted assets:
Consolidated	$	289,390	14.13%	$	163,886	8.00%	$	215,100	10.50%	n/a
Bank		301,528	14.71%		164,015	8.00%		215,270	10.50%	$	205,019	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		263,721	12.87%		122,914	6.00%		174,129	8.50%	n/a
Bank		275,839	13.45%		123,011	6.00%		174,266	8.50%		164,015	8.00%
Tier 1 capital to average assets:(1)
Consolidated		263,721	9.06%		116,422	4.00%		116,422	4.00%	n/a
Bank		275,839	9.48%		116,418	4.00%		116,418	4.00%		145,523	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		253,411	12.37%		92,186	4.50%		143,400	7.00%	n/a
Bank		275,839	13.45%		92,259	4.50%		143,513	7.00%		133,262	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.

	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, 2020
Total capital to risk-weighted assets:
Consolidated	$	263,144	13.20%	$	159,496	8.00%	$	209,338	10.50%	n/a
Bank		285,490	14.32%		159,514	8.00%		209,362	10.50%	$	199,392	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		238,115	11.94%		119,622	6.00%		169,464	8.50%	n/a
Bank		260,459	13.06%		119,635	6.00%		169,483	8.50%		159,514	8.00%
Tier 1 capital to average assets:(1)
Consolidated		238,115	9.13%		104,293	4.00%		104,293	4.00%	n/a
Bank		260,459	9.99%		104,293	4.00%		104,293	4.00%		130,366	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		227,805	11.43%		89,716	4.50%		139,559	7.00%	n/a
Bank		260,459	13.06%		89,726	4.50%		139,574	7.00%		129,605	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.

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Schedule of Financial Assets (Liabilities) Measured at Fair Value

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

As of September 30, 2021	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 (liabilities) at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	159,142		$	—	$	159,142		$	—
Collateralized mortgage obligations		64,623			—		64,623			—
Corporate bonds		35,246			—		35,246			—
U.S. government agencies		10,059			—		10,059			—
Loans held for sale		1,903			—		—			1,903
Cash surrender value of life insurance		36,582			—		36,582			—
SBA servicing assets		808			—		—			808
Derivative instrument liabilities		(151	)		—		(151	)		—
Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		4,418			—		—			4,418

As of December 31, 2020	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 (liabilities) at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	107,164		$	—	$	107,164		$	—
Collateralized mortgage obligations		66,945			—		66,945			—
Municipal securities		175,704			—		175,704			—
Corporate bonds		30,982			—		30,982			—
Loans held for sale		5,542			—		—			5,542
Cash surrender value of life insurance		35,510			—		35,510			—
SBA servicing assets		763			—		—			763
Derivative instrument assets		629			—		629			—
Derivative instrument liabilities		(1,151	)		—		(1,151	)		—
Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		8,427			—		—			8,427

Schedule of Foreclosed Assets Measured at Fair Value

The following table presents foreclosed assets that were remeasured and recorded at fair value as of:

	September 30, 2021		December 31, 2020			September 30, 2020
Other real estate owned remeasured at initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	—	$	42		$	—
Charge-offs recognized in the allowance for credit losses		—		(9	)		—
Fair value of other real estate owned remeasured at initial recognition	$	—	$	33		$	—
Other real estate owned remeasured subsequent to initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	—	$	62		$	62
Write-downs included in collection and other real estate owned expense		—		(1	)		(1	)
Fair value of other real estate owned remeasured subsequent to initial recognition	$	—	$	61		$	61

Schedule of Quantitative Information About Nonrecurring Level 3 Fair Value Measurements

The following table presents quantitative information about nonrecurring Level 3 fair value measurements as of:

September 30, 2021	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Other real estate owned	$	40	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

December 31, 2020	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Other real estate owned	$	404	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

Schedule of Individually Evaluated Collateral Dependent Loans at Fair Value

The following table presents information on individually evaluated collateral dependent loans as of September 30, 2021:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total Fair Value
Commercial and industrial	$	—	$	—	$	79	$	79
Real estate:
Construction and development		—		—		402		402
Commercial real estate		—		—		3,937		3,937
Total	$	—	$	—	$	4,418	$	4,418

Schedule of Carrying Amounts And Estimated Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of September 30, 2021 and December 31, 2020, are as follows:

	Fair value measurements as of September 30, 2021 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	$	408,875	$	408,875	$	—	$	—	$	408,875
Marketable securities held to maturity		173,676		—		182,631		—		182,631
Loans, net		1,938,268		—		—		1,949,191		1,949,191
Accrued interest receivable		7,673		—		7,673		—		7,673
Nonmarketable equity securities		14,061		—		14,061		—		14,061
Financial liabilities:
Deposits	$	2,563,071	$	2,221,716	$	342,153	$	—	$	2,563,869
Securities sold under repurchase agreements		11,195		—		11,195		—		11,195
Accrued interest payable		555		—		555		—		555
Federal Home Loan Bank advances		47,500		—		47,653		—		47,653
Subordinated debentures		19,810		—		17,813		—		17,813

	Fair value measurements as of December 31, 2020 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	$	351,792	$	351,792	$	—	$	—	$	351,792
Loans, net		1,831,737		—		—		1,846,868		1,846,868
Accrued interest receivable		9,834		—		9,834		—		9,834
Nonmarketable equity securities		14,095		—		14,095		—		14,095
Financial liabilities:
Deposits	$	2,286,390	$	1,907,587	$	380,570	$	—	$	2,288,157
Securities sold under repurchase agreements		15,631		—		15,631		—		15,631
Accrued interest payable		804		—		804		—		804
Federal Home Loan Bank advances		109,101		—		109,381		—		109,381
Subordinated debentures		19,810		—		17,406		—		17,406

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2021

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Earnings Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Net earnings (basic)	$	9,253	$	10,134	$	30,647	$	17,487
Net earnings (diluted)	$	9,253	$	10,134	$	30,647	$	17,487
Denominator:
Weighted-average shares outstanding (basic)*		12,067,769		12,113,266		12,054,426		12,271,889
Effect of dilutive securities:
Common stock equivalent shares from stock options		143,620		—		155,058		—
Weighted-average shares outstanding (diluted)*		12,211,389		12,113,266		12,209,484		12,271,889
Net earnings per share
Basic	$	0.77	$	0.84	$	2.54	$	1.43
Diluted	$	0.76	$	0.84	$	2.51	$	1.43
* Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details)		9 Months Ended
	Mar. 16, 2020	Sep. 30, 2021 USD ($) Subsidary Family ResidentialHouse	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)	Mar. 27, 2020 USD ($)
Property, Plant and Equipment [Line Items]
Number of subsidiaries | Subsidary		6
Decrease to retained earnings		$ 100,910,000		$ 113,449,000
Retained earnings, net of tax			$ 955,000
Number of families secured by loans of real estate | Family		4
Number of housing units secured by loans from segment | ResidentialHouse		5
Paycheck Protection Program Loans
Property, Plant and Equipment [Line Items]
Percentage of government guaranteed loans		100.00%
COVID-19
Property, Plant and Equipment [Line Items]
Maximum authorized amount of coronavirus aid, relief and economic security					$ 2,000,000,000,000
Description of federal fund interest rate		Due to the COVID-19 pandemic, market interest rates declined significantly, with the 10-year Treasury bond falling below 1.00% on March 3, 2020 for the first time. On March 16, 2020, the Federal Open Market Committee reduced the target federal funds rate range to 0.00% to 0.25%, at which it remains as of September 30, 2021.
COVID-19 | Minimum
Property, Plant and Equipment [Line Items]
Federal open market committee reduced target federal funds interest rate.	0.00%
COVID-19 | Maximum
Property, Plant and Equipment [Line Items]
Federal open market committee reduced target federal funds interest rate.	0.25%

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MARKETABLE SECURITIES - Schedule of Amortized Cost and Fair Value of Securities Available for Sale and Held to Maturity Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2020
Available for sale:
Available-for-sale debt securities, amortized cost basis	$ 265,236	$ 265,236	$ 363,097
Gross Unrealized Gain	4,827		17,794
Gross Unrealized Loss	993		96
Estimated Fair Value	269,070		380,795
Held to maturity:
Amortized Cost	173,676		0
Gross Unrealized Gains	9,139
Gross Unrealized Losses	184
Estimated Fair Value	182,631
U.S. government agencies
Available for sale:
Available-for-sale debt securities, amortized cost basis	10,013
Gross Unrealized Gain	46
Gross Unrealized Loss	0
Estimated Fair Value	10,059
Corporate bonds
Available for sale:
Available-for-sale debt securities, amortized cost basis	34,105		29,608
Gross Unrealized Gain	1,233		1,382
Gross Unrealized Loss	92		8
Estimated Fair Value	35,246		30,982
Mortgage-backed securities
Available for sale:
Available-for-sale debt securities, amortized cost basis	157,846		104,210
Gross Unrealized Gain	2,143		3,041
Gross Unrealized Loss	847		87
Estimated Fair Value	159,142		107,164
Held to maturity:
Amortized Cost	3,042
Gross Unrealized Gains	0
Gross Unrealized Losses	37
Estimated Fair Value	3,005
Collateralized mortgage obligations
Available for sale:
Available-for-sale debt securities, amortized cost basis	63,272		64,611
Gross Unrealized Gain	1,405		2,335
Gross Unrealized Loss	54		1
Estimated Fair Value	64,623		66,945
Municipal securities
Available for sale:
Available-for-sale debt securities, amortized cost basis			164,668
Gross Unrealized Gain			11,036
Gross Unrealized Loss			0
Estimated Fair Value			$ 175,704
Held to maturity:
Amortized Cost	170,634
Gross Unrealized Gains	9,139
Gross Unrealized Losses	147
Estimated Fair Value	$ 179,626

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MARKETABLE SECURITIES - Narrative (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($) Position Security	Sep. 30, 2020 Security	Sep. 30, 2021 USD ($) Security Position	Sep. 30, 2020 Security	Dec. 31, 2020 USD ($)
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Allowance for credit losses for available for sale debt securities	$ 0		$ 0		$ 0
Number of investment in an unrealized loss position | Position	26		26
Number of investment in an sale debt securities | Position	22		22
Percentage of unrealized loss exceeds book value			20.00%
Number of securities other than agencies amount | Security			0
Fair value of securities pledged as collateral	$ 279,726,000		$ 279,726,000		$ 314,962,000
Number of securities sold | Security	0	0	0	0
Unamortized, unrealized gain remaining on transferred securities			$ 9,684,000

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MARKETABLE SECURITIES - Securities in Continuous Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Gross Unrealized Losses
Less Than 12 Months	$ (949)	$ (95)
12 Months or Longer	(44)	(1)
Total	(993)	(96)
Estimated Fair Value
Less Than 12 Months	94,031	28,268
12 Months or Longer	3,276	106
Total	97,307	28,374
Gross Unrealized Losses
Less Than 12 Months	(184)
12 Months or Longer	0
Total	184
Estimated Fair Value
Less Than 12 Months	7,387
12 Months or Longer	0
Total	7,387
Corporate bonds
Gross Unrealized Losses
Less Than 12 Months	(92)	(8)
12 Months or Longer	0
Total	(92)	(8)
Estimated Fair Value
Less Than 12 Months	7,678	2,493
12 Months or Longer	0
Total	7,678	2,493
Mortgage-backed securities
Gross Unrealized Losses
Less Than 12 Months	(803)	(87)
12 Months or Longer	(44)
Total	(847)	(87)
Estimated Fair Value
Less Than 12 Months	68,150	25,775
12 Months or Longer	3,276
Total	71,426	25,775
Gross Unrealized Losses
Less Than 12 Months	(37)
12 Months or Longer	0
Total	37
Estimated Fair Value
Less Than 12 Months	3,006
12 Months or Longer	0
Total	3,006
Collateralized mortgage obligations
Gross Unrealized Losses
Less Than 12 Months	(54)
12 Months or Longer	0	(1)
Total	(54)	(1)
Estimated Fair Value
Less Than 12 Months	18,203
12 Months or Longer	0	106
Total	18,203	$ 106
Municipal securities
Gross Unrealized Losses
Less Than 12 Months	(147)
12 Months or Longer	0
Total	147
Estimated Fair Value
Less Than 12 Months	4,381
12 Months or Longer	0
Total	$ 4,381

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MARKETABLE SECURITIES - Contractual Maturities of Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2020
Amortized Cost
Due within one year	$ 0
Due after one year through five years	14,645
Due after five years through ten years	29,473
Due after ten years	0
Available-for-sale debt securities, amortized cost basis	265,236	$ 265,236	$ 363,097
Estimated Fair Value
Due within one year	0
Due after one year through five years	15,430
Due after five years through ten years	29,875
Due after ten years	0
Available-for-sale debt securities, estimated fair value	269,070		380,795
Held to Maturity Amortized Cost
Due within one year	4,802
Due after one year through five years	48,612
Due after five years through ten years	50,369
Due after ten years	66,851
Held to Maturity debt securities, amortized cost	173,676		0
Held to Maturity Estimated Fair Value
Due within one year	4,868
Due after one year through five years	50,466
Due after five years through ten years	53,350
Due after ten years	70,942
Held to maturity debt securities, estimated fair value	182,631
Mortgage-backed securities
Amortized Cost
Available-for-sale debt securities, amortized cost basis	157,846
Available-for-sale debt securities, amortized cost basis	157,846		104,210
Estimated Fair Value
Available-for-sale debt securities, estimated fair value	159,142
Available-for-sale debt securities, estimated fair value	159,142		107,164
Held to Maturity Amortized Cost
Held to Maturity debt securities, amortized cost	3,042
Held to Maturity debt securities, amortized cost	3,042
Held to Maturity Estimated Fair Value
Held to maturity debt securities, estimated fair value	3,005
Held to maturity debt securities, estimated fair value	3,005
Collateralized mortgage obligations
Amortized Cost
Available-for-sale debt securities, amortized cost basis	63,272
Available-for-sale debt securities, amortized cost basis	63,272		64,611
Estimated Fair Value
Available-for-sale debt securities, estimated fair value	64,623
Available-for-sale debt securities, estimated fair value	64,623		$ 66,945
Held to Maturity Amortized Cost
Held to Maturity debt securities, amortized cost	0
Held to Maturity Estimated Fair Value
Held to maturity debt securities, estimated fair value	$ 0

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Summary of Loan Portfolio by Type of Loan (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020	Dec. 31, 2019
Loans held for investment:
Total loans	$ 1,970,881	$ 1,866,819
Deferred loan fees, net	(1,992)	(1,463)
Allowance for credit losses	(30,621)	(33,619)		$ (16,202)
Total net loans	1,938,268	1,831,737
Commercial and industrial
Loans held for investment:
Total loans	308,647	356,291
Allowance for credit losses	(3,480)	(4,033)	$ (4,018)	(2,056)
Construction and development
Loans held for investment:
Total loans	309,746	270,407
Allowance for credit losses	(3,962)	(4,735)	(4,929)	(2,378)
Commercial real estate
Loans held for investment:
Total loans	633,353	594,216
Allowance for credit losses	(14,305)	(15,780)	(15,695)	(6,853)
Farmland
Loans held for investment:
Total loans	135,413	78,508
Allowance for credit losses	(1,585)	(1,220)	(1,290)	(570)
1-4 family residential
Loans held for investment:
Total loans	403,403	389,096
Allowance for credit losses	(5,754)	(6,313)	(6,185)	(3,125)
Multi-family residential
Loans held for investment:
Total loans	40,810	21,701
Allowance for credit losses	(576)	(363)	(325)	(409)
Warehouse lending
Loans held for investment:
Total loans	71,823	89,480
Consumer
Loans held for investment:
Total loans	52,992	51,044
Allowance for credit losses	(787)	(929)	(975)	(602)
Agricultural
Loans held for investment:
Total loans	14,199	15,734
Allowance for credit losses	(166)	(239)	(331)	(197)
Overdrafts
Loans held for investment:
Total loans	495	342
Allowance for credit losses	$ (6)	$ (7)	$ (9)	$ (12)

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Summary of Loan Portfolio by Type of Loan (Details) (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2021	Dec. 31, 2020
Receivables [Abstract]
Accrued interest receivable on loans	$ 5.8	$ 7.0

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Schedule of Allowance for Credit Losses Activity (Details) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Allowance for credit losses:
Beginning balance	$ 33,619	$ 16,202	$ 16,202
Impact of adopting ASC 326		4,548	4,548
Provision for credit losses	(1,700)		13,200
Loans charged-off	(1,402)	384	(543)
Recoveries	104	191	212
Ending balance	30,621		33,619
Commercial and industrial
Allowance for credit losses:
Beginning balance	4,033	2,056	2,056
Impact of adopting ASC 326		546	546
Provision for credit losses	(268)	1,366	1,398
Loans charged-off	(300)	(43)	(68)
Recoveries	15	93	101
Ending balance	3,480	4,018	4,033
Construction and development
Allowance for credit losses:
Beginning balance	4,735	2,378	2,378
Impact of adopting ASC 326		323	323
Provision for credit losses	(774)	2,228	2,034
Recoveries	1
Ending balance	3,962	4,929	4,735
Commercial real estate
Allowance for credit losses:
Beginning balance	15,780	6,853	6,853
Impact of adopting ASC 326		2,228	2,228
Provision for credit losses	670	6,613	6,698
Loans charged-off	(816)
Recoveries	11	1	1
Ending balance	14,305	15,695	15,780
Farmland
Allowance for credit losses:
Beginning balance	1,220	570	570
Impact of adopting ASC 326		26	26
Provision for credit losses	365	694	624
Ending balance	1,585	1,290	1,220
1-4 family residential
Allowance for credit losses:
Beginning balance	6,313	3,125	3,125
Impact of adopting ASC 326		1,339	1,339
Provision for credit losses	(559)	1,778	1,915
Loans charged-off		(59)	(68)
Recoveries		2	2
Ending balance	5,754	6,185	6,313
Multi-family residential
Allowance for credit losses:
Beginning balance	363	409	409
Impact of adopting ASC 326		(50)	(50)
Provision for credit losses	213	34	4
Ending balance	576	325	363
Consumer
Allowance for credit losses:
Beginning balance	929	602	602
Impact of adopting ASC 326		72	72
Provision for credit losses	(61)	407	373
Loans charged-off	(113)	(136)	(155)
Recoveries	32	30	37
Ending balance	787	975	929
Agricultural
Allowance for credit losses:
Beginning balance	239	197	197
Impact of adopting ASC 326		73	73
Provision for credit losses	(73)	59	(33)
Loans charged-off		(18)	(18)
Recoveries		20	20
Ending balance	166	331	239
Overdrafts
Allowance for credit losses:
Beginning balance	7	12	12
Impact of adopting ASC 326		(9)	(9)
Provision for credit losses	127	89	187
Loans charged-off	(173)	(128)	(234)
Recoveries	45	45	51
Ending balance	$ 6	9	$ 7
Unallocated
Allowance for credit losses:
Provision for credit losses		13,200
Ending balance		$ 33,757

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Narrative (Details)	3 Months Ended				9 Months Ended		12 Months Ended
	Sep. 30, 2021 USD ($)	Jun. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) Contract	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($) Contract
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for credit losses provision	$ (700,000)			$ (300,000)	$ (1,700,000)	$ 13,200,000
Loans classified in doubtful or loss risk rating	0				$ 0		$ 0
Number of loans modified as TDRs | Contract					1		4
Increase in allowance for loan losses due to TDRs					$ 0		$ 0
Troubled debt restructuring charge-offs					$ 0		0
COVID-19
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for credit losses provision							$ 13,200,000
Provision for Other Credit Losses	$ 700,000	$ 1,000,000	$ 0

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Summary of Credit Exposure in Company Loan Portfolio (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	$ 666,114	$ 628,756
Credit Exposure 2020	332,087	286,256
Credit Exposure 2019	199,318	212,899
Credit Exposure 2018	164,064	163,831
Credit Exposure 2017	121,118	174,558
Credit Exposure Prior	347,892	274,903
Revolving Loans Amortized Cost	140,288	125,616
Total	1,970,881	1,866,819
Credit Exposure 2021.Charge - offs	(180)	(243)
Credit Exposure 2020.Charge - offs	(34)	(63)
Credit Exposure 2019.Charge - offs	(222)	(92)
Credit Exposure 2018.Charge - offs	(155)
Credit Exposure 2017.Charge - offs	(493)	(12)
Credit Exposure Prior.Charge - offs	(271)	(65)
Credit Exposure Revolving Loans Amortized Cost.Charge - offs	(47)	(25)
Total	(1,402)	(543)
Credit Exposure 2021, Recoveries	45	49
Credit Exposure 2020, Recoveries	3	2
Credit Exposure 2019, Recoveries		55
Credit Exposure 2018, Recoveries	8	8
Credit Exposure 2017, Recoveries	13	24
Credit Exposure Prior, Recoveries	20	30
Credit Exposure Revolving Loans Amortized Cost, Recoveries	15	44
Total	104	212
Credit Exposure 2021,Current period net	(135)	(194)
Credit Exposure 2020,Current period net	(31)	(61)
Credit Exposure 2019,Current period net	(222)	(37)
Credit Exposure 2018,Current period net	(147)	(35)
Credit Exposure 2017,Current period net	(480)	12
Credit Exposure Prior,Current period net	(251)	(35)
Credit Exposure Revolving Loans Amortized Cost,Current period net	32	19
Total	(1,298)	(331)
Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	665,708	628,236
Credit Exposure 2020	323,857	281,239
Credit Exposure 2019	198,199	205,907
Credit Exposure 2018	150,711	148,724
Credit Exposure 2017	101,365	157,326
Credit Exposure Prior	330,611	264,245
Revolving Loans Amortized Cost	140,260	125,616
Total	1,910,711	1,811,293
Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	398	496
Credit Exposure 2020	807	2,918
Credit Exposure 2019	9	3,773
Credit Exposure 2018	2,439	5,922
Credit Exposure 2017	5,587	7,048
Credit Exposure Prior	1,714	652
Total	10,954	20,809
Substandard
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2020	7,318	923
Credit Exposure 2019	674	2,565
Credit Exposure 2018	10,354	4,963
Credit Exposure 2017	13,867	5,192
Credit Exposure Prior	13,868	8,369
Total	46,081	22,012
Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	8	24
Credit Exposure 2020	105	1,176
Credit Exposure 2019	436	654
Credit Exposure 2018	560	4,222
Credit Exposure 2017	299	4,992
Credit Exposure Prior	1,699	1,637
Revolving Loans Amortized Cost	28
Total	3,135	12,705
Commercial and industrial
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	199,537	278,811
Credit Exposure 2020	41,275	30,989
Credit Exposure 2019	21,042	13,635
Credit Exposure 2018	9,816	8,456
Credit Exposure 2017	4,397	7,512
Credit Exposure Prior	17,635	16,294
Revolving Loans Amortized Cost	86,768	90,074
Total	380,470	445,771
Credit Exposure 2019.Charge - offs	(167)	(43)
Credit Exposure 2018.Charge - offs	(67)
Credit Exposure 2017.Charge - offs	(19)
Credit Exposure Revolving Loans Amortized Cost.Charge - offs	(47)	(25)
Total	(300)	(68)
Credit Exposure 2019, Recoveries		43
Credit Exposure Prior, Recoveries	0	14
Credit Exposure Revolving Loans Amortized Cost, Recoveries	15	44
Total	15	101
Credit Exposure 2019,Current period net	(167)
Credit Exposure 2018,Current period net	(67)
Credit Exposure 2017,Current period net	(19)
Credit Exposure Prior,Current period net	0	14
Credit Exposure Revolving Loans Amortized Cost,Current period net	32	19
Total	(285)	33
Commercial and industrial | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	199,537	278,687
Credit Exposure 2020	40,901	30,563
Credit Exposure 2019	20,982	12,860
Credit Exposure 2018	9,595	4,366
Credit Exposure 2017	4,333	6,131
Credit Exposure Prior	17,616	16,294
Revolving Loans Amortized Cost	86,768	90,074
Total	379,732	438,975
Commercial and industrial | Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	0	124
Credit Exposure 2020	96	119
Credit Exposure 2019		222
Credit Exposure 2018		4,040
Credit Exposure 2017	21	1,324
Total	117	5,829
Commercial and industrial | Substandard
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2020	278	307
Credit Exposure 2019	60	540
Credit Exposure 2018	196	50
Credit Exposure 2017	43	43
Credit Exposure Prior	5
Total	582	940
Commercial and industrial | Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2019	0	13
Credit Exposure 2018	25
Credit Exposure 2017		14
Credit Exposure Prior	14
Revolving Loans Amortized Cost	0
Total	39	27
Construction and development
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	153,740	118,946
Credit Exposure 2020	78,831	77,535
Credit Exposure 2019	30,003	26,217
Credit Exposure 2018	7,152	25,514
Credit Exposure 2017	17,360	8,422
Credit Exposure Prior	14,347	10,507
Revolving Loans Amortized Cost	8,313	3,266
Total	309,746	270,407
Credit Exposure Prior, Recoveries	1
Total	1
Credit Exposure Prior,Current period net	1
Total	1
Construction and development | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	153,740	118,590
Credit Exposure 2020	78,121	76,926
Credit Exposure 2019	29,164	26,212
Credit Exposure 2018	7,149	24,524
Credit Exposure 2017	16,405	7,742
Credit Exposure Prior	14,347	10,507
Revolving Loans Amortized Cost	8,313	3,266
Total	307,239	267,767
Construction and development | Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021		356
Credit Exposure 2020	710
Credit Exposure 2018		990
Credit Exposure 2017	955
Total	1,665	1,346
Construction and development | Substandard
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2020		609
Credit Exposure 2019	609	5
Credit Exposure 2018	3
Credit Exposure 2017		680
Total	612	1,294
Construction and development | Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2019	230
Total	230
Commercial real estate
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	101,251	91,819
Credit Exposure 2020	105,765	84,609
Credit Exposure 2019	80,197	95,245
Credit Exposure 2018	77,555	82,231
Credit Exposure 2017	62,299	101,884
Credit Exposure Prior	191,587	132,538
Revolving Loans Amortized Cost	14,699	5,890
Total	633,353	594,216
Credit Exposure Prior, Recoveries		1
Total		1
Credit Exposure Prior,Current period net		1
Total		1
Commercial real estate | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	100,853	91,819
Credit Exposure 2020	98,665	80,753
Credit Exposure 2019	80,197	89,542
Credit Exposure 2018	64,919	72,311
Credit Exposure 2017	44,565	86,946
Credit Exposure Prior	176,005	123,463
Revolving Loans Amortized Cost	14,699	5,890
Total	579,903	550,724
Commercial real estate | Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	398
Credit Exposure 2020		2,716
Credit Exposure 2019	0	3,542
Credit Exposure 2018	2,439	849
Credit Exposure 2017	4,591	5,724
Credit Exposure Prior	1,629	449
Total	9,057	13,280
Commercial real estate | Substandard
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2020	7,040
Credit Exposure 2019	0	2,010
Credit Exposure 2018	10,124	4,913
Credit Exposure 2017	13,110	4,445
Credit Exposure Prior	13,732	8,240
Total	44,006	19,608
Commercial real estate | Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2020	60	1,140
Credit Exposure 2019		151
Credit Exposure 2018	73	4,158
Credit Exposure 2017	33	4,769
Credit Exposure Prior	221	386
Total	387	10,604
Farmland
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	72,382	17,444
Credit Exposure 2020	12,776	12,668
Credit Exposure 2019	8,683	10,327
Credit Exposure 2018	8,541	6,620
Credit Exposure 2017	5,345	9,904
Credit Exposure Prior	21,881	15,681
Revolving Loans Amortized Cost	5,805	5,864
Total	135,413	78,508
Credit Exposure 2019.Charge - offs	(17)
Credit Exposure 2018.Charge - offs	56
Credit Exposure 2017.Charge - offs	(472)
Credit Exposure Prior.Charge - offs	(271)
Total	(816)
Credit Exposure 2017, Recoveries	11
Total	11
Credit Exposure 2019,Current period net	(17)
Credit Exposure 2018,Current period net	(56)
Credit Exposure 2017,Current period net	(461)
Credit Exposure Prior,Current period net	(271)
Total	(805)
Farmland | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	72,382	17,444
Credit Exposure 2020	12,776	12,668
Credit Exposure 2019	8,683	10,327
Credit Exposure 2018	8,541	6,620
Credit Exposure 2017	5,345	9,904
Credit Exposure Prior	21,626	15,402
Revolving Loans Amortized Cost	5,777	5,864
Total	135,130	78,229
Farmland | Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure Prior	28	35
Total	28	35
Farmland | Substandard
Financing Receivable Recorded Investment [Line Items]
Credit Exposure Prior	118	129
Total	118	129
Farmland | Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure Prior	109	115
Revolving Loans Amortized Cost	28
Total	137	115
1-4 family residential
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	101,523	87,578
Credit Exposure 2020	72,986	62,937
Credit Exposure 2019	48,259	52,413
Credit Exposure 2018	38,960	37,268
Credit Exposure 2017	29,331	44,021
Credit Exposure Prior	98,976	94,788
Revolving Loans Amortized Cost	13,368	10,091
Total	403,403	389,096
Credit Exposure 2017.Charge - offs		(9)
Credit Exposure Prior.Charge - offs		(59)
Total		(68)
Credit Exposure Prior, Recoveries		2
Total		2
Credit Exposure 2017,Current period net		(9)
Credit Exposure Prior,Current period net		(57)
Total		(66)
1-4 family residential | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	101,523	87,578
Credit Exposure 2020	72,986	62,937
Credit Exposure 2019	48,075	52,087
Credit Exposure 2018	38,577	37,224
Credit Exposure 2017	29,077	43,858
Credit Exposure Prior	97,575	93,486
Revolving Loans Amortized Cost	13,368	10,091
Total	401,181	387,261
1-4 family residential | Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2017	0
Credit Exposure Prior	57	168
Total	57	168
1-4 family residential | Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2019	184	326
Credit Exposure 2018	383	44
Credit Exposure 2017	254	163
Credit Exposure Prior	1,344	1,134
Total	2,165	1,667
Multi-family residential
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	13,113	5,889
Credit Exposure 2020	4,312	4,498
Credit Exposure 2019	4,392	3,617
Credit Exposure 2018	15,448	1,371
Credit Exposure 2017	1,220	1,737
Credit Exposure Prior	2,194	4,391
Revolving Loans Amortized Cost	131	198
Total	40,810	21,701
Multi-family residential | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	13,113	5,889
Credit Exposure 2020	4,312	4,498
Credit Exposure 2019	4,392	3,617
Credit Exposure 2018	15,448	1,371
Credit Exposure 2017	545	1,737
Credit Exposure Prior	2,194	4,391
Revolving Loans Amortized Cost	131	198
Total	40,135	21,701
Multi-family residential | Substandard
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2017	675
Total	675
Consumer and Overdrafts
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	21,957	24,780
Credit Exposure 2020	14,041	11,295
Credit Exposure 2019	5,685	9,509
Credit Exposure 2018	5,470	1,728
Credit Exposure 2017	829	736
Credit Exposure Prior	667	513
Revolving Loans Amortized Cost	4,838	2,825
Total	53,487	51,386
Credit Exposure 2021.Charge - offs	(180)	(243)
Credit Exposure 2020.Charge - offs	(34)	(63)
Credit Exposure 2019.Charge - offs	(38)	(31)
Credit Exposure 2018.Charge - offs	(32)	(43)
Credit Exposure 2017.Charge - offs	(2)	(3)
Credit Exposure Prior.Charge - offs		(6)
Total	(286)	(389)
Credit Exposure 2021, Recoveries	45	49
Credit Exposure 2020, Recoveries	3	2
Credit Exposure 2019, Recoveries		12
Credit Exposure 2018, Recoveries	8	8
Credit Exposure 2017, Recoveries	2	4
Credit Exposure Prior, Recoveries	19	13
Total	77	88
Credit Exposure 2021,Current period net	(135)	(194)
Credit Exposure 2020,Current period net	(31)	(61)
Credit Exposure 2019,Current period net	(38)	(19)
Credit Exposure 2018,Current period net	(24)	(35)
Credit Exposure 2017,Current period net	0	1
Credit Exposure Prior,Current period net	19	7
Total	(209)	(301)
Consumer and Overdrafts | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	21,949	24,740
Credit Exposure 2020	14,015	11,176
Credit Exposure 2019	5,654	9,369
Credit Exposure 2018	5,400	1,701
Credit Exposure 2017	820	735
Credit Exposure Prior	656	513
Revolving Loans Amortized Cost	4,838	2,825
Total	53,332	51,059
Consumer and Overdrafts | Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021		16
Credit Exposure 2020	1	83
Credit Exposure 2019	9	9
Credit Exposure 2018		7
Total	10	115
Consumer and Overdrafts | Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	8	24
Credit Exposure 2020	25	36
Credit Exposure 2019	22	131
Credit Exposure 2018	70	20
Credit Exposure 2017	9	1
Credit Exposure Prior	11
Total	145	212
Agricultural
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	2,611	3,489
Credit Exposure 2020	2,101	1,725
Credit Exposure 2019	1,057	1,936
Credit Exposure 2018	1,122	643
Credit Exposure 2017	337	342
Credit Exposure Prior	605	191
Revolving Loans Amortized Cost	6,366	7,408
Total	14,199	15,734
Credit Exposure 2019.Charge - offs		(18)
Total		(18)
Credit Exposure 2017, Recoveries		20
Total		20
Credit Exposure 2019,Current period net		(18)
Credit Exposure 2017,Current period net		20
Total		2
Agricultural | Pass
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2021	2,611	3,489
Credit Exposure 2020	2,081	1,718
Credit Exposure 2019	1,052	1,893
Credit Exposure 2018	1,082	607
Credit Exposure 2017	275	273
Credit Exposure Prior	592	189
Revolving Loans Amortized Cost	6,366	7,408
Total	14,059	15,577
Agricultural | Special Mention
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2018		36
Credit Exposure 2017	20
Total	20	36
Agricultural | Substandard
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2020		7
Credit Exposure 2019	5	10
Credit Exposure 2018	31
Credit Exposure 2017	39	24
Credit Exposure Prior	13
Total	88	41
Agricultural | Nonaccrual
Financing Receivable Recorded Investment [Line Items]
Credit Exposure 2020	20
Credit Exposure 2019		33
Credit Exposure 2018	9
Credit Exposure 2017	3	45
Credit Exposure Prior		2
Total	$ 32	$ 80

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Summary of Amortized Cost Basis of Collateral-dependent Loans (Details) - Collateral Dependent Loans - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	$ 5,268	$ 10,727
Allowance for Credit Losses Allocation	850	2,300
Real Estate
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	5,268	10,727
Commercial and industrial
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	119	129
Allowance for Credit Losses Allocation	40	44
Commercial and industrial | Real Estate
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	119	129
Construction and development
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	609	609
Allowance for Credit Losses Allocation	207	208
Construction and development | Real Estate
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	609	609
Commercial real estate
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	4,540	9,989
Allowance for Credit Losses Allocation	603	2,048
Commercial real estate | Real Estate
Financing Receivable Allowance For Credit Losses [Line Items]
Amortized cost	$ 4,540	$ 9,989

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Summary of Payment Status of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	$ 5,533	$ 15,532
Current	1,965,348	1,851,287
Total Loans	1,970,881	1,866,819
Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	2,864	4,382
Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,479	754
Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,190	10,396
Commercial Industrial and Warehouse lending
Financing Receivable Recorded Investment Past Due [Line Items]
Total Loans	380,470	445,771
Commercial and industrial
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	912	432
Current	379,558	445,339
Total Loans	308,647	356,291
Commercial and industrial | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	874	385
Commercial and industrial | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	0	25
Commercial and industrial | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	38	22
Construction and development
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	230	256
Current	309,516	270,151
Total Loans	309,746	270,407
Construction and development | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	0	256
Construction and development | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	0
Construction and development | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	230
Commercial real estate
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,232	11,199
Current	632,121	583,017
Total Loans	633,353	594,216
Commercial real estate | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	197	1,094
Commercial real estate | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	777	0
Commercial real estate | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	258	10,105
Farmland
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	372	120
Current	135,041	78,388
Total Loans	135,413	78,508
Farmland | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	149	117
Farmland | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	195	3
1-4 family residential
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	2,441	2,780
Current	400,962	386,316
Total Loans	403,403	389,096
1-4 family residential | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,407	2,097
1-4 family residential | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	465	556
1-4 family residential | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	569	127
Multi-family residential
Financing Receivable Recorded Investment Past Due [Line Items]
Current	40,810	21,701
Total Loans	40,810	21,701
Consumer
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	286	604
Current	52,706	50,440
Total Loans	52,992	51,044
Consumer | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	206	383
Consumer | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	33	124
Consumer | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	47	97
Agricultural
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	60	141
Current	14,139	15,593
Total Loans	14,199	15,734
Agricultural | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	31	50
Agricultural | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	9	46
Agricultural | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	20	45
Overdrafts
Financing Receivable Recorded Investment Past Due [Line Items]
Current	495	342
Total Loans	$ 495	$ 342

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Summary of Troubled Debt Restructuring (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021 USD ($) Contract	Dec. 31, 2020 USD ($) Contract
Financing Receivable, Modifications [Line Items]
Total	$ 9,606	$ 9,716
Troubled Debt Restructurings:
Number of Contracts | Contract	1	4
Pre-Modification Outstanding Recorded Investment	$ 17	$ 2,435
Post-Modification Outstanding Recorded Investment	$ 17	$ 1,836
Commercial and industrial
Troubled Debt Restructurings:
Number of Contracts | Contract	1	1
Pre-Modification Outstanding Recorded Investment	$ 17	$ 129
Post-Modification Outstanding Recorded Investment	17	$ 85
Construction and development
Troubled Debt Restructurings:
Number of Contracts | Contract		2
Pre-Modification Outstanding Recorded Investment		$ 1,289
Post-Modification Outstanding Recorded Investment		$ 1,081
Commercial real estate
Troubled Debt Restructurings:
Number of Contracts | Contract		1
Pre-Modification Outstanding Recorded Investment		$ 1,017
Post-Modification Outstanding Recorded Investment		670
Nonaccrual TDRs
Financing Receivable, Modifications [Line Items]
Total	84	90
Performing TDRs
Financing Receivable, Modifications [Line Items]
Total	$ 9,522	$ 9,626

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT - Narrative (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase	$ 11,195	$ 15,631
Long-term line of credit	3,000	$ 12,000
Revolving Credit Facility
Line of Credit Facility [Line Items]
Line of credit facility, current borrowing capacity	25,000
Long-term line of credit	$ 3,000
Floor | Revolving Credit Facility
Line of Credit Facility [Line Items]
Spread on variable rate	3.50%
Prime Rate | Revolving Credit Facility
Line of Credit Facility [Line Items]
Spread on variable rate	3.25%

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT - Summary of Fixed-Rate Advances (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
Federal Home Loan Bank advances	$ 47,500	$ 109,101
Fixed-rate Advances, With Monthly Interest Payments
Federal Home Loan Bank, Advances, Maturities Summary, Average Interest Rate of Amounts Due [Abstract]
2021 (percent)	0.13%
2022 (percent)	1.99%
2024 (percent)	1.76%
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
2021	$ 40,000
2022	1,500
2024	6,000
Federal Home Loan Bank advances	$ 47,500

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SUBORDINATED DEBENTURES - Schedule of Subordinated Debentures (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Subordinated debentures	$ 19,810	$ 19,810
Trust II Debentures
Debt Instrument [Line Items]
Subordinated debentures	3,093	3,093
Trust III Debentures
Debt Instrument [Line Items]
Subordinated debentures	2,062	2,062
DCB Trust I Debentures
Debt Instrument [Line Items]
Subordinated debentures	5,155	5,155
Other debentures
Debt Instrument [Line Items]
Subordinated debentures	$ 9,500	$ 9,500

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SUBORDINATED DEBENTURES - Narrative (Details) - USD ($) $ in Thousands		1 Months Ended	9 Months Ended
	Nov. 30, 2020	May 31, 2020	Sep. 30, 2021
Debt Instrument [Line Items]
Liquidation value per share			$ 1,000
Debentures mature date			30 years
Long-term Debt			$ 9,500
Subordinated debentures | Trust II Debentures
Debt Instrument [Line Items]
Debenture issued			$ 3,093
Subordinated debentures | Trust II Debentures | Minimum
Debt Instrument [Line Items]
Notice period required for redemption of debentures			30 days
Subordinated debentures | Trust II Debentures | Maximum
Debt Instrument [Line Items]
Notice period required for redemption of debentures			60 days
Redemption price of debentures as a percentage of principal			100.00%
Subordinated debentures | Trust II Debentures | 3 Month LIBOR
Debt Instrument [Line Items]
Spread on variable rate			3.35%
Subordinated debentures | Trust III Debentures
Debt Instrument [Line Items]
Debenture issued			$ 2,062
Subordinated debentures | Trust III Debentures | Minimum
Debt Instrument [Line Items]
Notice period required for redemption of debentures			30 days
Subordinated debentures | Trust III Debentures | Maximum
Debt Instrument [Line Items]
Notice period required for redemption of debentures			60 days
Redemption price of debentures as a percentage of principal			100.00%
Subordinated debentures | Trust III Debentures | 3 Month LIBOR
Debt Instrument [Line Items]
Spread on variable rate			1.67%
Subordinated debentures | DCB Trust I Debentures
Debt Instrument [Line Items]
Debenture issued			$ 5,155
Subordinated debentures | DCB Trust I Debentures | Minimum
Debt Instrument [Line Items]
Notice period required for redemption of debentures			30 days
Subordinated debentures | DCB Trust I Debentures | Maximum
Debt Instrument [Line Items]
Notice period required for redemption of debentures			60 days
Redemption price of debentures as a percentage of principal			100.00%
Subordinated debentures | DCB Trust I Debentures | 3 Month LIBOR
Debt Instrument [Line Items]
Spread on variable rate			1.80%
Subordinated debentures | Other Debentures Issued in December 2015
Debt Instrument [Line Items]
Notice period required for redemption of debentures		30 days
Redemption price of debentures as a percentage of principal		100.00%
Debenture issued, par value per instrument issued		$ 500
Debt instrument maturity start date		Nov. 01, 2020
Debt instrument maturity end date		Nov. 01, 2024
Long-term Debt			$ 9,500
Subordinated debentures | Other Debentures Issued in December 2015 | Directors and Related Parties
Debt Instrument [Line Items]
Debenture issued		$ 10,000
Subordinated debentures | Other Debentures Issued in December 2015 | Minimum
Debt Instrument [Line Items]
Stated interest rate		1.00%
Subordinated debentures | Other Debentures Issued in December 2015 | Maximum
Debt Instrument [Line Items]
Stated interest rate		4.00%
Subordinated debentures | Other Subordinated Debentures Issued In July 2015 [Member]
Debt Instrument [Line Items]
Debentures that matured and were paid off	$ 500

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SUBORDINATED DEBENTURES - Schedule of Trusts (Details) $ in Thousands	Sep. 30, 2021 USD ($) shares
Trust II
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items]
Common securities liquidation value	$ 93
Trust III
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items]
Common securities liquidation value	62
DCB Trust I
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items]
Common securities liquidation value	$ 155
Capital trust pass-through securities | Trust II
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items]
Number of shares (in shares) | shares	3,000
Original liquidation value	$ 3,000
Capital trust pass-through securities | Trust III
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items]
Number of shares (in shares) | shares	2,000
Original liquidation value	$ 2,000
Capital trust pass-through securities | DCB Trust I
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items]
Number of shares (in shares) | shares	5,000
Original liquidation value	$ 5,000

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SUBORDINATED DEBENTURES - Schedule of Terms of Subordinated Debentures (Details) - Subordinated debentures $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($)
Trust II Debentures
Debt Instrument [Line Items]
Original amount	$ 3,093
Maturity date	Oct. 30, 2032
Interest due	Quarterly
Trust III Debentures
Debt Instrument [Line Items]
Original amount	$ 2,062
Maturity date	Oct. 01, 2036
Interest due	Quarterly
DCB Trust I Debentures
Debt Instrument [Line Items]
Original amount	$ 5,155
Maturity date	Jun. 15, 2037
Interest due	Quarterly

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SUBORDINATED DEBENTURES - Schedule of Principal Payments and Weighted Average Rates of Other Debentures (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($)
Long Term Debt By Maturity [Abstract]
Current Weighted Average Rate, 2022	2.45%
Current Weighted Average Rate, 2023	2.85%
Current Weighted Average Rate, 2024	3.74%
Principal Due, 2022	$ 2,000
Principal Due, 2023	3,500
Principal Due, 2024	4,000
Principal payments	$ 9,500

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EQUITY AWARDS - Narrative (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 1,831
Unrecognized compensation expense, period for recognition	3 years 1 month 28 days
Restricted Stock | Minimum | Employees
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years
2015 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares permitted for grant (in shares)	1,100,000
Grace period for vested options, forfeitures in period	90 days
2015 Equity Incentive Plan | Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Contractual term	10 years
Share-based compensation expense	$ 512	$ 494
2015 Equity Incentive Plan | Option | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years
2015 Equity Incentive Plan | Option | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	10 years
2015 Equity Incentive Plan | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 512	$ 494

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EQUITY AWARDS - Schedule of Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020	Dec. 31, 2019
Number of Shares
Outstanding at beginning of year (in shares)	506,200	508,000	508,000
Effect of 10% stock dividend (in shares)	50,770
Granted (in shares)	45,500	39,000
Exercised (in shares)	(48,630)	(3,000)
Forfeited (in shares)	(19,020)	(37,600)
Balance (in shares)	534,820	506,400	506,200	508,000
Exercisable
Outstanding (in shares)	307,786	302,220
Weighted-average exercise price (in USD per share)	$ 23.78	$ 25.55
Weighted-average remaining contractual life in years	4 years 3 months 29 days	4 years 9 months 7 days
Aggregate intrinsic value	$ 3,715	$ 244
Weighted-Average Exercise Price
Outstanding at beginning of year (in USD per share)	$ 26.81	$ 26.68	$ 26.68
Granted (in USD per share)	33.49	27.43
Exercised (in USD per share)	22.89	24.00
Forfeited (in USD per share)	26.01	29.68
Balance (in USD per share)	$ 25.22	$ 26.53	$ 26.81	$ 26.68
Weighted-Average Remaining Contractual Life in Years
Outstanding	5 years 6 months 10 days	5 years 7 months 13 days	5 years 9 months 25 days	6 years 2 months 26 days
Granted	9 years 7 months 2 days	9 years 6 months 3 days
Exercised	3 years 9 months 25 days	2 years 14 days
Forfeited	6 years 10 months 2 days	8 years 1 month 13 days
Aggregate Intrinsic Value
Outstanding	$ 1,805	$ 3,159	$ 3,159
Granted	107	24
Exercised	630	3
Forfeited	187	24
Outstanding	$ 5,684	$ 304	$ 1,805	$ 3,159

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EQUITY AWARDS - Schedule of Stock Option Activity (Parenthetical) (Details)	9 Months Ended
	Sep. 30, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Stock dividend percentage	10.00%

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EQUITY AWARDS - Schedule of Nonvested Stock Option Activity (Details) - $ / shares	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Number of Shares
Outstanding at beginning of year (in shares)	214,680	251,120
Effect of 10% stock dividend (in shares)	23,218
Granted (in shares)	45,500	39,000
Vested (in shares)	(47,344)	(53,340)
Forfeited (in shares)	(9,020)	(32,600)
Balance (in shares)	227,034	204,180
Weighted-Average Exercise Price
Outstanding at beginning of year (in USD per share)	$ 4.46	$ 4.97
Granted (in USD per share)	5.82	3.86
Vested (in USD per share)	(5.72)	(6.07)
Forfeited (in USD per share)	(8.06)	(2.20)
Balance (in USD per share)	$ 5.11	$ 5.54

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EQUITY AWARDS - Schedule of Nonvested Stock Option Activity (Parenthetical) (Details)	9 Months Ended
	Sep. 30, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Stock dividend percentage	10.00%

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EQUITY AWARDS - Information Related to Stock Options Plan (Details) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Intrinsic value of options exercised	$ 630	$ 3
Cash received from options exercised	$ 1,113	$ 72
Weighted average fair value of options granted (in USD per share)	$ 5.82	$ 3.86

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EQUITY AWARDS - Summary of Restricted Stock Awards and Units Activity (Details) - Restricted Stock Awards And Units [Member] - $ / shares	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Number of Shares
Outstanding at beginning of year (in shares)	35,300	31,459
Effect of 10% stock dividend (in shares)	3,530
Granted (in shares)	3,500	0
Vested (in shares)	(7,850)	(13,380)
Forfeited (in shares)	0	0
Balance (in shares)	34,480	18,079
Weighted-Average Grant Date Fair Value
Outstanding at beginning of year	$ 29.72	$ 30.29
Granted	33.09	0
Vested	27.26	30.30
Forfeited	0	0
Balance	$ 27.41	$ 30.28

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EQUITY AWARDS - Summary of Restricted Stock Awards and Units Activity (Parenthetical) (Details)	9 Months Ended
	Sep. 30, 2021
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock dividend percentage	10.00%

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EMPLOYEE BENEFITS - Narrative (Details) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Defined Benefit Plan Disclosure [Line Items]
Employee stock ownership plan, maximum employer contribution as a percentage of participant's qualified compensation	5.00%
Employee stock ownership plan, total contributions accrued or paid	$ 1,146	$ 1,031
Employee stock ownership plan, shares held under plan (in shares)	1,287,897
Employee stock ownership plan, unallocated shares (in shares)	0
Cash surrender value of life insurance	$ 36,582		$ 35,510
Gain on proceeds from life insurance policies	277,000	0
Bonus expense	3,529	1,610
Executive Incentive Retirement Plan | Postretirement Life Insurance | Nonqualified Plan | Unfunded Plan
Defined Benefit Plan Disclosure [Line Items]
Cash surrender value of life insurance	36,582		35,510
Plan cost	588	$ 500	592
Plan obligation	$ 4,861		$ 4,383

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LEASES - Additional Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Operating leases, option to extend	10 years
Operating lease right-of-use assets	$ 14,810		$ 13,291
Operating lease right-of-use liabilities	15,243		$ 13,539
Occupancy Expenses
Operating leases, rental expense	$ 1,715	$ 1,416
Minimum
Operating leases, remaining lease term	1 year
Maximum
Operating leases, remaining lease term	14 years

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LEASES - Schedule of Summarizes Other Information Related to Operating Leases (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Operating leases
Operating lease right-of-use assets	$ 14,810	$ 13,291
Operating lease liabilities	$ 15,243	$ 13,539
Weighted average remaining lease term
Operating leases	9 years	9 years
Weighted average discount rate
Operating leases	1.95%	2.19%

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LEASES - Schedule of Minimum Future Lease Payments Under Non-Cancelable Operating Leases (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Leases [Abstract]
2021	$ 554
2022	2,152
2023	2,090
2024	2,035
2025	1,868
Thereafter	7,441
Total lease payments	16,140
Less: interest	(897)
Present value of lease liabilities	$ 15,243	$ 13,539

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INCOME TAXES - Schedule of Income Tax Expense and Effective Tax Rate (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Income Tax Disclosure [Abstract]
Income tax expense for the period	$ 2,179	$ 2,350	$ 6,827	$ 3,605
Effective tax rate	19.06%	(18.82%)	18.22%	17.09%

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INCOME TAXES - Narrative (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Income Tax Disclosure [Abstract]
Federal statutory tax rate	21.00%	21.00%	21.00%	21.00%

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DERIVATIVE FINANCIAL INSTRUMENTS - Narrative (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Derivative [Line Items]
Swaps cancellation expenses	$ 19,287,000	$ 16,758,000	$ 54,302,000	$ 48,349,000
Interest expense	1,665,000	$ 2,677,000	5,494,000	10,759,000
Unrealized loss to be reclassified as a reduction of interest expense			0
Interest Rate Swap
Derivative [Line Items]
Notional amount	5,000,000		5,000,000
Swaps cancellation expenses			466,000
Designated as Hedging Instrument | Cash Flow Hedging | Interest Rate Swap
Derivative [Line Items]
Interest expense			483,000	$ 509,000
Designated as Hedging Instrument | Cash Flow Hedging | Interest Rate Swap | FHLB Advances
Derivative [Line Items]
Notional amount	$ 40,000,000		$ 40,000,000		$ 40,000,000

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DERIVATIVE FINANCIAL INSTRUMENTS - Schedule of Information Pertaining to Outstanding Interest Rate Swap Agreements (Details) - Designated as Hedging Instrument - Cash Flow Hedging - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Interest Rate Swap, 3 month LIBOR plus 1.67%
Derivative [Line Items]
Notional Amount		$ 2,000,000
Pay Rate		5.979%
Effective Date		Oct. 01, 2016
Maturity in Years		5 years 3 months
Unrealized Losses		$ 408,000
Interest Rate Swap, 3 month LIBOR plus 1.67% | LIBOR
Derivative [Line Items]
Receive Rate		1.67%
Interest Rate Swap, 3 month LIBOR plus 3.35%
Derivative [Line Items]
Notional Amount		$ 3,000,000
Pay Rate		7.505%
Effective Date		Oct. 30, 2012
Maturity in Years		1 year 9 months 29 days
Unrealized Losses		$ 221,000
Interest Rate Swap, 3 month LIBOR plus 3.35% | LIBOR
Derivative [Line Items]
Receive Rate		3.35%
Interest Rate Swap, 3 month LIBOR
Derivative [Line Items]
Notional Amount	$ 15,000,000	$ 15,000,000
Pay Rate	0.668%	0.668%
Effective Date	Mar. 18, 2020	Mar. 18, 2020
Maturity in Years	1 year 5 months 19 days	2 years 2 months 19 days
Unrealized Losses	$ 93,000	$ 159,000
Interest Rate Swap, 3 month LIBOR
Derivative [Line Items]
Notional Amount	$ 15,000,000	$ 15,000,000
Pay Rate	0.79%	0.79%
Effective Date	Mar. 18, 2020	Mar. 18, 2020
Maturity in Years	3 years 5 months 19 days	4 years 2 months 19 days
Unrealized Losses	$ 17,000	$ 288,000
Interest Rate Swap, 3 month LIBOR
Derivative [Line Items]
Notional Amount	$ 10,000,000	$ 10,000,000
Pay Rate	0.53%	0.53%
Effective Date	Mar. 23, 2020	Mar. 23, 2020
Maturity in Years	1 year 5 months 23 days	2 years 2 months 23 days
Unrealized Losses	$ 41,000	$ 75,000

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COMMITMENTS AND CONTINGENCIES - Narrative (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Other Commitments [Line Items]
FHLB letters of credit	$ 35,833,000
Letters of credit
Other Commitments [Line Items]
Potential guarantee obligation	0	$ 0
Loans Receivable
Other Commitments [Line Items]
Allowance for credit loss	$ 0	$ 0

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COMMITMENTS AND CONTINGENCIES - Schedule of Commitments and Letters of Credit (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Commitments to extend credit
Other Commitments [Line Items]
Off-balance sheet liability	$ 392,332	$ 324,277
Letters of credit
Other Commitments [Line Items]
Off-balance sheet liability	$ 9,922	$ 8,488

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REGULATORY MATTERS - Narrative (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Subordinated debentures | Subordinated Debentures II, Subordinated Debentures III, and DCB Debentures I
Common equity tier 1 capital to risk-weighted assets:
Debenture issued	$ 10,310,000	$ 10,310,000
Maximum
Common equity tier 1 capital to risk-weighted assets:
Capital conservation buffer percentage	2.50%

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REGULATORY MATTERS - Comparison of the Company's and Bank's Actual Capital Amounts and Ratios to Required Capital Amounts and Ratios (Details) $ in Thousands	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Total capital to risk-weighted assets:
Actual, Amount	$ 289,390	$ 263,144
Actual, Ratio	14.13	13.20
Minimum Required for Capital Adequacy Purposes, Amount	$ 163,886	$ 159,496
Minimum Required for Capital Adequacy Purposes, Ratio	8.00	8.00
Minimum Required Under Basel III (Including Buffer), Amount	$ 215,100	$ 209,338
Minimum Required Under Basel III (Including Buffer), Ratio	10.50	10.50
Tier 1 capital to risk-weighted assets:
Actual, Amount	$ 263,721	$ 238,115
Actual, Ratio	12.87	11.94
Minimum Required for Capital Adequacy Purposes, Amount	$ 122,914	$ 119,622
Minimum Required for Capital Adequacy Purposes, Ratio	6.00	6.00
Minimum Required Under Basel III (Including Buffer), Amount	$ 174,129	$ 169,464
Minimum Required Under Basel III (Including Buffer), Ratio	8.50	8.50
Tier 1 capital to average assets:
Actual, Amount	$ 263,721	$ 238,115
Actual, Ratio	9.06	9.13
Minimum Required for Capital Adequacy Purposes, Amount	$ 116,422	$ 104,293
Minimum Required for Capital Adequacy Purposes, Ratio	4.00	4.00
Minimum Required Under Basel III (Including Buffer), Amount	$ 116,422	$ 104,293
Minimum Required Under Basel III (Including Buffer), Ratio	4.00	4.00
Common equity tier 1 capital to risk-weighted assets:
Actual, Amount	$ 253,411	$ 227,805
Actual, Ratio	12.37	11.43
Minimum Required for Capital Adequacy Purposes, Amount	$ 92,186	$ 89,716
Minimum Required for Capital Adequacy Purposes, Ratio	4.50%	4.50%
Minimum Required Under Basel III (Including Buffer), Amount	$ 143,400	$ 139,559
Minimum Required Under Basel III (Including Buffer), Ratio	7.00%	7.00%
Bank
Total capital to risk-weighted assets:
Actual, Amount	$ 301,528	$ 285,490
Actual, Ratio	14.71	14.32
Minimum Required for Capital Adequacy Purposes, Amount	$ 164,015	$ 159,514
Minimum Required for Capital Adequacy Purposes, Ratio	8.00	8.00
Minimum Required Under Basel III (Including Buffer), Amount	$ 215,270	$ 209,362
Minimum Required Under Basel III (Including Buffer), Ratio	10.50	10.50
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 205,019	$ 199,392
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00	10.00
Tier 1 capital to risk-weighted assets:
Actual, Amount	$ 275,839	$ 260,459
Actual, Ratio	13.45	13.06
Minimum Required for Capital Adequacy Purposes, Amount	$ 123,011	$ 119,635
Minimum Required for Capital Adequacy Purposes, Ratio	6.00	6.00
Minimum Required Under Basel III (Including Buffer), Amount	$ 174,266	$ 169,483
Minimum Required Under Basel III (Including Buffer), Ratio	8.50	8.50
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 164,015	$ 159,514
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	8.00	8.00
Tier 1 capital to average assets:
Actual, Amount	$ 275,839	$ 260,459
Actual, Ratio	9.48	9.99
Minimum Required for Capital Adequacy Purposes, Amount	$ 116,418	$ 104,293
Minimum Required for Capital Adequacy Purposes, Ratio	4.00	4.00
Minimum Required Under Basel III (Including Buffer), Amount	$ 116,418	$ 104,293
Minimum Required Under Basel III (Including Buffer), Ratio	4.00	4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 145,523	$ 130,366
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	5.00	5.00
Common equity tier 1 capital to risk-weighted assets:
Actual, Amount	$ 275,839	$ 260,459
Actual, Ratio	13.45	13.06
Minimum Required for Capital Adequacy Purposes, Amount	$ 92,259	$ 89,726
Minimum Required for Capital Adequacy Purposes, Ratio	4.50%	4.50%
Minimum Required Under Basel III (Including Buffer), Amount	$ 143,513	$ 139,574
Minimum Required Under Basel III (Including Buffer), Ratio	7.00%	7.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 133,262	$ 129,605
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	6.50%	6.50%

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FAIR VALUE - Schedule of Financial Assets (Liabilities) Measured at Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 269,070	$ 380,795
Loans held for sale		5,542
Cash surrender value of life insurance	36,582	35,510
SBA servicing assets	808	763
Derivative instrument assets		629
Derivative instrument liabilities	(151)	(1,151)
Individually evaluated collateral dependent loans	4,418
Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	159,142	107,164
Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	64,623	66,945
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	35,246	30,982
U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	10,059
Assets (liabilities) at fair value on a recurring basis: | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	159,142	107,164
Assets (liabilities) at fair value on a recurring basis: | Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	64,623	66,945
Assets (liabilities) at fair value on a recurring basis: | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	10,059	30,982
Assets (liabilities) at fair value on a recurring basis: | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	1,903
Assets at fair value on a nonrecurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually evaluated collateral dependent loans	4,418	8,427
Municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale		175,704
Municipal securities | Assets (liabilities) at fair value on a recurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	35,246	175,704
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale		0
Cash surrender value of life insurance	0	0
SBA servicing assets	0	0
Derivative instrument assets		0
Derivative instrument liabilities	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Assets (liabilities) at fair value on a recurring basis: | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Assets (liabilities) at fair value on a recurring basis: | Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Assets (liabilities) at fair value on a recurring basis: | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Assets (liabilities) at fair value on a recurring basis: | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Assets at fair value on a nonrecurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually evaluated collateral dependent loans		0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Municipal securities | Assets (liabilities) at fair value on a recurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale		0
Cash surrender value of life insurance	36,582	35,510
SBA servicing assets	0	0
Derivative instrument assets		629
Derivative instrument liabilities	(151)	(1,151)
Significant Other Observable Inputs (Level 2) | Assets (liabilities) at fair value on a recurring basis: | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	159,142	107,164
Significant Other Observable Inputs (Level 2) | Assets (liabilities) at fair value on a recurring basis: | Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	64,623	66,945
Significant Other Observable Inputs (Level 2) | Assets (liabilities) at fair value on a recurring basis: | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	10,059	30,982
Significant Other Observable Inputs (Level 2) | Assets (liabilities) at fair value on a recurring basis: | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	0
Significant Other Observable Inputs (Level 2) | Assets at fair value on a nonrecurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually evaluated collateral dependent loans		0
Significant Other Observable Inputs (Level 2) | Municipal securities | Assets (liabilities) at fair value on a recurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	35,246	175,704
Significant Other Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale		5,542
Cash surrender value of life insurance	0	0
SBA servicing assets	808	763
Derivative instrument assets		0
Derivative instrument liabilities	0	0
Individually evaluated collateral dependent loans	4,418
Significant Other Unobservable Inputs (Level 3) | Assets (liabilities) at fair value on a recurring basis: | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Significant Other Unobservable Inputs (Level 3) | Assets (liabilities) at fair value on a recurring basis: | Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Significant Other Unobservable Inputs (Level 3) | Assets (liabilities) at fair value on a recurring basis: | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Significant Other Unobservable Inputs (Level 3) | Assets (liabilities) at fair value on a recurring basis: | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	1,903
Significant Other Unobservable Inputs (Level 3) | Assets at fair value on a nonrecurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually evaluated collateral dependent loans	4,418	8,427
Significant Other Unobservable Inputs (Level 3) | Municipal securities | Assets (liabilities) at fair value on a recurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 0	$ 0

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FAIR VALUE - Fair Value of Foreclosed Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020
Carrying Value | Other real estate owned remeasured at initial recognition
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	$ 0	$ 42	$ 0
Carrying Value | Revision of Prior Period, Adjustment
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	0	62	62
Charge-offs | Other real estate owned remeasured at initial recognition
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	0	(9)	0
Charge-offs | Revision of Prior Period, Adjustment
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	0	(1)	(1)
Fair Value | Other real estate owned remeasured at initial recognition
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	0	33	0
Fair Value | Revision of Prior Period, Adjustment
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	$ 0	$ 61	$ 61

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FAIR VALUE - Schedule of Quantitative Information About Nonrecurring Level 3 Fair Value Measurements (Details) - Cost to Sell - Other real estate owned - Appraisal value of collateral $ in Thousands	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Assets at fair value on a nonrecurring basis: | Significant Other Unobservable Inputs (Level 3)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned	$ 40	$ 404
Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned, input (percent)	0.10	0.10
Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned, input (percent)	0.20	0.20
Weighted Average
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned, input (percent)	0.16	0.16

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FAIR VALUE - Schedule of Individually Evaluated Collateral Dependent Loans at Fair Value (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	$ 4,418
Significant Other Unobservable Inputs (Level 3)
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	4,418
Construction and Development
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	402
Construction and Development | Significant Other Unobservable Inputs (Level 3)
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	402
Commercial Real Estate
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	3,937
Commercial Real Estate | Significant Other Unobservable Inputs (Level 3)
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	3,937
Commercial and Industrial
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	79
Commercial and Industrial | Significant Other Unobservable Inputs (Level 3)
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Individually evaluated collateral dependent loans	$ 79

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FAIR VALUE - Schedule of Carrying Amounts and Estimated Fair Value of Assets And Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Reported Value Measurement
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	$ 408,875	$ 351,792
Marketable securities held to maturity	173,676
Loans, net	1,938,268	1,831,737
Accrued interest receivable	7,673	9,834
Nonmarketable equity securities	14,061	14,095
Financial liabilities:
Deposits	2,563,071	2,286,390
Securities sold under repurchase agreements	11,195	15,631
Accrued interest payable	555	804
Federal Home Loan Bank advances	47,500	109,101
Subordinated debentures	19,810	19,810
Fair Value
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	408,875	351,792
Marketable securities held to maturity	182,631
Loans, net	1,949,191	1,846,868
Accrued interest receivable	7,673	9,834
Nonmarketable equity securities	14,061	14,095
Financial liabilities:
Deposits	2,563,869	2,288,157
Securities sold under repurchase agreements	11,195	15,631
Accrued interest payable	555	804
Federal Home Loan Bank advances	47,653	109,381
Subordinated debentures	17,813	17,406
Fair Value | Level 1 Inputs
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	408,875	351,792
Marketable securities held to maturity	0
Loans, net	0	0
Accrued interest receivable	0	0
Nonmarketable equity securities		0
Financial liabilities:
Deposits	2,221,716	1,907,587
Securities sold under repurchase agreements	0	0
Accrued interest payable	0	0
Federal Home Loan Bank advances	0	0
Subordinated debentures		0
Fair Value | Level 2 Inputs
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	0	0
Marketable securities held to maturity	182,631
Loans, net	0	0
Accrued interest receivable	7,673	9,834
Nonmarketable equity securities	14,061	14,095
Financial liabilities:
Deposits	342,153	380,570
Securities sold under repurchase agreements	11,195	15,631
Accrued interest payable	555	804
Federal Home Loan Bank advances	47,653	109,381
Subordinated debentures	17,813	17,406
Fair Value | Level 3 Inputs
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	0	0
Marketable securities held to maturity	0
Loans, net	1,949,191	1,846,868
Accrued interest receivable	0	0
Nonmarketable equity securities		0
Financial liabilities:
Deposits	0	0
Securities sold under repurchase agreements	0	0
Accrued interest payable	0	0
Federal Home Loan Bank advances	0	0
Subordinated debentures		$ 0

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EARNINGS PER SHARE - Schedule of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Numerator:
Net earnings (basic)	$ 9,253	$ 10,134	$ 30,647	$ 17,487
Net earnings (diluted)	$ 9,253	$ 10,134	$ 30,647	$ 17,487
Denominator:
Weighted-average shares outstanding (basic) (in shares)	12,067,769	12,113,266	12,054,426	12,271,889
Effect of dilutive securities:
Common stock equivalent shares from stock options (in shares)	143,620		155,058
Weighted-average shares outstanding (diluted) (in shares)	12,211,389	12,113,266	12,209,484	12,271,889
Net earnings per share
Basic (in USD per share)	$ 0.77	$ 0.84	$ 2.54	$ 1.43
Diluted (in USD per share)	$ 0.76	$ 0.84	$ 2.51	$ 1.43

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EARNINGS PER SHARE - Schedule of Basic and Diluted Earnings Per Share (Parenthetical) (Details)	3 Months Ended
	Mar. 31, 2021
Earnings Per Share [Abstract]
Percentage of stock dividend issued	10.00%