Washington, D.C. 20549
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Guaranty Bancshares, Inc. Employee Stock Ownership Plan with 401(k) Provisions
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
A.Description of the Plan
General
The following description of the Guaranty Bancshares, Inc. Employee Stock Ownership Plan with 401(k) Provisions (the “Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions.
The Plan is a defined contribution plan and an employee stock ownership plan with 401(k) provisions whereby eligible employees of Guaranty Bancshares, Inc. (the “Company”) are permitted to make contributions that are tax deferred under Section 401(k) of the Internal Revenue Code (the “Code”).
Contributions
A participant may elect to defer a percentage of his or her pretax compensation (elective contributions) subject to certain maximum limitations imposed by the Code ($19,500 for 2020 and $19,000 for 2019). Participants who are eligible to make salary deferral contributions under the Plan and who have attained age 50 before the close of the year may make catch-up contributions in accordance with, and subject to the limitations imposed by the Code ($6,500 for 2020 and $6,000 for 2019).
The Company may make two types of discretionary contributions to the Plan (as determined by the Board of Directors):
(1) A matching contribution of any amount up to $1.00 for every dollar of salary deferral a participant makes up to 5% of their compensation, and (2) a non-elective (profit sharing) contribution. Matching contributions were $1,330,914 and $1,270,000 for the years ended December 31, 2020 and 2019, respectively. There were no profit sharing contributions for 2020 or 2019.
Eligibility
Subject to the conditions and limitations of the Plan, each employee of the Company or its subsidiaries shall become a participant in the Plan as of the first day of the month coincident with or next following the earlier of (i) the date he or she is hired in a position requiring the completion of 1,000 hours of service during an eligibility computation period, or (ii) completion of 1,000 hours of service during an eligibility computation period.
Each such employee shall become eligible to make elective contributions and receive allocations of matching contributions on the first day of the month coincident with or next following the employee's date of hire.
4
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
Vesting
The percentage of the participant's account from employer profit sharing contributions and matching contributions to which the participant will be entitled is calculated as follows:
|
Periods of Service
|
|
Vested
Percentage
|
|
|
Less than two years
|
|
|
0
|
%
|
|
Two but less than three
|
|
|
20
|
%
|
|
Three but less than four
|
|
|
40
|
%
|
|
Four but less than five
|
|
|
60
|
%
|
|
Five but less than six
|
|
|
80
|
%
|
|
Six or more years
|
|
|
100
|
%
|
In the event of disability, attainment of normal retirement age, or death, the participant will become fully vested.
Participant Accounts
Each participant’s account is credited with the participant’s contributions and allocations of:
(a) the Company’s contribution; (b) Plan earnings; and, (c) forfeitures of terminated participants’ non-vested accounts, after allocations of administrative expenses. Allocations of the Company’s profit sharing contributions are based on the ratio of the participant's compensation to the total compensation of all participants for such Plan year. Participants have the right to direct the investment of their individual accounts, and any earnings or losses of an account are credited daily. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account.
Notes Receivable from Participants
Participants may borrow from their accounts a minimum of $1,000 up to a maximum amount equal to the lesser of $50,000 or 50% of their account balance. Loan terms range up to five years or fifteen years for the purchase of a primary residence. The loans are secured by the balance in the participant’s account and bear interest at a rate commensurate with local prevailing rates as determined by the Company. As of December 31, 2020 and 2019, interest rates ranged from 3.25% to 5.50%. Principal and interest is paid ratably through payroll deductions.
Benefit Payments
Participants are entitled to distribution of their vested account balance upon termination of employment either before or after attainment of normal retirement age, or due to death. Active employees may also receive distribution of any portion of their account attributable to rollover contributions, which by definition are fully vested. Benefits may either be distributed in cash (subject to 20% federal income tax withholding) or transferred directly to an IRA or another qualified plan. If withdrawing participants are not entitled to their entire account balance because they are partially vested, the non-vested portion is forfeited.
Forfeitures
Forfeited non-vested accounts are first used to pay administrative fees and then allocated to participant accounts. As of December 31, 2020 and 2019, such forfeited non-vested amounts available for future use totaled $81,160 and $126,175,
5
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
respectively. For the year ended December 31, 2020 and 2019, forfeitures applied to the payment of administrative expenses totaled $48,388 and $50,960, respectively, while forfeited amounts allocated to participants totaled $85,520 for the year ended December 31, 2020. No forfeited amounts were allocated to participants for the year ended December 31, 2019.
Investment Options
During the years ended December 31, 2020 and 2019, participants directed their salary deferral contributions and employer match contributions to selected investments as made available and determined by the plan administrator, which included 31 mutual funds and Company common stock as of December 31, 2020. Participants may change the percentage of their elective contributions at any time, effective at the next payroll date.
Plan Expenses
Employees of the Company perform certain administrative functions with no compensation from the Plan. Substantially all administrative expenses are paid by the Plan. Expenses paid by the Company, if any, are excluded from these financial statements.
Diversification
On November 14, 2018, the Plan was amended to establish an investment concentration limit of 60% in Company stock for all participants who do not otherwise qualify as accredited investors. This investment concentration limitation commenced in March of 2019 and diversification of the Company’s portfolio continued through the remainder of 2019 and into 2020. Diversification of the portfolio was paused during March of 2020 due to the effects of COVID-19 on the prevailing price of the Company’s stock, and resumed after the market began to recover in late 2020. Considering all relevant economic factors that may impact the fair market value of Company stock, the diversification of the portfolio is expected to be completed by mid-year 2021.
Voting Rights
Each participant shall have the right to direct the plan Trustee, Newport Group for 2020 and 2019, as to the manner in which whole and partial shares of Company stock allocated to their account are to be voted on matters brought before an annual or special shareholders' meeting. The Trustee shall vote allocated shares on each matter as directed by the participants and the Trustee shall have no discretion in such matters. The Trustee shall vote allocated shares for which it received no direction and unallocated shares in accordance with the fiduciary standards of Title I of ERISA.
6
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
B.Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires the plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from these estimates and such differences could be material.
Cash, Investments in Transit
The “cash, investments in transit” balance for the Plan reflected employer contributions made in cash and any cash dividends on Company stock that have yet to be directed into a specific investment vehicle as of the end of the reporting period. Cash, investments in transit are distributed within 90 days after the close of the Plan year.
Contributions
Contributions from the Company and participants are accrued as they become obligations of the Company, as determined by the plan administrator, and in the period in which they are deducted, in accordance with salary deferral agreements.
Investment Valuation and Income
The investments of the Plan are stated at fair value as of the end of the year and are subject to market or credit risks customarily associated with equity investments. Fair value measurements are determined in accordance with GAAP, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about assets and liabilities measured at fair value. Refer to Note C for information related to the Plan’s valuation methodologies.
Investment gains and losses are accounted for using the average cost basis of the securities sold. The net realized and unrealized gains and losses on investments include realized gains and losses on sales of investments and capital gains during the year and unrealized increases or decreases in the market value of investments held at year end. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Notes Receivable from Participants
Notes receivable from participants are recorded at the unpaid principal balance plus accrued but unpaid interest. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2020 or 2019.
Payment of Benefits
Benefits are recorded when paid.
7
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
C.Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-tier hierarchy that is used to identify assets and liabilities measured at fair value. The hierarchy focuses on the inputs used to measure fair value and requires that the lowest level input be used. The three levels defined are as follows:
|
|
•
|
Level 1 — observable inputs that are based upon quoted market prices for identical assets or liabilities within active markets.
|
|
|
•
|
Level 2 — observable inputs other than Level 1 that are based upon quoted market prices for similar assets or liabilities, based upon quoted prices within inactive markets, or inputs other than quoted market prices that are observable through market data for substantially the full term of the asset or liability.
|
|
|
•
|
Level 3 — inputs that are unobservable for the particular asset or liability due to little or no market activity and are significant to the fair value of the asset or liability. These inputs reflect assumptions that market participants would use when valuing the particular asset or liability.
|
The methodologies used to measure each major category of assets and liabilities are described below. These methodologies were consistently applied to all assets and liabilities and there have been no changes in the methodologies used at December 31, 2020 and 2019.
|
|
•
|
Mutual funds are public investment vehicles valued using the Net Asset Value (“NAV”) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities and then divided by the number of shares outstanding. The NAV is a quoted price in an active market and classified within Level 1 of the valuation hierarchy.
|
|
|
•
|
Money market accounts are valued at face value, which approximates fair value and are classified within Level 1 of the valuation hierarchy.
|
|
|
|
•
|
Guaranty Bancshares, Inc. stock. As of December 31, 2020 and 2019, the Company’s common stock was publicly traded, and the value was based on quoted market prices in an active market and is classified as Level 1 of the valuation hierarchy.
|
The following table presents the Plan's investments allocated to Company stock at December 31, 2020 and 2019.
|
|
|
2020
|
|
|
2019
|
|
|
Guaranty Bancshares, Inc. stock
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,212,646
|
|
|
|
1,224,659
|
|
|
Cost
|
|
$
|
23,359,187
|
|
|
$
|
23,002,624
|
|
|
Estimated fair value
|
|
$
|
36,318,754
|
|
|
$
|
40,266,776
|
|
8
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
The following tables detail the Plan’s investments at fair value by level, within the fair value hierarchy, as of December 31, 2020 and 2019. The Plan has no assets classified within Level 2 or Level 3 of the valuation hierarchy.
|
|
|
2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Guaranty Bancshares, Inc. stock
|
|
$
|
36,318,754
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,318,754
|
|
|
Mutual funds
|
|
|
19,274,887
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,274,887
|
|
|
Money market
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total investments in the fair value hierarchy
|
|
$
|
55,593,641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55,593,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,593,641
|
|
|
|
|
2019
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Guaranty Bancshares, Inc. stock
|
|
$
|
40,266,776
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40,266,776
|
|
|
Mutual funds
|
|
|
15,339,948
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,339,948
|
|
|
Money market
|
|
|
674,333
|
|
|
|
—
|
|
|
|
—
|
|
|
|
674,333
|
|
|
Total investments in the fair value hierarchy
|
|
$
|
56,281,057
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,281,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,281,057
|
|
These items are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.
The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the end of the reporting period. The Company evaluates the significance of transfers between levels based upon the nature of the financial instruments and size of the transfer relative to total net assets available for benefits.
D.Tax Status
The Plan obtained its latest determination letter dated October 18, 2017 in which the Internal Revenue Service (the “IRS”) stated that the Plan, as then designed, was in compliance with the applicable requirements of the Code.
Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Company believes that the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan was qualified and the related trust was tax-exempt as of the financial statement date.
GAAP requires plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2020 there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
9
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
E.Plan Termination
Although it has not expressed any intention to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions set forth in ERISA. In the event the Plan terminates, all amounts credited to participant’s accounts will become 100% vested.
F.Related Parties and Parties-in-Interest Transactions
Party-in-interest transactions include those with fiduciaries or employees of the Plan, any person who provides services to the Plan, an employer whose employees are covered by the Plan, and an employee organization whose members are covered by the Plan, a person who owns 50% or more of such an employer or employee organization, or relatives of such persons.
The Company employs Newport Group as the custodian of the Plan. Of the dividends paid on investments during the years ended December 31, 2020 and 2019, $962,837 and $886,699 were attributable to the Company stock, respectively.
During the years ended December 31, 2020 and 2019, the Plan invested in shares of mutual funds and money market funds held in custody by Newport Group. Newport Group acted as trustee for only those investments as defined by the Plan. In addition, fees were paid to the Plan auditors and to third party administrators for investment advisory and consulting services.
Transactions in such investments and with these service providers qualified as party-in-interest transactions, but which qualify for an exemption from the prohibited transaction rules. Additionally, participants had the option to invest their salary deferrals and the Company's matching and profit sharing contributions to various investments, including Guaranty Bancshares, Inc. stock (common stock of the Company) during the years ended December 31, 2020 and 2019. Transactions in the Company’s common stock qualified as parties-in-interest transactions, but which qualified for an exemption from the prohibited transaction rules.
Notes receivable from participants totaled $486,274 and $602,668 at December 31, 2020 and 2019, respectively. These participant loans qualify as party-in-interest transactions, which are exempt from the prohibited transaction rules.
G.Concentrations, Risks & Uncertainties
The Plan investments consist primarily of various mutual funds and the Company's common stock, which are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with these investments and to uncertainties inherent in estimates and assumptions, it is at least reasonably possible that changes in the value of these investments will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed on March 27, 2020, provides special provisions regarding distributions and loans from certain retirement plans to deal with unexpected expenses and losses due to the coronavirus. Effective April 6, 2020, the Plan’s recordkeeper implemented the CARES Act by accepting self-certifications from participants that are impacted by COVID-19, and thereby eligible for such special provisions.
10
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
H.Subsequent Events
During the first quarter of 2021, the Company issued a 10% stock dividend, which resulted in an additional 122,382 shares held by the KSOP.
11
SUPPLEMENTAL SCHEDULE
GUARANTY BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS