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Item 8. Financial Statements and Supplementary Data

2021-03-16 compared with 2020-03-16 · 387 added, 318 removed, 1099 unchanged (39% of the section changed)

4 unchanged sentences

First Guaranty Bancshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Guaranty Bancshares, Inc.

and Subsidiaries (First Guaranty) as of December 31, 2019 and 2018 , and the related consolidated statements of income, comprehensive income, 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 financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of First Guaranty as of December 31, 2019 and 2018 , and the consolidated results of its operations and its 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.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying balance sheets of First Guaranty Bancshares, Inc.

and Subsidiary (First Guaranty) as of December 31, 2020 and 2019, and the related statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes collectively referred to as the financial statements.

We also have audited First Guaranty's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Guaranty as of December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, First Guaranty maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

Basis for Opinion

These financial statements are the responsibility of First Guaranty's management.

Our responsibility is to express an opinion on First Guaranty's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board ("PCAOB") and are required to be independent with respect to First Guaranty in accordance with the U.S.

First Guaranty’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on First Guaranty’s financial statements and an opinion on First Guaranty’s internal control over financial reporting 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 First Guaranty 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 financial statements are free of material misstatement, whether due to error or fraud.

First Guaranty is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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 First Guaranty'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 financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the 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 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 financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s 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.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan Losses

As described in Notes 1, 6 and 7 to the financial statements, at December 31, 2020 First Guaranty’s total loans were $1.8 billion and the associated allowance for loan losses balance was $24.5 million.

The allowance for loan losses is management’s best estimate of probable losses inherent in its loan portfolio and is based on historical loss experience by loan segment and class with adjustments for current events and conditions.

These factors include, among others, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, specific credit risks, industry concentrations, and unidentified losses inherent in the current loan portfolio.

We identified management’s asset quality ratings of loans and determination of qualitative factors, which is based on general economic conditions and other qualitative risk factors both internal and external to First Guaranty, both of which are used in the allowance for loan losses calculation, as a critical audit matter.

First Guaranty uses asset quality risk ratings to monitor portfolio performance and trends and to adjust historical loss percentages for classified loans.

First Guaranty stratifies loans into pools based on collateral and type of loan, based on regulatory guidelines, and estimates inherent loss rates for each of the loan pools, which are used in the calculation of the allowance for loan losses.

The general valuation allowance portion of the allowance for loan losses is used to estimate losses and is based on management’s evaluation of various factors that are not captured in the historical credit loss factors or on the specific impairment component.

Auditing management’s judgments regarding the determination of the quantitative and qualitative portion of the allowance for loan losses involved a high degree of subjectivity.

The primary procedures we performed to address the critical audit matters included:

• Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for loan losses, including controls over the accuracy of asset quality ratings of loans, the loan pools based on collateral type, and the determination of the qualitative and quantitative factors of the allowance for loan losses.

• Testing a risk-based targeted selection of loans to gain substantive evidence that First Guaranty is appropriately rating these loans in accordance with its policies, and that the asset quality ratings for the loans are reasonable.

• Obtaining management’s analysis and supporting documentation related to the qualitative factors and testing whether the qualitative risk factors both internal and external to First Guaranty used in the calculation of the allowance for loan losses are supported by the analysis provided by management.

• Testing of loans excluded from the qualitative general reserve calculations.

• Testing the appropriateness of the methodology and assumptions used in the calculation of the allowance for loan losses, and testing the calculation itself, including completeness and accuracy of the data used in the calculation, application of the qualitative factors determined by management and used in the calculation, and recalculation of the allowance for loan losses balance.

/s/ Castaing, Hussey & Lolan, LLC

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CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

December 31, 2019

December 31, 2018

(in thousands, except share data) December 31, 2020 December 31, 2019

Cash and cash equivalents:

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allowance for loan losses 24,518 10,929

Net loans 1,819,617 1,514,561

Premises and equipment, net 59,892 56,464

Goodwill 12,900 12,942

Intangible assets, net 6,587 7,166

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Accrued interest receivable 11,933 8,412

Other assets 18,405 15,543

Total Assets $ 2,473,078 $ 2,117,216

Liabilities and Shareholders' Equity

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Interest-bearing demand 860,394 635,942

Savings 168,879 135,156

Time 725,629 756,027

Total deposits 2,166,318 1,853,013

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$ 1 par value - authorized 100,600,000 shares;

issued 9,741,253 and 9,687,123 shares

issued 9,741,253 shares

Surplus 110,836 110,836

Retained earnings 57,367 43,283

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See Notes to Consolidated Financial Statements.

1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 16, 2019 to shareholders of record as of December 9, 2019 .

FIRST GUARANTY BANCSHARES, INC.

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Time deposits 16,908 17,141 10,690

Borrowings 2,752 1,851 1,738

Total Interest Expense 26,017 29,966 21,366

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ATM and debit card fees 3,022 2,254 2,122

Net (losses) gains on securities

Net gains (losses) on securities 14,791 ( 157 ) ( 1,830 )

Net gains on sale of loans 1,054 1,376 278

Other 2,342 2,018 1,722

Total Noninterest Income 23,780 8,299 5,280

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Occupancy and equipment expense 7,709 6,096 5,601

Other 20,724 16,104 14,786

Total Noninterest Expense 58,033 47,219 43,275

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Provision for income taxes 5,219 3,656 3,462

Net Income $ 20,318 $ 14,241 $ 14,213

Per Common Share:

Earnings $ 2.09 $ 1.47 $ 1.47

Cash dividends paid $ 0.64 $ 0.60 $ 0.58

1 unchanged sentence

See Notes to Consolidated Financial Statements

1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 16, 2019 to shareholders of record as of December 9, 2019 .

FIRST GUARANTY BANCSHARES, INC.

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(in thousands) 2020 2019 2018

Net Income $ 20,318 $ 14,241 $ 14,213

Other comprehensive income:

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Reclassification adjustments for gains (losses) included in net income ( 14,791 ) 353 1,830

Reclassification of OTTI losses included in net income 100 — —

Change in unrealized gains (losses) on securities ( 1,934 ) 11,788 ( 6,678 )

Tax impact 406 ( 2,475 ) 1,402

Other comprehensive income (loss) ( 1,528 ) 9,313 ( 5,276 )

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

$1 Par Surplus Retained

Earnings Accumulated

Other Comprehensive

Income/(Loss)

December 31, 2016 (1)

Common stock issued in acquisition, 481,488 shares (1)

Other comprehensive income

Cash dividends on common stock ($0.54 per share) (1)

Income/(Loss) Total

Balance December 31, 2017 $ 9,687 $ 109,788 $ 26,064 $ ( 1,556 ) $ 143,983

Reclassification of stranded tax effects in accumulated other comprehensive income — — 306 ( 306 ) —

Net income — — 14,213 — 14,213

Other comprehensive income (loss) — — — ( 5,276 ) ( 5,276 )

Cash dividends on common stock ($ 0.58 per share)

— — ( 5,636 ) — ( 5,636 )

Balance December 31, 2018 $ 9,687 $ 109,788 $ 34,947 $ ( 7,138 ) $ 147,284

Net income — — 14,241 — 14,241

Common stock issued in private placement, 54,130 shares

54 1,048 ( 102 ) — 1,000

Other comprehensive income — — — 9,313 9,313

Cash dividends on common stock ($ 0.60 per share)

— — ( 5,803 ) — ( 5,803 )

Balance December 31, 2019 $ 9,741 $ 110,836 $ 43,283 $ 2,175 $ 166,035

Net income — — 20,318 — 20,318

Other comprehensive income (loss) — — — ( 1,528 ) ( 1,528 )

Cash dividends on common stock ($ 0.64 per share)

— — ( 6,234 ) — ( 6,234 )

Balance December 31, 2020 $ 9,741 $ 110,836 $ 57,367 $ 647 $ 178,591

See Notes to Consolidated Financial Statements

(1) All share and per share amounts reflect the ten percent stock dividend paid December 16, 2019 to shareholders of record as of December 9, 2019 .

(2) See Note 2 - Recent Accounting Pronouncements

FIRST GUARANTY BANCSHARES, INC.

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Cash Flows From Operating Activities:

Net income $ 20,318 $ 14,241 $ 14,213

Adjustments to reconcile net income to net cash provided by operating activities:

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Amortization/Accretion of investments 2,594 1,347 1,445

Loss (gain) on sale/call of securities

(Gain) loss on sale/call of securities ( 14,791 ) 157 1,830

Other than temporary impairment charge on securities 100 — —

Gain on sale of assets ( 1,054 ) ( 1,304 ) ( 301 )

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Proceeds from maturities, calls and sales of AFS securities 1,242,559 279,590 384,549

Funds invested in HTM securities

Funds Invested in AFS securities ( 1,078,450 ) ( 274,437 ) ( 309,346 )

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Net increase in deposits 313,210 18,408 80,336

Net decrease in federal funds purchased and short-term borrowings

Net increase (decrease) in federal funds purchased and short-term borrowings 36,202 ( 28 ) ( 15,500 )

Proceeds from long-term borrowings, net of costs — 32,465 —

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Net Cash Provided By Financing Activities 336,876 42,288 56,259

Net (Decrease) Increase In Cash and Cash Equivalents

Net Increase (Decrease) In Cash and Cash Equivalents 232,180 ( 60,540 ) 89,937

Cash and Cash Equivalents at the Beginning of the Period 67,425 127,965 38,028

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Acquisition of real estate in settlement of loans $ 951 $ 2,789 $ 297

Common stock issued in acquisition

Transfer of securities from HTM to AFS $ 52,553 $ — $ —

Cash Paid During the Period:

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The Bank also maintains an investment portfolio comprised of government, government agency, corporate, and municipal securities.

The Bank has thirty-four banking offices, including one drive-up banking facility, and forty-eight automated teller machines (ATMs) in Southeast Louisiana, Southwest Louisiana, Central Louisiana, North Louisiana and North Central Texas.

The Bank has thirty-four banking offices, including one drive-up banking facility, and forty-six automated teller machines (ATMs) in Southeast Louisiana, Southwest Louisiana, Central Louisiana, North Louisiana and North Central Texas.

Summary of significant accounting policies

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The allowance, which is based on evaluation of the collectability of loans and prior loan loss experience, is an amount that, in the opinion of Management, reflects the risks inherent in the existing loan portfolio and exists at the reporting date.

The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, historical losses, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower's ability to pay, adequacy of loan collateral and other relevant factors.

The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, historical losses, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower's ability to pay including the impact of the COVID-19 pandemic, adequacy of loan collateral and other relevant factors.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans.

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The general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors.

Qualitative factors include analysis of levels and trends in delinquencies,non-accrual loans, charge-offs and recoveries, loan risk ratings, trends in volume and terms of loans, changes in lending policy, credit concentrations, portfolio stress test results, national and local economic trends including the impact of COVID-19, industry conditions, and other relevant factors.

An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses.

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Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests.

First Guaranty's goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment.

Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill.

If the implied fair value is less than the carrying amount, a loss would be recognized in other non-interest expense to reduce the carrying amount to implied fair value of goodwill.

The goodwill impairment test includes two steps that are preceded by a, "step zero", qualitative test.

The qualitative test allows Management to assess whether qualitative factors indicate that it is more likely than not that impairment exists.

If it is not more likely than not that impairment exists, then no impairment exists and the two step quantitative test would not be necessary.

These qualitative indicators include factors such as earnings, share price, market conditions, etc.

If the qualitative factors indicate that it is more likely than not that impairment exists, then the two step quantitative test would be necessary.

Step one is used to identify potential impairment and compares the estimated fair value of a reporting unit with its carrying amount, including goodwill.

If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired.

If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

Step two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill.

If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit's goodwill, an impairment loss is recognized in an amount equal to that excess.

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in an acquisition.

First Guaranty's goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment in accordance with ASC Topic 350.

Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with the related contract, asset or liability.

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Any valuation adjustments required prior to foreclosure are charged to the allowance for loan losses.

Subsequent to foreclosure, losses on the periodic revaluation of the property are charged to current period earnings as other real estate expense.

Subsequent to foreclosure, losses on the periodic revaluation of the property are charged to current period earnings as other real estate expense or to the allowance for other real estate.

Costs of operating and maintaining the properties are charged to other real estate expense as incurred.

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Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, "Leases:

Conforming Amendments Related to Leases".

This ASU amends the codification regarding leases in order to increase transparency and comparability.

The ASU requires companies to recognize lease assets and liabilities on the balance sheet and disclose key information about leasing arrangements.

A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term.

During 2018 and early 2019, the FASB issued ASU No.

2018-11, "Targeted Improvements", ASU No.

2018-20, "Narrow-Scope Improvements for Lessors", and ASU No.

2019-01, "Codification Improvements", which clarified certain implementation issues, provided an additional optional transition method and clarified the disclosure requirements during the period of adopting ASU 2016-02, among others.

The ASU is effective for annual and interim periods beginning after December 15, 2018.

First Guaranty adopted this ASU in the first quarter of 2019.

As a result of adopting this ASU, First Guaranty established a right-to-use asset and a lease liability as of January 1, 2019 of $0.9 million .

The right-to-use asset represents First Guaranty's right to use an underlying asset for the lease term and is included in other assets on First Guaranty's consolidated balance sheets.

The lease liability represents First Guaranty's obligation to make lease payments and is included in other liabilities on First Guaranty's consolidated balance sheets.

First Guaranty does not expect material changes to the recognition of lease expense in future periods as a result of the adopting this ASU.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments- Credit Losses:

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On October 16, 2019, the FASB approved an effective date delay applicable to smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

First Guaranty is currently evaluating the impact of this accounting standard and is implementing a new software application to assist in determining the impact on the Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other:

Simplifying the Test for Goodwill Impairment".

This ASU amends the guidance on impairment testing.

The ASU eliminates Step 2 from the goodwill impairment test.

The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The ASU also 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 2 of the goodwill impairment test.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

This ASU is effective for annual and interim periods beginning after December 15, 2019.

First Guaranty is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU No.

2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This ASU removes, modifies, and adds certain disclosure requirements for fair value measurements.

For example, public entities will no longer be required to disclose the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

This ASU is effective for interim and annual reporting periods beginning after December 15, 2019.

In addition, entities may early adopt the modified or eliminated disclosure requirements and delay adoption of the additional disclosure requirements until their effective date.

First Guaranty does not believe the adoption of this ASU will have a material impact on the Consolidated Financial Statements, as the update only revises disclosure requirements.

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes:

Simplifying the Accounting for Income Taxes".

This ASU removes specific exceptions to the general principles in Topic 740, Income Taxes.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This ASU is effective for annual and interim periods beginning after December 15, 2020, with early adoption in any interim period permitted.

First Guaranty is currently evaluating the impact of this accounting standard on the Consolidated Financial Statements.

First Guaranty is a smaller reporting company and has delayed the adoption of ASU 2016-13.

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)." The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in the Topic 740.

The amendments also improve the consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments in the ASU are effective for fiscal years and interim periods beginning after December 15, 2020.

First Guaranty is currently assessing the impact of adoption of this guidance.

Merger Transaction

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This acquisition allowed First Guaranty to expand its presence into the Central Louisiana market area.

The purchase price resulted in approximately $9.5 million in goodwill and $4.2 million in core deposit intangible, none of which is deductible for tax purposes.

The purchase price resulted in approximately $ 9.4 million in goodwill and $ 4.2 million in core deposit intangible, no ne of which is deductible for tax purposes.

First Guaranty accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations.

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In conjunction with the adoption of ASU 2015-16, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition dates, First Guaranty records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined.

First Guaranty is continuing to finalize the purchase price allocations related to the Union acquisition.

Based on management's preliminary valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Union acquisition is allocated in the table below.

These allocations are subject to change.

(in thousands)

Union Bancshares, Incorporated

First Guaranty finalized the purchase price allocations related to the Union acquisition during the fourth quarter of 2020.

Based on management's valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Union acquisition is allocated in the table below.

(in thousands) Union Bancshares, Incorporated

Cash and due from banks $ 20,063

Securities available for sale 38,813

Loans 184,344

Premises and equipment 7,223

Goodwill 9,428

Intangible assets 4,213

Other real estate 1,595

Other assets 9,480

Total assets acquired $ 275,159

Deposits 205,078

FHLB borrowings 16,617

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Net assets acquired $ 43,383

The following pro forma information for the twelve months ended December 31, 2019 and December 31, 2018 reflects First Guaranty's estimated consolidated results of operations as if the acquisition of Union occurred at January 1, 2018, unadjusted for potential cost savings.

(in thousands, except share data)

Net Interest Income

Noninterest Income

Noninterest Expense

Earnings per common share

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.

The non-impaired loans excluded from the purchase credit impairment requirements under ASC 310-30 were recorded at an estimated fair value of $176.9 million and had gross contractual amounts receivable of $174.2 million on the date of acquisition.

Contractual cash flows not expected to be collected are estimated at $1.2 million .

Cash and Due from Banks

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There was no reserve requirement as of December 31, 2020 and 2019.

At December 31, 2019 First Guaranty had two accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000 .

The amount of these accounts that were over the insurable limit totaled $5.7 million .

At December 31, 2018 First Guaranty had only one account at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000 .

This account was over the insurable limit by $127,000 .

At December 31, 2020 First Guaranty had no accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000.

At December 31, 2019 First Guaranty had only two account at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000.

This account was over the insurable limit by $ 5.7 million.

A summary comparison of securities by type at December 31, 2020 and 2019 is shown below.

December 31, 2019

December 31, 2018

(in thousands)

Amortized Cost

Unrealized Gains

Unrealized Losses

Amortized Cost

Unrealized Gains

Unrealized Losses

December 31, 2020 December 31, 2019

(in thousands) Amortized Cost Gross

Unrealized Gains Gross

Unrealized Losses Fair Value Amortized Cost Gross

Unrealized Gains Gross

Unrealized Losses Fair Value

Available for sale:

Treasuries $ 3,000 $ — $ — $ 3,000 $ — $ — $ — $ —

Government Agencies 169,986 77 ( 405 ) 169,658 16,380 15 ( 2 ) 16,393

Corporate debt securities 36,153 604 ( 268 ) 36,489 94,561 1,110 ( 302 ) 95,369

Other securities

Municipal bonds 27,381 781 — 28,162 30,297 1,870 ( 14 ) 32,153

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December 31, 2020

(in thousands)

Amortized Cost

(in thousands) Amortized Cost Fair Value

Available for sale:

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Over 10 years 152,216 152,232

Collateralized mortgage obligations

Subtotal 236,520 237,309

Mortgage-backed Securities 1,208 1,239

Total available for sale securities $ 237,728 $ 238,548

Held to maturity:

Due in one year or less

Due after one year through five years

Due after five years through 10 years

Over 10 years

Mortgage-backed Securities

Total held to maturity securities

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2020.

December 31, 2020

Less Than 12 Months

12 Months or More

(in thousands)

of Securities

Unrealized Losses

of Securities

Unrealized Losses

of Securities

Less Than 12 Months 12 Months or More Total

(in thousands) Number

of Securities Fair Value Gross

Unrealized Losses Number

of Securities Fair Value Gross

Unrealized Losses Number

of Securities Fair Value Gross

Unrealized Losses

Available for sale:

Treasuries — $ — $ — — $ — $ — — $ — $ —

Government Agencies 12 131,455 ( 405 ) — — — 12 131,455 ( 405 )

Corporate debt securities 17 10,286 ( 144 ) 4 1,254 ( 124 ) 21 11,540 ( 268 )

Other securities

Municipal bonds 1 66 — — — — 1 66 —

Collateralized mortgage obligations

Mortgage-backed securities — — — 6 11 — 6 11 —

Total available for sale securities 30 $ 141,807 $ ( 549 ) 10 $ 1,265 $ ( 124 ) 40 $ 143,072 $ ( 673 )

Held to maturity:

Government Agencies

Municipal bonds

Mortgage-backed securities

Total held to maturity securities

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2019.

December 31, 2019

Less Than 12 Months

12 Months or More

(in thousands)

of Securities

Unrealized Losses

of Securities

Unrealized Losses

of Securities

Less Than 12 Months 12 Months or More Total

(in thousands) Number

of Securities Fair Value Gross

Unrealized Losses Number

of Securities Fair Value Gross

Unrealized Losses Number

of Securities Fair Value Gross

Unrealized Losses

Available for sale:

Treasuries — $ — $ — — $ — $ — — $ — $ —

Government Agencies 1 4,398 ( 1 ) 1 149 ( 1 ) 2 4,547 ( 2 )

Corporate debt securities 42 21,269 ( 174 ) 12 3,184 ( 128 ) 54 24,453 ( 302 )

Other securities

Municipal bonds 9 4,285 ( 14 ) — — — 9 4,285 ( 14 )

17 unchanged sentences

Corporate debt securities in a loss position consist primarily of corporate bonds issued by businesses in the financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas industries.

No securities with an other-than-temporary impairment loss were held at December 31, 2019 .

There was one security with an other-than-temporary impairment loss at December 31, 2020.

First Guaranty believes that the remaining issuers will be able to fulfill the obligations of these securities based on evaluations described above.

First Guaranty has the ability and intent to hold these securities until they recover, which could be at their maturity dates.

There was one other-than-temporary impairment loss of $ 100,000 recognized on securities during the years ended December 31, 2020.

The security had an original book value of $ 0.1 million and was in default.

First Guaranty's analysis of the company and the current market value of the security resulted in the determination that a write down was warranted.

There were no other-than-temporary impairment losses recognized on securities during the years ended December 31, 2019, and 2018.

The following table presents a roll-forward of the amount of credit losses on debt securities held by First Guaranty for which a portion of OTTI was recognized in other comprehensive income for the year ended December 31, 2020, 2019, and 2018:

(in thousands)

Year Ended December 31, 2019

Year Ended December 31, 2018

Year Ended December 31, 2017

(in thousands) Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018

Beginning balance of credit losses at beginning of year $ — $ 60 $ 60

11 unchanged sentences

Gross realized gains on sales of securities were $ 14.7 million, $ 0.8 million and $ 0.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Gross realized losses were $1.1 million , $1.9 million and $100,000 for the years ended December 31, 2019 , 2018 and 2017 .

Gross realized losses were $ 0.1 million, $ 1.1 million and $ 1.9 million for the years ended December 31, 2020, 2019 and 2018.

The tax applicable to these transactions amounted to $ 3.1 million, $( 79,000 ), and $( 0.4 ) million for 2020, 2019 and 2018, respectively.

1 unchanged sentence

Net unrealized gains on available for sale securities included in accumulated other comprehensive income (loss) ("AOCI"), net of applicable income taxes, totaled $ 0.6 million at December 31, 2020.

At December 31, 2018 net unrealized losses included in AOCI, net of applicable income taxes, totaled $7.1 million .

During 2019 and 2018 net losses, net of tax, reclassified out of AOCI into earnings totaled $0.3 million and $1.4 million , respectively.

At December 31, 2019 net unrealized gains included in AOCI, net of applicable income taxes, totaled $ 2.2 million.

During 2020 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 11.7 million.

During 2019 net losses, net of tax, reclassified out of AOCI into earnings totaled $ 0.3 million.

At December 31, 2020, First Guaranty's exposure to investment securities issuers that exceeded 10% of shareholders' equity was as follows:

December 31, 2020

(in thousands)

Amortized Cost

(in thousands) Amortized Cost Fair Value

Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) 110,177 109,856

Federal National Mortgage Association (Fannie Mae-FNMA)

Federal Farm Credit Bank (FFCB) 54,263 54,279

Total $ 164,440 $ 164,135

The following table summarizes the components of First Guaranty's loan portfolio as of December 31, 2020 and December 31, 2019:

December 31, 2019

December 31, 2018

(in thousands except for %)

As % of Category

December 31, 2020 December 31, 2019

(in thousands except for %) Balance As % of Category Balance As % of Category

Construction & land development $ 150,841 8.2 % $ 172,247 11.3 %

Farmland 26,880 1.4 % 22,741 1.5 %

1- 4 Family 271,236 14.7 % 289,635 18.9 %

Multifamily 45,932 2.5 % 23,973 1.6 %

Non-farm non-residential 824,137 44.6 % 616,536 40.3 %

1 unchanged sentence

Non-Real Estate:

Agricultural 28,335 1.5 % 26,710 1.8 %

Commercial and industrial 353,028 19.1 % 268,256 17.5 %

6 unchanged sentences

The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered.

December 31, 2019

December 31, 2018

(in thousands)

December 31, 2020 December 31, 2019

(in thousands) Fixed Floating Total Fixed Floating Total

One year or less $ 186,252 $ 79,680 $ 265,932 $ 205,596 $ 104,859 $ 310,455

2 unchanged sentences

Over 15 years 146,830 92,325 239,155 143,695 51,612 195,307

Subtotal $ 1,202,300 $ 631,296 1,833,596 $ 1,006,248 $ 508,315 1,514,563

Nonaccrual loans 15,576 14,403

7 unchanged sentences

As of December 31, 2020

(in thousands)

30-89 Days Past Due

Greater Past Due

Total Past Due

Recorded Investment

(in thousands) 30-89 Days Past Due 90 Days or

Greater Past Due Total Past Due Current Total Loans Recorded Investment

90 Days Accruing

Construction & land development $ 8,088 $ 1,621 $ 9,709 $ 141,132 $ 150,841 $ 1,000

Farmland 227 857 1,084 25,796 26,880 —

1- 4 family 6,050 7,207 13,257 257,979 271,236 4,980

Multifamily 190 366 556 45,376 45,932 366

Non-farm non-residential 15,792 12,148 27,940 796,197 824,137 4,699

1 unchanged sentence

Non-Real Estate:

Agricultural 143 3,539 3,682 24,653 28,335 67

Commercial and industrial 663 2,557 3,220 349,808 353,028 1,856

5 unchanged sentences

As of December 31, 2019

(in thousands)

30-89 Days Past Due

Greater Past Due

Total Past Due

Recorded Investment

(in thousands) 30-89 Days Past Due 90 Days or

Greater Past Due Total Past Due Current Total Loans Recorded Investment

90 Days Accruing

Construction & land development $ 760 $ 429 $ 1,189 $ 171,058 $ 172,247 $ 48

Farmland 6 1,274 1,280 21,461 22,741 —

1- 4 family 8,521 3,682 12,203 277,432 289,635 923

Multifamily — — — 23,973 23,973 —

Non-farm non-residential 11,279 6,249 17,528 599,008 616,536 1,603

1 unchanged sentence

Non-Real Estate:

Agricultural 310 4,800 5,110 21,600 26,710 —

Commercial and industrial 2,801 342 3,143 265,113 268,256 15

10 unchanged sentences

Construction & land development $ 621 $ 381

Farmland 857 1,274

1- 4 family 2,227 2,759

Multifamily — —

Non-farm non-residential 7,449 4,646

1 unchanged sentence

Non-Real Estate:

Agricultural 3,472 4,800

Commercial and industrial 701 327

3 unchanged sentences

The following table identifies the credit exposure of the loan portfolio, including loans acquired with deteriorated credit quality, by specific credit ratings as of the dates indicated:

As of December 31, 2019

As of December 31, 2018

(in thousands)

Special Mention

As of December 31, 2020 As of December 31, 2019

(in thousands) Pass Special Mention Substandard Doubtful Total Pass Special Mention Substandard Doubtful Total

Construction & land development $ 139,032 $ 10,785 $ 1,024 $ — $ 150,841 $ 163,808 $ 6,180 $ 2,259 $ — $ 172,247

Farmland 22,822 46 4,012 — 26,880 18,223 3,177 1,341 — 22,741

1- 4 family 251,315 7,252 12,669 — 271,236 271,392 4,751 13,492 — 289,635

Multifamily 36,146 1,841 7,945 — 45,932 16,025 805 7,143 — 23,973

Non-farm non-residential 756,760 51,355 16,022 — 824,137 589,800 7,743 18,993 — 616,536

1 unchanged sentence

Non-Real Estate:

Agricultural 24,180 92 4,063 — 28,335 21,529 48 5,133 — 26,710

Commercial and industrial 321,957 27,388 3,683 — 353,028 262,416 1,199 4,641 — 268,256

9 unchanged sentences

The carrying amount of those loans is as follows at December 31, 2020 and 2019.

(in thousands)

As of December 31, 2019

As of December 31, 2018

(in thousands) As of December 31, 2020 As of December 31, 2019

Construction & land development $ 397 $ 526

1- 4 family 4,102 6,402

Multifamily 900 —

Non-farm non-residential 2,396 2,294

1 unchanged sentence

Non-Real Estate:

Agricultural 343 —

Commercial and industrial 1,017 1,198

1 unchanged sentence

Total Non-Real Estate 1,360 1,198

Total $ 9,155 $ 10,420

For those purchased loans disclosed above, there was no allowance for loan losses at December 31, 2020 or December 31, 2019.

5 unchanged sentences

The accretable yield, or income expected to be collected, on the purchased loans above is as follows for the years ended December 31, 2020 and 2019.

(in thousands)

Year Ended December 31, 2019

Year Ended December 31, 2018

(in thousands) Year Ended December 31, 2020 Year Ended December 31, 2019

Balance, beginning of period $ 3,647 $ 613

Acquisition accretable yield 30 3,367

Accretion ( 785 ) ( 831 )

Net transfers from nonaccretable difference to accretable yield — 498

Balance, end of period $ 2,892 $ 3,647

The contractually required payments of purchased impaired loans related to the Union acquisition totaled $13.7 million , while the cash flow expected to be collected at acquisition total $10.6 million , and the fair value of the acquired loans totaled $7.3 million .

Allowance for Loan Losses

1 unchanged sentence

As of December 31,

(in thousands)

Beginning Allowance (12/31/18)

Ending Allowance (12/31/19)

Beginning Allowance (12/31/17)

Ending Allowance (12/31/18)

(in thousands) Beginning Allowance (12/31/19) Charge-offs Recoveries Provision Ending Allowance (12/31/20) Beginning Allowance (12/31/18) Charge-offs Recoveries Provision Ending Allowance (12/31/19)

Construction & land development $ 423 $ ( 265 ) $ — $ 871 $ 1,029 $ 581 $ — $ — $ ( 158 ) $ 423

Farmland 50 — — 412 462 41 — — 9 50

1- 4 family 1,027 ( 154 ) 39 1,598 2,510 911 ( 552 ) 39 629 1,027

Multifamily 1,038 — — ( 60 ) 978 1,318 — — ( 280 ) 1,038

Non-farm non-residential 5,277 ( 550 ) 178 10,159 15,064 4,771 ( 2,603 ) 5 3,104 5,277

1 unchanged sentence

Non-Real Estate:

Agricultural 95 ( 110 ) 70 126 181 339 ( 40 ) — ( 204 ) 95

Commercial and industrial 1,909 ( 265 ) 128 1,030 2,802 1,909 ( 879 ) 267 612 1,909

Consumer and other 1,110 ( 1,083 ) 724 739 1,490 891 ( 1,190 ) 246 1,163 1,110

Unallocated — — — 2 2 15 — — ( 15 ) —

Total Non-Real Estate 3,114 ( 1,458 ) 922 1,897 4,475 3,154 ( 2,109 ) 513 1,556 3,114

Total $ 10,929 $ ( 2,427 ) $ 1,139 $ 14,877 $ 24,518 $ 10,776 $ ( 5,264 ) $ 557 $ 4,860 $ 10,929

As of December 31,

(in thousands)

Beginning Allowance (12/31/16)

Ending Allowance (12/31/17)

(in thousands) Beginning Allowance (12/31/17) Charge-offs Recoveries Provision Ending Allowance (12/31/18)

Construction & land development $ 628 $ — $ 3 $ ( 50 ) $ 581

Farmland 5 — — 36 41

1- 4 family 1,078 ( 99 ) 90 ( 158 ) 911

Multifamily 994 — 20 304 1,318

Non-farm non-residential 2,811 ( 404 ) 89 2,275 4,771

1 unchanged sentence

Non-Real Estate:

Agricultural 187 ( 300 ) 26 426 339

Commercial and industrial 2,377 ( 179 ) 1,642 ( 1,931 ) 1,909

Consumer and other 1,125 ( 907 ) 216 457 891

Unallocated 20 — — ( 5 ) 15

Total Non-Real Estate 3,709 ( 1,386 ) 1,884 ( 1,053 ) 3,154

Total $ 9,225 $ ( 1,889 ) $ 2,086 $ 1,354 $ 10,776

Negative provisions are caused by changes in the composition and credit quality of the loan portfolio.

2 unchanged sentences

As of December 31, 2020

(in thousands)

for Impairment

Allowance Individually Evaluated for Purchased Credit-Impairment

(in thousands) Allowance

for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance

Collectively Evaluated

for Impairment

Total Allowance

for Credit Losses

for Impairment

Loans Individually Evaluated for Purchased Credit-Impairment

for Impairment

for Impairment Total Allowance

for Credit Losses Loans

for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans

for Impairment Total Loans

Unearned Income

Construction & land development $ — $ — $ 1,029 $ 1,029 $ — $ 397 $ 150,444 $ 150,841

Farmland — — 462 462 543 — 26,337 26,880

1- 4 family 266 — 2,244 2,510 1,480 4,102 265,654 271,236

Multifamily — — 978 978 — 900 45,032 45,932

Non-farm non-residential 2,280 — 12,784 15,064 9,800 2,396 811,941 824,137

1 unchanged sentence

Non-Real Estate:

Agricultural — — 181 181 2,531 343 25,461 28,335

Commercial and industrial 97 — 2,705 2,802 1,544 1,017 350,467 353,028

Consumer and other — — 1,490 1,490 — — 148,783 148,783

Unallocated — — 2 2 — — — —

Total Non-Real Estate 97 — 4,378 4,475 4,075 1,360 524,711 530,146

Total $ 2,643 $ — $ 21,875 $ 24,518 $ 15,898 $ 9,155 $ 1,824,119 $ 1,849,172

Unearned Income ( 5,037 )

1 unchanged sentence

As of December 31, 2019

(in thousands)

for Impairment

Allowance Individually Evaluated for Purchased Credit-Impairment

for Impairment

Total Allowance

for Credit Losses

for Impairment

Loans Individually Evaluated for Purchased Credit-Impairment

for Impairment

(in thousands) Allowance

for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance

for Impairment Total Allowance

for Credit Losses Loans

for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans

for Impairment Total Loans

Unearned Income

Construction & land development $ — $ — $ 423 $ 423 $ — $ 526 $ 171,721 $ 172,247

Farmland — — 50 50 543 — 22,198 22,741

1- 4 family 34 — 993 1,027 1,058 6,402 282,175 289,635

Multifamily — — 1,038 1,038 — — 23,973 23,973

Non-farm non-residential 1,879 — 3,398 5,277 12,120 2,294 602,122 616,536

1 unchanged sentence

Non-Real Estate:

Agricultural — — 95 95 4,030 — 22,680 26,710

Commercial and industrial 111 — 1,798 1,909 2,981 1,198 264,077 268,256

Consumer and other — — 1,110 1,110 — — 108,868 108,868

Unallocated — — — — — — — —

Total Non-Real Estate 111 — 3,003 3,114 7,011 1,198 395,625 403,834

Total $ 2,024 $ — $ 8,905 $ 10,929 $ 20,732 $ 10,420 $ 1,497,814 $ 1,528,966

Unearned Income ( 3,476 )

6 unchanged sentences

As of December 31, 2020

(in thousands)

Principal Balance

Recorded Investment

Interest Income

(in thousands) Recorded

Investment Unpaid

Principal Balance Related

Allowance Average

Recorded Investment Interest Income

Recognized Interest Income

Impaired Loans with no related allowance:

Construction & land development $ — $ — $ — $ — $ — $ —

Farmland 543 552 — 543 — —

1- 4 family 511 534 — 527 — —

Multifamily — — — — — —

Non-farm non-residential 1,227 1,227 — 1,218 80 72

1 unchanged sentence

Non-Real Estate:

Agricultural 2,531 2,661 — 2,594 — —

Commercial and industrial 601 601 — 821 48 47

4 unchanged sentences

Construction & land development — — — — — —

Farmland — — — — — —

1- 4 family 969 969 266 969 5 5

Multifamily — — — — — —

Non-farm non-residential 8,573 8,619 2,280 7,550 60 80

1 unchanged sentence

Non-Real Estate:

Agricultural — — — — — —

Commercial and industrial 943 943 97 981 79 57

5 unchanged sentences

As of December 31, 2019

(in thousands)

Principal Balance

Recorded Investment

Interest Income

(in thousands) Recorded

Investment Unpaid

Principal Balance Related

Allowance Average

Recorded Investment Interest Income

Recognized Interest Income

Impaired Loans with no related allowance:

Construction & land development $ — $ — $ — $ — $ — $ —

Farmland 543 552 — 550 — —

1- 4 family 541 541 — 544 27 22

Multifamily — — — — — —

Non-farm non-residential 8,307 8,307 — 9,940 673 688

1 unchanged sentence

Non-Real Estate:

Agricultural 4,030 4,186 — 4,031 12 —

Commercial and industrial 1,962 1,962 — 1,788 81 67

4 unchanged sentences

Construction & land development — — — — — —

Farmland — — — — — —

1- 4 family 517 517 34 522 — —

Multifamily — — — — — —

Non-farm non-residential 3,813 4,162 1,879 4,134 194 212

1 unchanged sentence

Non-Real Estate:

Agricultural — — — — — —

Commercial and industrial 1,019 1,019 111 1,039 81 77

8 unchanged sentences

These loans have an allocated reserve in First Guaranty's allowance for loan losses.

First Guaranty has not restructured any loans that are considered TDRs in the years ended December 31, 2019 and 2018 .

At December 31, 2019 , First Guaranty had no outstanding TDRs.

First Guaranty restructured one loan that is considered TDR in the years ended December 31, 2020 and 2019.

At December 31, 2020, First Guaranty had one outstanding TDR.

Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020, financial institutions have the option to temporarily suspend certain requirements under U.S.

generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19.

This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency.

The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019.

First Guaranty elected to adopt these provisions of the CARES Act.

The following table is an age analysis of TDRs as of December 31, 2020 and December 31, 2019:

December 31, 2019

December 31, 2018

Accruing Loans

(in thousands)

30-89 Days Past Due

December 31, 2020 December 31, 2019

Accruing Loans Accruing Loans

(in thousands) Current 30-89 Days Past Due Nonaccrual Total TDRs Current 30-89 Days Past Due Nonaccrual Total TDRs

Construction & land development $ — $ — $ — $ — $ — $ — $ — $ —

Farmland — — — — — — — —

1- 4 family — — — — — — — —

Multifamily — — — — — — — —

Non-farm non-residential — — 3,591 3,591 — — — —

1 unchanged sentence

Non-Real Estate:

Agricultural — — — — — — — —

Commercial and industrial — — — — — — — —

1 unchanged sentence

Total Non-Real Estate — — — — — — — —

Total $ — $ — $ 3,591 $ 3,591 $ — $ — $ — $ —

The following table discloses TDR activity for the twelve months ended December 31, 2020.

1 unchanged sentence

Twelve Months Ended December 31, 2020

(in thousands)

Beginning balance (December 31, 2018)

post-modification

Construction to

permanent financing

to market terms

Other adjustments

Ending balance (December 31, 2019)

(in thousands) Beginning balance (December 31, 2019) New TDRs Charge-offs

post-modification Transferred

to ORE Paydowns Construction to

permanent financing Restructured

to market terms Other adjustments Ending balance (December 31, 2020)

Construction & land development $ — $ — $ — $ — $ — $ — $ — $ — $ —

Farmland — — — — — — — — —

1- 4 family — — — — — — — — —

Multifamily — — — — — — — — —

Non-farm non-residential — 3,613 — — ( 22 ) — — — 3,591

1 unchanged sentence

Non-Real Estate:

Agricultural — — — — — — — — —

Commercial and industrial — — — — — — — — —

5 unchanged sentences

The components of premises and equipment at December 31, 2020 and 2019 are as follows:

(in thousands)

December 31, 2019

December 31, 2018

(in thousands) December 31, 2020 December 31, 2019

Land $ 15,180 $ 15,180

Bank premises 40,906 40,536

12 unchanged sentences

No impairment charges have been recognized since acquisition.

Goodwill totaled $12.9 million and $3.5 million at December 31, 2019 and 2018 , respectively.

Goodwill totaled $ 12.9 million at December 31, 2020 and 2019, respectively.

The following table summarizes intangible assets subject to amortization.

December 31, 2019

December 31, 2018

(in thousands)

Carrying Amount

December 31, 2020 December 31, 2019

(in thousands) Gross

Carrying Amount Accumulated

Amortization Net

Carrying Amount Gross

Carrying Amount Accumulated

Amortization Net

Carrying Amount

1 unchanged sentence

Loan servicing assets 1,826 1,054 772 1,558 919 639

Total $ 18,092 $ 11,505 $ 6,587 $ 17,824 $ 10,658 $ 7,166

The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.

2 unchanged sentences

Amortization expense of the core deposit intangible assets for the next five years is as follows:

For the Years Ended

Estimated Amortization Expense

For the Years Ended Estimated Amortization Expense

(in thousands)

6 unchanged sentences

Other real estate owned consists of the following at the dates indicated:

(in thousands)

December 31, 2019

December 31, 2018

(in thousands) December 31, 2020 December 31, 2019

Real Estate Owned Acquired by Foreclosure:

Residential $ 131 $ 559

Construction & land development 311 669

1 unchanged sentence

Total Other Real Estate Owned and Foreclosed Property 2,645 4,879

Allowance for Other Real Estate Owned losses ( 405 ) —

Net Other Real Estate Owned and Foreclosed Property $ 2,240 $ 4,879

A schedule of maturities of all time deposits are as follows:

(in thousands)

December 31, 2019

(in thousands) December 31, 2020

2021 $ 355,093

2025 and thereafter 22,733

Total $ 725,629

The table above includes $ 3.4 million in brokered deposits for December 31, 2020.

1 unchanged sentence

Short-term borrowings are summarized as follows:

(in thousands)

December 31, 2019

December 31, 2018

(in thousands) December 31, 2020 December 31, 2019

Federal Home Loan Bank advances $ 50,000 $ 13,079

3 unchanged sentences

First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs.

First Guaranty had $19.9 million in short-term borrowings outstanding at December 31, 2019 compared to none outstanding at December 31, 2018 .

First Guaranty had $ 56.1 million in short-term borrowings outstanding at December 31, 2020 compared to $ 19.9 million outstanding at December 31, 2019.

First Guaranty has an available line of credit of $ 6.5 million, with no outstanding balance at December 31, 2020.

8 unchanged sentences

Long-term debt is summarized as follows:

Long-term Federal Home Loan Bank advance, fixed at 2.12% , totaled $3.5 million at December 31, 2019 and $0 at December 31, 2018 .

Long-term Federal Home Loan Bank advance, fixed at 2.12 %, totaled $ 3.4 million at December 31, 2020 and $ 3.5 million at December 31, 2019.

This advance was acquired in the Union acquisition and has a contractual maturity date of September 1, 2037.

Senior long-term debt with a commercial bank, priced at floating 3-month LIBOR plus 250 basis points (4.61%) , totaled $16.9 million at December 31, 2019 and $19.8 million at December 31, 2018 .

Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 25 basis points ( 3.00 %), totaled $ 14.0 million at December 31, 2020.

First Guaranty pays $ 697,715 principal plus interest quarterly.

This loan was originated in December 2015 and has a contractual maturity date of December 22, 2020 .

This loan was renewed in December 2020 and has a contractual maturity date of December 22, 2025.

This long-term debt is secured by a pledge of 85 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary).

Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 70 basis points (4.05%) , totaled $31.7 million at December 31, 2019 and $0 at December 31, 2018 .

This senior long-term debt was priced at floating 3-month LIBOR plus 250 basis points ( 4.61 %), totaled $ 16.9 million at December 31, 2019.

This loan was originated in December 2015.

Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 70 basis points ( 3.00 %), totaled $ 28.4 million at December 31, 2020 and $ 31.7 million at December 31, 2019.

First Guaranty pays $ 812,500 principal plus interest quarterly.

This loan was originated in November 2019 and has a contractual maturity date of November 7, 2024 .

This loan was renewed in November 2019 and has a contractual maturity date of November 7, 2024.

This long-term debt is secured by a pledge of 85 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary).

Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points (4.00%) , totaled $14.7 million at December 31, 2019 and December 31, 2018 .

Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points ( 4.00 %), totaled $ 14.8 million at December 31, 2020 and $ 14.7 million at December 31, 2019.

First Guaranty pays interest semi-annually for the Fixed Interest Rate Period and quarterly for the Floating Interest Rate Period.

6 unchanged sentences

At December 31, 2020, letters of credit issued by the FHLB totaling $ 365.8 million were outstanding and carried as off-balance sheet items, all of which expire by 2024.

At December 31, 2018 , letters of credit issued by the FHLB totaling $344.3 million were outstanding and carried as off-balance sheet items, all of which expired in 2019 .

At December 31, 2019, letters of credit issued by the FHLB totaling $ 355.2 million were outstanding and carried as off-balance sheet items, all of which expire by 2024.

The letters of credit are solely used for pledging towards public fund deposits.

2 unchanged sentences

These loans are available to be pledged for additional reserve liquidity.

As of December 31, 2019 obligations on senior long-term debt and junior subordinated debentures totaled $63.3 million .

The scheduled maturities are as follows:

(in thousands)

Long-term Debt

As of December 31, 2020 obligations on long-term advances from FHLB, senior long-term debt and junior subordinated debentures totaled $ 60.5 million.

The scheduled payments are as follows:

(in thousands) Long-term Advances from FHLB Senior

Long-term Debt Junior

Subordinated Debentures

2021 $ — $ 4,531 $ —

2022 — 6,041 —

2023 — 6,041 —

2024 — 22,291 —

2025 — 3,504 15,000

2026 and thereafter 3,366 — —

Subtotal $ 3,366 $ 3,366 $ 42,408 $ 15,000

Debt issuance costs — ( 42 ) ( 223 )

Total $ 3,366 $ 42,366 $ 14,777

Capital Requirements

6 unchanged sentences

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5 % of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.

The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019.

For 2019, the capital conservation buffer was 2.500% of risk-weighted assets.

First Guaranty Bank's capital conservation buffer was 4.22 % at December 31, 2020.

In addition, as a result of the legislation, the federal banking agencies have developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $ 10 billion.

A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes.

The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement.

The federal banking agencies set the new Community Bank Leverage Ratio at 9 %.

Pursuant to the CARES Act, the federal banking agencies set the Community Bank Leverage Ratio at 8 % beginning in the second quarter of 2020 through the end of 2020.

Beginning in 2021, the Community Bank Leverage Ratio will increase to 8.5 % for the calendar year.

Community banks will have until Jan.

1, 2022, before the Community Bank Leverage Ratio requirement will return to 9 %.

A financial institution can elect to be subject to this new definition.

The new rule took effect on January 1, 2020.

The Bank did not elect to follow the Community Bank Leverage Ratio.

As of December 31, 2020, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

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First Guaranty Bank's actual capital amounts and ratios as of December 31, 2020 and 2019 are presented in the following table.

Minimum Capital Requirements

Minimum to be Well Capitalized

Actual Minimum Capital Requirements Minimum to be Well Capitalized

Under Action Provisions

(in thousands except for %)

(in thousands except for %) Amount Ratio Amount Ratio Amount Ratio

December 31, 2020

Total Risk-based Capital:

$ 233,391 12.22 % $ 152,805 8.00 % $ 191,006 10.00 %

Tier 1 Capital:

$ 209,507 10.97 % $ 114,604 6.00 % $ 152,805 8.00 %

Tier 1 Leverage Capital:

$ 209,507 8.58 % $ 97,683 4.00 % $ 122,104 5.00 %

Common Equity Tier One Capital:

$ 209,507 10.97 % $ 85,953 4.50 % $ 124,154 6.50 %

December 31, 2019

Total Risk-based Capital:

$ 213,962 12.61 % $ 135,697 8.00 % $ 169,621 10.00 %

Tier 1 Capital:

$ 203,034 11.96 % $ 101,773 6.00 % $ 135,697 8.00 %

Tier 1 Leverage Capital:

$ 203,034 10.44 % $ 77,771 4.00 % $ 97,214 5.00 %

Common Equity Tier One Capital:

$ 203,034 11.96 % $ 76,329 4.50 % $ 110,254 6.50 %

Dividend Restrictions

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First Guaranty paid interest of $ 0.6 million in 2020, 2019 and 2018 for this note.

During the years ended 2019 , 2018 and 2017 , First Guaranty paid approximately $0.1 million , $0.2 million and $6,000 , respectively, for the purchase and maintenance of First Guaranty's automobiles to subsidiaries of Hood Automotive Group, of which William K.

During the years ended 2020, 2019 and 2018, First Guaranty paid approximately $ 27,000 , $ 0.1 million and $ 0.2 million, respectively, for the purchase and maintenance of First Guaranty's automobiles to subsidiaries of Hood Automotive Group, of which William K.

Hood, a director of First Guaranty, is President.

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Gasaway is part owner.

During the years ended 2019 and 2018 , First Guaranty paid approximately $0.3 million and $0.2 million to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance.

During the years ended 2020, 2019 and 2018, First Guaranty paid approximately $ 0.5 million, $ 0.3 million and $ 0.2 million to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance.

First Guaranty owns a 40 % interest in Centurion and accounts for this investment under the equity method.

12 unchanged sentences

Data processing 2,465 1,972 1,692

ATM Fees 1,332 1,217 1,214

Marketing and public relations 1,046 1,456 1,329

3 unchanged sentences

Travel and lodging 726 908 978

Telephone 256 193 208

Amortization of core deposits 712 390 545

Donations 393 603 380

Net costs from other real estate and repossessions 1,653 422 186

Regulatory assessment 1,716 683 941

Other 2,980 2,536 2,204

Total other noninterest expense $ 20,724 $ 16,104 $ 14,786

8 unchanged sentences

(in thousands) 2020 2019 2018

Current $ 8,964 $ 3,770 $ 3,929

Deferred ( 3,745 ) ( 114 ) ( 467 )

Total $ 5,219 $ 3,656 $ 3,462

The difference between income taxes computed by applying the statutory federal income tax rate and the provision for income taxes in the financial statements is reconciled as follows:

3 unchanged sentences

Tax exempt municipal income ( 124 ) ( 140 ) ( 166 )

(1) Included in other for the year ended December 31, 2017 is $0.9 million related to the estimated net impact from the remeasurement of deferred tax assets and liabilities as a result of the passage of the Tax Cuts and Jobs Act in December 2017.

Other ( 20 ) 38 ( 84 )

Total $ 5,219 $ 3,656 $ 3,462

Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities, and available tax credit carry forwards.

7 unchanged sentences

Net operating loss 1,190 1,282

Other 581 508

Gross deferred tax assets 6,758 3,767

4 unchanged sentences

Discount on purchased loans ( 161 ) ( 267 )

Other ( 625 ) ( 670 )

Gross deferred tax liabilities ( 4,124 ) ( 4,884 )

Net deferred tax (liabilities) assets

At December 31, 2019, First Guaranty had recorded a net deferred tax liability position.

Net deferred tax assets (liabilities) $ 2,634 $ ( 1,117 )

First Guaranty determined that the net deferred tax asset at December 31, 2020 was more likely than not to be realized based on an assessment of all available positive and negative evidence, and therefore no valuation allowance was recorded.

5 unchanged sentences

First Guaranty recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in noninterest expense.

During the years ended December 31, 2019 , 2018 and 2017 , First Guaranty did not recognize any interest or penalties in its consolidated financial statements, nor has it recorded an accrued liability for interest or penalty payments.

During the years ended December 31, 2020, 2019 and 2018, First Guaranty did no t recognize any interest or penalties in its consolidated financial statements, no r has it recorded an accrued liability for interest or penalty payments.

Commitments and Contingencies

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Set forth below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at December 31, 2020 and December 31, 2019.

Contract Amount

December 31, 2019

December 31, 2018

Contract Amount December 31, 2020 December 31, 2019

(in thousands)

45 unchanged sentences

The following table summarizes financial assets measured at fair value on a recurring basis as of December 31, 2020 and 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)

December 31, 2019

December 31, 2018

(in thousands) December 31, 2020 December 31, 2019

Available for Sale Securities Fair Value Measurements Using:

5 unchanged sentences

While Management believes the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.

The change in Level 1 securities available for sale from December 31, 2018 was due principally to changes in market values on Level 1 securities.

The change in Level 2 securities available for sale from December 31, 2018 was due principally to a reduction in agency, municipal and corporate bonds related to sales and maturities.

The change in Level 1 securities available for sale from December 31, 2019 was due principally to a net increase in Treasury bills of $ 3.0 million.

The change in Level 2 securities available for sale from December 31, 2019 was due principally to the transfer of mortgage-backed and municipal securities from the held for sale to available for sale portfolio and the transfer of securities between Level 2 and 3.

$ 6.8 million in corporate securities and $ 1.4 million in municipal securities were transferred from Level 3 to Level 2 from December 31, 2019 to December 31, 2020.

There were no transfers between Level 1 and 2 securities available for sale from December 31, 2019 to December 31, 2020.

1 unchanged sentence

Level 3 Changes

(in thousands)

December 31, 2019

December 31, 2018

(in thousands) December 31, 2020 December 31, 2019

Balance, beginning of year $ 9,398 $ 4,761

6 unchanged sentences

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2020.

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of December 31, 2019 , segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)

At December 31, 2019

At December 31, 2018

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of December 31, 2020 and December 31, 2019, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands) At December 31, 2020 At December 31, 2019

Fair Value Measurements Using:

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Fair value of the collateral is determined by appraisals or by independent valuation.

Cash Surrender of BOLI.

The cash surrender value of BOLI approximates fair value.

Accrued interest receivable.

17 unchanged sentences

At December 31, 2020 and 2019 the fair value of guarantees under commercial and standby letters of credit was not material.

The estimated fair values and carrying values of the financial instruments at December 31, 2019 and 2018 are presented in the following table:

(in thousands)

Carrying Value

Estimated Fair Value

Carrying Value

Estimated Fair Value

Cash and cash equivalents

The carrying amounts and estimated fair values of financial instruments at December 31, 2020 were as follows:

Fair Value Measurements at December 31, 2020 Using

(in thousands) Carrying Amount Level 1 Level 2 Level 3 Total

Cash and due from banks $ 298,903 $ 298,903 $ — $ — $ 298,903

Federal funds sold 702 702 — — 702

Securities, available for sale 238,548 3,000 209,359 26,189 238,548

Securities, held to maturity

Federal Home Loan Bank stock

Loans held for sale — — — — —

Loans, net 1,819,617 — — 1,846,738 1,846,738

Cash surrender value of BOLI 5,427 — — 5,427 5,427

Accrued interest receivable 11,933 — — 11,933 11,933

Deposits $ 2,166,318 $ — $ — $ 2,179,004 2,179,004

Short-term advances from Federal Home Loan Bank 50,000 — — 50,000 50,000

Repurchase agreements 6,121 — — 6,154 6,154

Accrued interest payable 5,292 — — 5,292 5,292

Long-term advances from Federal Home Loan Bank 3,366 — — 3,366 3,366

Senior long-term debt 42,366 — — 42,408 42,408

Junior subordinated debentures 14,777 — — 14,452 14,452

The carrying amounts and estimated fair values of financial instruments at December 31, 2019 were as follows:

Fair Value Measurements at December 31, 2019 Using

(in thousands) Carrying Amount Level 1 Level 2 Level 3 Total

Cash and due from banks $ 66,511 $ 66,511 $ — $ — $ 66,511

Federal funds sold 914 914 — — 914

Securities, available for sale 339,937 — 330,539 9,398 339,937

Securities, held for maturity 86,579 — 86,817 — 86,817

Loans, net 1,514,561 — — 1,515,277 1,515,277

Cash surrender value of BOLI 5,288 — — 5,288 5,288

Accrued interest receivable 8,412 — — 8,412 8,412

Deposits $ 1,853,013 $ — $ — $ 1,863,179 1,863,179

Short-term advances from Federal Home Loan Bank 13,079 — — 13,079 13,079

Repurchase agreements 6,840 — — 6,840 6,840

Accrued interest payable 6,047 — — 6,047 6,047

Long-term advances from Federal Home Loan Bank 3,533 — — 3,533 3,533

Senior long-term debt 48,558 — — 48,599 48,599

Junior subordinated debentures 14,737 — — 14,762 14,762

There is no material difference between the contract amount and the estimated fair value of off-balance sheet items that are primarily comprised of short-term unfunded loan commitments that are generally at market prices.

28 unchanged sentences

(in thousands) 2020 2019

Cash $ 1,796 $ 633

Investment in bank subsidiary 228,869 224,677

Other assets 5,665 4,427

Total Assets $ 236,330 $ 229,737

Liabilities and Shareholders' Equity

11 unchanged sentences

Net gains on sale of equity securities — 196 —

Other income 332 424 289

Total operating income 17,432 14,602 12,077

8 unchanged sentences

Increase in equity in undistributed earnings of subsidiary 5,720 2,101 4,320

Net Income $ 20,318 $ 14,241 $ 14,213

First Guaranty Bancshares, Inc.

2 unchanged sentences

Cash flows from operating activities:

Net income $ 20,318 $ 14,241 $ 14,213

Adjustments to reconcile net income to net cash provided by operating activities:

6 unchanged sentences

Cash flows from investing activities:

Proceeds from maturities, calls and sales of AFS securities

Proceeds from sales of equity securities 10 1,196 —

Funds invested in bank subsidiary

Purchases of premises and equipment — ( 136 ) —

4 unchanged sentences

Repayment of long-term debt ( 6,191 ) ( 3,754 ) ( 2,941 )

Proceeds from junior subordinated debentures, net of costs

Common stock issued in private placement — 1,000 —

Dividends paid ( 6,234 ) ( 5,803 ) ( 5,636 )

Net cash provided by (used in) financing activities

Net (decrease) increase in cash and cash equivalents

Net cash (used in) provided by financing activities ( 12,425 ) 23,908 ( 8,577 )

Net increase (decrease) in cash and cash equivalents 1,163 ( 7,436 ) 2,855

Cash and cash equivalents at the beginning of the period 633 8,069 5,214

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data