10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2019

OR

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

For the transition period from              to             .

Commission File Number: 001-38087

GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Texas	75-1656431
(State or other jurisdiction of incorporation or organization)	(I.R.S. 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 of Securities	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share	GNTY	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

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 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 under 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 Act). Yes ☐ No ☒

The aggregate market value of the shares of common stock held by non-affiliates based on the closing price of the common stock on the NASDAQ Global Select Market on June 28, 2019, the last day of the Registrant's most recently completed second fiscal quarter, was approximately $251.7 million.

At March 11, 2020, the Company had 11,332,513 outstanding shares of common stock, par value $1.00 per share.

Documents Incorporated By Reference:

Portions of the registrant’s Definitive Proxy Statement relating to the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2019.

GUARANTY BANCSHARES, INC.

TABLE OF CONTENTS

PART I		Page
Item 1.	Business	1
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	39
Item 2.	Properties	39
Item 3.	Legal Proceedings	39
Item 4.	Mine Safety Disclosures	40
PART II
Item 5.	Market for Registrant's Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities	40
Item 6.	Selected Financial Data	42
Item 7.	Management's Discussion and Analysis of Financial Condition and Result of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	71
Item 8.	Financial Statements and Supplementary Data	72
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	73
Item 9A.	Controls and Procedures	73
Item 9B.	Other Information	74
PART III
Item 10.	Directors, Executives Officers and Corporate Governance	74
Item 11.	Executive Compensation	74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	74
Item 13.	Certain Relationships and Related Transactions, And Director Independence	75
Item 14.	Principal Accountant Fees and Services	75
PART IV
Item 15.	Exhibits and Financial Statement Schedules	76
	Index to Exhibits	76
Item 16.	Form 10-K Summary	78
Signatures		79
Consolidated Financial Statements		F-1

PART I

ITEM 1.  BUSINESS

Our Company

Except where the context otherwise requires or where otherwise indicated, references in this Annual Report on Form 10-K to “we,” “us,” “our,” “our company,” the “Company” or “Guaranty” refer to Guaranty Bancshares, Inc. and our wholly-owned banking subsidiary, Guaranty Bank & Trust, N.A. and the terms “Bank” and "Guaranty Bank & Trust" refer to Guaranty Bank & Trust, N.A.

We are a bank holding company, with corporate headquarters in Addison, Texas and operational headquarters in Mount Pleasant, Texas, and additional executive offices in Bryan, Texas. Through our wholly owned subsidiary, Guaranty Bank & Trust, a national banking association, we provide a wide range of relationship-driven commercial and consumer banking, as well as trust and wealth management, products and services that are tailored to meet the needs of small- and medium-sized businesses, professionals and individuals.  The Bank currently operates 31 full service banking locations in East Texas, Central Texas, the Dallas/Fort Worth metropolitan statistical area (MSA) and the Houston MSA.  As of December 31, 2019, we had total assets of $2.32 billion, total net loans of $1.69 billion, total deposits of $1.96 billion and total shareholders’ equity of $261.6 million.

We completed an initial public offering of our common stock in May 2017 as an emerging growth company under the JOBS Act.  Our common stock is listed on the NASDAQ Global Select Market under the symbol "GNTY."

Our History and Growth

Guaranty Bank & Trust was originally chartered as a Texas state banking association over a century ago in 1913, and converted its charter to a national banking association in 2012.  Guaranty was incorporated in 1990 to serve as the holding company for Guaranty Bank & Trust. Since our founding, we have built a strong reputation based on financial stability and community leadership.  Our growth has been consistent and primarily organic, both through growth in our established markets and the entry into new markets with de novo banking locations.  In 2013, we expanded from our East Texas markets by opening a de novo banking location in Bryan/College Station, Texas.  In 2017, we opened de novo banking locations in Fort Worth and Austin, Texas.  We have achieved organic growth by enhancing our lending and deposit relationships with existing customers and attracting new customers, as well as cross-selling our deposit, mortgage, trust and wealth management and treasury management products.  Our expansion strategy has enabled us to access markets with stronger loan demand, achieve consistent growth, maintain stable operating efficiencies, recruit top bankers, preserve our historically conservative credit culture, and provide shareholders with stable earnings throughout credit cycles.

During the past five years, we have supplemented our organic growth and leveraged our strong deposit base with strategic acquisitions, primarily to assist with our growth in the Dallas/Fort Worth and Houston regions.  The following table summarizes, with fair value historical balances at the date of acquisition, our whole bank acquisitions during the last five years.

Institution Acquired	Location	Date Completed	Acquired Assets		Acquired Loans		Acquired Deposits		Number of Branches
(Dollars in thousands)
Westbound Bank	Houston MSA	June 2018	$	216,059	$	154,687	$	181,421	4
Texas Leadership Bank	Dallas/Fort Worth MSA	April 2015	$	76,715	$	43,568	$	65,496	1
DCB Financial	Dallas/Fort Worth MSA	March 2015	$	130,170	$	118,154	$	94,451	2

Since our initial expansion outside of East Texas in 2013, we have grown our network of banking locations from 18 banking locations in 11 Texas communities to 31 banking locations in 24 Texas communities.

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Our Community Banking Philosophy and Culture

We focus on a community-based relationship model, as opposed to a line of business model, because we believe the community-based relationship model promotes an entrepreneurial attitude within our Company while providing personal attention and solutions tailored to our customers. Our culture is one of employee ownership and it is something we take very seriously. In 2016, we formally documented our culture in a book called “The Guaranty Culture,” which we give to all prospective new hires and directors before they join our team so that they clearly understand who we are, how we work, what we believe, how we make decisions and what we admire in people.

We believe a great bank requires the right amount of two forms of capital: financial and human. We understand that our ability to successfully deploy our financial capital is directly related to our ability to bring the right talents together to lead our teams. This focus on human capital has rewarded us with a cohesive group of directors, officers and employees that we believe is our greatest asset. We have invested in a robust leadership development program designed to develop comprehensive bankers who understand all aspects of our operations and embrace our core values. The training program generally lasts 12-18 months and includes rotations through each primary department of the Bank. Successful graduates of our training program are typically promoted to a managerial position upon completion and we currently have graduates in management, lending and operational roles. Several of the Bank’s market presidents and managers are graduates of our training program.

We have developed a network of banking locations strategically positioned in separate and distinct communities. Each community where we have a banking location is overseen by a local market president or manager, and we emphasize local decision-making by experienced bankers supported by centralized risk and credit oversight. We believe that employing local decision makers, supported by industry-leading technology and centralized operational and credit administration support from our corporate headquarters, allows us to serve our customers’ individual needs while managing risk on a uniform basis. We intend to repeat this scalable model in each market in which we are able to identify high-caliber bankers with a strong banking team. We empower these bankers to implement our operating strategy, grow our customer base and provide the highest level of customer service possible. We believe our organizational approach enables us to attract and retain talented bankers and banking teams who desire the combination of the Bank’s size and loan limits, dedication to culture, commitment to our communities, local decision-making authority, compensation structure and focus on relationship banking.

Growth and Expansion Strategies

Our strategic plan is to be a leading Texas bank holding company with a commitment to operate as a community bank as we continue to execute our expansion strategy.  Our expansion strategy is to generate shareholder value through the following:

• Maintain Focus on Organic Growth.  Focusing on organic growth is a strategy that allows us to generate stable funding sources without the non-amortizing goodwill assets and core deposit intangibles that strategic acquisitions might add to our balance sheet.  We believe that core deposits have become significantly more valuable and desirable because the ability to attract core deposits at a low cost has diminished as interest rate competition from bank and non-bank sources has increased and alternative funding sources have become more expensive.  As such, we also believe that our significant core deposit franchise in East Texas provides a stable funding source for meaningful loan growth in existing and new markets.  In addition, we strive to build comprehensive banking relationships with new borrowers through deposit and treasury management products and services.  

• Pursue Strategic Acquisitions.  We intend to continue to grow through strategic acquisitions within our current markets and in other complementary markets, however the culture, economics and location of potential new acquisitions is critical in our decision making. We seek acquisitions that provide meaningful financial benefits through long-term organic growth opportunities and expense reductions, while maintaining our current risk profile.  We believe that many smaller financial institutions will consider us an ideal long-term partner due to our community banking philosophy, commitment to employee stock ownership and our culture of teamwork.

• Establish De Novo Banking Locations.  We intend to open de novo banking locations in our existing and other attractive markets in Texas to further diversify our banking location network.  In 2019, we opened a de novo banking location in the Galleria area of the Houston market and plan to open a second de novo location in Austin in 2020.

• Increase Earnings Streams.  We seek to maintain asset quality in a manner that allows us to maintain our current earnings streams, while also providing additional services such as robust treasury management,

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trust and wealth management and Small Business Association guaranteed loans to our customers in order to augment and diversify our revenue sources. For the year ended December 31, 2019, noninterest income represented approximately $17.0 million, or 17.7%, of our total revenue of $95.8 million (defined as net interest income plus noninterest income).

The charts below illustrate our meaningful asset, loan, deposit and net income growth for the last five years:

 

Although we are devoting substantial resources in furtherance of our expansion strategy, there are no assurances that we will be able to further implement our expansion strategy or that any of the components of our expansion strategy will be successful.

We believe the following competitive strengths support our growth and expansion strategy:

• Experienced Executive Management Team.  The Bank has a seasoned and experienced executive management team with more than 295 years of experience in financial services businesses.  Our executive management team has successfully managed profitable organic growth, executed acquisitions, developed a strong credit culture and implemented a relationship-based approach to commercial and consumer banking.  In addition, our executive management team has extensive knowledge of the bank regulatory landscape, significant experience navigating interest rate and credit cycles and a long history of working together.

• Employee Ownership Mentality.  As of December 31, 2019, our Company only directors, our executive officers and our employee stock ownership plan, or KSOP, as a group, beneficially owned approximately 30.2% of our outstanding shares of common stock.  Our KSOP owned 10.6% of our outstanding shares.  Many of our employees’ interests in the KSOP represent material portions of their net worth, particularly our long-tenured employees.  We believe that the KSOP’s material ownership position promotes an owner-operator mentality among our employees, from senior officers to entry-level employees, which we believe enhances our employees’ dedication to our organization and the execution of our strategy.

• Proven Successful Execution of Growth Strategies.  We have developed a strategic growth plan that allows the Company to quickly identify and efficiently execute corporate transactions that we believe enhance our geographic footprint and enterprise value.  Since 2011, we have successfully integrated ten acquired locations into our Company through what we believe is an effective combination of comprehensive integration planning, extensive management experience with expansion, and a welcoming and flexible culture of employee ownership.  In that same time period, we also established eight de novo locations

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outside of our historical East Texas market, achieving our objectives for organic growth within our anticipated time periods and successfully integrating new local management teams and employees into our Company.  Accordingly, we have a proven track record of executing value-added acquisitions and achieving consistent, meaningful organic growth.

• Scalable Platform.  Utilizing the significant prior experience of our management team and employees, we believe that we have built a strong and scalable operational platform, including technology and banking processes and infrastructure, capable of supporting future organic growth and acquisitions when the right opportunities arise. We maintain operational systems and staffing that we believe are stronger than necessarily required for a financial institution of our size in order to successfully execute integrations when needed and accommodate future growth without a commensurate need for expansion of our back office capabilities. We believe our platform allows us to focus on growing the revenue-generating divisions of our business while maintaining our operational efficiencies, resulting in improved profitability.

• Disciplined Credit Culture and Robust Risk Management Systems.  We seek to prudently mitigate and manage our risks through a disciplined, enterprise-wide approach to risk management, particularly credit, compliance, operational and interest rate risk.  All of the Bank’s executive officers serve on the Bank’s Enterprise Risk Management Committee.  We endeavor to maintain asset quality through an emphasis on local market knowledge, long-term customer relationships, consistent and thorough underwriting for all loans and a conservative credit culture.

• Brand Strength and Reputation.  We believe our brand recognition, including the Guaranty name and our iconic “G” logo, which is prominently displayed in all of our advertising and marketing materials and has been trademarked to preserve its integrity, is an important element of our business model and a key driver of our future growth.  We believe our reputation for providing personal and dependable service and active community involvement is well established in our traditional East Texas market, and we are continuously striving to replicate that brand awareness and reputation in our newer markets of the Dallas/Fort Worth metroplex, Houston metroplex and Central Texas through a high level of community involvement and the targeted hiring of employees with strong relationships and reputations within these markets.

• Stable and Growing Core Deposit Base.  We believe our traditional East Texas market provides a historically stable source of core deposits that has become a greater source of funding as interest rates have increased and core deposits have become more difficult and more expensive to attract, especially in more competitive markets. As we enter new markets, we believe that our stable core deposit base enhances our ability to pursue loans in large, high growth markets and to fund other revenue sources such as our warehouse lending division.

Our Banking Services

Lending Activities.  We offer a variety of loans, including commercial lines of credit, working capital loans, commercial real estate-backed loans (including loans secured by owner occupied commercial properties), term loans, equipment financing, acquisition, expansion and development loans, borrowing base loans, real estate construction loans, homebuilder loans, letters of credit and other loan products to small- and medium-sized businesses, real estate developers, mortgage lenders, manufacturing and industrial companies and other businesses. We also offer various consumer loans to individuals and professionals including residential real estate loans, home equity loans, installment loans, unsecured and secured personal lines of credit, and standby letters of credit. Lending activities originate from the efforts of our bankers, with an emphasis on lending to individuals, professionals, small- to medium-sized businesses and commercial companies located in our market areas. Although all lending involves a degree of risk, we believe that commercial business loans and commercial real estate loans present greater risks than other types of loans in our portfolio. We work to mitigate these risks through conservative underwriting policies and consistent monitoring of credit quality indicators.

We adhere to what we believe are disciplined underwriting standards, but also remain cognizant of the need to serve the credit needs of customers in our primary market areas by offering flexible loan solutions in a responsive and timely manner. We maintain asset quality through an emphasis on local market knowledge, long-term customer relationships, consistent and thorough underwriting for all loans and a conservative credit culture. We also seek to maintain a broadly diversified loan portfolio across customer, product and industry types. Our lending policies do not provide for any loans that are highly speculative, subprime, or that have high loan-to-value ratios. These components, together with active credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long-term value of our organization to our customers, employees, shareholders and communities.

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We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based culture. Substantially all of our loans are made to borrowers located or operating in our primary market areas with whom we have ongoing relationships across various product lines. The limited number of loans secured by properties located in out-of-market areas have been made strictly to borrowers who are well-known to us.

Our credit approval policies provide for various levels of officer and senior management lending authority for new credits and renewals, which are based on position, capability and experience. Loans in excess of an individual officer’s lending limit may be approved by two or more executive officers, with stacking authority, combining their individual lending limits, up to a current maximum of $2.5 million. Loans presenting aggregate lending exposure in excess of $2.5 million are subject to approval of the Bank’s Directors’ Loan Committee. These limits are reviewed periodically by the Bank’s board of directors. We believe that our credit approval process provides for thorough underwriting and efficient decision making.

Credit risk management involves a partnership between our loan officers and our credit approval, credit administration and collections personnel. We conduct monthly loan meetings, attended by substantially all of our loan officers, related loan production staff and credit administration staff at which asset quality and delinquencies are reviewed. Our evaluation and compensation program for our loan officers includes significant goals, such as the percentages of past due loans and charge-offs to total loans in the officer’s portfolio, that we believe motivate the loan officers to focus on the origination and maintenance of high quality credits consistent with our strategic focus on asset quality.

Deposit Activities.  Our deposits serve as the primary funding source for lending, investing and other general banking purposes. We provide a full range of deposit products and services, including a variety of checking and savings accounts, certificates of deposit, money market accounts, debit cards, remote deposit capture, online banking, mobile banking, e-Statements, bank-by-mail and direct deposit services. We also offer business accounts and cash management services, including business checking and savings accounts and treasury management services. We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community focused marketing. We also seek to cross-sell deposit products at loan origination.

Given the diverse nature of our banking location network and our relationship-driven approach to our customers, we believe our deposit base is comparatively less sensitive to interest rate variations than our competitors. Nevertheless, we attempt to competitively price our deposit products to promote core deposit growth. We believe that our loan pricing encourages deposits from our loan customers.

Guaranty Bank & Trust Wealth Management Group.  We deliver a comprehensive suite of trust services through Guaranty Bank & Trust Wealth Management Group, a division of our Bank.  We provide traditional trustee, custodial and escrow services for institutional and individual accounts, including corporate escrow accounts, serving as custodian for self-directed individual retirement accounts and other retirement accounts. In addition, we offer clients comprehensive investment management solutions whereby we manage all or a portion of a client’s investment portfolio on a discretionary basis. Finally, we provide retirement plan services, such as 401(k) programs, through a national vendor.

Other Products and Services.  We offer banking products and services that are attractively priced with a focus on customer convenience and accessibility. We offer a full suite of online banking services including access to account balances, online transfers, online bill payment and electronic delivery of customer statements, as well as ATMs, and banking by telephone, mail and personal appointment. We also offer debit cards, night depository, direct deposit, cashier’s checks, and letters of credit, as well as treasury management services, including wire transfer services, positive pay, remote deposit capture and automated clearinghouse services.

Investments

We manage our investment portfolio primarily for liquidity purposes, with a secondary focus on returns. We separate our portfolio into two categories: (1) short-term investments with maturities less than one year, including federal funds sold; and (2) investments with maturities exceeding one year (the current duration is approximately 3.5 years), all of which are classified as either available-for-sale or held-to-maturity and can be used for pledging on public deposits, selling under repurchase agreements and meeting unforeseen liquidity needs.  We regularly evaluate the composition of this category as changes occur with respect to the interest rate yield curve. Although we may sell investment securities from time to time to take advantage of changes in interest rate spreads, it is our policy not to sell investment securities unless we can reinvest the proceeds at a similar or higher spread, so as not to take gains to the detriment of future income.

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Our Markets

We consider our current market regions to be East Texas, Central Texas, the Dallas/Fort Worth MSA and the Houston MSA. We serve these communities from our corporate headquarters in Addison, Texas, our operational headquarters in Mount Pleasant, Texas and through a network of 15 banking locations within East Texas, four banking locations in Central Texas, seven banking locations in the Dallas/Fort Worth metroplex and five banking locations in the Houston metroplex.  As part of our strategic plan, we intend to further diversify our markets through entry into other large metropolitan markets in Texas and/or continued expansion in our existing newer markets.

Competition

The banking and financial services industry is highly competitive, and we compete with a wide range of financial institutions within our markets, including local, regional and national commercial banks and credit unions. We also compete with mortgage companies, brokerage firms, consumer finance companies, mutual funds, securities firms, insurance companies, third-party payment processors, fintech companies and other financial intermediaries for certain of our products and services. Some of our competitors are not subject to the regulatory restrictions and level of regulatory supervision applicable to us.

Interest rates on loans and deposits, as well as prices on fee-based services, are typically significant competitive factors within banking and financial services industry. Many of our competitors are much larger financial institutions that have greater financial resources than we do and compete aggressively for market share. These competitors attempt to gain market share through their financial product mix, pricing strategies and banking center locations. Other important competitive factors in our industry and markets include office locations and hours, quality of customer service, community reputation, continuity of personnel and services, capacity and willingness to extend credit, and ability to offer sophisticated banking products and services. While we seek to remain competitive with respect to fees charged, interest rates and pricing, we believe that our broad and sophisticated commercial banking product suite, our high-quality customer service culture, our positive reputation and long-standing community relationships will enable us to compete successfully within our markets and enhance our ability to attract and retain customers.

Our Employees

As of December 31, 2019, we employed 467 full-time equivalent persons. We provide extensive training to our employees in an effort to ensure that our customers receive superior customer service. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. We consider our relations with our employees to be good.

Our Corporate Information

Our principal executive offices are located at 16475 Dallas Parkway, Suite 600, Addison, Texas 75001, and our telephone number is (888) 572-9881.  Our website is www.gnty.com.  We make available at this address, free of charge, our annual report on Form 10-K, our annual report to shareholders, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, or the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission, or SEC.  These documents are also available on the SEC's website at www.sec.gov.  The information contained on or accessible from our website does not constitute part of this Annual Report on Form 10-K and is not incorporated by reference herein.

Supervision and Regulation

The U.S. banking industry is highly regulated under federal and state law. Consequently, our growth and earnings performance will be affected not only by management decisions and general and local economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities.  These authorities include the Federal Reserve, Federal Deposit Insurance Corporation ("FDIC"), Consumer Financial Protection Bureau ("CFPB"), Office of the Comptroller of the Currency ("OCC), Internal Revenue Service ("IRS") and state taxing authorities.  The effect of these statutes, regulations and policies, and any changes to such statutes, regulations and policies, can be significant and cannot be predicted.

The material statutory and regulatory requirements that are applicable to the Company and its subsidiaries are summarized below. The description below is not intended to summarize all laws and regulations applicable to the Company and its subsidiaries, and is based upon the statutes, regulations, policies, interpretive letters and other written guidance that are in effect as of the date of this Annual Report on Form 10-K.

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Guaranty Bancshares, Inc.

As a bank holding company, we are subject to regulation under the Bank Holding Company Act of 1956, or the BHC Act, and to supervision, examination and enforcement by the Federal Reserve.  The BHC Act and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.  The Federal Reserve’s jurisdiction also extends to any company that we directly or indirectly control, such as any nonbank subsidiaries and other companies in which we own a controlling investment.

Financial Services Industry Reform.  In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, was enacted.  The Dodd-Frank Act broadly affected the financial services industry by implementing changes to the financial regulatory landscape aimed at strengthening the sound operation of the financial services sector.

In addition, the Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters affecting publicly-traded companies.  However, the Jumpstart our Business Startups Act of 2012, or JOBS Act, provided certain exceptions to these requirements for so long as a publicly-traded company qualifies as an emerging growth company. In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act, or EGRRCPA, revised certain aspects of the Dodd-Frank Act. Among other things, EGRRCPA exempts banks with less than $10 billion in assets (and total trading assets and trading liabilities of 5% or less of total assets) from Volcker Rule requirements relating to proprietary trading and clarifies definitions pertaining to HVCRE, which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings.  Further changes effected by the passage of EGRRCPA are discussed below.

Revised Rules on Regulatory Capital.  Regulatory capital rules pursuant to the Basel III requirements, released in July 2013 and effective January 1, 2015, implemented higher minimum capital requirements for bank holding companies and banks.  These rules include a new common equity Tier 1, or CET1, capital requirement and establish criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital.  The revised capital rules require banks and bank holding companies to maintain a minimum CET1 capital ratio of 4.5% of risk-based assets, a total Tier 1 capital ratio of 6.0% of risk-based assets, a total capital ratio of 8.0% of risk-based assets and a leverage ratio of 4.0% of average assets.

The capital rules also require banks to maintain a CET1 capital ratio of 6.5%, a total Tier 1 capital ratio of 8.0%, a total capital ratio of 10.0% and a leverage ratio of 5.0% to be deemed “well capitalized” for purposes of certain rules and prompt corrective action requirements.  The risk-based ratios include a “capital conservation buffer” of 2.5% above its minimum risk-based capital requirements that must be composed of common equity Tier 1 capital.  This buffer will help to ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress.  The buffer is measured relative to risk-weighted assets.  An institution would be subject to limitations on certain activities including payment of dividends, share repurchases and discretionary bonuses to executive officers if its capital level is below the buffered ratio.

The EGRRCPA directed the federal banking agencies to develop a new, optional capital ratio for use by eligible community banks. Effective January 1, 2020, certain banks and their holding companies that satisfy the definition of a qualifying community banking organization, or QCBO, have the option to elect out of complying with the Basel III Capital Rules and to instead comply with the community bank leverage ratio, or CBLR, of 9%.

A QCBO is defined as a bank, a savings association, a bank holding company or a savings and loan holding company with:

• total consolidated assets of less than $10 billion;

• total off-balance sheet exposures (excluding derivatives other than credit derivatives and unconditionally cancelable commitments) of 25% or less of total consolidated assets;

• total trading assets and trading liabilities of 5% or less of total consolidated assets;

• MSAs of 25% or less of CBLR tangible equity; and

• temporary difference DTAs of 25% or less of CBLR tangible equity.

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A QCBO may elect out of complying with the Basel III Capital Rules if, at the time of the election, the QCBO has a CBLR above 9%. The numerator of the CBLR is referred to as ‘‘CBLR tangible equity’’ and is calculated as the QCBO’s total capital as reported in compliance with Call Report and FR Y-9C instructions, or Reporting Instructions (prior to including non-controlling interests in consolidated subsidiaries) less:

• Accumulated other comprehensive income (referred to in the industry as AOCI);

• Intangible assets, calculated in accordance with Reporting Instructions, other than mortgage servicing assets; and

• Deferred tax assets that arise from net operating loss and tax credit carry forwards net of any related valuations allowances.

The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with Reporting Instructions and less intangible assets and deferred tax assets deducted from CBLR tangible equity.  At this time, the Company and the Bank have not elected to comply with the community bank leverage ratio framework, but the Company and the Bank will continue to consider making such election in the future.

Imposition of Liability for Undercapitalized Subsidiaries.  Bank regulators are required to take prompt corrective action to resolve problems associated with insured depository institutions whose capital declines below certain levels.  In the event an institution becomes undercapitalized, it must submit a capital restoration plan.  The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan up to a certain specified amount.  Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.

The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5.0% of the institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be adequately capitalized.  The bank regulators have greater power in situations where an institution becomes significantly or critically undercapitalized or fails to submit a capital restoration plan.  For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve approval of proposed dividends, or might be required to consent to a consolidation or to divest the troubled institution or other affiliates.

Acquisitions by Bank Holding Companies.  The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before it acquires all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank or bank holding company if after such acquisition it would own or control, directly or indirectly, more than 5.0% of the voting shares of such bank or bank holding company.  In approving bank or bank holding company acquisitions by bank holding companies, the Federal Reserve is required to consider, among other things, the effect of the acquisition on competition, the financial condition, managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served (including the record of performance under the CRA), the effectiveness of the applicant in combating money laundering activities and the extent to which the proposed acquisition would result in greater or more concentrated risks to the stability of the U.S.  banking or financial system.  Our ability to make future acquisitions will depend on our ability to obtain approval for such acquisitions from the Federal Reserve.  The Federal Reserve could deny our application based on the above criteria or other considerations.  For example, we could be required to sell banking centers as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of a proposed acquisition.

Control Acquisitions.  Federal and state laws, including the BHC Act and the Change in Bank Control Act, or CBCA, impose additional prior notice or approval requirements and ongoing regulatory requirements on any investor that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or bank holding company.  Whether an investor “controls” a depository institution is based on all of the facts and circumstances surrounding the investment.  As a general matter, an investor is deemed to control a depository institution or other company if the investor owns or controls 25.0% or more of any class of voting securities.  Subject to rebuttal, an investor is presumed to control a depository institution or other company if the investor owns or controls 10.0% or more of any class of voting securities and either the depository institution or company is a public company or no other person will hold a greater percentage of that class of voting securities after the acquisition.  If an investor’s ownership of our voting securities were to exceed certain thresholds, the investor could be deemed to “control” us for regulatory purposes, which could subject such investor to regulatory filings or other regulatory consequences.  The requirements of the BHC Act and the CBCA could limit our access to capital and could limit parties who could acquire shares of our common stock.

Regulatory Restrictions on Dividends; Source of Strength.  Guaranty Bancshares, Inc. is regarded as a legal entity separate and distinct from Guaranty Bank & Trust.  The principal source of the Company’s revenues is dividends received from Guaranty Bank & Trust.  Federal law currently imposes limitations upon certain capital distributions by

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national banks, such as certain cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital.  The Federal Reserve and OCC regulate all capital distributions by the Bank directly or indirectly to the Company, including dividend payments.  The Federal Reserve has issued a policy statement that provides that a bank holding company should not pay dividends unless (1) its net income over the last four quarters (net of dividends paid) has been sufficient to fully fund the dividends, (2) the prospective rate of earnings retention appears to be consistent with the capital needs, asset quality and overall financial condition of the bank holding company and its subsidiaries and (3) the bank holding company will continue to meet minimum required capital adequacy ratios.  Accordingly, we should not pay cash dividends that exceed our net income in any year or that can only be funded in ways that weaken our financial strength, including by borrowing money to pay dividends.

Under Federal Reserve policy, bank holding companies have historically been required to act as a source of financial and managerial strength to each of their banking subsidiaries, and the Dodd-Frank Act codified this policy as a statutory requirement.  Under this requirement, the Company is expected to commit resources to support Guaranty Bank & Trust, including at times when we may not be in a financial position to provide such resources.  Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks.  As discussed below, a bank holding company, in certain circumstances, could be required to guarantee the capital restoration plan of an undercapitalized banking subsidiary.  If the capital of Guaranty Bank & Trust were to become impaired, the Federal Reserve could assess the Company for the deficiency.  If the Company failed to pay the assessment within three months, the Federal Reserve could order the sale of the Company’s stock in Guaranty Bank & Trust to cover the deficiency.

In the event of a bank holding company’s bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and will be required to cure immediately any deficit under any commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for breach of such obligation will generally have priority over most other unsecured claims.

Scope of Permissible Activities.  Under the BHC Act, the Company is prohibited from acquiring a direct or indirect interest in or control of more than 5.0% of the voting shares of any company that is not a bank or financial holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to or performing services for its subsidiary banks, except that the Company may engage in, directly or indirectly, and may own shares of companies engaged in certain activities found by the Federal Reserve to be so closely related to banking or managing and controlling banks as to be a proper incident thereto.  These activities include, among others, operating a mortgage, finance, credit card or factoring company; performing certain data processing operations; providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, nonoperating basis; and providing certain stock brokerage and investment advisory services.  In approving acquisitions or the addition of activities, the Federal Reserve considers, among other things, whether the acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.

Notwithstanding the foregoing, the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, effective March 11, 2000, or the GLB Act, amended the BHC Act and eliminated the barriers to affiliations among banks, securities firms, insurance companies and other financial service providers.  The GLB Act permitted bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature.  The GLB Act defines “financial in nature” to include, among other things, securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve has determined to be closely related to banking.  No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve.  We currently have no plans to make a financial holding company election, although we may make a financial holding company election in the future if we desire to engage in any lines of business that are impermissible for bank holding companies but permissible for financial holding companies.

Safe and Sound Banking Practices.  Bank holding companies are not permitted to engage in unsafe and unsound banking practices.  The Federal Reserve’s Regulation Y, for example, generally requires a bank holding company to provide the Federal Reserve with prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding

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year, is equal to 10.0% or more of the bank holding company’s consolidated net worth.  The Federal Reserve may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation.  In certain circumstances, the Federal Reserve could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

The Federal Reserve has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries which represent unsafe and unsound banking practices, result in breaches of fiduciary duty or which constitute violations of laws or regulations, and can assess civil money penalties or impose enforcement action for such activities.  The penalties can be as high as $1,000,000 for each day the activity continues.

Anti-tying Restrictions.  Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as extensions of credit, to other nonbanking services offered by a bank holding company or its affiliates.

Guaranty Bank & Trust, N.A.

The Bank is subject to various requirements and restrictions under the laws of the United States, and to regulation, supervision and examination by the OCC.  The Bank is also an insured depository institution and, therefore, subject to regulation by the FDIC, although the OCC is the Bank’s primary federal regulator.  The OCC and the FDIC have the power to enforce compliance with applicable banking statutes and regulations.  Such requirements and restrictions include requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon and restrictions relating to investments and other activities of the Bank.

Capital Adequacy Requirements.  The OCC monitors the capital adequacy of the Bank by using a combination of risk-based guidelines and leverage ratios.  The OCC considers the Bank’s capital levels when taking action on various types of applications and when conducting supervisory activities related to the safety and soundness of the Bank and the banking system.  Under the revised capital rules which became effective on January 1, 2015, national banks are required to maintain four minimum capital standards: (1) a Tier 1 capital to adjusted total assets ratio, or “leverage capital ratio,” of at least 4.0%, (2) a Tier 1 capital to risk-weighted assets ratio, or “Tier 1 risk-based capital ratio,” of at least 6.0%, (3) a total risk-based capital (Tier 1 plus Tier 2) to risk-weighted assets ratio, or “total risk-based capital ratio,” of at least 8.0%, and (4) a CET1 capital ratio of 4.5%.  In addition, the OCC’s prompt corrective action standards discussed below, in effect, increase the minimum regulatory capital ratios for banking organizations.  These capital requirements are minimum requirements.  Higher capital levels may be required if warranted by the particular circumstances or risk profiles of individual institutions, or if required by the banking regulators due to the economic conditions impacting our market.  For example, OCC regulations provide that higher capital may be required to take adequate account of, among other things, interest rate risk and the risks posed by concentrations of credit, nontraditional activities or securities trading activities.

Corrective Measures for Capital Deficiencies.  The federal banking regulators are required by the Federal Deposit Insurance Act, or FDI Act, to take “prompt corrective action” with respect to capital-deficient institutions that are FDIC-insured.  Agency regulations define, for each capital category, the levels at which institutions are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.”  Under the revised capital rules, which became effective on January 1, 2015, a “well capitalized” bank has a total risk-based capital ratio of 10.0% or higher, a Tier 1 risk-based capital ratio of 8.0% or higher, a leverage ratio of 5.0% or higher, a CET1 capital ratio of 6.5% or higher, and is not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure.  An “adequately capitalized” bank has a total risk-based capital ratio of 8.0% or higher, a Tier 1 risk-based capital ratio of 6.0% or higher, a leverage ratio of 4.0% or higher (3.0% or higher if the bank was rated a composite 1 in its most recent examination report and is not experiencing significant growth), a CET1 capital ratio of 4.5% or higher, and does not meet the criteria for a well-capitalized bank.  A bank is “undercapitalized” if it fails to meet any one of the ratios required to be adequately capitalized.

In addition to requiring undercapitalized institutions to submit a capital restoration plan, agency regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business.  With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment.

As a national bank’s capital decreases, the OCC’s enforcement powers become more severe.  A significantly undercapitalized national bank is subject to mandated capital raising activities, restrictions on interest rates paid and

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transactions with affiliates, removal of management and other restrictions.  The OCC has very limited discretion in dealing with a critically undercapitalized national bank and is virtually required to appoint a receiver or conservator.

Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.

Branching.  National banks are required by the National Bank Act to adhere to branching laws applicable to state banks in the states in which they are located.  Under the Dodd-Frank Act, de novo interstate branching by national banks is permitted if, under the laws of the state where the branch is to be located, a state bank chartered in that state would have been permitted to establish a branch.  Under current Texas law, banks are permitted to establish branch offices throughout Texas with prior regulatory approval.  In addition, with prior regulatory approval, banks are permitted to acquire branches of existing banks located in Texas.  Banks located in Texas may also branch across state lines by merging with banks or by purchasing a branch of another bank in other states if allowed by the applicable states’ laws.

Restrictions on Transactions with Affiliates and Insiders.  Transactions between the Bank and its nonbanking subsidiaries and/or affiliates, including the Company, are subject to Section 23A and 23B of the Federal Reserve Act and Regulation.  

In general, Section 23A of the Federal Reserve Act imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties.  It also limits the amount of advances to third parties which are collateralized by the securities or obligations of the Company or its subsidiaries.  Covered transactions with any single affiliate may not exceed 10.0% of the capital stock and surplus of the Bank, and covered transactions with all affiliates may not exceed, in the aggregate, 20.0% of the Bank’s capital and surplus.  For a bank, capital stock and surplus refers to the bank’s Tier 1 and Tier 2 capital, as calculated under the risk-based capital guidelines, plus the balance of the allowance for credit losses excluded from Tier 2 capital.  The Bank’s transactions with all of its affiliates in the aggregate are limited to 20.0% of the foregoing capital.  “Covered transactions” are defined by statute to include a loan or extension of credit to an affiliate, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.  In addition, in connection with covered transactions that are extensions of credit, the Bank may be required to hold collateral to provide added security to the Bank, and the types of permissible collateral may be limited.  The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates, including an expansion of what types of transactions are covered transactions to include credit exposures related to derivatives, repurchase agreement and securities lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied.

Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving other nonaffiliated persons.  The Federal Reserve has also issued Regulation W which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretive guidance with respect to affiliate transactions.

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The restrictions on loans to directors, executive officers, principal shareholders and their related interests (collectively referred to herein as “insiders”) contained in Section 22(h) of the Federal Reserve Act and in Regulation O promulgated by the Federal Reserve apply to all insured institutions and their subsidiaries and bank holding companies.  These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made.  There is also an aggregate limitation on all loans to insiders and their related interests.  Generally, the aggregate of these loans cannot exceed the institution’s total unimpaired capital and surplus, although a bank’s regulators may determine that a lesser amount is appropriate.  Loans to senior executive officers of a bank are even further restricted.  Insiders are subject to enforcement actions for accepting loans in violation of applicable restrictions.

Restrictions on Distribution of Bank Dividends and Assets.  Dividends paid by the Bank have provided a substantial part of the Company’s operating funds and for the foreseeable future it is anticipated that dividends paid by the Bank to the Company will continue to be our principal source of operating funds.  Earnings and capital adequacy requirements serve to limit the amount of dividends that may be paid by the Bank.  In general terms, federal law provides that the Bank’s board of directors may, from time to time and as it deems expedient, declare a dividend out of its net profits.  Generally, the total of all dividends declared in a year shall not, unless approved by the OCC, exceed the net profits of that year combined with its net profits of the past two years.  At December 31, 2019, the Bank had $18.5 million available for payment of dividends.

In addition, under the Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, the Bank may not pay any dividend if it is undercapitalized or the payment of the dividend would cause it to become undercapitalized.  The OCC may further restrict the payment of dividends by requiring that the Bank maintain a higher level of capital than otherwise required for it to be adequately capitalized for regulatory purposes.  Moreover, if, in the opinion of the OCC, the Bank is engaged in an unsound practice (which could include the payment of dividends), it may require, generally after notice and hearing, that the Bank cease such practice.  The OCC has indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe banking practice.  The OCC has also issued policy statements providing that insured depository institutions generally should pay dividends only out of current operating earnings.

Further, in the event of a liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its shareholders, including any depository institution holding company (such as us) or any shareholder or creditor thereof.

Incentive Compensation Guidance.  The federal banking agencies have issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.  The incentive compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes.  The incentive compensation guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon three primary principles: (1) balanced risk-taking incentives, (2) compatibility with effective controls and risk management and (3) strong corporate governance.  Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or take other actions.  In addition, under the incentive compensation guidance, a banking organization’s federal supervisor may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization.  Further, a provision of the Basel III capital standards described above would limit discretionary bonus payments to bank executives if the institution’s regulatory capital ratios fail to exceed certain thresholds.  A number of federal regulatory agencies proposed rules that would require enhanced disclosure of incentive-based compensation arrangements initially in April 2011, and again in April and May 2016, but the rules have not been finalized and would mostly apply to banking organizations with over $50 billion in total assets.  The scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future.

Audit Reports.  For insured institutions with total assets of $1.0 billion or more, requirements include financial statements prepared in accordance with GAAP, management’s certifications signed by our and the Bank’s chief executive officer and chief accounting or financial officer concerning management’s responsibility for the financial statements, and an attestation by the auditors regarding the Bank’s internal controls must be submitted.  For institutions with total assets of more than $3.0 billion, independent auditors may be required to review quarterly financial statements.  FDICIA requires that the Bank have an independent audit committee, consisting of outside directors who are independent of management of the Bank.  The committees of such institutions must include members with experience in banking or financial

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management, must have access to outside counsel and must not include representatives of large customers.  The Bank’s audit committee consists entirely of independent directors.

Deposit Insurance Assessments.  The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor through the Deposit Insurance Fund and safeguards the safety and soundness of the banking and thrift industries.  The maximum amount of deposit insurance for banks and savings institutions is $250,000 per depositor.  The amount of FDIC assessments paid by each insured depository institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors and is calculated based on an institution’s average consolidated total assets minus average tangible equity.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance.  At least semi-annually, the FDIC will update its loss and income projections for the Deposit Insurance Fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required.  If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, the Bank may be required to pay higher FDIC insurance premiums.  Any future increases in FDIC insurance premiums may have a material and adverse effect on our earnings.

Financial Modernization.  Under the GLB Act, banks may establish financial subsidiaries and engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting as principal, insurance company portfolio investment, real estate development, real estate investment, annuity issuance and merchant banking activities.  To do so, a bank must be well capitalized, well managed and have a CRA rating from its primary federal regulator of satisfactory or better.  Subsidiary banks of financial holding companies or banks with financial subsidiaries must remain well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions.  Such actions or restrictions could include divestiture of the “financial in nature” subsidiary or subsidiaries.  In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of satisfactory of better.  Neither we nor the Bank maintains a financial subsidiary.

Brokered Deposit Restrictions.  Insured depository institutions that are categorized as adequately capitalized institutions under the FDI Act and corresponding federal regulations cannot accept, renew or roll over brokered deposits, without receiving a waiver from the FDIC, and are subject to restrictions on the interest rates that can be paid on any deposits.  The EGRRCPA exempted reciprocal deposits from the definition of brokered deposits.  Insured depository institutions that are categorized as undercapitalized capitalized institutions under the FDI Act and corresponding federal regulations may not accept, renew, or roll over brokered deposits.  The Bank is not currently subject to such restrictions.

Concentrated Commercial Real Estate Lending Regulations.  The federal banking regulatory agencies have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.  The guidance provides that a bank has a concentration in commercial real estate lending if (1) total reported loans for acquisition, construction, land development, and other land represent 100.0% or more of total capital or (2) total reported loans secured by multifamily and nonfarm residential properties and loans for acquisition, construction, land development, and other land represent 300.0% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.  Owner occupied loans are excluded from this second category.  If a concentration is present, management must employ heightened risk management practices that address, among other things, Board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending.  We are currently operating with real estate loan portfolios within such percentage levels.

Community Reinvestment Act.  The CRA and the regulations issued thereunder are intended to encourage banks to help meet the credit needs of their entire assessment area, including low and moderate income neighborhoods, consistent with the safe and sound operations of such banks.  These regulations also provide for regulatory assessment of a bank’s record in meeting the needs of its assessment area when considering applications to establish branches, merger applications and applications to acquire the assets and assume the liabilities of another bank.  The Financial Institution Reform Recovery and Enforcement Act, or FIRREA, requires federal banking agencies to make public a rating of a bank’s performance under the CRA.  In the case of a bank holding company, the CRA performance record of the banks involved in the transaction are reviewed in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or to merge with any other bank holding company.  An unsatisfactory CRA record could substantially delay approval or result in denial of an application.  The Bank received a “satisfactory” rating in its most recent CRA examination.

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Consumer Laws and Regulations.  The Bank is subject to numerous laws and regulations intended to protect consumers in transactions with the Bank.  These laws include, among others, laws regarding unfair, deceptive and abusive acts and practices, usury laws, and other federal consumer protection statutes.  These federal laws include the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Real Estate Procedures Act of 1974, the S.A.F.E. Mortgage Licensing Act of 2008, the Truth in Lending Act and the Truth in Savings Act, among others.  Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those enacted under federal law.  These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans and conducting other types of transactions.  Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission and registration rights, action by state and local attorneys general and civil or criminal liability.

In addition, the Dodd-Frank Act created the CFPB.  The CFPB has broad authority to regulate the offering and provision of consumer financial products.  The Dodd-Frank Act gives the CFPB authority to supervise and examine depository institutions with more than $10.0 billion in assets for compliance with these federal consumer laws.  The authority to supervise and examine depository institutions with $10.0 billion or less in assets for compliance with federal consumer laws remains largely with those institutions’ primary regulators.  However, the CFPB may participate in examinations of these smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators.  Accordingly, the CFPB may participate in examinations of the Bank, which currently has assets of less than $10.0 billion, and could supervise and examine our other direct or indirect subsidiaries that offer consumer financial products or services.  The CFPB also has supervisory and examination authority over certain nonbank institutions that offer consumer financial products.  The Dodd-Frank Act identifies a number of covered nonbank institutions, and also authorizes the CFPB to identify additional institutions that will be subject to its jurisdiction.  In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.

Mortgage Lending Rules.  The Dodd-Frank Act authorized the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’s ability to repay.  Under the Dodd-Frank Act and related rules, financial institutions may not make a residential mortgage loan unless they make a “reasonable and good faith determination” that the consumer has a “reasonable ability” to repay the loan.  The Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure but provides a full or partial safe harbor from such defenses for loans that are “qualified mortgages.”  The rules define “qualified mortgages,” imposing both underwriting standards - for example, a borrower’s debt-to-income ratio may not exceed 43.0% - and limits on the terms of their loans.  Certain loans, including interest-only loans and negative amortization loans, cannot be qualified mortgages.  EGRRCPA, among other matters, expanded the definition of qualified mortgages for banks with less than $10 billion in assets.

Anti-Money Laundering and OFAC.  Under federal law, including the Bank Secrecy Act, or BSA, and the USA PATRIOT Act of 2001, certain financial institutions, such as the Bank, must maintain anti-money laundering programs that include established internal policies, procedures and controls; a designated BSA officer; an ongoing employee training program; and testing of the program by an independent audit function.  Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification especially in their dealings with foreign financial institutions and foreign customers.  Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and law enforcement authorities have been granted increased access to financial information maintained by financial institutions.  The Financial Crimes Enforcement Network, or FinCEN, issued final rules under the BSA in July 2016 that clarify and strengthen the due diligence requirements for banks with regard to their customers.

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The Office of Foreign Assets Control, or OFAC, administers laws and Executive Orders that prohibit U.S.  entities from engaging in transactions with certain prohibited parties.  OFAC publishes lists of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons.  Generally, if a bank identifies a transaction, account or wire transfer relating to a person or entity on an OFAC list, it must freeze the account or block the transaction, file a suspicious activity report and notify the appropriate authorities.

Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s compliance in connection with the regulatory review of applications, including applications for bank mergers and acquisitions.  Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing and comply with OFAC sanctions, or to comply with relevant laws and regulations, could have serious legal, reputational and financial consequences for the institution.

Privacy.  The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.  These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party.  These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside vendors.  In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.  Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.  In addition to applicable federal privacy regulations, the Bank is subject to certain state privacy laws.

Federal Home Loan Bank System.  The FHLB system, of which the Bank is a member, consists of 12 regional FHLBs governed and regulated by the Federal Housing Finance Board, or FHFB.  The FHLBs serve as reserve or credit facilities for member institutions within their assigned regions.  The reserves are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB system.  The FHLBs make loans (i.e., advances) to members in accordance with policies and procedures established by the FHLB and the Boards of directors of each regional FHLB.

As a system member, according to currently existing policies and procedures, the Bank is entitled to borrow from the Dallas FHLB provided it posts acceptable collateral.  The Bank is also required to own a certain amount of capital stock in the FHLB.  The Bank is in compliance with the stock ownership rules with respect to such advances, commitments and letters of credit and collateral requirements with respect to home mortgage loans and similar obligations.  All loans, advances and other extensions of credit made by the FHLB to the Bank are secured by a portion of the respective mortgage loan portfolio, certain other investments and the capital stock of the FHLB held by the Bank.

Enforcement Powers.  The federal banking agencies, including our primary federal regulator, the OCC, have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver.  Failure to comply with applicable laws, regulations and supervisory agreements, breaches of fiduciary duty or the maintenance of unsafe and unsound conditions or practices could subject the Company or the Bank and their subsidiaries, as well as their respective officers, directors, and other institution-affiliated parties, to administrative sanctions and potentially substantial civil money penalties.  For example, the regulatory authorities may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.

Effect of Governmental Monetary Policies

The commercial banking business is affected not only by general economic conditions but also by U.S.  fiscal policy and the monetary policies of the Federal Reserve.  Some of the instruments of monetary policy available to the Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of borrowings at the “discount window,” open market operations, the imposition of and changes in reserve requirements against member banks’ deposits and certain borrowings by banks and their affiliates and assets of foreign branches.  These policies influence to a significant extent the overall growth of bank loans, investments, and deposits and the interest rates charged on loans or paid on deposits.  We cannot predict the nature of future fiscal and monetary policies or the effect of these policies on our operations and activities, financial condition, results of operations, growth plans or future prospects.

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Impact of Current Laws and Regulations

The cumulative effect of these laws and regulations, while providing certain benefits, adds significantly to the cost of our operations and thus have a negative impact on our profitability.  There has also been a notable expansion in recent years of financial service providers that are not subject to the examination, oversight, and other rules and regulations to which we are subject.  Those providers, because they are not so highly regulated, may have a competitive advantage over us and may continue to draw large amounts of funds away from traditional banking institutions, with a continuing adverse effect on the banking industry in general.

Future Legislation and Regulatory Reform

In light of current economic conditions, regulators have increased their focus on the regulation of financial institutions.  From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures.  New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions operating in the United States.  We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.  Future legislation, regulation and policies, and the effects of that legislation and regulation and those policies, may have a significant influence on our operations and activities, financial condition, results of operations, growth plans or future prospects and the overall growth and distribution of loans, investments and deposits.  Such legislation, regulation and policies have had a significant effect on the operations and activities, financial condition, results of operations, growth plans and future prospects of commercial banks in the past and are expected to continue to do so.

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ITEM 1A.  RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider the risks described below, together with all other information included in this Annual Report on Form 10‑K, including the disclosures in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in “Item 8. Financial Statements and Supplementary Data.” We believe the risks described below are the risks that are material to us as of the date of this Annual Report on Form 10‑K. If any of the following risks actually occur, our business, financial condition, results of operations and growth prospects could be materially and adversely affected. In that case, you could experience a partial or complete loss of your investment.

Risks Related to Our Business

We may not be able to implement aspects of our expansion strategy, which may adversely affect our ability to maintain our historical earnings trends.

Our expansion strategy focuses on organic growth, supplemented by strategic acquisitions and expansion of the Bank’s banking location network, or de novo branching.  We may not be able to execute on aspects of our expansion strategy, which may impair our ability to sustain our historical rate of growth or prevent us from growing at all.  More specifically, we may not be able to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth or find suitable acquisition candidates.  Various factors, such as economic conditions and competition with other financial institutions, may impede or prohibit the growth of our operations, the opening of new banking locations and the consummation of acquisitions.  Further, we may be unable to attract and retain experienced bankers, which could adversely affect our growth.  The success of our strategy also depends on our ability to effectively manage growth, which is dependent upon a number of factors, including our ability to adapt our credit, operational, technology and governance infrastructure to accommodate expanded operations.  If we fail to implement one or more aspects of our strategy, we may be unable to maintain our historical earnings trends, which could have an adverse effect on our business, financial condition and results of operations.

We may not be able to manage the risks associated with our anticipated growth and expansion through de novo branching.

Our business strategy includes evaluating strategic opportunities to grow through de novo branching, and we believe that banking location expansion has been meaningful to our growth since inception.  De novo branching carries with it certain potential risks, including significant startup costs and anticipated initial operating losses; an inability to gain regulatory approval; an inability to secure the services of qualified senior management to operate the de novo banking location and successfully integrate and promote our corporate culture; poor market reception for de novo banking locations established in markets where we do not have a preexisting reputation; challenges posed by local economic conditions; challenges associated with securing attractive locations at a reasonable cost; and the additional strain on management resources and internal systems and controls.  Failure to adequately manage the risks associated with our anticipated growth through de novo branching could have an adverse effect on our business, financial condition and results of operations.

We may not be able to overcome the integration and other risks associated with acquisitions, which could have an adverse effect on our ability to implement our business strategy.

Although we plan to continue to grow our business organically and through de novo branching, we also intend to pursue acquisition opportunities that we believe complement our activities and have the ability to enhance our profitability and provide attractive risk-adjusted returns.  Our acquisition activities could be material to our business and involve a number of risks, including the following:

• intense competition from other banking organizations and other acquirers for potential merger candidates;

• market pricing for desirable acquisitions resulting in returns that are less attractive than we have traditionally sought to achieve;

• incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business;

• using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets;

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• potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including consumer compliance issues;

• the time and expense required to integrate the operations and personnel of the combined businesses;

• experiencing higher operating expenses relative to operating income from the new operations;

• losing key employees and customers;

• reputational issues if the target’s management does not align with our culture and values;

• significant problems relating to the conversion of the financial and customer data of the target;

• integration of acquired customers into our financial and customer product systems;

• risks of impairment to goodwill; or

• regulatory timeframes for review of applications may limit the number and frequency of transactions we may be able to consummate.

Depending on the condition of any institution or assets or liabilities that we may acquire, that acquisition may, at least in the near term, adversely affect our capital and earnings and, if not successfully integrated with our organization, may continue to have such effects over a longer period.  We may not be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions, and any acquisition we may consider will be subject to prior regulatory approval.  Our inability to overcome these risks could have an adverse effect on our ability to implement our business strategy, which, in turn, could have an adverse effect on our business, financial condition and results of operations.

A key piece of our expansion strategy is a focus on decision-making authority at the branch and market level, and our business, financial condition, results of operations and prospects could be adversely affected if our local teams do not follow our internal policies or are negligent in their decision-making.

In order to be able to provide the responsive and individualized customer service that distinguishes us from competitors and in order to attract and retain management talent, we empower our local management teams to make certain business decisions on the local level.  Lending authorities are assigned to branch presidents and their banking teams based on their experience, with all loan relationships in excess of internal specified maximums being reviewed by the Bank’s Directors’ Loan Committee, comprised of senior management of the Bank, or the Bank’s board of directors, as the case may be.  Our local lenders may not follow our internal procedures or otherwise act in our best interests with respect to their decision-making.  A failure of our employees to follow our internal policies, or actions taken by our employees that are negligent or not in our best interests could have an adverse effect on our business, financial condition and results of operations.

As a business operating in the financial services industry, adverse conditions in the general business or economic environment could adversely affect our business, financial condition and results of operations in the future.

Our business and operations, which primarily consist of lending money to customers in the form of loans, borrowing money from customers in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States.  Uncertainty about the federal fiscal policymaking process, and the medium and long-term fiscal outlook of the federal government and U.S. economy, is a concern for businesses, consumers and investors in the U.S.  In addition, economic conditions in foreign countries, including global political hostilities or public health outbreaks and uncertainty over the stability of foreign currency, could affect the stability of global financial markets, which could hinder domestic economic growth.  The current economic environment is characterized by interest rates at historically low levels, which impacts our ability to attract deposits and to generate attractive earnings through our investment portfolio and we are unable to predict changes in market interest rates.  In addition, financial institutions in Texas can be affected by volatility with the oil and gas industry and significant decreases in energy prices.  Although we do not have material direct exposure to the oil and gas industry, we retain some indirect exposure, as some of our customers’ businesses are directly affected by volatility with the oil and gas industry and energy prices.

Moreover, our business could be adversely affected by the effects of a widespread outbreak of disease pandemics, including the recent outbreak of a novel coronavirus first identified in China which the Centers for Disease Control and Prevention has advised may spread significantly in the United States.  Any outbreak of disease pandemics and other adverse public health developments could have an adverse effect on our business operations.  A significant

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outbreak of disease pandemics or other adverse public health developments in the population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could adversely affect our customers' businesses and results of operations.  All of these factors are detrimental to our business, and the interplay between these factors can be complex and unpredictable. Our business is also significantly affected by monetary and related policies of the U.S. government and its agencies.  Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control.  Adverse economic conditions and government responses to such conditions could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.

The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid timely or at all or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure.  These risks may be affected by the strength of the borrower’s business sector and local, regional and national market and economic conditions.  Many of our loans are made to small- to medium-sized businesses that may be less able to withstand competitive, economic and financial pressures than larger borrowers.  Our risk management practices, such as monitoring the concentration of our loans within specific industries and our credit approval practices, may not adequately reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio.  A failure to effectively measure and limit the credit risk associated with our loan portfolio could lead to unexpected losses and have an adverse effect on our business, financial condition and results of operations.

We are dependent on the use of data and modeling in our management’s decision-making, and faulty data or modeling approaches could negatively impact our decision-making ability or possibly subject us to regulatory scrutiny in the future.

The use of statistical and quantitative models and other quantitative analyses is endemic to bank decision-making, and the employment of such analyses is becoming increasingly widespread in our operations.  Liquidity stress testing, interest rate sensitivity analysis, and the identification of possible violations of anti-money laundering regulations are all examples of areas in which we are dependent on models and the data that underlies them.  The use of statistical and quantitative models is also becoming more prevalent in regulatory compliance. While we are not currently subject to annual Dodd-Frank Act stress testing, or DFAST, and the Comprehensive Capital Analysis and Review, or CCAR, submissions, we anticipate that model-derived testing may become more extensively implemented by regulators in the future.

We anticipate data-based modeling will penetrate further into bank decision-making, particularly risk management efforts, as the capacities developed to meet rigorous stress testing requirements are able to be employed more widely and in differing applications.  While we believe these quantitative techniques and approaches improve our decision-making, they also create the possibility that faulty data or flawed quantitative approaches could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, adverse regulatory scrutiny.  Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making.

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The small- to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair our borrowers’ ability to repay loans.

We focus our business development and marketing strategy primarily on small- to medium-sized businesses.  As of December 31, 2019, we had approximately $1.06 billion of loans to businesses, which represents approximately 62.1% of our total loan portfolio.  Small- to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.  In addition, the success of a small- and medium-sized business often depends on the management skills, talents and efforts of a small group of people, and the death, disability or resignation of one or more of these people could have an adverse effect on the business and its ability to repay its loan.  If our borrowers are unable to repay their loans, our business, financial condition and results of operations could be adversely affected.

Our commercial real estate and real estate construction loan portfolio exposes us to credit risks that may be greater than the risks related to other types of loans.

As of December 31, 2019, approximately $905.3 million, or 53.1%, of our total loans were nonresidential real estate loans (including owner occupied commercial real estate loans), which included approximately $280.5 million, or 16.4%, of our total loans, that were construction and land development loans.  These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service.  The availability of such income for repayment may be adversely affected by changes in the economy or local market conditions.  These loans expose a lender to greater credit risk than loans secured by other types of collateral because the collateral securing these loans is typically more difficult to liquidate due to the fluctuation of real estate values.  Additionally, non-owner occupied commercial real estate loans generally involve relatively large balances to single borrowers or related groups of borrowers.  Unexpected deterioration in the credit quality of our non-owner occupied commercial real estate loan portfolio could require us to increase our allowance for loan losses, which would reduce our profitability and could have an adverse effect on our business, financial condition and results of operations.

Construction and land development loans also involve risks because loan funds are secured by a project under construction and the project is of uncertain value prior to its completion.  It can be difficult to accurately evaluate the total funds required to complete a project, and construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan.  If we are forced to foreclose on a project prior to completion, we may be unable to recover the entire unpaid portion of the loan.  In addition, we may be required to fund additional amounts to complete a project, incur taxes, maintenance and compliance costs for a foreclosed property and may have to hold the property for an indeterminate period of time, any of which could adversely affect our business, financial condition and results of operations.

Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.

As of December 31, 2019, approximately $1.35 billion, or 79.4%, of our total loans were loans with real estate as a primary or secondary component of collateral.  Real estate values in many Texas markets have experienced periods of fluctuation over the last five years.  The market value of real estate can fluctuate significantly in a short period of time.  As a result, adverse developments affecting real estate values and the liquidity of real estate in our primary markets or in Texas generally could increase the credit risk associated with our loan portfolio, and could result in losses that adversely affect credit quality, financial condition and results of operations.  Negative changes in the economy affecting real estate values and liquidity in our market areas could significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses.  Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans.  Such declines and losses would have an adverse effect on our business, financial condition and results of operations.  If real estate values decline, it is also more likely that we would be required to increase our allowance for loan losses, which would adversely affect our business, financial condition and results of operations.

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Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned and repossessed personal property may not accurately describe the net value of the asset.

In considering whether to make a loan secured by real property, we generally require an appraisal of the property.  However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may change significantly in value in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately describe the net value of the real property collateral after the loan is made.  As a result, we may not be able to realize the full amount of any remaining indebtedness when we foreclose on and sell the relevant property.  In addition, we rely on appraisals and other valuation techniques to establish the value of our other real estate owned, or OREO, and personal property that we acquire through foreclosure proceedings and to determine certain loan impairments.  If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO, and our allowance for loan losses may not reflect accurate loan impairments.  This could have an adverse effect on our business, financial condition or results of operations.  As of December 31, 2019, we held OREO and repossessed property and equipment that was valued at $603,000 and $391,000, respectively.

We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real estate, subjecting us to the costs and potential risks associated with the ownership of the real property, or consumer protection initiatives or changes in state or federal law may substantially raise the cost of foreclosure or prevent us from foreclosing at all.

Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real estate.  As of December 31, 2019, we held approximately $603,000 in OREO in a special purpose subsidiary that is currently marketed for sale.  The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to general or local economic condition, environmental cleanup liability, assessments, interest rates, real estate tax rates, operating expenses of the mortgaged properties, ability to obtain and maintain adequate occupancy of the properties, zoning laws, governmental and regulatory rules, and natural disasters.  Our inability to manage the amount of costs or size of the risks associated with the ownership of real estate, or write-downs in the value of other real estate owned, could have an adverse effect on our business, financial condition and results of operations.

Additionally, consumer protection initiatives or changes in state or federal law may substantially increase the time and expense associated with the foreclosure process or prevent us from foreclosing at all.  While historically Texas has had foreclosure laws that are favorable to lenders, a number of states in recent years have either considered or adopted foreclosure reform laws that make it substantially more difficult and expensive for lenders to foreclose on properties in default, and we cannot be certain that Texas will not adopt similar legislation in the future.  Additionally, federal regulators have prosecuted a number of mortgage servicing companies for alleged consumer law violations.  If new state or federal laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or raise outright barriers, such could have an adverse effect on our business, financial condition and results of operation.

A portion of our loan portfolio is comprised of commercial loans secured by receivables, inventory, equipment or other commercial collateral, the deterioration in value of which could expose us to credit losses.

As of December 31, 2019, approximately $279.6 million, or 16.4%, of our total loans were commercial loans to businesses.  In general, these loans are collateralized by general business assets, including, among other things, accounts receivable, inventory and equipment, and most are backed by a personal guaranty of the borrower or principal.  These commercial loans are typically larger in amount than loans to individuals and, therefore, have the potential for larger losses on a single loan basis.  Additionally, the repayment of commercial loans is subject to the ongoing business operations of the borrower.  The collateral securing such loans generally includes moveable property such as equipment and inventory, which may decline in value more rapidly than we anticipate exposing us to increased credit risk.  In addition, a portion of our customer base, including customers in the energy and real estate business, may be in industries which are particularly sensitive to commodity prices or market fluctuations, such as energy prices.  Accordingly, negative changes in commodity prices and real estate values and liquidity could impair the value of the collateral securing these loans.  Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage that may expose us to credit losses and could adversely affect our business, financial condition and results of operations.

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Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan portfolio.

We maintain an allowance for loan losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio.  As of December 31, 2019, our allowance for loan losses totaled $16.2 million, which represents approximately 0.95% of our total loans.  The level of the allowance reflects management’s continuing evaluation of general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral.  The determination of the appropriate level of the allowance for loan losses is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes. Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification or deterioration of additional problem loans, acquisition of problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loan losses.  In addition, our regulators, as an integral part of their periodic examination, review our methodology for calculating, and the adequacy of, our allowance for loan losses and may direct us to make additions to the allowance based on their judgments about information available to them at the time of their examination.  Further, if actual charge-offs in future periods exceed the amounts allocated to the allowance for loan losses, we may need additional provisions for loan losses to restore the adequacy of our allowance for loan losses.  Finally, the measure of our allowance for loan losses is dependent on the adoption and interpretation of accounting standards.  The Financial Accounting Standards Board recently issued a new credit impairment model, the Current Expected Credit Loss, or CECL model, which became applicable to us on January 1, 2020.  CECL will require financial institutions to estimate and develop a provision for credit losses at origination for the lifetime of the loan, as opposed to reserving for incurred or probable losses up to the balance sheet date.  Under the CECL model, credit deterioration would be reflected in the income statement in the period of origination or acquisition of the loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.  Accordingly, the CECL model requires many financial institutions like the Bank to increase their allowances for loan losses.  Our adjustment to the allowance for credit losses at the transition date may vary from our estimate due to refinements in the loss estimation models or factors.  Increases in our level of allowance for loan losses for any reason, including the impact of CECL, could adversely affect our business, financial condition and results of operations.

If we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, we could be subject to regulatory penalties and the price of our common stock may decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on that system of internal control.  Our internal control over financial reporting is a process designed 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.  As a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies.  In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act beginning with our second annual report on Form 10-K, which will require us to furnish annually a report by management on the effectiveness of our internal control over financial reporting.  In addition, unless we remain an emerging growth company and elect additional transitional relief available to emerging growth companies, our independent registered public accounting firm may be required to report on the effectiveness of our internal control over financial reporting beginning as of that second annual report on Form 10-K.

We will continue to periodically test and update, as necessary, our internal control systems, including our financial reporting controls.  Our actions, however, may not be sufficient to result in an effective internal control environment, and any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports and our access to the capital markets and cause the price of our common stock to decline and subject us to regulatory penalties.

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We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services.

Our success depends in large part on the performance of our executive management team and other key personnel, as well as on our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees.  Competition for qualified employees is intense, and the process of locating key personnel with the combination of skills, attributes and business relationships required to execute our business plan may be lengthy.  We may not be successful in retaining our key employees, and the unexpected loss of services of one or more of our key personnel could have an adverse effect on our business because of their skills, knowledge of and business relationships within our primary markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel.  If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, or at all, which could have an adverse effect on our business, financial condition, results of operations and future prospects.

We earn income by originating residential mortgage loans for resale in the secondary mortgage market, and disruptions in that market could reduce our operating income.

Historically, we have earned income by originating mortgage loans for sale in the secondary market.  A historical focus of our loan origination and sales activities has been to enter into formal commitments and informal agreements with larger banking companies and mortgage investors.  Under these arrangements, we originate single family mortgages that are priced and underwritten to conform to previously agreed criteria before loan funding and are delivered to the investor shortly after funding.  For the years ended December 31, 2019 and 2018, we earned approximately $2.9 million and $2.3 million, respectively, from these activities.  However, in the recent past, disruptions in the secondary market for residential mortgage loans have limited the market for, and liquidity of, most mortgage loans other than conforming Fannie Mae and Federal Home Loan Mortgage Corporation, or Freddie Mac, loans.  The effects of these disruptions in the secondary market for residential mortgage loans may reappear.

In addition, because government-sponsored entities like Fannie Mae and Freddie Mac, who account for a substantial portion of the secondary market, are governed by federal law, any future changes in laws that significantly affect the activity of these entities could, in turn, adversely affect our operations.  In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the federal government.  The federal government has for many years considered proposals to reform Fannie Mae and Freddie Mac, but the results of any such reform and their impact on us are difficult to predict.  To date, no reform proposal has been enacted.

These disruptions may not only affect us but also the ability and desire of mortgage investors and other banks to purchase residential mortgage loans that we originate.  As a result, we may not be able to maintain or grow the income we receive from originating and reselling residential mortgage loans, which would reduce our operating income.  Additionally, we may be required to hold mortgage loans that we originated for sale, increasing our exposure to interest rate risk and the value of the residential real estate that serves as collateral for the mortgage loan.

Delinquencies, defaults and foreclosures in residential mortgages create a higher risk of repurchases and indemnity requests.

We originate residential mortgage loans for sale to government-sponsored enterprises, such as Fannie Mae, Freddie Mac and other investors.  As a part of this process, we make various representations and warranties to these purchasers that are tied to the underwriting standards under which the investors agreed to purchase the loan.  If a representation or warranty proves to be untrue, we could be required to repurchase one or more of the mortgage loans or indemnify the investor.  Repurchase and indemnity obligations tend to increase during weak economic times, as investors seek to pass on the risks associated with mortgage loan delinquencies to the originator of the mortgage. If we are forced to repurchase additional mortgage loans that we have previously sold to investors, or indemnify those investors, our business, financial condition and results of operations could be adversely affected.

A lack of liquidity could impair our ability to fund operations and adversely impact our business, financial condition and results of operations.

Liquidity is essential to our business.  We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations.  An inability to raise funds through deposits, borrowings, the sale of our investment securities, the sale of loans, and other sources could have a substantial negative effect on our liquidity.

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Our most important source of funds is deposits.  As of December 31, 2019, approximately $1.43 billion, or 73.1%, of our total deposits were demand, savings and money market accounts.  Historically our savings, money market deposit accounts and demand accounts have been stable sources of funds.  However, these deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors that may be outside of our control, such as a loss of confidence by customers in us or the banking sector generally, customer perceptions of our financial health and general reputation, increasing competitive pressures from other financial services firms for consumer or corporate customer deposits, changes in interest rates and returns on other investment classes, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits, increasing our funding costs and reducing our net interest income and net income.

The $515.3 million remaining balance of deposits consisted of certificates of deposit, of which $440.6 million, or 22.5% of our total deposits, were due to mature within one year.  Historically, a majority of our certificates of deposit are renewed upon maturity as long as we pay competitive interest rates.  These customers are, however, interest-rate conscious and may be willing to move funds into higher-yielding investment alternatives.  If customers transfer money out of the Bank’s deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.

Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities, and proceeds from the issuance and sale of our equity and debt securities to investors.  Additional liquidity is provided by our ability to borrow from the Federal Reserve Bank of Dallas and the Federal Home Loan Bank of Dallas, or the FHLB.  We also may borrow funds from third-party lenders, such as other financial institutions.  Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.  Our access to funding sources could also be affected by a decrease in the level of our business activity as a result of a downturn in Texas or by one or more adverse regulatory actions against us.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have an adverse effect on our business, financial condition and results of operations.

We may need to raise additional capital in the future, and such capital may not be available when needed or at all.

We may need to raise additional capital, in the form of additional debt or equity, in the future to have sufficient capital resources and liquidity to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly.  Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial condition.  Economic conditions and a loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, including interbank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve System.  We may not be able to obtain capital on acceptable terms — or at all.  Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of our bank or counterparties participating in the capital markets or other disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity.  Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors.  An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition or results of operations.

We have a concentration of deposit accounts with state and local municipalities that is a material source of our funding, and the loss of these deposits or significant fluctuations in balances held by these public bodies could force us to fund our business through more expensive and less stable sources.

As of December 31, 2019, $251.7 million, or approximately 12.9%, of our total deposits consisted of deposit accounts of public bodies, such as state or local municipalities, or public funds.  These types of deposits are often secured and typically fluctuate on a seasonal basis due to timing differences between tax collection and expenditures.  Withdrawals of deposits or significant fluctuation in a material portion of our largest public fund depositors could force us to rely more heavily on borrowings and other sources of funding for our business and withdrawal demands, adversely affecting our net interest margin and results of operations.  We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources.  Consequently, the

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occurrence of any of these events could have an adverse effect on our business, financial condition and results of operations.

We are subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings.

The majority of our banking assets and liabilities are monetary in nature and subject to risk from changes in interest rates.  Like most financial institutions, our earnings are significantly dependent on our net interest income, the principal component of our earnings, which is the difference between interest earned by us from our interest-earning assets, such as loans and investment securities, and interest paid by us on our interest-bearing liabilities, such as deposits and borrowings.  We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa.  In either event, if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings.  The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates.  Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in unemployment, the money supply and international economic weakness and disorder and instability in domestic and foreign financial markets.  As of December 31, 2019, approximately 49.3% of our interest-earning assets and approximately 45.2% of our interest-bearing liabilities had a variable rate.  Our interest rate sensitivity profile was asset sensitive as of December 31, 2019, meaning that we estimate our net interest income would increase more from rising interest rates than from falling interest rates.

Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default and could result in a decrease in the demand for loans.  At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates.  In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates.  In addition, in a low interest rate environment, loan customers often pursue long-term fixed rate credits, which could adversely affect our earnings and net interest margin if rates increase.  Changes in interest rates also can affect the value of loans, securities and other assets.  An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have an adverse effect on our results of operations and cash flows.  Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income.  At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.  Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income.  If short-term interest rates continue to remain at their historically low levels for a prolonged period and assuming longer-term interest rates fall further, we could experience net interest margin compression as our interest-earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem.  Such an occurrence would have an adverse effect on our net interest income and could have an adverse effect on our business, financial condition and results of operations.

We may be adversely affected by changes in the method of determining the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, for our variable rate loans, derivative contracts and other financial assets and liabilities.

Our balance sheet includes certain assets and liabilities which are directly or indirectly dependent on LIBOR to establish their interest rate and/or value. The U.K. Financial Conduct Authority announced in 2017 that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next several years.

The impact of these developments on our business and financial results is not yet known. The transition from LIBOR may cause us to incur increased costs and additional risk. Uncertainty as to the nature of alternative reference rates and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans originated prior to 2021. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently, which may affect our net interest income, change our market risk profile and require changes to our risk, pricing and hedging strategies. Any failure to adequately manage this transition could adversely impact our reputation.

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Our business is concentrated in, and largely dependent upon, the continued growth and welfare of our primary markets, and adverse economic conditions in these markets could negatively impact our operations and customers.

Our business, financial condition and results of operations are affected by changes in the economic conditions of our primary markets of East Texas, Central Texas, Houston MSA and the Dallas/Fort Worth MSA.  Our success depends to a significant extent upon the business activity, population, income levels, employment trends, deposits and real estate activity in our primary markets.  Economic conditions within our primary markets, and the state of Texas in general, are influenced by the energy sector generally and the price of oil and gas specifically.  Although our customers’ business and financial interests may extend well beyond our primary markets, adverse conditions that affect our primary markets, including future declines in oil prices, could reduce our growth rate, affect the ability of our customers to repay their loans, affect the value of collateral underlying our loans, affect our ability to attract deposits and generally affect our business, financial condition, results of operations and future prospects.  Due to our geographic concentration within our primary markets, we may be less able than other larger regional or national financial institutions to diversify our credit risks across multiple markets.

We face strong competition from financial services companies and other companies that offer banking services.

We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets.  We compete with commercial banks, savings banks, credit unions, nonbank financial services companies and other financial institutions operating within or near the areas we serve.  Additionally, certain large banks headquartered outside of our markets and large community banking institutions target the same customers we do.  In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for banks to expand their geographic reach by providing services over the internet and for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.  The banking industry is experiencing rapid changes in technology, and, as a result, our future success will depend in part on our ability to address our customers’ needs by using technology.  Customer loyalty can be influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer.  Increased lending activity of competing banks following the recent downturn has also led to increased competitive pressures on loan rates and terms for high-quality credits.  We may not be able to compete successfully with other financial institutions in our markets, and we may have to pay higher interest rates to attract deposits, accept lower yields to attract loans and pay higher wages for new employees, resulting in lower net interest margins and reduced profitability.

Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business.  The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.  In addition, some of our current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than we may be able to accommodate.  Our inability to compete successfully in the markets in which we operate could have an adverse effect on our business, financial condition or results of operations.

Our trust and wealth management division derives its revenue from noninterest income and is subject to operational, compliance, reputational, fiduciary and strategic risks that could adversely affect our business, financial condition and results of operations.

Our trust and wealth management division subjects us to a number of different risks from our commercial activities, any of which could adversely affect our business, financial condition and results of operations.  Operational or compliance risk entails inadequate or failed internal processes, people and systems or changes driven by external events.  Success in the trust and wealth management business is highly dependent on reputation.  Damage to our reputation from negative opinion in the marketplace could adversely impact both revenue and net income.  Such results could also be affected by errors in judgment by management or the board, the improper implementation of business decisions or by unexpected external events.  Our success in this division is also dependent upon our continuing ability to generate investment results that satisfy our clients and attract prospective clients, which may be adversely impacted by factors that are outside of our control.  In addition, our trust and wealth management division is subject to fiduciary risks and risks associated with adverse decisions regarding the scope of fiduciary liabilities.  If any claims or legal actions regarding our fiduciary role are not resolved in a manner favorable to us, we may be exposed to significant financial liability and our reputation could be damaged.  Either of these results may adversely impact demand for our products and services, including those unrelated to our trust and wealth management division, or otherwise have an adverse effect on our business, financial condition or results of operation.

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Additional risks resulting from our mortgage warehouse lending business could have an adverse effect on our business, financial condition and results of operations.

A portion of our lending involves the origination of mortgage warehouse lines of credit.  Risks associated with our mortgage warehouse loans include credit risks relating to the mortgage bankers that borrow from us, including the risk of intentional misrepresentation or fraud; changes in the market value of mortgage loans originated by the mortgage banker, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, due to changes in interest rates during the time in warehouse; and originations of mortgage loans that are unsalable or impaired, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to ultimately purchase the loan from the mortgage banker.  Any one or a combination of these events may adversely affect our loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels, which, in turn, could adversely affect our business, financial condition and results of operations.

New lines of business, products, product enhancements or services may subject us to additional risks.

From time to time, we implement new lines of business, or offer new products and product enhancements as well as new services within our existing lines of business and we will continue to do so in the future.  There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.  In implementing, developing or marketing new lines of business, products, product enhancements or services, we may invest significant time and resources, although we may not assign the appropriate level of resources or expertise necessary to make these new lines of business, products, product enhancements or services successful or to realize their expected benefits.  Further, initial timetables for the introduction and development of new lines of business, products, product enhancements or services may not be achieved, and price and profitability targets may not prove feasible.  External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the ultimate implementation of a new line of business or offerings of new products, product enhancements or services.  Furthermore, any new line of business, product, product enhancement or service could have a significant impact on the effectiveness of our system of internal controls.  Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have an adverse impact on our business, financial condition or results of operations.

Negative public opinion regarding our company or failure to maintain our reputation in the communities we serve could adversely affect our business and prevent us from growing our business.

As a community bank, our reputation within the communities we serve is critical to our success.  We believe we have set ourselves apart from our competitors by building strong personal and professional relationships with our customers and by being active members of the communities we serve.  As such, we strive to enhance our reputation by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve and delivering superior service to our customers.  If our reputation is negatively affected by the actions of our employees or otherwise, we may be less successful in attracting new talent and customers or may lose existing customers, and our business, financial condition and results of operations could be adversely affected.  Further, negative public opinion can expose us to litigation and regulatory action and delay and impede our efforts to implement our expansion strategy, which could further adversely affect our business, financial condition and results of operations.

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We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.

While we attempt to invest a significant majority of our total assets in loans (our loan to asset ratio was 73.6% as of December 31, 2019), we invest a percentage of our total assets (15.9% as of December 31, 2019) in investment securities with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested, managing interest rate risk, meeting pledging requirements and meeting regulatory capital requirements.  As of December 31, 2019, the fair value of our available for sale investment securities portfolio was $212.7 million, which included a net unrealized gain of $2.5 million.  Factors beyond our control can significantly and adversely influence the fair value of securities in our portfolio.  For example, fixed-rate securities are generally subject to decreases in market value when interest rates rise.  Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual borrowers with respect to the underlying securities, and instability in the credit markets.  Any of the foregoing factors could cause other-than-temporary impairment in future periods and result in realized losses.  The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on our business, financial condition and results of operations.

The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.  Our critical accounting policies, which are included in the section captioned “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K, describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider “critical” because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures.  As a result, if future events or regulatory views concerning such analysis differ significantly from the judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures, in each case resulting in our needing to revise or restate prior period financial statements, cause damage to our reputation and the price of our common stock, and adversely affect our business, financial condition and results of operations.

There could be material changes to our financial statements and disclosures if there are changes in accounting standards or regulatory interpretations of existing standards

From time to time the Financial Accounting Standards Board or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements.  Such changes may result in us being subject to new or changing accounting and reporting standards.  In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how new or existing standards should be applied.  These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations.  In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently and retrospectively, in each case resulting in our needing to revise or restate prior period financial statements, which could materially change our financial statements and related disclosures, cause damage to our reputation and the price of our common stock, and adversely affect our business, financial condition and results of operations.

Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations.

We outsource some of our operational activities and accordingly depend on a number of relationships with third-party service providers.  Specifically, we rely on third parties for certain services, including, but not limited to, core systems support, informational website hosting, internet services, online account opening and other processing services.  Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers.  The failure of these systems, a cyber security breach involving any of our third-party service providers, or the termination or change in terms of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.  Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if

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demand for such services exceeds capacity or such third-party systems fail or experience interruptions.  Replacing vendors or addressing other issues with our third-party service providers could entail significant delay, expense and disruption of service.

As a result, if these third-party service providers experience difficulties, are subject to cyber security breaches, or terminate their services, and we are unable to replace them with other service providers, particularly on a timely basis, our operations could be interrupted.  If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be adversely affected.  Even if we are able to replace third-party service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations.

In addition, the Bank’s primary federal regulator, the Office of the Comptroller of the Currency, or OCC, has recently issued guidance outlining the expectations for third-party service provider oversight and monitoring by financial institutions.  The federal banking agencies, including the OCC, have recently issued enforcement actions against financial institutions for failure in oversight of third-party providers and violations of federal banking law by such providers when performing services for financial institutions.  Accordingly, our operations could be interrupted if any of our third-party service providers experience difficulty, are subject to cyber security breaches, terminate their services or fail to comply with banking regulations, which could adversely affect our business, financial condition and results of operations.  In addition, our failure to adequately oversee the actions of our third-party service providers could result in regulatory actions against the Bank, which could adversely affect our business, financial condition and results of operations.

System failure or cyber security breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.

Our computer systems and network infrastructure could be vulnerable to hardware and cyber security issues.  Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event.  We could also experience a breach by intentional or negligent conduct on the part of employees or other internal sources.  Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations.  In addition, our operations are dependent upon our ability to protect our computer systems and network infrastructure, including our digital, mobile and internet banking activities, against damage from physical break-ins, cyber security breaches and other disruptive problems caused by the internet or other users.  Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability, damage our reputation and inhibit the use of our internet banking services by current and potential customers.  We regularly add additional security measures to our computer systems and network infrastructure to mitigate the possibility of cyber security breaches, including firewalls and penetration testing.  However, it is difficult or impossible to defend against every risk being posed by changing technologies as well as acts of cyber-crime.  Increasing sophistication of cyber criminals and terrorists make keeping up with new threats difficult and could result in a system breach.  Controls employed by our information technology department and cloud vendors could prove inadequate.  A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations, as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs and reputational damage, any of which could have an adverse effect on our business, financial condition and results of operations.

We have a continuing need for technological change, and we may not have the resources to effectively implement new technology, or we may experience operational challenges when implementing new technology or technology needed to compete effectively with larger institutions may not be available to us on a cost effective basis.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.  In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.  Our future success will depend, at least in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our products and service offerings.  We may experience operational challenges as we implement these new technology enhancements or products, which could impair our ability to realize the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.

Many of our larger competitors have substantially greater resources to invest in technological improvements.  Third parties upon which we rely for our technology needs may not be able to develop on a cost effective basis systems

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that will enable us to keep pace with such developments.  As a result, they may be able to offer additional or superior products compared to those that we will be able to provide, which would put us at a competitive disadvantage.  We may lose customers seeking new technology-driven products and services to the extent we are unable to provide such products and services.  Accordingly, the ability to keep pace with technological change is important and the failure to do so could adversely affect our business, financial condition and results of operations.

We are subject to certain operational risks, including, but not limited to, customer, employee or third-party fraud and data processing system failures and errors.

Employee errors and employee or customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation.  Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information.  It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.  Employee errors could also subject us to financial claims for negligence.

We maintain a system of internal controls to mitigate operational risks, including data processing system failures and errors and customer or employee fraud, as well as insurance coverage designed to protect us from material losses associated with these risks, including losses resulting from any associated business interruption.  If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could adversely affect our business, financial condition and results of operations.

In addition, we rely heavily upon information supplied by third parties, including the information contained in credit applications, property appraisals, title information, equipment pricing and valuation and employment and income documentation, in deciding which loans we will originate, as well as the terms of those loans.  If any of the information upon which we rely is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected, or we may fund a loan that we would not have funded or on terms we would not have extended.  Whether a misrepresentation is made by the applicant or another third party, we generally bear the risk of loss associated with the misrepresentation.  A loan subject to a material misrepresentation is typically unsellable or subject to repurchase if it is sold prior to detection of the misrepresentation.  The sources of the misrepresentations are often difficult to locate, and it is often difficult to recover any of the resulting monetary losses we may suffer, which could adversely affect our business, financial condition and results of operations.

Our primary markets are susceptible to natural disasters and other catastrophes that could negatively impact the economies of our markets, our operations or our customers, any of which could have an adverse effect on us.

A significant portion of our business is generated from our primary markets of East Texas, Central Texas, the Dallas/Fort Worth MSA and the Houston MSA, which are susceptible to damage by tornadoes, floods, droughts, hurricanes and other natural disasters and adverse weather.  In addition to natural disasters, man-made events, such as acts of terror and governmental response to acts of terror, malfunction of the electronic grid and other infrastructure breakdowns, could adversely affect economic conditions in our primary markets.  These catastrophic events can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate.  If the economies in our primary markets experience an overall decline as a result of a catastrophic event, demand for loans and our other products and services could be reduced.  In addition, the rates of delinquencies, foreclosures, bankruptcies and losses on loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair the ability of borrowers to repay their loans.  Moreover, the value of real estate or other collateral that secures the loans could be materially and adversely affected by a catastrophic event.  A natural disaster or other catastrophic event could, therefore, result in decreased revenue and loan losses that have an adverse effect on our business, financial condition and results of operations.

We may be subject to environmental liabilities in connection with the real properties we own and the foreclosure on real estate assets securing our loan portfolio.

In the course of our business, we may purchase real estate in connection with our acquisition and expansion efforts, or we may foreclose on and take title to real estate or otherwise be deemed to be in control of property that serves as collateral on loans we make.  As a result, we could be subject to environmental liabilities with respect to those properties.  We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property.  The costs associated with investigation or remediation activities could be substantial.  In addition, if we are the owner or former

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owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.

The cost of removal or abatement may substantially exceed the value of the affected properties or the loans secured by those properties, we may not have adequate remedies against the prior owners or other responsible parties and we may not be able to resell the affected properties either before or after completion of any such removal or abatement procedures.  If material environmental problems are discovered before foreclosure, we generally will not foreclose on the related collateral or will transfer ownership of the loan to a subsidiary.  It should be noted, however, that the transfer of the property or loans to a subsidiary may not protect us from environmental liability.  Furthermore, despite these actions on our part, the value of the property as collateral will generally be substantially reduced or we may elect not to foreclose on the property and, as a result, we may suffer a loss upon collection of the loan.  Any significant environmental liabilities could have an adverse effect on our business, financial condition and results of operations.

We are subject to claims and litigation pertaining to intellectual property.

Banking and other financial services companies, such as our company, rely on technology companies to provide information technology products and services necessary to support their day-to-day operations.  Technology companies frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights.  In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained.  Competitors of our vendors, or other individuals or companies, may from time to time claim to hold intellectual property sold to us by our vendors.  Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors.  The plaintiffs in these actions frequently seek injunctions and substantial damages.

Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, we may have to engage in protracted litigation.  Such litigation is often expensive, time-consuming, disruptive to our operations and distracting to management.  If we are found to infringe one or more patents or other intellectual property rights, we may be required to pay substantial damages or royalties to a third party.  In certain cases, we may consider entering into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.  These licenses may also significantly increase our operating expenses. If legal matters related to intellectual property claims were resolved against us or settled, we could be required to make payments in amounts that could have an adverse effect on our business, financial condition and results of operations.

If the goodwill that we have recorded or may record in connection with a business acquisition becomes impaired, it could require charges to earnings.

Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase of another financial institution.  We review goodwill for impairment at least annually, or more frequently if a triggering event occurs which indicates that the carrying value of the asset might be impaired.

Our goodwill impairment test involves a two-step process.  Under the first step, the estimation of fair value of the reporting unit is compared to its carrying value including goodwill.  If step one indicates a potential impairment, the second step is performed to measure the amount of impairment, if any.  If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.  Any such adjustments are reflected in our results of operations in the periods in which they become known.  As of December 31, 2019, our goodwill totaled $32.2 million.  While we have not recorded any impairment charges since we initially recorded the goodwill, there can be no assurance that our future evaluations of our existing goodwill or goodwill we may acquire in the future will not result in findings of impairment and related write-downs, which could adversely affect our business, financial condition and results of operations.

We may be adversely affected by recent changes in U.S. tax laws.

The enactment of the Tax Cuts and Jobs Act, or TCJA, on December 22, 2017 made significant changes to the Internal Revenue Code, many of which are highly complex and may require interpretations and implementing regulations.  As a result of the TCJA’s reduction of the corporate income tax rate from 35% to 21%, we recorded a one-time, non-cash charge to income tax provision of $1.7 million during the fourth quarter of 2017 to reduce the value of our net deferred tax assets.

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The TCJA includes a number of provisions that will have an impact on the banking industry, borrowers and the market for residential real estate. These changes include: (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense, and (iv) a limitation on the deductibility of property taxes and state and local income taxes.  The TCJA may have an adverse effect on the market for and the valuation of residential properties, as well as on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments.  The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership.  Such an impact could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

Risks Related to the Regulation of Our Industry

The ongoing implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, could adversely affect our business, financial condition, and results of operations.

On July 21, 2010, the Dodd-Frank Act was signed into law, and the process of implementation is ongoing.  The Dodd-Frank Act imposes significant regulatory and compliance changes on many industries, including ours.  There remains significant uncertainty surrounding the manner in which the provisions of the Dodd-Frank Act will ultimately be implemented by the various regulatory agencies and the full extent of the impact of the requirements on our operations is unclear, especially in light of the Trump administration’s executive order calling for a full review of the Dodd-Frank Act and the regulations promulgated under it.  The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, require the development of new compliance infrastructure, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business.  These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements.  Failure to comply with the new requirements or with any future changes in laws or regulations could adversely affect our business, financial condition and results of operations.

On May 24, 2018, the EGRRCPA became law. Among other things, the EGRRCPA changes certain of the regulatory requirements of the Dodd-Frank Act and includes provisions intended to relieve the regulatory burden on community banks. We cannot currently predict the impact of this legislation on us. Any future legislative changes could have a material impact on our profitability, the value of assets held for investment or the value of collateral for loans. Future legislative changes could also require changes to business practices and potentially expose us to additional costs, liabilities, enforcement action and reputational risk.

We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, could adversely affect us.

Banking is highly regulated under federal and state law.  As such, we are subject to extensive regulation, supervision and legal requirements that govern almost all aspects of our operations.  These laws and regulations are not intended to protect our shareholders.  Rather, these laws and regulations are intended to protect customers, depositors, the Deposit Insurance Fund and the overall financial stability of the United States.  These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividend or distributions that the Bank can pay to us, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP would require.  Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional operating costs.  Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, enforcement actions and fines and other penalties, any of which could adversely affect our results of operations, regulatory capital levels and the price of our securities.  Further, any new laws, rules and regulations, such as the Dodd-Frank Act, could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition and results of operations.

Federal banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could adversely affect us.

As part of the bank regulatory process, the OCC and the Board of Governors of the Federal Reserve System, or Federal Reserve, periodically conduct examinations of our business, including compliance with laws and regulations.  If, as a result of an examination, one of these federal banking agencies were to determine that the financial condition, capital

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resources, asset quality, earnings prospects, management, liquidity, asset sensitivity, risk management or other aspects of any of our operations have become unsatisfactory, or that our Company, the Bank or their respective management were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.  These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital levels, to restrict our growth, to assess civil monetary penalties against us, the Bank or their respective officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance. If we become subject to such regulatory actions, our business, financial condition, results of operations and reputation could be adversely affected.

We are subject to stringent capital requirements, which may result in lower returns on equity, require the raising of additional capital, limit our ability to repurchase shares or pay dividends and discretionary bonuses, or result in regulatory action.

The Dodd-Frank Act required the federal banking agencies to establish stricter risk-based capital requirements and leverage limits to apply to banks and bank and savings and loan holding companies, referred to herein as the Basel III capital rules.  See the section in Item 1 of this Annual Report on Form 10-K captioned “Supervision and Regulation — Guaranty Bancshares, Inc. — Revised Rules on Regulatory Capital.”

As a result of the enactment of the Basel III capital rules, we became subject to increased required capital levels.  Our inability to comply with these more stringent capital requirements could, among other things, result in lower returns on equity; require the raising of additional capital; limit our ability to repurchase shares or pay dividends and discretionary bonuses; or result in regulatory actions, any of which could adversely affect our business, financial condition and results of operation.

Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth.

We intend to complement and expand our business by pursuing strategic acquisitions of financial institutions and other complementary businesses.  Generally, we must receive federal regulatory approval before we can acquire an FDIC-insured depository institution or related business.  In determining whether to approve a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, our financial condition, our future prospects, and the impact of the proposal on U.S. financial stability.  The regulators also review current and projected capital ratios and levels, the competence, experience and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the communities to be served (including the acquiring institution’s record of compliance under the Community Reinvestment Act, or the CRA) and the effectiveness of the acquiring institution in combating money laundering activities.  Such regulatory approvals may not be granted on terms that are acceptable to us, or at all.  We may also be required to sell banking locations as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.

In addition to the acquisition of existing financial institutions, as opportunities arise, we plan to continue de novo branching as a part of our expansion strategy.  De novo branching and acquisitions carry with them numerous risks, including the inability to obtain all required regulatory approvals.  The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo banking locations could impact our business plans and restrict our growth.

Financial institutions, such as the Bank, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.  The Financial Crimes Enforcement Network, established by the U.S. Department of the Treasury, or the Treasury Department, to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and the Internal Revenue Service.  There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the Treasury Department’s Office of Foreign Assets Control.

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In order to comply with regulations, guidelines and examination procedures in this area, we have dedicated significant resources to our anti-money laundering program.  If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the inability to obtain regulatory approvals to proceed with certain aspects of our business plans, including acquisitions and de novo branching.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.  The Consumer Financial Protection Bureau, or CFPB, the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.  The CFPB was created under the Dodd-Frank Act to centralize responsibility for consumer financial protection with broad rulemaking authority to administer and carry out the purposes and objectives of federal consumer financial laws with respect to all financial institutions that offer financial products and services to consumers.  The CFPB is also authorized to prescribe rules applicable to any covered person or service provider, identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.  The ongoing broad rulemaking powers of the CFPB have potential to have a significant impact on the operations of financial institutions offering consumer financial products or services.  The CFPB has indicated that it may propose new rules on overdrafts and other consumer financial products or services, which could have an adverse effect on our business, financial condition and results of operations if any such rules limit our ability to provide such financial products or services.

A successful regulatory challenge to an institution’s performance under the CRA, fair lending or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.  Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.  Such actions could have an adverse effect on our business, financial condition and results of operations.

Increases in FDIC insurance premiums could adversely affect our earnings and results of operations.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance.  As a result of economic conditions and the enactment of the Dodd-Frank Act, the FDIC has in recent years increased deposit insurance assessment rates, which in turn raised deposit premiums for many insured depository institutions.  If recent increases in premiums are insufficient for the Deposit Insurance Fund to meet its funding requirements, further special assessments or increases in deposit insurance premiums may be required.  Further, if there are additional financial institution failures that affect the Deposit Insurance Fund, we may be required to pay higher FDIC premiums.  Our FDIC insurance related costs were $173,000 for the year ended December 31, 2019, compared to $625,000 for the year ended December 31, 2018, reflecting the receipt of a credit in 2019.  Any future additional assessments, increases or required prepayments in FDIC insurance premiums could adversely affect our earnings and results of operations.

The Federal Reserve may require us to commit capital resources to support the Bank.

The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks.  Under the “source of strength” doctrine that was codified by the Dodd-Frank Act, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank at times when the bank holding company may not be inclined to do so and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank.  Accordingly, we could be required to provide financial assistance to the Bank if it experiences financial distress.

A capital injection may be required at a time when our resources are limited, and we may be required to borrow the funds or raise capital to make the required capital injection.  Any loan by a bank holding company to its subsidiary bank is subordinate in right with payment to deposits and certain other indebtedness of such subsidiary bank.  In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank.  Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of any note obligations.  Thus, any borrowing by a bank

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holding company for the purpose of making a capital injection to a subsidiary bank often becomes more difficult and expensive relative to other corporate borrowings.

We could be adversely affected by the soundness of other financial institutions.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships.  We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients.  Many of these transactions expose us to credit risk in the event of a default by a counterparty or client.  In addition, our credit risk may be exacerbated when our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due.  Any such losses could adversely affect our business, financial condition and results of operations.

Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve.  An important function of the Federal Reserve is to regulate the U.S. money supply and credit conditions.  Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of securities by the Federal Reserve, adjustments of both the discount rate and the federal funds rate and changes in reserve requirements against bank deposits.  These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits.  Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.  Although we cannot determine the effects of such policies on us at this time, such policies could adversely affect our business, financial condition and results of operations.

We are subject to commercial real estate lending guidance issued by the federal banking regulators that impacts our operations and capital requirements.

The federal banking regulators have issued guidance regarding concentrations in commercial real estate lending directed at institutions that have particularly high concentrations of commercial real estate loans within their lending portfolios.  This guidance suggests that institutions whose commercial real estate loans exceed certain percentages of capital should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending.  Based on our commercial real estate concentration as of December 31, 2019, we believe that we are operating within the guidelines.  However, increases in our commercial real estate lending, particularly as we expand into metropolitans markets and make more of these loans, could subject us to additional supervisory analysis.  We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio.  Management has implemented controls to monitor our commercial real estate lending concentrations, but we cannot predict the extent to which this guidance will impact our operations or capital requirements.

Risks Related to an Investment in Our Common Stock

The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, prices and times desired.

The market price of our common stock may be highly volatile, which may make it difficult for you to resell your shares at the volume, prices and times desired.  There are many factors that may affect the market price and trading volume of our common stock, including, without limitation:

• actual or anticipated fluctuations in our operating results, financial condition or asset quality;

• changes in economic or business conditions;

• the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve;

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• publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

• operating and stock price performance of companies that investors deemed comparable to us;

• additional or anticipated sales of our common stock or other securities by us or our existing shareholders;

• additions or departures of key personnel;

• perceptions in the marketplace regarding our competitors or us, including the perception that investment in Texas is unattractive or less attractive during periods of low oil prices;

• significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us;

• other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services; and

• other news, announcements or disclosures (whether by us or others) related to us, our competitors, our primary markets or the financial services industry.

The stock market and, in particular, the market for financial institution stocks have experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies.  In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur.  Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired.

The market price of our common stock could decline significantly due to actual or anticipated issuances or sales of our common stock in the future.

We may issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments and pursuant to compensation and incentive plans.  If any such acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial.  We may also grant registration rights covering those shares of our common stock or other securities in connection with any such acquisitions and investments.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock.  Sales of substantial amounts of our common stock (including shares of our common stock issued in connection with an acquisition or under a compensation or incentive plan), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock and could impair our ability to raise capital through future sales of our securities.

Securities analysts may not initiate or continue coverage on us.

The trading market for our common stock depends, in part, on the research and reports that securities analysts publish about us and our business.  We do not have any control over these securities analysts, and they may not cover us.  If one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.  If we are covered by securities analysts and are the subject of an unfavorable report, the price of our common stock may decline.

Our management and board of directors have significant control over our business.

As of December 31, 2019, our Company only directors and executive officers beneficially owned an aggregate of 2,723,804 shares, or approximately 23.4%, of our issued and outstanding shares of common stock, including 308,396 shares that are held by our KSOP and allocated to the accounts of our named executive officers.  As of December 31, 2019, our KSOP owned an aggregate of 1,224,697 shares, or approximately 10.6% of our issued and outstanding shares.  A committee consisting of four independent directors of the Company, which we refer to herein as the KSOP Committee, currently serves as trustee of the KSOP.  Each KSOP participant will have the right to vote the shares allocated to such participant’s account on all matters requiring a vote of our shareholders, but the KSOP committee, as trustee of the KSOP, retains sole voting power over all shares held by the KSOP that are not allocated to participants’ accounts and all shares for which they have received no voting instructions from the participant.  As of December 31, 2019, there were no shares owned by our KSOP that were unallocated to participants’ accounts.

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As a result of their significant control over our business, our management and board of directors may be able to significantly affect the outcome of the election of directors and the potential outcome of other matters submitted to a vote of our shareholders, such as mergers, the sale of substantially all of our assets and other extraordinary corporate matters.  The interests of these insiders could conflict with the interests of our other shareholders, including you.

The holders of our existing debt obligations, as well as debt obligations that may be outstanding in the future, will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest.

In the event of any liquidation, dissolution or winding up of the Company, our common stock would rank below all claims of debt holders against us.  As of December 31, 2019, we had a senior, unsecured line of credit with an available balance of $25.0 million, but no amounts advanced, we had $500,000 of subordinated debt obligations and approximately $10.3 million of junior subordinated debentures issued to statutory trusts that, in turn, issued $10.0 million of trust preferred securities.  Payments of the principal and interest on the trust preferred securities are conditionally guaranteed by us.  Our debt obligations are senior to our shares of common stock.  As a result, we must make payments on our debt obligations before any dividends can be paid on our common stock.  In the event of our bankruptcy, dissolution or liquidation, these existing and any future debt obligations must be satisfied in full before any distributions can be made to the holders of our common stock.  We have the right to defer distributions on our junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of our common stock.  To the extent that we issue additional debt obligations or junior subordinated debentures, the additional debt obligations or additional junior subordinated debentures will be senior to our shares of common stock.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

Our amended and restated certificate of formation authorizes us to issue up to 15,000,000 shares of one or more series of preferred stock.  Our board of directors has the authority to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our shareholders.  Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock.  The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.

We are an emerging growth company, and the reduced regulatory and reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act.  For as long as we continue to be an emerging growth company we may to take advantage of reduced regulatory and reporting requirements that are otherwise generally applicable to public companies.  These include, without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced financial reporting requirements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.  The JOBS Act also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.  However, we have irrevocably “opted out” of this provision, and we will comply with new or revised accounting standards to the same extent that compliance is required for non-emerging growth companies.

We may take advantage of these provisions for up to five years, unless we earlier cease to be an emerging growth company, which would occur if our annual gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period or if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30, in which case we would no longer be an emerging growth company as of the following December 31.  Investors may find our common stock less attractive because we intend to rely on certain of these exemptions, which may result in a less active trading market and increased volatility in our stock price.

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We are dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted.

Our primary asset is Guaranty Bank & Trust.  As such, the Company depends upon the Bank for cash distributions (through dividends on the Bank’s common stock) that the Company uses to pay its operating expenses, satisfy its obligations (including its junior subordinated debentures and other debt obligations) and to pay dividends on the Company’s common stock.  Federal statutes, regulations and policies restrict the Bank’s ability to make cash distributions to the Company.  These statutes and regulations require, among other things, that the Bank maintain certain levels of capital in order to pay a dividend.  Further, the OCC has the ability to restrict the Bank’s payment of dividends by supervisory action.  If the Bank is unable to pay dividends to the Company, we will not be able to satisfy our obligations or pay dividends on our common stock.

Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions.

We anticipate that dividends will be declared and paid in the month following the end of each calendar quarter, and we anticipate paying a quarterly dividend on our common stock in an amount equal to approximately 25.0% to 30.0% of our net income for the immediately preceding quarter.  However, holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for such payments.  Any declaration and payment of dividends on common stock will depend upon the ability of the Bank to make cash distributions to the Company, our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock and other factors deemed relevant by our board of directors.  Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely affect the amount of dividends, if any, paid to our common shareholders.

The Federal Reserve has indicated that bank holding companies should carefully review their dividend policy in relation to the organization’s overall asset quality, current and prospective earnings and level, composition and quality of capital.  The guidance provides that we inform and consult with the Federal Reserve prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in an adverse change to our capital structure, including interest on the junior subordinated debentures underlying our trust preferred securities and our other debt obligations.  If required payments on our outstanding junior subordinated debentures, held by our unconsolidated subsidiary trusts, or our other debt obligations, are not made or are deferred, or dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common stock.

Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition that you may favor or an attempted replacement of our board of directors or management.

Our certificate of formation and our bylaws (each as amended and restated) may have an anti-takeover effect and may delay, discourage or prevent an attempted acquisition or change of control or a replacement of our board of directors or management.  Our governing documents include provisions that:

• empower our board of directors, without shareholder approval, to issue our preferred stock, the terms of which, including voting power, are to be set by our board of directors;

• divide our board of directors into three classes serving staggered three-year terms;

• provide that directors may only be removed from office for cause and only upon a majority shareholder vote;

• eliminate cumulative voting in elections of directors;

• permit our board of directors to alter, amend or repeal our amended and restated bylaws or to adopt new bylaws;

• require the request of holders of at least 50.0% of the outstanding shares of our capital stock entitled to vote at a meeting to call a special shareholders’ meeting;

• prohibit shareholder action by less than unanimous written consent, thereby requiring virtually all actions to be taken at a meeting of the shareholders;

• require shareholders that wish to bring business before annual or special meetings of shareholders, or to nominate candidates for election as directors at our annual meeting of shareholders, to provide timely notice of their intent in writing; and

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• enable our board of directors to increase, between annual meetings, the number of persons serving as directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present at a meeting of directors.

In addition, certain provisions of Texas law, including a provision which restricts certain business combinations between a Texas corporation and certain affiliated shareholders, may delay, discourage or prevent an attempted acquisition or change in control.  Furthermore, banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or its holding company.  These laws include the Bank Holding Company Act of 1956, as amended, or the BHC Act, and the Change in Bank Control Act, or the CBCA. These laws could delay or prevent an acquisition.

Furthermore, our amended and restated certificate of formation provides that the state courts located in Titus County, Texas, the county in which our headquarters in Mount Pleasant lie, will be the exclusive forum for: (a) any actual or purported derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of fiduciary duty by any of our directors or officers, (c) any action asserting a claim against us or our directors or officers arising pursuant to the TBOC, our certificate of formation, or our bylaws; or (d) any action asserting a claim against us or our officers or directors that is governed by the internal affairs doctrine.  By becoming a shareholder of our Company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of formation related to choice of forum.  The choice of forum provision in our amended and restated certificate of formation may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.  Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of formation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, operating results, and financial condition.

An investment in our common stock is not an insured deposit and is subject to risk of loss.

Any shares of our common stock you purchase will not be savings accounts, deposits or other obligations of any of our bank or non-bank subsidiaries and will not be insured or guaranteed by the FDIC or any other government agency.  Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Bank currently operates 31 banking locations, all of which are located in Texas.  Our principal executive office is located at 16475 Dallas Parkway, Suite 600, Addison, Texas 75001.  The Bank currently operates banking locations in the following Texas locations: Austin, Bogata, Bryan, College Station (two locations), Commerce, Conroe, Dallas (two locations), Denton (two locations), Fort Worth, Hallsville, Houston (four locations), Longview, Mount Pleasant (two locations), Mount Vernon, New Boston, Paris (two locations), Pittsburg, Rockwall, Royse City, Sulphur Springs, and Texarkana (three locations).

As of December 31, 2019, we owned 21 of our branch locations, had one location in which we owned the building and had a long-term land lease on the real property associated with the branch, and leased the remaining nine locations.  The terms of our leases generally range from one to 15 years and give us the option to renew for subsequent terms of equal duration or otherwise extend the lease term subject to price adjustment based on market conditions at the time of renewal.  We believe that the nine leases to which we are subject are generally on terms consistent with prevailing market terms, and none of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing.  We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.

ITEM 3. 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.

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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 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 our favor.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for Common Stock

Shares of our common stock are traded on the NASDAQ Global Select Market under the symbol “GNTY.” Our shares have been traded on the NASDAQ Global Select Market since May 9, 2017. Prior to that date, there was no public trading market for our common stock.

As of March 11, 2020, there were 385 holders of record of our common stock.  The number of holders of record does not represent the actual number of beneficial owners of our common stock because securities dealers and others frequently hold shares in “street name” for the benefit of individual owners who have the right to vote shares.

Dividend Policy

See "Item 8. Financial Statements and Supplementary Data—Quarterly Results of Operations" for the frequency and amount of cash dividends paid by us.  Also, see "Item 1. Business—Regulation and Supervision—Guaranty Bancshares, Inc.—Regulatory Restrictions on Dividends” for restrictions on our present or future ability to pay dividends, particularly those restrictions arising under federal and state banking laws.

Unregistered Sales of Equity Securities

None.

Equity Compensation Plan Information

See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

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Stock Performance Graph

The following table and graph compares the cumulative total shareholder return on our common stock to the cumulative total return of the S&P 500 Index and the SNL Bank Index for banks with $1.0 billion to $5.0 billion in total assets for the period beginning on May 9, 2017, the first day of trading of our common stock on the NASDAQ Global Select Market through December 31, 2019. The following assumes $100 invested on May 9, 2017 in our common stock at our initial public offering price of $27.00 per share, otherwise reflects our stock and the S&P 500 and SNL Bank $1.0 to $5.0 Billion Index values as of close of trading, and assumes the reinvestment of dividends, if any. The historical stock price performance for our common stock shown on the graph below is not necessarily indicative of future stock performance.

	May 9, 2017		December 31, 2017		December 31, 2018		December 31, 2019
Guaranty Bancshares, Inc.	$	100.00	$	114.98	$	114.01	$	128.63
S&P 500 Index		100.00		113.05		108.09		142.12
SNL Bank $1B - $5B Index		100.00		107.19		93.91		114.16

Source: S&P Global Market Intelligence

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Stock Repurchases

In June 2018, the Company announced the adoption of a stock repurchase program that authorized the repurchase of up to 500,000 shares of the Company’s common stock.  On June 13, 2019, the Company announced the termination of that stock repurchase program after the repurchase of 384,588 shares and the adoption of a new stock repurchase program, which authorized the repurchase of an additional 500,000 shares of the Company common stock, or approximately 4.0% of the outstanding common shares at that time.  The stock repurchase program will be effective until the earlier of June 13, 2021 or the date all shares authorized for repurchase under the program have been repurchased, unless shortened or extended by the board of directors.  The repurchase plan permits shares to be acquired from time to time in the open market or negotiated transactions at prices management considers to be attractive and in the best interest of both Guaranty and its shareholders, subject to compliance with applicable laws and regulations, general market and economic conditions, the financial and regulatory condition of Guaranty, liquidity and other factors.  All repurchases shown in the table below were made pursuant to these stock repurchase programs in open market purchases, privately negotiated transactions or other means:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 2019		2,450	$	30.00		2,450		465,030
November 2019		—	$	—		—		465,030
December 2019		—	$	—		—		465,030
Total		2,450				2,450

ITEM 6.  SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following tables set forth certain of our summary historical consolidated financial information for each of the periods indicated. The historical information as of and for the years ended December 31, 2019 and 2018 has been derived from our audited consolidated financial statements included elsewhere in this Form 10-K, and the selected historical consolidated financial information as of and for the years ended December 31, 2017, 2016 and 2015 has been derived from our audited consolidated financial statements not appearing in this Form 10-K. The historical results set forth below are not necessarily indicative of our future performance.

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You should read the following together with the sections entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited consolidated financial statements and the related notes included elsewhere in this Form 10-K.

(Dollars in Thousands, except Per Share Amounts)
	As of December 31,
	2019		2018		2017		2016		2015
Selected Period End Balance Sheet Data:
Total assets	$	2,318,444	$	2,266,970	$	1,962,624	$	1,828,336	$	1,682,640
Cash and cash equivalents		90,714		71,510		91,428		127,543		111,379
Securities available for sale		212,716		232,975		232,372		156,925		272,944
Securities held to maturity		155,458		163,164		174,684		189,371		125,031
Loans held for sale		2,368		1,795		1,896		2,563		3,867
Loans held for investment		1,706,395		1,659,535		1,359,544		1,243,925		1,067,377
Allowance for loan losses		16,202		14,651		12,859		11,484		9,263
Goodwill		32,160		32,160		18,742		18,742		18,601
Core deposit intangibles, net		3,853		4,706		2,724		3,308		3,846
Noninterest-bearing deposits		525,865		489,789		410,009		358,752		325,556
Interest-bearing deposits		1,430,939		1,381,691		1,266,311		1,218,039		1,140,641
Total deposits		1,956,804		1,871,480		1,676,320		1,576,791		1,466,197
Federal Home Loan Bank advances		55,118		115,136		45,153		55,170		21,342
Subordinated debentures		10,810		12,810		13,810		19,310		21,310
Other debt		—		—		—		18,286		18,000
KSOP-owned shares		—		—		—		31,661		35,384
Total shareholders’ equity less KSOP-owned shares		261,551		244,583		207,345		110,253		102,352
Pro forma total shareholders’ equity(1)		261,551		244,583		207,345		141,914		137,736

	As of and for the Years Ended December 31,
	2019			2018			2017		2016		2015
Selected Income Statement Data:
Net interest income	$	78,870		$	68,916		$	59,630	$	53,840	$	47,759
Provision for loan losses		1,250			2,250			2,850		3,640		2,175
Net interest income after provision for loan losses		77,620			66,666			56,780		50,200		45,584
Noninterest income		16,962			15,303			14,279		13,016		11,483
Noninterest expense		62,525			56,774			48,382		46,380		42,594
Net realized (loss) gain on sale of securities		(22	)		(50	)		167		82		77
Income before income tax		32,057			25,195			22,677		16,836		14,473
Income tax expense		5,778			4,599			8,238		4,715		4,362
Net earnings		26,279			20,596			14,439		12,121		10,111
Dividends paid to common shareholders		8,128			7,031			5,562		4,615		4,526

	As of and for the Years Ended December 31,
	2019		2018		2017		2016		2015
Per Share Data:
Earnings per common share, basic	$	2.26	$	1.78	$	1.41	$	1.35	$	1.15
Earnings per common share, diluted		2.25		1.77		1.40		1.35		1.15
Book value per common share(2)		22.65		20.68		18.75		16.22		15.47
Tangible book value per common share(2)(3)		19.53		17.56		16.81		13.70		12.95
Weighted average common shares outstanding, basic, in thousands		11,639,000		11,563,000		10,231,000		8,968,000		8,796,000
Weighted average common shares outstanding, diluted, in thousands		11,705,000		11,654,000		10,313,000		8,976,000		8,802,000

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	As of December 31,
	2019			2018			2017			2016			2015
Summary Performance Ratios:
Return on average assets(4)(5)		1.13	%		0.97	%		0.76	%		0.68	%		0.65	%
Return on average equity(2)(4)(5)		10.37			9.03			7.78			8.34			7.44
Net interest margin(6)		3.68			3.49			3.38			3.27			3.33
Efficiency ratio(7)		65.23			67.37			65.61			69.46			71.99
Loans to deposits ratio(8)		87.20			88.68			81.10			78.89			72.80
Noninterest income to average assets(4)		0.73			0.72			0.75			0.73			0.74
Noninterest expense to average assets(4)		2.70			2.67			2.55			2.61			2.75
Summary Credit Quality Ratios:
Nonperforming assets to total assets		0.53	%		0.34	%		0.44	%		0.53	%		0.25	%
Nonperforming loans to total loans(8)		0.66			0.35			0.29			0.35			0.23
Allowance for loan losses to nonperforming loans		143.86			248.70			321.15			260.47			381.04
Allowance for loan losses to total loans(8)		0.95			0.88			0.95			0.92			0.87
Net (recoveries) charge-offs to average loans outstanding(9)		(0.02	)		0.03			0.11			0.12			0.06
Capital Ratios:
Total shareholders’ equity to total assets		11.28	%		10.79	%		10.56	%		7.76	%		8.19	%
Tangible common equity to tangible assets(10)		9.88			9.31			9.58			6.64			6.94
Common equity tier 1 capital (CET1) to risk-weighted assets		11.90			11.88			12.61			9.28			10.43
Tier 1 capital to average assets(4)		10.25			10.16			10.53			7.71			8.33
Tier 1 capital to risk-weighted assets		12.44			12.44			13.29			10.03			11.30
Total capital to risk-weighted assets		13.70			13.25			14.13			10.86			12.08

(1) In accordance with provisions of the Internal Revenue Code applicable to private companies, prior to our listing on the NASDAQ Global Select Market, the terms of our KSOP provided that KSOP participants had the right, for a specified period of time, to require us to repurchase shares of our common stock that are distributed to them by the KSOP.  As a result, for the periods prior to our listing on the NASDAQ Global Select Market, the shares of common stock held by the KSOP are deducted from shareholders’ equity in our consolidated balance sheet. This repurchase right terminated upon the listing of our common stock on the NASDAQ Global Select Market on May 9, 2017.

(2) Book value per common share and tangible book value per common share calculations reflect the Company’s pro forma total shareholders’ equity.

(3) We calculate tangible book value per common share as total shareholders’ equity less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization at the end of the relevant period, divided by the outstanding number of shares of our common stock at the end of the relevant period.  Tangible book value per common share is a financial measure that is not recognized by, or calculated in accordance with, U.S. generally accepted accounting principles, or GAAP, and, as we calculate tangible book value per common share, the most directly comparable GAAP financial measure is total shareholders’ equity per common share.  See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

(4) We calculate our average assets and average equity for a period by dividing the period end balances of our total assets or total shareholders’ equity, as the case may be, by the number of months in the period.

(5) We have calculated our return on average assets and return on average equity for a period by dividing net earnings for that period by our average assets and average equity, as the case may be, for that period.

(6) Net interest margin represents net interest income divided by average interest-earning assets.

(7) The efficiency ratio was calculated by dividing total noninterest expenses by net interest income plus noninterest income, excluding securities losses or gains.  Taxes are not part of this calculation.

(8) Excludes loans held for sale of $2.4 million, $1.8 million, $1.9 million, $2.6 million, and $3.9 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(9) Includes average outstanding balances of loans held for sale of $2.7 million, $1.7 million, $1.7 million, $3.0 million, and $4.4 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(10) We calculate tangible common equity as total shareholders’ equity less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and core deposit intangibles and other intangible assets, net of accumulated amortization. Tangible common equity to tangible assets is a financial measure that is not recognized by or calculated in accordance with GAAP, or a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total shareholders’ equity to total assets. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

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ITEM 7.  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 “Item 6. Selected Financial Data” and the Company’s audited consolidated financial statements and the accompanying notes included in "Item 8: Financial Statements and Supplementary Data."  This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict.  Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

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

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

• risks associated with our acquisition and de novo branching strategy;

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

• deterioration of our asset quality;

• changes in the value of collateral securing our loans;

• changes in management personnel;

• liquidity risks associated with our business;

• interest rate risk associated with our business;

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

• operational risks associated with our business;

• volatility and direction of market interest rates;

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

• 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;

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

• other factors that are discussed in "Item 1A.  Risk Factors."

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The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Annual Report on Form 10-K. 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.

General

The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, because we conduct all of our material business operations through Guaranty Bank & Trust, the discussion and analysis relates to activities primarily conducted by Guaranty Bank & Trust.

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.

Acquisitions

The comparability of our consolidated results of operations for the year ended December 31, 2019 to the year ended December 31, 2018 is affected by the acquisition of Westbound Bank on June 1, 2018.  Therefore, the results of the acquired operations of Westbound Bank were included in our results of operations during all of 2019 and for a portion of 2018.

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 financial statements to those judgments and assumptions, are 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.

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Loans and Allowance for Loan Losses

Loans are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses.  Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding.  Fees associated with the originating 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.  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 loan losses is an estimated amount management believes is adequate to absorb inherent losses on existing loans that may be uncollectible based upon review and evaluation of our loan portfolio.  Management’s periodic evaluation of the allowance is based on general economic conditions, the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experience and the results of periodic reviews of the portfolio.

The allowance for loan losses is comprised of two components.  The first component, the general reserve, is determined in accordance with current authoritative accounting guidance that considers historical loss rates for the last five years adjusted for qualitative factors based upon general economic conditions and other qualitative risk factors both internal and external to us.  Such qualitative factors include current local economic conditions and trends including unemployment, changes in lending staff, policies and procedures, changes in credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans.  These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors.  For purposes of determining the general reserve, the loan portfolio, less cash secured loans, government guaranteed loans and impaired loans, is multiplied by our adjusted historical loss rate.  The second component of the allowance for loan losses, the specific reserve, is determined in accordance with current authoritative accounting guidance based on probable and incurred losses on specific classified loans.

The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).

The credit quality of loans in our commercial real estate related loan portfolio is impacted by delinquency status and debt service coverage generated by the borrowers’ business 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, 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 refers 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 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 loan 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 in identifying loans that are individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the allowance for loan losses.  Internal risk ratings are updated on a continuous basis.

Loans are considered impaired when, based on current information and events, it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.  If a loan is impaired, a specific valuation allowance is allocated, if necessary.  Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.

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Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral.  Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price.  At December 31, 2019 and 2018, all significant impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral.

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 is subject to impairment and the need for a specific allowance for loan loss allocation.  An allowance for loan loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.

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.  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 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.

Emerging Growth Company

The 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 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.

Performance Summary for the Years Ended December 31, 2019 and 2018

Net earnings were $26.3 million for the year ended December 31, 2019, as compared to $20.6 million for the year ended December 31, 2018. This performance resulted in basic earnings per share of $2.26 for the year ended December 31, 2019 as compared to $1.78 for the year ended December 31, 2018. The increase in net earnings over this period was primarily the result of a full year of earnings from the acquisition of Westbound Bank on June 1, 2018, the continued maturity of the de novo locations in both the Central Texas and Dallas/Fort Worth MSA markets and a 19 basis point increase in our fully tax equivalent net interest margin from 3.50% in 2018 to 3.69% in 2019. The increase in earnings per share over this period was due to the 27.6% increase in net earnings compared to a 6.6% increase in the weighted average shares outstanding, and was impacted by the repurchase of 352,036 shares of common stock during the year ended December 31, 2019.  

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Our return on average assets was 1.13% for the year ended December 31, 2019, as compared to 0.97% for the year ended December 31, 2018. Our return on average equity was 10.37% for the year ended December 31, 2019, as compared to 9.03% for the year ended December 31, 2018. The increase in our return on average assets was primarily due to an increase in net earnings of 27.6%, relative to a smaller increase of 9.0% for total average assets.  The increase in the return on average equity was primarily due to an increase in net earnings of 27.6%, relative to a smaller increase in average shareholder's equity of 11.2%.

Our fully tax equivalent net interest margin was 3.69% for the year ended December 31, 2019 and 3.50% for the year ended December 31, 2018. Our net interest margin increased as a result of improvements in loan yields by an average of 33 basis points during the year, compared to smaller increases in the interest rates paid on deposit accounts, which increased by an average of 20 basis points. Our efficiency ratio was 65.23% for the year ended December 31, 2019, as compared to 67.37% for the year ended December 31, 2018. The improvement in our efficiency ratio for 2019 is largely attributable to the increase in our interest margin during the period. Non-interest expense increased by 10.1%, while applicable elements of non-interest income increased by 10.8%, during 2019.

Our total assets increased $52.0 million, or 2.3%, to $2.32 billion as of December 31, 2019, compared to $2.27 billion as of December 31, 2018.  Total loans increased $45.4 million, or 2.8%, to $1.69 billion as of December 31, 2019, compared to $1.65 billion as of December 31, 2018.  The increase in our total assets and total loans is primarily the result of organic loan growth in 2019.  Total shareholders’ equity increased $17.0 million, or 6.9%, to $261.6 million as of December 31, 2019, compared to $244.6 million as of December 31, 2018. The increase in shareholders' equity was due primarily to the 27.6% increase in net earnings in 2019, an increase in total other comprehensive income of $9.9 million, or 389.1%, and partially offset by the repurchase of common stock and payment of dividends during 2019.

Results of Operations for the Years Ended December 31, 2019 and 2018

A discussion regarding our results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017 can be found under “Item 7.  Management's Discussion and Analysis of Financial Condition and Result of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 15, 2019, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at investors.gnty.com.

Net Interest Income

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

Net interest income, before the provision for loan losses, was $78.9 million compared to $68.9 million for the years ended December 31, 2019 and 2018, respectively, an increase of $10.0 million, or 14.4%.  The increase in net interest income was comprised of a $14.1 million, or 15.9%, increase in interest income offset by a $4.1 million, or 21.2%, increase in interest expense.  The change in interest income was primarily attributable to a $164.3 million, or 10.8%, increase in average loans outstanding for the year ended December 31, 2019, compared to the year ended December 31, 2018, further improved by a 33 basis point increase in the average yield on total loans.  The increase in average loans outstanding was primarily due to organic growth in all of our markets and continuing maturity of de novo and acquired locations in the Dallas/Fort Worth metroplex and Central Texas markets.  The $4.1 million increase in interest expense for the year ended December 31, 2019 was primarily related to a $135.5 million, or 10.2%, increase in average interest-bearing deposits, which also had an average rate increase of 20 basis points over the same period in 2018.  The majority of the average deposit balance increase was due to organic growth, primarily in savings accounts, certificates and other time deposits, driven in part by favorable rates that were offered in our Central Texas, Houston and Dallas/Fort Worth metroplex markets as well as an additional six months of interest expense from the $181.4 million of deposits that were acquired from Westbound Bank in June of 2018.  For the year ended December 31, 2019, net interest margin and net interest spread were 3.68% (3.69% fully tax equivalent) and 3.25%, respectively, compared to 3.49% (3.50% fully tax equivalent) and 3.13% for the same period in 2018, which reflects the increases in interest income discussed above relative to the increases in interest expense.

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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 years ended December 31, 2019 and 2018, 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.

	For The Years Ended December 31,
	2019								2018
	Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
ASSETS
Interest-earnings assets:
Total loans(1)	$	1,689,108		$	90,980		5.39	%	$	1,524,792		$	77,170		5.06	%
Securities available for sale		229,351			5,715		2.49			236,799			5,927		2.50
Securities held to maturity		159,104			4,031		2.53			167,919			4,160		2.48
Nonmarketable equity securities		11,343			640		5.64			9,625			432		4.49
Interest-bearing deposits in other banks		53,783			1,195		2.22			35,521			769		2.16
Total interest-earning assets		2,142,689			102,561		4.79			1,974,656			88,458		4.48
Allowance for loan losses		(15,692	)							(13,825	)
Noninterest-earning assets		191,942								167,734
Total assets	$	2,318,939							$	2,128,565
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits	$	1,460,215		$	21,611		1.48	%	$	1,324,744		$	16,941		1.28	%
Advances from FHLB and fed funds purchased		58,070			1,389		2.39			94,338			1,865		1.98
Subordinated debentures		11,905			655		5.50			13,309			687		5.16
Securities sold under agreements to repurchase		10,901			36		0.33			12,796			49		0.38
Total interest-bearing liabilities		1,541,091			23,691		1.54			1,445,187			19,542		1.35
Noninterest-bearing liabilities:
Noninterest-bearing deposits		500,895								446,560
Accrued interest and other liabilities		23,430								8,754
Total noninterest-bearing liabilities		524,325								455,314
Shareholders’ equity		253,523								228,064
Total liabilities and shareholders’ equity	$	2,318,939							$	2,128,565
Net interest rate spread(2)							3.25	%							3.13	%
Net interest income				$	78,870							$	68,916
Net interest margin(3)							3.68	%							3.49	%
(1) Includes average outstanding balances of loans held for sale of $2.7 million and $1.7 million for the twelve months ended December 31, 2019 and 2018, 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. Net interest margin on a taxable equivalent basis was 3.69% and 3.50% for the years ended December 31, 2019 and 2018, respectively, using a marginal tax rate of 21%.

The following table presents information regarding the dollar amount of changes 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 changes attributable to changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

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	For the Year Ended December 31, 2019 vs. 2018
	Increase (Decrease)
	Due to Change in						Total Increase
	Volume			Rate			(Decrease)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	8,314		$	5,496		$	13,810
Securities available for sale		(186	)		(26	)		(212	)
Securities held to maturity		(219	)		90			(129	)
Nonmarketable equity securities		77			131			208
Interest-earning deposits in other banks		394			32			426
Total increase in interest income	$	8,380		$	5,723		$	14,103
Interest-bearing liabilities:
Interest-bearing deposits	$	1,734		$	2,936		$	4,670
Advances from FHLB and fed funds purchased		(718	)		242			(476	)
Subordinated debentures		(72	)		40			(32	)
Securities sold under agreements to repurchase		(7	)		(6	)		(13	)
Total increase in interest expense		937			3,212			4,149
Increase in net interest income	$	7,443		$	2,511		$	9,954

Provision for Loan Losses

The provision for loan losses is a charge to income in order to bring our allowance for loan losses to a level deemed appropriate by management. For a description of the factors taken into account by our management in determining the allowance for loan losses see “— Financial Condition—Allowance for Loan Losses.” The provision for loan losses for the year ended December 31, 2019 was $1.3 million compared to $2.3 million for the year ended December 31, 2018.  As of December 31, 2019 and 2018, our allowance for loan and lease losses was $16.2 million and $14.7 million, respectively, which were comprised of general allowance reserves of $14.6 million and $14.2 million, respectively, with specific reserves allocated to cover classified and problem loans of $1.6 million and $493,000, respectively.  The decrease in provision expense was primarily due to lower net charge-offs during 2019, resulting partially from a $487,000 recovery during the third quarter of 2019, and loan growth at a slower rate during 2019 than during 2018.  As of December 31, 2019, there was $8.3 million in loan balances past due 30 or more days and $11.3 million in loan balances for nonperforming (nonaccrual) loans, compared to $15.0 million and $5.9 million, respectively, for the year ended December 31, 2018.  The increase in non-accrual loans from the prior period is partially due to two loan relationships, consisting of three loans that had an outstanding book balance of $5.6 million as of December 31, 2019.  These three loans were acquired from Westbound Bank and have a 75% SBA guarantee.  The remaining $5.7 million in non-accrual loans as of December 31, 2019 consisted primarily of smaller dollar, first lien residential home loans and included one loan relationship with an outstanding balance of $1.3 million as of December 31, 2019.  

Net recoveries for the year ended December 31, 2019 totaled $301,000, compared to net charge-offs of $458,000 for the same period in 2018.  The net recoveries during 2019 resulted primarily from a recovery of $487,000 from proceeds of a life insurance policy that collateralized a loan that was charged off several years ago.  Without this one recovery, net charge-offs for 2019 would have been $186,000.  This decrease in net charge-offs was primarily due to fewer charge-offs of commercial and industrial loans and consumer loans during 2019.

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 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.

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For the year ended December 31, 2019, noninterest income totaled $17.0 million, an increase of $1.7 million, or 10.8%, compared to $15.3 million for the year ended December 31, 2018. The following table presents, for the periods indicated, the major categories of noninterest income:

	For The Year Ended December 31,						Increase (Decrease)
	2019			2018			2019 vs. 2018
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	3,715		$	3,600		$	115
Merchant and debit card fees		4,264			3,642			622
Fiduciary income		1,760			1,587			173
Gain on sales of loans		2,850			2,308			542
Bank-owned life insurance income		774			570			204
Loss on sales of investment securities		(22	)		(50	)		28
Loan processing fee income		590			589			1
Other noninterest income		3,031			3,057			(26	)
Total noninterest income	$	16,962		$	15,303		$	1,659

Service Charges on Deposit Accounts.  We earn fees from our customers for deposit-related services, and these fees constitute a significant and predictable component of our noninterest income. Service charges on deposit accounts were $3.7 million for the year ended December 31, 2019, which increased over the same period in 2018 by $115,000, or 3.2%.  The increase was due primarily to higher insufficient fund income of approximately $107,000 from the same period in 2018.  The increase in insufficient fund income resulted primarily from an increase in demand deposit and savings accounts, which can incur overdraft charges.  

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 $4.3 million for the year ended December 31, 2019, compared to $3.6 million for the same period in 2018, an increase of $622,000, or 17.1%.  The increase was primarily due to growth in the number of demand deposit accounts and debit card usage volume during 2019.

Fiduciary Income.   We have trust powers and provide fiduciary and custodial services through our trust and wealth management division. Fiduciary income was $1.8 million and $1.6 million for the years ended December 31, 2019 and 2018, respectively, an increase of $173,000, or 10.9%. The revenue increase resulted primarily from 17 new fiduciary accounts that opened in 2019, which have generated additional income. Furthermore, revenue for our services fluctuates by month with the market value for all publicly-traded assets, which are 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.  The fair value of managed assets held as of December 31, 2019 was $337.9 million, of which $164.0 million or 48.5%, were in custody-only services.  The fair value of managed assets held as of December 31, 2018 was $319.3 million, of which $162.1 million, or 50.8%, were in custody-only services.  

Gain on Sales of Loans.  We originate long-term fixed-rate mortgage loans for resale into the secondary market.  We sold 383 loans for $78.3 million for the year ended December 31, 2019 compared to 347 loans for $70.8 million for the year ended December 31, 2018.  Gain on sale of loans was $2.9 million for the year ended December 31, 2019, an increase of $542,000, or 23.5%, compared to $2.3 million for the same period in 2018. We also began selling Small Business Administration (SBA) loans on the secondary market during the current year, with a net realized gain on the sale of three SBA loans totaling $233,000 for the year ended December 31, 2019.

Bank-Owned Life Insurance.  We invest in bank-owned life insurance due to its attractive nontaxable return and protection against the loss of our key employees. We record income based on the growth of the cash surrender value of these policies as well as the annual yield net of fees and charges, including mortality charges. Income from bank-owned life insurance increased by $204,000, or 35.8%, for the year ended December 31, 2019, compared to the same period in 2018. The increase in income is primarily due to $7.0 million of additional policies purchased in June of 2019 on the lives of existing officers of the Company.

Other.  This category includes a variety of other income producing activities, including mortgage loan origination fees, wire transfer fees, check printing fees, loan administration fees, gains on sales of assets and real estate owned and other income.  Other noninterest income decreased $26,000, or 0.85%, in 2019 compared to 2018.  Increases in other income during 2019 were primarily due to higher fee income of $191,000, mortgage loan origination income of $207,000,

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and wire transfer fee income of $48,000.  However, these increases were offset by an increase in the SBA servicing asset fair value adjustment, which had a write-down of $489,000 in 2019, compared to a write-down of only $210,000 in 2018.  Other income for the year 2018 also included a net gain on sale of assets of $351,000, which included a gain on the sale of our Atlanta bank location and a loss on the sale of a former bank location in Longview, TX.  There was minimal gain on sale of assets during 2019.  

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 year ended December 31, 2019, noninterest expense totaled $62.5 million, an increase of $5.8 million, or 10.1%, compared to $56.8 million for the year ended December 31, 2018. The following table presents, for the periods indicated, the major categories of noninterest expense:

	For The Year Ended December 31,				Increase (Decrease)
	2019		2018		2019 vs. 2018
	(Dollars in thousands)
Employee compensation and benefits	$	35,907	$	32,122	$	3,785
Non-staff expenses:
Occupancy expenses		9,834		8,398		1,436
Amortization		1,378		1,228		150
Software and technology		3,341		2,502		839
FDIC insurance assessment fees		173		625		(452	)
Legal and professional fees		2,610		3,080		(470	)
Advertising and promotions		1,655		1,410		245
Telecommunication expense		676		649		27
ATM and debit card expense		1,347		1,127		220
Director and committee fees		873		1,029		(156	)
Other noninterest expense		4,731		4,604		127
Total noninterest expense	$	62,525	$	56,774	$	5,751

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 $35.9 million for the year ended December 31, 2019, an increase of $3.8 million, or 11.8%, compared to $32.1 million for the same period in 2018.  The increase resulted primarily from the addition of 13 full time equivalent employees, from 454 as of December 31, 2018 to 467 as of December 31, 2019, in order to continue growing our two de novo locations in Austin and Fort Worth, Texas, to staff our new Houston location and to support operational growth, as well annual salary increases and bonus increases for all employees.

Occupancy Expenses.  Occupancy expenses were $9.8 million for the year ended December 31, 2019, compared to $8.4 million for the same period in 2018, an increase of $1.4 million, or 17.1%. This category includes building, leasehold, furniture, fixtures and equipment depreciation totaling $3.9 million for the year ended December 31, 2019, up from $3.4 million in the same period of the prior year.  The increase in occupancy expenses was due primarily to the increase in depreciation expense combined with lease expense increases of $521,000, due to relocating into new our new corporate offices in Addison, our new Houston Galleria location, and the adoption of Accounting Standards Codification 842, Leases.  

Amortization.  Amortization costs include amortization of software and core deposit premiums. Amortization expenses increased $150,000, or 12.2%, from $1.2 million for the year ended December 31, 2018 to $1.4 million for the year ended December 31, 2019. The increase is due primarily to a full year of amortization of deposit premiums associated with the Westbound acquisition on June 1, 2018, as well as additional software purchases required to support our expansion and to build the infrastructure needed for growth in the volume of our business.

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Software and Technology.  Software and technology expenses increased $839,000, or 33.5%, from $2.5 million for the year ended December 31, 2018 to $3.3 million for the year ended December 31, 2019.  The increase is attributable primarily to company growth in online banking licensing and volume, remote deposit licensing and volume, investments in security/monitoring software, investments in new SBA loan servicing software, and overall licensing and volume increases due to growth.  

FDIC Assessment Fees.  FDIC insurance assessment fees decreased $452,000, or 72.3%, from $625,000 for the year ended December 31, 2018 to $173,000 for the year ended December 31, 2019.  The decrease resulted from an FDIC assessment credit of $534,000 that was received in January 2019 and will be used to satisfy our FDIC assessment fees provided that the insurance fund ratio continues to exceed 1.35 or until the credit is extinguished.  

Legal and Professional Fees. Legal and professional fees, which include audit, loan review and regulatory assessments, were $2.6 million and $3.1 million for the years ended December 31, 2019 and 2018, respectively, a decrease of $470,000, or 15.3%.  The decrease resulted in part from decreased legal expense of $286,000 due to legal costs associated with the acquisition of Westbound Bank in the prior year and a Fiserv expense incurred in July of 2018 that increased professional fees expense by $122,000, which was not present in 2019.  

Advertising and Promotions.  Advertising and promotion related expenses were $1.7 million and $1.4 million for the years ended December 31, 2019 and 2018, respectively.  The increase of $245,000, or 17.4%, was primarily due to increases in advertising expense related to development of marketing campaigns that align with our strategic goals and to improve our brand awareness in our growth markets, especially Dallas/Fort Worth, Central Texas and Houston.

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 $1.3 million and $1.1 million for the years ended December 31, 2019 and 2018, respectively. Our expenses increased $220,000, or 19.5%, due to increases in the number of deposit accounts, including a full year from those acquired from Westbound Bank, and the volume of ATM and debit card usage by our customers.  

Director and Committee Fees.  We pay fees to our board of directors for their attendance at board and committee meetings for both the Company and the Bank. Director and committee fees paid were $873,000 and $1.0 million for the years ended December 31, 2019 and 2018, respectively, a decrease of $156,000, or 15.2%, primarily because the inside statutory and advisory directors are no longer paid a director fee as of March 2019.  

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 increased $127,000, or 2.8%, from $4.6 million for the year ended December 31, 2018 to $4.7 million for the year ended December 31, 2019. The increase resulted primarily from modest increases in contributions, dues and subscriptions, loan and filing expenses and stock option expenses, and were partially offset by decreases in travel and lodging expense, meals and entertainment, check charges paid by the bank and life insurance policy premiums.    

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 years ended December 31, 2019 and 2018, income tax expense totaled $5.8 million and $4.6 million, respectively. Our effective tax rate for the years ended December 31, 2019 and 2018 was 18.0% and 18.3%, respectively.

Financial Condition

Our total assets increased $52.0 million, or 2.3%, from $2.27 billion as of December 31, 2018 to $2.32 billion as of December 31, 2019.  Our asset growth in 2019 was primarily due to organic growth through enhancing our lending and deposit relationships with existing customers and attracting new customers, as well as cross-selling our deposit and

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treasury management products. Our growth in 2019 was partially offset by a few large anticipated payoffs of loan participations purchased.  

Loan Portfolio

Our primary source of income is 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.

As of December 31, 2019, total loans, excluding deferred loan fees, were $1.71 billion, an increase of $46.9 million, or 2.8%, compared to $1.66 billion as of December 31, 2018.  The increase during 2019 resulted primarily from continued organic growth in our primary market areas, including de novo locations in Austin and Fort Worth, Texas that were opened in late 2017, and was partially offset by anticipated payoffs of a few large participation loans purchased in the fourth quarter of 2019 that had combined balances of $43.4 million. In addition to these amounts, $2.4 million and $1.8 million in loans were classified as held for sale as of December 31, 2019 and 2018, respectively.

Total loans, excluding loans held for sale, as a percentage of deposits were 87.2% and 88.7% as of December 31, 2019 and 2018, respectively.  Total loans, excluding loans held for sale, as a percentage of assets were 73.6% and 73.2% as of December 31, 2019 and 2018, respectively.

The following table summarizes our loan portfolio by type of loan as of the dates indicated:

	As of December 31,
	2019					2018					2017					2016					2015
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Commercial and industrial	$	279,583		16.38	%	$	261,779		15.77	%	$	197,508		14.53	%	$	223,712		17.98	%	$	181,716		17.02	%
Real estate:
Construction and development		280,498		16.44	%		237,503		14.31	%		196,774		14.47	%		129,631		10.42	%		122,904		11.51	%
Commercial real estate		567,360		33.25	%		582,519		35.10	%		418,137		30.76	%		368,077		29.59	%		301,910		28.29	%
Farmland		57,476		3.37	%		67,845		4.09	%		59,023		4.34	%		62,366		5.01	%		47,668		4.47	%
1-4 family residential		412,166		24.15	%		393,067		23.69	%		374,371		27.54	%		361,665		29.08	%		312,306		29.26	%
Multi-family residential		37,379		2.19	%		38,386		2.31	%		36,574		2.69	%		26,079		2.10	%		30,395		2.85	%
Consumer and overdrafts		53,574		3.14	%		55,159		3.33	%		51,561		3.79	%		53,494		4.30	%		50,954		4.77	%
Agricultural		18,359		1.08	%		23,277		1.40	%		25,596		1.88	%		18,901		1.52	%		19,524		1.83	%
Total loans held for investment	$	1,706,395		100.00	%	$	1,659,535		100.00	%	$	1,359,544		100.00	%	$	1,243,925		100.00	%	$	1,067,377		100.00	%
Total loans held for sale	$	2,368				$	1,795				$	1,896				$	2,563				$	3,867

Commercial and Industrial Loans.  Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These 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 generally include personal guarantees.  Commercial and industrial loans increased $17.8 million, or 6.8%, to $279.6 million as of December 31, 2019 from $261.8 million as of December 31, 2018. The fluctuations in the commercial and industrial portfolio are primarily due to normal variances in the balances of underlying lines of credit.  

Construction and Development.  Construction and land development loans are comprised of loans to fund construction, land acquisition and land development construction.  The properties securing the portfolio are located throughout Texas and are generally diverse in terms of type.  Construction and development loans increased $43.0 million, or 18.1%, to $280.5 million as of December 31, 2019 from $237.5 million as of December 31, 2018. The increase resulted from continued organic growth, especially in our Central Texas, Houston and Dallas/Fort Worth MSA markets, as well as increases in market demand and our decision in recent years to seek a larger volume of such loans due to our belief that our loan portfolio was sufficiently diverse to sustain them.  

1-4 Family Residential.  Our 1-4 family residential loan portfolio is comprised of loans secured by 1-4 family homes, which are both owner occupied and investor owned. Our 1-4 family residential loans have a relatively small balance spread across many individual borrowers compared to our other loan categories. Our 1-4 family residential loans increased $19.1 million, or 4.9%, to $412.2 million as of December 31, 2019 from $393.1 million as of December 31, 2018.  This increase is primarily the result of continued organic growth.

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Commercial Real Estate.  Commercial real estate loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate.  These loans may be more adversely affected by conditions in the real estate markets or in the general economy.  The properties securing the portfolio are located primarily within our markets and are generally diverse in terms of type.  This diversity helps reduce our exposure to adverse economic events that affect any single industry. Commercial real estate loans decreased $15.2 million, or 2.6%, to $567.4 million as of December 31, 2019 from $582.5 million as of December 31, 2018. The decrease in commercial real estate loans during the periods was mostly driven by anticipated payoffs during the fourth quarter of 2019 of three large participation purchased relationships from other banks that had book balances of approximately $43.4 million.  

Other Loan Categories.  Other categories of loans included in our loan portfolio include farmland and agricultural loans made to farmers and ranchers relating to their operations, multi-family residential loans and consumer loans. None of these categories of loans represents a significant portion of our total loan portfolio.

Contractual Loan Maturities.  The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of date indicated are summarized in the following tables:

	As of December 31, 2019
	One Year or Less		One Through Five Years		After Five Years		Total
	(Dollars in thousands)
Commercial and industrial	$	175,896	$	70,188	$	33,499	$	279,583
Real estate:
Construction and development		89,386		96,169		94,943		280,498
Commercial real estate		44,172		105,648		417,540		567,360
Farmland		7,367		7,194		42,915		57,476
1-4 family residential		46,099		25,137		340,930		412,166
Multi-family residential		18,487		4,186		14,706		37,379
Consumer		15,450		35,238		2,886		53,574
Agricultural		11,834		6,463		62		18,359
Total loans	$	408,691	$	350,223	$	947,481	$	1,706,395
Amounts with fixed rates	$	281,989	$	265,377	$	58,863	$	606,229
Amounts with floating rates	$	126,702	$	84,846	$	888,618	$	1,100,166

	As of December 31, 2018
	One Year or Less		One Through Five Years		After Five Years		Total
	(Dollars in thousands)
Commercial and industrial	$	137,706	$	93,119	$	30,954	$	261,779
Real estate:
Construction and development		90,830		81,731		64,942		237,503
Commercial real estate		30,374		147,722		404,423		582,519
Farmland		5,319		12,683		49,843		67,845
1-4 family residential		27,344		33,601		332,122		393,067
Multi-family residential		20,010		7,523		10,853		38,386
Consumer		17,586		34,042		3,531		55,159
Agricultural		13,791		9,364		122		23,277
Total loans	$	342,960	$	419,785	$	896,790	$	1,659,535
Amounts with fixed rates	$	229,710	$	327,545	$	48,972	$	606,227
Amounts with floating rates	$	113,250	$	92,240	$	847,818	$	1,053,308

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Nonperforming Assets

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

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

We had $12.3 million in nonperforming assets as of December 31, 2019, compared to $7.6 million as of December 31, 2018. We had $11.3 million in nonperforming loans as of December 31, 2019, compared to $5.9 million as of December 31, 2018.  Our nonperforming assets other than loans decreased by $727,000, or 42.2%, as of December 31, 2019 compared to 2018, primarily resulting from sales and valuation write-downs of other real estate and repossessed assets owned.  The $5.4 million increase in our nonperforming loans from December 31, 2018 to December 31, 2019 primarily relates to the downgrade of two loan relationships consisting of three partially (75%) guaranteed SBA loans with an outstanding  book balance of $5.6 million as of December 31, 2019 that were acquired from Westbound Bank, as well as the downgrade of one relationship with an outstanding book balance of $1.3 million (primarily 1-4 family residential) and an increase in smaller dollar amount single family residential loans that exceeded 90-days past due during the period. Excluding the partially guaranteed SBA loans, nonperforming assets as a percentage of total loans as of December 31, 2019 would be 0.39%.

The following table presents information regarding nonperforming assets at the dates indicated:

	As of December 31,
	2019			2018			2017			2016			2015
	(Dollars in thousands)
Nonaccrual loans	$	11,262		$	5,891		$	4,004		$	4,409		$	2,431
Accruing loans 90 or more days past due		—			—			—			—			—
Total nonperforming loans		11,262			5,891			4,004			4,409			2,431
Other real estate owned:
Commercial real estate, construction and development, and farmland		105			34			758			1,074			1,075
Residential real estate		498			717			1,486			618			618
Total other real estate owned		603			751			2,244			1,692			1,693
Repossessed assets owned		392			971			2,466			3,530			116
Total other assets owned		995			1,722			4,710			5,222			1,809
Total nonperforming assets	$	12,257		$	7,613		$	8,714		$	9,631		$	4,240
Restructured loans-nonaccrual	$	101		$	335		$	—		$	43		$	160
Restructured loans-accruing	$	7,240		$	861		$	657		$	462		$	3,541
Ratio of nonperforming loans to total loans(1)(2)		0.66	%		0.35	%		0.29	%		0.35	%		0.23	%
Ratio of nonperforming assets to total assets		0.53	%		0.34	%		0.44	%		0.53	%		0.25	%

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	As of December 31,
	2019		2018		2017		2016		2015
	(Dollars in thousands)
Nonaccrual loans by category:
Commercial and industrial	$	46	$	366	$	77	$	82	$	118
Real estate:
Construction and development		—		—		—		1,825		—
Commercial real estate		6,860		3,700		1,422		415		77
Farmland		182		140		163		176		169
1-4 family residential		3,853		1,567		1,937		1,699		1,829
Multi-family residential		—		—		217		5		—
Consumer		279		66		138		192		238
Agricultural		42		52		50		15		—
Total	$	11,262	$	5,891	$	4,004	$	4,409	$	2,431

(1) Excludes loans held for sale of $2.4 million, $1.8 million, $1.9 million, $2.6 million and $3.9 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(2) Restructured loans-nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful or loss. Within the pass category, we classify loans into one of the following four subcategories based on perceived credit risk, including repayment capacity and collateral security: superior, excellent, good and acceptable. 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 reserve 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.

The following table summarizes the internal ratings of our loans as of the dates indicated.  The increase in substandard loans to $20.3 million as of December 31, 2019, from $10.5 million as of December 31, 2018, is attributable primarily to the downgrade of several partially guaranteed SBA loans that were acquired from Westbound Bank.  There are two loan relationships, consisting of three loans with an outstanding book balance of $5.6 million as of December 31, 2019 that are on non-accrual and are included in our nonperforming loan totals. The three loans are partially guaranteed by the SBA and specific loan reserves of $920,000 have been recorded for the non-guaranteed loan portions.  There are also three other loan relationships, consisting of six partially guaranteed SBA loans with an outstanding book balances of $8.6 million as of December 31, 2019 that have experienced a downgrade in financial performance but are not past due and are paying as agreed.  We will continue to monitor the financial performance of these relationships and will upgrade

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their ratings when improvement is observed.  All nine of these loans are included in the commercial real estate loan type in the table below.

	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	279,217	$	153	$	213	$	—	$	—	$	279,583
Real estate:
Construction and development		278,679		600		1,219		—		—		280,498
Commercial real estate		548,662		1,071		17,627		—		—		567,360
Farmland		57,152		91		233		—		—		57,476
1-4 family residential		409,896		1,425		845		—		—		412,166
Multi-family residential		37,379		—		—		—		—		37,379
Consumer		53,327		192		55		—		—		53,574
Agricultural		18,101		126		132		—		—		18,359
Total	$	1,682,413	$	3,658	$	20,324	$	—	$	—	$	1,706,395

	December 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	260,863	$	224	$	692	$	—	$	—	$	261,779
Real estate:
Construction and development		236,253	—			1,250		—		—		237,503
Commercial real estate		569,648		5,691		7,180		—		—		582,519
Farmland		67,541		49		255		—		—		67,845
1-4 family residential		391,956		514		597		—		—		393,067
Multi-family residential		38,386	—		—			—		—		38,386
Consumer		55,055		48		56		—		—		55,159
Agricultural		22,713		115		449		—		—		23,277
Total	$	1,642,415	$	6,641	$	10,479	$	—	$	—	$	1,659,535

Allowance for Loan Losses

We maintain an allowance for loan losses that represents management’s best estimate of the loan losses and risks inherent in our loan portfolio. The amount of the allowance for loan losses should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of our loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. Please see “— Critical Accounting Policies—Allowance for Loan Losses.”

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

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

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

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• 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 December 31, 2019, our allowance for loan losses totaled $16.2 million, or 0.95%, of total loans. As of December 31, 2018, our allowance for loan losses totaled $14.7 million, or 0.88%, of total loans.

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

	As of December 31,
	2019			2018			2017			2016			2015
	(Dollars in thousands)
Average loans outstanding(1)	$	1,689,108		$	1,524,792		$	1,283,253		$	1,179,938		$	991,889
Gross loans outstanding at end of period(2)	$	1,706,395		$	1,659,535		$	1,359,544		$	1,243,925		$	1,067,377
Allowance for loan losses at beginning of the period		14,651			12,859			11,484			9,263			7,721
Provision for loan losses		1,250			2,250			2,850			3,640			2,175
Charge offs:
Commercial and industrial		86			367			1,080			1,213			192
Real Estate:
Construction and development		—			—			—			9			6
Commercial real estate		—			33			84			—			53
Farmland		—			—			—			—			—
1-4 family residential		14			93			543			71			215
Multi-family residential		—			—			—			—			—
Consumer		72			254			344			269			219
Agriculture		89			2			242			—			1
Overdrafts		192			169			165			200			227
Total charge-offs		453			918			2,458			1,762			913
Recoveries:
Commercial and industrial		508			111			797			17			20
Real Estate:
Construction and development		—			—			—			4			—
Commercial real estate		1			1			—			—			—
Farmland		—			—			—			—			96
1-4 family residential		3			135			23			75			8
Multi-family residential		—			—			—			—			—
Consumer		111			90			108			121			50
Agriculture		89			65			—			—			1
Overdrafts		42			58			55			126			105
Total recoveries		754			460			983			343			280
Net (recoveries) charge-offs		(301	)		458			1,475			1,419			633
Allowance for loan losses at end of period	$	16,202		$	14,651		$	12,859		$	11,484		$	9,263
Ratio of allowance to end of period loans(2)		0.95	%		0.88	%		0.95	%		0.92	%		0.87	%
Ratio of net (recoveries) charge-offs to average loans(1)		-0.02	%		0.03	%		0.11	%		0.12	%		0.06	%

(1) Includes average outstanding balances of loans held for sale of $2.7 million, $1.7 million, $1.7 million, $3.0 million, and $4.4 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(2) Excludes loans held for sale of $2.4 million, $1.8 million, $1.9 million, $2.6 million, and $3.9 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

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We believe the successful execution of our expansion strategy through organic growth and strategic acquisitions is generally demonstrated by the upward trend in loan balances from December 31, 2015 to December 31, 2019.  Loan balances, excluding loans held for sale, increased from $1.1 billion as of December 31, 2015, to $1.71 billion as of December 31, 2019. Net charge-offs have been minimal, representing on average 0.06% of average loan balances during the same period.

Although we believe that we have established our allowance for loan losses in accordance with GAAP and that the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for loan 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 loan losses could be required.

The following table shows the allocation of the allowance for loan losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for loan 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 December 31,
	2019					2018					2017					2016					2015
	Amount		Percent to Total			Amount		Percent to Total			Amount		Percent to Total			Amount		Percent to Total			Amount		Percent to Total
	(Dollars in thousands)
Commercial and industrial	$	2,056		12.69	%	$	1,751		11.96	%	$	1,581		12.29	%	$	1,592		13.86	%	$	1,878		20.27	%
Real estate:
Construction and development		2,378		14.68	%		1,920		13.10	%		1,724		13.41	%		1,161		10.11	%		1,004		10.84	%
Commercial real estate		6,853		42.30	%		6,025		41.12	%		4,585		35.66	%		3,264		28.42	%		2,106		22.74	%
Farmland		570		3.52	%		643		4.39	%		523		4.07	%		482		4.20	%		400		4.32	%
1-4 family residential		3,125		19.29	%		2,868		19.58	%		3,022		23.50	%		3,960		34.48	%		2,839		30.65	%
Multi-family residential		409		2.52	%		631		4.31	%		629		4.89	%		281		2.45	%		325		3.51	%
Total real estate		13,335		82.31	%		12,087		82.50	%		10,483		81.53	%		9,148		79.66	%		6,674		72.06	%
Consumer		614		3.79	%		575		3.92	%		608		4.73	%		591		5.15	%		573		6.18	%
Agricultural		197		1.21	%		238		1.62	%		187		1.45	%		153		1.33	%		138		1.49	%
Total allowance for loan losses	$	16,202		100.00	%	$	14,651		100.00	%	$	12,859		100.00	%	$	11,484		100.00	%	$	9,263		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 December 31, 2019, the carrying amount of our investment securities totaled $368.2 million, a decrease of $28.0 million, or 7.1%, compared to $396.1 million as of December 31, 2018. The decrease was due primarily to our use of the proceeds from maturing securities and paydowns of mortgage-backed securities to fund increases in the loan portfolio or reduce the amount of our borrowings.  Investment securities represented 15.9% and 17.5% of total assets as of December 31, 2019 and 2018, respectively.

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Our investment portfolio consists of securities classified as available for sale and held to maturity. As of December 31, 2019, securities available for sale and securities held to maturity totaled $212.7 million and $155.5 million, respectively. As of December 31, 2018, securities available for sale and securities in held to maturity totaled $233.0 million and $163.2 million, respectively. Held to maturity percentages were 42.2% as of December 31, 2019 and 41.2% as of December 31, 2018. We generally seek to maintain 50.0% or less of our portfolio in held to maturity securities. 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. The following table summarizes the amortized cost and estimated fair value of our investment securities as of the dates shown:

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars in thousands)
Corporate bonds	$	19,667	$	592	$	—	$	20,259
Municipal securities		155,196		5,286		11		160,471
Mortgage-backed securities		98,332		748		348		98,732
Collateralized mortgage obligations		92,475		1,256		17		93,714
Total	$	365,670	$	7,882	$	376	$	373,176

	As of December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars in thousands)
Corporate bonds	$	19,743	$	—	$	789	$	18,954
Municipal securities		157,720		1,231		1,354		157,597
Mortgage-backed securities		110,246		106		4,176		106,176
Collateralized mortgage obligations		115,400		48		2,400		113,048
Total	$	403,109	$	1,385	$	8,719	$	395,775

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 December 31, 2019, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages, non-U.S. agency mortgage-backed or corporate collateralized mortgage obligations.

Our management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  As of December 31, 2019, there was no other-than-temporary impairment recorded.

The following table sets forth the amortized cost of held to maturity securities and the fair value of available for sale securities, 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 December 31, 2019
	Within One Year					After One Year but Within Five Years					After Five Years but Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Total		Yield
	(Dollars in thousands)
Corporate bonds	$	1,018		2.79	%	$	12,496		2.87	%	$	6,745		3.47	%	$	—		—		$	20,259		3.07	%
Municipal securities		2,189		3.10	%		31,497		3.02	%		39,951		3.40	%		82,127		3.07	%		155,764		3.14	%
Mortgage-backed securities		—		—			55,974		2.45	%		42,573		2.67	%		—		—			98,547		2.54	%
Collateralized mortgage obligations		1,652		3.44	%		91,952		2.70	%		—		—			—		—			93,604		2.72	%
Total	$	4,859		3.15	%	$	191,919		2.69	%	$	89,269		3.05	%	$	82,127		3.07	%	$	368,174		2.87	%

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	As of December 31, 2018
	Within One Year					After One Year but Within Five Years					After Five Years but Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Total		Yield
	(Dollars in thousands)
Corporate bonds	$	—		—		$	10,852		2.77	%	$	8,102		3.43	%	$	—		—		$	18,954		3.05	%
Municipal securities		762		1.73	%		19,062		2.93	%		51,246		3.28	%		86,465		3.01	%		157,535		3.08	%
Mortgage-backed securities		—		—			54,429		2.49	%		52,193		2.66	%		—		—			106,622		2.57	%
Collateralized mortgage obligations		352		3.88	%		100,882		2.66	%		11,794		2.88	%		—		—			113,028		2.68	%
Total	$	1,114		2.41	%	$	185,225		2.64	%	$	123,335		2.99	%	$	86,465		3.01	%	$	396,139		2.83	%

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 6.25 years with an estimated effective duration of 3.47 years as of December 31, 2019.

As of December 31, 2019 and 2018, 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.

Deposits

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

Average deposits for the year ended December 31, 2019 were $1.96 billion, an increase of $189.8 million, or 10.7%, over $1.77 billion for the year ended December 31, 2018.  The increase in 2019 primarily due to continued growth in our primary market areas and the increase in commercial lending relationships for which we also seek deposit balances.  The average rate paid on total interest-bearing deposits was 1.5% and 1.3% for the years ended December 31, 2019 and 2018, respectively. The increase in average rates for 2019 was driven primarily by the Federal Reserve raising market interest rates in early 2019 and by increases in rates offered for certificates of deposit during the first half of 2019.

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

	For the Years Ended December 31,
	2019					2018
	Average Balance		Average Rate			Average Balance		Average Rate
	(Dollars in thousands)
NOW and interest-bearing demand accounts	$	264,483		1.19	%	$	256,726		1.13	%
Savings accounts		71,940		0.30	%		67,917		0.34	%
Money market accounts		609,741		1.21	%		646,115		1.36	%
Certificates and other time deposits		514,051		2.11	%		353,986		1.41	%
Total interest-bearing deposits		1,460,215		1.48	%		1,324,744		1.28	%
Noninterest-bearing demand accounts		500,895		—			446,560		—
Total deposits	$	1,961,110		1.10	%	$	1,771,304		0.96	%

The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2019 and 2018 was 25.5% and 25.2%, respectively.

Total deposits as of December 31, 2019 were $1.96 billion, an increase of $85.3 million, or 4.6%, compared to $1.87 billion as of December 31, 2018.  The increase in 2019 was due primarily to organic growth.

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Noninterest-bearing deposits as of December 31, 2019 were $525.9 million compared to $489.8 million as of December 31, 2018, an increase of $36.1 million, or 7.4%.

Total savings and interest-bearing demand account balances as of December 31, 2019 were $915.6 million, compared to $946.2 million as of December 31, 2018, a decrease of $30.6 million, or 3.2%.  

Total certificate of deposit balances as of December 31, 2019, were $515.3 million, an increase of $79.8 million, or 18.3%, from the total certificate deposit balances of $435.5 million as of December 31, 2018.

The following table sets forth the amount of certificates of deposit greater than $100,000 by time remaining until maturity as of December 31, 2019:

	As of December 31, 2019
	Amount		Weighted Average Interest Rate
	(Dollars in thousands)
Under 3 months	$	100,131		2.17	%
3 to 6 months		78,101		2.31	%
6 to 12 months		159,115		2.17	%
12 to 24 months		28,358		1.90	%
24 to 36 months		10,574		1.94	%
36 to 48 months		8,262		2.33	%
Over 48 months		2,977		2.25	%
Total	$	387,518		2.17	%

Factors affecting the cost of funding interest-bearing assets include the volume of noninterest- and interest-bearing deposits, changes in market interest rates and economic conditions in our primary market areas and their impact on interest paid on deposits, as well as the ongoing execution of our balance sheet management strategy.  Cost of funds is calculated as total interest expense divided by average total deposits plus average total borrowings.  Our cost of funds was 1.54% and 1.35% in 2019 and 2018, respectively. The increase in our cost of funds for 2019 was primarily due to increases in our average rates on interest-bearing deposits, which were 1.48% and 1.28% in 2019 and 2018, respectively. The increase was primarily due to the Federal Reserve raising market interest rates in 2018 and early 2019, which were not fully offset by market rate decreases in the second half of 2019.

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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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 December 31, 2019 and 2018, total borrowing capacity of $560.6 million and $563.8 million, respectively, was available under this arrangement.  Our outstanding FHLB advances mature within 5 years.  As of December 31, 2019, approximately $1.37 billion in real estate loans were pledged as collateral for our FHLB borrowings.  We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio.  The following table presents our FHLB borrowings as of the dates indicated:

	FHLB Advances
	(Dollars in Thousands)
December 31, 2019
Amount outstanding at year-end	$	55,118
Weighted average interest rate at year-end		1.69	%
Maximum month-end balance during the year	$	80,134
Average balance outstanding during the year	$	58,070
Weighted average interest rate during the year		2.31	%
December 31, 2018
Amount outstanding at year-end	$	115,136
Weighted average interest rate at year-end		2.42	%
Maximum month-end balance during the year	$	129,151
Average balance outstanding during the year	$	94,304
Weighted average interest rate during the year		1.95	%

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 December 31, 2019 and 2018, $178.7 million and $193.9 million, respectively, was available under this arrangement.  As of December 31, 2019, approximately $227.6 million in consumer and commercial and industrial loans was pledged as collateral.  As of December 31, 2019 and 2018, no borrowings were outstanding under this arrangement.

Other Borrowings. The Company has 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. We have a $25.0 million unsecured revolving line of credit with this correspondent bank that matures in March 2019. The line of credit bears interest at the prime rate plus 0.50%, with quarterly interest payments. Under the terms of the line of credit, we have agreed not to pledge or grant a lien or security interest in the stock of the Bank or in any of our other assets without the prior consent of the lender. As of December 31, 2019 and 2018, there was no outstanding balance on this line of credit with the correspondent bank.

Liquidity and Capital Resources

Liquidity

Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events.  For the years ended December 31, 2019 and 2018, 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 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 December 31, 2019 and 2018, we maintained two federal funds lines of credit with commercial banks that provide for the ability to borrow up to an aggregate of $55.0 million in federal funds.  There were no funds under these lines of credit outstanding as of December 31, 2019 or 2018.  In addition to these federal funds lines of credit, our $25.0 million unsecured revolving line of credit discussed above provides an additional source of liquidity.

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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 $2.32 billion for the year ended December 31, 2019 and $2.13 billion for the year ended December 31, 2018.

	For the Years Ended December 31,
	2019			2018
	Average			Average
Sources of Funds:
Deposits:
Noninterest-bearing		21.60	%		20.98	%
Interest-bearing		62.97	%		62.24	%
Advances from FHLB		2.50	%		4.43	%
Subordinated debentures		0.51	%		0.63	%
Securities sold under agreements to repurchase		0.47	%		0.60	%
Accrued interest and other liabilities		1.02	%		0.41	%
Shareholders’ equity		10.93	%		10.71	%
Total		100.00	%		100.00	%
Uses of Funds:
Loans		72.16	%		70.99	%
Securities available for sale		9.89	%		11.12	%
Securities held to maturity		6.86	%		7.89	%
Nonmarketable equity securities		0.49	%		0.45	%
Federal funds sold		1.89	%		1.39	%
Interest-bearing deposits in other banks		2.32	%		0.28	%
Other noninterest-earning assets		6.39	%		7.88	%
Total		100.00	%		100.00	%
Average noninterest-bearing deposits to average deposits		25.54	%		25.21	%
Average loans to average deposits		86.13	%		86.08	%

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 10.8% for the year ended December 31, 2019 compared to the same period in 2018. Our securities portfolio had a weighted average life of 6.25 years and an effective duration of 3.47 years as of December 31, 2019, and a weighted average life of 6.87 years and an effective duration of 4.71 years as of December 31, 2018.  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 December 31, 2019, we had $440.7 million in outstanding commitments to extend credit and $9.1 million in commitments associated with outstanding standby and commercial letters of credit.  As of December 31, 2018, we had $342.5 million in outstanding commitments to extend credit and $11.7 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 December 31, 2019 and 2018, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.  As of December 31, 2019, we had cash and cash equivalents of $90.7 million, compared to $71.5 million as of December 31, 2018.  The increase was primarily due to an increase in federal funds sold of $25.0 million, partially offset by a decrease in interest bearing deposits at other banks of $4.6 million.

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Capital Resources

Total shareholders’ equity increased to $261.6 million as of December 31, 2019, compared to $244.6 million as of December 31, 2018, an increase of $17.0 million, or 6.9%, after giving effect to $8.1 million in dividends paid to common shareholders in 2019.  This increase was primarily the result of an increase in net earnings and unrealized gains on securities and was partially offset by the repurchase of 352,036 shares of common stock.

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 regulatory capital requirements at the bank holding company and bank levels. See "Item 1.  Business—Guaranty Bank & Trust, N.A.—Regulation and Supervision—Capital Adequacy Requirements” for additional discussion regarding the regulatory capital requirements applicable to us and the Bank.  As of December 31, 2019 and 2018, the Company and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized,” for purposes of the prompt corrective action regulations.  As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings.  However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.

The following table presents the regulatory capital ratios for our Company and the Bank as of the dates indicated.

	December 31, 2019					December 31, 2018
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Guaranty Bancshares, Inc.
Total capital (to risk weighted assets)	$	253,793		13.29	%	$	241,791		13.25	%
Tier 1 capital (to risk weighted assets)		237,591		12.44	%		227,140		12.44	%
Tier 1 capital (to average assets)		237,591		10.29	%		227,140		10.16	%
Common equity tier 1 risk-based capital		227,281		11.90	%		216,830		11.88	%
Guaranty Bank & Trust, N.A.
Total capital (to risk weighted assets)	$	249,643		13.07	%	$	242,142		13.27	%
Tier 1 capital (to risk weighted assets)		233,441		12.22	%		227,491		12.46	%
Tier 1 capital (to average assets)		233,441		10.11	%		227,491		10.18	%
Common equity tier 1 risk-based capital		233,441		12.22	%		227,491		12.46	%

Contractual Obligations

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 Financial 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 senior indebtedness of the Company.  The terms of the debentures are such that they qualify as Tier 1 capital under the Federal Reserve’s regulatory capital guidelines

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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%, thereafter.  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%, thereafter.  Interest on the DCB Financial Trust I debenture 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 June 15, 2012, for the DCB Financial debentures, October 30, 2012, for the Trust II debentures, and October 1, 2016, for the Trust III debentures, and before their maturity date, the debentures are redeemable, in whole or in part, for cash at the option of the Company 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.

Beginning in April 2013, the Company has from time to time issued subordinated debentures.  All of the debentures pay interest semi-annually and are redeemable before their maturity date at the Company’s option, with 30 days’ notice to the holder, for a cash amount equal to the principal amount and all accrued interest.  In July 2015, the Company issued $4.0 million in debentures, of which $3.0 million were issued to directors and other related parties.  The $3.0 million of debentures to related parties were repaid in May 2017 and a $500,000 par value debenture, which carried a 2.5%, matured and was repaid in July 2017.  The remaining $500,000 debenture had a rate of 4.00%, matured and was paid off in January 2019.

In December 2015, the Company issued $5,000,000 in debentures, of which $2.5 million were issued to directors and other related parties.  In May 2017, $2.0 million of the related party debentures were repaid with a portion of the proceeds of Guaranty's initial public offering.  A further $1.0 million of other debentures matured and were paid off in full in July of 2018 and another $1.0 million and $500,000 of debentures matured and were paid off in full in July and December, respectively, of the current year. The remaining $500,000 debenture was issued at par value of $500,000 with a rate of 5.00% and maturity date of July 1, 2020. 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 following table summarizes contractual obligations and other commitments to make future payments as of December 31, 2019 (other than non-time deposit obligations), which consist of future cash payments associated with our contractual obligations.

	As of December 31, 2019
	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
	(Dollars in thousands)
Time deposits	$	440,588	$	56,296	$	18,411	$	—	$	515,295
Advances from FHLB		46,000		3,118		6,000		—		55,118
Subordinated debentures		500		—		—		10,310		10,810
Operating leases		75		429		379		10,792		11,675
Total	$	487,088	$	59,414	$	24,411	$	10,310	$	581,223

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Off-Balance Sheet Items

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

Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of the date indicated 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 December 31, 2019
	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
	(Dollars in thousands)
Standby and commercial letters of credit	$	307	$	5,309	$	380	$	3,058	$	9,054
Commitments to extend credit		265,820		64,255		65,022		45,588		440,685
Total	$	266,127	$	69,564	$	65,402	$	48,646	$	449,739

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.

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.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are summarized and discussed in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 of this report.

Impact of Inflation

Our consolidated financial statements and related notes included in "Item 8.  Financial Statements and Supplementary Data" 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 recession.

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

Non-GAAP Financial Measures

Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry.  However, we also evaluate our performance based on certain additional financial measures discussed in this Annual Report on Form 10-K 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

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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 Annual Report on Form 10-K 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 herein 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 Annual Report on Form 10-K 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 December 31,
	2019			2018			2017			2016			2015
	(Dollars in thousands, except per share data)
Tangible Common Equity
Total shareholders’ equity, including KSOP- owned shares	$	261,551		$	244,583		$	207,345		$	141,914		$	137,736
Adjustments:
Goodwill		(32,160	)		(32,160	)		(18,742	)		(18,742	)		(18,601	)
Core deposit intangible, net		(3,853	)		(4,706	)		(2,724	)		(3,308	)		(3,846	)
Total tangible common equity	$	225,538		$	207,717		$	185,879		$	119,864		$	115,289
Common shares outstanding(1)		11,547,443			11,829,868			11,058,956			8,751,923			8,901,443
Book value per common share	$	22.65		$	20.68		$	18.75		$	16.22		$	15.47
Tangible book value per common share	$	19.53		$	17.56		$	16.81		$	13.70		$	12.95

(1) Excludes the dilutive effect, if any, of 66,202, 90,940, 82,529, 8,066, and 5,958 shares of common stock issuable upon exercise of outstanding stock options as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

Tangible book value per share increased from 2018 to 2019 primarily due to an increase in our total shareholders’ equity as a result of earnings and unrealized gains on securities, and by the repurchase of 352,036 shares of common stock during the year ended December 31, 2019.  

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.

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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.

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

	As of December 31,
	2019			2018			2017			2016			2015
	(Dollars in thousands, except per share data)
Tangible Common Equity
Total shareholders’ equity, including KSOP- owned shares	$	261,551		$	244,583		$	207,345		$	141,914		$	137,736
Adjustments:
Goodwill		(32,160	)		(32,160	)		(18,742	)		(18,742	)		(18,601	)
Core deposit intangible, net		(3,853	)		(4,706	)		(2,724	)		(3,308	)		(3,846	)
Total tangible common equity	$	225,538		$	207,717		$	185,879		$	119,864		$	115,289
Tangible Assets
Total assets	$	2,318,444		$	2,266,970		$	1,962,624		$	1,828,336		$	1,682,640
Adjustments:
Goodwill		(32,160	)		(32,160	)		(18,742	)		(18,742	)		(18,601	)
Core deposit intangible, net		(3,853	)		(4,706	)		(2,724	)		(3,308	)		(3,846	)
Total tangible assets	$	2,282,431		$	2,230,104		$	1,941,158		$	1,806,286		$	1,660,193
Tangible Common Equity to Tangible Assets		9.88	%		9.31	%		9.58	%		6.64	%		6.94	%

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

Our exposure to interest rate risk is managed by the asset-liability committee of Guaranty Bank & Trust, 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.

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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 the dates indicated:

	December 31, 2019						December 31, 2018
Change in Interest Rates (Basis Points)	Percent Change in Net Interest Income			Percent Change in Fair Value of Equity			Percent Change in Net Interest Income			Percent Change in Fair Value of Equity
+300		0.25	%		(0.85	)%		0.62	%		(15.33	)%
+200		0.30	%		1.17	%		0.52	%		(8.02	)%
+100		0.14	%		0.93	%		0.24	%		(3.03	)%
Base		—			—			—			—
-100		(1.78	)%		(7.11	)%		(0.41	)%		(0.46	)%

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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, the reports thereon, the notes thereto and supplementary data commence on page F-1 of this Annual Report on Form 10-K. See “Item 15.  Exhibits and Financial Statement Schedules.”

Quarterly Financial Information

The following tables present certain unaudited consolidated quarterly financial information regarding the Company's results of operations for each of the eight consecutive quarters in the fiscal years of 2019 and 2018.  This information is derived from unaudited consolidated financial statements that include, in our opinion, all adjustments necessary for a fair presentation when read in conjunction with the Company's consolidated financial statements and notes thereto as of and for the years ended December 31, 2019 and 2018 appearing elsewhere in this Annual Report on Form 10-K.

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(Dollars in Thousands, except Per Share Amounts)
	2019
	4th Quarter		3rd Quarter		2nd Quarter		1st Quarter
Interest income	$	25,848	$	25,853	$	25,553	$	25,307
Interest expense		5,354		5,770		6,267		6,300
Net interest income		20,494		20,083		19,286		19,007
Provision for loan losses		—		100		575		575
Net interest income after provision for loan losses		20,494		19,983		18,711		18,432
Noninterest income		4,674		4,616		4,110		3,562
Noninterest expense		16,226		15,435		15,394		15,470
Income tax provision		1,573		1,634		1,384		1,187
Net earnings	$	7,369	$	7,530	$	6,043	$	5,337
Earnings per common share, basic	$	0.64	$	0.65	$	0.52	$	0.45
Earnings per common share, diluted	$	0.63	$	0.65	$	0.52	$	0.45

(Dollars in Thousands, except Per Share Amounts)
	2018
	4th Quarter		3rd Quarter		2nd Quarter		1st Quarter
Interest income	$	24,719	$	23,675	$	21,026	$	19,038
Interest expense		5,863		5,446		4,567		3,666
Net interest income		18,856		18,229		16,459		15,372
Provision for loan losses		500		500		650		600
Net interest income after provision for loan losses		18,356		17,729		15,809		14,772
Noninterest income		4,173		3,549		3,916		3,665
Noninterest expense		14,544		15,027		14,069		13,134
Income tax provision		1,473		1,160		1,022		944
Net earnings	$	6,512	$	5,091	$	4,634	$	4,359
Earnings per common share, basic	$	0.55	$	0.43	$	0.41	$	0.39
Earnings per common share, diluted	$	0.55	$	0.42	$	0.41	$	0.39

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.  As of the end of the period covered by this Annual Report on Form 10‑K, 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 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 defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report on Management’s Assessment of Internal Control Over Financial Reporting. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).  The Company’s internal control system is a process designed

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to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with GAAP.  All internal control systems, no matter how well designed, have inherent limitations and can only provide reasonable assurance with respect to financial reporting.

As of December 31, 2019, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in 2013. This assessment included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y‑9C) to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act. Based on the assessment management determined that the Company maintained effective internal control over financial reporting as of December 31, 2019.

Whitley Penn LLP, an independent registered public accounting firm, audited the consolidated financial statements of the Company for the years ended December 31, 2019, 2018 and 2017 included in this Annual Report on Form 10‑K. Their report is included in “Item 15. Exhibits and Financial Statement Schedules” under the heading “Report of Independent Registered Public Accounting Firm.” This Annual Report on Form 10‑K does not include an attestation report of the Company’s registered public accounting firm on the Company’s internal control over financial reporting due to a transition period established by rules of the SEC for an Emerging Growth Company.

ITEM 9B.  OTHER INFORMATION

On March 11, 2020, the Board of Directors of the Company approved a new stock repurchase program, which authorizes Guaranty to repurchase up to 1,000,000 shares of Guaranty’s outstanding common stock from time to time, subject to certain conditions.  The stock repurchase program will be effective from March 13, 2020 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.  The stock repurchase program does not obligate Guaranty to repurchase any specified number of shares of its common stock.

The shares may be purchased in open market transactions (including under Rule 10b5-1 repurchase plans) or negotiated transactions.  Repurchases will be conducted in accordance with the limitations set forth in Rule 10b-18 of the Securities and Exchange and Commission and other applicable legal requirements.  The number, price and timing of the repurchases, if any, will be at management’s sole discretion and will depend on a number of factors, including compliance with applicable laws and regulations, general market and economic conditions, the financial and regulatory condition of Guaranty, liquidity needs, and other factors.  There is no assurance that Guaranty will repurchase any shares under the program.  In connection with the approval of the new stock repurchase program, the Board of Directors terminated the Company’s existing stock repurchase program, which was previously announced on June 13, 2019.

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information called for by this item is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 20, 2020, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2019.

ITEM 11.  EXECUTIVE COMPENSATION.

The information called for by this item is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 20, 2020, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2019.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information called for by this item is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 20, 2020, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2019.

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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information called for by this item is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 20, 2020, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2019.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information concerning principal accounting fees and services is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 20, 2020, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2019.

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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

1.Consolidated Financial Statements.  Reference is made to the Consolidated Financial Statements, the report thereon and the notes thereto commencing at page F-1 of this Annual Report on Form 10-K.  Set forth below is a list of such Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Earnings for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

2.Financial Statement Schedules.  All supplemental schedules are omitted as inapplicable or because the required information is included in the Consolidated Financial Statements or notes thereto.

3.The exhibits to this Annual Report on Form 10-K listed below have been included only with the copy of this report filed with the SEC. The Company will furnish a copy of any exhibit to shareholders upon written request to the Company and payment of a reasonable fee not to exceed the Company’s reasonable expense.

Each exhibit marked with an asterisk is filed or furnished with this Annual Report on Form 10-K as noted below:

Exhibit No.	Description
2.3	Agreement and Plan of Merger, dated January 29, 2018, by and among Guaranty Bancshares, Inc., Guaranty Bank & Trust, N.A. and Westbound Bank (incorporated by reference to Exhibit 2.1 to Guaranty Bancshares, Inc.'s Current Report on Form 8-K filed with the SEC on January 29, 2018, file number 001-38087).
3.1	Amended and Restated Certificate of Formation of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1/A filed with the SEC on May 1, 2017, file number 333-217176).
3.2	Amended and Restated Bylaws of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.2 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
4.1	Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to Guaranty Bancshares, Inc.'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.
4.2	Description of Securities Registered under Section 12 of the Exchange Act.*
10.1†	Guaranty Bancshares, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.2†	Form of Restricted Stock Award Agreement under the Guaranty Bancshares, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.3†	Form of Restricted Stock Unit Award Agreement under the Guaranty Bancshares, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).

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Exhibit No.	Description
10.4†	Form of Stock Option Award Agreement under the Guaranty Bancshares, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.5†	Form of Stock Appreciation Right Award Agreement under the Guaranty Bancshares, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.6†	Guaranty Bancshares, Inc. Employee Stock Ownership Plan with 401(k) Provisions, effective January 1, 2016 (incorporated by reference to Exhibit 10.6 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1/A filed with the SEC on May 4, 2017, file number 333-217176).
10.7†	Description of Guaranty Bancshares, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.7 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.8†	Description of Guaranty Bancshares, Inc. Executive Incentive Retirement Plan  (incorporated by reference to Exhibit 10.8 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.9†	DCB Financial Corp. Stock Option Plan, dated December 1, 2003, as amended (incorporated by reference to Exhibit 10.10 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.10†	Form of Stock Option Award Agreement under the DCB Financial Corp. Stock Option Plan (incorporated by reference to Exhibit 10.11 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.11†	Guaranty Bancshares, Inc. Fair Market Value Stock Appreciation Rights Plan, effective January 1, 2008 (incorporated by reference to Exhibit 10.12 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.12†	Form of Award Agreement under the Guaranty Bancshares, Inc. Fair Market Value Stock Appreciation Rights Plan (incorporated by reference to Exhibit 10.13 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
10.13†	Employment Agreement, dated as of March 15, 2019, by and between Ty Abston and Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 10.13 to Guaranty Bancshares Inc.’s Annual Report on Form 10-K filed with the SEC on March 15, 2019, file number 001-38087).
10.14†	Employment Agreement, dated as of March 15, 2019, by and between Clifton Payne and Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 10.14 to Guaranty Bancshares Inc.’s Annual Report on Form 10-K filed with the SEC on March 15, 2019, file number 001-38087).
10.15†	Employment Agreement, dated as of March 15, 2019, by and between Kirk Lee and Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 10.13 to Guaranty Bancshares Inc.’s Annual Report on Form 10-K filed with the SEC on March 15, 2019, file number 001-38087).
10.16	Renewal Revolving Promissory Note, dated March 31, 2019, by Guaranty Bancshares, Inc. payable to Frost Bank in the original principal amount of $25,000,000 (incorporated by reference to Exhibit 10.2 to Guaranty Bancshares, Inc.'s Current Report on Form 8-K filed with the SEC on April 2, 2019, file number 001-38087).
10.17	Loan Agreement, dated March 31, 2017, by and between Guaranty Bancshares, Inc. and Frost Bank, as amended (incorporated by reference to Exhibit 10.1 to Guaranty Bancshares, Inc.'s Current Report on Form 8-K filed with the SEC on April 2, 2019, file number 001-38087).
10.18	Form of Debenture issued by Guaranty Bancshares, Inc. in July 2015 and December 2015 (incorporated by reference to Exhibit 10.16 to Guaranty Bancshares, Inc.'s Registration Statement on Form S-1 filed with the SEC on April 6, 2017, file number 333-217176).
21.1	List of Subsidiaries of Guaranty Bancshares, Inc.*
23.1	Consent of Whitley Penn LLP*
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*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*

77

Exhibit No.	Description
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed with this Annual Report on Form 10-K

** Furnished with this Annual Report on Form 10-K

^† Represents a management contract or a compensatory plan or arrangement

ITEM 16.  FORM 10-K SUMMARY

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 13, 2020	GUARANTY BANCSHARES, INC.
	By:	/s/ Tyson T. Abston
	Name:	Tyson T. Abston
	Title:	Chairman of the Board & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Tyson T. Abston	Chairman and Chief Executive Officer	3/13/2020
Tyson T. Abston	(Principal Executive Officer)
/s/ Clifton A. Payne	Senior Executive Vice President and Chief Financial Officer	3/13/2020
Clifton A. Payne	(Principal Financial and Accounting Officer)
/s/ Kirk L. Lee	President	3/13/2020
Kirk L. Lee
/s/ Randall R. Kucera	Vice President and General Counsel	3/13/2020
Randall R. Kucera
/s/ Richard W. Baker	Director	3/13/2020
Richard W. Baker
/s/ Jeffrey W. Brown	Director	3/13/2020
Jeffrey W. Brown
/s/ James S. Bunch	Director	3/13/2020
James S. Bunch
/s/ Molly S. Curl	Director	3/13/2020
Molly S. Curl
/s/ Bradley K. Drake	Director	3/13/2020
Bradley K. Drake
/s/ Christopher B. Elliott	Director	3/13/2020
Christopher B. Elliott
/s/ Carl Johnson, Jr.	Director	3/13/2020
Carl Johnson, Jr.
/s/ James M. Nolan, Jr.	Director	3/13/2020
James M. Nolan, Jr.
/s/ William D. Priefert	Director	3/13/2020
William D. Priefert

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INDEX TO FINANCIAL STATEMENTS

Audited Consolidated Financial Statements of Guaranty Bancshares, Inc. as of December 31, 2019 and 2018 and for each of the three years ending December 31, 2019, 2018 and 2017.

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-3
Consolidated Statements of Earnings for the Years Ended December 31, 2019, 2018 and 2017	F-4
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017	F-5
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017	F-7
Notes to Consolidated Financial Statements	F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Guaranty Bancshares, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Guaranty Bancshares, Inc. (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting in accordance with the standards of the PCAOB.  As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.  Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that our audits provide a reasonable basis for our opinion.

/s/ WHITLEY PENN LLP

We have served as the Company's auditor since 2015.

Dallas, Texas

March 13, 2020

F-2

GUARANTY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

	2019			2018
ASSETS
Cash and due from banks	$	39,907		$	44,471
Federal funds sold		45,246			20,275
Interest-bearing deposits		5,561			6,764
Total cash and cash equivalents		90,714			71,510
Securities available for sale		212,716			232,975
Securities held to maturity		155,458			163,164
Loans held for sale		2,368			1,795
Loans, net		1,690,794			1,645,444
Accrued interest receivable		9,151			9,292
Premises and equipment, net		53,431			52,227
Other real estate owned		603			751
Cash surrender value of life insurance		34,495			26,301
Core deposit intangible, net		3,853			4,706
Goodwill		32,160			32,160
Other assets		32,701			26,645
Total assets	$	2,318,444		$	2,266,970
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing	$	525,865		$	489,789
Interest-bearing		1,430,939			1,381,691
Total deposits		1,956,804			1,871,480
Securities sold under agreements to repurchase		11,100			12,228
Accrued interest and other liabilities		23,061			10,733
Federal Home Loan Bank advances		55,118			115,136
Subordinated debentures		10,810			12,810
Total liabilities		2,056,893			2,022,387
Commitments and contingencies (see Note 18)
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, 12,905,097 and 12,835,486 shares issued, and 11,547,443 and 11,829,868 shares outstanding, respectively		12,905			12,835
Additional paid-in capital		186,692			185,174
Retained earnings		98,239			80,088
Treasury stock, 1,357,654 and 1,005,618 shares at cost		(34,492	)		(24,352	)
Accumulated other comprehensive loss		(1,793	)		(9,162	)
Total shareholders' equity		261,551			244,583
Total liabilities and shareholders' equity	$	2,318,444		$	2,266,970

See accompanying notes to consolidated financial statements.

F-3

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

For the Years ended December 31, 2019, 2018 and 2017

(Dollars in thousands, except per share data)

	2019			2018			2017
Interest income
Loans, including fees	$	90,980		$	77,170		$	61,014
Securities
Taxable		5,916			6,317			5,811
Nontaxable		3,830			3,770			3,679
Federal funds sold and interest-bearing deposits		1,835			1,201			1,278
Total interest income		102,561			88,458			71,782
Interest expense
Deposits		21,611			16,941			10,604
FHLB advances and federal funds purchased		1,389			1,865			472
Subordinated debentures		648			687			724
Other borrowed money		43			49			352
Total interest expense		23,691			19,542			12,152
Net interest income		78,870			68,916			59,630
Provision for loan losses		1,250			2,250			2,850
Net interest income after provision for loan losses		77,620			66,666			56,780
Noninterest income
Service charges		3,715			3,600			3,746
Net realized (loss) gain on securities transactions		(22	)		(50	)		167
Net realized gain on sale of loans		2,850			2,308			1,981
Other income		10,419			9,445			8,385
Total noninterest income		16,962			15,303			14,279
Noninterest expense
Employee compensation and benefits		35,907			32,122			27,078
Occupancy expenses		9,834			8,398			7,400
Other expenses		16,784			16,254			13,904
Total noninterest expense		62,525			56,774			48,382
Income before income taxes		32,057			25,195			22,677
Income tax provision		5,778			4,599			8,238
Net earnings	$	26,279		$	20,596		$	14,439
Basic earnings per share	$	2.26		$	1.78		$	1.41
Diluted earnings per share	$	2.25		$	1.77		$	1.40

See accompanying notes to consolidated financial statements.

F-4

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years ended December 31, 2019, 2018 and 2017

(Dollars in thousands)

	2019			2018			2017
Net earnings	$	26,279		$	20,596		$	14,439
Other comprehensive income:
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during the period		9,474			(3,543	)		(54	)
Amortization of net unrealized gains on held to maturity securities		18			32			377
Reclassification adjustment for net (gains) losses included in net earnings		22			50			(167	)
Tax effect		(2,012	)		734			80
Unrealized gains (losses) on securities, net of tax		7,502			(2,727	)		236
Unrealized holding (losses) gains arising during the period on interest rate swaps		(133	)		178			124
Total other comprehensive income (loss)		7,369			(2,549	)		360
Comprehensive income	$	33,648		$	18,047		$	14,799

See accompanying notes to consolidated financial statements.

F-5

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Years ended December 31, 2019, 2018 and 2017

(Dollars in thousands)

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			KSOP- Owned Shares			Total Shareholders’ Equity
Balance at December 31, 2016	$	—	$	9,616	$	101,736		$	57,160		$	(20,111	)	$	(6,487	)	$	(31,661	)	$	110,253
Net earnings		—		—		—			14,439			—			—			—			14,439
Other comprehensive loss		—		—		—			—			—			360			—			360
Terminated KSOP put option		—		—		—			—			—			—			34,300			34,300
Exercise of stock options		—		5		55			—			24			—			—			84
Sale of common stock		—		2,300		53,455			—			—			—			—			55,755
Stock based compensation		—		—		355			—			—			—			—			355
Net change in fair value of KSOP shares		—		—		—			—			—			—			(2,639	)		(2,639	)
Dividends:
Common - $0.53 per share		—		—		—			(5,562	)		—			—			—			(5,562	)
Balance at December 31, 2017		—		11,921		155,601			66,037			(20,087	)		(6,127	)		—			207,345
Net earnings		—		—		—			20,596			—			—			—			20,596
Other comprehensive loss		—		—		—			—			—			(2,549	)		—			(2,549	)
Reclassification of certain tax effects from accumulated other comprehensive income		—		—		—			486			—			(486	)		—			—
Exercise of stock options		—		14		313			—			—			—			—			327
Purchase of treasury stock		—		—		—			—			(4,265	)		—			—			(4,265	)
Issuance of common stock		—		900		28,668			—			—			—			—			29,568
Stock based compensation		—		—		592			—			—			—			—			592
Dividends:
Common - $0.60 per share		—		—		—			(7,031	)		—			—			—			(7,031	)
Balance at December 31, 2018		—		12,835		185,174			80,088			(24,352	)		(9,162	)		—			244,583
Net earnings		—		—		—			26,279			—			—			—			26,279
Other comprehensive income		—		—		—			—			—			7,369			—			7,369
Exercise of stock options		—		39		886			—			—			—			—			925
Purchase of treasury stock		—		—		—			—			(10,140	)		—			—			(10,140	)
Restricted stock grants		—		31		(31	)		—			—			—			—			—
Stock based compensation		—		—		663			—			—			—			—			663
Dividends:
Common - $0.70 per share		—		—		—			(8,128	)		—			—			—			(8,128	)
Balance at December 31, 2019	$	—	$	12,905	$	186,692		$	98,239		$	(34,492	)	$	(1,793	)	$	—		$	261,551

See accompanying notes to consolidated financial statements.

F-6

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years ended December 31, 2019, 2018 and 2017

(Dollars in thousands)

	2019			2018			2017
Cash flows from operating activities
Net earnings	$	26,279		$	20,596		$	14,439
Adjustments to reconcile net earnings to net cash provided from operating activities:
Depreciation		3,886			3,400			3,162
Amortization		1,378			1,228			1,033
Premium amortization, net of discount accretion		3,820			4,210			4,576
Net realized loss (gain) on securities transactions		22			50			(167	)
Gain on sale of loans		(2,850	)		(2,308	)		(1,981	)
Gain on sale of branch operations		—			(830	)		—
Provision for loan losses		1,250			2,250			2,850
Origination of loans held for sale		(76,011	)		(70,841	)		(64,817	)
Proceeds from loans held for sale		78,288			73,250			67,465
Write-down of other real estate and repossessed assets		343			407			12
Net gain (loss) on sale of premises, equipment, other real estate owned and other assets		78			(133	)		(906	)
Stock based compensation		663			592			355
Net change in accrued interest receivable and other assets		(17,232	)		(5,887	)		2,413
Net change in accrued interest payable and other liabilities		12,132			2,230			1,235
Net cash provided by operating activities		32,046			28,214			29,669
Cash flows from investing activities
Securities available for sale:
Purchases		(706,238	)		(429,762	)		(517,155	)
Proceeds from sales		3,957			411,796			213,813
Proceeds from maturities and principal repayments		730,272			27,093			225,516
Securities held to maturity:
Proceeds from sales		—			—			3,298
Proceeds from maturities and principal repayments		5,646			9,331			9,516
Cash paid in connection with acquisitions		—			(6,423	)		—
Cash received from acquired banks		—			24,927			—
Net originations of loans		(46,940	)		(146,531	)		(118,754	)
Net purchases of premises and equipment		(5,090	)		(2,833	)		(2,320	)
Net proceeds from sale of premises, equipment, other real estate owned and other assets		653			3,668			2,279
Net cash used in investing activities		(17,740	)		(108,734	)		(183,807	)

F-7

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years ended December 31, 2019, 2018 and 2017

(Dollars in thousands)

	2019			2018			2017
Cash flows from financing activities
Net change in deposits		85,324			13,739			99,529
Net change in securities sold under agreements to repurchase		(1,128	)		(651	)		2,020
Proceeds from FHLB advances		260,500			391,000			60,000
Repayment of FHLB advances		(320,518	)		(331,517	)		(70,017	)
Proceeds from other debt		—			—			2,000
Repayment of other debt		—			—			(20,286	)
Repayments of debentures		(2,000	)		(1,000	)		(5,500	)
Purchase of treasury stock		(10,140	)		(4,265	)		—
Exercise of stock options		925			327			84
Sale of common stock		—			—			55,755
Cash dividends		(8,065	)		(7,031	)		(5,562	)
Net cash provided by financing activities		4,898			60,602			118,023
Net change in cash and cash equivalents		19,204			(19,918	)		(36,115	)
Cash and cash equivalents at beginning of period		71,510			91,428			127,543
Cash and cash equivalents at end of period	$	90,714		$	71,510		$	91,428
Supplemental disclosures of cash flow information
Interest paid	$	23,700		$	18,813		$	12,119
Income taxes paid		5,536			5,218			6,660
Supplemental schedule of noncash investing and financing activities
Cash dividends accrued		2,076			2,013			1,548
Transfer loans to other real estate owned and repossessed assets		340			1,304			1,775
Common stock issued in acquisitions		—			29,568			—
Terminated KSOP put option		—			—			(34,300	)
Net change in fair value of KSOP shares		—			—			2,639

See accompanying notes to consolidated financial statements

F-8

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the significant accounting policies followed in the preparation of the consolidated financial statements. The policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.

Principles of Consolidation: The consolidated financial statements include the accounts of Guaranty Bancshares, Inc. and its wholly-owned subsidiary Guaranty Bank & Trust, N.A., (the “Bank” or "Guaranty Bank & Trust"). All entities combined are collectively referred to as the “Company”. All significant intercompany balances and transactions have been eliminated in consolidation.

Non-Bank Investments: Guaranty Bank & Trust has six wholly-owned non-bank subsidiaries, Guaranty Company, GB Com, Inc., 2800 South Texas Avenue LLC, White Oak Aviation LLC, Pin Oak Realty Holdings, Inc. and Pin Oak Energy, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations: The Company operates several banking locations in Texas. The Company’s main sources of income are derived from granting loans, primarily in East Texas, Central Texas, the Dallas/Fort Worth metropolitan statistical area ("MSA"), and the Houston MSA, and investing in securities issued by the U.S. Treasury, U.S. government agencies and state and political subdivisions. A variety of financial products and services are provided to individual and corporate customers. The primary deposit products are checking accounts, money market accounts and certificates of deposit. The 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 East Texas, Central Texas, the Dallas/Fort Worth MSA and the Houston MSA.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual future results could differ.

Cash and Cash Equivalents: Cash and cash equivalents include cash, due from banks, interest-bearing deposits with other banks that have initial maturities less than 90 days and federal funds sold. Net cash flows are reported for loan and deposit transactions, and short-term borrowings with initial maturities less than 90 days.

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.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as

F-9

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Non-marketable Securities: Other securities, such as stock in the Independent Bankers Financial Corporation, the Federal Reserve Bank, and the Federal Home Loan Bank are accounted for on the cost basis and are carried in other assets. Stock in Valesco Commerce Street Capital, L.P., Valesco Fund II, L.P., Independent Bankers Capital Fund II, L.P. and Independent Bankers Capital Fund III, L.P., are accounted for on the cost basis in other assets.

Loans Held for Sale: Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are carried at the lower of cost or estimated fair market value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. To mitigate the interest rate risk, fixed commitments may be obtained at the time loans are originated or identified for sale. All sales are made without recourse. Gains or losses on sales of mortgage loans are recognized at settlement dates based on the difference between the selling price and the carrying value of the related mortgage loans sold.

Loans: Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income was reported on the level-yield interest method and included amortization of net deferred loan fees and costs over the loan term.

Impaired Loans: Loans are considered impaired when, based on current information and events, it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.  If a loan is impaired, a specific valuation allowance is allocated, if necessary.  Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.  Impaired loans, or portions thereof, are charged off when deemed uncollectible. Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral.  Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price.

Nonaccrual Loans: Loans are placed on nonaccrual status at ninety days past due or as determined by management, and interest is considered a loss. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. 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 principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Certain Acquired Loans: During 2018, the Company acquired a group of loans through the acquisition of Westbound Bank (“Westbound”), as described in Note 2.  Acquired loans are recorded at their estimated fair value at the acquisition date, and are initially classified as either purchased credit impaired (“PCI”) loans (i.e. loans that reflect credit deterioration since origination and it is probable at acquisition that the Company will be unable to collect all contractually required payments) or purchased non-impaired loans (“acquired performing loans”).

F-10

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Acquired performing loans are accounted for under Financial Accounting Standards Board’s Accounting Standards Codification (ASC) 310-20, “Nonrefundable Fees and Other Costs”. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, and portions of the accretable difference may be delayed or suspended if management deems appropriate. The Company’s policy for determining when to discontinue accruing interest on acquired performing loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans described above.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of homogeneous loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company. This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment. These qualitative factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and

F-11

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

local economic trends and conditions; industry conditions; effects of changes in credit concentrations; changes in the quality of the Company’s loan review system; and changes in the values of underlying collateral.

An allowance for loan losses for acquired performing loans is calculated using a methodology similar to that described for originated loans. Acquired performing loans are subsequently evaluated for any required allowance at each reporting date. Such required allowance for each loan is compared to the remaining fair value discount for that loan. If greater, the excess is recognized as an addition to the allowance through a provision for loan losses. If less than the discount, no additional allowance is recorded. Charge-offs and losses first reduce any remaining fair value discount for the loan and once the discount is depleted, losses are applied against the allowance established for that loan. Below is a summary of the segments of 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. Risks 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. Risks inherent in this portfolio include fluctuations in property values 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.

F-12

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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.

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 loan 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 respective portfolio segment classes:

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 finance principal and interest payments in the event that he is 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 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 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.

F-13

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the related assets. Maintenance, repairs and minor improvements are charged to noninterest expense as incurred. The following table provides a summary of the estimated useful life of the different fixed asset classes as stated in the policy:

Bank Buildings	Up to 40 years
Equipment	to 10 years
Furniture and Fixtures	to 7 years
Software	to 5 years
Automobiles	to 4 years

Other Real Estate Owned: Assets acquired through, or in lieu of, foreclosure are initially recorded at fair value, less estimated carrying and selling costs, when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Goodwill and Other Intangible Assets: Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Impairment is tested for annually and exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At the measurement date, the Company had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

Core deposit intangibles represent premiums paid on acquired deposits based on the estimated fair value of the deposits at the time of purchase. These premiums are amortized over a ten year period.

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

KSOP Repurchase Right:  In accordance with applicable provisions of the Internal Revenue Code, the terms of Guaranty’s employee stock ownership plan with 401(k) provisions (“KSOP”) provided that, for so long as Guaranty was a privately-held company without a public market for its common stock, KSOP participants would have the right, for a

F-14

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

specified period of time, to require Guaranty to repurchase shares of its common stock that are distributed to them by the KSOP. This repurchase obligation terminated upon the consummation of Guaranty’s initial public offering and listing of its common stock on the NASDAQ Global Select Market in May 2017. However, because Guaranty was privately-held without a public market for its common stock as of and for the year ended December 31, 2016, the shares of common stock held by the KSOP are reflected in the Company’s consolidated statement of changes in shareholders' equity for the year ended December 31, 2017 as a line item called “KSOP-owned shares.”  As a result, the consolidated statement of changes in shareholders' equity for the year ended December 31, 2017 includes an adjustment for the inclusion of such KSOP-owned shares in total shareholders' equity as "terminated KSOP put option."  For all periods following Guaranty’s initial public offering and continued listing of the Company’s common stock on the NASDAQ Global Select Market, the KSOP-owned shares will be included in, and not be deducted from, shareholders’ equity.

Income Taxes: Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

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.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Derivative Financial Instruments: The Company accounts for its derivatives under ASC 815, “Derivatives and Hedging,” which requires recognition of all derivatives as either assets or liabilities in the balance sheet and requires measurement of those instruments at fair value through adjustments to accumulated other comprehensive income and/or current earnings, as appropriate. On the date the Company enters into a derivative contract, the Company designates the derivative instrument as either a fair value hedge, cash flow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to the hedged risk are recorded in current period operations. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to operations in the same period(s) that the hedged transaction impacts operations. For free-standing derivative instruments, changes in fair value are reported in current period operations.

Prior to entering a hedge transaction, the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions along with a formal assessment at both inception of the hedge and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair

F-15

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

values or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued and the adjustment to fair value of the derivative instrument is recorded in operations.

Dividend Restriction: Banking regulations require the maintenance of certain capital levels that may limit the amount of dividends that may be paid. Regulatory capital requirements are more fully disclosed in Note 19.

Restrictions on Cash: The Company was not required to have cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements as of December 31, 2019 and 2018. Deposits held with the Federal Reserve Bank earn interest.

Stock Compensation: In accordance with ASC 718, “Stock Compensation,” the Company uses the fair value method of accounting for share based compensation prescribed by the standard. The fair value of options granted is determined using the Black-Scholes option valuation model.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Earnings Per Share: Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. KSOP shares are considered outstanding for this calculation unless unearned. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share 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.

Comprehensive Income (Loss): Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and unrealized gains and losses on cash flow hedges which are also recognized as separate components of equity.

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassification: Certain amounts in prior period financial statements have been reclassified to conform to current period presentation. These reclassifications are immaterial and have no effect on net income, total assets or stockholders' equity.

Recent Accounting Pronouncements:

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Act on December 22, 2017 that changed the Company’s income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU was effective for periods beginning after December 15, 2018 and

F-16

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

early adoption was permitted. The Company early adopted ASU 2018-02 in the first quarter of 2018 and reclassified its stranded tax effect of $486 within accumulated other comprehensive income to retained earnings as of March 31, 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  In addition, the amendments in this ASU provide a detailed framework to assist entities in evaluating whether a set of assets and activities constitutes a business, as well as clarify the definition of the term output so the term is consistent with how outputs are described in Topic 606.  ASU 2017-01 was effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods.  The adoption of this pronouncement did not have a significant impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  This ASU simplifies the accounting for goodwill impairment for all entities by requiring impairment changes to be based on the first step in today’s two-step impairment test, thus eliminating step two from the goodwill impairment test.  In addition, the amendment eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill impairment test. For public companies, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  We adopted this pronouncement on January 1, 2020 and it did not have a significant impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a "current expected credit loss" ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts.  This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures.  For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company’s transition team has run parallel models for calculating the expected losses using various forecasts and qualitative factor adjustments, beginning in January 2019, to gain a comprehensive understanding of the impact that CECL and its underlying assumptions will have on the allowance upon adoption and through future periods and has developed internal controls and procedures.  The Company expects that the transition will result in a 20.0% to 30.0% increase to the allowance for credit losses upon adoption on January 1, 2020.  The increase is due to the shift from current loss history to an “expected loss” model, which takes into account losses expected to be incurred over the life of the portfolio.  ASU 2016-13 necessitates that we will also establish an allowance for expected credit losses for certain debt securities and other financial assets; however, we expect allowances on these financial instruments, if any, to be minimal.   As the Company continues to monitor the model, the ultimate impact of adoption could differ from current expectations, but the Company believes any differences from amounts recorded at adoption would be immaterial.  The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements.  The amendments in this ASU are effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.  Early adoption of this ASU is permitted for all entities.  An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect

F-17

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

adjustment at the beginning of the earliest comparative period presented or by recording a cumulative effect adjustment at the beginning of the period of adoption.  The Company used the latter approach.  The Company adopted Topic 842 in the first quarter of 2019, and recorded assets and liabilities each increased by approximately $12.0 million as it relates to operating leases in which we are the lessee.  The adoption of this standard has had a significant effect on the Company's consolidated balance sheet but does not materially affect the consolidated statement of earnings.  Refer to Note 14 for more information.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  This ASU was effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this pronouncement on January 1, 2018 and it did not have a significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), followed by various amendments to the standard, including clarification of principal versus agent considerations, narrow scope improvements and other technical corrections, all of which are codified in Topic 606.  The amendments in these updates amend existing guidance related to revenue from contracts with customers.  The amendments supersede and replace nearly all existing revenue recognition guidance, including industry-specific guidance, establish a new control-based revenue recognition model, change the basis for deciding when revenue is recognized over a time or point in time, provide new and more detailed guidance on specific topics and expand and improve disclosures about revenue.  In addition, these amendments specify the accounting for some costs to obtain or fulfill a contract with a customer.  The Company has applied ASU 2014-09, which was effective on January 1, 2018, using the modified retrospective approach to all existing contracts with customers covered under the scope of the standard. The adoption of this ASU was not significant to the Company and had no material effect on how the Company recognizes revenue nor did it result in a cumulative effect adjustment or any presentation changes to the consolidated financial statements.

The majority of the Company's revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as loans, letters of credit, loan processing fees and investment securities, as well as revenue related to mortgage banking activities, and BOLI, as these activities are subject to other accounting guidance. Descriptions of revenue-generating activities that are within the scope of Topic 606, and are presented in the accompanying Consolidated Statements of Income as components of noninterest income, are as follows:

• Deposit services. Service charges on deposit accounts include fees for banking services provided, overdrafts and non-sufficient funds. Revenue is generally recognized in accordance with published deposit account agreements for retail accounts or contractual agreements for commercial accounts.

• Merchant and debit card fees.  Merchant and debit card fees includes interchange income that is generated by our customers’ usage and volume of activity.  Interchange rates are not controlled by the Company, which

F-18

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

effectively acts as processor that collects and remits payments associated with customer debit card transactions.  Merchant service revenue is derived from third party vendors that process credit card transactions on behalf of our merchant customers.  Merchant services revenue is primarily comprised of residual fee income based on the referred merchant’s processing volumes and/or margin.

• Fiduciary income. Trust income includes fees and commissions from investment management, administrative and advisory services primarily for individuals, and to a lesser extent, partnerships and corporations. Revenue is recognized on an accrual basis at the time the services are performed and when we have a right to invoice and are based on either the market value of the assets managed or the services provided.

• Other noninterest income.  Other noninterest income includes among other things, mortgage loan origination fees, wire transfer fees, stop payment fees, loan administration fees and mortgage warehouse lending fees. The majority of these fees in other noninterest income are not subject to the requirements of ASC 606.  Fees that are within the scope of ASC 606 are generally received at the time the performance obligations are met.

NOTE 2 - ACQUISITION

On close of business June 1, 2018, the Company acquired 100% of the outstanding shares of capital stock of Westbound Bank, a Texas banking association (“Westbound”), in exchange for a combination of cash and shares of the Company’s common stock amounting to total consideration of $35,991.  Under the terms of the acquisition, the Company issued 899,816 shares of the Company’s common stock in exchange for 2,311,952 shares of Westbound, representing 100% of the outstanding shares of common and preferred stock of Westbound.  With the acquisition, the Company has expanded its market into the Houston MSA.  Results of operations of the acquired company were included in the Company’s results beginning June 2, 2018.  Acquisition-related costs of $1,175 are included in other operating expenses in the Company’s consolidated statement of earnings for the year ended December 31, 2018.  The fair value of the common shares issued as part of the consideration paid for Westbound was determined based upon the closing price of the Company’s common shares on the acquisition date.

Goodwill of $13,418 arising from the acquisition of Westbound consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies.  None of the goodwill is expected to be deductible for income tax purposes.  The following table summarizes the consideration paid for Westbound and the fair value of the assets acquired and liabilities assumed recognized at the acquisition date:

Consideration:

	Westbound
Cash	$	6,423
Equity instruments		29,568
Fair value of total consideration transferred	$	35,991

Cash consideration includes contingent consideration related to an escrow agreement in which $1,750 was retained from amounts paid to Westbound shareholders for payment to Guaranty in the event that certain defined loan relationships experienced actual losses during the three year period following the close of the transaction on June 1, 2018.  If the loans defined in the escrow agreement do experience losses, funds from the escrow account will be remitted to Guaranty.   If the loans payoff or do not experience losses, funds from the escrow account will be remitted to Westbound shareholders according to terms set forth in the escrow agreement.

F-19

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition, June 1, 2018.

	Westbound
Cash and due from banks	$	24,927
Investment securities available for sale		15,264
Loans, net of discount		154,687
Accrued interest receivable		651
Premises and equipment		8,625
Core deposit intangible		2,700
Other assets		9,205
Total assets acquired		216,059
Non-interest bearing deposits		40,595
Interest bearing deposits		140,826
Federal Home Loan Bank advances		10,500
Accrued interest and other liabilities		1,565
Total liabilities assumed		193,486
Net assets acquired		22,573
Total consideration paid		35,991
Goodwill	$	13,418

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date (“acquired performing loans”).  The fair value adjustments were determined using discounted contractual cash flows.  However, the Company believes that all contractual cash flows related to these financial instruments will be collected.  As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination.  Acquired performing loans had fair value and gross contractual amounts receivable of $154,687.

F-20

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 3 - MARKETABLE SECURITIES

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at December 31, 2019 and 2018 and the corresponding amounts of gross unrealized gains and losses:

December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	19,667	$	592	$	—	$	20,259
Municipal securities		16,780		576		8		17,348
Mortgage-backed securities		83,967		550		335		84,182
Collateralized mortgage obligations		89,798		1,146		17		90,927
Total available for sale	$	210,212	$	2,864	$	360	$	212,716
Held to maturity:
Municipal securities	$	138,416	$	4,710	$	3	$	143,123
Mortgage-backed securities		14,365		198		13		14,550
Collateralized mortgage obligations		2,677		110		—		2,787
Total held to maturity	$	155,458	$	5,018	$	16	$	160,460

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	19,743	$	—	$	789	$	18,954
Municipal securities		15,778		75		260		15,593
Mortgage-backed securities		93,083		52		3,676		89,459
Collateralized mortgage obligations		111,341		—		2,372		108,969
Total available for sale	$	239,945	$	127	$	7,097	$	232,975
Held to maturity:
Municipal securities	$	141,942	$	1,156	$	1,094	$	142,004
Mortgage-backed securities		17,163		54		500		16,717
Collateralized mortgage obligations		4,059		48		28		4,079
Total held to maturity	$	163,164	$	1,258	$	1,622	$	162,800

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. There were no other than temporary impairment losses on debt securities related to credit losses recognized during the years ended December 31, 2019 and 2018.

Information pertaining to securities with gross unrealized losses at December 31, 2019 and 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is detailed in the following tables.  At December 31, 2019, the Company held 95 securities which had been in continuous loss positions over twelve months and 75 securities which had been in continuous loss position less than twelve months. Of the securities in a loss position over twelve months, 37 were classified as available for sale and 58 were classified as held to

F-21

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

maturity.  Of the securities in a loss position less than twelve months, 13 were classified as available for sale and 62 were classified as held to maturity. The securities in a loss position were composed of tax exempt municipal bonds, corporate bonds, collateralized mortgage obligations and mortgage backed securities.

Management believes the unrealized loss on the remaining securities is a function of the movement of interest rates since the time of purchase. Based on evaluation of available evidence, including recent changes in interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment would be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. The Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2019.

The following table summarizes securities with unrealized losses at December 31, 2019 and 2018, aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2019	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	—		$	—	$	—		$	—	$	—		$	—
Municipal securities		(8	)		1,138		—			—		(8	)		1,138
Mortgage-backed securities		(25	)		19,421		(310	)		42,116		(335	)		61,537
Collateralized mortgage obligations		—			—		(17	)		2,594		(17	)		2,594
Total available for sale	$	(33	)	$	20,559	$	(327	)	$	44,710	$	(360	)	$	65,269
Held to maturity:
Municipal securities	$	(1	)	$	1,313	$	(2	)	$	759	$	(3	)	$	2,072
Mortgage-backed securities		—			—		(13	)		7,032		(13	)		7,032
Collateralized mortgage obligations		—			—		—			—		—			—
Total held to maturity	$	(1	)	$	1,313	$	(15	)	$	7,791	$	(16	)	$	9,104

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2018	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(453	)	$	11,236	$	(336	)	$	7,718	$	(789	)	$	18,954
Municipal securities		(17	)		2,219		(243	)		7,407		(260	)		9,626
Mortgage-backed securities		(89	)		7,173		(3,587	)		76,717		(3,676	)		83,890
Collateralized mortgage obligations		(79	)		9,232		(2,293	)		99,390		(2,372	)		108,622
Total available for sale	$	(638	)	$	29,860	$	(6,459	)	$	191,232	$	(7,097	)	$	221,092
Held to maturity:
Municipal securities	$	(512	)	$	55,793	$	(582	)	$	26,511	$	(1,094	)	$	82,304
Mortgage-backed securities		(21	)		1,478		(479	)		12,317		(500	)		13,795
Collateralized mortgage obligations		(28	)		2,171		—			—		(28	)		2,171
Total held to maturity	$	(561	)	$	59,442	$	(1,061	)	$	38,828	$	(1,622	)	$	98,270

F-22

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

As of December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with fair values of approximately $278,318 and $259,557 at December 31, 2019 and 2018, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

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

	2019			2018			2017
Proceeds from sales	$	3,957		$	411,796		$	217,111
Gross gains		—			4			180
Gross losses		(22	)		(54	)		(13	)

During the year ended December 31, 2017, the Company sold three held to maturity securities. The Company sold these securities, which consisted of three municipal securities and two corporate bonds, based upon internal credit analysis that they had experienced significant deterioration in creditworthiness. The risk exposure presented by these securities had increased beyond acceptable levels and management determined that it was reasonably possible that all amounts due would not be collected. The credit analysis of the municipalities determined that they had been significantly impacted by the declines in market oil prices due to the fact that their tax bases are heavily reliant on the energy industry relative to other sectors of the economy. Specifically, the revenues of these municipalities had been adversely impacted by the sustained low-level of oil prices.  The credit analysis of the corporate bonds, which were both a non-agency collateralized mortgage obligation bond, indicated evidence of significant deterioration in its creditworthiness. In early 2017 one bond rating agency withdrew its current rating on the bond, and prior to 2017 another rating agency had downgraded it to a ‘No Rating’ position.  The Company believes the sales of these securities were merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.

There were no held to maturity securities sold during the years ended December 31, 2019 or 2018.

Sales of securities held to maturity were as follows for the years ended December 31:

	2019		2018		2017
Proceeds from sales	$	—	$	—	$	3,298
Amortized cost		—		—		3,140
Gross realized gains		—		—		158
Tax expense related to securities gains/losses		—		—		(44	)

Included in the amortized cost of held to maturity securities shown above for the year ended December 31, 2017 was $324 of other than temporary impairment that was recorded during 2013, as well as $499 in prior principal write-downs on corporate bonds that were sold during 2017.

F-23

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The contractual maturities at December 31, 2019 of available for sale and held to maturity securities at carrying value and estimated fair value are shown below. The Company invests in mortgage-backed securities and collateralized mortgage obligations that have expected maturities that differ from their contractual maturities. These differences arise because borrowers and/or issuers may have the right to call or prepay their obligation with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
December 31, 2019	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	1,015	$	1,019	$	2,189	$	2,200
Due after one year through five years		13,407		13,772		30,221		31,179
Due after five years through ten years		13,324		13,924		32,771		34,078
Due after ten years		8,701		8,892		73,235		75,666
Mortgage-backed securities		83,967		84,182		14,365		14,550
Collateralized mortgage obligations		89,798		90,927		2,677		2,787
Total Securities	$	210,212	$	212,716	$	155,458	$	160,460

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes our loan portfolio by type of loan at December 31:

	2019			2018
Commercial and industrial	$	279,583		$	261,779
Real estate:
Construction and development		280,498			237,503
Commercial real estate		567,360			582,519
Farmland		57,476			67,845
1-4 family residential		412,166			393,067
Multi-family residential		37,379			38,386
Consumer		53,245			54,777
Agricultural		18,359			23,277
Overdrafts		329			382
Total loans		1,706,395			1,659,535
Net of:
Deferred loan costs		601			560
Allowance for loan losses		(16,202	)		(14,651	)
Total net loans	$	1,690,794		$	1,645,444

In 2018, the Company acquired overdrafts and recorded them as loans with a fair value and gross contractual fair value of $2 as part of Westbound.  All loans acquired in 2018 were classified as acquired performing loans on the acquisition date.

The Company has entered into transactions, at prevailing market rates and terms, with certain directors, executive officers, significant shareholders and their affiliates. Loans to such related parties at December 31, 2019 and 2018, totaled $33,663 and $56,199, respectively. Unfunded commitments to such related parties at December 31, 2019 totaled $13,846.

F-24

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Loans to principal officers, directors, and their affiliates during the year ended December 31, 2019, was as follows:

Beginning balance	$	56,199
New loans		46,419
Effect of changes in composition of related parties		(17,516	)
Repayments		(51,439	)
Ending balance	$	33,663

The following table presents the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the years ended December 31, 2019, 2018 and 2017:

For the Year Ended December 31, 2019	Commercial and industrial			Construction and development		Commercial real estate		Farmland			1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,751		$	1,920	$	6,025	$	643		$	2,868		$	631		$	565		$	238		$	10		$	14,651
Provision for loan losses		(117	)		458		827		(73	)		268			(222	)		(2	)		(41	)		152			1,250
Loans charged-off		(86	)		—		—		—			(14	)		—			(72	)		(89	)		(192	)		(453	)
Recoveries		508			—		1		—			3			—			111			89			42			754
Ending balance	$	2,056		$	2,378	$	6,853	$	570		$	3,125		$	409		$	602		$	197		$	12		$	16,202
Allowance ending balance:
Individually evaluated for impairment	$	—		$	—	$	1,587	$	62		$	—		$	—		$	—		$	—		$	—		$	1,649
Collectively evaluated for impairment		2,008			2,322		5,486		495			3,050			400			588			192			12			14,553
Ending balance	$	2,008		$	2,322	$	7,073	$	557		$	3,050		$	400		$	588		$	192		$	12		$	16,202
Loans:
Individually evaluated for impairment	$	289		$	1,212	$	17,483	$	133		$	2,498		$	—		$	—		$	62		$	—		$	21,677
Collectively evaluated for impairment		279,294		$	279,286		549,877		57,343			409,668			37,379			53,245			18,297			329			1,684,718
Ending balance	$	279,583		$	280,498	$	567,360	$	57,476		$	412,166		$	37,379		$	53,245		$	18,359		$	329		$	1,706,395

For the Year Ended December 31, 2018	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Provision for loan losses		426			196		1,472			120		(196	)		2		127			(12	)		115			2,250
Loans charged-off		(367	)		—		(33	)		—		(93	)		—		(254	)		(2	)		(169	)		(918	)
Recoveries		111			—		1			—		135			—		90			65			58			460
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Allowance ending balance:
Individually evaluated for impairment	$	64		$	4	$	341		$	78	$	6		$	—	$	—		$	—		$	—		$	493
Collectively evaluated for impairment		1,687			1,916		5,684			565		2,862			631		565			238			10			14,158
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Loans:
Individually evaluated for impairment	$	1,022		$	1,250	$	7,153		$	140	$	1,383		$	—	$	—		$	408		$	—		$	11,356
Collectively evaluated for impairment		260,757		$	236,253		575,366			67,705		391,684			38,386		54,777			22,869			382			1,648,179
Ending balance	$	261,779		$	237,503	$	582,519		$	67,845	$	393,067		$	38,386	$	54,777		$	23,277		$	382		$	1,659,535

F-25

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

For the Year Ended December 31, 2017	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,592		$	1,161	$	3,264		$	482	$	3,960		$	281	$	585		$	153		$	6		$	11,484
Provision for loan losses		272			563		1,405			41		(418	)		348		253			276			110			2,850
Loans charged-off		(1,080	)		—		(84	)		—		(543	)		—		(344	)		(242	)		(165	)		(2,458	)
Recoveries		797			—		—			—		23			—		108			—			55			983
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Allowance ending balance:
Individually evaluated for impairment	$	17		$	—	$	27		$	85	$	5		$	—	$	—		$	—		$	—		$	134
Collectively evaluated for impairment		1,564			1,724		4,558			438		3,017			629		602			187			6			12,725
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Loans:
Individually evaluated for impairment	$	463		$	—	$	4,258		$	163	$	842		$	217	$	—		$	397		$	—		$	6,340
Collectively evaluated for impairment		197,045		$	196,774		413,879			58,860		373,529			36,357		51,267			25,199			294			1,353,204
Ending balance	$	197,508		$	196,774	$	418,137		$	59,023	$	374,371		$	36,574	$	51,267		$	25,596		$	294		$	1,359,544

Credit Quality

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.

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. The Company typically measures impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or based on the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent.

The following tables summarize the credit exposure in the Company's consumer and commercial loan portfolios as of:

December 31, 2019	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	279,217	$	278,679	$	548,662	$	57,152	$	409,896	$	37,379	$	53,327	$	18,101	$	1,682,413
Special mention		153		600		1,071		91		1,425		—		192		126		3,658
Substandard		213		1,219		17,627		233		845		—		55		132		20,324
Total	$	279,583	$	280,498	$	567,360	$	57,476	$	412,166	$	37,379	$	53,574	$	18,359	$	1,706,395

F-26

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

December 31, 2018	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	260,863	$	236,253	$	569,648	$	67,541	$	391,956	$	38,386	$	55,055	$	22,713	$	1,642,415
Special mention		224	—			5,691		49		514	—			48		115		6,641
Substandard		692		1,250		7,180		255		597	—			56		449		10,479
Total	$	261,779	$	237,503	$	582,519	$	67,845	$	393,067	$	38,386	$	55,159	$	23,277	$	1,659,535

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:

December 31, 2019	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	$	321	$	53	$	15	$	389	$	279,194	$	279,583	$	—
Real estate:
Construction and development		161		—		—		161		280,337		280,498		—
Commercial real estate		1,181		49		882		2,112		565,248		567,360		—
Farmland		103		—		—		103		57,373		57,476		—
1-4 family residential		2,514		1,433		845		4,792		407,374		412,166		—
Multi-family residential		—		—		—		—		37,379		37,379		—
Consumer		373		152		96		621		52,624		53,245		—
Agricultural		51		67		—		118		18,241		18,359		—
Overdrafts		—		—		—		—		329		329		—
Total	$	4,704	$	1,754	$	1,838	$	8,296	$	1,698,099	$	1,706,395	$	—

December 31, 2018	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	$	209	$	493	$	266	$	968	$	260,811	$	261,779	$	—
Real estate:
Construction and development		735		2,816		—		3,551		233,952		237,503		—
Commercial real estate		1,803		3		3,227		5,033		577,486		582,519		—
Farmland		485		—		—		485		67,360		67,845		—
1-4 family residential		2,849		666		596		4,111		388,956		393,067		—
Multi-family residential		—		—		—		—		38,386		38,386		—
Consumer		526		51		56		633		54,144		54,777		—
Agricultural		105		59		41		205		23,072		23,277		—
Overdrafts		—		—		—		—		382		382		—
Total	$	6,712	$	4,088	$	4,186	$	14,986	$	1,644,549	$	1,659,535	$	—

F-27

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table presents information regarding nonaccrual loans as of:

	2019		2018
Commercial and industrial	$	46	$	366
Real estate:
Construction and development		—		—
Commercial real estate		6,860		3,700
Farmland		182		140
1-4 family residential		3,853		1,567
Multi-family residential		—		—
Consumer		279		66
Agricultural		42		52
Total	$	11,262	$	5,891

If interest on nonaccrual loans had been accrued, such income would have been approximately $637 and $333 for the years ended December 31, 2019 and 2018, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as impaired.

Impaired Loans and 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. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the original contractual terms of the loan. Loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired. Loans defined as individually impaired, based on applicable accounting guidance, include larger balance nonperforming loans and TDRs.

The outstanding balances of TDRs are shown below at December 31:

	2019		2018
Nonaccrual TDRs	$	101	$	335
Performing TDRs		7,240		861
Total	$	7,341	$	1,196
Specific reserves on TDRs	$	164	$	—

The following tables present loans by class, modified as TDRs, that occurred during the years ended:

December 31, 2019	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial real estate		4	$	1,680	$	1,515
Total		4	$	1,680	$	1,515

F-28

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

There were two TDRs that subsequently defaulted during 2019, therefore remain on nonaccrual status. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2019.   

December 31, 2018	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		3	$	504	$	504
1-4 family residential		1		78		78
Total		4	$	582	$	582

There was one TDR that subsequently defaulted in 2018 and was paid off during 2019.  The TDR described above did not increase the allowance for loan losses and resulted in no charge-offs during the years ended December 31, 2018 or 2019.

The following table presents information about the Company’s impaired loans as of:

December 31, 2019	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	289	$	289	$	—	$	312
Real estate:
Construction and development		1,212		1,212		—		1,259
Commercial real estate		4,612		4,612		—		4,244
Farmland		—		—		—		—
1-4 family residential		2,498		2,498		—		1,798
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		62		62		—		190
Subtotal		8,673		8,673		—		7,803
With allowance recorded:
Commercial and industrial		—		—		—		61
Real estate:
Construction and development		—		—		—		—
Commercial real estate		12,871		12,871		1,587		9,111
Farmland		133		133		62		135
1-4 family residential		—		—		—		78
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		—		—		—		—
Subtotal		13,004		13,004		1,649		9,385
Total	$	21,677	$	21,677	$	1,649	$	17,188

F-29

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table presents information about the Company’s impaired loans as of December 31, 2018:

December 31, 2018	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	837	$	837	$	—	$	842
Real estate:
Construction and development		720		720		—		518
Commercial real estate		5,168		5,168		—		5,138
Farmland		—		—		—		62
1-4 family residential		1,223		1,223		—		1,132
Multi-family residential		—		—		—		54
Consumer		—		—		—		—
Agricultural		408		408		—		456
Subtotal		8,356		8,356		—		8,202
With allowance recorded:
Commercial and industrial		185		185		64		300
Real estate:
Construction and development		530		530		4		44
Commercial real estate		1,985		1,985		341		677
Farmland		140		140		78		147
1-4 family residential		160		160		6		128
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		—		—		—		52
Subtotal		3,000		3,000		493		1,348
Total	$	11,356	$	11,356	$	493	$	9,550

During the years ended December 31, 2019, 2018 and 2017, total interest income and cash-based interest income recognized on impaired loans was minimal.

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment balances, by type, were as follows:

	December 31, 2019		December 31, 2018
Land	$	10,944	$	10,924
Building and improvements		54,809		52,623
Furniture, fixtures and equipment		17,960		15,675
Automobiles		495		293
		84,208		79,515
Less: accumulated depreciation		30,777		27,288
	$	53,431	$	52,227

Depreciation expense on premises and equipment totaled $3,886, $3,400 and $3,162 for the years ended December 31, 2019, 2018 and 2017, respectively and is included in occupancy expenses on the consolidated statements of earnings.

F-30

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 6 - GOODWILL

Changes in the carrying amount of goodwill in the accompanying consolidated balance sheets as of December 31 are summarized as follows:

	2019		2018
Beginning of year	$	32,160	$	18,742
Effect of acquisitions		—		13,418
End of year	$	32,160	$	32,160

NOTE 7 - CORE DEPOSIT INTANGIBLES

Changes in the carrying amount of core deposit intangibles in the accompanying consolidated balance sheets as of December 31 are summarized as follows:

	2019			2018
Beginning of year	$	4,706		$	2,724
Effect of acquisitions		—			2,700
Amortization		(853	)		(718	)
End of year	$	3,853		$	4,706

Accumulated amortization was $4,678 and $3,825 at December 31, 2019 and 2018, respectively.  Amortization expense related to core deposit intangibles was $853, $718 and $584 during the years ended December 31, 2019, 2018 and 2017, respectively. The estimated aggregate future amortization expense for core deposit intangibles remaining as of December 31, 2019 was as follows:

Year Ended December 31,	Amount
2020	$	853
2021		687
2022		453
2023		441
2024		424
Thereafter		995
	$	3,853

NOTE 8 - INTEREST-BEARING DEPOSITS

Interest-bearing deposits, by type of account, were as follows as of:

	December 31, 2019		December 31, 2018
NOW accounts	$	202,672	$	252,109
Savings and money market accounts		712,972		694,086
Time deposits $250,000 or less		300,608		298,724
Time deposits greater than $250,000		214,687		136,772
	$	1,430,939	$	1,381,691

F-31

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Year-end maturities of time deposits, as of December 31, 2019, were as follows:

Year Ended December 31,	Amount
2020	$	440,588
2021		39,575
2022		16,721
2023		12,909
2024		5,502
Thereafter		—
	$	515,295

Deposits of executive officers, directors and significant shareholders at December 31, 2019 and 2018 totaled $59,658 and $59,674, respectively.

NOTE 9 - BORROWED MONEY

Federal Home Loan Bank (FHLB) advances, as of December 31, 2019, were as follows:

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

Year	Current Weighted Average Rate			Principal Due
2020		1.67	%	$	46,000
2021		1.87	%		1,500
2022		1.99	%		1,500
2023		—			—
2024		1.76	%		6,000
					55,000

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

Year	Current Weighted Average Rate			Principal Due
2021		1.38	%		118
				$	55,118

The Company has a $25,000 revolving line of credit with a correspondent bank that bears interest at the prime rate plus 0.50%, with quarterly interest payments, and matures in March 2020.  Under the terms of the line of credit, the Company agreed not to pledge or grant a lien or security interest in the stock of the Bank or in any other assets without prior consent of the lender.  As of December 31, 2019, there was no outstanding balance on the line of credit.  To be in compliance with the loan covenants, the Bank is required to maintain no less than a 10% total risk-based capital ratio, must maintain no less than $85,000 in tangible net worth, the ratio of non-performing assets to equity plus allowance for loan losses must not exceed 15%, the cash flow coverage must be greater than 1.25 times, the ratio of other additional debt to total assets must not exceed 15%, and the Company is limited to acquiring additional debt of no more than $500 without prior approval. The Company believes that it is in compliance with all loan covenants.

F-32

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 10 - SUBORDINATED DEBENTURES

Subordinated debentures are made up of the following as of:

	December 31, 2019		December 31, 2018
Trust II Debentures	$	3,093	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Other debentures		500		2,500
	$	10,810	$	12,810

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 $1,000,000 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 can qualify as Tier I 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 I capital, net of goodwill, the full amount is includable in Tier I capital at December 31, 2019 and 2018. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier I 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 are 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

F-33

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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 months LIBOR plus 3.35%, thereafter.

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 was 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 is equal to 100% of the principal amount if redeemed, plus accrued interest to the date of redemption.

DCB Debentures I

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 July 2015, the Company issued $4,000 in debentures, of which $3,000 were issued to directors and other related parties.  The $3,000 of debentures to related parties were repaid in May 2017 and a $500 par value debenture, which carried a 2.50% rate, matured and was repaid in July 2017.  The remaining $500 debenture had a rate of 4.00%, matured and was paid off in January 2019.

In December 2015, the Company issued $5,000 in debentures, of which $2,500 were issued to directors and other related parties.  In May 2017, $2,000 of the related party debentures were repaid with a portion of the proceeds of Guaranty’s initial public offering.  A further $1,000 of other debentures matured and were paid off in full in July of 2018 and another $1,000 and $500 of debentures matured and were paid off in full in July and December, respectively, of the current year. The remaining $500 of debentures were issued at par value of $500 with a rate of 5.00% and maturity date of July 1, 2020.  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.

F-34

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Maturities of subordinated debentures based on scheduled repayments at December 31, 2019 are as follows (in thousands of dollars):

Year Ended December 31,	Amount
2020	$	500
2021		—
2022		—
2023		—
2024		—
Thereafter		10,310
	$	10,810

NOTE 11 - STOCK OPTIONS

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 1,000,000 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.

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.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date, for the years ended December 31:

	2019			2018			2017
Risk-free interest rate		2.11	%		2.87	%		2.00	%
Expected term (in years)		6.50			6.50			6.46
Expected stock price volatility		19.89	%		20.10	%		18.54	%
Dividend yield		2.36	%		1.76	%		1.61	%

F-35

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

A summary of activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		537,872		$	26.49		6.97	$	2,088
Granted		39,000			29.89		9.40		117
Exercised		(37,672	)		24.55		4.11		314
Forfeited		(31,200	)		30.04		8.02		89
Balance, December 31, 2019		508,000		$	26.68		6.24	$	3,159
Exercisable at end of period		256,880		$	25.21		5.18	$	1,971

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		469,044		$	25.11		7.32	$	2,623
Granted		101,000			32.29		9.51		5
Exercised		(14,372	)		22.74		4.33		102
Forfeited		(17,800	)		26.07		6.71		96
Balance, December 31, 2018		537,872		$	26.49		6.97	$	2,088
Exercisable at end of period		206,312		$	24.48		5.65	$	1,113

A summary of nonvested activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		331,560		$	27.74		7.77	$	975
Granted		39,000			29.89		9.40		117
Vested		(91,040	)		26.71		6.02		563
Forfeited		(28,400	)		33.00		8.81		89
Balance, December 31, 2019		251,120		$	28.18		7.31	$	1,188

F-36

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		334,400		$	25.72		7.91	$	1,673
Granted		101,000			32.29		9.51		5
Vested		(88,440	)		25.51		6.69		400
Forfeited		(15,400	)		30.14		7.76		96
Balance, December 31, 2018		331,560		$	27.74		7.77	$	975

Restricted Stock Awards and Units

A summary of activity in the Plan during years ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		959		$	31.57
Vested		480			31.57
Released		(1,439	)		31.57
Forfeited		—			—
Balance, December 31, 2019		—		$	—

2018	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		—	$	—
Vested		959		31.57
Released		—		—
Forfeited		—		—
Balance, December 31, 2018		959	$	31.57

A summary of nonvested activity in the Plan during the twelve months ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		1,439		$	31.57
Granted		30,500			30.25
Vested		(480	)		31.57
Forfeited		—			—
Balance, December 31, 2019		31,459		$	30.29

F-37

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

2018	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		2,398		$	31.57
Granted		—			—
Vested		(959	)		31.57
Forfeited		—			—
Balance, December 31, 2018		1,439		$	31.57

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.

Information related to the Plan is as follows for the years ended December 31:

	2019		2018		2017
Intrinsic value of options exercised	$	314	$	102	$	132
Cash received from options exercised		925		327		84
Weighted average fair value of options granted		16.07		6.69		7.91

As of December 31, 2019, there was $2,069 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 3.44 years.

The Company granted options under the Plan in 2019, 2018 and 2017.  Expense of $663, $592 and $355 was recorded during the years ended December 31, 2019, 2018 and 2017, respectively, which represents the fair value of shares vested during those years.

NOTE 12 - STOCK APPRECIATION RIGHTS

On June 1, 2017, the Company terminated the Guaranty Bancshares, Inc. Fair Market Value Stock Appreciation Rights Plan, paid all accrued benefits through the termination date and issued equivalent stock options to the plan holders that expire 10 years from the issuance date.  Expense associated with stock appreciation rights in 2017 was $318. There were no SARs granted in 2018 or 2019.

NOTE 13 - 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 years ended December 31, 2019, 2018 and 2017 totaled $1,270, $1,125 and $965, respectively.

Benefits under the KSOP generally are distributed to participants in the form of cash, although participants have the right to receive distributions in the form of shares of common stock.

As of December 31, 2019 and 2018, the number of shares held by the KSOP was 1,224,697 and 1,333,504, respectively.  There were no unallocated shares to plan participants as of December 31, 2019 and 2018.

F-38

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 $34,495 and $26,301 as of December 31, 2019 and 2018, respectively.

Expense related to these plans totaled $602, $502 and $447 for the years ended December 31, 2019, 2018 and 2017, respectively, and is included in employee compensation and benefits on the Company's consolidated statements of earnings. The recorded liability totaled approximately $4,081 and $3,667 as of December 31, 2019 and 2018, 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 the 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 our board of directors. The bonus expense under this plan for the years ended December 31, 2019, 2018 and 2017 totaled $3,265, $2,943 and $2,316, respectively and is included in employee compensation and benefits on the Company's consolidated statements of earnings.

NOTE 14 - 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 15 years. Some of the Company’s operating leases include options to extend the leases for up to 7 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 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 December 31, 2019, operating lease right-of-use assets were $11.6 million and liabilities were $11.7 million and were included within the accompanying consolidated balance sheet as components of other assets and other liabilities, respectively.

Operating lease expense for operating leases accounted for under ASC 842 for the year ended December 31, 2019 was approximately $1,881, and is included as a component of occupancy expenses within the accompanying consolidated statements of earnings.

F-39

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 December 31, 2019
Operating leases
Operating lease right-of-use assets	$	11,554
Operating lease liabilities		11,675
Weighted average remaining lease term
Operating leases	10 years
Weighted average discount rate
Operating leases		2.69	%

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2024 and thereafter.  Minimum future lease payments under these non-cancelable operating leases in excess of one year as of December 31, 2019, are as follows:

Year Ended December 31,	Amount
2020	$	1,622
2021		1,430
2022		1,323
2023		1,314
2024		1,312
Thereafter		6,312
Total lease payments		13,313
Less: interest		(1,638	)
Present value of lease liabilities	$	11,675

NOTE 15 - INCOME TAXES

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations; however, such changes do not currently impact us.

As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, we remeasured our deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future.

F-40

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Management of the Company considers the likelihood of changes by taxing authorities in its filed income tax returns and discloses potential significant changes that management believes are more likely than not to occur upon examination by tax authorities. Management has not identified any uncertain tax positions in previously filed income tax returns that require disclosure in the accompanying consolidated financial statements. The Company is subject to U.S. federal income taxes.

The consolidated provision for income taxes were as follows as of December 31:

	2019			2018			2017
Current federal tax expense	$	6,097		$	5,288		$	5,803
Deferred federal tax (benefit) expense		(319	)		(683	)		740
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate		—			(6	)		1,695
Total	$	5,778		$	4,599		$	8,238

The provision for federal income taxes differs from that computed by applying federal statutory rates to income before federal income tax expense, as indicated in the following analysis as of December 31:

	2019			2018			2017
Federal statutory income tax at 21% for 2019 and 2018, and 35% for 2017	$	6,732		$	5,291		$	7,937
Tax exempt interest income		(1,027	)		(968	)		(1,560	)
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate		—			(6	)		1,695
Earnings of bank owned life insurance		(192	)		(113	)		(161	)
Nondeductible expenses		462			566			577
Other		(197	)		(171	)		(250	)
Total	$	5,778		$	4,599		$	8,238

Income tax expense for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. As a result of the new law, and as detailed in the table above, we recognized a provisional net tax expense totaling $1,695 in 2017 and a net tax benefit resulting from the finalization of those calculations totaling $6 in 2018.  As of December 31, 2019, the accounting for the income tax enactment-date effects of the new tax law has been completed.

F-41

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The components of the deferred tax assets (liabilities), in the accompanying consolidated balance sheets consisted of the following as of December 31:

	2019			2018
Deferred tax assets:
Allowance for loan losses	$	3,402		$	3,077
Deferred compensation		857			770
Unrealized loss on available for sale securities		—			1,464
Bonus accrual		399			328
Accretion of acquisition allowance		183			327
Other real estate owned		134			65
Other		420			484
Total deferred tax assets		5,395			6,515
Deferred tax liabilities:
Unrealized gain on available for sale securities		(526	)		—
Premises and equipment		(2,353	)		(2,334	)
Prepaid expenses		(270	)		(179	)
Deferred loan costs, net		(137	)		(118	)
Intangibles		(470	)		(590	)
Other		(101	)		(85	)
Total deferred tax liabilities		(3,857	)		(3,306	)
Net deferred tax asset	$	1,538		$	3,209

NOTE 16 - NONINTEREST INCOME AND NONINTEREST EXPENSE

Other operating income consisted of the following for the years ended December 31:

	2019		2018		2017
Fiduciary income	$	1,760	$	1,587	$	1,463
Bank-owned life insurance income		774		570		461
Merchant and debit card fees		4,264		3,642		3,119
Loan processing fee income		590		589		597
Other noninterest income		3,031		3,057		2,745
Total	$	10,419	$	9,445	$	8,385

Other operating expense consisted of the following for the years ended December 31:

	2019		2018		2017
Legal and professional fees	$	2,610	$	3,080	$	2,061
Software support fees		3,341		2,502		2,089
Amortization		1,378		1,228		1,033
Director and committee fees		873		1,029		1,064
Advertising and promotions		1,655		1,410		1,193
ATM and debit card expense		1,347		1,127		899
Office and computer supplies		470		416		426
Postage		302		310		301
Telecommunication expense		676		649		526
FDIC insurance assessment fees		173		625		671
Other real estate owned expenses and write-downs		59		157		128
Other		3,900		3,721		3,513
Total	$	16,784	$	16,254	$	13,904

F-42

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 17 - 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 sheet 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 their 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 10. Management believes 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 is the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that are appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in this liability to other liabilities of the Company. To meet this objective, the Company utilizes interest rate swaps as an asset/liability management strategy to hedge the change in value of the cash flows due to changes in expected interest rate assumptions.

Interest rate swaps with notional amounts totaling $5,000 as of December 31, 2019 and 2018, were designated as cash flow hedges of the debentures and were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness has been included in net income.

Therefore, the aggregate fair value of the swaps is recorded in accrued interest and other liabilities within the consolidated balance sheets with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

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

December 31, 2019
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		6.25	$	314
$	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		2.83	$	212

December 31, 2018
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		7.25	$	220
$	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		3.83	$	173

F-43

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Interest expense recorded on these swap transactions totaled $648, $687 and $724 during the years ended December 31, 2019, 2018 and 2017, respectively, and is reported as a component of interest expense on the debentures.  At December 31, 2019, the Company expected none of the unrealized losses to be reclassified as a reduction of interest expense during the remainder of 2020.

NOTE 18 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles generally accepted in the United States of America, are not included in the 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 assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for credit losses.

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 December 31, 2019 and 2018, 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 December 31:

	Contract or Notional Amount
	2019		2018
Commitments to extend credit	$	440,685	$	342,523
Letters of credit		9,054		11,675

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 December 31, 2019, the Company had letters of credit of $2,000 pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law.

F-44

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 19 - 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 to be fully phased in by 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 December 31, 2019 and 2018, that the Bank met all capital adequacy requirements to which it was subject.

When fully phased in on January 1, 2019, the Basel III Capital Rules, among other things, will have (i) introduced a new capital measure called “Common Equity Tier I” (“CET1”), (ii) specified that Tier I capital consist of CET1 and “Additional Tier I 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 and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.

Starting in January 2016, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.

As of December 31, 2019 and 2018, 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 I leverage ratios as set forth in the table. There are no conditions or events since December 31, 2019 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 I capital, net of goodwill, the rules permit the inclusion of $10,310 of trust preferred securities in Tier I capital at December 31, 2019 and 2018. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier I 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.

F-45

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 is presented in the following tables:

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required Under Basel III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2019
Total capital to risk-weighted assets:
Consolidated	$	253,793		13.29	%	$	152,770		8.00	%	$	200,510		10.50	%			n/a
Bank		249,643		13.07	%		152,774		8.00	%		200,516		10.50	%	$	190,968		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		237,591		12.44	%		114,577		6.00	%		162,318		8.50	%			n/a
Bank		233,441		12.22	%		114,581		6.00	%		162,322		8.50	%		152,774		8.00	%
Tier 1 capital to average assets:(1)
Consolidated		237,591		10.29	%		92,318		4.00	%		92,318		4.00	%			n/a
Bank		233,441		10.11	%		92,321		4.00	%		92,321		4.00	%		115,401		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		227,281		11.90	%		85,933		4.50	%		133,674		7.00	%			n/a
Bank		233,441		12.22	%		85,935		4.50	%		133,677		7.00	%		124,129		6.50	%
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board 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 Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2018
Total capital to risk-weighted assets:
Consolidated	$	241,791		13.25	%	$	146,020		8.00	%	$	191,651		10.50	%			n/a
Bank		242,142		13.27	%		146,015		8.00	%		191,645		10.50	%	$	182,519		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		227,140		12.44	%		109,515		6.00	%		155,146		8.50	%			n/a
Bank		227,491		12.46	%		109,511		6.00	%		155,141		8.50	%		146,015		8.00	%
Tier 1 capital to average assets:
Consolidated		227,140		10.16	%		89,422		4.00	%		89,422		4.00	%			n/a
Bank		227,491		10.18	%		89,414		4.00	%		89,414		4.00	%		111,768		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		216,830		11.88	%		82,136		4.50	%		127,768		7.00	%			n/a
Bank		227,491		12.46	%		82,134		4.50	%		127,763		7.00	%		118,637		6.50	%

Dividends paid by the Company are mainly provided by dividends from its subsidiaries. However, certain 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 a national banking association, such as the Bank, may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. As of December 31, 2019, the Bank had $18,475 available for payment of dividends.

F-46

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 20 - CONCENTRATIONS OF CREDIT RISK

Most of the Company’s business activity is with customers located within the state of Texas. Investments in state and municipal securities involve governmental entities within the Company’s market area. The Company also maintains deposits with other financial institutions in amounts that exceed FDIC insurance coverage.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

NOTE 21 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase are secured by collateralized mortgage obligations securities with a market value of $11,100 as of December 31, 2019 and collateralized mortgage obligations and agency securities with a market value of $12,228 as of December 31, 2018, respectively.

Securities sold under agreements to repurchase are financing arrangements that mature within two years. At maturity, the securities underlying the agreements are returned to the Company. Information concerning securities sold under agreements to repurchase is summarized as follows as of December 31:

	2019			2018
Average balance during the year	$	10,901		$	12,796
Average interest rate during the year		0.50	%		0.57	%
Maximum month-end balance during the year	$	11,542		$	14,365
Weighted average interest rate at year-end		0.31	%		0.44	%

NOTE 22 - RELATED PARTIES

As more fully described in Note 4, Note 8 and Note 10, the company has entered into loans, deposits and debenture transactions with related parties. Management believes the transactions entered into with related parties are in the ordinary course of business and are on terms similar to transitions with unaffiliated parties.

NOTE 23 - 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.

F-47

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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).

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on the present value of estimated future cash flows using the loan’s existing rate or, if repayment is expected solely from the collateral, 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). Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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).

F-48

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table summarizes quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value as of December 31:

2019	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	$	84,182		$	—	$	84,182		$	—
Collateralized mortgage obligations		90,927			—		90,927			—
Municipal securities		17,348			—		17,348			—
Corporate bonds		20,259			—		20,259			—
Loans held for sale		2,368			—		—			2,368
Cash surrender value of life insurance		34,495			—		34,495			—
SBA servicing assets		672			—		—			672
Derivative instrument assets		526			—		526			—
Derivative instrument liabilities		(526	)		—		(526	)		—
Assets at fair value on a nonrecurring basis:
Impaired loans		20,028			—		—			20,028
Other real estate owned		603			—		—			603

2018	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	$	89,459		$	—	$	89,459		$	—
Collateralized mortgage obligations		108,969			—		108,969			—
Municipal securities		15,593			—		15,593			—
Corporate bonds		18,954			—		18,954			—
Loans held for sale		1,795			—		—			1,795
Cash surrender value of life insurance		26,301			—		26,301			—
SBA servicing assets		1,107			—		—			1,107
Derivative instrument assets		392			—		392			—
Derivative instrument liabilities		(392	)		—		(392	)		—
Assets at fair value on a nonrecurring basis:
Impaired loans		10,863			—		—			10,863
Other real estate owned		751			—		—			751

There were no transfers between Level 2 and Level 3 during the year ended December 31, 2019 or 2018.

F-49

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Nonfinancial Assets and Nonfinancial Liabilities:

Nonfinancial assets measured at fair value on a nonrecurring basis during the years ended December 31, 2019 and 2018 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan 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 December 31:

	2019			2018			2017
Other real estate owned remeasured at initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	147		$	542		$	1,082
Charge-offs recognized in the allowance for loan losses		(11	)		(25	)		(195	)
Fair value of other real estate owned remeasured at initial recognition	$	136		$	517		$	887
Other real estate owned remeasured subsequent to initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	35		$	599		$	—
Write-downs included in collection and other real estate owned expense		(10	)		(56	)		—
Fair value of other real estate owned remeasured subsequent to initial recognition	$	25		$	543		$	—

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

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
December 31, 2019
Impaired loans	$	20,028	Fair value of collateral - sales comparison approach	Selling costs or other normal adjustments: Real estate Equipment	10%-20% (16%) 10%-20% (12%)
Other real estate owned	$	603	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

.	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
December 31, 2018
Impaired loans	$	10,863	Fair value of collateral - sales comparison approach	Selling costs or other normal adjustments: Real estate Equipment	10%-20% (16%) 10%-20% (19%)
Other real estate owned	$	751	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

F-50

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 in this note, at December 31, 2019 and 2018 are as follows:

	Fair value measurements as of December 31, 2019 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	$	90,714	$	90,714	$	—	$	—	$	90,714
Marketable securities held to maturity		155,458		—		160,460		—		160,460
Loans, net		1,690,794		—		—		1,705,155		1,705,155
Accrued interest receivable		9,151		—		9,151		—		9,151
Nonmarketable equity securities		12,301		—		12,301		—		12,301
Financial liabilities:
Deposits	$	1,956,804	$	1,438,509	$	520,469	$	—	$	1,958,978
Securities sold under repurchase agreements		11,100		—		11,100		—		11,100
Accrued interest payable		1,642		—		1,642		—		1,642
Federal Home Loan Bank advances		55,118		—		55,125		—		55,125
Subordinated debentures		10,810		—		8,677		—		8,677

	Fair value measurements as of December 31, 2018 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	$	71,510	$	71,510	$	—	$	—	$	71,510
Marketable securities held to maturity		163,164		—		162,800		—		162,800
Loans, net		1,645,444		—		—		1,630,600		1,630,600
Accrued interest receivable		9,292		—		9,292		—		9,292
Nonmarketable equity securities		14,937		—		14,937		—		14,937
Financial liabilities:
Deposits	$	1,871,480	$	1,435,985	$	434,647	$	—	$	1,870,632
Securities sold under repurchase agreements		12,228		—		12,228		—		12,228
Accrued interest payable		1,651		—		1,651		—		1,651
Federal Home Loan Bank advances		115,136		—		114,934		—		114,934
Subordinated debentures		12,810		—		10,724		—		10,724

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).

F-51

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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.

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.

F-52

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 24 - ACCUMULATED OTHER COMPREHENSIVE LOSS

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ending December 31, 2019:

	Losses on Cash Flow Hedges			Unrealized (Losses) and Gains on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(393	)	$	(8,705	)	$	(64	)	$	(9,162	)
Other comprehensive (loss) income before reclassification		(133	)		7,467			18			7,352
Amounts reclassified from accumulated other comprehensive loss		—			17			—			17
Net current period other comprehensive (loss) income		(133	)		7,484			18			7,369
Ending balance	$	(526	)	$	(1,221	)	$	(46	)	$	(1,793	)

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2019:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized loss on available for sale securities	$	22		Net realized loss on sale of securities transactions
		(5	)	Tax benefit
	$	17		Net of Tax

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ended December 31, 2018:

	(Losses) and Gains on Cash Flow Hedges			Unrealized Losses on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(571	)	$	(5,460	)	$	(96	)	$	(6,127	)
Other comprehensive income (loss) before reclassification		178			(2,799	)		32			(2,589	)
Amounts reclassified from accumulated other comprehensive loss		—			40			—			40
Net current period other comprehensive income (loss)		178			(2,759	)		32			(2,549	)
Reclassification of certain tax effects from accumulated other comprehensive loss		—			(486	)		—			(486	)
Ending balance	$	(393	)	$	(8,705	)	$	(64	)	$	(9,162	)

F-53

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2018:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized loss on available for sale securities	$	50		Net realized loss on sale of securities transactions
		(10	)	Tax effect
	$	40		Net of Tax

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ended December 31, 2017:

	(Losses) and Gains on Cash Flow Hedges			Unrealized Losses on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(695	)	$	(5,319	)	$	(473	)	$	(6,487	)
Other comprehensive income (loss) before reclassification		124			(33	)		377			468
Amounts reclassified from accumulated other comprehensive loss		—			(108	)		—			(108	)
Net current period other comprehensive income (loss)		124			(141	)		377			360
Ending balance	$	(571	)	$	(5,460	)	$	(96	)	$	(6,127	)

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2017:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized gain on available for sale securities	$	(167	)	Net realized gain on sale of securities transactions
		59		Tax effect
	$	(108	)	Net of Tax

NOTE 25 - 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.

F-54

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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 (in thousands except per share amounts) as of December 31:

	2019		2018		2017
Numerator:
Net earnings  (basic)	$	26,279	$	20,596	$	14,439
Net earnings (diluted)	$	26,279	$	20,596	$	14,439
Denominator:
Weighted-average shares outstanding (basic)		11,638,897		11,562,826		10,230,840
Effect of dilutive securities:
Common stock equivalent shares from stock options		66,202		90,940		82,529
Weighted-average shares outstanding (diluted)		11,705,099		11,653,766		10,313,369
Net earnings per share
Basic	$	2.26	$	1.78	$	1.41
Diluted	$	2.25	$	1.77	$	1.40

NOTE 26 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Guaranty Bancshares, Inc. follows:

	2019		2018
ASSETS
Cash and cash equivalents	$	7,264	$	4,111
Investment in banking subsidiaries		268,237		255,637
Other assets		469		384
Total assets	$	275,970	$	260,132
LIABILITIES AND EQUITY
Debt	$	11,563	$	12,810
Accrued expenses and other liabilities		2,856		2,739
Shareholders’ equity		261,551		244,583
Total liabilities and shareholders’ equity	$	275,970	$	260,132

F-55

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

	2019		2018		2017
Interest income	$	15	$	13	$	11
Dividends from Guaranty Bank & Trust		23,000		10,000		—
		23,015		10,013		11
Expenses
Interest expense		653		687		1,024
Other expenses		1,819		2,590		1,682
		2,472		3,277		2,706
Income (loss) before income tax and equity in undistributed income of subsidiary		20,543		6,736		(2,695	)
Income tax benefit		639		482		354
Income (loss) before equity in undistributed earnings of subsidiary		21,182		7,218		(2,341	)
Equity in undistributed earnings of subsidiary		5,097		13,378		16,780
Net earnings	$	26,279	$	20,596	$	14,439
Comprehensive income	$	33,648	$	18,047	$	14,799

	2019			2018			2017
Cash flows from operating activities
Net earnings	$	26,279		$	20,596		$	14,439
Adjustments:
Equity in undistributed subsidiary earnings		(5,097	)		(13,378	)		(16,780	)
Stock based compensation		663			592			355
Change in other assets		85			127			1,270
Change in other liabilities		503			557			1,589
Net cash provided by operating activities		22,433			8,494			873
Cash flows from investing activities
Cash paid in connection with acquisitions		—			(6,423	)		—
Investment in Guaranty Bank & Trust		—			—			(15,000	)
Net cash used in investing activities		—			(6,423	)		(15,000	)
Cash flows from financing activities
Proceeds of borrowings		—			—			2,000
Repayments of borrowings		(2,000	)		(1,000	)		(25,786	)
Sale of common stock		—			—			55,755
Purchase of treasury stock		(10,140	)		(4,265	)		—
Exercise of stock options		925			327			84
Dividends paid		(8,065	)		(7,031	)		(5,562	)
Net cash (used in) provided by financing activities		(19,280	)		(11,969	)		26,491
Net change in cash and cash equivalents		3,153			(9,898	)		12,364
Beginning cash and cash equivalents		4,111			14,009			1,645
Ending cash and cash equivalents	$	7,264		$	4,111		$	14,009

F-56

EX-4.2

EXHIBIT 4.2

DESCRIPTION OF COMMON STOCK

As of December 31, 2019, Guaranty Bancshares, Inc. (the “Company,” “we,” or “our”) had one class of securities, our common stock, par value $1.00 per share (“common stock”), registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Our common stock is listed on the Nasdaq Global Select Market under the symbol “GNTY.”

The following is a summary of our common stock and certain terms of our amended and restated certificate of formation and our amended and restated bylaws, which we refer to herein as our certificate of formation and bylaws, respectively. This discussion summarizes some of the important rights of our shareholders but does not purport to be a complete description of these rights and may not contain all of the information regarding our capital stock that is important to you. The descriptions herein are qualified in their entirety by reference to our certificate of formation and bylaws, copies of which are filed with the SEC as exhibits to this report, and applicable law.

General

Our certificate of formation authorizes us to issue up to 50,000,000 shares of common stock, par value $1.00 per share.  As of December 31, 2019, 11,547,443 shares of our common stock were outstanding, and we had reserved an additional 948,861 shares of our common stock for future issuance pursuant to awards granted under our 2015 Equity Incentive Plan.  As of December 31, 2019, there were issued and outstanding options to purchase 508,000 shares of our common stock and 31,459 outstanding restricted stock units with respect to shares of our common stock, all of which were issued pursuant to awards under our 2015 Equity Incentive Plan.  As of December 31, 2019, no other types of incentive awards were issued or outstanding under our 2015 Equity Incentive Plan.  The authorized but unissued shares of our capital stock are available for future issuance without shareholder approval, unless otherwise required by applicable law or the rules of any applicable securities exchange.

The rights of our shareholders are generally covered by Texas law and our certificate of formation and bylaws (each as amended and restated and in effect as of the date hereof). The terms of our common stock are therefore subject to Texas law, including the Texas Business Organizations Code (“TBOC”), and the common and constitutional law of Texas.

Preferred Stock

Our certificate of formation authorizes us to issue 15,000,000 shares of preferred stock, par value $5.00 per share. As of December 31, 2019, we had no shares of our preferred stock outstanding.

Our certificate of formation authorizes our Board of Directors to designate the preferences, limitations and relative rights of any such series of preferred stock. Preferred stock may have voting rights, subject to applicable law and determination at issuance of our Board of Directors. While the terms of preferred stock may vary from series to series, common shareholders should assume that all shares of preferred stock will be senior to our common stock in respect of distributions and on liquidation.

Although the creation and authorization of preferred stock does not, in and of itself, have any effect on the rights of the holders of our common stock, the issuance of one or more series of preferred stock may affect the holders of common stock in a number of respects, including the following: by subordinating our common stock to the preferred stock with respect to dividend rights, liquidation preferences, and other rights, preferences, and privileges; by diluting the voting power of our common stock; by diluting the earnings per share of our common stock; and by issuing common stock, upon the conversion of the preferred stock, at a price below the fair market value or original issue price of the common stock that is outstanding prior to such issuance. Subject to the provisions of our certificate of formation and limitations prescribed by law and the rules of the Nasdaq Global Select Market, if applicable, our Board of Directors has the discretion to issue shares, establish the number of shares, change the number of shares constituting any series, and provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions on shares of our preferred stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences, in each case without any action or vote by the holders of our common stock.

It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of our common stock until such time as our Board of Directors determines the specific terms of the preferred stock.

Voting Rights

Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of shareholders, except as otherwise required by law and subject to the rights and preferences of the holders of any outstanding shares of our preferred stock. Our certificate of formation do not provide for cumulative voting in the election of directors. Directors are elected by a majority of the votes cast, unless the number of director nominees exceeds the number of directors to be elected at the meeting, in which case directors would be elected by a plurality of the votes cast.

Dividend Rights

Subject to certain regulatory restrictions and to the rights of holders of any preferred stock that we may issue, all shares of our common stock are entitled to share equally in dividends from legally available funds, when, as, and if declared by our board of directors.

No Preemptive Rights

No holder of our common stock has a right under the TBOC, or our certificate of formation or bylaws, to purchase shares of common stock upon any future issuance.

Liquidation Rights

In the event of our liquidation, dissolution or winding up, whether voluntarily or involuntarily, the holders of our common stock would be entitled to share ratably in any of the net assets or funds which are available for distribution to shareholders, after the satisfaction of all liabilities and accrued and unpaid dividends and liquidation preferences on any outstanding preferred stock.

Modification of Rights

An amendment to our certificate of formation requires the approval of a majority of the votes entitled to be cast. Our bylaws may be amended by our board of directors or by the affirmative vote of the holders of two-thirds or more of the shares entitled to vote at a meeting of our shareholders called for such purpose.

Other Rights

Holders of our common stock have no conversion rights or other subscription rights. There are no other redemption or sinking fund provisions that are applicable to our common stock.

Action by Written Consent

Under the TBOC, no action required or permitted to be taken at an annual or special meeting of shareholders may be taken by written consent in lieu of a meeting of shareholders without the unanimous written consent of all shareholders entitled to vote on the action unless the certificate of formation specifically allows action to be taken by the written consent of shareholders holding at least the minimum number of shares necessary to take the action that is subject to that consent at a meeting of shareholders, even though the consent is not signed by all of the corporation’s shareholders. Our certificate of formation does not provide for shareholder action by less than unanimous written consent.

Certain Certificate of Formation and Bylaw Provisions Potentially Having an Anti-Takeover Effect

Certain provisions of our certificate of formation and bylaws, and the corporate and banking laws applicable to us, may be deemed to have anti-takeover effects and may delay, prevent or make more difficult unsolicited tender offers or takeover attempts that a shareholder may consider to be in his or her best interests, including those attempts that might result in a premium over the market price for the shares held by shareholders. These provisions may also have the effect of making it more difficult for third parties to cause the replacement of our current management.

Authorized but Unissued Shares. The corporate laws and regulations applicable to us enable our board of directors to issue, from time to time and at its discretion, but subject to the rules of any applicable securities exchange, any authorized but unissued shares of our common or preferred stock. Any such issuance of shares could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The ability of our board of directors to issue authorized but unissued shares of our common or preferred stock at its sole discretion may enable our board to sell shares to individuals or groups who the board perceives as friendly with management, which may make more difficult unsolicited attempts to obtain control of our organization. In addition, the ability of our board of directors to issue authorized but unissued shares of our capital stock at its sole discretion could deprive the shareholders of opportunities to sell their shares of common stock or preferred stock for prices higher than prevailing market prices.

Preferred Stock. Our certificate of formation contain provisions that permit our board of directors to issue, without any further vote or action by the shareholders, shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting rights (if any) of the shares of the series, and the powers, preferences and relative, participation, optional and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of such series.

Board Structure and Vacancies. Our certificate of formation provides that our board of directors is divided into three classes serving staggered three year terms. In addition, our certificate of formation provides that any vacancy on the board of directors, including up to two newly created directorships, may be filled by a majority of the board of directors then in officer, even if less than a quorum. Our certificate of formation also provides that directors may be removed from office only for cause and only by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of stock, with all classes and series of shares entitled to vote generally in the election of directors voting together as a single class.

No Cumulative Voting. The TBOC does not permit cumulative voting in the election of directors, unless expressly provided in a corporation’s certificate of formation, and our certificate of formation does not provide for such authority.

Special Meetings of Shareholders. For a special shareholders’ meeting to be called by one or more shareholder(s), our bylaws require the request of holders of at least 50% of the outstanding shares entitled to vote at the meeting to call a special shareholders’ meeting.

Advance Notice Procedures for Director Nominations and Shareholder Proposals. Our bylaws establish an advance notice procedure with regard to business to be brought before an annual or special meeting of shareholders and with regard to the nomination of candidates for election as directors, other than by or at the direction of the board of directors. Although this procedure does not give our board of directors any power to approve or disapprove shareholder nominations for the election of directors or proposals for action, it may have the effect of precluding a contest for the election of directors or the consideration of shareholder proposals if the established procedure is not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its proposal without regard to whether consideration of the nominees or proposals might be harmful or beneficial to our shareholders and us.

Amending our Bylaws. Our board of directors may alter, amend or repeal our bylaws, or adopt new bylaws, without shareholder approval.

Shareholder Actions. Our certificate of formation prohibits shareholder action by less than unanimous written consent, thereby requiring virtually all actions to be taken at a meeting of the shareholders.

Exclusive Forum. Our certificate of formation provides that, subject to certain exceptions, the state courts located in Titus County, Texas shall be the sole and exclusive forum for certain shareholder litigation matters. Although we believe this provision benefits us by providing increased consistency in the application of Texas law in the types of lawsuits to which it applies and in limiting our litigation costs, the provision may have the effect of discouraging lawsuits against our directors and officers and may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us. However, it is possible that a court could rule that this provision is unenforceable or inapplicable to a particular dispute.

Notice and Approval Requirements. Federal banking laws also impose notice, approval and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or “indirect” control of an FDIC-insured depository institution. These laws include the Bank Holding Company Act of 1956 and the Change in Bank Control Act.

The overall effect of these provisions may be to deter a future offer or other merger or acquisition proposals that a majority of our shareholders might view to be in their best interests as the offer might include a substantial premium over the market price of our common stock at that time. In addition, these provisions may have the effect of assisting our board of directors and our management in retaining their respective positions and placing them in a better position to resist changes that the shareholders may want to make if dissatisfied with the conduct of our business.

Indemnification

Our certificate of formation provides that our directors and officers will be indemnified by us to the fullest extent permitted by the TBOC, against any and all expenses, liabilities or other matters while acting in his or her capacity as a director or officer. We have also agreed to advance expenses incurred by any such director or officer in connection with threatened, pending or completed proceeding to the fullest extent permitted by the TBOC, subject to certain conditions. To the extent that indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and

controlling persons, we have been advised that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Limitation of Liability

Our certificate of formation also limits the personal liability of our directors and officers in actions brought on our behalf or on behalf of our shareholders for monetary damages as a result of a director’s acts or omissions while acting in a capacity as a director or officer, with certain exceptions. Our certificate of formation does not eliminate or limit our right or the right of our shareholders to seek injunctive or other equitable relief not involving monetary damages.

Transfer Agent and Registrar

Computershare Trust Company, N.A. serves as our transfer agent and registrar.

EX-21.1

EXHIBIT 21.1

Subsidiaries of Guaranty Bancshares, Inc.
Name	Jurisdiction of Organization
Guaranty Bank & Trust, N.A.	United States
Guaranty (TX) Capital Trust II	Delaware
Guaranty (TX) Capital Trust III	Delaware
DCB Financial Trust I	Delaware
Subsidiaries of Guaranty Bank & Trust, N.A.
Name	Jurisdiction of Organization
Guaranty Company, Inc.	Texas
GB Com, Inc.	Texas
2800 South Texas Avenue, LLC	Texas
Pin Oak Realty Holdings, Inc.	Texas
Guaranty Bank & Trust Political Action Committee	Texas
White Oak Aviation, LLC	Texas
Subsidiaries of Pin Oak Realty Holdings, Inc.
Name	Jurisdiction of Organization
Pin Oak Energy Holdings, Inc.	Texas

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-228764) and Form S-8 (File No. 333-217801) of Guaranty Bancshares, Inc. of our report datedMarch 13, 2020, relating to the consolidated financial statements appearing in this Annual Report on Form 10-K of Guaranty Bancshares, Inc. for the year endedDecember 31, 2019.

/s/ WHITLEY PENN LLP

Dallas, Texas

March 13, 2020

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Tyson T. Abston, certify that:

1. I have reviewed this Annual Report on Form 10-K of Guaranty Bancshares, Inc. for the year endedDecember 31, 2019;

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: March 13, 2020

/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 Annual Report on Form 10-K of Guaranty Bancshares, Inc. for the year endedDecember 31, 2019;

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: March 13, 2020

/s/ Clifton A. Payne

Chief Financial Officer & Director

Clifton A. Payne

EX-32.1

EXHIBIT 32.1

CERTIFICATION

In connection with the Annual Report on Form 10-K of Guaranty Bancshares, Inc. (the “Company”) for the year endedDecember 31, 2019(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:	March 13, 2020

EX-32.2

EXHIBIT 32.2

CERTIFICATION

In connection with the Annual Report on Form 10-K of Guaranty Bancshares, Inc. (the “Company”) for the year ended December 31, 2019 (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:	March 13, 2020

XML

LEASES - Additional Information (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Operating leases, remaining lease term	10 years
Operating leases, option to extend	7 years
Operating lease right-of-use assets	$ 11,554
Operating lease right-of-use liabilities	11,700
Occupancy Expenses [Member]
Operating leases, rental expense	$ 1,881
Minimum
Operating leases, remaining lease term	1 year
Maximum
Operating leases, remaining lease term	15 years

XML

MARKETABLE SECURITIES (Tables)

12 Months Ended

Dec. 31, 2019

Investments Debt And Equity Securities [Abstract]

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

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at December 31, 2019 and 2018 and the corresponding amounts of gross unrealized gains and losses:

December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	19,667	$	592	$	—	$	20,259
Municipal securities		16,780		576		8		17,348
Mortgage-backed securities		83,967		550		335		84,182
Collateralized mortgage obligations		89,798		1,146		17		90,927
Total available for sale	$	210,212	$	2,864	$	360	$	212,716
Held to maturity:
Municipal securities	$	138,416	$	4,710	$	3	$	143,123
Mortgage-backed securities		14,365		198		13		14,550
Collateralized mortgage obligations		2,677		110		—		2,787
Total held to maturity	$	155,458	$	5,018	$	16	$	160,460

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	19,743	$	—	$	789	$	18,954
Municipal securities		15,778		75		260		15,593
Mortgage-backed securities		93,083		52		3,676		89,459
Collateralized mortgage obligations		111,341		—		2,372		108,969
Total available for sale	$	239,945	$	127	$	7,097	$	232,975
Held to maturity:
Municipal securities	$	141,942	$	1,156	$	1,094	$	142,004
Mortgage-backed securities		17,163		54		500		16,717
Collateralized mortgage obligations		4,059		48		28		4,079
Total held to maturity	$	163,164	$	1,258	$	1,622	$	162,800

Schedule of Securities with Gross Unrealized Losses

The following table summarizes securities with unrealized losses at December 31, 2019 and 2018, aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2019	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	—		$	—	$	—		$	—	$	—		$	—
Municipal securities		(8	)		1,138		—			—		(8	)		1,138
Mortgage-backed securities		(25	)		19,421		(310	)		42,116		(335	)		61,537
Collateralized mortgage obligations		—			—		(17	)		2,594		(17	)		2,594
Total available for sale	$	(33	)	$	20,559	$	(327	)	$	44,710	$	(360	)	$	65,269
Held to maturity:
Municipal securities	$	(1	)	$	1,313	$	(2	)	$	759	$	(3	)	$	2,072
Mortgage-backed securities		—			—		(13	)		7,032		(13	)		7,032
Collateralized mortgage obligations		—			—		—			—		—			—
Total held to maturity	$	(1	)	$	1,313	$	(15	)	$	7,791	$	(16	)	$	9,104

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2018	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(453	)	$	11,236	$	(336	)	$	7,718	$	(789	)	$	18,954
Municipal securities		(17	)		2,219		(243	)		7,407		(260	)		9,626
Mortgage-backed securities		(89	)		7,173		(3,587	)		76,717		(3,676	)		83,890
Collateralized mortgage obligations		(79	)		9,232		(2,293	)		99,390		(2,372	)		108,622
Total available for sale	$	(638	)	$	29,860	$	(6,459	)	$	191,232	$	(7,097	)	$	221,092
Held to maturity:
Municipal securities	$	(512	)	$	55,793	$	(582	)	$	26,511	$	(1,094	)	$	82,304
Mortgage-backed securities		(21	)		1,478		(479	)		12,317		(500	)		13,795
Collateralized mortgage obligations		(28	)		2,171		—			—		(28	)		2,171
Total held to maturity	$	(561	)	$	59,442	$	(1,061	)	$	38,828	$	(1,622	)	$	98,270

Schedule of Proceeds from Sales of Securities

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

	2019			2018			2017
Proceeds from sales	$	3,957		$	411,796		$	217,111
Gross gains		—			4			180
Gross losses		(22	)		(54	)		(13	)

Schedule of Sale of Held To Maturity Securities

Sales of securities held to maturity were as follows for the years ended December 31:

	2019		2018		2017
Proceeds from sales	$	—	$	—	$	3,298
Amortized cost		—		—		3,140
Gross realized gains		—		—		158
Tax expense related to securities gains/losses		—		—		(44	)

Investments Classified by Contractual Maturity Date

The contractual maturities at December 31, 2019 of available for sale and held to maturity securities at carrying value and estimated fair value are shown below. The Company invests in mortgage-backed securities and collateralized mortgage obligations that have expected maturities that differ from their contractual maturities. These differences arise because borrowers and/or issuers may have the right to call or prepay their obligation with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
December 31, 2019	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	1,015	$	1,019	$	2,189	$	2,200
Due after one year through five years		13,407		13,772		30,221		31,179
Due after five years through ten years		13,324		13,924		32,771		34,078
Due after ten years		8,701		8,892		73,235		75,666
Mortgage-backed securities		83,967		84,182		14,365		14,550
Collateralized mortgage obligations		89,798		90,927		2,677		2,787
Total Securities	$	210,212	$	212,716	$	155,458	$	160,460

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INCOME TAXES - Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Federal statutory income tax at 21% for 2019 and 2018, and 35% for 2017	$ 6,732	$ 5,291	$ 7,937
Tax exempt interest income	(1,027)	(968)	(1,560)
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate	0	(6)	1,695
Earnings of bank owned life insurance	(192)	(113)	(161)
Nondeductible expenses	462	566	577
Other	(197)	(171)	(250)
Total	$ 5,778	$ 4,599	$ 8,238

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RELATED PARTIES

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

RELATED PARTIES

NOTE 22 - RELATED PARTIES

As more fully described in Note 4, Note 8 and Note 10, the company has entered into loans, deposits and debenture transactions with related parties. Management believes the transactions entered into with related parties are in the ordinary course of business and are on terms similar to transitions with unaffiliated parties.

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PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2019

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

NOTE 26 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Guaranty Bancshares, Inc. follows:

	2019		2018
ASSETS
Cash and cash equivalents	$	7,264	$	4,111
Investment in banking subsidiaries		268,237		255,637
Other assets		469		384
Total assets	$	275,970	$	260,132
LIABILITIES AND EQUITY
Debt	$	11,563	$	12,810
Accrued expenses and other liabilities		2,856		2,739
Shareholders’ equity		261,551		244,583
Total liabilities and shareholders’ equity	$	275,970	$	260,132

	2019		2018		2017
Interest income	$	15	$	13	$	11
Dividends from Guaranty Bank & Trust		23,000		10,000		—
		23,015		10,013		11
Expenses
Interest expense		653		687		1,024
Other expenses		1,819		2,590		1,682
		2,472		3,277		2,706
Income (loss) before income tax and equity in undistributed income of subsidiary		20,543		6,736		(2,695	)
Income tax benefit		639		482		354
Income (loss) before equity in undistributed earnings of subsidiary		21,182		7,218		(2,341	)
Equity in undistributed earnings of subsidiary		5,097		13,378		16,780
Net earnings	$	26,279	$	20,596	$	14,439
Comprehensive income	$	33,648	$	18,047	$	14,799

	2019			2018			2017
Cash flows from operating activities
Net earnings	$	26,279		$	20,596		$	14,439
Adjustments:
Equity in undistributed subsidiary earnings		(5,097	)		(13,378	)		(16,780	)
Stock based compensation		663			592			355
Change in other assets		85			127			1,270
Change in other liabilities		503			557			1,589
Net cash provided by operating activities		22,433			8,494			873
Cash flows from investing activities
Cash paid in connection with acquisitions		—			(6,423	)		—
Investment in Guaranty Bank & Trust		—			—			(15,000	)
Net cash used in investing activities		—			(6,423	)		(15,000	)
Cash flows from financing activities
Proceeds of borrowings		—			—			2,000
Repayments of borrowings		(2,000	)		(1,000	)		(25,786	)
Sale of common stock		—			—			55,755
Purchase of treasury stock		(10,140	)		(4,265	)		—
Exercise of stock options		925			327			84
Dividends paid		(8,065	)		(7,031	)		(5,562	)
Net cash (used in) provided by financing activities		(19,280	)		(11,969	)		26,491
Net change in cash and cash equivalents		3,153			(9,898	)		12,364
Beginning cash and cash equivalents		4,111			14,009			1,645
Ending cash and cash equivalents	$	7,264		$	4,111		$	14,009

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EARNINGS PER SHARE - Schedule of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Numerator:
Net earnings (basic)	$ 26,279	$ 20,596	$ 14,439
Net earnings (diluted)	$ 26,279	$ 20,596	$ 14,439
Denominator:
Weighted-average shares outstanding (basic) (in shares)	11,638,897	11,562,826	10,230,840
Effect of dilutive securities:
Common stock equivalent shares from stock options (in shares)	66,202	90,940	82,529
Weighted-average shares outstanding (diluted) (in shares)	11,705,099	11,653,766	10,313,369
Net earnings per share
Basic (in USD per share)	$ 2.26	$ 1.78	$ 1.41
Diluted (in USD per share)	$ 2.25	$ 1.77	$ 1.40

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FAIR VALUE - Schedule of Quantitative Information About Nonrecurring Level 3 Fair Value Measurements (Details) $ in Thousands	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Assets at fair value on a nonrecurring basis:
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans	$ 20,028	$ 10,863
Other real estate owned	603	751
Assets at fair value on a nonrecurring basis: | Significant Other Unobservable Inputs (Level 3)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans	20,028	10,863
Other real estate owned	603	751
Cost to Sell | Impaired loans | Fair value of collateral- sales comparison approach | Assets at fair value on a nonrecurring basis: | Significant Other Unobservable Inputs (Level 3)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans	20,028	10,863
Cost to Sell | Other real estate owned | Appraisal value of collateral | 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	$ 603	$ 751
Minimum | Cost to Sell | Other real estate owned | Appraisal value of collateral
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned, input (percent)	0.10	0.10
Minimum | Cost to Sell | Real Estate | Impaired loans | Fair value of collateral- sales comparison approach
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans, input (percent)	0.10	0.10
Minimum | Cost to Sell | Equipment | Impaired loans | Fair value of collateral- sales comparison approach
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans, input (percent)	0.10	0.10
Maximum | Cost to Sell | Other real estate owned | Appraisal value of collateral
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned, input (percent)	0.20	0.20
Maximum | Cost to Sell | Real Estate | Impaired loans | Fair value of collateral- sales comparison approach
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans, input (percent)	0.20	0.20
Maximum | Cost to Sell | Equipment | Impaired loans | Fair value of collateral- sales comparison approach
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans, input (percent)	0.20	0.20
Weighted Average | Cost to Sell | Other real estate owned | Appraisal value of collateral
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned, input (percent)	0.16	0.16
Weighted Average | Cost to Sell | Real Estate | Impaired loans | Fair value of collateral- sales comparison approach
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans, input (percent)	0.16	0.16
Weighted Average | Cost to Sell | Equipment | Impaired loans | Fair value of collateral- sales comparison approach
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Impaired loans, input (percent)	0.12	0.19

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BORROWED MONEY

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

BORROWED MONEY

NOTE 9 - BORROWED MONEY

Federal Home Loan Bank (FHLB) advances, as of December 31, 2019, were as follows:

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

Year	Current Weighted Average Rate			Principal Due
2020		1.67	%	$	46,000
2021		1.87	%		1,500
2022		1.99	%		1,500
2023		—			—
2024		1.76	%		6,000
					55,000

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

Year	Current Weighted Average Rate			Principal Due
2021		1.38	%		118
				$	55,118

The Company has a $25,000 revolving line of credit with a correspondent bank that bears interest at the prime rate plus 0.50%, with quarterly interest payments, and matures in March 2020.  Under the terms of the line of credit, the Company agreed not to pledge or grant a lien or security interest in the stock of the Bank or in any other assets without prior consent of the lender.  As of December 31, 2019, there was no outstanding balance on the line of credit.  To be in compliance with the loan covenants, the Bank is required to maintain no less than a 10% total risk-based capital ratio, must maintain no less than $85,000 in tangible net worth, the ratio of non-performing assets to equity plus allowance for loan losses must not exceed 15%, the cash flow coverage must be greater than 1.25 times, the ratio of other additional debt to total assets must not exceed 15%, and the Company is limited to acquiring additional debt of no more than $500 without prior approval. The Company believes that it is in compliance with all loan covenants.

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2019

Property Plant And Equipment [Abstract]

PREMISES AND EQUIPMENT

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment balances, by type, were as follows:

	December 31, 2019		December 31, 2018
Land	$	10,944	$	10,924
Building and improvements		54,809		52,623
Furniture, fixtures and equipment		17,960		15,675
Automobiles		495		293
		84,208		79,515
Less: accumulated depreciation		30,777		27,288
	$	53,431	$	52,227

Depreciation expense on premises and equipment totaled $3,886, $3,400 and $3,162 for the years ended December 31, 2019, 2018 and 2017, respectively and is included in occupancy expenses on the consolidated statements of earnings.

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CORE DEPOSIT INTANGIBLES - Schedule of Future Amortization Expense (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
2020	$ 853
2021	687
2022	453
2023	441
2024	424
Thereafter	995
Total	$ 3,853	$ 4,706	$ 2,724

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Summary of Credit Exposure (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable Recorded Investment [Line Items]
Total loans	$ 1,706,395	$ 1,659,535	$ 1,359,544
Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	1,682,413	1,642,415
Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	3,658	6,641
Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	20,324	10,479
Commercial and industrial
Financing Receivable Recorded Investment [Line Items]
Total loans	279,583	261,779	197,508
Commercial and industrial | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	279,217	260,863
Commercial and industrial | Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	153	224
Commercial and industrial | Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	213	692
Construction and development
Financing Receivable Recorded Investment [Line Items]
Total loans	280,498	237,503	196,774
Construction and development | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	278,679	236,253
Construction and development | Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	600
Construction and development | Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	1,219	1,250
Commercial real estate
Financing Receivable Recorded Investment [Line Items]
Total loans	567,360	582,519	418,137
Commercial real estate | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	548,662	569,648
Commercial real estate | Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	1,071	5,691
Commercial real estate | Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	17,627	7,180
Farmland
Financing Receivable Recorded Investment [Line Items]
Total loans	57,476	67,845	59,023
Farmland | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	57,152	67,541
Farmland | Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	91	49
Farmland | Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	233	255
1-4 family residential
Financing Receivable Recorded Investment [Line Items]
Total loans	412,166	393,067	374,371
1-4 family residential | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	409,896	391,956
1-4 family residential | Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	1,425	514
1-4 family residential | Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	845	597
Multi-family residential
Financing Receivable Recorded Investment [Line Items]
Total loans	37,379	38,386	36,574
Multi-family residential | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	37,379	38,386
Consumer and Overdrafts
Financing Receivable Recorded Investment [Line Items]
Total loans	53,574	55,159
Consumer and Overdrafts | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	53,327	55,055
Consumer and Overdrafts | Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	192	48
Consumer and Overdrafts | Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	55	56
Agricultural
Financing Receivable Recorded Investment [Line Items]
Total loans	18,359	23,277	$ 25,596
Agricultural | Pass
Financing Receivable Recorded Investment [Line Items]
Total loans	18,101	22,713
Agricultural | Special Mention
Financing Receivable Recorded Investment [Line Items]
Total loans	126	115
Agricultural | Substandard
Financing Receivable Recorded Investment [Line Items]
Total loans	$ 132	$ 449

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Summary of Impaired Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Unpaid Principal Balance [Abstract]
Unpaid Principal Balance, With no related allowance recorded	$ 8,673	$ 8,356
Unpaid Principal Balance, With related allowance recorded	13,004	3,000
Unpaid Principal Balance	21,677	11,356
Recorded Investment [Abstract]
Recorded Investment, With no related allowance recorded	8,673	8,356
Recorded Investment, With related allowance recorded	13,004	3,000
Recorded Investment, With related allowance recorded	21,677	11,356
Related Allowance [Abstract]
Related Allowance	1,649	493
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded	7,803	8,202
Average Recorded Investment, With related allowance recorded	9,385	1,348
Average Recorded Investment, With related allowance recorded	17,188	9,550
Commercial and industrial
Unpaid Principal Balance [Abstract]
Unpaid Principal Balance, With no related allowance recorded	289	837
Unpaid Principal Balance, With related allowance recorded		185
Recorded Investment [Abstract]
Recorded Investment, With no related allowance recorded	289	837
Recorded Investment, With related allowance recorded		185
Related Allowance [Abstract]
Related Allowance		64
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded	312	842
Average Recorded Investment, With related allowance recorded	61	300
Construction and development
Unpaid Principal Balance [Abstract]
Unpaid Principal Balance, With no related allowance recorded	1,212	720
Unpaid Principal Balance, With related allowance recorded		530
Recorded Investment [Abstract]
Recorded Investment, With no related allowance recorded	1,212	720
Recorded Investment, With related allowance recorded		530
Related Allowance [Abstract]
Related Allowance		4
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded	1,259	518
Average Recorded Investment, With related allowance recorded		44
Commercial real estate
Unpaid Principal Balance [Abstract]
Unpaid Principal Balance, With no related allowance recorded	4,612	5,168
Unpaid Principal Balance, With related allowance recorded	12,871	1,985
Recorded Investment [Abstract]
Recorded Investment, With no related allowance recorded	4,612	5,168
Recorded Investment, With related allowance recorded	12,871	1,985
Related Allowance [Abstract]
Related Allowance	1,587	341
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded	4,244	5,138
Average Recorded Investment, With related allowance recorded	9,111	677
Farmland
Unpaid Principal Balance [Abstract]
Unpaid Principal Balance, With related allowance recorded	133	140
Recorded Investment [Abstract]
Recorded Investment, With related allowance recorded	133	140
Related Allowance [Abstract]
Related Allowance	62	78
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded		62
Average Recorded Investment, With related allowance recorded	135	147
1-4 family residential
Unpaid Principal Balance [Abstract]
Unpaid Principal Balance, With no related allowance recorded	2,498	1,223
Unpaid Principal Balance, With related allowance recorded		160
Recorded Investment [Abstract]
Recorded Investment, With no related allowance recorded	2,498	1,223
Recorded Investment, With related allowance recorded		160
Related Allowance [Abstract]
Related Allowance		6
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded	1,798	1,132
Average Recorded Investment, With related allowance recorded	78	128
Multi-family residential
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded		54
Agricultural
Unpaid Principal Balance [Abstract]
Unpaid Principal Balance, With no related allowance recorded	62	408
Recorded Investment [Abstract]
Recorded Investment, With no related allowance recorded	62	408
Average Recorded Investment [Abstract]
Average Recorded Investment, With no related allowance recorded	$ 190	456
Average Recorded Investment, With related allowance recorded		$ 52

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BORROWED MONEY - Summary of Fixed-Rate Advances (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
Federal Home Loan Bank advances	$ 55,118	$ 115,136
Fixed-rate Advances, With Monthly Interest Payments
Federal Home Loan Bank, Advances, Maturities Summary, Average Interest Rate of Amounts Due [Abstract]
2020 (percent)	1.67%
2021 (percent)	1.87%
2022 (percent)	1.99%
2024 (percent)	1.76%
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
2020	$ 46,000
2021	1,500
2022	1,500
2024	6,000
Federal Home Loan Bank advances	$ 55,000
Fixed-rate Advances, With Monthly Principal and Interest Payments
Federal Home Loan Bank, Advances, Maturities Summary, Average Interest Rate of Amounts Due [Abstract]
2021 (percent)	1.38%
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
2021	$ 118
Federal Home Loan Bank advances	$ 55,118

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Schedule of Accumulated Other Comprehensive Loss

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ending December 31, 2019:

	Losses on Cash Flow Hedges			Unrealized (Losses) and Gains on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(393	)	$	(8,705	)	$	(64	)	$	(9,162	)
Other comprehensive (loss) income before reclassification		(133	)		7,467			18			7,352
Amounts reclassified from accumulated other comprehensive loss		—			17			—			17
Net current period other comprehensive (loss) income		(133	)		7,484			18			7,369
Ending balance	$	(526	)	$	(1,221	)	$	(46	)	$	(1,793	)

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ended December 31, 2018:

	(Losses) and Gains on Cash Flow Hedges			Unrealized Losses on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(571	)	$	(5,460	)	$	(96	)	$	(6,127	)
Other comprehensive income (loss) before reclassification		178			(2,799	)		32			(2,589	)
Amounts reclassified from accumulated other comprehensive loss		—			40			—			40
Net current period other comprehensive income (loss)		178			(2,759	)		32			(2,549	)
Reclassification of certain tax effects from accumulated other comprehensive loss		—			(486	)		—			(486	)
Ending balance	$	(393	)	$	(8,705	)	$	(64	)	$	(9,162	)

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ended December 31, 2017:

	(Losses) and Gains on Cash Flow Hedges			Unrealized Losses on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(695	)	$	(5,319	)	$	(473	)	$	(6,487	)
Other comprehensive income (loss) before reclassification		124			(33	)		377			468
Amounts reclassified from accumulated other comprehensive loss		—			(108	)		—			(108	)
Net current period other comprehensive income (loss)		124			(141	)		377			360
Ending balance	$	(571	)	$	(5,460	)	$	(96	)	$	(6,127	)

Reclassification out of Accumulated Other Comprehensive Loss

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2019:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized loss on available for sale securities	$	22		Net realized loss on sale of securities transactions
		(5	)	Tax benefit
	$	17		Net of Tax

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2018:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized loss on available for sale securities	$	50		Net realized loss on sale of securities transactions
		(10	)	Tax effect
	$	40		Net of Tax

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2017:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized gain on available for sale securities	$	(167	)	Net realized gain on sale of securities transactions
		59		Tax effect
	$	(108	)	Net of Tax

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Schedule of Commitments and Letters of Credit Outstanding

Commitments and letters of credit outstanding were as follows as of December 31:

	Contract or Notional Amount
	2019		2018
Commitments to extend credit	$	440,685	$	342,523
Letters of credit		9,054		11,675

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CONSOLIDATED STATEMENTS OF EARNINGS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Interest income
Loans, including fees	$ 90,980	$ 77,170	$ 61,014
Securities
Taxable	5,916	6,317	5,811
Nontaxable	3,830	3,770	3,679
Federal funds sold and interest-bearing deposits	1,835	1,201	1,278
Total interest income	102,561	88,458	71,782
Interest expense
Deposits	21,611	16,941	10,604
FHLB advances and federal funds purchased	1,389	1,865	472
Subordinated debentures	648	687	724
Other borrowed money	43	49	352
Total interest expense	23,691	19,542	12,152
Net interest income	78,870	68,916	59,630
Provision for loan losses	1,250	2,250	2,850
Net interest income after provision for loan losses	77,620	66,666	56,780
Noninterest income
Service charges	3,715	3,600	3,746
Net realized (loss) gain on securities transactions	(22)	(50)	167
Net realized gain on sale of loans	2,850	2,308	1,981
Other income	10,419	9,445	8,385
Total noninterest income	16,962	15,303	14,279
Noninterest expense
Employee compensation and benefits	35,907	32,122	27,078
Occupancy expenses	9,834	8,398	7,400
Other expenses	16,784	16,254	13,904
Total noninterest expense	62,525	56,774	48,382
Income before income taxes	32,057	25,195	22,677
Income tax provision	5,778	4,599	8,238
Net earnings	$ 26,279	$ 20,596	$ 14,439
Basic earnings per share (in USD per share)	$ 2.26	$ 1.78	$ 1.41
Diluted earnings per share (in USD per share)	$ 2.25	$ 1.77	$ 1.40

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule of Estimated Useful Lives (Details) - Maximum	12 Months Ended
	Dec. 31, 2019
Bank Buildings
Property, Plant and Equipment [Line Items]
Estimated useful life	40 years
Equipment
Property, Plant and Equipment [Line Items]
Estimated useful life	10 years
Furniture and Fixtures
Property, Plant and Equipment [Line Items]
Estimated useful life	7 years
Software
Property, Plant and Equipment [Line Items]
Estimated useful life	5 years
Automobiles
Property, Plant and Equipment [Line Items]
Estimated useful life	4 years

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities
Net earnings	$ 26,279	$ 20,596	$ 14,439
Adjustments to reconcile net earnings to net cash provided from operating activities:
Depreciation	3,886	3,400	3,162
Amortization	1,378	1,228	1,033
Premium amortization, net of discount accretion	3,820	4,210	4,576
Net realized loss (gain) on securities transactions	22	50	(167)
Gain on sale of loans	(2,850)	(2,308)	(1,981)
Gain on sale of branch operations	0	(830)	0
Provision for loan losses	1,250	2,250	2,850
Origination of loans held for sale	(76,011)	(70,841)	(64,817)
Proceeds from loans held for sale	78,288	73,250	67,465
Write-down of other real estate and repossessed assets	343	407	12
Net gain (loss) on sale of premises, equipment, other real estate owned and other assets	78	(133)	(906)
Stock based compensation	663	592	355
Net change in accrued interest receivable and other assets	(17,232)	(5,887)	2,413
Net change in accrued interest payable and other liabilities	12,132	2,230	1,235
Net cash provided by operating activities	32,046	28,214	29,669
Securities available for sale:
Purchases	(706,238)	(429,762)	(517,155)
Proceeds from sales	3,957	411,796	213,813
Proceeds from maturities and principal repayments	730,272	27,093	225,516
Securities held to maturity:
Proceeds from sales	0	0	3,298
Proceeds from maturities and principal repayments	5,646	9,331	9,516
Cash paid in connection with acquisitions	0	(6,423)	0
Net originations of loans	(46,940)	(146,531)	(118,754)
Net purchases of premises and equipment	(5,090)	(2,833)	(2,320)
Net proceeds from sale of premises, equipment, other real estate owned and other assets	653	3,668	2,279
Net cash used in investing activities	(17,740)	(108,734)	(183,807)
Cash flows from financing activities
Net change in deposits	85,324	13,739	99,529
Net change in securities sold under agreements to repurchase	(1,128)	(651)	2,020
Proceeds from FHLB advances	260,500	391,000	60,000
Repayment of FHLB advances	(320,518)	(331,517)	(70,017)
Proceeds from other debt	0	0	2,000
Repayment of other debt	0	0	(20,286)
Repayments of debentures	(2,000)	(1,000)	(5,500)
Purchase of treasury stock	(10,140)	(4,265)	0
Exercise of stock options	925	327	84
Sale of common stock	0	0	55,755
Cash dividends	(8,065)	(7,031)	(5,562)
Net cash provided by financing activities	4,898	60,602	118,023
Net change in cash and cash equivalents	19,204	(19,918)	(36,115)
Cash and cash equivalents at beginning of period	71,510	91,428	127,543
Cash and cash equivalents at end of period	90,714	71,510	91,428
Supplemental disclosures of cash flow information
Interest paid	23,700	18,813	12,119
Income taxes paid	5,536	5,218	6,660
Supplemental schedule of noncash investing and financing activities
Cash dividends accrued	2,076	2,013	1,548
Transfer loans to other real estate owned and repossessed assets	340	1,304	1,775
Common stock issued in acquisitions	0	29,568	0
Terminated KSOP put option	0	0	(34,300)
Net change in fair value of KSOP shares	0	0	2,639
Acquired banks
Securities held to maturity:
Cash received from acquired banks	$ 0	$ 24,927	$ 0

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STOCK OPTIONS - Summary of Restricted Stock Awards and Units Activity (Details) - Restricted Stock Awards And Units [Member] - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Number of Shares
Outstanding at beginning of year (in shares)	959	0
Vested (in shares)	480	959
Released (in shares)	(1,439)	0
Forfeited (in shares)	0	0
Balance (in shares)	0	959
Outstanding at beginning of year	$ 31.57	$ 0
Vested	31.57	31.57
Released	31.57	0
Forfeited	0	0
Balance	$ 0	$ 31.57

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MARKETABLE SECURITIES - Contractual Maturities of Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Amortized Cost
Due within one year	$ 1,015
Due after one year through five years	13,407
Due after five years through ten years	13,324
Due after ten years	8,701
Available-for-sale debt securities, amortized cost basis	210,212	$ 239,945
Estimated Fair Value
Due within one year	1,019
Due after one year through five years	13,772
Due after five years through ten years	13,924
Due after ten years	8,892
Available-for-sale debt securities, estimated fair value	212,716	232,975
Amortized Cost
Due within one year	2,189
Due after one year through five years	30,221
Due after five years through ten years	32,771
Due after ten years	73,235
Amortized Cost	155,458	163,164
Estimated Fair Value
Due within one year	2,200
Due after one year through five years	31,179
Due after five years through ten years	34,078
Due after ten years	75,666
Held-to-maturity securities, estimated fair value	160,460	162,800
Mortgage-backed securities
Amortized Cost
Available-for-sale securities without single maturity date	83,967
Available-for-sale debt securities, amortized cost basis	83,967	93,083
Estimated Fair Value
Available-for-sale securities without single maturity date	84,182
Available-for-sale debt securities, estimated fair value	84,182	89,459
Amortized Cost
Held-to-maturity securities, without single maturity date	14,365
Amortized Cost	14,365	17,163
Estimated Fair Value
Held-to-maturity securities, without single maturity date	14,550
Held-to-maturity securities, estimated fair value	14,550	16,717
Collateralized mortgage obligations
Amortized Cost
Available-for-sale securities without single maturity date	89,798
Available-for-sale debt securities, amortized cost basis	89,798	111,341
Estimated Fair Value
Available-for-sale securities without single maturity date	90,927
Available-for-sale debt securities, estimated fair value	90,927	108,969
Amortized Cost
Held-to-maturity securities, without single maturity date	2,677
Amortized Cost	2,677	4,059
Estimated Fair Value
Held-to-maturity securities, without single maturity date	2,787
Held-to-maturity securities, estimated fair value	$ 2,787	$ 4,079

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MARKETABLE SECURITIES - Schedule of Amortized Cost and Fair Value of Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Available for sale:
Available-for-sale debt securities, amortized cost basis	$ 210,212	$ 239,945
Gross Unrealized Gain	2,864	127
Gross Unrealized Loss	360	7,097
Estimated Fair Value	212,716	232,975
Held to maturity:
Amortized Cost	155,458	163,164
Gross Unrealized Gains	5,018	1,258
Gross Unrealized Losses	16	1,622
Estimated Fair Value	160,460	162,800
Corporate bonds
Available for sale:
Available-for-sale debt securities, amortized cost basis	19,667	19,743
Gross Unrealized Gain	592	0
Gross Unrealized Loss	0	789
Estimated Fair Value	20,259	18,954
Mortgage-backed securities
Available for sale:
Available-for-sale debt securities, amortized cost basis	83,967	93,083
Gross Unrealized Gain	550	52
Gross Unrealized Loss	335	3,676
Estimated Fair Value	84,182	89,459
Held to maturity:
Amortized Cost	14,365	17,163
Gross Unrealized Gains	198	54
Gross Unrealized Losses	13	500
Estimated Fair Value	14,550	16,717
Collateralized mortgage obligations
Available for sale:
Available-for-sale debt securities, amortized cost basis	89,798	111,341
Gross Unrealized Gain	1,146	0
Gross Unrealized Loss	17	2,372
Estimated Fair Value	90,927	108,969
Held to maturity:
Amortized Cost	2,677	4,059
Gross Unrealized Gains	110	48
Gross Unrealized Losses	0	28
Estimated Fair Value	2,787	4,079
Municipal securities
Available for sale:
Available-for-sale debt securities, amortized cost basis	16,780	15,778
Gross Unrealized Gain	576	75
Gross Unrealized Loss	8	260
Estimated Fair Value	17,348	15,593
Held to maturity:
Amortized Cost	138,416	141,942
Gross Unrealized Gains	4,710	1,156
Gross Unrealized Losses	3	1,094
Estimated Fair Value	$ 143,123	$ 142,004

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STOCK OPTIONS - Narrative (Details) - USD ($) $ in Thousands		12 Months Ended
	Jun. 01, 2017	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost, nonvested options		$ 2,069
Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Contractual term	10 years
Unrecognized compensation cost, nonvested options, period for recognition		3 years 5 months 8 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)		1,000,000
2015 Equity Incentive Plan | Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Contractual term		10 years
Share-based compensation expense		$ 663	$ 592	$ 355
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

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Schedule of Provision for Income Taxes

The consolidated provision for income taxes were as follows as of December 31:

	2019			2018			2017
Current federal tax expense	$	6,097		$	5,288		$	5,803
Deferred federal tax (benefit) expense		(319	)		(683	)		740
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate		—			(6	)		1,695
Total	$	5,778		$	4,599		$	8,238

Schedule of Effective Income Tax Rate Reconciliation

The provision for federal income taxes differs from that computed by applying federal statutory rates to income before federal income tax expense, as indicated in the following analysis as of December 31:

	2019			2018			2017
Federal statutory income tax at 21% for 2019 and 2018, and 35% for 2017	$	6,732		$	5,291		$	7,937
Tax exempt interest income		(1,027	)		(968	)		(1,560	)
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate		—			(6	)		1,695
Earnings of bank owned life insurance		(192	)		(113	)		(161	)
Nondeductible expenses		462			566			577
Other		(197	)		(171	)		(250	)
Total	$	5,778		$	4,599		$	8,238

Schedule of Deferred Tax Assets and Liabilities

The components of the deferred tax assets (liabilities), in the accompanying consolidated balance sheets consisted of the following as of December 31:

	2019			2018
Deferred tax assets:
Allowance for loan losses	$	3,402		$	3,077
Deferred compensation		857			770
Unrealized loss on available for sale securities		—			1,464
Bonus accrual		399			328
Accretion of acquisition allowance		183			327
Other real estate owned		134			65
Other		420			484
Total deferred tax assets		5,395			6,515
Deferred tax liabilities:
Unrealized gain on available for sale securities		(526	)		—
Premises and equipment		(2,353	)		(2,334	)
Prepaid expenses		(270	)		(179	)
Deferred loan costs, net		(137	)		(118	)
Intangibles		(470	)		(590	)
Other		(101	)		(85	)
Total deferred tax liabilities		(3,857	)		(3,306	)
Net deferred tax asset	$	1,538		$	3,209

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PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2019

Property Plant And Equipment [Abstract]

Schedule of Estimated Useful Lives

The following table provides a summary of the estimated useful life of the different fixed asset classes as stated in the policy:

Bank Buildings	Up to 40 years
Equipment	to 10 years
Furniture and Fixtures	to 7 years
Software	to 5 years
Automobiles	to 4 years

Premises and equipment balances, by type, were as follows:

	December 31, 2019		December 31, 2018
Land	$	10,944	$	10,924
Building and improvements		54,809		52,623
Furniture, fixtures and equipment		17,960		15,675
Automobiles		495		293
		84,208		79,515
Less: accumulated depreciation		30,777		27,288
	$	53,431	$	52,227

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BORROWED MONEY (Tables)

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Schedule of Debt Maturities

Federal Home Loan Bank (FHLB) advances, as of December 31, 2019, were as follows:

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

Year	Current Weighted Average Rate			Principal Due
2020		1.67	%	$	46,000
2021		1.87	%		1,500
2022		1.99	%		1,500
2023		—			—
2024		1.76	%		6,000
					55,000

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

Year	Current Weighted Average Rate			Principal Due
2021		1.38	%		118
				$	55,118

Maturities of subordinated debentures based on scheduled repayments at December 31, 2019 are as follows (in thousands of dollars):

Year Ended December 31,	Amount
2020	$	500
2021		—
2022		—
2023		—
2024		—
Thereafter		10,310
	$	10,810

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DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 17 - 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 sheet 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 their 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 10. Management believes 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 is the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that are appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in this liability to other liabilities of the Company. To meet this objective, the Company utilizes interest rate swaps as an asset/liability management strategy to hedge the change in value of the cash flows due to changes in expected interest rate assumptions.

Interest rate swaps with notional amounts totaling $5,000 as of December 31, 2019 and 2018, were designated as cash flow hedges of the debentures and were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness has been included in net income.

Therefore, the aggregate fair value of the swaps is recorded in accrued interest and other liabilities within the consolidated balance sheets with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

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

December 31, 2019
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		6.25	$	314
$	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		2.83	$	212

December 31, 2018
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		7.25	$	220
$	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		3.83	$	173

Interest expense recorded on these swap transactions totaled $648, $687 and $724 during the years ended December 31, 2019, 2018 and 2017, respectively, and is reported as a component of interest expense on the debentures.  At December 31, 2019, the Company expected none of the unrealized losses to be reclassified as a reduction of interest expense during the remainder of 2020.

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EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2019

Compensation And Retirement Disclosure [Abstract]

EMPLOYEE BENEFITS

NOTE 13 - 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 years ended December 31, 2019, 2018 and 2017 totaled $1,270, $1,125 and $965, respectively.

Benefits under the KSOP generally are distributed to participants in the form of cash, although participants have the right to receive distributions in the form of shares of common stock.

As of December 31, 2019 and 2018, the number of shares held by the KSOP was 1,224,697 and 1,333,504, respectively.  There were no unallocated shares to plan participants as of December 31, 2019 and 2018.

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 $34,495 and $26,301 as of December 31, 2019 and 2018, respectively.

Expense related to these plans totaled $602, $502 and $447 for the years ended December 31, 2019, 2018 and 2017, respectively, and is included in employee compensation and benefits on the Company's consolidated statements of earnings. The recorded liability totaled approximately $4,081 and $3,667 as of December 31, 2019 and 2018, 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 the 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 our board of directors. The bonus expense under this plan for the years ended December 31, 2019, 2018 and 2017 totaled $3,265, $2,943 and $2,316, respectively and is included in employee compensation and benefits on the Company's consolidated statements of earnings.

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Narrative (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Debt Disclosure [Abstract]
Collateralized mortgage obligations	$ 11,100	$ 12,228

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

SUBORDINATED DEBENTURES

NOTE 10 - SUBORDINATED DEBENTURES

Subordinated debentures are made up of the following as of:

	December 31, 2019		December 31, 2018
Trust II Debentures	$	3,093	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Other debentures		500		2,500
	$	10,810	$	12,810

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 $1,000,000 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 can qualify as Tier I 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 I capital, net of goodwill, the full amount is includable in Tier I capital at December 31, 2019 and 2018. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier I 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 are 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 months LIBOR plus 3.35%, thereafter.

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 was 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 is equal to 100% of the principal amount if redeemed, plus accrued interest to the date of redemption.

DCB Debentures I

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 July 2015, the Company issued $4,000 in debentures, of which $3,000 were issued to directors and other related parties.  The $3,000 of debentures to related parties were repaid in May 2017 and a $500 par value debenture, which carried a 2.50% rate, matured and was repaid in July 2017.  The remaining $500 debenture had a rate of 4.00%, matured and was paid off in January 2019.

In December 2015, the Company issued $5,000 in debentures, of which $2,500 were issued to directors and other related parties.  In May 2017, $2,000 of the related party debentures were repaid with a portion of the proceeds of Guaranty’s initial public offering.  A further $1,000 of other debentures matured and were paid off in full in July of 2018 and another $1,000 and $500 of debentures matured and were paid off in full in July and December, respectively, of the current year. The remaining $500 of debentures were issued at par value of $500 with a rate of 5.00% and maturity date of July 1, 2020.  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.

Maturities of subordinated debentures based on scheduled repayments at December 31, 2019 are as follows (in thousands of dollars):

Year Ended December 31,	Amount
2020	$	500
2021		—
2022		—
2023		—
2024		—
Thereafter		10,310
	$	10,810

NOTE 21 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase are secured by collateralized mortgage obligations securities with a market value of $11,100 as of December 31, 2019 and collateralized mortgage obligations and agency securities with a market value of $12,228 as of December 31, 2018, respectively.

Securities sold under agreements to repurchase are financing arrangements that mature within two years. At maturity, the securities underlying the agreements are returned to the Company. Information concerning securities sold under agreements to repurchase is summarized as follows as of December 31:

	2019			2018
Average balance during the year	$	10,901		$	12,796
Average interest rate during the year		0.50	%		0.57	%
Maximum month-end balance during the year	$	11,542		$	14,365
Weighted average interest rate at year-end		0.31	%		0.44	%

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COMMITMENTS AND CONTINGENCIES - Narrative (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Other Commitments [Line Items]
FHLB letters of credit	$ 2,000,000
Letters of credit
Other Commitments [Line Items]
Potential guarantee obligation	$ 0	$ 0

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STOCK OPTIONS - Schedule of Nonvested Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Number of Shares
Outstanding at beginning of year (in shares)	331,560	334,400
Granted (in shares)	39,000	101,000
Vested (in shares)	(91,040)	(88,440)
Forfeited (in shares)	(28,400)	(15,400)
Balance (in shares)	251,120	331,560	334,400
Weighted-Average Exercise Price
Outstanding at beginning of year (in USD per share)	$ 27.74	$ 25.72
Granted (in USD per share)	29.89	32.29
Vested (in USD per share)	26.71	25.51
Forfeited (in USD per share)	33.00	30.14
Balance (in USD per share)	$ 28.18	$ 27.74	$ 25.72
Weighted-Average Remaining Contractual Life in Years
Outstanding	7 years 3 months 21 days	7 years 9 months 7 days	7 years 10 months 28 days
Granted	9 years 4 months 24 days	9 years 6 months 3 days
Vested	6 years 7 days	6 years 8 months 8 days
Forfeited	8 years 9 months 21 days	7 years 9 months 3 days
Aggregate Intrinsic Value
Outstanding	$ 975	$ 1,673
Granted	117	5
Vested	563	400
Forfeited	89	96
Outstanding	$ 1,188	$ 975	$ 1,673

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MARKETABLE SECURITIES - Sale of Securities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Sale of Marketable Securities [Abstract]
Proceeds from sales	$ 3,957	$ 411,796	$ 217,111
Gross gains	0	4	180
Gross losses	(22)	(54)	(13)
Debt Securities, Held-to-maturity, Sale, Excluding Other-than-temporary Impairment [Abstract]
Proceeds from sales	0	0	3,298
Amortized cost	0	0	3,140
Gross realized gains	0	0	158
Tax expense related to securities gains/losses	$ 0	$ 0	$ (44)

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ACQUISITIONS - Purchase Price Allocation (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Jun. 01, 2018	Dec. 31, 2017
Liabilities [Abstract]
Goodwill	$ 32,160	$ 32,160		$ 18,742
Westbound Bank
Assets [Abstract]
Cash and due from banks			$ 24,927
Investment securities available for sale			15,264
Loans, net of discount			154,687
Accrued interest receivable			651
Premises and equipment			8,625
Core deposit intangible			2,700
Other assets			9,205
Total assets acquired			216,059
Liabilities [Abstract]
Non-interest bearing deposits			40,595
Interest bearing deposits			140,826
Federal Home Loan Bank advances			10,500
Accrued interest and other liabilities			1,565
Total liabilities assumed			193,486
Net assets acquired			22,573
Total consideration paid			35,991
Goodwill			$ 13,418

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SUBORDINATED DEBENTURES - Maturity of Subordinated Debentures (Details) - Subordinated debentures $ in Thousands	Dec. 31, 2019 USD ($)
Long-term Debt, Fiscal Year Maturity [Abstract]
2020	$ 500
2021	0
2022	0
2023	0
2024	0
Thereafter	10,310
Long-term Debt	$ 10,810

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GOODWILL (Tables)

12 Months Ended

Dec. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

Changes in the carrying amount of goodwill in the accompanying consolidated balance sheets as of December 31 are summarized as follows:

	2019		2018
Beginning of year	$	32,160	$	18,742
Effect of acquisitions		—		13,418
End of year	$	32,160	$	32,160

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SUBORDINATED DEBENTURES (Tables)

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Schedule of Subordinated Debentures and Other Debentures

Subordinated debentures are made up of the following as of:

	December 31, 2019		December 31, 2018
Trust II Debentures	$	3,093	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Other debentures		500		2,500
	$	10,810	$	12,810

	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 Debt Maturities

Federal Home Loan Bank (FHLB) advances, as of December 31, 2019, were as follows:

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

Year	Current Weighted Average Rate			Principal Due
2020		1.67	%	$	46,000
2021		1.87	%		1,500
2022		1.99	%		1,500
2023		—			—
2024		1.76	%		6,000
					55,000

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

Year	Current Weighted Average Rate			Principal Due
2021		1.38	%		118
				$	55,118

Maturities of subordinated debentures based on scheduled repayments at December 31, 2019 are as follows (in thousands of dollars):

Year Ended December 31,	Amount
2020	$	500
2021		—
2022		—
2023		—
2024		—
Thereafter		10,310
	$	10,810

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NONINTEREST INCOME AND NONINTEREST EXPENSE (Tables)

12 Months Ended

Dec. 31, 2019

Other Income And Expenses [Abstract]

Schedule of Other Nonoperating Income and Expenses

Other operating income consisted of the following for the years ended December 31:

	2019		2018		2017
Fiduciary income	$	1,760	$	1,587	$	1,463
Bank-owned life insurance income		774		570		461
Merchant and debit card fees		4,264		3,642		3,119
Loan processing fee income		590		589		597
Other noninterest income		3,031		3,057		2,745
Total	$	10,419	$	9,445	$	8,385

Other operating expense consisted of the following for the years ended December 31:

	2019		2018		2017
Legal and professional fees	$	2,610	$	3,080	$	2,061
Software support fees		3,341		2,502		2,089
Amortization		1,378		1,228		1,033
Director and committee fees		873		1,029		1,064
Advertising and promotions		1,655		1,410		1,193
ATM and debit card expense		1,347		1,127		899
Office and computer supplies		470		416		426
Postage		302		310		301
Telecommunication expense		676		649		526
FDIC insurance assessment fees		173		625		671
Other real estate owned expenses and write-downs		59		157		128
Other		3,900		3,721		3,513
Total	$	16,784	$	16,254	$	13,904

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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) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Total capital to risk-weighted assets:
Actual, Amount	$ 253,793	$ 241,791
Actual, Ratio	13.29%	13.25%
Minimum Required for Capital Adequacy Purposes, Amount	$ 152,770	$ 146,020
Minimum Required for Capital Adequacy Purposes, Ratio	8.00%	8.00%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 200,510	$ 191,651
Minimum Required Under Basel III Fully Phased-In, Ratio	10.50%	10.50%
Tier 1 capital to risk-weighted assets:
Actual, Amount	$ 237,591	$ 227,140
Actual, Ratio	12.44%	12.44%
Minimum Required for Capital Adequacy Purposes, Amount	$ 114,577	$ 109,515
Minimum Required for Capital Adequacy Purposes, Ratio	6.00%	6.00%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 162,318	$ 155,146
Minimum Required Under Basel III Fully Phased-In, Ratio	8.50%	8.50%
Tier 1 capital to average assets:
Actual, Amount	$ 237,591	$ 227,140
Actual, Ratio	10.29%	10.16%
Minimum Required for Capital Adequacy Purposes, Amount	$ 92,318	$ 89,422
Minimum Required for Capital Adequacy Purposes, Ratio	4.00%	4.00%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 92,318	$ 89,422
Minimum Required Under Basel III Fully Phased-In, Ratio	4.00%	4.00%
Common equity tier 1 capital to risk-weighted assets:
Actual, Amount	$ 227,281	$ 216,830
Actual, Ratio	11.90%	11.88%
Minimum Required for Capital Adequacy Purposes, Amount	$ 85,933	$ 82,136
Minimum Required for Capital Adequacy Purposes, Ratio	4.50%	4.50%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 133,674	$ 127,768
Minimum Required Under Basel III Fully Phased-In, Ratio	7.00%	7.00%
Bank
Total capital to risk-weighted assets:
Actual, Amount	$ 249,643	$ 242,142
Actual, Ratio	13.07%	13.27%
Minimum Required for Capital Adequacy Purposes, Amount	$ 152,774	$ 146,015
Minimum Required for Capital Adequacy Purposes, Ratio	8.00%	8.00%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 200,516	$ 191,645
Minimum Required Under Basel III Fully Phased-In, Ratio	10.50%	10.50%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 190,968	$ 182,519
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00%	10.00%
Tier 1 capital to risk-weighted assets:
Actual, Amount	$ 233,441	$ 227,491
Actual, Ratio	12.22%	12.46%
Minimum Required for Capital Adequacy Purposes, Amount	$ 114,581	$ 109,511
Minimum Required for Capital Adequacy Purposes, Ratio	6.00%	6.00%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 162,322	$ 155,141
Minimum Required Under Basel III Fully Phased-In, Ratio	8.50%	8.50%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 152,774	$ 146,015
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	8.00%	8.00%
Tier 1 capital to average assets:
Actual, Amount	$ 233,441	$ 227,491
Actual, Ratio	10.11%	10.18%
Minimum Required for Capital Adequacy Purposes, Amount	$ 92,321	$ 89,414
Minimum Required for Capital Adequacy Purposes, Ratio	4.00%	4.00%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 92,321	$ 89,414
Minimum Required Under Basel III Fully Phased-In, Ratio	4.00%	4.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 115,401	$ 111,768
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	$ 233,441	$ 227,491
Actual, Ratio	12.22%	12.46%
Minimum Required for Capital Adequacy Purposes, Amount	$ 85,935	$ 82,134
Minimum Required for Capital Adequacy Purposes, Ratio	4.50%	4.50%
Minimum Required Under Basel III Fully Phased-In, Amount	$ 133,677	$ 127,763
Minimum Required Under Basel III Fully Phased-In, Ratio	7.00%	7.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 124,129	$ 118,637
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	6.50%	6.50%

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CONCENTRATIONS OF CREDIT RISK

12 Months Ended

Dec. 31, 2019

Risks And Uncertainties [Abstract]

CONCENTRATIONS OF CREDIT RISK

NOTE 20 - CONCENTRATIONS OF CREDIT RISK

Most of the Company’s business activity is with customers located within the state of Texas. Investments in state and municipal securities involve governmental entities within the Company’s market area. The Company also maintains deposits with other financial institutions in amounts that exceed FDIC insurance coverage.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

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DERIVATIVE FINANCIAL INSTRUMENTS - Schedule of Interest Rate Swaps (Details) - Designated as Hedging Instrument - Cash Flow Hedging - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Interest Rate Swap, 3 month LIBOR plus 1.67%
Derivative [Line Items]
Notional Amount	$ 2,000,000	$ 2,000,000
Pay Rate	5.979%	5.979%
Effective Date	Oct. 01, 2016	Oct. 01, 2016
Maturity in Years	6 years 3 months	7 years 3 months
Unrealized Losses	$ 314,000	$ 220,000
Interest Rate Swap, 3 month LIBOR plus 1.67% | LIBOR
Derivative [Line Items]
Receive Rate	1.67%	1.67%
Interest Rate Swap, 3 month LIBOR plus 3.35%
Derivative [Line Items]
Notional Amount	$ 3,000,000	$ 3,000,000
Pay Rate	7.505%	7.505%
Effective Date	Oct. 30, 2012	Oct. 30, 2012
Maturity in Years	2 years 9 months 29 days	3 years 9 months 29 days
Unrealized Losses	$ 212,000	$ 173,000
Interest Rate Swap, 3 month LIBOR plus 3.35% | LIBOR
Derivative [Line Items]
Receive Rate	3.35%	3.35%

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NONINTEREST INCOME AND NONINTEREST EXPENSE

12 Months Ended

Dec. 31, 2019

Other Income And Expenses [Abstract]

NONINTEREST INCOME AND NONINTEREST EXPENSE

NOTE 16 - NONINTEREST INCOME AND NONINTEREST EXPENSE

Other operating income consisted of the following for the years ended December 31:

	2019		2018		2017
Fiduciary income	$	1,760	$	1,587	$	1,463
Bank-owned life insurance income		774		570		461
Merchant and debit card fees		4,264		3,642		3,119
Loan processing fee income		590		589		597
Other noninterest income		3,031		3,057		2,745
Total	$	10,419	$	9,445	$	8,385

Other operating expense consisted of the following for the years ended December 31:

	2019		2018		2017
Legal and professional fees	$	2,610	$	3,080	$	2,061
Software support fees		3,341		2,502		2,089
Amortization		1,378		1,228		1,033
Director and committee fees		873		1,029		1,064
Advertising and promotions		1,655		1,410		1,193
ATM and debit card expense		1,347		1,127		899
Office and computer supplies		470		416		426
Postage		302		310		301
Telecommunication expense		676		649		526
FDIC insurance assessment fees		173		625		671
Other real estate owned expenses and write-downs		59		157		128
Other		3,900		3,721		3,513
Total	$	16,784	$	16,254	$	13,904

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STOCK APPRECIATION RIGHTS

12 Months Ended

Dec. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCK OPTIONS

NOTE 11 - STOCK OPTIONS

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 1,000,000 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.

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.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date, for the years ended December 31:

	2019			2018			2017
Risk-free interest rate		2.11	%		2.87	%		2.00	%
Expected term (in years)		6.50			6.50			6.46
Expected stock price volatility		19.89	%		20.10	%		18.54	%
Dividend yield		2.36	%		1.76	%		1.61	%

A summary of activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		537,872		$	26.49		6.97	$	2,088
Granted		39,000			29.89		9.40		117
Exercised		(37,672	)		24.55		4.11		314
Forfeited		(31,200	)		30.04		8.02		89
Balance, December 31, 2019		508,000		$	26.68		6.24	$	3,159
Exercisable at end of period		256,880		$	25.21		5.18	$	1,971

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		469,044		$	25.11		7.32	$	2,623
Granted		101,000			32.29		9.51		5
Exercised		(14,372	)		22.74		4.33		102
Forfeited		(17,800	)		26.07		6.71		96
Balance, December 31, 2018		537,872		$	26.49		6.97	$	2,088
Exercisable at end of period		206,312		$	24.48		5.65	$	1,113

A summary of nonvested activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		331,560		$	27.74		7.77	$	975
Granted		39,000			29.89		9.40		117
Vested		(91,040	)		26.71		6.02		563
Forfeited		(28,400	)		33.00		8.81		89
Balance, December 31, 2019		251,120		$	28.18		7.31	$	1,188

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		334,400		$	25.72		7.91	$	1,673
Granted		101,000			32.29		9.51		5
Vested		(88,440	)		25.51		6.69		400
Forfeited		(15,400	)		30.14		7.76		96
Balance, December 31, 2018		331,560		$	27.74		7.77	$	975

Restricted Stock Awards and Units

A summary of activity in the Plan during years ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		959		$	31.57
Vested		480			31.57
Released		(1,439	)		31.57
Forfeited		—			—
Balance, December 31, 2019		—		$	—

2018	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		—	$	—
Vested		959		31.57
Released		—		—
Forfeited		—		—
Balance, December 31, 2018		959	$	31.57

A summary of nonvested activity in the Plan during the twelve months ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		1,439		$	31.57
Granted		30,500			30.25
Vested		(480	)		31.57
Forfeited		—			—
Balance, December 31, 2019		31,459		$	30.29

2018	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		2,398		$	31.57
Granted		—			—
Vested		(959	)		31.57
Forfeited		—			—
Balance, December 31, 2018		1,439		$	31.57

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.

Information related to the Plan is as follows for the years ended December 31:

	2019		2018		2017
Intrinsic value of options exercised	$	314	$	102	$	132
Cash received from options exercised		925		327		84
Weighted average fair value of options granted		16.07		6.69		7.91

As of December 31, 2019, there was $2,069 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 3.44 years.

The Company granted options under the Plan in 2019, 2018 and 2017.  Expense of $663, $592 and $355 was recorded during the years ended December 31, 2019, 2018 and 2017, respectively, which represents the fair value of shares vested during those years.

NOTE 12 - STOCK APPRECIATION RIGHTS

On June 1, 2017, the Company terminated the Guaranty Bancshares, Inc. Fair Market Value Stock Appreciation Rights Plan, paid all accrued benefits through the termination date and issued equivalent stock options to the plan holders that expire 10 years from the issuance date.  Expense associated with stock appreciation rights in 2017 was $318. There were no SARs granted in 2018 or 2019.

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FAIR VALUE

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE

NOTE 23 - 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).

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on the present value of estimated future cash flows using the loan’s existing rate or, if repayment is expected solely from the collateral, 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). Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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).

The following table summarizes quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value as of December 31:

2019	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	$	84,182		$	—	$	84,182		$	—
Collateralized mortgage obligations		90,927			—		90,927			—
Municipal securities		17,348			—		17,348			—
Corporate bonds		20,259			—		20,259			—
Loans held for sale		2,368			—		—			2,368
Cash surrender value of life insurance		34,495			—		34,495			—
SBA servicing assets		672			—		—			672
Derivative instrument assets		526			—		526			—
Derivative instrument liabilities		(526	)		—		(526	)		—
Assets at fair value on a nonrecurring basis:
Impaired loans		20,028			—		—			20,028
Other real estate owned		603			—		—			603

2018	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	$	89,459		$	—	$	89,459		$	—
Collateralized mortgage obligations		108,969			—		108,969			—
Municipal securities		15,593			—		15,593			—
Corporate bonds		18,954			—		18,954			—
Loans held for sale		1,795			—		—			1,795
Cash surrender value of life insurance		26,301			—		26,301			—
SBA servicing assets		1,107			—		—			1,107
Derivative instrument assets		392			—		392			—
Derivative instrument liabilities		(392	)		—		(392	)		—
Assets at fair value on a nonrecurring basis:
Impaired loans		10,863			—		—			10,863
Other real estate owned		751			—		—			751

There were no transfers between Level 2 and Level 3 during the year ended December 31, 2019 or 2018.

Nonfinancial Assets and Nonfinancial Liabilities:

Nonfinancial assets measured at fair value on a nonrecurring basis during the years ended December 31, 2019 and 2018 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan 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 December 31:

	2019			2018			2017
Other real estate owned remeasured at initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	147		$	542		$	1,082
Charge-offs recognized in the allowance for loan losses		(11	)		(25	)		(195	)
Fair value of other real estate owned remeasured at initial recognition	$	136		$	517		$	887
Other real estate owned remeasured subsequent to initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	35		$	599		$	—
Write-downs included in collection and other real estate owned expense		(10	)		(56	)		—
Fair value of other real estate owned remeasured subsequent to initial recognition	$	25		$	543		$	—

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

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
December 31, 2019
Impaired loans	$	20,028	Fair value of collateral - sales comparison approach	Selling costs or other normal adjustments: Real estate Equipment	10%-20% (16%) 10%-20% (12%)
Other real estate owned	$	603	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

.	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
December 31, 2018
Impaired loans	$	10,863	Fair value of collateral - sales comparison approach	Selling costs or other normal adjustments: Real estate Equipment	10%-20% (16%) 10%-20% (19%)
Other real estate owned	$	751	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

The carrying amounts and estimated fair values of financial instruments, not previously in this note, at December 31, 2019 and 2018 are as follows:

	Fair value measurements as of December 31, 2019 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	$	90,714	$	90,714	$	—	$	—	$	90,714
Marketable securities held to maturity		155,458		—		160,460		—		160,460
Loans, net		1,690,794		—		—		1,705,155		1,705,155
Accrued interest receivable		9,151		—		9,151		—		9,151
Nonmarketable equity securities		12,301		—		12,301		—		12,301
Financial liabilities:
Deposits	$	1,956,804	$	1,438,509	$	520,469	$	—	$	1,958,978
Securities sold under repurchase agreements		11,100		—		11,100		—		11,100
Accrued interest payable		1,642		—		1,642		—		1,642
Federal Home Loan Bank advances		55,118		—		55,125		—		55,125
Subordinated debentures		10,810		—		8,677		—		8,677

	Fair value measurements as of December 31, 2018 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	$	71,510	$	71,510	$	—	$	—	$	71,510
Marketable securities held to maturity		163,164		—		162,800		—		162,800
Loans, net		1,645,444		—		—		1,630,600		1,630,600
Accrued interest receivable		9,292		—		9,292		—		9,292
Nonmarketable equity securities		14,937		—		14,937		—		14,937
Financial liabilities:
Deposits	$	1,871,480	$	1,435,985	$	434,647	$	—	$	1,870,632
Securities sold under repurchase agreements		12,228		—		12,228		—		12,228
Accrued interest payable		1,651		—		1,651		—		1,651
Federal Home Loan Bank advances		115,136		—		114,934		—		114,934
Subordinated debentures		12,810		—		10,724		—		10,724

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.

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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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation: The consolidated financial statements include the accounts of Guaranty Bancshares, Inc. and its wholly-owned subsidiary Guaranty Bank & Trust, N.A., (the “Bank” or "Guaranty Bank & Trust"). All entities combined are collectively referred to as the “Company”. All significant intercompany balances and transactions have been eliminated in consolidation.

Non-Bank Investments: Guaranty Bank & Trust has six wholly-owned non-bank subsidiaries, Guaranty Company, GB Com, Inc., 2800 South Texas Avenue LLC, White Oak Aviation LLC, Pin Oak Realty Holdings, Inc. and Pin Oak Energy, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations

Nature of Operations: The Company operates several banking locations in Texas. The Company’s main sources of income are derived from granting loans, primarily in East Texas, Central Texas, the Dallas/Fort Worth metropolitan statistical area ("MSA"), and the Houston MSA, and investing in securities issued by the U.S. Treasury, U.S. government agencies and state and political subdivisions. A variety of financial products and services are provided to individual and corporate customers. The primary deposit products are checking accounts, money market accounts and certificates of deposit. The 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 East Texas, Central Texas, the Dallas/Fort Worth MSA and the Houston MSA.

Use of Estimates

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual future results could differ.

Cash and Cash Equivalents

Cash and Cash Equivalents: Cash and cash equivalents include cash, due from banks, interest-bearing deposits with other banks that have initial maturities less than 90 days and federal funds sold. Net cash flows are reported for loan and deposit transactions, and short-term borrowings with initial maturities less than 90 days.

Marketable Securities

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.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as

impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Non-marketable Securities

Non-marketable Securities: Other securities, such as stock in the Independent Bankers Financial Corporation, the Federal Reserve Bank, and the Federal Home Loan Bank are accounted for on the cost basis and are carried in other assets. Stock in Valesco Commerce Street Capital, L.P., Valesco Fund II, L.P., Independent Bankers Capital Fund II, L.P. and Independent Bankers Capital Fund III, L.P., are accounted for on the cost basis in other assets.

Loans Held for Sale

Loans Held for Sale: Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are carried at the lower of cost or estimated fair market value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. To mitigate the interest rate risk, fixed commitments may be obtained at the time loans are originated or identified for sale. All sales are made without recourse. Gains or losses on sales of mortgage loans are recognized at settlement dates based on the difference between the selling price and the carrying value of the related mortgage loans sold.

Loans

Loans: Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income was reported on the level-yield interest method and included amortization of net deferred loan fees and costs over the loan term.

Impaired Loans

Impaired Loans: Loans are considered impaired when, based on current information and events, it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.  If a loan is impaired, a specific valuation allowance is allocated, if necessary.  Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.  Impaired loans, or portions thereof, are charged off when deemed uncollectible. Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral.  Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price.

Nonaccrual Loans

Nonaccrual Loans: Loans are placed on nonaccrual status at ninety days past due or as determined by management, and interest is considered a loss. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. 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 principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Certain Acquired Loans

Certain Acquired Loans: During 2018, the Company acquired a group of loans through the acquisition of Westbound Bank (“Westbound”), as described in Note 2.  Acquired loans are recorded at their estimated fair value at the acquisition date, and are initially classified as either purchased credit impaired (“PCI”) loans (i.e. loans that reflect credit deterioration since origination and it is probable at acquisition that the Company will be unable to collect all contractually required payments) or purchased non-impaired loans (“acquired performing loans”).

Acquired performing loans are accounted for under Financial Accounting Standards Board’s Accounting Standards Codification (ASC) 310-20, “Nonrefundable Fees and Other Costs”. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, and portions of the accretable difference may be delayed or suspended if management deems appropriate. The Company’s policy for determining when to discontinue accruing interest on acquired performing loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans described above.

Allowance for Loan Losses

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of homogeneous loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company. This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment. These qualitative factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and

local economic trends and conditions; industry conditions; effects of changes in credit concentrations; changes in the quality of the Company’s loan review system; and changes in the values of underlying collateral.

An allowance for loan losses for acquired performing loans is calculated using a methodology similar to that described for originated loans. Acquired performing loans are subsequently evaluated for any required allowance at each reporting date. Such required allowance for each loan is compared to the remaining fair value discount for that loan. If greater, the excess is recognized as an addition to the allowance through a provision for loan losses. If less than the discount, no additional allowance is recorded. Charge-offs and losses first reduce any remaining fair value discount for the loan and once the discount is depleted, losses are applied against the allowance established for that loan. Below is a summary of the segments of 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. Risks 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. Risks inherent in this portfolio include fluctuations in property values 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.

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 loan 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 respective portfolio segment classes:

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 finance principal and interest payments in the event that he is 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 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 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.

Premises and Equipment

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the related assets. Maintenance, repairs and minor improvements are charged to noninterest expense as incurred. The following table provides a summary of the estimated useful life of the different fixed asset classes as stated in the policy:

Bank Buildings	Up to 40 years
Equipment	to 10 years
Furniture and Fixtures	to 7 years
Software	to 5 years
Automobiles	to 4 years

Other Real Estate Owned

Other Real Estate Owned: Assets acquired through, or in lieu of, foreclosure are initially recorded at fair value, less estimated carrying and selling costs, when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Transfers of Financial Assets

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets: Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Impairment is tested for annually and exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At the measurement date, the Company had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

Core deposit intangibles represent premiums paid on acquired deposits based on the estimated fair value of the deposits at the time of purchase. These premiums are amortized over a ten year period.

Bank Owned Life Insurance

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

KSOP Repurchase Right

KSOP Repurchase Right:  In accordance with applicable provisions of the Internal Revenue Code, the terms of Guaranty’s employee stock ownership plan with 401(k) provisions (“KSOP”) provided that, for so long as Guaranty was a privately-held company without a public market for its common stock, KSOP participants would have the right, for a

specified period of time, to require Guaranty to repurchase shares of its common stock that are distributed to them by the KSOP. This repurchase obligation terminated upon the consummation of Guaranty’s initial public offering and listing of its common stock on the NASDAQ Global Select Market in May 2017. However, because Guaranty was privately-held without a public market for its common stock as of and for the year ended December 31, 2016, the shares of common stock held by the KSOP are reflected in the Company’s consolidated statement of changes in shareholders' equity for the year ended December 31, 2017 as a line item called “KSOP-owned shares.”  As a result, the consolidated statement of changes in shareholders' equity for the year ended December 31, 2017 includes an adjustment for the inclusion of such KSOP-owned shares in total shareholders' equity as "terminated KSOP put option."  For all periods following Guaranty’s initial public offering and continued listing of the Company’s common stock on the NASDAQ Global Select Market, the KSOP-owned shares will be included in, and not be deducted from, shareholders’ equity.

Income Taxes

Income Taxes: Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Fair Values of Financial Instruments

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.

Loss Contingencies

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Derivative Financial Instruments

Derivative Financial Instruments: The Company accounts for its derivatives under ASC 815, “Derivatives and Hedging,” which requires recognition of all derivatives as either assets or liabilities in the balance sheet and requires measurement of those instruments at fair value through adjustments to accumulated other comprehensive income and/or current earnings, as appropriate. On the date the Company enters into a derivative contract, the Company designates the derivative instrument as either a fair value hedge, cash flow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to the hedged risk are recorded in current period operations. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to operations in the same period(s) that the hedged transaction impacts operations. For free-standing derivative instruments, changes in fair value are reported in current period operations.

Prior to entering a hedge transaction, the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions along with a formal assessment at both inception of the hedge and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair

values or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued and the adjustment to fair value of the derivative instrument is recorded in operations.

Dividend Restriction

Dividend Restriction: Banking regulations require the maintenance of certain capital levels that may limit the amount of dividends that may be paid. Regulatory capital requirements are more fully disclosed in Note 19.

Restrictions on Cash

Restrictions on Cash: The Company was not required to have cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements as of December 31, 2019 and 2018. Deposits held with the Federal Reserve Bank earn interest.

Stock Compensation

Stock Compensation: In accordance with ASC 718, “Stock Compensation,” the Company uses the fair value method of accounting for share based compensation prescribed by the standard. The fair value of options granted is determined using the Black-Scholes option valuation model.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Earnings Per Share

Earnings Per Share: Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. KSOP shares are considered outstanding for this calculation unless unearned. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share 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.

Comprehensive Income (Loss)

Comprehensive Income (Loss): Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and unrealized gains and losses on cash flow hedges which are also recognized as separate components of equity.

Operating Segments

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassification

Reclassification: Certain amounts in prior period financial statements have been reclassified to conform to current period presentation. These reclassifications are immaterial and have no effect on net income, total assets or stockholders' equity.

Recent Accounting Pronouncements

Recent Accounting Pronouncements:

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Act on December 22, 2017 that changed the Company’s income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU was effective for periods beginning after December 15, 2018 and

early adoption was permitted. The Company early adopted ASU 2018-02 in the first quarter of 2018 and reclassified its stranded tax effect of $486 within accumulated other comprehensive income to retained earnings as of March 31, 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  In addition, the amendments in this ASU provide a detailed framework to assist entities in evaluating whether a set of assets and activities constitutes a business, as well as clarify the definition of the term output so the term is consistent with how outputs are described in Topic 606.  ASU 2017-01 was effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods.  The adoption of this pronouncement did not have a significant impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  This ASU simplifies the accounting for goodwill impairment for all entities by requiring impairment changes to be based on the first step in today’s two-step impairment test, thus eliminating step two from the goodwill impairment test.  In addition, the amendment eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill impairment test. For public companies, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  We adopted this pronouncement on January 1, 2020 and it did not have a significant impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a "current expected credit loss" ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts.  This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures.  For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company’s transition team has run parallel models for calculating the expected losses using various forecasts and qualitative factor adjustments, beginning in January 2019, to gain a comprehensive understanding of the impact that CECL and its underlying assumptions will have on the allowance upon adoption and through future periods and has developed internal controls and procedures.  The Company expects that the transition will result in a 20.0% to 30.0% increase to the allowance for credit losses upon adoption on January 1, 2020.  The increase is due to the shift from current loss history to an “expected loss” model, which takes into account losses expected to be incurred over the life of the portfolio.  ASU 2016-13 necessitates that we will also establish an allowance for expected credit losses for certain debt securities and other financial assets; however, we expect allowances on these financial instruments, if any, to be minimal.   As the Company continues to monitor the model, the ultimate impact of adoption could differ from current expectations, but the Company believes any differences from amounts recorded at adoption would be immaterial.  The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements.  The amendments in this ASU are effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.  Early adoption of this ASU is permitted for all entities.  An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect

adjustment at the beginning of the earliest comparative period presented or by recording a cumulative effect adjustment at the beginning of the period of adoption.  The Company used the latter approach.  The Company adopted Topic 842 in the first quarter of 2019, and recorded assets and liabilities each increased by approximately $12.0 million as it relates to operating leases in which we are the lessee.  The adoption of this standard has had a significant effect on the Company's consolidated balance sheet but does not materially affect the consolidated statement of earnings.  Refer to Note 14 for more information.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  This ASU was effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this pronouncement on January 1, 2018 and it did not have a significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), followed by various amendments to the standard, including clarification of principal versus agent considerations, narrow scope improvements and other technical corrections, all of which are codified in Topic 606.  The amendments in these updates amend existing guidance related to revenue from contracts with customers.  The amendments supersede and replace nearly all existing revenue recognition guidance, including industry-specific guidance, establish a new control-based revenue recognition model, change the basis for deciding when revenue is recognized over a time or point in time, provide new and more detailed guidance on specific topics and expand and improve disclosures about revenue.  In addition, these amendments specify the accounting for some costs to obtain or fulfill a contract with a customer.  The Company has applied ASU 2014-09, which was effective on January 1, 2018, using the modified retrospective approach to all existing contracts with customers covered under the scope of the standard. The adoption of this ASU was not significant to the Company and had no material effect on how the Company recognizes revenue nor did it result in a cumulative effect adjustment or any presentation changes to the consolidated financial statements.

The majority of the Company's revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as loans, letters of credit, loan processing fees and investment securities, as well as revenue related to mortgage banking activities, and BOLI, as these activities are subject to other accounting guidance. Descriptions of revenue-generating activities that are within the scope of Topic 606, and are presented in the accompanying Consolidated Statements of Income as components of noninterest income, are as follows:

• Deposit services. Service charges on deposit accounts include fees for banking services provided, overdrafts and non-sufficient funds. Revenue is generally recognized in accordance with published deposit account agreements for retail accounts or contractual agreements for commercial accounts.

• Merchant and debit card fees.  Merchant and debit card fees includes interchange income that is generated by our customers’ usage and volume of activity.  Interchange rates are not controlled by the Company, which

effectively acts as processor that collects and remits payments associated with customer debit card transactions.  Merchant service revenue is derived from third party vendors that process credit card transactions on behalf of our merchant customers.  Merchant services revenue is primarily comprised of residual fee income based on the referred merchant’s processing volumes and/or margin.

• Fiduciary income. Trust income includes fees and commissions from investment management, administrative and advisory services primarily for individuals, and to a lesser extent, partnerships and corporations. Revenue is recognized on an accrual basis at the time the services are performed and when we have a right to invoice and are based on either the market value of the assets managed or the services provided.

• Other noninterest income.  Other noninterest income includes among other things, mortgage loan origination fees, wire transfer fees, stop payment fees, loan administration fees and mortgage warehouse lending fees. The majority of these fees in other noninterest income are not subject to the requirements of ASC 606.  Fees that are within the scope of ASC 606 are generally received at the time the performance obligations are met.

XML

LEASES - Schedule of Summarizes Other Information Related to Operating Leases (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Operating leases
Operating lease right-of-use assets	$ 11,554
Operating lease liabilities	$ 11,675
Weighted average remaining lease term
Operating leases, remaining lease term	10 years
Weighted average discount rate
Operating leases	2.69%

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Summary of Loan Portfolio by Type of Loan

The following table summarizes our loan portfolio by type of loan at December 31:

	2019			2018
Commercial and industrial	$	279,583		$	261,779
Real estate:
Construction and development		280,498			237,503
Commercial real estate		567,360			582,519
Farmland		57,476			67,845
1-4 family residential		412,166			393,067
Multi-family residential		37,379			38,386
Consumer		53,245			54,777
Agricultural		18,359			23,277
Overdrafts		329			382
Total loans		1,706,395			1,659,535
Net of:
Deferred loan costs		601			560
Allowance for loan losses		(16,202	)		(14,651	)
Total net loans	$	1,690,794		$	1,645,444

Schedule of Related Party Loans Receivable

Loans to principal officers, directors, and their affiliates during the year ended December 31, 2019, was as follows:

Beginning balance	$	56,199
New loans		46,419
Effect of changes in composition of related parties		(17,516	)
Repayments		(51,439	)
Ending balance	$	33,663

Schedule of Allowance for Loan Losses Activity

The following table presents the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the years ended December 31, 2019, 2018 and 2017:

For the Year Ended December 31, 2019	Commercial and industrial			Construction and development		Commercial real estate		Farmland			1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,751		$	1,920	$	6,025	$	643		$	2,868		$	631		$	565		$	238		$	10		$	14,651
Provision for loan losses		(117	)		458		827		(73	)		268			(222	)		(2	)		(41	)		152			1,250
Loans charged-off		(86	)		—		—		—			(14	)		—			(72	)		(89	)		(192	)		(453	)
Recoveries		508			—		1		—			3			—			111			89			42			754
Ending balance	$	2,056		$	2,378	$	6,853	$	570		$	3,125		$	409		$	602		$	197		$	12		$	16,202
Allowance ending balance:
Individually evaluated for impairment	$	—		$	—	$	1,587	$	62		$	—		$	—		$	—		$	—		$	—		$	1,649
Collectively evaluated for impairment		2,008			2,322		5,486		495			3,050			400			588			192			12			14,553
Ending balance	$	2,008		$	2,322	$	7,073	$	557		$	3,050		$	400		$	588		$	192		$	12		$	16,202
Loans:
Individually evaluated for impairment	$	289		$	1,212	$	17,483	$	133		$	2,498		$	—		$	—		$	62		$	—		$	21,677
Collectively evaluated for impairment		279,294		$	279,286		549,877		57,343			409,668			37,379			53,245			18,297			329			1,684,718
Ending balance	$	279,583		$	280,498	$	567,360	$	57,476		$	412,166		$	37,379		$	53,245		$	18,359		$	329		$	1,706,395

For the Year Ended December 31, 2018	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Provision for loan losses		426			196		1,472			120		(196	)		2		127			(12	)		115			2,250
Loans charged-off		(367	)		—		(33	)		—		(93	)		—		(254	)		(2	)		(169	)		(918	)
Recoveries		111			—		1			—		135			—		90			65			58			460
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Allowance ending balance:
Individually evaluated for impairment	$	64		$	4	$	341		$	78	$	6		$	—	$	—		$	—		$	—		$	493
Collectively evaluated for impairment		1,687			1,916		5,684			565		2,862			631		565			238			10			14,158
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Loans:
Individually evaluated for impairment	$	1,022		$	1,250	$	7,153		$	140	$	1,383		$	—	$	—		$	408		$	—		$	11,356
Collectively evaluated for impairment		260,757		$	236,253		575,366			67,705		391,684			38,386		54,777			22,869			382			1,648,179
Ending balance	$	261,779		$	237,503	$	582,519		$	67,845	$	393,067		$	38,386	$	54,777		$	23,277		$	382		$	1,659,535

For the Year Ended December 31, 2017	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,592		$	1,161	$	3,264		$	482	$	3,960		$	281	$	585		$	153		$	6		$	11,484
Provision for loan losses		272			563		1,405			41		(418	)		348		253			276			110			2,850
Loans charged-off		(1,080	)		—		(84	)		—		(543	)		—		(344	)		(242	)		(165	)		(2,458	)
Recoveries		797			—		—			—		23			—		108			—			55			983
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Allowance ending balance:
Individually evaluated for impairment	$	17		$	—	$	27		$	85	$	5		$	—	$	—		$	—		$	—		$	134
Collectively evaluated for impairment		1,564			1,724		4,558			438		3,017			629		602			187			6			12,725
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Loans:
Individually evaluated for impairment	$	463		$	—	$	4,258		$	163	$	842		$	217	$	—		$	397		$	—		$	6,340
Collectively evaluated for impairment		197,045		$	196,774		413,879			58,860		373,529			36,357		51,267			25,199			294			1,353,204
Ending balance	$	197,508		$	196,774	$	418,137		$	59,023	$	374,371		$	36,574	$	51,267		$	25,596		$	294		$	1,359,544

Summary of Credit Exposure by Internally Assigned Grade

The following tables summarize the credit exposure in the Company's consumer and commercial loan portfolios as of:

December 31, 2019	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	279,217	$	278,679	$	548,662	$	57,152	$	409,896	$	37,379	$	53,327	$	18,101	$	1,682,413
Special mention		153		600		1,071		91		1,425		—		192		126		3,658
Substandard		213		1,219		17,627		233		845		—		55		132		20,324
Total	$	279,583	$	280,498	$	567,360	$	57,476	$	412,166	$	37,379	$	53,574	$	18,359	$	1,706,395

December 31, 2018	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	260,863	$	236,253	$	569,648	$	67,541	$	391,956	$	38,386	$	55,055	$	22,713	$	1,642,415
Special mention		224	—			5,691		49		514	—			48		115		6,641
Substandard		692		1,250		7,180		255		597	—			56		449		10,479
Total	$	261,779	$	237,503	$	582,519	$	67,845	$	393,067	$	38,386	$	55,159	$	23,277	$	1,659,535

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:

December 31, 2019	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	$	321	$	53	$	15	$	389	$	279,194	$	279,583	$	—
Real estate:
Construction and development		161		—		—		161		280,337		280,498		—
Commercial real estate		1,181		49		882		2,112		565,248		567,360		—
Farmland		103		—		—		103		57,373		57,476		—
1-4 family residential		2,514		1,433		845		4,792		407,374		412,166		—
Multi-family residential		—		—		—		—		37,379		37,379		—
Consumer		373		152		96		621		52,624		53,245		—
Agricultural		51		67		—		118		18,241		18,359		—
Overdrafts		—		—		—		—		329		329		—
Total	$	4,704	$	1,754	$	1,838	$	8,296	$	1,698,099	$	1,706,395	$	—

December 31, 2018	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	$	209	$	493	$	266	$	968	$	260,811	$	261,779	$	—
Real estate:
Construction and development		735		2,816		—		3,551		233,952		237,503		—
Commercial real estate		1,803		3		3,227		5,033		577,486		582,519		—
Farmland		485		—		—		485		67,360		67,845		—
1-4 family residential		2,849		666		596		4,111		388,956		393,067		—
Multi-family residential		—		—		—		—		38,386		38,386		—
Consumer		526		51		56		633		54,144		54,777		—
Agricultural		105		59		41		205		23,072		23,277		—
Overdrafts		—		—		—		—		382		382		—
Total	$	6,712	$	4,088	$	4,186	$	14,986	$	1,644,549	$	1,659,535	$	—

Schedule of Nonaccrual Loans

The following table presents information regarding nonaccrual loans as of:

	2019		2018
Commercial and industrial	$	46	$	366
Real estate:
Construction and development		—		—
Commercial real estate		6,860		3,700
Farmland		182		140
1-4 family residential		3,853		1,567
Multi-family residential		—		—
Consumer		279		66
Agricultural		42		52
Total	$	11,262	$	5,891

Summary of Troubled Debt Restructuring

The outstanding balances of TDRs are shown below at December 31:

	2019		2018
Nonaccrual TDRs	$	101	$	335
Performing TDRs		7,240		861
Total	$	7,341	$	1,196
Specific reserves on TDRs	$	164	$	—

The following tables present loans by class, modified as TDRs, that occurred during the years ended:

December 31, 2019	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial real estate		4	$	1,680	$	1,515
Total		4	$	1,680	$	1,515

There were two TDRs that subsequently defaulted during 2019, therefore remain on nonaccrual status. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2019.   

December 31, 2018	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		3	$	504	$	504
1-4 family residential		1		78		78
Total		4	$	582	$	582

Summary of Impaired Loans

The following table presents information about the Company’s impaired loans as of:

December 31, 2019	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	289	$	289	$	—	$	312
Real estate:
Construction and development		1,212		1,212		—		1,259
Commercial real estate		4,612		4,612		—		4,244
Farmland		—		—		—		—
1-4 family residential		2,498		2,498		—		1,798
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		62		62		—		190
Subtotal		8,673		8,673		—		7,803
With allowance recorded:
Commercial and industrial		—		—		—		61
Real estate:
Construction and development		—		—		—		—
Commercial real estate		12,871		12,871		1,587		9,111
Farmland		133		133		62		135
1-4 family residential		—		—		—		78
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		—		—		—		—
Subtotal		13,004		13,004		1,649		9,385
Total	$	21,677	$	21,677	$	1,649	$	17,188

The following table presents information about the Company’s impaired loans as of December 31, 2018:

December 31, 2018	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	837	$	837	$	—	$	842
Real estate:
Construction and development		720		720		—		518
Commercial real estate		5,168		5,168		—		5,138
Farmland		—		—		—		62
1-4 family residential		1,223		1,223		—		1,132
Multi-family residential		—		—		—		54
Consumer		—		—		—		—
Agricultural		408		408		—		456
Subtotal		8,356		8,356		—		8,202
With allowance recorded:
Commercial and industrial		185		185		64		300
Real estate:
Construction and development		530		530		4		44
Commercial real estate		1,985		1,985		341		677
Farmland		140		140		78		147
1-4 family residential		160		160		6		128
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		—		—		—		52
Subtotal		3,000		3,000		493		1,348
Total	$	11,356	$	11,356	$	493	$	9,550

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INCOME TAXES - Income Tax Rate Reconciliation (Parenthetical) (Details)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Statutory federal rate	21.00%	21.00%	35.00%

XML

INTEREST-BEARING DEPOSITS

12 Months Ended

Dec. 31, 2019

Banking And Thrift [Abstract]

INTEREST-BEARING DEPOSITS

NOTE 8 - INTEREST-BEARING DEPOSITS

Interest-bearing deposits, by type of account, were as follows as of:

	December 31, 2019		December 31, 2018
NOW accounts	$	202,672	$	252,109
Savings and money market accounts		712,972		694,086
Time deposits $250,000 or less		300,608		298,724
Time deposits greater than $250,000		214,687		136,772
	$	1,430,939	$	1,381,691

Year-end maturities of time deposits, as of December 31, 2019, were as follows:

Year Ended December 31,	Amount
2020	$	440,588
2021		39,575
2022		16,721
2023		12,909
2024		5,502
Thereafter		—
	$	515,295

Deposits of executive officers, directors and significant shareholders at December 31, 2019 and 2018 totaled $59,658 and $59,674, respectively.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes our loan portfolio by type of loan at December 31:

	2019			2018
Commercial and industrial	$	279,583		$	261,779
Real estate:
Construction and development		280,498			237,503
Commercial real estate		567,360			582,519
Farmland		57,476			67,845
1-4 family residential		412,166			393,067
Multi-family residential		37,379			38,386
Consumer		53,245			54,777
Agricultural		18,359			23,277
Overdrafts		329			382
Total loans		1,706,395			1,659,535
Net of:
Deferred loan costs		601			560
Allowance for loan losses		(16,202	)		(14,651	)
Total net loans	$	1,690,794		$	1,645,444

In 2018, the Company acquired overdrafts and recorded them as loans with a fair value and gross contractual fair value of $2 as part of Westbound.  All loans acquired in 2018 were classified as acquired performing loans on the acquisition date.

The Company has entered into transactions, at prevailing market rates and terms, with certain directors, executive officers, significant shareholders and their affiliates. Loans to such related parties at December 31, 2019 and 2018, totaled $33,663 and $56,199, respectively. Unfunded commitments to such related parties at December 31, 2019 totaled $13,846.

Loans to principal officers, directors, and their affiliates during the year ended December 31, 2019, was as follows:

Beginning balance	$	56,199
New loans		46,419
Effect of changes in composition of related parties		(17,516	)
Repayments		(51,439	)
Ending balance	$	33,663

The following table presents the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the years ended December 31, 2019, 2018 and 2017:

For the Year Ended December 31, 2019	Commercial and industrial			Construction and development		Commercial real estate		Farmland			1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,751		$	1,920	$	6,025	$	643		$	2,868		$	631		$	565		$	238		$	10		$	14,651
Provision for loan losses		(117	)		458		827		(73	)		268			(222	)		(2	)		(41	)		152			1,250
Loans charged-off		(86	)		—		—		—			(14	)		—			(72	)		(89	)		(192	)		(453	)
Recoveries		508			—		1		—			3			—			111			89			42			754
Ending balance	$	2,056		$	2,378	$	6,853	$	570		$	3,125		$	409		$	602		$	197		$	12		$	16,202
Allowance ending balance:
Individually evaluated for impairment	$	—		$	—	$	1,587	$	62		$	—		$	—		$	—		$	—		$	—		$	1,649
Collectively evaluated for impairment		2,008			2,322		5,486		495			3,050			400			588			192			12			14,553
Ending balance	$	2,008		$	2,322	$	7,073	$	557		$	3,050		$	400		$	588		$	192		$	12		$	16,202
Loans:
Individually evaluated for impairment	$	289		$	1,212	$	17,483	$	133		$	2,498		$	—		$	—		$	62		$	—		$	21,677
Collectively evaluated for impairment		279,294		$	279,286		549,877		57,343			409,668			37,379			53,245			18,297			329			1,684,718
Ending balance	$	279,583		$	280,498	$	567,360	$	57,476		$	412,166		$	37,379		$	53,245		$	18,359		$	329		$	1,706,395

For the Year Ended December 31, 2018	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Provision for loan losses		426			196		1,472			120		(196	)		2		127			(12	)		115			2,250
Loans charged-off		(367	)		—		(33	)		—		(93	)		—		(254	)		(2	)		(169	)		(918	)
Recoveries		111			—		1			—		135			—		90			65			58			460
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Allowance ending balance:
Individually evaluated for impairment	$	64		$	4	$	341		$	78	$	6		$	—	$	—		$	—		$	—		$	493
Collectively evaluated for impairment		1,687			1,916		5,684			565		2,862			631		565			238			10			14,158
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Loans:
Individually evaluated for impairment	$	1,022		$	1,250	$	7,153		$	140	$	1,383		$	—	$	—		$	408		$	—		$	11,356
Collectively evaluated for impairment		260,757		$	236,253		575,366			67,705		391,684			38,386		54,777			22,869			382			1,648,179
Ending balance	$	261,779		$	237,503	$	582,519		$	67,845	$	393,067		$	38,386	$	54,777		$	23,277		$	382		$	1,659,535

For the Year Ended December 31, 2017	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,592		$	1,161	$	3,264		$	482	$	3,960		$	281	$	585		$	153		$	6		$	11,484
Provision for loan losses		272			563		1,405			41		(418	)		348		253			276			110			2,850
Loans charged-off		(1,080	)		—		(84	)		—		(543	)		—		(344	)		(242	)		(165	)		(2,458	)
Recoveries		797			—		—			—		23			—		108			—			55			983
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Allowance ending balance:
Individually evaluated for impairment	$	17		$	—	$	27		$	85	$	5		$	—	$	—		$	—		$	—		$	134
Collectively evaluated for impairment		1,564			1,724		4,558			438		3,017			629		602			187			6			12,725
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Loans:
Individually evaluated for impairment	$	463		$	—	$	4,258		$	163	$	842		$	217	$	—		$	397		$	—		$	6,340
Collectively evaluated for impairment		197,045		$	196,774		413,879			58,860		373,529			36,357		51,267			25,199			294			1,353,204
Ending balance	$	197,508		$	196,774	$	418,137		$	59,023	$	374,371		$	36,574	$	51,267		$	25,596		$	294		$	1,359,544

Credit Quality

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.

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. The Company typically measures impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or based on the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent.

The following tables summarize the credit exposure in the Company's consumer and commercial loan portfolios as of:

December 31, 2019	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	279,217	$	278,679	$	548,662	$	57,152	$	409,896	$	37,379	$	53,327	$	18,101	$	1,682,413
Special mention		153		600		1,071		91		1,425		—		192		126		3,658
Substandard		213		1,219		17,627		233		845		—		55		132		20,324
Total	$	279,583	$	280,498	$	567,360	$	57,476	$	412,166	$	37,379	$	53,574	$	18,359	$	1,706,395

December 31, 2018	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	260,863	$	236,253	$	569,648	$	67,541	$	391,956	$	38,386	$	55,055	$	22,713	$	1,642,415
Special mention		224	—			5,691		49		514	—			48		115		6,641
Substandard		692		1,250		7,180		255		597	—			56		449		10,479
Total	$	261,779	$	237,503	$	582,519	$	67,845	$	393,067	$	38,386	$	55,159	$	23,277	$	1,659,535

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:

December 31, 2019	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	$	321	$	53	$	15	$	389	$	279,194	$	279,583	$	—
Real estate:
Construction and development		161		—		—		161		280,337		280,498		—
Commercial real estate		1,181		49		882		2,112		565,248		567,360		—
Farmland		103		—		—		103		57,373		57,476		—
1-4 family residential		2,514		1,433		845		4,792		407,374		412,166		—
Multi-family residential		—		—		—		—		37,379		37,379		—
Consumer		373		152		96		621		52,624		53,245		—
Agricultural		51		67		—		118		18,241		18,359		—
Overdrafts		—		—		—		—		329		329		—
Total	$	4,704	$	1,754	$	1,838	$	8,296	$	1,698,099	$	1,706,395	$	—

December 31, 2018	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	$	209	$	493	$	266	$	968	$	260,811	$	261,779	$	—
Real estate:
Construction and development		735		2,816		—		3,551		233,952		237,503		—
Commercial real estate		1,803		3		3,227		5,033		577,486		582,519		—
Farmland		485		—		—		485		67,360		67,845		—
1-4 family residential		2,849		666		596		4,111		388,956		393,067		—
Multi-family residential		—		—		—		—		38,386		38,386		—
Consumer		526		51		56		633		54,144		54,777		—
Agricultural		105		59		41		205		23,072		23,277		—
Overdrafts		—		—		—		—		382		382		—
Total	$	6,712	$	4,088	$	4,186	$	14,986	$	1,644,549	$	1,659,535	$	—

The following table presents information regarding nonaccrual loans as of:

	2019		2018
Commercial and industrial	$	46	$	366
Real estate:
Construction and development		—		—
Commercial real estate		6,860		3,700
Farmland		182		140
1-4 family residential		3,853		1,567
Multi-family residential		—		—
Consumer		279		66
Agricultural		42		52
Total	$	11,262	$	5,891

If interest on nonaccrual loans had been accrued, such income would have been approximately $637 and $333 for the years ended December 31, 2019 and 2018, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as impaired.

Impaired Loans and 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. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the original contractual terms of the loan. Loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired. Loans defined as individually impaired, based on applicable accounting guidance, include larger balance nonperforming loans and TDRs.

The outstanding balances of TDRs are shown below at December 31:

	2019		2018
Nonaccrual TDRs	$	101	$	335
Performing TDRs		7,240		861
Total	$	7,341	$	1,196
Specific reserves on TDRs	$	164	$	—

The following tables present loans by class, modified as TDRs, that occurred during the years ended:

December 31, 2019	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial real estate		4	$	1,680	$	1,515
Total		4	$	1,680	$	1,515

There were two TDRs that subsequently defaulted during 2019, therefore remain on nonaccrual status. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2019.   

December 31, 2018	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		3	$	504	$	504
1-4 family residential		1		78		78
Total		4	$	582	$	582

There was one TDR that subsequently defaulted in 2018 and was paid off during 2019.  The TDR described above did not increase the allowance for loan losses and resulted in no charge-offs during the years ended December 31, 2018 or 2019.

The following table presents information about the Company’s impaired loans as of:

December 31, 2019	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	289	$	289	$	—	$	312
Real estate:
Construction and development		1,212		1,212		—		1,259
Commercial real estate		4,612		4,612		—		4,244
Farmland		—		—		—		—
1-4 family residential		2,498		2,498		—		1,798
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		62		62		—		190
Subtotal		8,673		8,673		—		7,803
With allowance recorded:
Commercial and industrial		—		—		—		61
Real estate:
Construction and development		—		—		—		—
Commercial real estate		12,871		12,871		1,587		9,111
Farmland		133		133		62		135
1-4 family residential		—		—		—		78
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		—		—		—		—
Subtotal		13,004		13,004		1,649		9,385
Total	$	21,677	$	21,677	$	1,649	$	17,188

The following table presents information about the Company’s impaired loans as of December 31, 2018:

December 31, 2018	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	837	$	837	$	—	$	842
Real estate:
Construction and development		720		720		—		518
Commercial real estate		5,168		5,168		—		5,138
Farmland		—		—		—		62
1-4 family residential		1,223		1,223		—		1,132
Multi-family residential		—		—		—		54
Consumer		—		—		—		—
Agricultural		408		408		—		456
Subtotal		8,356		8,356		—		8,202
With allowance recorded:
Commercial and industrial		185		185		64		300
Real estate:
Construction and development		530		530		4		44
Commercial real estate		1,985		1,985		341		677
Farmland		140		140		78		147
1-4 family residential		160		160		6		128
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		—		—		—		52
Subtotal		3,000		3,000		493		1,348
Total	$	11,356	$	11,356	$	493	$	9,550

During the years ended December 31, 2019, 2018 and 2017, total interest income and cash-based interest income recognized on impaired loans was minimal.

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ACCUMULATED OTHER COMPREHENSIVE LOSS - Reclassifications from AOCL (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized (loss) gain on securities sales	$ (22)	$ (50)	$ 167
Tax benefit	(5,778)	(4,599)	(8,238)
Reclassification out of Accumulated Other Comprehensive Loss | Unrealized Gains and (Losses) on Securities
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized (loss) gain on securities sales	22	50	(167)
Tax benefit	(5)	(10)	59
Net of Tax	$ 17	$ 40	$ (108)

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FAIR VALUE - Fair Value of Foreclosed Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
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	$ 147	$ 542	$ 1,082
Carrying Value | Other real estate owned remeasured subsequent to initial recognition
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	35	599	0
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	(11)	(25)	(195)
Charge-offs | Other real estate owned remeasured subsequent to initial recognition
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	(10)	(56)	0
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	136	517	887
Fair Value | Other real estate owned remeasured subsequent to initial recognition
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed assets	$ 25	$ 543	$ 0

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INTEREST -BEARING DEPOSITS - Schedule of Deposit Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Banking And Thrift [Abstract]
NOW accounts	$ 202,672	$ 252,109
Savings and money market accounts	712,972	694,086
Time deposits $250,000 or less	300,608	298,724
Time deposits greater than $250,000	214,687	136,772
Interest-bearing deposits	$ 1,430,939	$ 1,381,691

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Summary of Payment Status of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	$ 8,296	$ 14,986
Current	1,698,099	1,644,549
Ending balance	1,706,395	1,659,535	$ 1,359,544
Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	4,704	6,712
Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,754	4,088
Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,838	4,186
Commercial and industrial
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	389	968
Current	279,194	260,811
Ending balance	279,583	261,779	197,508
Commercial and industrial | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	321	209
Commercial and industrial | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	53	493
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	15	266
Construction and development
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	161	3,551
Current	280,337	233,952
Ending balance	280,498	237,503	196,774
Construction and development | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	161	735
Construction and development | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans		2,816
Commercial real estate
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	2,112	5,033
Current	565,248	577,486
Ending balance	567,360	582,519	418,137
Commercial real estate | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,181	1,803
Commercial real estate | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	49	3
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	882	3,227
Farmland
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	103	485
Current	57,373	67,360
Ending balance	57,476	67,845	59,023
Farmland | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	103	485
1-4 family residential
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	4,792	4,111
Current	407,374	388,956
Ending balance	412,166	393,067	374,371
1-4 family residential | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	2,514	2,849
1-4 family residential | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	1,433	666
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	845	596
Multi-family residential
Financing Receivable Recorded Investment Past Due [Line Items]
Current	37,379	38,386
Ending balance	37,379	38,386	36,574
Consumer
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	621	633
Current	52,624	54,144
Ending balance	53,245	54,777	51,267
Consumer | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	373	526
Consumer | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	152	51
Consumer | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	96	56
Agricultural
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	118	205
Current	18,241	23,072
Ending balance	18,359	23,277	25,596
Agricultural | Financing Receivables, 30 to 59 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	51	105
Agricultural | Financing Receivables, 60 to 89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans	67	59
Agricultural | Financing Receivables, Equal to Greater than 90 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total past due loans		41
Overdrafts
Financing Receivable Recorded Investment Past Due [Line Items]
Current	329	382
Ending balance	$ 329	$ 382	$ 294

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PREMISES AND EQUIPMENT - Schedule of Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	$ 84,208	$ 79,515
Less: accumulated depreciation	30,777	27,288
Premises and equipment, net	53,431	52,227
Land
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	10,944	10,924
Building and improvements
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	54,809	52,623
Furniture, fixtures and equipment
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	17,960	15,675
Automobiles
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	$ 495	$ 293

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BORROWED MONEY - Narrative (Details)	12 Months Ended
	Dec. 31, 2019 USD ($)
Revolving Credit Facility
Line of Credit Facility [Line Items]
Line of credit facility, current borrowing capacity	$ 25,000,000
Long-term line of credit	$ 0
Secured Debt
Line of Credit Facility [Line Items]
Covenant description, risk-based capital ratio, minimum	10.00%
Covenant description, tangible net worth	$ 85,000,000
Covenant description, non-performing assets to equity, maximum	15.00%
Covenant description, cash flow coverage, minimum	1.25
Covenant description, other additional debt to total assets maximum	15.00%
Restrictive covenants, additional debt maximum	$ 500,000
Prime Rate | Revolving Credit Facility
Line of Credit Facility [Line Items]
Spread on variable rate	0.50%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details)		12 Months Ended
	Jan. 01, 2020	Dec. 31, 2019 USD ($) subsidary Family Residentialhouse segment	Mar. 31, 2019 USD ($)
Property, Plant and Equipment [Line Items]
Number of subsidiaries | subsidary		6
Number of families secured by loans of real estate | Family		4
Goodwill impairment		$ 0
Number of operating segments | segment		1
Number of reportable operating segments | segment		1
Operating lease right of use asset		$ 11,554,000
Operating lease liability		$ 11,675,000
Accounting Standards Update 2016-02
Property, Plant and Equipment [Line Items]
Operating lease right of use asset			$ 12,000,000.0
Operating lease liability			12,000,000.0
Accumulated Other Comprehensive Loss | Accounting Standards Update 2018-02
Property, Plant and Equipment [Line Items]
Reclassification of certain tax effects from accumulated other comprehensive income			486,000
Retained Earnings | Accounting Standards Update 2018-02
Property, Plant and Equipment [Line Items]
Reclassification of certain tax effects from accumulated other comprehensive income			$ 486,000
Core Deposits
Property, Plant and Equipment [Line Items]
Core deposit amortization period		10 years
Maximum
Property, Plant and Equipment [Line Items]
Number of housing units secured by loans from segment | Residentialhouse		5
Maximum | Accounting Standards Update 2016-13 | Subsequent Event
Property, Plant and Equipment [Line Items]
Increase to allowance for credit losses, percent	30.00%
Minimum | Accounting Standards Update 2016-13 | Subsequent Event
Property, Plant and Equipment [Line Items]
Increase to allowance for credit losses, percent	20.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the significant accounting policies followed in the preparation of the consolidated financial statements. The policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.

Principles of Consolidation: The consolidated financial statements include the accounts of Guaranty Bancshares, Inc. and its wholly-owned subsidiary Guaranty Bank & Trust, N.A., (the “Bank” or "Guaranty Bank & Trust"). All entities combined are collectively referred to as the “Company”. All significant intercompany balances and transactions have been eliminated in consolidation.

Non-Bank Investments: Guaranty Bank & Trust has six wholly-owned non-bank subsidiaries, Guaranty Company, GB Com, Inc., 2800 South Texas Avenue LLC, White Oak Aviation LLC, Pin Oak Realty Holdings, Inc. and Pin Oak Energy, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations: The Company operates several banking locations in Texas. The Company’s main sources of income are derived from granting loans, primarily in East Texas, Central Texas, the Dallas/Fort Worth metropolitan statistical area ("MSA"), and the Houston MSA, and investing in securities issued by the U.S. Treasury, U.S. government agencies and state and political subdivisions. A variety of financial products and services are provided to individual and corporate customers. The primary deposit products are checking accounts, money market accounts and certificates of deposit. The 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 East Texas, Central Texas, the Dallas/Fort Worth MSA and the Houston MSA.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual future results could differ.

Cash and Cash Equivalents: Cash and cash equivalents include cash, due from banks, interest-bearing deposits with other banks that have initial maturities less than 90 days and federal funds sold. Net cash flows are reported for loan and deposit transactions, and short-term borrowings with initial maturities less than 90 days.

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.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as

impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Non-marketable Securities: Other securities, such as stock in the Independent Bankers Financial Corporation, the Federal Reserve Bank, and the Federal Home Loan Bank are accounted for on the cost basis and are carried in other assets. Stock in Valesco Commerce Street Capital, L.P., Valesco Fund II, L.P., Independent Bankers Capital Fund II, L.P. and Independent Bankers Capital Fund III, L.P., are accounted for on the cost basis in other assets.

Loans Held for Sale: Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are carried at the lower of cost or estimated fair market value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. To mitigate the interest rate risk, fixed commitments may be obtained at the time loans are originated or identified for sale. All sales are made without recourse. Gains or losses on sales of mortgage loans are recognized at settlement dates based on the difference between the selling price and the carrying value of the related mortgage loans sold.

Loans: Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income was reported on the level-yield interest method and included amortization of net deferred loan fees and costs over the loan term.

Impaired Loans: Loans are considered impaired when, based on current information and events, it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.  If a loan is impaired, a specific valuation allowance is allocated, if necessary.  Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.  Impaired loans, or portions thereof, are charged off when deemed uncollectible. Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral.  Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price.

Nonaccrual Loans: Loans are placed on nonaccrual status at ninety days past due or as determined by management, and interest is considered a loss. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. 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 principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Certain Acquired Loans: During 2018, the Company acquired a group of loans through the acquisition of Westbound Bank (“Westbound”), as described in Note 2.  Acquired loans are recorded at their estimated fair value at the acquisition date, and are initially classified as either purchased credit impaired (“PCI”) loans (i.e. loans that reflect credit deterioration since origination and it is probable at acquisition that the Company will be unable to collect all contractually required payments) or purchased non-impaired loans (“acquired performing loans”).

Acquired performing loans are accounted for under Financial Accounting Standards Board’s Accounting Standards Codification (ASC) 310-20, “Nonrefundable Fees and Other Costs”. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, and portions of the accretable difference may be delayed or suspended if management deems appropriate. The Company’s policy for determining when to discontinue accruing interest on acquired performing loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans described above.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of homogeneous loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company. This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment. These qualitative factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and

local economic trends and conditions; industry conditions; effects of changes in credit concentrations; changes in the quality of the Company’s loan review system; and changes in the values of underlying collateral.

An allowance for loan losses for acquired performing loans is calculated using a methodology similar to that described for originated loans. Acquired performing loans are subsequently evaluated for any required allowance at each reporting date. Such required allowance for each loan is compared to the remaining fair value discount for that loan. If greater, the excess is recognized as an addition to the allowance through a provision for loan losses. If less than the discount, no additional allowance is recorded. Charge-offs and losses first reduce any remaining fair value discount for the loan and once the discount is depleted, losses are applied against the allowance established for that loan. Below is a summary of the segments of 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. Risks 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. Risks inherent in this portfolio include fluctuations in property values 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.

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 loan 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 respective portfolio segment classes:

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 finance principal and interest payments in the event that he is 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 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 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.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the related assets. Maintenance, repairs and minor improvements are charged to noninterest expense as incurred. The following table provides a summary of the estimated useful life of the different fixed asset classes as stated in the policy:

Bank Buildings	Up to 40 years
Equipment	to 10 years
Furniture and Fixtures	to 7 years
Software	to 5 years
Automobiles	to 4 years

Other Real Estate Owned: Assets acquired through, or in lieu of, foreclosure are initially recorded at fair value, less estimated carrying and selling costs, when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Goodwill and Other Intangible Assets: Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Impairment is tested for annually and exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At the measurement date, the Company had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

Core deposit intangibles represent premiums paid on acquired deposits based on the estimated fair value of the deposits at the time of purchase. These premiums are amortized over a ten year period.

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

KSOP Repurchase Right:  In accordance with applicable provisions of the Internal Revenue Code, the terms of Guaranty’s employee stock ownership plan with 401(k) provisions (“KSOP”) provided that, for so long as Guaranty was a privately-held company without a public market for its common stock, KSOP participants would have the right, for a

specified period of time, to require Guaranty to repurchase shares of its common stock that are distributed to them by the KSOP. This repurchase obligation terminated upon the consummation of Guaranty’s initial public offering and listing of its common stock on the NASDAQ Global Select Market in May 2017. However, because Guaranty was privately-held without a public market for its common stock as of and for the year ended December 31, 2016, the shares of common stock held by the KSOP are reflected in the Company’s consolidated statement of changes in shareholders' equity for the year ended December 31, 2017 as a line item called “KSOP-owned shares.”  As a result, the consolidated statement of changes in shareholders' equity for the year ended December 31, 2017 includes an adjustment for the inclusion of such KSOP-owned shares in total shareholders' equity as "terminated KSOP put option."  For all periods following Guaranty’s initial public offering and continued listing of the Company’s common stock on the NASDAQ Global Select Market, the KSOP-owned shares will be included in, and not be deducted from, shareholders’ equity.

Income Taxes: Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

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.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Derivative Financial Instruments: The Company accounts for its derivatives under ASC 815, “Derivatives and Hedging,” which requires recognition of all derivatives as either assets or liabilities in the balance sheet and requires measurement of those instruments at fair value through adjustments to accumulated other comprehensive income and/or current earnings, as appropriate. On the date the Company enters into a derivative contract, the Company designates the derivative instrument as either a fair value hedge, cash flow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to the hedged risk are recorded in current period operations. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to operations in the same period(s) that the hedged transaction impacts operations. For free-standing derivative instruments, changes in fair value are reported in current period operations.

Prior to entering a hedge transaction, the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions along with a formal assessment at both inception of the hedge and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair

values or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued and the adjustment to fair value of the derivative instrument is recorded in operations.

Dividend Restriction: Banking regulations require the maintenance of certain capital levels that may limit the amount of dividends that may be paid. Regulatory capital requirements are more fully disclosed in Note 19.

Restrictions on Cash: The Company was not required to have cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements as of December 31, 2019 and 2018. Deposits held with the Federal Reserve Bank earn interest.

Stock Compensation: In accordance with ASC 718, “Stock Compensation,” the Company uses the fair value method of accounting for share based compensation prescribed by the standard. The fair value of options granted is determined using the Black-Scholes option valuation model.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Earnings Per Share: Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. KSOP shares are considered outstanding for this calculation unless unearned. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share 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.

Comprehensive Income (Loss): Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and unrealized gains and losses on cash flow hedges which are also recognized as separate components of equity.

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassification: Certain amounts in prior period financial statements have been reclassified to conform to current period presentation. These reclassifications are immaterial and have no effect on net income, total assets or stockholders' equity.

Recent Accounting Pronouncements:

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Act on December 22, 2017 that changed the Company’s income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU was effective for periods beginning after December 15, 2018 and

early adoption was permitted. The Company early adopted ASU 2018-02 in the first quarter of 2018 and reclassified its stranded tax effect of $486 within accumulated other comprehensive income to retained earnings as of March 31, 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  In addition, the amendments in this ASU provide a detailed framework to assist entities in evaluating whether a set of assets and activities constitutes a business, as well as clarify the definition of the term output so the term is consistent with how outputs are described in Topic 606.  ASU 2017-01 was effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods.  The adoption of this pronouncement did not have a significant impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  This ASU simplifies the accounting for goodwill impairment for all entities by requiring impairment changes to be based on the first step in today’s two-step impairment test, thus eliminating step two from the goodwill impairment test.  In addition, the amendment eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill impairment test. For public companies, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  We adopted this pronouncement on January 1, 2020 and it did not have a significant impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a "current expected credit loss" ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts.  This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures.  For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company’s transition team has run parallel models for calculating the expected losses using various forecasts and qualitative factor adjustments, beginning in January 2019, to gain a comprehensive understanding of the impact that CECL and its underlying assumptions will have on the allowance upon adoption and through future periods and has developed internal controls and procedures.  The Company expects that the transition will result in a 20.0% to 30.0% increase to the allowance for credit losses upon adoption on January 1, 2020.  The increase is due to the shift from current loss history to an “expected loss” model, which takes into account losses expected to be incurred over the life of the portfolio.  ASU 2016-13 necessitates that we will also establish an allowance for expected credit losses for certain debt securities and other financial assets; however, we expect allowances on these financial instruments, if any, to be minimal.   As the Company continues to monitor the model, the ultimate impact of adoption could differ from current expectations, but the Company believes any differences from amounts recorded at adoption would be immaterial.  The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements.  The amendments in this ASU are effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.  Early adoption of this ASU is permitted for all entities.  An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect

adjustment at the beginning of the earliest comparative period presented or by recording a cumulative effect adjustment at the beginning of the period of adoption.  The Company used the latter approach.  The Company adopted Topic 842 in the first quarter of 2019, and recorded assets and liabilities each increased by approximately $12.0 million as it relates to operating leases in which we are the lessee.  The adoption of this standard has had a significant effect on the Company's consolidated balance sheet but does not materially affect the consolidated statement of earnings.  Refer to Note 14 for more information.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, which is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  This ASU was effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this pronouncement on January 1, 2018 and it did not have a significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), followed by various amendments to the standard, including clarification of principal versus agent considerations, narrow scope improvements and other technical corrections, all of which are codified in Topic 606.  The amendments in these updates amend existing guidance related to revenue from contracts with customers.  The amendments supersede and replace nearly all existing revenue recognition guidance, including industry-specific guidance, establish a new control-based revenue recognition model, change the basis for deciding when revenue is recognized over a time or point in time, provide new and more detailed guidance on specific topics and expand and improve disclosures about revenue.  In addition, these amendments specify the accounting for some costs to obtain or fulfill a contract with a customer.  The Company has applied ASU 2014-09, which was effective on January 1, 2018, using the modified retrospective approach to all existing contracts with customers covered under the scope of the standard. The adoption of this ASU was not significant to the Company and had no material effect on how the Company recognizes revenue nor did it result in a cumulative effect adjustment or any presentation changes to the consolidated financial statements.

The majority of the Company's revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as loans, letters of credit, loan processing fees and investment securities, as well as revenue related to mortgage banking activities, and BOLI, as these activities are subject to other accounting guidance. Descriptions of revenue-generating activities that are within the scope of Topic 606, and are presented in the accompanying Consolidated Statements of Income as components of noninterest income, are as follows:

• Deposit services. Service charges on deposit accounts include fees for banking services provided, overdrafts and non-sufficient funds. Revenue is generally recognized in accordance with published deposit account agreements for retail accounts or contractual agreements for commercial accounts.

• Merchant and debit card fees.  Merchant and debit card fees includes interchange income that is generated by our customers’ usage and volume of activity.  Interchange rates are not controlled by the Company, which

effectively acts as processor that collects and remits payments associated with customer debit card transactions.  Merchant service revenue is derived from third party vendors that process credit card transactions on behalf of our merchant customers.  Merchant services revenue is primarily comprised of residual fee income based on the referred merchant’s processing volumes and/or margin.

• Fiduciary income. Trust income includes fees and commissions from investment management, administrative and advisory services primarily for individuals, and to a lesser extent, partnerships and corporations. Revenue is recognized on an accrual basis at the time the services are performed and when we have a right to invoice and are based on either the market value of the assets managed or the services provided.

• Other noninterest income.  Other noninterest income includes among other things, mortgage loan origination fees, wire transfer fees, stop payment fees, loan administration fees and mortgage warehouse lending fees. The majority of these fees in other noninterest income are not subject to the requirements of ASC 606.  Fees that are within the scope of ASC 606 are generally received at the time the performance obligations are met.

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FAIR VALUE (Tables)

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Schedule of Financial Assets (Liabilities) Measured at Fair Value

The following table summarizes quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value as of December 31:

2019	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	$	84,182		$	—	$	84,182		$	—
Collateralized mortgage obligations		90,927			—		90,927			—
Municipal securities		17,348			—		17,348			—
Corporate bonds		20,259			—		20,259			—
Loans held for sale		2,368			—		—			2,368
Cash surrender value of life insurance		34,495			—		34,495			—
SBA servicing assets		672			—		—			672
Derivative instrument assets		526			—		526			—
Derivative instrument liabilities		(526	)		—		(526	)		—
Assets at fair value on a nonrecurring basis:
Impaired loans		20,028			—		—			20,028
Other real estate owned		603			—		—			603

2018	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	$	89,459		$	—	$	89,459		$	—
Collateralized mortgage obligations		108,969			—		108,969			—
Municipal securities		15,593			—		15,593			—
Corporate bonds		18,954			—		18,954			—
Loans held for sale		1,795			—		—			1,795
Cash surrender value of life insurance		26,301			—		26,301			—
SBA servicing assets		1,107			—		—			1,107
Derivative instrument assets		392			—		392			—
Derivative instrument liabilities		(392	)		—		(392	)		—
Assets at fair value on a nonrecurring basis:
Impaired loans		10,863			—		—			10,863
Other real estate owned		751			—		—			751

Schedule of Foreclosed Assets Measured at Fair Value

The following table presents foreclosed assets that were remeasured and recorded at fair value as of December 31:

	2019			2018			2017
Other real estate owned remeasured at initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	147		$	542		$	1,082
Charge-offs recognized in the allowance for loan losses		(11	)		(25	)		(195	)
Fair value of other real estate owned remeasured at initial recognition	$	136		$	517		$	887
Other real estate owned remeasured subsequent to initial recognition:
Carrying value of other real estate owned prior to remeasurement	$	35		$	599		$	—
Write-downs included in collection and other real estate owned expense		(10	)		(56	)		—
Fair value of other real estate owned remeasured subsequent to initial recognition	$	25		$	543		$	—

Schedule of Quantitative Information About Nonrecurring Level 3 Fair Value Measurements

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

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
December 31, 2019
Impaired loans	$	20,028	Fair value of collateral - sales comparison approach	Selling costs or other normal adjustments: Real estate Equipment	10%-20% (16%) 10%-20% (12%)
Other real estate owned	$	603	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

.	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
December 31, 2018
Impaired loans	$	10,863	Fair value of collateral - sales comparison approach	Selling costs or other normal adjustments: Real estate Equipment	10%-20% (16%) 10%-20% (19%)
Other real estate owned	$	751	Appraisal value of collateral	Selling costs or other normal adjustments	10%-20% (16%)

Schedule of Carrying Amounts And Estimated Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, not previously in this note, at December 31, 2019 and 2018 are as follows:

	Fair value measurements as of December 31, 2019 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	$	90,714	$	90,714	$	—	$	—	$	90,714
Marketable securities held to maturity		155,458		—		160,460		—		160,460
Loans, net		1,690,794		—		—		1,705,155		1,705,155
Accrued interest receivable		9,151		—		9,151		—		9,151
Nonmarketable equity securities		12,301		—		12,301		—		12,301
Financial liabilities:
Deposits	$	1,956,804	$	1,438,509	$	520,469	$	—	$	1,958,978
Securities sold under repurchase agreements		11,100		—		11,100		—		11,100
Accrued interest payable		1,642		—		1,642		—		1,642
Federal Home Loan Bank advances		55,118		—		55,125		—		55,125
Subordinated debentures		10,810		—		8,677		—		8,677

	Fair value measurements as of December 31, 2018 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	$	71,510	$	71,510	$	—	$	—	$	71,510
Marketable securities held to maturity		163,164		—		162,800		—		162,800
Loans, net		1,645,444		—		—		1,630,600		1,630,600
Accrued interest receivable		9,292		—		9,292		—		9,292
Nonmarketable equity securities		14,937		—		14,937		—		14,937
Financial liabilities:
Deposits	$	1,871,480	$	1,435,985	$	434,647	$	—	$	1,870,632
Securities sold under repurchase agreements		12,228		—		12,228		—		12,228
Accrued interest payable		1,651		—		1,651		—		1,651
Federal Home Loan Bank advances		115,136		—		114,934		—		114,934
Subordinated debentures		12,810		—		10,724		—		10,724

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DOCUMENT AND ENTITY INFORMATION - USD ($)
$ in Millions

12 Months Ended

Dec. 31, 2019

Mar. 11, 2020

Jun. 28, 2019

Cover [Abstract]

Document Type

10-K

Amendment Flag

false

Document Period End Date

Dec. 31, 2019

Document Fiscal Year Focus

2019

Document Fiscal Period Focus

FY

Trading Symbol

GNTY

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 Registrant Name

GUARANTY BANCSHARES INC /TX/

Entity Central Index Key

0001058867

Current Fiscal Year End Date

--12-31

Entity Current Reporting Status

Yes

Entity Filer Category

Accelerated Filer

Entity Small Business

false

Entity Emerging Growth Company

true

Entity Ex Transition Period

true

Entity Shell Company

false

Entity Common Stock, Shares Outstanding

11,332,513

Entity Interactive Data Current

Yes

Entity Well-known Seasoned Issuer

No

Entity Voluntary Filers

No

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 Annual Report

true

Document Transition Report

false

Entity Public Float

$ 251.7

Documents Incorporated by Reference

Portions of the registrant’s Definitive Proxy Statement relating to the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2019.

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Schedule of Interest Rates Swap Agreements

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

December 31, 2019
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		6.25	$	314
$	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		2.83	$	212

December 31, 2018
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		7.25	$	220
$	3,000		7.505	%	3 month LIBOR plus 3.35%	10/30/2012		3.83	$	173

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net earnings	$ 26,279	$ 20,596	$ 14,439
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during the period	9,474	(3,543)	(54)
Amortization of net unrealized gains on held to maturity securities	18	32	377
Reclassification adjustment for net (gains) losses included in net earnings	22	50	(167)
Tax effect	(2,012)	734	80
Unrealized gains (losses) on securities, net of tax	7,502	(2,727)	236
Unrealized holding (losses) gains arising during the period on interest rate swaps	(133)	178	124
Total other comprehensive income (loss)	7,369	(2,549)	360
Comprehensive income	$ 33,648	$ 18,047	$ 14,799

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INTEREST-BEARING DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2019

Banking And Thrift [Abstract]

Schedule of Deposit Liabilities

Interest-bearing deposits, by type of account, were as follows as of:

	December 31, 2019		December 31, 2018
NOW accounts	$	202,672	$	252,109
Savings and money market accounts		712,972		694,086
Time deposits $250,000 or less		300,608		298,724
Time deposits greater than $250,000		214,687		136,772
	$	1,430,939	$	1,381,691

Schedule of Time Deposit Maturities

Year-end maturities of time deposits, as of December 31, 2019, were as follows:

Year Ended December 31,	Amount
2020	$	440,588
2021		39,575
2022		16,721
2023		12,909
2024		5,502
Thereafter		—
	$	515,295

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LEASES (Tables)

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Schedule of Summarizes Other Information Related to Operating Leases

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

	As of December 31, 2019
Operating leases
Operating lease right-of-use assets	$	11,554
Operating lease liabilities		11,675
Weighted average remaining lease term
Operating leases	10 years
Weighted average discount rate
Operating leases		2.69	%

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 2024 and thereafter.  Minimum future lease payments under these non-cancelable operating leases in excess of one year as of December 31, 2019, are as follows:

Year Ended December 31,	Amount
2020	$	1,622
2021		1,430
2022		1,323
2023		1,314
2024		1,312
Thereafter		6,312
Total lease payments		13,313
Less: interest		(1,638	)
Present value of lease liabilities	$	11,675

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STOCK OPTIONS - Valuation Assumptions (Details) - Option	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	2.11%	2.87%	2.00%
Expected term (in years)	6 years 6 months	6 years 6 months	6 years 5 months 15 days
Expected stock price volatility	19.89%	20.10%	18.54%
Dividend yield	2.36%	1.76%	1.61%

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MARKETABLE SECURITIES - Narrative (Details)	12 Months Ended
	Dec. 31, 2019 USD ($) security	Dec. 31, 2018 USD ($) security	Dec. 31, 2017 USD ($) security
Debt Securities, Available-for-sale [Line Items]
Other than temporary impairment losses on debt securities related to credit losses | $	$ 0	$ 0
Securities in unrealized loss positions, over 12 months	95
Securities in unrealized loss positions, less than 12 months	75
Available-for-sale, securities in unrealized loss positions, over 12 months	37
Held-to-maturity, securities in unrealized loss positions, over 12 months	58
Available-for-sale securities in unrealized loss positions, less than 12 months	13
Held-to-maturity, securities in unrealized loss positions, less than 12 months	62
Number of securities other than agencies amount	0
Fair value of securities pledged as collateral | $	$ 278,318,000	$ 259,557,000
Number of held-to-maturity securities sold	0	0	3
Amortized cost, other than temporary impairment | $			$ 324,000
Amortized cost, principal write-downs | $			$ 499,000
Municipal securities
Debt Securities, Available-for-sale [Line Items]
Number of held-to-maturity securities sold			2
Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Number of held-to-maturity securities sold			3

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ACQUISITIONS - Narrative (Details) - USD ($)	Jun. 01, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Goodwill		$ 32,160,000	$ 32,160,000	$ 18,742,000
Westbound Bank
Business Acquisition [Line Items]
Percentage of shares acquired	100.00%
Total consideration transferred	$ 35,991,000
Shares issued (shares)	899,816
Shares of acquired company exchanged (shares)	2,311,952
Acquisition related costs	$ 1,175,000
Goodwill	13,418,000
Goodwill expected to be deducted	0
Contingent consideration withheld in escrow	$ 1,750,000
Performance period pertinent to contingent consideration	3 years
Fair value of performing loans	$ 154,687,000

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SUBORDINATED DEBENTURES - Schedule of Trusts (Details) $ in Thousands	Dec. 31, 2019 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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LOANS AND ALLOWANCE FOR LOAN LOSSES - Summary of Loan Portfolio by Type of Loan (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Loans held for investment:
Total loans	$ 1,706,395	$ 1,659,535	$ 1,359,544
Deferred loan costs	601	560
Allowance for loan losses	(16,202)	(14,651)	(12,859)	$ (11,484)
Total net loans	1,690,794	1,645,444
Commercial and industrial
Loans held for investment:
Total loans	279,583	261,779	197,508
Allowance for loan losses	(2,056)	(1,751)	(1,581)	(1,592)
Construction and development
Loans held for investment:
Total loans	280,498	237,503	196,774
Allowance for loan losses	(2,378)	(1,920)	(1,724)	(1,161)
Commercial real estate
Loans held for investment:
Total loans	567,360	582,519	418,137
Allowance for loan losses	(6,853)	(6,025)	(4,585)	(3,264)
Farmland
Loans held for investment:
Total loans	57,476	67,845	59,023
Allowance for loan losses	(570)	(643)	(523)	(482)
1-4 family residential
Loans held for investment:
Total loans	412,166	393,067	374,371
Allowance for loan losses	(3,125)	(2,868)	(3,022)	(3,960)
Multi-family residential
Loans held for investment:
Total loans	37,379	38,386	36,574
Allowance for loan losses	(409)	(631)	(629)	(281)
Consumer
Loans held for investment:
Total loans	53,245	54,777	51,267
Allowance for loan losses	(602)	(565)	(602)	(585)
Agricultural
Loans held for investment:
Total loans	18,359	23,277	25,596
Allowance for loan losses	(197)	(238)	(187)	(153)
Overdrafts
Loans held for investment:
Total loans	329	382	294
Allowance for loan losses	$ (12)	$ (10)	$ (6)	$ (6)

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STOCK OPTIONS - Summary of Nonvested Restricted Stock Awards and Units Activity (Details) - Restricted Stock Awards And Units [Member] - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Number of Shares
Outstanding at beginning of year (in shares)	1,439	2,398
Granted (in shares)	30,500	0
Vested (in shares)	(480)	(959)
Forfeited (in shares)	0	0
Balance (in shares)	31,459	1,439
Outstanding at beginning of year	$ 31.57	$ 31.57
Granted	30.25	0
Vested	31.57	31.57
Forfeited	0	0
Balance	$ 30.29	$ 31.57

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COMMITMENTS AND CONTINGENCIES - Schedule of Commitments and Letters of Credit (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Commitments to extend credit
Other Commitments [Line Items]
Off-balance sheet liability	$ 440,685	$ 342,523
Letters of credit
Other Commitments [Line Items]
Off-balance sheet liability	$ 9,054	$ 11,675

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NONINTEREST INCOME AND NONINTEREST EXPENSE - Schedule of Other Nonoperating Income and Expenses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Other Income, Nonoperating [Abstract]
Fiduciary income	$ 1,760	$ 1,587	$ 1,463
Bank-owned life insurance income	774	570	461
Merchant and debit card fees	4,264	3,642	3,119
Loan processing fee income	590	589	597
Other noninterest income	3,031	3,057	2,745
Total	10,419	9,445	8,385
Other Expense, Nonoperating [Abstract]
Legal and professional fees	2,610	3,080	2,061
Software support fees	3,341	2,502	2,089
Amortization	1,378	1,228	1,033
Director and committee fees	873	1,029	1,064
Advertising and promotions	1,655	1,410	1,193
ATM and debit card expense	1,347	1,127	899
Office and computer supplies	470	416	426
Postage	302	310	301
Telecommunication expense	676	649	526
FDIC insurance assessment fees	173	625	671
Other real estate owned expenses and write-downs	59	157	128
Other	3,900	3,721	3,513
Total	$ 16,784	$ 16,254	$ 13,904

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 18 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles generally accepted in the United States of America, are not included in the 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 assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for credit losses.

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 December 31, 2019 and 2018, 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 December 31:

	Contract or Notional Amount
	2019		2018
Commitments to extend credit	$	440,685	$	342,523
Letters of credit		9,054		11,675

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 December 31, 2019, the Company had letters of credit of $2,000 pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law.

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Summary of Securities (Details) - Securities Sold under Agreements to Repurchase - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Short Term Debt [Line Items]
Average balance during the year	$ 10,901	$ 12,796
Average interest rate during the year	0.50%	0.57%
Maximum month-end balance during the year	$ 11,542	$ 14,365
Weighted average interest rate at year-end	0.31%	0.44%

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LEASES

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

LEASES

NOTE 14 - 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 15 years. Some of the Company’s operating leases include options to extend the leases for up to 7 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 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 December 31, 2019, operating lease right-of-use assets were $11.6 million and liabilities were $11.7 million and were included within the accompanying consolidated balance sheet as components of other assets and other liabilities, respectively.

Operating lease expense for operating leases accounted for under ASC 842 for the year ended December 31, 2019 was approximately $1,881, 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 December 31, 2019
Operating leases
Operating lease right-of-use assets	$	11,554
Operating lease liabilities		11,675
Weighted average remaining lease term
Operating leases	10 years
Weighted average discount rate
Operating leases		2.69	%

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2024 and thereafter.  Minimum future lease payments under these non-cancelable operating leases in excess of one year as of December 31, 2019, are as follows:

Year Ended December 31,	Amount
2020	$	1,622
2021		1,430
2022		1,323
2023		1,314
2024		1,312
Thereafter		6,312
Total lease payments		13,313
Less: interest		(1,638	)
Present value of lease liabilities	$	11,675

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GOODWILL

12 Months Ended

Dec. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

GOODWILL

NOTE 6 - GOODWILL

Changes in the carrying amount of goodwill in the accompanying consolidated balance sheets as of December 31 are summarized as follows:

	2019		2018
Beginning of year	$	32,160	$	18,742
Effect of acquisitions		—		13,418
End of year	$	32,160	$	32,160

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ACQUISITIONS

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

ACQUISITIONS

NOTE 2 - ACQUISITION

On close of business June 1, 2018, the Company acquired 100% of the outstanding shares of capital stock of Westbound Bank, a Texas banking association (“Westbound”), in exchange for a combination of cash and shares of the Company’s common stock amounting to total consideration of $35,991.  Under the terms of the acquisition, the Company issued 899,816 shares of the Company’s common stock in exchange for 2,311,952 shares of Westbound, representing 100% of the outstanding shares of common and preferred stock of Westbound.  With the acquisition, the Company has expanded its market into the Houston MSA.  Results of operations of the acquired company were included in the Company’s results beginning June 2, 2018.  Acquisition-related costs of $1,175 are included in other operating expenses in the Company’s consolidated statement of earnings for the year ended December 31, 2018.  The fair value of the common shares issued as part of the consideration paid for Westbound was determined based upon the closing price of the Company’s common shares on the acquisition date.

Goodwill of $13,418 arising from the acquisition of Westbound consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies.  None of the goodwill is expected to be deductible for income tax purposes.  The following table summarizes the consideration paid for Westbound and the fair value of the assets acquired and liabilities assumed recognized at the acquisition date:

Consideration:

	Westbound
Cash	$	6,423
Equity instruments		29,568
Fair value of total consideration transferred	$	35,991

Cash consideration includes contingent consideration related to an escrow agreement in which $1,750 was retained from amounts paid to Westbound shareholders for payment to Guaranty in the event that certain defined loan relationships experienced actual losses during the three year period following the close of the transaction on June 1, 2018.  If the loans defined in the escrow agreement do experience losses, funds from the escrow account will be remitted to Guaranty.   If the loans payoff or do not experience losses, funds from the escrow account will be remitted to Westbound shareholders according to terms set forth in the escrow agreement.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition, June 1, 2018.

	Westbound
Cash and due from banks	$	24,927
Investment securities available for sale		15,264
Loans, net of discount		154,687
Accrued interest receivable		651
Premises and equipment		8,625
Core deposit intangible		2,700
Other assets		9,205
Total assets acquired		216,059
Non-interest bearing deposits		40,595
Interest bearing deposits		140,826
Federal Home Loan Bank advances		10,500
Accrued interest and other liabilities		1,565
Total liabilities assumed		193,486
Net assets acquired		22,573
Total consideration paid		35,991
Goodwill	$	13,418

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date (“acquired performing loans”).  The fair value adjustments were determined using discounted contractual cash flows.  However, the Company believes that all contractual cash flows related to these financial instruments will be collected.  As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination.  Acquired performing loans had fair value and gross contractual amounts receivable of $154,687.

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PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION - Balance Sheet and Income Statement (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
ASSETS
Other assets	$ 32,701	$ 26,645
Total assets	2,318,444	2,266,970
LIABILITIES AND EQUITY
Accrued interest and other liabilities	23,061	10,733
Shareholders’ equity	261,551	244,583	$ 207,345	$ 110,253
Total liabilities and shareholders' equity	2,318,444	2,266,970
Income Statement [Abstract]
Interest income	102,561	88,458	71,782
Interest expense	23,691	19,542	12,152
Income before income taxes	32,057	25,195	22,677
Tax benefit	(5,778)	(4,599)	(8,238)
Net earnings	26,279	20,596	14,439
Comprehensive income	33,648	18,047	14,799
Parent Company
ASSETS
Cash and cash equivalents	7,264	4,111
Investment in banking subsidiaries	268,237	255,637
Other assets	469	384
Total assets	275,970	260,132
LIABILITIES AND EQUITY
Debt	11,563	12,810
Accrued interest and other liabilities	2,856	2,739
Shareholders’ equity	261,551	244,583
Total liabilities and shareholders' equity	275,970	260,132
Income Statement [Abstract]
Interest income	15	13	11
Dividends from Guaranty Bank & Trust	23,000	10,000	0
Income	23,015	10,013	11
Interest expense	653	687	1,024
Other expenses	1,819	2,590	1,682
Expenses	2,472	3,277	2,706
Income before income taxes	20,543	6,736	(2,695)
Tax benefit	639	482	354
Net of Tax	21,182	7,218	(2,341)
Equity in undistributed earnings of subsidiary	5,097	13,378	16,780
Net earnings	26,279	20,596	14,439
Comprehensive income	$ 33,648	$ 18,047	$ 14,799

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SUBORDINATED DEBENTURES

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

SUBORDINATED DEBENTURES

NOTE 10 - SUBORDINATED DEBENTURES

Subordinated debentures are made up of the following as of:

	December 31, 2019		December 31, 2018
Trust II Debentures	$	3,093	$	3,093
Trust III Debentures		2,062		2,062
DCB Trust I Debentures		5,155		5,155
Other debentures		500		2,500
	$	10,810	$	12,810

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 $1,000,000 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 can qualify as Tier I 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 I capital, net of goodwill, the full amount is includable in Tier I capital at December 31, 2019 and 2018. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier I 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 are 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 months LIBOR plus 3.35%, thereafter.

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 was 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 is equal to 100% of the principal amount if redeemed, plus accrued interest to the date of redemption.

DCB Debentures I

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 July 2015, the Company issued $4,000 in debentures, of which $3,000 were issued to directors and other related parties.  The $3,000 of debentures to related parties were repaid in May 2017 and a $500 par value debenture, which carried a 2.50% rate, matured and was repaid in July 2017.  The remaining $500 debenture had a rate of 4.00%, matured and was paid off in January 2019.

In December 2015, the Company issued $5,000 in debentures, of which $2,500 were issued to directors and other related parties.  In May 2017, $2,000 of the related party debentures were repaid with a portion of the proceeds of Guaranty’s initial public offering.  A further $1,000 of other debentures matured and were paid off in full in July of 2018 and another $1,000 and $500 of debentures matured and were paid off in full in July and December, respectively, of the current year. The remaining $500 of debentures were issued at par value of $500 with a rate of 5.00% and maturity date of July 1, 2020.  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.

Maturities of subordinated debentures based on scheduled repayments at December 31, 2019 are as follows (in thousands of dollars):

Year Ended December 31,	Amount
2020	$	500
2021		—
2022		—
2023		—
2024		—
Thereafter		10,310
	$	10,810

NOTE 21 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase are secured by collateralized mortgage obligations securities with a market value of $11,100 as of December 31, 2019 and collateralized mortgage obligations and agency securities with a market value of $12,228 as of December 31, 2018, respectively.

Securities sold under agreements to repurchase are financing arrangements that mature within two years. At maturity, the securities underlying the agreements are returned to the Company. Information concerning securities sold under agreements to repurchase is summarized as follows as of December 31:

	2019			2018
Average balance during the year	$	10,901		$	12,796
Average interest rate during the year		0.50	%		0.57	%
Maximum month-end balance during the year	$	11,542		$	14,365
Weighted average interest rate at year-end		0.31	%		0.44	%

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FAIR VALUE - Schedule of Carrying Amounts and Estimated Fair Value of Assets And Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Financial assets:
Marketable securities held to maturity	$ 160,460	$ 162,800
Reported Value Measurement
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	90,714	71,510
Marketable securities held to maturity	155,458	163,164
Loans, net	1,690,794	1,645,444
Accrued interest receivable	9,151	9,292
Nonmarketable equity securities	12,301	14,937
Financial liabilities:
Deposits	1,956,804	1,871,480
Securities sold under repurchase agreements	11,100	12,228
Accrued interest payable	1,642	1,651
Federal Home Loan Bank advances	55,118	115,136
Subordinated debentures	10,810	12,810
Fair Value
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	90,714	71,510
Marketable securities held to maturity	160,460	162,800
Loans, net	1,705,155	1,630,600
Accrued interest receivable	9,151	9,292
Nonmarketable equity securities	12,301	14,937
Financial liabilities:
Deposits	1,958,978	1,870,632
Securities sold under repurchase agreements	11,100	12,228
Accrued interest payable	1,642	1,651
Federal Home Loan Bank advances	55,125	114,934
Subordinated debentures	8,677	10,724
Fair Value | Level 1 Inputs
Financial assets:
Cash, due from banks, federal funds sold and interest-bearing deposits	90,714	71,510
Marketable securities held to maturity	0	0
Loans, net	0	0
Accrued interest receivable	0	0
Nonmarketable equity securities	0	0
Financial liabilities:
Deposits	1,438,509	1,435,985
Securities sold under repurchase agreements	0	0
Accrued interest payable	0	0
Federal Home Loan Bank advances	0	0
Subordinated debentures	0	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	160,460	162,800
Loans, net	0	0
Accrued interest receivable	9,151	9,292
Nonmarketable equity securities	12,301	14,937
Financial liabilities:
Deposits	520,469	434,647
Securities sold under repurchase agreements	11,100	12,228
Accrued interest payable	1,642	1,651
Federal Home Loan Bank advances	55,125	114,934
Subordinated debentures	8,677	10,724
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	0
Loans, net	1,705,155	1,630,600
Accrued interest receivable	0	0
Nonmarketable equity securities	0	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	$ 0

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EARNINGS PER SHARE

12 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 25 - 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 (in thousands except per share amounts) as of December 31:

	2019		2018		2017
Numerator:
Net earnings  (basic)	$	26,279	$	20,596	$	14,439
Net earnings (diluted)	$	26,279	$	20,596	$	14,439
Denominator:
Weighted-average shares outstanding (basic)		11,638,897		11,562,826		10,230,840
Effect of dilutive securities:
Common stock equivalent shares from stock options		66,202		90,940		82,529
Weighted-average shares outstanding (diluted)		11,705,099		11,653,766		10,313,369
Net earnings per share
Basic	$	2.26	$	1.78	$	1.41
Diluted	$	2.25	$	1.77	$	1.40

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INCOME TAXES - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Deferred tax assets:
Allowance for loan losses	$ 3,402	$ 3,077
Deferred compensation	857	770
Unrealized loss on available for sale securities	0	1,464
Bonus accrual	399	328
Accretion of acquisition allowance	183	327
Other real estate owned	134	65
Other	420	484
Total deferred tax assets	5,395	6,515
Deferred tax liabilities:
Unrealized gain on available for sale securities	(526)	0
Premises and equipment	(2,353)	(2,334)
Prepaid expenses	(270)	(179)
Deferred loan costs, net	(137)	(118)
Intangibles	(470)	(590)
Other	(101)	(85)
Total deferred tax liabilities	(3,857)	(3,306)
Net deferred tax asset	$ 1,538	$ 3,209

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ACQUISITIONS (Tables)

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

Schedule of Business Acquisitions

The following table summarizes the consideration paid for Westbound and the fair value of the assets acquired and liabilities assumed recognized at the acquisition date

Consideration:

	Westbound
Cash	$	6,423
Equity instruments		29,568
Fair value of total consideration transferred	$	35,991

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition, June 1, 2018.

	Westbound
Cash and due from banks	$	24,927
Investment securities available for sale		15,264
Loans, net of discount		154,687
Accrued interest receivable		651
Premises and equipment		8,625
Core deposit intangible		2,700
Other assets		9,205
Total assets acquired		216,059
Non-interest bearing deposits		40,595
Interest bearing deposits		140,826
Federal Home Loan Bank advances		10,500
Accrued interest and other liabilities		1,565
Total liabilities assumed		193,486
Net assets acquired		22,573
Total consideration paid		35,991
Goodwill	$	13,418

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EMPLOYEE BENEFITS - Narrative (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
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	$ 1,270	$ 1,125	$ 965
Employee stock ownership plan, shares held under plan (in shares)	1,224,697	1,333,504
Employee stock ownership plan, unallocated shares (in shares)	0	0
Cash surrender value of life insurance	$ 34,495	$ 26,301
Bonus expense	3,265	2,943	2,316
Executive Incentive Retirement Plan | Postretirement Life Insurance | Nonqualified Plan | Unfunded Plan
Defined Benefit Plan Disclosure [Line Items]
Cash surrender value of life insurance	34,495	26,301
Plan cost	602	502	$ 447
Plan obligation	$ 4,081	$ 3,667

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INCOME TAXES - Provision for Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Current federal tax expense	$ 6,097	$ 5,288	$ 5,803
Deferred federal tax (benefit) expense	(319)	(683)	740
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate	0	(6)	1,695
Total	$ 5,778	$ 4,599	$ 8,238

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
Statement Of Financial Position [Abstract]
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)	12,905,097	12,835,486
Common stock, shares outstanding (in shares)	11,547,443	11,829,868
Treasury stock (in shares)	1,357,654	1,005,618

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EARNINGS PER SHARE (Tables)

12 Months Ended

Dec. 31, 2019

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 (in thousands except per share amounts) as of December 31:

	2019		2018		2017
Numerator:
Net earnings  (basic)	$	26,279	$	20,596	$	14,439
Net earnings (diluted)	$	26,279	$	20,596	$	14,439
Denominator:
Weighted-average shares outstanding (basic)		11,638,897		11,562,826		10,230,840
Effect of dilutive securities:
Common stock equivalent shares from stock options		66,202		90,940		82,529
Weighted-average shares outstanding (diluted)		11,705,099		11,653,766		10,313,369
Net earnings per share
Basic	$	2.26	$	1.78	$	1.41
Diluted	$	2.25	$	1.77	$	1.40

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement Of Stockholders Equity [Abstract]
Common stock dividends (in USD per share)	$ 0.70	$ 0.60	$ 0.53

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REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2019

Banking And Thrift [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 is presented in the following tables:

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required Under Basel III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2019
Total capital to risk-weighted assets:
Consolidated	$	253,793		13.29	%	$	152,770		8.00	%	$	200,510		10.50	%			n/a
Bank		249,643		13.07	%		152,774		8.00	%		200,516		10.50	%	$	190,968		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		237,591		12.44	%		114,577		6.00	%		162,318		8.50	%			n/a
Bank		233,441		12.22	%		114,581		6.00	%		162,322		8.50	%		152,774		8.00	%
Tier 1 capital to average assets:(1)
Consolidated		237,591		10.29	%		92,318		4.00	%		92,318		4.00	%			n/a
Bank		233,441		10.11	%		92,321		4.00	%		92,321		4.00	%		115,401		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		227,281		11.90	%		85,933		4.50	%		133,674		7.00	%			n/a
Bank		233,441		12.22	%		85,935		4.50	%		133,677		7.00	%		124,129		6.50	%
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board 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 Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2018
Total capital to risk-weighted assets:
Consolidated	$	241,791		13.25	%	$	146,020		8.00	%	$	191,651		10.50	%			n/a
Bank		242,142		13.27	%		146,015		8.00	%		191,645		10.50	%	$	182,519		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		227,140		12.44	%		109,515		6.00	%		155,146		8.50	%			n/a
Bank		227,491		12.46	%		109,511		6.00	%		155,141		8.50	%		146,015		8.00	%
Tier 1 capital to average assets:
Consolidated		227,140		10.16	%		89,422		4.00	%		89,422		4.00	%			n/a
Bank		227,491		10.18	%		89,414		4.00	%		89,414		4.00	%		111,768		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		216,830		11.88	%		82,136		4.50	%		127,768		7.00	%			n/a
Bank		227,491		12.46	%		82,134		4.50	%		127,763		7.00	%		118,637		6.50	%

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SUBORDINATED DEBENTURES - Narrative (Details) - USD ($)	1 Months Ended						12 Months Ended
	Dec. 31, 2019	Jul. 31, 2019	Jan. 31, 2019	Jul. 31, 2018	Jul. 31, 2017	May 31, 2017	Dec. 31, 2019	Dec. 31, 2015	Jul. 31, 2015
Debt Instrument [Line Items]
Liquidation value per share	$ 1,000,000						$ 1,000,000
Debentures mature date	30 years						30 years
Subordinated debentures | Trust II Debentures
Debt Instrument [Line Items]
Debenture issued	$ 3,093,000						$ 3,093,000
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	2,062,000						$ 2,062,000
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	5,155,000						$ 5,155,000
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 July 2015
Debt Instrument [Line Items]
Debenture issued									$ 4,000,000
Debentures that matured and were paid off	500,000	$ 1,000,000		$ 1,000,000
Repayments of related party debt							$ 3,000,000
Subordinated debentures | Other Debentures Issued in July 2015 | Directors and Related Parties
Debt Instrument [Line Items]
Debenture issued									$ 3,000,000
Subordinated debentures | Other Subordinated Debentures Issued in July 2015, 2.50%, Maturing July 1, 2017
Debt Instrument [Line Items]
Stated interest rate					2.50%
Debentures that matured and were paid off					$ 500,000
Subordinated debentures | Other Subordinated Debentures Issued in July 2015, 4.00%, Maturing January 1, 2019
Debt Instrument [Line Items]
Stated interest rate			4.00%
Debentures that matured and were paid off			$ 500,000
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	500,000						$ 500,000	$ 5,000,000
Repayments of related party debt						$ 2,000,000
Debenture issued, par value per instrument issued	$ 500,000						$ 500,000
Debt instrument maturity end date							Jul. 01, 2020
Subordinated debentures | Other Debentures Issued in December 2015 | Directors and Related Parties
Debt Instrument [Line Items]
Debenture issued								$ 2,500,000
Subordinated debentures | Other Debentures Issued in December 2015 | Maximum
Debt Instrument [Line Items]
Stated interest rate	5.00%						5.00%

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GOODWILL - Schedule of Goodwill (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Goodwill [Roll Forward]
Beginning of year	$ 32,160	$ 18,742
Effect of acquisitions	0	13,418
End of year	$ 32,160	$ 32,160

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CORE DEPOSIT INTANGIBLES - Narrative (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
Accumulated amortization	$ 4,678	$ 3,825
Amortization	$ 853	$ 718	$ 584

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Schedule of Allowance for Loan Losses Activity (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Allowance for loan losses:
Beginning balance	$ 14,651	$ 12,859	$ 11,484
Provision for loan losses	1,250	2,250	2,850
Loans charged-off	(453)	(918)	(2,458)
Recoveries	754	460	983
Ending balance	16,202	14,651	12,859
Allowance ending balance:
Individually evaluated for impairment	1,649	493	134
Collectively evaluated for impairment	14,553	14,158	12,725
Ending balance	16,202	14,651	12,859
Loans:
Individually evaluated for impairment	21,677	11,356	6,340
Collectively evaluated for impairment	1,684,718	1,648,179	1,353,204
Ending balance	1,706,395	1,659,535	1,359,544
Commercial and industrial
Allowance for loan losses:
Beginning balance	1,751	1,581	1,592
Provision for loan losses	(117)	426	272
Loans charged-off	(86)	(367)	(1,080)
Recoveries	508	111	797
Ending balance	2,056	1,751	1,581
Allowance ending balance:
Individually evaluated for impairment		64	17
Collectively evaluated for impairment	2,008	1,687	1,564
Ending balance	2,008	1,751	1,581
Loans:
Individually evaluated for impairment	289	1,022	463
Collectively evaluated for impairment	279,294	260,757	197,045
Ending balance	279,583	261,779	197,508
Construction and development
Allowance for loan losses:
Beginning balance	1,920	1,724	1,161
Provision for loan losses	458	196	563
Ending balance	2,378	1,920	1,724
Allowance ending balance:
Individually evaluated for impairment		4
Collectively evaluated for impairment	2,322	1,916	1,724
Ending balance	2,322	1,920	1,724
Loans:
Individually evaluated for impairment	1,212	1,250
Collectively evaluated for impairment	279,286	236,253	196,774
Ending balance	280,498	237,503	196,774
Commercial real estate
Allowance for loan losses:
Beginning balance	6,025	4,585	3,264
Provision for loan losses	827	1,472	1,405
Loans charged-off		(33)	(84)
Recoveries	1	1
Ending balance	6,853	6,025	4,585
Allowance ending balance:
Individually evaluated for impairment	1,587	341	27
Collectively evaluated for impairment	5,486	5,684	4,558
Ending balance	7,073	6,025	4,585
Loans:
Individually evaluated for impairment	17,483	7,153	4,258
Collectively evaluated for impairment	549,877	575,366	413,879
Ending balance	567,360	582,519	418,137
Farmland
Allowance for loan losses:
Beginning balance	643	523	482
Provision for loan losses	(73)	120	41
Ending balance	570	643	523
Allowance ending balance:
Individually evaluated for impairment	62	78	85
Collectively evaluated for impairment	495	565	438
Ending balance	557	643	523
Loans:
Individually evaluated for impairment	133	140	163
Collectively evaluated for impairment	57,343	67,705	58,860
Ending balance	57,476	67,845	59,023
1-4 family residential
Allowance for loan losses:
Beginning balance	2,868	3,022	3,960
Provision for loan losses	268	(196)	(418)
Loans charged-off	(14)	(93)	(543)
Recoveries	3	135	23
Ending balance	3,125	2,868	3,022
Allowance ending balance:
Individually evaluated for impairment		6	5
Collectively evaluated for impairment	3,050	2,862	3,017
Ending balance	3,050	2,868	3,022
Loans:
Individually evaluated for impairment	2,498	1,383	842
Collectively evaluated for impairment	409,668	391,684	373,529
Ending balance	412,166	393,067	374,371
Multi-family residential
Allowance for loan losses:
Beginning balance	631	629	281
Provision for loan losses	(222)	2	348
Ending balance	409	631	629
Allowance ending balance:
Collectively evaluated for impairment	400	631	629
Ending balance	400	631	629
Loans:
Individually evaluated for impairment			217
Collectively evaluated for impairment	37,379	38,386	36,357
Ending balance	37,379	38,386	36,574
Consumer
Allowance for loan losses:
Beginning balance	565	602	585
Provision for loan losses	(2)	127	253
Loans charged-off	(72)	(254)	(344)
Recoveries	111	90	108
Ending balance	602	565	602
Allowance ending balance:
Collectively evaluated for impairment	588	565	602
Ending balance	588	565	602
Loans:
Collectively evaluated for impairment	53,245	54,777	51,267
Ending balance	53,245	54,777	51,267
Agricultural
Allowance for loan losses:
Beginning balance	238	187	153
Provision for loan losses	(41)	(12)	276
Loans charged-off	(89)	(2)	(242)
Recoveries	89	65
Ending balance	197	238	187
Allowance ending balance:
Collectively evaluated for impairment	192	238	187
Ending balance	192	238	187
Loans:
Individually evaluated for impairment	62	408	397
Collectively evaluated for impairment	18,297	22,869	25,199
Ending balance	18,359	23,277	25,596
Overdrafts
Allowance for loan losses:
Beginning balance	10	6	6
Provision for loan losses	152	115	110
Loans charged-off	(192)	(169)	(165)
Recoveries	42	58	55
Ending balance	12	10	6
Allowance ending balance:
Collectively evaluated for impairment	12	10	6
Ending balance	12	10	6
Loans:
Collectively evaluated for impairment	329	382	294
Ending balance	$ 329	$ 382	$ 294

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Troubled Debt Restructuring (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) contract	Dec. 31, 2018 USD ($) contract
Financing Receivable, Modifications [Line Items]
Total	$ 7,341	$ 1,196
Specific reserves on TDRs	$ 164	$ 0
Troubled Debt Restructurings:
Number of Contracts | contract	4	4
Pre-Modification Outstanding Recorded Investment	$ 1,680	$ 582
Post-Modification Outstanding Recorded Investment	$ 1,515	$ 582
Commercial real estate
Troubled Debt Restructurings:
Number of Contracts | contract	4
Pre-Modification Outstanding Recorded Investment	$ 1,680
Post-Modification Outstanding Recorded Investment	1,515
Commercial and industrial
Troubled Debt Restructurings:
Number of Contracts | contract		3
Pre-Modification Outstanding Recorded Investment		$ 504
Post-Modification Outstanding Recorded Investment		$ 504
1-4 family residential
Troubled Debt Restructurings:
Number of Contracts | contract		1
Pre-Modification Outstanding Recorded Investment		$ 78
Post-Modification Outstanding Recorded Investment		78
Nonaccrual TDRs
Financing Receivable, Modifications [Line Items]
Total	101	335
Performing TDRs
Financing Receivable, Modifications [Line Items]
Total	$ 7,240	$ 861

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INTEREST -BEARING DEPOSITS - Narrative (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Compliance With Regulatory Capital Requirements Under Banking Regulations [Line Items]
Interest-bearing	$ 1,430,939	$ 1,381,691
Executive Officers, Directors and Significant Shareholders
Compliance With Regulatory Capital Requirements Under Banking Regulations [Line Items]
Interest-bearing	$ 59,658	$ 59,674

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PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION - Cash Flows (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities
Net earnings	$ 26,279	$ 20,596	$ 14,439
Adjustments:
Stock based compensation	663	592	355
Net cash provided by operating activities	32,046	28,214	29,669
Cash flows from investing activities
Net cash used in investing activities	(17,740)	(108,734)	(183,807)
Cash flows from financing activities
Sale of common stock	0	0	55,755
Purchase of treasury stock	(10,140)	(4,265)	0
Exercise of stock options	925	327	84
Dividends paid	(8,065)	(7,031)	(5,562)
Net cash provided by financing activities	4,898	60,602	118,023
Net change in cash and cash equivalents	19,204	(19,918)	(36,115)
Cash and cash equivalents at beginning of period	71,510	91,428	127,543
Cash and cash equivalents at end of period	90,714	71,510	91,428
Parent Company
Cash flows from operating activities
Net earnings	26,279	20,596	14,439
Adjustments:
Equity in undistributed subsidiary earnings	(5,097)	(13,378)	(16,780)
Stock based compensation	663	592	355
Change in other assets	85	127	1,270
Change in other liabilities	503	557	1,589
Net cash provided by operating activities	22,433	8,494	873
Cash flows from investing activities
Cash paid in connection with acquisitions	0	(6,423)	0
Investment in Guaranty Bank & Trust	0	0	(15,000)
Net cash used in investing activities	0	(6,423)	(15,000)
Cash flows from financing activities
Proceeds of borrowings	0	0	2,000
Repayments of borrowings	(2,000)	(1,000)	(25,786)
Sale of common stock	0	0	55,755
Purchase of treasury stock	(10,140)	(4,265)	0
Exercise of stock options	925	327	84
Dividends paid	(8,065)	(7,031)	(5,562)
Net cash provided by financing activities	(19,280)	(11,969)	26,491
Net change in cash and cash equivalents	3,153	(9,898)	12,364
Cash and cash equivalents at beginning of period	4,111	14,009	1,645
Cash and cash equivalents at end of period	$ 7,264	$ 4,111	$ 14,009

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STOCK OPTIONS

12 Months Ended

Dec. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCK OPTIONS

NOTE 11 - STOCK OPTIONS

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 1,000,000 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.

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.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date, for the years ended December 31:

	2019			2018			2017
Risk-free interest rate		2.11	%		2.87	%		2.00	%
Expected term (in years)		6.50			6.50			6.46
Expected stock price volatility		19.89	%		20.10	%		18.54	%
Dividend yield		2.36	%		1.76	%		1.61	%

A summary of activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		537,872		$	26.49		6.97	$	2,088
Granted		39,000			29.89		9.40		117
Exercised		(37,672	)		24.55		4.11		314
Forfeited		(31,200	)		30.04		8.02		89
Balance, December 31, 2019		508,000		$	26.68		6.24	$	3,159
Exercisable at end of period		256,880		$	25.21		5.18	$	1,971

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		469,044		$	25.11		7.32	$	2,623
Granted		101,000			32.29		9.51		5
Exercised		(14,372	)		22.74		4.33		102
Forfeited		(17,800	)		26.07		6.71		96
Balance, December 31, 2018		537,872		$	26.49		6.97	$	2,088
Exercisable at end of period		206,312		$	24.48		5.65	$	1,113

A summary of nonvested activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		331,560		$	27.74		7.77	$	975
Granted		39,000			29.89		9.40		117
Vested		(91,040	)		26.71		6.02		563
Forfeited		(28,400	)		33.00		8.81		89
Balance, December 31, 2019		251,120		$	28.18		7.31	$	1,188

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		334,400		$	25.72		7.91	$	1,673
Granted		101,000			32.29		9.51		5
Vested		(88,440	)		25.51		6.69		400
Forfeited		(15,400	)		30.14		7.76		96
Balance, December 31, 2018		331,560		$	27.74		7.77	$	975

Restricted Stock Awards and Units

A summary of activity in the Plan during years ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		959		$	31.57
Vested		480			31.57
Released		(1,439	)		31.57
Forfeited		—			—
Balance, December 31, 2019		—		$	—

2018	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		—	$	—
Vested		959		31.57
Released		—		—
Forfeited		—		—
Balance, December 31, 2018		959	$	31.57

A summary of nonvested activity in the Plan during the twelve months ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		1,439		$	31.57
Granted		30,500			30.25
Vested		(480	)		31.57
Forfeited		—			—
Balance, December 31, 2019		31,459		$	30.29

2018	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		2,398		$	31.57
Granted		—			—
Vested		(959	)		31.57
Forfeited		—			—
Balance, December 31, 2018		1,439		$	31.57

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.

Information related to the Plan is as follows for the years ended December 31:

	2019		2018		2017
Intrinsic value of options exercised	$	314	$	102	$	132
Cash received from options exercised		925		327		84
Weighted average fair value of options granted		16.07		6.69		7.91

As of December 31, 2019, there was $2,069 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 3.44 years.

The Company granted options under the Plan in 2019, 2018 and 2017.  Expense of $663, $592 and $355 was recorded during the years ended December 31, 2019, 2018 and 2017, respectively, which represents the fair value of shares vested during those years.

NOTE 12 - STOCK APPRECIATION RIGHTS

On June 1, 2017, the Company terminated the Guaranty Bancshares, Inc. Fair Market Value Stock Appreciation Rights Plan, paid all accrued benefits through the termination date and issued equivalent stock options to the plan holders that expire 10 years from the issuance date.  Expense associated with stock appreciation rights in 2017 was $318. There were no SARs granted in 2018 or 2019.

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ACCUMULATED OTHER COMPREHENSIVE LOSS - Components of AOCL (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	$ (9,162)	$ (6,127)	$ (6,487)
Other comprehensive (loss) income before reclassification	7,352	(2,589)	468
Amounts reclassified from accumulated other comprehensive loss	17	40	(108)
Total other comprehensive income (loss)	7,369	(2,549)	360
Reclassification of certain tax effects from accumulated other comprehensive loss		(486)
Ending balance	(1,793)	(9,162)	(6,127)
(Losses) and Gains on Cash Flow Hedges
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	(393)	(571)	(695)
Other comprehensive (loss) income before reclassification	(133)	178	124
Amounts reclassified from accumulated other comprehensive loss	0	0	0
Total other comprehensive income (loss)	(133)	178	124
Reclassification of certain tax effects from accumulated other comprehensive loss		0
Ending balance	(526)	(393)	(571)
Unrealized (Losses) and Gains on Securities | Available-for-sale Securities
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	(8,705)	(5,460)	(5,319)
Other comprehensive (loss) income before reclassification	7,467	(2,799)	(33)
Amounts reclassified from accumulated other comprehensive loss	17	40	(108)
Total other comprehensive income (loss)	7,484	(2,759)	(141)
Reclassification of certain tax effects from accumulated other comprehensive loss		(486)
Ending balance	(1,221)	(8,705)	(5,460)
Unrealized (Losses) and Gains on Securities | Held-to-maturity Securities
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	(64)	(96)	(473)
Other comprehensive (loss) income before reclassification	18	32	377
Amounts reclassified from accumulated other comprehensive loss	0	0	0
Total other comprehensive income (loss)	18	32	377
Reclassification of certain tax effects from accumulated other comprehensive loss		0
Ending balance	$ (46)	$ (64)	$ (96)

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CORE DEPOSIT INTANGIBLES

12 Months Ended

Dec. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

CORE DEPOSIT INTANGIBLES

NOTE 7 - CORE DEPOSIT INTANGIBLES

Changes in the carrying amount of core deposit intangibles in the accompanying consolidated balance sheets as of December 31 are summarized as follows:

	2019			2018
Beginning of year	$	4,706		$	2,724
Effect of acquisitions		—			2,700
Amortization		(853	)		(718	)
End of year	$	3,853		$	4,706

Accumulated amortization was $4,678 and $3,825 at December 31, 2019 and 2018, respectively.  Amortization expense related to core deposit intangibles was $853, $718 and $584 during the years ended December 31, 2019, 2018 and 2017, respectively. The estimated aggregate future amortization expense for core deposit intangibles remaining as of December 31, 2019 was as follows:

Year Ended December 31,	Amount
2020	$	853
2021		687
2022		453
2023		441
2024		424
Thereafter		995
	$	3,853

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MARKETABLE SECURITIES

12 Months Ended

Dec. 31, 2019

Investments Debt And Equity Securities [Abstract]

MARKETABLE SECURITIES

NOTE 3 - MARKETABLE SECURITIES

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at December 31, 2019 and 2018 and the corresponding amounts of gross unrealized gains and losses:

December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	19,667	$	592	$	—	$	20,259
Municipal securities		16,780		576		8		17,348
Mortgage-backed securities		83,967		550		335		84,182
Collateralized mortgage obligations		89,798		1,146		17		90,927
Total available for sale	$	210,212	$	2,864	$	360	$	212,716
Held to maturity:
Municipal securities	$	138,416	$	4,710	$	3	$	143,123
Mortgage-backed securities		14,365		198		13		14,550
Collateralized mortgage obligations		2,677		110		—		2,787
Total held to maturity	$	155,458	$	5,018	$	16	$	160,460

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	19,743	$	—	$	789	$	18,954
Municipal securities		15,778		75		260		15,593
Mortgage-backed securities		93,083		52		3,676		89,459
Collateralized mortgage obligations		111,341		—		2,372		108,969
Total available for sale	$	239,945	$	127	$	7,097	$	232,975
Held to maturity:
Municipal securities	$	141,942	$	1,156	$	1,094	$	142,004
Mortgage-backed securities		17,163		54		500		16,717
Collateralized mortgage obligations		4,059		48		28		4,079
Total held to maturity	$	163,164	$	1,258	$	1,622	$	162,800

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. There were no other than temporary impairment losses on debt securities related to credit losses recognized during the years ended December 31, 2019 and 2018.

Information pertaining to securities with gross unrealized losses at December 31, 2019 and 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is detailed in the following tables.  At December 31, 2019, the Company held 95 securities which had been in continuous loss positions over twelve months and 75 securities which had been in continuous loss position less than twelve months. Of the securities in a loss position over twelve months, 37 were classified as available for sale and 58 were classified as held to

maturity.  Of the securities in a loss position less than twelve months, 13 were classified as available for sale and 62 were classified as held to maturity. The securities in a loss position were composed of tax exempt municipal bonds, corporate bonds, collateralized mortgage obligations and mortgage backed securities.

Management believes the unrealized loss on the remaining securities is a function of the movement of interest rates since the time of purchase. Based on evaluation of available evidence, including recent changes in interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment would be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. The Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2019.

The following table summarizes securities with unrealized losses at December 31, 2019 and 2018, aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2019	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	—		$	—	$	—		$	—	$	—		$	—
Municipal securities		(8	)		1,138		—			—		(8	)		1,138
Mortgage-backed securities		(25	)		19,421		(310	)		42,116		(335	)		61,537
Collateralized mortgage obligations		—			—		(17	)		2,594		(17	)		2,594
Total available for sale	$	(33	)	$	20,559	$	(327	)	$	44,710	$	(360	)	$	65,269
Held to maturity:
Municipal securities	$	(1	)	$	1,313	$	(2	)	$	759	$	(3	)	$	2,072
Mortgage-backed securities		—			—		(13	)		7,032		(13	)		7,032
Collateralized mortgage obligations		—			—		—			—		—			—
Total held to maturity	$	(1	)	$	1,313	$	(15	)	$	7,791	$	(16	)	$	9,104

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2018	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(453	)	$	11,236	$	(336	)	$	7,718	$	(789	)	$	18,954
Municipal securities		(17	)		2,219		(243	)		7,407		(260	)		9,626
Mortgage-backed securities		(89	)		7,173		(3,587	)		76,717		(3,676	)		83,890
Collateralized mortgage obligations		(79	)		9,232		(2,293	)		99,390		(2,372	)		108,622
Total available for sale	$	(638	)	$	29,860	$	(6,459	)	$	191,232	$	(7,097	)	$	221,092
Held to maturity:
Municipal securities	$	(512	)	$	55,793	$	(582	)	$	26,511	$	(1,094	)	$	82,304
Mortgage-backed securities		(21	)		1,478		(479	)		12,317		(500	)		13,795
Collateralized mortgage obligations		(28	)		2,171		—			—		(28	)		2,171
Total held to maturity	$	(561	)	$	59,442	$	(1,061	)	$	38,828	$	(1,622	)	$	98,270

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

As of December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with fair values of approximately $278,318 and $259,557 at December 31, 2019 and 2018, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

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

	2019			2018			2017
Proceeds from sales	$	3,957		$	411,796		$	217,111
Gross gains		—			4			180
Gross losses		(22	)		(54	)		(13	)

During the year ended December 31, 2017, the Company sold three held to maturity securities. The Company sold these securities, which consisted of three municipal securities and two corporate bonds, based upon internal credit analysis that they had experienced significant deterioration in creditworthiness. The risk exposure presented by these securities had increased beyond acceptable levels and management determined that it was reasonably possible that all amounts due would not be collected. The credit analysis of the municipalities determined that they had been significantly impacted by the declines in market oil prices due to the fact that their tax bases are heavily reliant on the energy industry relative to other sectors of the economy. Specifically, the revenues of these municipalities had been adversely impacted by the sustained low-level of oil prices.  The credit analysis of the corporate bonds, which were both a non-agency collateralized mortgage obligation bond, indicated evidence of significant deterioration in its creditworthiness. In early 2017 one bond rating agency withdrew its current rating on the bond, and prior to 2017 another rating agency had downgraded it to a ‘No Rating’ position.  The Company believes the sales of these securities were merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.

There were no held to maturity securities sold during the years ended December 31, 2019 or 2018.

Sales of securities held to maturity were as follows for the years ended December 31:

	2019		2018		2017
Proceeds from sales	$	—	$	—	$	3,298
Amortized cost		—		—		3,140
Gross realized gains		—		—		158
Tax expense related to securities gains/losses		—		—		(44	)

Included in the amortized cost of held to maturity securities shown above for the year ended December 31, 2017 was $324 of other than temporary impairment that was recorded during 2013, as well as $499 in prior principal write-downs on corporate bonds that were sold during 2017.

The contractual maturities at December 31, 2019 of available for sale and held to maturity securities at carrying value and estimated fair value are shown below. The Company invests in mortgage-backed securities and collateralized mortgage obligations that have expected maturities that differ from their contractual maturities. These differences arise because borrowers and/or issuers may have the right to call or prepay their obligation with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
December 31, 2019	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	1,015	$	1,019	$	2,189	$	2,200
Due after one year through five years		13,407		13,772		30,221		31,179
Due after five years through ten years		13,324		13,924		32,771		34,078
Due after ten years		8,701		8,892		73,235		75,666
Mortgage-backed securities		83,967		84,182		14,365		14,550
Collateralized mortgage obligations		89,798		90,927		2,677		2,787
Total Securities	$	210,212	$	212,716	$	155,458	$	160,460

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STOCK APPRECIATION RIGHTS - Narrative (Details) - USD ($) $ in Thousands		12 Months Ended
	Jun. 01, 2017	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period for stock options issued	10 years
Stock Appreciation Rights (SARs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expense associated with SARs				$ 318
SARs granted in period (in shares)		0	0

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LEASES - Schedule of Minimum Future Lease Payments Under Non-Cancelable Operating Leases (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Leases [Abstract]
2020	$ 1,622
2021	1,430
2022	1,323
2023	1,314
2024	1,312
Thereafter	6,312
Total lease payments	13,313
Less: interest	(1,638)
Operating lease liability	$ 11,675

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ACCUMULATED OTHER COMPREHENSIVE LOSS

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE 24 - ACCUMULATED OTHER COMPREHENSIVE LOSS

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ending December 31, 2019:

	Losses on Cash Flow Hedges			Unrealized (Losses) and Gains on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(393	)	$	(8,705	)	$	(64	)	$	(9,162	)
Other comprehensive (loss) income before reclassification		(133	)		7,467			18			7,352
Amounts reclassified from accumulated other comprehensive loss		—			17			—			17
Net current period other comprehensive (loss) income		(133	)		7,484			18			7,369
Ending balance	$	(526	)	$	(1,221	)	$	(46	)	$	(1,793	)

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2019:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized loss on available for sale securities	$	22		Net realized loss on sale of securities transactions
		(5	)	Tax benefit
	$	17		Net of Tax

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ended December 31, 2018:

	(Losses) and Gains on Cash Flow Hedges			Unrealized Losses on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(571	)	$	(5,460	)	$	(96	)	$	(6,127	)
Other comprehensive income (loss) before reclassification		178			(2,799	)		32			(2,589	)
Amounts reclassified from accumulated other comprehensive loss		—			40			—			40
Net current period other comprehensive income (loss)		178			(2,759	)		32			(2,549	)
Reclassification of certain tax effects from accumulated other comprehensive loss		—			(486	)		—			(486	)
Ending balance	$	(393	)	$	(8,705	)	$	(64	)	$	(9,162	)

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2018:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized loss on available for sale securities	$	50		Net realized loss on sale of securities transactions
		(10	)	Tax effect
	$	40		Net of Tax

The following are changes in accumulated other comprehensive loss by component, net of tax, for the year ended December 31, 2017:

	(Losses) and Gains on Cash Flow Hedges			Unrealized Losses on Available for Sale Securities			Unrealized (Losses) and Gains on Held to Maturity Securities			Total
Beginning balance	$	(695	)	$	(5,319	)	$	(473	)	$	(6,487	)
Other comprehensive income (loss) before reclassification		124			(33	)		377			468
Amounts reclassified from accumulated other comprehensive loss		—			(108	)		—			(108	)
Net current period other comprehensive income (loss)		124			(141	)		377			360
Ending balance	$	(571	)	$	(5,460	)	$	(96	)	$	(6,127	)

The following are amounts reclassified out of each component of accumulated other comprehensive loss for the year ended December 31, 2017:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified From Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Earnings is Presented
Unrealized gain on available for sale securities	$	(167	)	Net realized gain on sale of securities transactions
		59		Tax effect
	$	(108	)	Net of Tax

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INCOME TAXES - Narrative (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate	$ 0	$ (6)	$ 1,695
Federal statutory tax rate	21.00%	21.00%	35.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Schedule of Estimated Useful Lives

The following table provides a summary of the estimated useful life of the different fixed asset classes as stated in the policy:

Bank Buildings	Up to 40 years
Equipment	to 10 years
Furniture and Fixtures	to 7 years
Software	to 5 years
Automobiles	to 4 years

Premises and equipment balances, by type, were as follows:

	December 31, 2019		December 31, 2018
Land	$	10,944	$	10,924
Building and improvements		54,809		52,623
Furniture, fixtures and equipment		17,960		15,675
Automobiles		495		293
		84,208		79,515
Less: accumulated depreciation		30,777		27,288
	$	53,431	$	52,227

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
ASSETS
Cash and due from banks	$ 39,907	$ 44,471
Federal funds sold	45,246	20,275
Interest-bearing deposits	5,561	6,764
Total cash and cash equivalents	90,714	71,510
Securities available for sale	212,716	232,975
Securities held to maturity	155,458	163,164
Loans held for sale	2,368	1,795
Loans, net	1,690,794	1,645,444
Accrued interest receivable	9,151	9,292
Premises and equipment, net	53,431	52,227
Other real estate owned	603	751
Cash surrender value of life insurance	34,495	26,301
Core deposit intangible, net	3,853	4,706
Goodwill	32,160	32,160
Other assets	32,701	26,645
Total assets	2,318,444	2,266,970
Deposits
Noninterest-bearing	525,865	489,789
Interest-bearing	1,430,939	1,381,691
Total deposits	1,956,804	1,871,480
Securities sold under agreements to repurchase	11,100	12,228
Accrued interest and other liabilities	23,061	10,733
Federal Home Loan Bank advances	55,118	115,136
Subordinated debentures	10,810	12,810
Total liabilities	2,056,893	2,022,387
Commitments and contingencies (see Note 18)
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, 12,905,097 and 12,835,486 shares issued, and 11,547,443 and 11,829,868 shares outstanding, respectively	12,905	12,835
Additional paid-in capital	186,692	185,174
Retained earnings	98,239	80,088
Treasury stock, 1,357,654 and 1,005,618 shares at cost	(34,492)	(24,352)
Accumulated other comprehensive loss	(1,793)	(9,162)
Total shareholders' equity	261,551	244,583
Total liabilities and shareholders' equity	$ 2,318,444	$ 2,266,970

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PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2019

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

Condensed Balance Sheet

Condensed financial information of Guaranty Bancshares, Inc. follows:

	2019		2018
ASSETS
Cash and cash equivalents	$	7,264	$	4,111
Investment in banking subsidiaries		268,237		255,637
Other assets		469		384
Total assets	$	275,970	$	260,132
LIABILITIES AND EQUITY
Debt	$	11,563	$	12,810
Accrued expenses and other liabilities		2,856		2,739
Shareholders’ equity		261,551		244,583
Total liabilities and shareholders’ equity	$	275,970	$	260,132

Condensed Income Statement

	2019		2018		2017
Interest income	$	15	$	13	$	11
Dividends from Guaranty Bank & Trust		23,000		10,000		—
		23,015		10,013		11
Expenses
Interest expense		653		687		1,024
Other expenses		1,819		2,590		1,682
		2,472		3,277		2,706
Income (loss) before income tax and equity in undistributed income of subsidiary		20,543		6,736		(2,695	)
Income tax benefit		639		482		354
Income (loss) before equity in undistributed earnings of subsidiary		21,182		7,218		(2,341	)
Equity in undistributed earnings of subsidiary		5,097		13,378		16,780
Net earnings	$	26,279	$	20,596	$	14,439
Comprehensive income	$	33,648	$	18,047	$	14,799

Condensed Cash Flow Statement

	2019			2018			2017
Cash flows from operating activities
Net earnings	$	26,279		$	20,596		$	14,439
Adjustments:
Equity in undistributed subsidiary earnings		(5,097	)		(13,378	)		(16,780	)
Stock based compensation		663			592			355
Change in other assets		85			127			1,270
Change in other liabilities		503			557			1,589
Net cash provided by operating activities		22,433			8,494			873
Cash flows from investing activities
Cash paid in connection with acquisitions		—			(6,423	)		—
Investment in Guaranty Bank & Trust		—			—			(15,000	)
Net cash used in investing activities		—			(6,423	)		(15,000	)
Cash flows from financing activities
Proceeds of borrowings		—			—			2,000
Repayments of borrowings		(2,000	)		(1,000	)		(25,786	)
Sale of common stock		—			—			55,755
Purchase of treasury stock		(10,140	)		(4,265	)		—
Exercise of stock options		925			327			84
Dividends paid		(8,065	)		(7,031	)		(5,562	)
Net cash (used in) provided by financing activities		(19,280	)		(11,969	)		26,491
Net change in cash and cash equivalents		3,153			(9,898	)		12,364
Beginning cash and cash equivalents		4,111			14,009			1,645
Ending cash and cash equivalents	$	7,264		$	4,111		$	14,009

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Loss	KSOP-Owned Shares
Beginning balance at Dec. 31, 2016	$ 110,253	$ 9,616	$ 101,736	$ 57,160	$ (20,111)	$ (6,487)	$ (31,661)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings	14,439			14,439
Other comprehensive income (loss)	360					360
Terminated KSOP put option	34,300						34,300
Exercise of stock options	84	5	55		24
Sale/Issuance of common stock	55,755	2,300	53,455
Stock based compensation	355		355
Net change in fair value of KSOP shares	(2,639)						$ (2,639)
Dividends: Common Stock	(5,562)			(5,562)
Ending balance at Dec. 31, 2017	207,345	11,921	155,601	66,037	(20,087)	(6,127)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings	20,596			20,596
Other comprehensive income (loss)	(2,549)					(2,549)
Reclassification of certain tax effects from accumulated other comprehensive income				486		(486)
Terminated KSOP put option	0
Exercise of stock options	327	14	313
Purchase of treasury stock	(4,265)				(4,265)
Sale/Issuance of common stock	29,568	900	28,668
Stock based compensation	592		592
Net change in fair value of KSOP shares	0
Dividends: Common Stock	(7,031)			(7,031)
Ending balance at Dec. 31, 2018	244,583	12,835	185,174	80,088	(24,352)	(9,162)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings	26,279			26,279
Other comprehensive income (loss)	7,369					7,369
Terminated KSOP put option	0
Exercise of stock options	925	39	886
Purchase of treasury stock	(10,140)				(10,140)
Restricted stock grants		31	(31)
Stock based compensation	663		663
Net change in fair value of KSOP shares	0
Dividends: Common Stock	(8,128)			(8,128)
Ending balance at Dec. 31, 2019	$ 261,551	$ 12,905	$ 186,692	$ 98,239	$ (34,492)	$ (1,793)

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Tables)

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Schedule of Securities Sold Under Agreements to Repurchase

Information concerning securities sold under agreements to repurchase is summarized as follows as of December 31:

	2019			2018
Average balance during the year	$	10,901		$	12,796
Average interest rate during the year		0.50	%		0.57	%
Maximum month-end balance during the year	$	11,542		$	14,365
Weighted average interest rate at year-end		0.31	%		0.44	%

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CORE DEPOSIT INTANGIBLES - Schedule of Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Finite-lived Intangible Assets [Roll Forward]
Beginning of year	$ 4,706	$ 2,724
Effect of acquisitions	0	2,700
Amortization	(853)	(718)	$ (584)
End of year	$ 3,853	$ 4,706	$ 2,724

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Loans and Leases Receivable, Related Parties (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Loans and Leases Receivable, Related Parties [Roll Forward]
Beginning balance	$ 56,199
New loans	46,419
Effect of changes in composition of related parties	(17,516)
Repayments	(51,439)
Ending balance	$ 33,663

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Schedule of Nonaccrual Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	$ 11,262	$ 5,891
Commercial and industrial
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	46	366
Construction and development
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	0	0
Commercial real estate
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	6,860	3,700
Farmland
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	182	140
1-4 family residential
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	3,853	1,567
Multi-family residential
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	0	0
Consumer
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	279	66
Agricultural
Financing Receivable Recorded Investment Past Due [Line Items]
Total loans	$ 42	$ 52

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INTEREST -BEARING DEPOSITS - Schedule of Time Deposit Maturities (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Maturities of Time Deposits [Abstract]
2020	$ 440,588
2021	39,575
2022	16,721
2023	12,909
2024	5,502
Thereafter	0
Time Deposits	$ 515,295

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SUBORDINATED DEBENTURES - Schedule of Subordinated Debentures (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Subordinated debentures	$ 10,810	$ 12,810
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	$ 500	$ 2,500

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PREMISES AND EQUIPMENT - Narrative (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Property Plant And Equipment [Abstract]
Depreciation	$ 3,886	$ 3,400	$ 3,162

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CORE DEPOSIT INTANGIBLES (Tables)

12 Months Ended

Dec. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets

Changes in the carrying amount of core deposit intangibles in the accompanying consolidated balance sheets as of December 31 are summarized as follows:

	2019			2018
Beginning of year	$	4,706		$	2,724
Effect of acquisitions		—			2,700
Amortization		(853	)		(718	)
End of year	$	3,853		$	4,706

Schedule of Future Amortization Expense

The estimated aggregate future amortization expense for core deposit intangibles remaining as of December 31, 2019 was as follows:

Year Ended December 31,	Amount
2020	$	853
2021		687
2022		453
2023		441
2024		424
Thereafter		995
	$	3,853

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STOCK OPTIONS (Tables)

12 Months Ended

Dec. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Valuation Assumptions

The fair value of options granted was determined using the following weighted-average assumptions as of grant date, for the years ended December 31:

	2019			2018			2017
Risk-free interest rate		2.11	%		2.87	%		2.00	%
Expected term (in years)		6.50			6.50			6.46
Expected stock price volatility		19.89	%		20.10	%		18.54	%
Dividend yield		2.36	%		1.76	%		1.61	%

Schedule of Stock Option Activity

A summary of activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		537,872		$	26.49		6.97	$	2,088
Granted		39,000			29.89		9.40		117
Exercised		(37,672	)		24.55		4.11		314
Forfeited		(31,200	)		30.04		8.02		89
Balance, December 31, 2019		508,000		$	26.68		6.24	$	3,159
Exercisable at end of period		256,880		$	25.21		5.18	$	1,971

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		469,044		$	25.11		7.32	$	2,623
Granted		101,000			32.29		9.51		5
Exercised		(14,372	)		22.74		4.33		102
Forfeited		(17,800	)		26.07		6.71		96
Balance, December 31, 2018		537,872		$	26.49		6.97	$	2,088
Exercisable at end of period		206,312		$	24.48		5.65	$	1,113

Schedule of Nonvested Stock Option Activity

A summary of nonvested activity in the Plan during the years ended December 31 follows:

2019	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		331,560		$	27.74		7.77	$	975
Granted		39,000			29.89		9.40		117
Vested		(91,040	)		26.71		6.02		563
Forfeited		(28,400	)		33.00		8.81		89
Balance, December 31, 2019		251,120		$	28.18		7.31	$	1,188

2018	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		334,400		$	25.72		7.91	$	1,673
Granted		101,000			32.29		9.51		5
Vested		(88,440	)		25.51		6.69		400
Forfeited		(15,400	)		30.14		7.76		96
Balance, December 31, 2018		331,560		$	27.74		7.77	$	975

Summary of Restricted Stock Awards and Units Activity

A summary of activity in the Plan during years ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		959		$	31.57
Vested		480			31.57
Released		(1,439	)		31.57
Forfeited		—			—
Balance, December 31, 2019		—		$	—

2018	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		—	$	—
Vested		959		31.57
Released		—		—
Forfeited		—		—
Balance, December 31, 2018		959	$	31.57

Summary of Nonvested Restricted Stock Awards and Units Activity

A summary of nonvested activity in the Plan during the twelve months ended December 31, 2019 and 2018 follows:

2019	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		1,439		$	31.57
Granted		30,500			30.25
Vested		(480	)		31.57
Forfeited		—			—
Balance, December 31, 2019		31,459		$	30.29

2018	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		2,398		$	31.57
Granted		—			—
Vested		(959	)		31.57
Forfeited		—			—
Balance, December 31, 2018		1,439		$	31.57

Plan Information

Information related to the Plan is as follows for the years ended December 31:

	2019		2018		2017
Intrinsic value of options exercised	$	314	$	102	$	132
Cash received from options exercised		925		327		84
Weighted average fair value of options granted		16.07		6.69		7.91

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Narrative (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable, Impaired [Line Items]
Total loans acquired as overdrafts	$ 1,706,395,000	$ 1,659,535,000	$ 1,359,544,000
Loans to related parties	33,663,000	56,199,000
Unfunded commitments of related party loans	13,846,000
Interest income if accrual method	637,000	333,000
Increase in allowance for loan losses due to TDRs	0	0
Troubled debt restructuring charge-offs	$ 0	0
Westbound Bank
Financing Receivable, Impaired [Line Items]
Total loans acquired as overdrafts		$ 2,000

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STOCK OPTIONS - Information Related to Plan (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Intrinsic value of options exercised	$ 314	$ 102	$ 132
Cash received from options exercised	$ 925	$ 327	$ 84
Weighted average fair value of options granted (in USD per share)	$ 16.07	$ 6.69	$ 7.91

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STOCK OPTIONS - Schedule of Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Number of Shares
Outstanding at beginning of year (in shares)	537,872	469,044
Granted (in shares)	39,000	101,000
Exercised (in shares)	(37,672)	(14,372)
Forfeited (in shares)	(31,200)	(17,800)
Balance (in shares)	508,000	537,872	469,044
Exercisable
Outstanding (in shares)	256,880	206,312
Weighted-average exercise price (in USD per share)	$ 25.21	$ 24.48
Weighted-average remaining contractual life in years	5 years 2 months 4 days	5 years 7 months 24 days
Aggregate intrinsic value	$ 1,971	$ 1,113
Weighted-Average Exercise Price
Outstanding at beginning of year (in USD per share)	$ 26.49	$ 25.11
Granted (in USD per share)	29.89	32.29
Exercised (in USD per share)	24.55	22.74
Forfeited (in USD per share)	30.04	26.07
Balance (in USD per share)	$ 26.68	$ 26.49	$ 25.11
Weighted-Average Remaining Contractual Life in Years
Outstanding	6 years 2 months 26 days	6 years 11 months 19 days	7 years 3 months 25 days
Granted	9 years 4 months 24 days	9 years 6 months 3 days
Exercised	4 years 1 month 9 days	4 years 3 months 29 days
Forfeited	8 years 7 days	6 years 8 months 15 days
Aggregate Intrinsic Value
Outstanding	$ 2,088	$ 2,623
Granted	117	5
Exercised	314	102	$ 132
Forfeited	89	96
Outstanding	$ 3,159	$ 2,088	$ 2,623

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MARKETABLE SECURITIES - Securities in Continuous Loss Position (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Gross Unrealized Losses
Less Than 12 Months	$ (33)	$ (638)
12 Months or Longer	(327)	(6,459)
Total	(360)	(7,097)
Estimated Fair Value
Less Than 12 Months	20,559	29,860
12 Months or Longer	44,710	191,232
Total	65,269	221,092
Gross Unrealized Losses
Less Than 12 Months	(1)	(561)
12 Months or Longer	(15)	(1,061)
Total	(16)	(1,622)
Estimated Fair Value
Less Than 12 Months	1,313	59,442
12 Months or Longer	7,791	38,828
Total	9,104	98,270
Corporate bonds
Gross Unrealized Losses
Less Than 12 Months	0	(453)
12 Months or Longer	0	(336)
Total	0	(789)
Estimated Fair Value
Less Than 12 Months	0	11,236
12 Months or Longer	0	7,718
Total	0	18,954
Mortgage-backed securities
Gross Unrealized Losses
Less Than 12 Months	(25)	(89)
12 Months or Longer	(310)	(3,587)
Total	(335)	(3,676)
Estimated Fair Value
Less Than 12 Months	19,421	7,173
12 Months or Longer	42,116	76,717
Total	61,537	83,890
Gross Unrealized Losses
Less Than 12 Months	0	(21)
12 Months or Longer	(13)	(479)
Total	(13)	(500)
Estimated Fair Value
Less Than 12 Months	0	1,478
12 Months or Longer	7,032	12,317
Total	7,032	13,795
Collateralized mortgage obligations
Gross Unrealized Losses
Less Than 12 Months	0	(79)
12 Months or Longer	(17)	(2,293)
Total	(17)	(2,372)
Estimated Fair Value
Less Than 12 Months	0	9,232
12 Months or Longer	2,594	99,390
Total	2,594	108,622
Gross Unrealized Losses
Less Than 12 Months	0	(28)
12 Months or Longer	0	0
Total	0	(28)
Estimated Fair Value
Less Than 12 Months	0	2,171
12 Months or Longer	0	0
Total	0	2,171
Municipal securities
Gross Unrealized Losses
Less Than 12 Months	(8)	(17)
12 Months or Longer	0	(243)
Total	(8)	(260)
Estimated Fair Value
Less Than 12 Months	1,138	2,219
12 Months or Longer	0	7,407
Total	1,138	9,626
Gross Unrealized Losses
Less Than 12 Months	(1)	(512)
12 Months or Longer	(2)	(582)
Total	(3)	(1,094)
Estimated Fair Value
Less Than 12 Months	1,313	55,793
12 Months or Longer	759	26,511
Total	$ 2,072	$ 82,304

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ACQUISITIONS - Consideration (Details) - USD ($) $ in Thousands		12 Months Ended
	Jun. 01, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Cash		$ 0	$ 6,423	$ 0
Westbound Bank
Business Acquisition [Line Items]
Cash	$ 6,423
Equity instruments	29,568
Fair value of total consideration transferred	$ 35,991

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SUBORDINATED DEBENTURES - Schedule of Terms of Subordinated Debentures (Details) - Subordinated debentures $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Trust II Debentures
Debt Instrument [Line Items]
Original amount	$ 3,093
Maturity date	Oct. 30, 2032
Original amount	Quarterly
Trust III Debentures
Debt Instrument [Line Items]
Original amount	$ 2,062
Maturity date	Oct. 01, 2036
Original amount	Quarterly
DCB Trust I Debentures
Debt Instrument [Line Items]
Original amount	$ 5,155
Maturity date	Jun. 15, 2037
Original amount	Quarterly

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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2019

Banking And Thrift [Abstract]

REGULATORY MATTERS

NOTE 19 - 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 to be fully phased in by 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 December 31, 2019 and 2018, that the Bank met all capital adequacy requirements to which it was subject.

When fully phased in on January 1, 2019, the Basel III Capital Rules, among other things, will have (i) introduced a new capital measure called “Common Equity Tier I” (“CET1”), (ii) specified that Tier I capital consist of CET1 and “Additional Tier I 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 and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.

Starting in January 2016, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.

As of December 31, 2019 and 2018, 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 I leverage ratios as set forth in the table. There are no conditions or events since December 31, 2019 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 I capital, net of goodwill, the rules permit the inclusion of $10,310 of trust preferred securities in Tier I capital at December 31, 2019 and 2018. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier I 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 is presented in the following tables:

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required Under Basel III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2019
Total capital to risk-weighted assets:
Consolidated	$	253,793		13.29	%	$	152,770		8.00	%	$	200,510		10.50	%			n/a
Bank		249,643		13.07	%		152,774		8.00	%		200,516		10.50	%	$	190,968		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		237,591		12.44	%		114,577		6.00	%		162,318		8.50	%			n/a
Bank		233,441		12.22	%		114,581		6.00	%		162,322		8.50	%		152,774		8.00	%
Tier 1 capital to average assets:(1)
Consolidated		237,591		10.29	%		92,318		4.00	%		92,318		4.00	%			n/a
Bank		233,441		10.11	%		92,321		4.00	%		92,321		4.00	%		115,401		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		227,281		11.90	%		85,933		4.50	%		133,674		7.00	%			n/a
Bank		233,441		12.22	%		85,935		4.50	%		133,677		7.00	%		124,129		6.50	%
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board 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 Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2018
Total capital to risk-weighted assets:
Consolidated	$	241,791		13.25	%	$	146,020		8.00	%	$	191,651		10.50	%			n/a
Bank		242,142		13.27	%		146,015		8.00	%		191,645		10.50	%	$	182,519		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		227,140		12.44	%		109,515		6.00	%		155,146		8.50	%			n/a
Bank		227,491		12.46	%		109,511		6.00	%		155,141		8.50	%		146,015		8.00	%
Tier 1 capital to average assets:
Consolidated		227,140		10.16	%		89,422		4.00	%		89,422		4.00	%			n/a
Bank		227,491		10.18	%		89,414		4.00	%		89,414		4.00	%		111,768		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		216,830		11.88	%		82,136		4.50	%		127,768		7.00	%			n/a
Bank		227,491		12.46	%		82,134		4.50	%		127,763		7.00	%		118,637		6.50	%

Dividends paid by the Company are mainly provided by dividends from its subsidiaries. However, certain 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 a national banking association, such as the Bank, may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. As of December 31, 2019, the Bank had $18,475 available for payment of dividends.

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FAIR VALUE - Schedule of Financial Assets (Liabilities) Measured at Fair Value (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 212,716	$ 232,975
Loans held for sale	2,368	1,795
Cash surrender value of life insurance	34,495	26,301
SBA servicing assets	672	1,107
Derivative instrument assets	526	392
Derivative instrument liabilities	(526)	(392)
Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	84,182	89,459
Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	90,927	108,969
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	20,259	18,954
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	84,182	89,459
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	90,927	108,969
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	20,259	18,954
Assets at fair value on a nonrecurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	20,028	10,863
Other real estate owned	603	751
Municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	17,348	15,593
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	17,348	15,593
Municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	0	0
Cash surrender value of life insurance	0	0
SBA servicing assets	0	0
Derivative instrument assets	0	0
Derivative instrument liabilities	0	0
Municipal securities | 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
Municipal securities | 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
Municipal securities | 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
Municipal securities | Assets at fair value on a nonrecurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Other real estate owned	0	0
Municipal securities | 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	0
Cash surrender value of life insurance	34,495	26,301
SBA servicing assets	0	0
Derivative instrument assets	526	392
Derivative instrument liabilities	(526)	(392)
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	84,182	89,459
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	90,927	108,969
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	20,259	18,954
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]
Impaired loans	0	0
Other real estate owned	0	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	17,348	15,593
Significant Other Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	2,368	1,795
Cash surrender value of life insurance	0	0
SBA servicing assets	672	1,107
Derivative instrument assets	0	0
Derivative instrument liabilities	0	0
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 at fair value on a nonrecurring basis:
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	20,028	10,863
Other real estate owned	603	751
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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INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 15 - INCOME TAXES

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations; however, such changes do not currently impact us.

As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, we remeasured our deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future.

Management of the Company considers the likelihood of changes by taxing authorities in its filed income tax returns and discloses potential significant changes that management believes are more likely than not to occur upon examination by tax authorities. Management has not identified any uncertain tax positions in previously filed income tax returns that require disclosure in the accompanying consolidated financial statements. The Company is subject to U.S. federal income taxes.

The consolidated provision for income taxes were as follows as of December 31:

	2019			2018			2017
Current federal tax expense	$	6,097		$	5,288		$	5,803
Deferred federal tax (benefit) expense		(319	)		(683	)		740
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate		—			(6	)		1,695
Total	$	5,778		$	4,599		$	8,238

The provision for federal income taxes differs from that computed by applying federal statutory rates to income before federal income tax expense, as indicated in the following analysis as of December 31:

	2019			2018			2017
Federal statutory income tax at 21% for 2019 and 2018, and 35% for 2017	$	6,732		$	5,291		$	7,937
Tax exempt interest income		(1,027	)		(968	)		(1,560	)
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate		—			(6	)		1,695
Earnings of bank owned life insurance		(192	)		(113	)		(161	)
Nondeductible expenses		462			566			577
Other		(197	)		(171	)		(250	)
Total	$	5,778		$	4,599		$	8,238

Income tax expense for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. As a result of the new law, and as detailed in the table above, we recognized a provisional net tax expense totaling $1,695 in 2017 and a net tax benefit resulting from the finalization of those calculations totaling $6 in 2018.  As of December 31, 2019, the accounting for the income tax enactment-date effects of the new tax law has been completed.

The components of the deferred tax assets (liabilities), in the accompanying consolidated balance sheets consisted of the following as of December 31:

	2019			2018
Deferred tax assets:
Allowance for loan losses	$	3,402		$	3,077
Deferred compensation		857			770
Unrealized loss on available for sale securities		—			1,464
Bonus accrual		399			328
Accretion of acquisition allowance		183			327
Other real estate owned		134			65
Other		420			484
Total deferred tax assets		5,395			6,515
Deferred tax liabilities:
Unrealized gain on available for sale securities		(526	)		—
Premises and equipment		(2,353	)		(2,334	)
Prepaid expenses		(270	)		(179	)
Deferred loan costs, net		(137	)		(118	)
Intangibles		(470	)		(590	)
Other		(101	)		(85	)
Total deferred tax liabilities		(3,857	)		(3,306	)
Net deferred tax asset	$	1,538		$	3,209

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REGULATORY MATTERS - Narrative (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Common equity tier 1 capital to risk-weighted assets:
Capital conservation buffer percentage, increase		0.625%	0.625%	0.625%
Bank
Common equity tier 1 capital to risk-weighted assets:
Amount available for dividend payments	$ 18,475,000
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
Minimum
Common equity tier 1 capital to risk-weighted assets:
Capital conservation buffer percentage					0.625%
Maximum
Common equity tier 1 capital to risk-weighted assets:
Capital conservation buffer percentage		2.50%

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DERIVATIVE FINANCIAL INSTRUMENTS - Narrative (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Derivative [Line Items]
Ineffectiveness included in net income	$ 0
Interest expense	23,691,000	$ 19,542,000	$ 12,152,000
Unrealized loss to be reclassified as a reduction of interest expense	0
Designated as Hedging Instrument | Cash Flow Hedging | Interest Rate Swap
Derivative [Line Items]
Notional amount	5,000,000	5,000,000
Interest expense	$ 648,000	$ 687,000	$ 724,000