Guaranty Bancshares(US:GNTY)2023-03-10 22:03PART I Item 1. Business A Texas-based bank holding company with $3.35 billion in assets, focusing on community banking and pursuing growth through organic means and strategic acquisitions Financial Snapshot as of December 31, 2022 | Metric | Amount (Billion $) | | :--- | :--- | | Total Assets | $3.35 | | Total Net Loans | $2.34 | | Total Deposits | $2.68 | | Total Shareholders' Equity | $0.296 | - The company's growth strategy is multifaceted, focusing on Organic Growth, Strategic Acquisitions, De Novo Banking Locations, and increasing earnings streams25 - Key competitive strengths include an experienced management team, a strong employee ownership mentality with the Employee Stock Ownership Plan (KSOP) owning 9.1% of outstanding shares, and a stable core deposit base30 - The company operates in a highly regulated environment, subject to supervision by the Federal Reserve, FDIC, OCC, and CFPB, which impacts capital, activities, and costs4749 Item 1A. Risk Factors The company faces significant business, regulatory, and investment risks, including credit concentration, economic dependency on Texas, and regulatory compliance - The company's loan portfolio has significant real estate concentration, with 60.1% in nonresidential real estate loans and 15.9% in construction and land development loans as of December 31, 2022127 - A substantial portion of the loan portfolio is comprised of loans to small- to medium-sized businesses, which may have fewer resources to withstand economic downturns125 - The business is highly dependent on the economic conditions of its primary markets in Texas, including potential volatility in the energy sector157 - Operating in a highly regulated environment means changes in laws or non-compliance could adversely affect operations and impose significant costs189192195 - As of December 31, 2022, company directors and executive officers beneficially owned approximately 19.8% of outstanding common stock, giving them significant influence214 Item 2. Properties The company operates 32 banking locations across Texas, of which 21 are owned and 11 are leased or on leased land - The company operates 32 banking locations in Texas, including in Austin, Dallas/Fort Worth, Houston, and East Texas228 - The property portfolio consists of 21 owned branch locations, 1 owned building on leased land, and 10 leased locations229 Item 3. Legal Proceedings The company is involved in routine legal proceedings that are not expected to have a material adverse financial impact - The company is involved in routine legal claims and litigation, and management currently assesses the likelihood of a material adverse effect from these proceedings as remote230231 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock moved to the NYSE and it executed a share repurchase program, buying back 250,625 shares in 2022 - The company's common stock listing was transferred from the Nasdaq to the New York Stock Exchange (NYSE) on March 7, 2023, continuing to trade under the symbol "GNTY"234 - A stock repurchase program authorizing the repurchase of up to 1,000,000 shares was adopted on April 21, 2022, effective until April 21, 2024240 - In 2022, 250,625 shares were repurchased at a weighted-average price of $35.26 per share, with 805,612 shares remaining available for repurchase241 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net earnings rose to $40.4 million in 2022, driven by loan growth and higher net interest income, despite increased credit provisions and expenses Results of Operations Net interest income grew 12.8% to $107.8 million, but higher credit provisions and expenses moderated net earnings growth to 1.5% Year-over-Year Performance Summary (2022 vs. 2021) | Metric | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $107.8M | $95.6M | +$12.2M | +12.8% | | Provision for Credit Losses | $2.2M | ($1.7M) | +$3.9M | N/A | | Noninterest Income | $23.5M | $24.6M | -$1.1M | -4.4% | | Noninterest Expense | $79.9M | $73.3M | +$6.6M | +9.0% | | Net Earnings | $40.4M | $39.8M | +$0.6M | +1.5% | | Basic EPS | $3.38 | $3.30 | +$0.08 | +2.4% | - The increase in net interest income was primarily due to a $321.8 million (11.7%) increase in average interest-earning assets, driven by organic loan growth279 - A provision for credit losses of $2.2 million was recorded in 2022, mainly to incorporate economic forecasts for a recession into the CECL model294 - The decrease in noninterest income was primarily driven by a $3.1 million (56.0%) decline in gain on sale of loans, reflecting a slowdown in the mortgage market299304 - The rise in noninterest expense was mainly due to a $5.1 million (12.1%) increase in employee compensation and benefits313314 Financial Condition Total assets grew 8.6% to $3.35 billion, fueled by a 24.6% increase in gross loans, while shareholders' equity slightly decreased Balance Sheet Highlights (as of Dec 31) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | $3.35B | $3.09B | +8.6% | | Gross Loans | $2.38B | $1.91B | +24.6% | | Total Deposits | $2.68B | $2.67B | +0.4% | | Total Shareholders' Equity | $295.6M | $302.2M | -2.2% | - Loan growth was primarily organic, with commercial real estate loans increasing by $264.7 million (42.5%) and 1-4 family residential loans increasing by $82.4 million (20.1%)329331 - Nonperforming assets as a percentage of total loans rose to 0.46% from 0.15% in 2021, mainly due to four acquired SBA 7(a) loans placed on nonaccrual status338 - The allowance for credit losses (ACL) stood at $32.0 million, or 1.34% of total loans, compared to $30.4 million, or 1.59% of total loans, at year-end 2021354 - The company and its bank subsidiary remained "well capitalized" under all regulatory capital requirements as of December 31, 2022392 Non-GAAP Financial Measures Non-GAAP metrics show a slight decrease in tangible book value per share but an improvement in core earnings and the efficiency ratio Key Non-GAAP Metrics | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Tangible Book Value per Common Share | $21.85 | $22.09 | | Net Core Earnings | $50.2M | $39.0M | | Efficiency Ratio (net of PPP effects) | 61.45% | 65.43% | - The company presents these non-GAAP measures to help investors evaluate performance exclusive of intangible assets and temporary items like the PPP program412415418 Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate volatility, with simulations showing a slight liability-sensitive position at year-end 2022 - The primary component of market risk for the company is interest rate volatility, which affects net interest income and the fair value of assets and liabilities431432 Simulated Change in Net Interest Income (12-Month Horizon) | Change in Interest Rates (bps) | % Change in NII (Dec 31, 2022) | % Change in NII (Dec 31, 2021) | | :--- | :--- | :--- | | +200 | 0.17% | 8.38% | | +100 | (0.21%) | 2.66% | | -100 | 0.34% | (5.11%) | Item 8. Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, which received an unqualified opinion from the independent auditor - The report includes the unqualified opinion from the independent registered public accounting firm, Whitley Penn LLP, on both the financial statements and internal controls447476 - The critical audit matter identified by the auditor was the qualitative factors used in determining the Allowance for Credit Losses (ACL) for loans481483 - The notes provide detailed disclosures on accounting policies, including the adoption of the Current Expected Credit Loss (CECL) model on January 1, 2020502567 Item 9A. Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal controls over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report439440 - Based on the 2013 COSO framework, management determined that the company maintained effective internal control over financial reporting as of December 31, 2022443 - The independent registered public accounting firm issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting444447 PART III Items 10, 11, 12, 13 and 14 Required information on governance, compensation, and ownership is incorporated by reference from the company's Definitive Proxy Statement - Information for Part III (Items 10-14) is not included directly in this Form 10-K but is incorporated by reference from the registrant's Definitive Proxy Statement455456457458459 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed with the report, including financial statements and required exhibits - This section provides an index to the Consolidated Financial Statements, which begin on page F-1 of the report460 - An index of all exhibits filed with the report is provided, including corporate governance documents, material contracts, and required certifications462