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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-16 · 302 added, 445 removed, 727 unchanged (51% of the section changed)

Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6, "Selected Financial Data" and our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

A discussion regarding significant changes in our financial condition from December 31, 2020 to December 31, 2021 and our results of operations for the year ended December 31, 2021 can be found under "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 16, 2022, which is available on the SEC's website at www.sec.gov and First Guaranty's website, www.fgb.net This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate.

Certain risks, uncertainties and other factors, including those set forth under "Forward-Looking Statements," "Risk Factors" and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis.

We assume no obligation to update any of these forward-looking statements.

Special Note Regarding Forward-Looking Statements

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a Company's anticipated future financial performance.

This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from Management expectations.

This discussion and analysis contains forward-looking statements and reflects Management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results.

The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are subject to a number of factors and uncertainties, including, but not limited to, changes in general economic conditions, either nationally or in our market areas, that are worse than expected;

the impact of the COVID-19 pandemic;

competition among depository and other financial institutions;

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

adverse changes in the securities markets;

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

our ability to enter new markets successfully and capitalize on growth opportunities;

our ability to successfully integrate acquired entities, if any;

changes in consumer spending, borrowing and savings habits;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

changes in our organization, compensation and benefit plans;

changes in our financial condition or results of operations that reduce capital available to pay dividends;

and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements.

First Guaranty Bancshares is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana.

Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 36 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and Alexandria, Louisiana and Dallas-Fort Worth-Arlington, Waco, Texas and our new Mideast markets in Kentucky and West Virginia.

We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs.

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Total shareholders' equity was $235.0 million and $223.9 million at December 31, 2022 and December 31, 2021, respectively.

Net income was $27.3 million, $20.3 million and $14.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Net income was $28.9 million and $27.3 million for the years ended December 31, 2022 and 2021, respectively.

We generate most of our revenues from interest income on loans, interest income on securities, sales of securities, ATM and debit card fees and service charges, commissions and fees.

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The program has been conducted in two phases which First Guaranty classifies as Round 1 loans (originated in 2020) and Round 2 loans (originated in 2021).

As of December 31, 2021, First Guaranty had remaining Round 1 PPP loans of $12.7 million with deferred fees of $0.3 million and Round 2 PPP loans of $22.6 million with deferred fees of $1.1 million remaining.

As of December 31, 2022, First Guaranty had remaining Round 1 PPP loans of $2.0 million with deferred fees of $16,000 and Round 2 PPP loans of $3.9 million with deferred fees of $16,000 remaining.

$1.3 million in PPP fees were recognized during 2022 compared to $2.0 million in PPP fees recognized in 2021.

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First Guaranty had $5.9 million at December 31, 2022 of SBA guaranteed PPP loans that have no related allowance due to the 100% government guarantee in accordance with regulatory guidance.

• First Guaranty had approximately $12.4 million of loans on deferral as of December 31, 2021 due to Hurricane Ida that impacted Southeast Louisiana on August 29, 2021.

• The provision for loan losses totaled $3.7 million for 2022 compared to $2.1 million in 2021.

The provision was primarily elevated in 2020 due to COVID-19 related economic conditions and due to growth in the loan portfolio.

• Net interest income for 2022 was $100.0 million compared to $89.6 million for 2021.

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Excluding the impact of securities gains, noninterest income for 2022 improved to $11.0 million from $10.0 million for 2021.

The increase was primarily due to higher ATM and debit card fees.

The increase was primarily due to higher gains on loan sales.

• The net interest margin was 3.47% for 2022 and 3.44% for 2021.

First Guaranty attributed the increase in the net interest margin to an improved mix of loans compared to securities and cash along with continued reduction in First Guaranty's cost of funds.

The increase was driven by an increase in loan yields, including loan fees, which increased more than the cost of liabilities.

Loans as a percentage of average interest earning assets increased to 79.8% at December 31, 2022 compared to 77.3% at December 31, 2021.

• Investment securities totaled $451.5 million at December 31, 2022, an increase of $87.4 million when compared to $364.2 million at December 31, 2021.

Gains on the sale of securities were $0.7 million for 2021 as compared $14.8 million for 2020.

Losses on the sale of securities were $17,000 for 2022 as compared to gains of $0.7 million for 2021.

At December 31, 2022, available for sale securities, at fair value, totaled $131.5 million, a decrease of $79.2 million when compared to $210.6 million at December 31, 2021.

At December 31, 2021, held to maturity securities, at amortized cost, totaled $153.5 million as compared to $0 at December 31, 2020.

At December 31, 2022, held to maturity securities, at amortized cost, totaled $320.1 million as compared to $153.5 million at December 31, 2021.

During the first quarter of 2022, First Guaranty designated $165.8 million of AFS securities for HTM status.

• Total loans net of unearned income were $2.5 billion at December 31, 2022 compared to $2.2 billion at December 31, 2021.

Total loans net of unearned income are reduced by the allowance for loan and lease losses which totaled $23.5 million at December 31, 2022 and $24.0 million at December 31, 2021.

• Total impaired loans decreased $0.9 million to $15.0 million at December 31, 2021 compared to $15.9 million at December 31, 2020.

• Nonaccrual loans increased $1.1 million to $16.7 million at December 31, 2021 compared to $15.6 million at December 31, 2020.

• First Guaranty is a smaller reporting company and has delayed the adoption of ASU 2016-13, "Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments." First Guaranty uses the incurred loss model for the calculation of its allowance.

• Total impaired loans increased $4.4 million to $19.4 million at December 31, 2022 compared to $15.0 million at December 31, 2021.

• Nonaccrual loans decreased $3.1 million to $13.6 million at December 31, 2022 compared to $16.7 million at December 31, 2021.

• First Guaranty is a smaller reporting company and delayed the adoption of ASU 2016-13, "Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments" ("CECL").

First Guaranty used the incurred loss model for the calculation of its allowance for December 31, 2022.

First Guaranty adopted ASU 2016-13 effective January 1, 2023.

• Return on average assets was 0.97% and 1.01% for the years ended December 31, 2022 and 2021, respectively.

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The increase in book value was due primarily to an increase in retained earnings partially offset by changes in accumulated other comprehensive income ("AOCI").

AOCI is comprised of unrealized gains and losses on available for sale securities.

• First Guaranty's Board of Directors declared cash dividends of $0.64 per common share in 2021, which was the equivalent of $0.60 per common share after adjusting for the 10% common stock dividend paid in December 2021.

AOCI is comprised of unrealized gains and losses on available for sale securities, including unrealized losses on available for sale securities at the time of transfer to held to maturity.

• First Guaranty's Board of Directors declared cash dividends of $0.64 per common share in 2022.

First Guaranty also declared cash dividends of $0.64 in 2021, which was the equivalent of $0.60 per common share after adjusting for the 10% common stock dividend paid in December 2021.

First Guaranty has paid 114 consecutive quarterly dividends as of December 31, 2021.

• On April 27, 2021, First Guaranty issued 34,500 shares of 6.75% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $1,000 per share, with a liquidation preference of $1,000 per share through an underwritten public offering of 1,380,000 depositary shares, each representing a 1/40th ownership interest in a share of the Series A Preferred Stock.

Total gross proceeds from the preferred stock offering were $34.5 million.

The shares are listed on NASDAQ under the symbol FGBIP.

The proceeds were used to redeem $13.3 million in senior debt and increase the bank subsidiary capital by $20.0 million effective April 30, 2021.

First Guaranty has paid 118 consecutive quarterly dividends on its common stock as of December 31, 2022.

• First Guaranty paid preferred cash dividends of $2.3 million during 2022.

The preferred stock was issued in April of 2021.

Recent Developments

Legal Settlement

First Guaranty was a defendant in a lawsuit alleging overpayment on a loan related to a disputed interest rate.

First Guaranty settled this lawsuit in February of 2023 for $0.6 million.

Lone Star Acquisition

On January 6, 2023, we entered into a definitive agreement to acquire Lone Star Bank, a Texas state-chartered bank with its main office in Houston, Texas.

Under the terms of the agreement, we will acquire all of the issued and outstanding shares of Lone Star Bank common stock in exchange solely for shares of First Guaranty common stock through the merger of Lone Star Bank with and into First Guaranty Bank, with First Guaranty Bank surviving the merger.

Based on December 31, 2022 financials, the combined financial institution would have approximately $3.2 billion in total assets, $2.5 billion in total loans, and $2.8 billion in total deposits following the close of the merger.

As a result of the proposed merger, First Guaranty Bank will acquire four banking locations in Texas:

two locations in Houston and two locations west of Houston along the I-10 corridor in Sealy and Columbus.

Employee Stock Grant Program

As disclosed in previous filings by First Guaranty Bancshares, Inc., for approximately 15 years First Guaranty Bank, a subsidiary of First Guaranty Bancshares, Inc.

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only, a request for information.

First Guaranty has provided the requested information.

Critical Accounting Estimates

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Qualitative factors include analysis of levels and trends in delinquencies, nonaccrual 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.

For example, in 2020 and 2021 economic conditions related to the COVID-19 pandemic resulted in a higher allocation within this component of the allowance to hotel loans.

First Guaranty's commercial lease originations increased in 2021 which resulted in an increased allocation within this component of the allowance primarily related to the trend in increased volume.

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

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Net loans increased $360.2 million, or 16.9%, to $2.5 billion at December 31, 2022 from $2.1 billion at December 31, 2021.

Non-farm non-residential loan balances increased $106.5 million primarily due to new originations.

One-to four-family loans increased $78.0 million primarily due to new originations.

Commercial lease loan balances increased $71.6 million primarily due to new lease originations.

First Guaranty has continued to expand its commercial lease portfolio which generally have higher yields than commercial real estate loans but shorter average lives.

Non-farm non-residential loan balances increased $62.3 million primarily due to new originations.

Commercial and industrial loans increased $45.4 million primarily due to new originations.

SBA PPP loans totaled $35.4 million at December 31, 2021 compared to $92.3 million at December 31, 2020.

These totals are included in commercial and industrial loans.

Round 1 SBA PPP loans decreased from $92.3 million at December 31, 2020 to $12.7 million at December 31, 2021 due to SBA loan forgiveness.

Partially offsetting these payoffs were Round 2 SBA PPP loan originations with total balances net of forgiveness payments of $22.6 million at December 31, 2021.

Construction and land development loans increased $58.8 million principally due to advances on existing construction lines and new originations.

Multifamily loans increased $53.9 million primarily due to the conversion of existing construction loans to permanent financing.

One-to four-family loans increased $17.1 million primarily due to new originations.

Farmland loans increased $4.9 million due to increases on agricultural loan commitments.

Consumer and other loans increased $3.5 million primarily due to new originations.

Agricultural loans decreased $1.6 million primarily due to seasonal activity.

Agricultural loans increased $12.3 million primarily due to seasonal activity.

Consumer and other loans decreased $0.3 million primarily due to payoffs.

Farmland loans decreased $7.0 million due to decreases on agricultural loan commitments.

Commercial and industrial loans decreased $13.1 million primarily due to payoffs.

SBA PPP loans totaled $5.9 million at December 31, 2022 compared to $35.4 million at December 31, 2021.

These totals are included in commercial and industrial loans.

Round 1 SBA PPP loans decreased from $12.7 million at December 31, 2021 to $2.0 million at December 31, 2022 due to SBA loan forgiveness and payments received.

Round 2 SBA PPP loans decreased from $22.6 million at December 31, 2021 to $3.9 million at December 31, 2022 due to SBA loan forgiveness and payments received.

First Guaranty had approximately 4.8% of funded and 2.3% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations.

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We anticipate additional growth opportunities in Texas as it contains four major cities in Austin, Dallas, Houston, and San Antonio, plus the continued growth and development of these areas is exceeding that of other areas of the country.

First Guaranty had $210.9 million in loans related to our new Mideast markets in Kentucky and West Virginia at December 31, 2022.

Syndicated loans at December 31, 2022 were $88.3 million, of which $26.6 million were shared national credits.

Syndicated loans decreased $27.8 million from $75.2 million at December 31, 2020.

Syndicated loans increased $40.9 million from $47.4 million at December 31, 2021.

As of December 31, 2022, 68.7% of our loan portfolio was secured by real estate.

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First Guaranty had $47.7 million in loans that were priced off of the LIBOR index rate at December 31, 2022.

As it is anticipated that LIBOR will be discontinued after 2021, First Guaranty is reviewing its loan documents to determine alternative reference rates and does not anticipate there will be a significant financial statement impact with the transition.

Loan Portfolio Composition.

The table below sets forth the balance of loans, excluding loans held for sale, outstanding by loan type as of the dates presented, and the percentage of each loan type to total loans.

At December 31,

2021 2020 2019 2018 2017

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

Construction & land development $ 174,334 8.1 % $ 150,841 8.2 % $ 172,247 11.3 % $ 124,644 10.1 % $ 112,603 9.8 %

Farmland 31,810 1.5 % 26,880 1.4 % 22,741 1.5 % 18,401 1.5 % 25,691 2.2 %

1- 4 Family 288,347 13.3 % 271,236 14.7 % 289,635 18.9 % 172,760 14.1 % 158,733 13.8 %

Multifamily 65,848 3.0 % 45,932 2.5 % 23,973 1.6 % 42,918 3.5 % 16,840 1.4 %

Non-farm non-residential 886,407 40.9 % 824,137 44.6 % 616,536 40.3 % 586,263 47.7 % 530,293 46.1 %

Total Real Estate 1,446,746 66.8 % 1,319,026 71.4 % 1,125,132 73.6 % 944,986 76.9 % 844,160 73.3 %

Non-Real Estate:

Agricultural 26,747 1.2 % 28,335 1.5 % 26,710 1.8 % 23,108 1.9 % 21,514 1.9 %

Commercial and industrial 398,391 18.4 % 353,028 19.1 % 268,256 17.5 % 200,877 16.4 % 230,638 20.0 %

Commercial leases 246,022 11.4 % 104,141 5.6 % 70,125 4.6 % 25,906 2.1 % 26,434 2.3 %

Consumer and other 48,142 2.2 % 44,642 2.4 % 38,743 2.5 % 33,537 2.7 % 28,751 2.5 %

Total Non-Real Estate 719,302 33.2 % 530,146 28.6 % 403,834 26.4 % 283,428 23.1 % 307,337 26.7 %

Total Loans Before Unearned Income 2,166,048 100.0 % 1,849,172 100.0 % 1,528,966 100.0 % 1,228,414 100.0 % 1,151,497 100.0 %

Unearned income (6,689) (5,037) (3,476) (3,146) (2,483)

Total Loans Net of Unearned Income $ 2,159,359 $ 1,844,135 $ 1,525,490 $ 1,225,268 $ 1,149,014

As it is anticipated that LIBOR will be discontinued after June 30, 2023, First Guaranty is reviewing its loan documents to determine alternative reference rates such as the Secured Overnight Financing Rate ("SOFR") and does not anticipate there will be a significant financial statement impact with the transition.

Loan Portfolio Maturities .

The following tables summarize the scheduled repayments of our loan portfolio at December 31, 2021 and 2020.

The following tables summarize the scheduled repayments of our loan portfolio at December 31, 2022.

Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

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Total Loans Net of Unearned Income $ 2,519,077

December 31, 2020

(in thousands) One Year or Less More Than One Year

Through Five Years More Than Five Years Through Fifteen Years After Fifteen Years Total

Construction & land development $ 23,276 $ 111,615 $ 13,349 $ 2,601 $ 150,841

Farmland 6,078 12,147 2,156 6,499 26,880

1- 4 family 37,604 65,011 29,236 139,385 271,236

Multifamily 5,030 29,127 10,276 1,499 45,932

Non-farm non-residential 105,623 494,690 144,689 79,135 824,137

Total Real Estate 177,611 712,590 199,706 229,119 1,319,026

Non-Real Estate:

Agricultural 12,356 5,795 5,664 4,520 28,335

Commercial and industrial 40,484 293,984 14,789 3,771 353,028

Commercial leases 29,503 74,638 — — 104,141

Consumer and other 8,363 28,677 2,406 5,196 44,642

Total Non-Real Estate 90,706 403,094 22,859 13,487 530,146

Total Loans Before Unearned Income $ 268,317 $ 1,115,684 $ 222,565 $ 242,606 $ 1,849,172

unearned income (5,037)

Total Loans Net of Unearned Income $ 1,844,135

The following table sets forth the scheduled repayments of fixed and adjustable-rate loans at December 31, 2022 that are contractually due after December 31, 2022.

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(in thousands) Fixed Floating Total

One year or less $ 234,921 137,203 372,124

One to five years 900,960 339,894 1,240,854

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Total $ 2,526,720

As of December 31, 2021, $349.1 million of floating rate loans were at their interest rate floor.

At December 31, 2020, $305.0 million of floating rate loans were at the floor rate.

Nonaccrual loans have been excluded from these totals.

Included in floating rate loans are loans that adjust to a floating rate following an initial fixed rate period.

The initial fixed rate periods are typically one, three, or five year periods.

Non-performing Assets

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Construction and land development 427 246

Farmland — — — — —

1- 4 family 332 514

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Construction and land development — —

Farmland — — — — —

1- 4 family 113 817

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For the years ended December 31, 2022 and 2021, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $0.5 million and $0.8 million, respectively.

We recognized $0.1 million and $22,000 of interest income on such loans during the years ended December 31, 2021 and 2020, respectively.

We recognized $0.2 million and $0.1 million of interest income on such loans during the years ended December 31, 2022 and 2021, respectively.

For the years ended December 31, 2022 and 2021, gross interest income which would have been recorded had the troubled debt restructured loans been current in accordance with their original terms amounted to $0.1 million and $0.2 million, respectively.

We recognized $0.2 million and $11,000 of interest income on such loans during the years ended December 31, 2021 and 2020, respectively.

We recognized $0.1 million and $0.2 million of interest income on such loans during the years ended December 31, 2022 and 2021, respectively.

Non-performing assets were $14.8 million, or 0.47%, of total assets at December 31, 2022, compared to $20.0 million, or 0.70%, of total assets at December 31, 2021, which represented a decrease in non-performing assets of $5.2 million.

The decrease in non-performing assets occurred primarily due to a reduction in 90 day past due and still accruing loans and other real estate owned offset by an increase in nonaccrual loans.

Nonaccrual loans increased from $15.6 million at December 31, 2020 to $16.7 million at December 31, 2021.

The increase in nonaccrual loans was concentrated primarily in non-farm non-residential loans.

The decrease in non-performing assets occurred primarily due to a reduction in nonaccrual loans, 90 days or greater delinquent and still accruing, other real estate owned.

Contributing to the decrease was a sale of a $3.4 million real estate secured nonaccrual loan in the second quarter of 2022.

This loan was previously reported as a TDR.

A real estate secured loan in the amount of $1.7 million was returned to performing status from nonaccrual.

A $0.5 million real estate secured loan was returned to performing status from nonaccrual.

Both of these loans demonstrated satisfactory payment performance in order to be returned to performing status.

First Guaranty sold smaller OREO properties during 2022 which also contributed to the reduction in non-performing assets.

Nonaccrual loans decreased from $16.7 million at December 31, 2021 to $13.6 million at December 31, 2022.

The decrease in nonaccrual loans was concentrated primarily in non-farm non-residential, agricultural, farmland and construction and land development loans.

Non-performing assets included $1.0 million in loans with a government guarantee, or 6.69% of non-performing assets.

These are structured as net loss guarantees in which up to 90% of loss exposure is covered.

At December 31, 2021 loans 90 days and greater delinquent and still accruing totaled $1.2 million, a decrease of $11.8 million or 90 percent from $13.1 million at December 31, 2020.

The decrease in loans 90 days or greater delinquent and still accruing was concentrated primarily in one-to four-family residential loans, non-farm non-residential loans, commercial and industrial loans and construction and land development loans.

One-to-four family loans in the 90 day category included loans acquired from the Union acquisition that contractually matured but had not been renewed due to operations issues following the acquisition.

First Guaranty initiated a sustained effort that resulted in satisfactorily renewing the majority of these acquired loans and returning them to performing status.

At December 31, 2022 loans 90 days and greater delinquent and still accruing totaled $1.1 million, a decrease of $0.1 million or 8.3% from $1.2 million at December 31, 2021.

The decrease in loans 90 days or greater delinquent and still accruing was concentrated primarily in one-to four-family residential, non-farm non-residential and consumer and other loans.

Other real estate owned at December 31, 2022 totaled $0.1 million, a decrease of $2.0 million from $2.1 million at December 31, 2021.

The largest piece of property in other real estate owned is a retail shopping center that totals $1.7 million.

First Guaranty has a reserve for other real estate owned losses.

This reserve totaled $0.5 million at December 31, 2021 compared to $0.4 million at December 31, 2020.

Total write downs and or reserves related to other real estate owned were $0.6 million in 2021 compared to $1.4 million in 2020.

These expenses were included in other non-interest expense.

At December 31, 2021, our largest non-performing assets were comprised of the following nonaccrual loans, 90 day plus and still accruing loans and other real estate owned:

(1) a non-farm non-residential loan secured by a hotel that totaled $3.4 million that is classified as a troubled debt restructured loan or TDR;

(2) a non-farm non-residential loan secured by a childcare facility that totaled $1.8 million;

(3) a $1.7 million non-farm non-residential property included in other real estate owned;

The decrease was primarily due to a retail shopping center property with a net book value of $1.1 million being sold in October 2022.

The sale of other smaller properties resulted in an additional reduction of $1.0 million.

At December 31, 2022, our largest non-performing assets were comprised of the following nonaccrual loans:

(1) a commercial lease loan that totaled $1.8 million;

(2) a non-farm non-residential loan secured by a mobile home facility that totaled $1.3 million;

(3) a non-farm nonresidential loan that totaled $1.1 million.

This loan was originated for the sale of other real estate owned, the previously mentioned retail shopping center, and was included in nonaccrual until establishment of a satisfactory payment history by the borrower;

(4) a non-farm non-residential loan secured by a waste treatment facility that totaled $0.9 million;

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

The following is a summary of loans restructured as TDRs at December 31, 2021, 2020 and 2019:

At December 31,

(in thousands) 2021 2020 2019

In Compliance with Modified Terms $ — $ — $ —

Past Due 30 through 89 days and still accruing — — —

Past Due 90 days and greater and still accruing — — —

Nonaccrual 3,382 3,591 —

Restructured Loans that subsequently defaulted — — —

Total TDR $ 3,382 $ 3,591 $ —

At December 31, 2021, First Guaranty had one outstanding TDR which was a $3.4 million non-farm non-residential loan secured by commercial real estate that is on nonaccrual.

At December 31, 2022, First Guaranty had one outstanding TDR which was a $1.1 million farmland loan.

The restructuring of this loan was related to interest rate and amortization concessions.

The loan is secured by a hotel facility.

The TDR at December 31, 2021 was a $3.4 million non-farm non-residential loan secured by commercial real estate that was on nonaccrual.

The restructuring of this loan was related to interest rate and amortization concessions.

The loan was secured by a hotel facility.

This loan was not eligible for a CARES Act modification.

This loan was subsequently sold in the second quarter of 2022.

The TDR requirements became inapplicable to First Guaranty upon our adoption of CECL on January 1, 2023.

Classified Assets .

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Any material issues discovered in an external loan review are also communicated to us immediately.

The following table sets forth our amounts of classified loans and loans designated as special mention at December 31, 2021, 2020 and 2019.

Classified assets totaled $53.4 million at December 31, 2021, and included $18.0 million of non-performing loans.

At December 31,

(in thousands) 2021 2020 2019

Classification of Loans:

Substandard $ 53,353 $ 50,062 $ 53,072

Doubtful — — —

Total Classified Assets $ 53,353 $ 50,062 $ 53,072

Special Mention $ 138,718 $ 99,201 $ 24,083

The increase in classified assets at December 31, 2021 as compared to December 31, 2020 was due to a $3.3 million increase in substandard loans.

Substandard loans at December 31, 2021 consisted of $18.8 million in non-farm non-residential, $9.8 million in one- to four-family residential, $8.8 million in commercial and industrial, $7.0 million in multifamily, $4.1 million in farmland, $2.7 million in agricultural, $1.1 million in construction and land development, and the remaining $1.0 million comprised of consumer and other loans.

Special mention loans increased by $39.5 million in 2021 primarily due to the downgrade of loans in the portfolio.

The increase in special mention loans was primarily the result of loan relationships that were downgraded due to ongoing economic conditions associated with COVID-19 or relationship specific issues.

The increase was concentrated with hotel loans.

First Guaranty anticipates upgrading several loan relationships from special mention to pass status in the upcoming quarters.

The decrease in classified assets at December 31, 2022 as compared to December 31, 2021 was due to a $10.6 million decrease in substandard loans.

Substandard loans at December 31, 2022 consisted of $9.8 million in one- to four-family residential, $9.0 million in non-farm non-residential, $8.3 million in commercial and industrial, $5.1 million in farmland, $4.0 million in agricultural, $2.3 million in multifamily, $1.8 million in commercial leases, $0.8 million in construction and land development, and the remaining $1.6 million comprised of consumer and other loans.

Special mention loans decreased by $108.4 million in 2022.

The decrease in special mention loans was primarily the result of the upgrade of several loan relationships from special mention to pass status.

The largest industry type was associated with hotel loans.

First Guaranty had previously moved several hotel relationships to special mention following the onset of the COVID-19 pandemic.

Allowance for Loan and Lease Losses

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

The allowance for losses was $24.0 million at December 31, 2021 compared to $24.5 million at December 31, 2020.

The allowance for loan and lease losses was $23.5 million at December 31, 2022 compared to $24.0 million at December 31, 2021.

The balance in the allowance for loan and lease losses is principally influenced by the provision for loan losses and by net loan loss experience.

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Construction and land development (65) (92)

Farmland — — — — —

1- 4 family (94) (266)

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The composition of the loan portfolio affects the final allowance calculation.

First Guaranty attributes the primary decrease in the provision was due to economic improvement in 2021 as compared to the COVID-19 uncertainty and economic conditions present in 2020.

First Guaranty's qualitative and quantitative factors accounted for the changes in economic conditions driven by the COVID-19 pandemic in both 2020 and 2021.

The key factors included the following:

industry specific conditions, loan growth, changes in specific concentrations, changes in loan risk ratings, lending policy, and national and local economic trends.

First Guaranty continued to update its analysis of these factors throughout 2020 and 2021.

The loan portfolio factors in 2022 that primarily affected the allocation of the allowance included the following:

• The loan portfolio risks that changed and affected the allocation of the allowance were due to changes in historical loss rates, adjustments of certain qualitative factors to take into account the current estimated impact of COVID-19 and related economic conditions on borrowers' ability to repay loans and for allocations to impaired loans within their respective categories.

First Guaranty adjusted allocations within its qualitative and quantitative factors to account for changes in potential COVID-19 related losses.

Loan portfolio risks associated with COVID-19 declined in 2021 compared to 2020.

• The loan portfolio risks that changed and affected the allocation of the allowance were due to changes in historical loss rates, adjustments of certain qualitative factors to take into account the current estimated impact of COVID-19 and changes in other market conditions, loan concentrations including those related to commercial real estate and loan relationships and related economic conditions on borrowers' ability to repay loans and for allocations to impaired loans within their respective categories.

• Construction and land development loans increased during 2022 due to advances on existing construction lines of credit and new loan originations.

Several loans previously in this category moved to permanent financing and are now included in the multifamily loan category as of December 31, 2022.

The provision decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

The allowance increase related to this portfolio was due to growth in the portfolio along with changes in the qualitative analysis of the portfolio related to economic conditions.

• One-to-four family residential loans increased during 2022.

The provision decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

The allowance decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

• Multifamily loans increased during 2022.

The provision related to this portfolio remained in line with the related provision from 2020 as improved economic conditions reduced portfolio risk even as the portfolio increased by $19.9 million during 2021.

• Non-farm non-residential loans increased during 2021.

The provision decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and historical loss rates.

The allowance related to this portfolio decreased due to improving economic conditions.

• Non-farm non-residential loans increased by $106.5 million during 2022.

The allowance decrease related to this portfolio was due to the sale of an impaired loan with a specific reserve, the payoff of a substandard loan, and improved credit quality in this portfolio.

There was growth in the portfolio along with changes in the qualitative analysis of the portfolio related to COVID-19 and historical loss rates.

First Guaranty continues to maintain a significant allowance for hotel loans based on qualitative factors primarily related to COVID-19 and related credit ratings for hotel loans.

The associated allowance for hotels did decline in 2021 compared to 2020 due to improved economic conditions.

• Commercial and industrial loans increased during 2021.

The provision decrease related to this portfolio was due to the changes in historical loss rates and changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

Special mention loans in this category declined which also contributed to a reduction in the related allowance.

• Commercial and industrial loans decreased during 2022.

The allowance decrease related to this portfolio was due to the changes in historical loss rates and changes in the qualitative analysis of the portfolio related to COVID-19 and economic conditions.

• Commercial leases increased during 2022.

The increase in the related loan loss allowance balance was due primarily to the increased balances associated with commercial leases.

The allowance increase related to this portfolio was due to the changes in historical loss rates and changes in the qualitative analysis of the portfolio related to COVID-19 and due to growth in the portfolio.

Commercial leases grew during 2022 from $246.0 million at December 31, 2021 to $317.6 million at December 31, 2022.

• First Guaranty continues to monitor the acquired loans from the Union acquisition on November 7, 2019.

Discounts on the acquired Union loans were approximately $1.4 million at December 31, 2021.

• First Guaranty continues to monitor the acquired loans from prior acquisitions.

Discounts on the acquired loans were approximately $1.1 million at December 31, 2022.

First Guaranty charged off $6.1 million in loan balances during the year ended December 31, 2022 as compared to $3.1 million for 2021.

Recoveries totaled $1.9 million for the year ended December 31, 2022 and $0.6 million during 2021.

The charged-off loan balances were concentrated in two loan relationships which totaled $1.0 million or 31.0% of the total charged off amount during the year ended December 31, 2021.

The details of the $6.1 million in charged-off loans were as follows:

• First Guaranty charged off $0.6 million on a non-farm non-residential loan secured by a waste treatment facility during the fourth quarter of 2021.

This loan had a remaining principal balance of $0.9 million at December 31, 2021.

• First Guaranty charged off $0.4 million on a non-farm non-residential loan secured by a mobile home facility during the fourth quarter of 2021.

This loan had a remaining principal balance of $1.3 million at December 31, 2021.

First Guaranty charged off $1.9 million in consumer loans related to Hurricane Ida relief loans during 2022.

These loans were originated in the Fall of 2021 following Hurricane Ida that impacted Southeast Louisiana on August 29, 2021.

First Guaranty charged off $0.4 million on a non-farm non-residential loan during the second quarter of 2022.

This loan was subsequently sold in the second quarter of 2022.

First Guaranty charged off $0.3 million on an agricultural loan during the third quarter of 2022.

This loan had no remaining principal balance at December 31, 2022.

First Guaranty charged off $0.2 million on a commercial lease loan during the third quarter of 2022.

This loan had no remaining principal balance at December 31, 2022.

Smaller loans and overdrawn deposit accounts comprised the remaining $3.3 million of charge-offs for 2022.

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Total Allowance $ 23,518 100.0 % 100.0 % $ 24,029 100.0 % 100.0 %

At December 31,

(dollars in thousands) Allowance for Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan and Lease Losses Percent of Loans

in Each Category

to Total Loans Allowance for Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan and Lease Losses Percent of Loans

in Each Category

to Total Loans

Construction and land development $ 423 3.9 % 11.3 % $ 581 5.4 % 10.1 %

Farmland 50 0.4 % 1.5 % 41 0.4 % 1.5 %

1- 4 family 1,027 9.4 % 18.9 % 911 8.5 % 14.1 %

Multifamily 1,038 9.5 % 1.6 % 1,318 12.2 % 3.5 %

Non-farm non-residential 5,277 48.3 % 40.3 % 4,771 44.3 % 47.7 %

Non-Real Estate:

Agricultural 95 0.9 % 1.8 % 339 3.1 % 1.9 %

Commercial and industrial 1,909 17.5 % 17.5 % 1,909 17.7 % 16.4 %

Commercial leases 568 5.1 % 4.6 % 262 2.4 % 2.1 %

Consumer and other 542 5.0 % 2.5 % 629 5.9 % 2.7 %

Unallocated — — % — 15 0.1 % —

Total Allowance $ 10,929 100.0 % 100.0 % $ 10,776 100.0 % 100.0 %

At December 31,

(dollars in thousands) Allowance for

Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan and Lease Losses Percent of Loans

in Each Category

to Total Loans

Construction and land development $ 628 6.8 % 9.8 %

Farmland 5 0.1 % 2.2 %

1- 4 family 1,078 11.7 % 13.8 %

Multifamily 994 10.8 % 1.4 %

Non-farm non-residential 2,811 30.4 % 46.1 %

Non-Real Estate:

Agricultural 187 2.0 % 1.9 %

Commercial and industrial 2,377 25.8 % 20.0 %

Commercial leases 805 8.7 % 2.3 %

Consumer and other 320 3.5 % 2.5 %

Unallocated 20 0.2 % —

Total Allowance $ 9,225 100.0 % 100.0 %

The following table presents net charge-offs during the period to average loans outstanding:

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(in thousands except for %) Net

Charge-offs Average Loans Outstanding 1

(Charge-offs) Recoveries Average Loans Outstanding 1

Net Charge-offs During Period to Average Loans Outstanding Net

Charge-offs Average Loans Outstanding 1

(Charge-offs) Recoveries Average Loans Outstanding 1

Net Charge-offs During Period to Average Loans Outstanding

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Treasuries or other agency backed securities.

The following table sets forth the amortized cost and fair values of our securities portfolio at the dates indicated.

At December 31,

2021 2020 2019

(in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value

Available for sale:

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

Government Agencies 116,733 116,110 169,986 169,658 16,380 16,393

Corporate debt securities 79,344 78,225 36,153 36,489 94,561 95,369

Municipal bonds 15,543 15,699 27,381 28,162 30,297 32,153

Collateralized mortgage obligations — — — — 16,400 16,397

Mortgage-backed securities 576 586 1,208 1,239 179,546 179,625

Total available for sale securities $ 212,196 $ 210,620 $ 237,728 $ 238,548 $ 337,184 $ 339,937

Held to maturity:

Government Agencies 153,536 150,585 — — 18,175 18,143

Municipal bonds — — — — 5,107 5,289

Mortgage-backed securities — — — — 63,297 63,385

Total held to maturity securities $ 153,536 $ 150,585 $ — $ — $ 86,579 $ 86,817

Our available for sale securities portfolio totaled $131.5 million at December 31, 2022, a decrease of $79.2 million, or 37.6%, compared to $210.6 million at December 31, 2021.

The decrease was primarily due to the sale of securities, called bonds, and the transfer of AFS securities to the HTM portfolio in the first quarter of 2021.

Our held to maturity securities portfolio had an amortized cost of $153.5 million at December 31, 2021, compared to $0 at December 31, 2020.

The held to maturity portfolio was terminated in the first quarter of 2002 due to economic conditions associated with COVID-19.

The following tables set forth the stated maturities and weighted average yields of our investment securities at December 31, 2021 and 2020.

The decrease was primarily due to the transfer of AFS securities to the HTM portfolio in the first quarter of 2022 of $165.8 million that was partially offset by purchases.

Our held to maturity securities portfolio had an amortized cost of $320.1 million at December 31, 2022, compared to $153.5 million at December 31, 2021.

The increase was primarily due to the transfer of AFS securities to the HTM portfolio in the first quarter of 2022.

The following tables set forth the stated maturities and weighted average yields of our investment securities at December 31, 2022.

At December 31, 2022

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Government Agencies — — % — — % — — % — 2.3 — %

Corporate and other debt securities — — % 348 5.7 % 77,877 2.9 % — — %

Corporate debt securities — — % — — % 15,998 5.4 % — — %

Municipal bonds 1,026 2.8 % 3,049 3.5 % 3,131 4.4 % 7,141 3.5 %

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Government Agencies $ — — % $ — — % $ 19,458 1.6 % $ 245,574 2.5 %

Corporate debt securities $ — — % $ 402 20.6 % $ 54,634 3.2 % $ — — %

Total held to maturity securities $ — — % $ 402 20.6 % $ 74,092 2.8 % $ 245,574 2.5 %

At December 31, 2020

One Year or Less More than One Year

through Five Years More than Five Years

through Ten Years More than Ten Years

(in thousands except for %) Carrying

Value Weighted

Average Yield Carrying

Value Weighted

Average Yield Carrying

Value Weighted

Average Yield Carrying

Value Weighted

Average Yield

Available for sale:

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

Government Agencies — — % — — % 29,958 1.2 % 139,700 2.0 %

Corporate and other debt securities 5,633 3.5 % 2,038 4.3 % 27,762 4.9 % 1,056 5.5 %

Municipal bonds 1,037 4.1 % 4,956 3.9 % 10,692 3.9 % 11,477 3.2 %

Collateralized mortgage obligations — 2.0 %

Mortgage-backed Securities — — % 3 0.9 % 3 2.0 % 1,233 1.0 %

Total available for sale securities $ 9,670 2.5 % $ 6,997 4.0 % $ 68,415 3.1 % $ 153,466 2.1 %

At December 31, 2022, $50.9 million, or 11.3%, of the securities portfolio was scheduled to mature in less than one year.

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Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio.

First Guaranty, in furtherance of the strategy adopted in March 2020, initiated a plan to manage for economic uncertainty caused by the COVID-19 pandemic by converting unrealized gains in the securities portfolio to realized gains in the fourth quarter of 2020.

First Guaranty sold mortgage-backed securities and corporate securities in October 2020.

First Guaranty generated $12.2 million in pre-tax gains in the fourth quarter of 2020.

First Guaranty has proceeded to reinvest the proceeds in securities and loans and subsequently reduced FHLB borrowings by $50.0 million in February 2021.

At December 31, 2021, the following table identifies the issuers, and the aggregate amortized cost and aggregate fair value of the securities of such issuers that exceeded 10% of our total shareholders' equity:

At December 31, 2021

(in thousands) Amortized Cost Fair Value

Federal Home Loan Bank $ 33,333 $ 33,071

Freddie Mac 95,230 93,401

Federal Farm Credit Bank 142,279 140,807

Total $ 270,842 $ 267,279

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin.

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From December 31, 2021 to December 31, 2022, total deposits increased $127.3 million, or 4.9%, to $2.7 billion.

Noninterest-bearing demand deposits increased $121.2 million, or 29.4% to $532.6 million at December 31, 2021.

The increase in noninterest-bearing demand deposits was due to growth of compensating balances associated with new loan originations, economic conditions associated with the CARES Act, proceeds from the SBA PPP program, and additional stimulus payments made due to pandemic relief to First Guaranty's consumer and business customers.

Interest-bearing demand deposits increased $415.2 million, or 48.3%, to $1,275.5 million at December 31, 2021.

Noninterest-bearing demand deposits decreased $8.2 million, or 1.5% to $524.4 million at December 31, 2022.

The increase in noninterest-bearing demand deposits was primarily due to growth of compensating balances associated with new loan originations, existing loan customers, and new customers as part of First Guaranty's efforts to increase lower cost deposits.

Interest-bearing demand deposits increased $184.7 million, or 14.5%, to $1.5 billion at December 31, 2022.

The increase in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits.

Included in the increase in interest-bearing demand deposits were public funds time deposits that converted into interest-bearing deposits that were primarily collateralized by reciprocal deposit insurance.

Savings deposits increased $4.1 million, or 2.0%, to $205.8 million at December 31, 2022, primarily related to increases in individual savings deposits.

Time deposits decreased $139.0 million, or 19.2%, to $586.7 million at December 31, 2021, primarily due to the transition of several public funds customers from time deposits to interest-bearing deposits.

Time deposits decreased $53.3 million, or 9.1%, to $533.4 million at December 31, 2022, primarily due to decreases in consumer and business time deposits.

As we seek to strengthen our net interest margin and improve our earnings, attracting non-interest-bearing or lower cost deposits will be a primary emphasis.

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We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits and other lower cost deposits.

In the year 2022, First Guaranty has approximately $236.5 million in non-public funds time deposits that are scheduled to mature and represent an opportunity for repricing to more favorable market terms.

This includes approximately $89.5 million in one year time deposits at an average rate of 0.56%, $41.1 million in two year time deposits at an average rate of 1.22%, and approximately $77.1 million in greater than two year time deposits at an average rate of 2.61% that are scheduled to mature in the year 2022.

First Guaranty has over $200 million in time deposits with average rates in excess of 3.00% that are scheduled to mature during 2022 through 2024 with the majority of the maturities in 2023 and 2024.

First Guaranty expects to renew the majority of these time deposits at lower market rates.

The following table sets forth the distribution of deposit accounts, by account type, for the dates indicated.

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Average Rate Average Balance Percent Weighted

Noninterest-bearing Demand $ 552,786 20.7 % — % $ 477,802 19.8 % — %

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Average Rate Average Balance Percent Weighted

Noninterest-bearing Demand $ 544,948 32.9 % — % $ 471,371 29.7 % — %

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Average Rate Average Balance Percent Weighted

Noninterest-bearing Demand $ 7,838 0.8 % — % $ 6,431 0.8 % — %

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Total Public Fund Deposits $ 1,020,344 100.0 % 1.4 % $ 821,380 100.0 % 0.5 %

At December 31, 2021, public funds deposits totaled $957.9 million compared to $715.3 million at December 31, 2020.

At December 31, 2022, public funds deposits totaled $1.1 billion compared to $957.9 million at December 31, 2021.

Public funds time deposits totaled $32.4 million at December 31, 2022 compared to $31.4 million at December 31, 2021.

The decline in public funds time deposits was the result of certain deposits moving into demand or money market deposits from time deposits.

Public funds deposits increased due to new balances from existing customers along with First Guaranty's expansion of its public funds deposits program in the Texas market.

We have developed a program for the retention and management of public funds deposits.

Since the end of 2012, we have maintained public funds deposits in excess of $400.0 million.

Public funds deposits increased due to new balances from existing customers that was primarily attributed to seasonal fluctuations.

First Guaranty has developed a program for the retention and management of public funds deposits.

Since the end of 2012, First Guaranty has maintained public funds deposits in excess of $400.0 million.

These deposits are from public entities such as school districts, hospital districts, sheriff departments and municipalities.

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At December 31, 2022, approximately $65.5 million of our certificates of deposit greater than or equal to $250,000 had a remaining term greater than one year.

The following table sets forth the maturity of the total certificates of deposit greater than or equal to $250,000 at December 31, 2021.

(in thousands) December 31, 2021

Due in one year or less $ 78,804

Due after one year through three years 73,409

Due after three years 6,864

Total certificates of deposit greater than or equal to $250,000 $ 159,077

The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) were estimated at $667.5 million at December 31, 2021.

The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $384.5 million at December 31, 2022.

This total excludes public funds deposits that are collateralized by securities or FHLB letters of credit.

The following table sets forth the maturity of certificates of deposits greater than $250,000 at December 31, 2022.

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First Guaranty had $146.4 million in short-term borrowings outstanding at December 31, 2022 compared to $6.4 million outstanding at December 31, 2021.

The short-term borrowings at December 31, 2021 were comprised of repurchase agreements of $6.4 million.

The advances outstanding at December 31, 2020 were comprised of a short-term advance that was originated in response to the COVID-19 pandemic that totaled $50.0 million and a long-term advance that totaled $3.4 million.

First Guaranty paid off the short-term advance acquired in response to the COVID-19 pandemic during the first quarter of 2021.

First Guaranty participated in the Federal Reserve Paycheck Protection Program Liquidity Facility ("PPPLF") in the second quarter of 2021.

These borrowings were paid off during the third quarter of 2021.

First Guaranty has a long term FHLB advance that was acquired from the Union transaction that totaled $3.2 million at December 31, 2021 compared to $3.4 million at December 31, 2020.

First Guaranty had available lines of credit of $26.5 million, with no outstanding balance at December 31, 2021.

At December 31, 2021, we had $250.7 million in FHLB letters of credit outstanding obtained primarily for collateralizing public deposits.

The decline in the usage of FHLB letters of credit is due to First Guaranty utilizing reciprocal deposit insurance programs as an alternative collateralization solution to FHLB letters of credit.

The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the years indicated.

At or For the Years Ended December 31,

(in thousands except for %) 2021 2020 2019

Balance at end of year $ 6,439 $ 56,121 $ 19,919

Maximum month-end outstanding $ 56,369 $ 57,048 $ 19,919

Average daily outstanding $ 10,458 $ 48,277 $ 3,320

Weighted average rate during the year 1.40 % 0.95 % 2.00 %

Weighted average rate at the end of the year 2.23 % 0.89 % 2.00 %

The short-term borrowings at December 31, 2022 were comprised of short-term Federal Home Loan Bank advances of $120.0 million, a line of credit of $20.0 million with an outstanding balance of $20.0 million and repurchase agreements of $6.4 million.

The short-term borrowings outstanding at December 31, 2021 were comprised of repurchase agreements of $6.4 million.

First Guaranty had available lines of credit of $26.5 million, with $20.0 million outstanding at December 31, 2022.

A net availability of $6.5 million remained.

At December 31, 2022, we had $388.6 million in FHLB letters of credit outstanding obtained primarily for collateralizing public deposits compared to $250.7 million at December 31, 2021.

First Guaranty had senior long-term debt totaling $21.9 million at December 31, 2022 and $25.2 million at December 31, 2021.

First Guaranty paid off $13.3 million in senior long-term debt using proceeds from its preferred stock capital offering during the second quarter of 2021.

First Guaranty also had junior subordinated debentures totaling $14.8 million at December 31, 2021 and December 31, 2020.

First Guaranty had a long-term FHLB advance that was acquired from the Union transaction that totaled $3.2 million at December 31, 2021.

This advance was paid off during the first quarter of 2022.

First Guaranty also had subordinated debt totaling $15.0 million at December 31, 2022 and $14.8 million at December 31, 2021.

Shareholders' Equity

Total shareholders' equity increased to $235.0 million at December 31, 2022 from $223.9 million at December 31, 2021.

The increase in shareholders' equity was principally the result of an increase of $33.1 million in preferred stock and an increase of $19.5 million in retained earnings, partially offset by a decrease of $7.3 million in accumulated other comprehensive income.

The $33.1 million increase in preferred stock was the result of the issuance of 34,500 shares of non-cumulative perpetual preferred stock on April 27, 2021.

The increase in shareholders' equity was principally the result of an increase of $19.7 million in retained earnings, partially offset by an increase of $8.6 million in accumulated other comprehensive loss.

The $19.7 million increase in retained earnings was due to net income of $28.9 million during the year ended December 31, 2022, partially offset by $6.9 million in cash dividends paid on shares of our common stock and $2.3 million in cash dividends paid on shares of our preferred stock.

The decrease in accumulated other comprehensive income was primarily attributed to the increase in unrealized losses on available for sale securities during the year ended December 31, 2021.

The increase in accumulated other comprehensive loss was primarily attributed to the increase in unrealized losses on available for sale securities during the year ended December 31, 2022.

Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 16, 2022, which is available on the SEC’s website at www.sec.gov and on our website, www.fgb.net.

Performance Summary

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The increase in net income of $1.6 million for the year ended December 31, 2022 was the result of several factors.

First Guaranty experienced an increase in interest income associated with loans, a decrease in interest expense and a decrease in the provision for loan losses.

This was partially offset by a decrease in interest income associated with securities, a decrease in noninterest income and an increase in noninterest expense.

First Guaranty experienced an increase in interest income and an increase in noninterest income.

This was partially offset by an increase in interest expense, an increase in the provision for loan losses and an increase in noninterest expense.

Loan interest income increased due to the growth in First Guaranty's loan portfolio, including loan fees recognized as an adjustment to yield from the origination of the SBA guaranteed PPP loans.

Interest expense declined due to declines in market interest rates and First Guaranty's plan to reduce interest expense by increasing core deposits.

Interest expense declined in 2021 even after factoring in an increase in deposit balances associated with SBA PPP loans and stimulus payments, and additional borrowings associated with our COVID-19 contingency plans.

First Guaranty attributes the primary decrease in the provision to economic improvement in 2021 as compared to the COVID-19 uncertainty and economic conditions present in 2020.

Factors that partially offset the increase in net income included decreased securities interest income due to the decrease in average balance of the investment portfolio.

Noninterest income decreased primarily due to lower securities gains.

Noninterest expense increased primarily due to increased personnel expenses, higher occupancy and equipment expenses, software expense, marketing and public relations expenses, legal fees, ATM fees, taxes and higher regulatory assessments due to increased deposit balances.

Earnings per common share for the years ended December 31, 2021 was $2.42 per common share, an increase of 27.4% or $0.52 per common share from $1.90 per common share for the year ended December 31, 2020 (as adjusted for the 10% stock dividend in December 2021).

Earnings per share was affected by the increase in earnings.

Year ended December 31, 2020 compared with year ended December 31, 2019.

Net income for the year ended December 31, 2020 was $20.3 million, an increase of $6.1 million, or 42.7%, as compared to $14.2 million for the year ended December 31, 2019.

The increase in net income of $6.1 million for the year ended December 31, 2020 was the result of several factors.

First Guaranty experienced an increase in interest income associated with loans, increased noninterest income due to increased securities sales and lower interest expense.

This was partially offset by an increase in the provision for loan losses and increased noninterest expense.

Loan interest income increased due to the growth in First Guaranty's loan portfolio, including the loans acquired in the fourth quarter of 2019 in the Union acquisition and loan fees recognized as an adjustment to yield from the origination of the SBA guaranteed PPP loans.

Noninterest income increased due to larger securities gains on sales for the year ended December 31, 2020 compared to losses on securities sales for the year ended December 31, 2019.

Interest expense declined due to declines in market interest rates and First Guaranty's strategy to reduce interest expense.

Interest expense declined during 2020 even after factoring in the additional deposit balances acquired from the Union acquisition, an increase in deposit balances associated with SBA PPP loans and stimulus payments, and additional borrowings associated with our COVID-19 contingency plans.

Factors that partially offset income include increased noninterest expense primarily associated with the Union acquisition including one-time merger related expenses of $0.5 million paid in 2020 for the data conversion.

The provision for loan losses increased to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio, including risks emerging from the COVID-19 pandemic and portfolio growth.

Earnings per common share for the years ended December 31, 2020 was $1.90 per common share, an increase of 41.8% or $0.56 per common share from $1.34 per common share for the year ended December 31, 2019 (as adjusted for the 10% stock dividend in December 2021).

Securities interest income increased due to an increase in the average balance of the investment portfolio.

Noninterest income increased primarily due to gains on the sale of loans during the third quarter of 2022.

Factors that partially offset the increase in net income included an increase in interest expense due to increases in volume and market interest rates.

The increase in the provision was related to growth in the loan portfolio and due to elevated charge-offs as compared to the same period in 2021.

Noninterest expense increased primarily due to increased personnel expenses, software expense, legal and professional fees, travel expense and capital taxes.

Earnings per common share for the years ended December 31, 2022 was $2.48 per common share, an increase of 2.5% or $0.06 per common share from $2.42 per common share for the year ended December 31, 2021.

Earnings per share was affected by the increase in earnings.

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ten year Treasury rate.

These rates increased in 2022 due to the impact of inflation and the Federal Reserves actions to reduce inflation by increasing interest rates.

Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities.

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Net interest income for the years ended December 31, 2022 and 2021 was $100.0 million and $89.6 million, respectively.

The increase in net interest income for the year ended December 31, 2021 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets, and a decrease in the average rate of our total interest-bearing liabilities, partially offset by a decrease in the average yield of our total interest-earning assets and an increase in the average balance of our total interest-bearing liabilities.

For the year ended December 31, 2021, the average balance of our total interest-earning assets increased by $379.4 million to $2.6 billion due to increased cash and due average balances, and strong growth in commercial leases and our other loan portfolios.

The average yield of our interest-earning assets decreased by 23 basis points to 4.29% from 4.52% for the year ended December 31, 2020 due to the general decline in market interest rates that affect the pricing of our assets and due to the increased lower yielding average cash balances on the balance sheet.

For the year ended December 31, 2021, the average balance of our total interest-bearing liabilities increased by $249.3 million to $2.0 billion due to the growth in low cost deposits and the average rate of our total interest-bearing liabilities decreased by 37 basis points to 1.11% from 1.48% for the year ended December 31, 2020 due to the decrease in market rates.

As a result, our net interest rate spread increased 14 basis points to 3.18% for the year ended December 31, 2021 from 3.04% for the year ended December 31, 2020.

Our net interest margin increased nine basis points to 3.44% for the year ended December 31, 2021 from 3.35% for the year ended December 31, 2020.

Year ended December 31, 2020 compared with year ended December 31, 2019.

Net interest income for the years ended December 31, 2020 and 2019 was $74.7 million and $61.7 million, respectively.

The increase in net interest income for the year ended December 31, 2020 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and a decrease in the average rate of our total interest-bearing liabilities, partially offset by a decrease in the average yield of our total interest-earning assets and by an increase in the average balance of our total interest-bearing liabilities.

For the year ended December 31, 2020, the average balance of our total interest-earning assets increased by $417.3 million to $2.2 billion due to the assets acquired from the Union acquisition, COVID-19 related lending activities, including SBA PPP loans and loan growth.

The average yield of our interest-earning assets decreased by 54 basis points to 4.52% from 5.06% for the year ended December 31, 2019 due to the general decline in market interest rates that affect the pricing of our assets and due to the increased lower yielding average cash balances on the balance sheet.

For the year ended December 31, 2020, the average balance of our total interest-bearing liabilities increased by $310.9 million to $1.8 billion as our average deposits and average borrowings increased due to COVID-19 related contingency planning and government relief programs, and the average rate of our total interest-bearing liabilities decreased by 58 basis points to 1.48% from 2.06% for the year ended December 31, 2019 due to the decrease in market rates.

As a result, our net interest rate spread increased four basis points to 3.04% for the year ended December 31, 2020 from 3.00% for the year ended December 31, 2019.

Our net interest margin decreased six basis points to 3.35% for the year ended December 31, 2020 from 3.41% for the year ended December 31, 2019.

The increase in net interest income for the year ended December 31, 2022 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by an increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities.

For the year ended December 31, 2022, the average balance of our total interest-earning assets increased by $274.5 million to $2.9 billion due to increased securities balances, and strong growth in our loan portfolio.

The average yield of our interest-earning assets increased by 45 basis points to 4.74% from 4.29% for the year ended December 31, 2021 due to an improved mix of higher yielding assets.

For the year ended December 31, 2022, the average balance of our total interest-bearing liabilities increased by $185.0 million to $2.2 billion due to the growth in low cost deposits and the average rate of our total interest-bearing liabilities increased by 55 basis points to 1.66% from 1.11% for the year ended 2021.

The rise in market interest rates, particularly associated with Treasury rates, contributed to the increase in our liabilities cost.

Treasury rates increased as the Federal Reserve increased rates to address rising inflation during 2022.

As a result, our net interest rate spread decreased 10 basis points to 3.08% for the year ended December 31, 2022 from 3.18% for the year ended December 31, 2021.

Our net interest margin increased three basis points to 3.47% for the year ended December 31, 2022 from 3.44% for the year ended December 31, 2021.

Interest Income

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Interest income increased $24.7 million, or 22.0%, to $136.6 million for the year ended December 31, 2022 as compared to the prior year.

First Guaranty's loan portfolio expanded during 2021 due to growth associated with our loan originations, including commercial leases.

These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, primarily associated with loans, increased, partially offset by a decrease in the average yield of interest-earning assets, due to the decline in market interest rates.

First Guaranty's loan portfolio expanded during 2022 due to growth associated with our loan originations.

These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, primarily associated with loans, increased, and the average yield of interest-earning assets increased.

The average balance of our interest-earning assets increased $274.5 million to $2.9 billion for the year ended December 31, 2022 as compared to the prior year.

The average yield of interest-earning assets decreased by 23 basis points to 4.29% for the year ended December 31, 2021 compared to 4.52% for the year ended December 31, 2020.

Interest income on securities decreased $1.2 million to $8.2 million for the year ended December 31, 2021 as compared to the prior year primarily as a result of a decrease in the average balance of securities.

The average balance of securities decreased $48.4 million to $332.6 million for the year ended December 31, 2021 from $381.0 million for the year ended December 31, 2020 primarily due to a decrease in the average balance of our mortgage-backed securities and corporate securities portfolios compared to the prior year.

The average yield on securities decreased by one basis point to 2.48% for the year ended December 31, 2021 from 2.49% for the year ended December 31, 2020 due to the decrease in market interest rates.

Interest income on loans increased $12.5 million, or 13.8%, to $103.4 million for the year ended December 31, 2021 as a result of an increase in the average balance of loans.

The average yield of interest-earning assets increased by 45 basis points to 4.74% for the year ended December 31, 2022 compared to 4.29% for the year ended December 31, 2021.

Interest income on securities increased $1.0 million to $9.3 million for the year ended December 31, 2022 as compared to the prior year primarily as a result of an increase in average balances.

The average balance of securities increased $119.6 million to $452.2 million for the year ended December 31, 2022 from $332.6 million for the year ended December 31, 2021 primarily due to an increase in the average balance of our U.S.

Treasuries securities portfolio compared to the prior year.

The average yield on securities decreased by 43 basis points to 2.05% for the year ended December 31, 2022 from 2.48% for the year ended December 31, 2021 due to the increase in lower yielding Treasury securities.

Interest income on loans increased $22.6 million, or 21.9%, to $126.0 million for the year ended December 31, 2022 as a result of an increase in the average balance and average yield of loans.

The average balance of loans (excluding loans held for sale) increased by $284.2 million to $2.3 billion for the year ended December 31, 2022 from $2.0 billion for the year ended December 31, 2021 as a result of new loan originations.

The average yield on loans (excluding loans held for sale) decreased by 33 basis points to 5.13% for the year ended December 31, 2021 from 5.46% for the year ended December 31, 2020 due to the decrease in market interest rates and the impact of SBA PPP loans which have a 1.00% interest rate.

Year ended December 31, 2020 compared with year ended December 31, 2019.

Interest income increased $9.0 million, or 9.9%, to $100.7 million for the year ended December 31, 2020 as compared to the prior year.

First Guaranty's loan portfolio expanded during 2020 due to growth associated with the SBA PPP lending program and our other loan originations such as commercial leases and non-farm non-residential loans.

These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, both loans and securities, including assets from the Union acquisition increased, partially offset by a decrease in the average yield of interest-earning assets due to the decline in market interest rates.

The average balance of our interest-earning assets increased $417.3 million to $2.2 billion for the year ended December 31, 2020 as compared to the prior year.

The average yield of interest-earning assets decreased by 54 basis points to 4.52% for the year ended December 31, 2020 compared to 5.06% for the year ended December 31, 2019.

Interest income on securities decreased $0.3 million to $9.5 million for the year ended December 31, 2020 as compared to the prior year primarily as a result of a decrease in the average yield on securities.

The average balance of securities increased $31.7 million to $381.0 million for the year ended December 31, 2020 from $349.2 million for the year ended December 31, 2019 due to an increase in balances, particularly corporate securities, as part of First Guaranty's strategy initiated at the end of the first quarter in 2020 to provide earnings and liquidity during the COVID-19 pandemic.

The average yield on securities decreased by 32 basis points to 2.49% for the year ended December 31, 2020 from 2.81% for the year ended December 31, 2019 due to the decrease in market interest rates.

Interest income on loans increased $11.9 million, or 15.1%, to $90.8 million for the year ended December 31, 2020 as a result of an increase in the average balance of loans.

The average balance of loans (excluding loans held for sale) increased by $347.4 million to $1.7 billion for the year ended December 31, 2020 from $1.3 billion for the year ended December 31, 2019 as a result of new loan originations, primarily SBA PPP loans, commercial leases, non-farm non-residential loans, and acquired loans from the Union acquisition.

The average yield on loans (excluding loans held for sale) decreased by 53 basis points to 5.46% for the year ended December 31, 2020 from 5.99% for the year ended December 31, 2019 due to the decrease in market interest rates and the impact of SBA PPP loans which have a 1.0% interest rate.

The average yield on loans (excluding loans held for sale) increased by 35 basis points to 5.48% for the year ended December 31, 2022 from 5.13% for the year ended December 31, 2021 due to the improved mix of loans along with an increase in market interest rates.

Interest Expense

Year ended December 31, 2022 compared with year ended December 31, 2021 .

Interest expense decreased $3.7 million, or 14.3%, to $22.3 million for the year ended December 31, 2021 from $26.0 million for the year ended December 31, 2020 due primarily to a decrease in market interest rates partially offset by an increase in the average balance of interest-bearing liabilities.

The average rate of interest-bearing demand deposits decreased by 17 basis points during the year ended December 31, 2021 to 0.67% as compared to 0.84% for the prior year.

The decrease in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S.

Federal Funds rate or short-term U.S.

Treasury rates that declined during the current period.

The average rate of time deposits decreased 23 basis points during the year ended December 31, 2021 to 1.97% as compared to 2.20% for the prior year.

The decrease in the average rate of time deposits was due to a significant decline in market interest rates primarily associated with the economic conditions from the COVID-19 pandemic.

Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, which increased $249.3 million during the year ended December 31, 2021 to $2.0 billion as compared to the prior year as a result of a $360.5 million increase in the average balance of interest-bearing demand deposits, a $28.6 million increase in the average balance of savings deposits, which were partially offset by a $112.1 million decrease in the average balance of time deposits and a $27.7 million decrease in the average balance of borrowings.

Year ended December 31, 2020 compared with year ended December 31, 2019.

Interest expense decreased $3.9 million, or 13.2%, to $26.0 million for the year ended December 31, 2020 from $30.0 million for the year ended December 31, 2019 due primarily to a decrease in market interest rates partially offset by an increase in the average balance of interest-bearing liabilities.

The average rate of interest-bearing demand deposits decreased by 92 basis points during the year ended December 31, 2020 to 0.84% as compared to 1.76% for the prior year.

The decrease in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW and DDA accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S.

Federal Funds rate or short-term U.S.

Treasury rates that declined sharply beginning in the first quarter of 2020.

The average rate of time deposits decreased 24 basis points during the year ended December 31, 2020 to 2.20% as compared to 2.44% for the prior year.

The decrease in the average rate of time deposits was due to First Guaranty's strategy to reduce deposit costs by expanding non-interest bearing and lower cost interest bearing deposits that has provided an alternative to higher cost time deposits and has helped First Guaranty maintain liquidity while lowering rates on time deposits.

Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, which increased $310.9 million during the year ended December 31, 2020 to $1.8 billion as compared to the prior year as a result of a $130.3 million increase in the average balance of interest-bearing demand deposits, a $69.5 million increase in the average balance of borrowings, a $63.4 million increase in the average balance of time deposits and a $47.7 million increase in the average balance of savings deposits.

Interest expense increased $14.2 million, or 63.8%, to $36.5 million for the year ended December 31, 2022 from $22.3 million for the year ended December 31, 2021 due primarily to an increase in market interest rates and due to an increase in the average balance of interest-bearing liabilities.

The average rate of interest-bearing demand deposits increased by 90 basis points during the year ended December 31, 2022 to 1.57% as compared to 0.67% for the prior year.

The increase in market interest rates, particularly U.S.

Treasury rates, contributed to the increase in rates paid on interest-bearing demand deposits.

Treasury rates increased as the Federal Reserve increased rates to address increased inflation in the U.S.

The average rate of time deposits decreased two basis points during the year ended December 31, 2022 to 1.95% as compared to 1.97% for the prior year.

The decrease in the average rate of time deposits was due to First Guaranty's efforts to reprice maturing time deposits to more attractive rates.

The average balance of interest-bearing liabilities increased by $185.0 million during the year ended December 31, 2022 to $2.2 billion.

This increase was a result of a $279.5 million increase in the average balance of interest-bearing demand deposits, a $20.4 million increase in the average balance of savings deposits, which were partially offset by a $108.2 million decrease in the average balance of time deposits and a $6.6 million decrease in the average balance of borrowings.

Average Balances and Yields.

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It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities.

December 31, 2021 December 31, 2020 December 31, 2019

(in thousands except for %) Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate

December 31, 2022 December 31, 2021

(in thousands except for %) Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate

Interest-earning assets:

34 unchanged sentences

A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the years ended December 31, 2022 and 2021.

(6) Includes loan fees of $7.2 million, $6.3 million and $3.5 million for the years ended December 31, 2021, 2020 and 2019.

(6) Includes loan fees of $7.8 million and $7.2 million for the years ended December 31, 2022 and 2021.

PPP loan fee income of $1.3 million and $2.0 million was recognized for the years ended December 31, 2022 and 2021, respectively.

6 unchanged sentences

For the Years Ended December 31, 2022 vs.

Increase (Decrease) Due To For the Years Ended December 31, 2020 vs.

Increase (Decrease) Due To

(in thousands except for %) Volume Rate Increase/

Decrease Volume Rate Increase/

Interest earned on:

18 unchanged sentences

The allowance for loan losses at December 31, 2022 was $23.5 million or 0.93% of total loans, compared to $24.0 million or 1.11% of total loans at December 31, 2021.

The decrease in the provision was attributable to economic improvement in 2021 as compared to the COVID-19 uncertainty and economic conditions present in 2020.

Total charge-offs were $6.1 million for year ended December 31, 2022 and $3.1 million for 2021.

We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions that are significantly influenced by the COVID-19 pandemic, and current expected net charge-offs and non-performing asset levels.

We expect economic uncertainty due to the ongoing COVID-19 pandemic to continue which may result in additional increases to the allowance for loan losses in future periods.

For the year ended December 31, 2020, the provision for loan losses was $14.9 million compared to $4.9 million for 2019.

The allowance for loan losses at December 31, 2020 was $24.5 million or 1.33% of total loans, compared to $10.9 million or 0.72% of total loans at December 31, 2019.

The increase in the provision was attributable to the increase in the loan portfolio, the effects of the COVID-19 pandemic and charge-offs not previously provided for.

Total charge-offs were $2.4 million for year ended December 31, 2020 and $5.3 million for 2019.

We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions.

Noninterest Income

1 unchanged sentence

Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.

Noninterest income totaled $10.8 million for the year ended December 31, 2021, a decrease of $13.0 million from $23.8 million for the year ended December 31, 2020.

The decrease was primarily due to decreased gains on the sale of securities.

Net securities gains were $0.7 million for the year ended December 31, 2021 as compared to net securities gains of $14.8 million for 2020.

The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth and convert unrealized gains into realized earnings as previously noted as part of First Guaranty's plan to manage for economic uncertainty.

Service charges, commissions and fees totaled $2.7 million for the year ended December 31, 2021 as compared to $2.6 million for 2020.

ATM and debit card fees totaled $3.6 million for the year ended December 31, 2021 and $3.0 million for 2020.

The increase in these fees can be attributed changes in customer behavior associated with the COVID-19 pandemic as customers used their debit cards as an alternative to cash.

Net gains on the sale of loans were $0.9 million for the year ended December 31, 2021 and $1.1 million for 2020.

Other noninterest income totaled $2.8 million and $2.3 million for the years ended December 31, 2021 and 2020, respectively.

Noninterest income totaled $11.0 million for the year ended December 31, 2022, an increase of $0.2 million from $10.8 million for the year ended December 31, 2021.

The increase was primarily due to gains on the sale of securities.

Net securities gains were $14.8 million for the year ended December 31, 2020 as compared to net securities losses of $0.2 million for 2019.

The increase was primarily due to increased gains on the sale of loans.

First Guaranty sold a loan with a government guarantee in the third quarter of 2022.

The loan had a principal balance of $24.7 million with a guaranteed balance of $19.8 million.

Net securities losses were $17,000 for the year ended December 31, 2022 as compared to net securities gains of $0.7 million for 2021.

The losses on securities sales primarily occurred as First Guaranty sold investment securities in order to fund loan growth and manage interest rate risk.

Service charges, commissions and fees totaled $3.2 million for the year ended December 31, 2022 as compared to $2.7 million for 2021.

The decline in these fees for 2020 compared to 2019 was the result of waivers initially provided for during the beginning of the COVID-19 pandemic.

ATM and debit card fees totaled $3.4 million for the year ended December 31, 2022 and $3.6 million for 2021.

The increase in these fees can be attributed to growth from the Union acquisition and to changes in customer behavior associated with the COVID-19 pandemic as customers used their debit cards as an alternative to cash.

Net gains on the sale of loans were $1.8 million for the year ended December 31, 2022 and $0.9 million for 2021.

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Salaries and benefits expense totaled $36.7 million for the year ended December 31, 2022 and $32.2 million for the year ended December 31, 2021.

The increase in salaries and benefits expense was primarily due to the increase in personnel expense from new hires.

Occupancy and equipment expense increased to $8.7 million for the year ended December 31, 2021 from $7.7 million for the year ended December 31, 2020 due to the new facilities put into service during 2021.

Other noninterest expense totaled $23.0 million for the year ended December 31, 2021 and $20.7 million for 2020.

The following are notable changes occurred within noninterest expense.

Marketing and public relations expense increased $0.7 million during 2021 compared to 2020 as these expenses were lower during 2020 primarily due to the impacts of COVID-19.

Tax expense increased primarily due to higher capital taxes in 2021.

Software expense and amortization increased $0.7 million in 2021 compared to 2021 due to the continued development of First Guaranty's loan and deposit platforms.

First Guaranty's regulatory assessment increased by $0.2 million in 2021 compared to 2020 due to the growth in deposits.

Data processing expense declined in 2021 compared to 2020 as First Guaranty did not have data conversion expenses in 2021 related to the Union merger.

Noninterest expense totaled $58.0 million for the year ended December 31, 2020 and $47.2 million for the year ended December 31, 2019.

Salaries and benefits expense totaled $29.6 million for the year ended December 31, 2020 and $25.0 million for the year ended December 31, 2019.

The increase in salaries and benefits expense was primarily due to the increase in personnel expense from the Union acquisition, new hires and expenses associated with COVID-19.

Occupancy and equipment expense increased to $7.7 million for the year ended December 31, 2020 from $6.1 million for the year ended December 31, 2019 due to the new offices acquired in the Union acquisition.

The increase was primarily due to the increase in personnel expense from new hires including those in the Mideast market.

Occupancy and equipment expense increased to $8.9 million for the year ended December 31, 2022 from $8.7 million for the year ended December 31, 2021.

Other noninterest expense totaled $25.4 million for the year ended December 31, 2022 and $23.0 million for 2021.

The following are notable changes that occurred within noninterest expense.

Marketing and public relations expense declined $0.4 million during 2020 primarily due to the impacts of COVID-19.

Software expense and amortization increased $1.0 million in 2020 compared to 2019 due to the Union acquisition and the continued development of First Guaranty's loan and deposit platforms.

The amortization of core deposits increased $0.3 million due to the Union acquisition.

Net costs from other real estate owned and repossessions increased by $1.2 million as First Guaranty established a reserve for other real estate expense and wrote down other real estate properties.

First Guaranty's regulatory assessment increased by $1.0 million in 2020 compared to 2019 due to the Union acquisition and the substantial growth in deposits associated with COVID-19.

The following table presents, for the years indicated, the major categories of other noninterest expense:

(in thousands) December 31, 2021 December 31, 2020 December 31, 2019

(in thousands) December 31, 2022 December 31, 2021

Other noninterest expense:

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The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses.

The provision for income taxes for the years ended December 31, 2021, 2020 and 2019 was $7.2 million, $5.2 million and $3.7 million, respectively.

The provision for income taxes for the years ended December 31, 2022 and 2021 was $7.5 million and $7.2 million, respectively.

The provision for income taxes in 2022 increased as compared to 2021 due to the increase in income before income taxes.

2 unchanged sentences

Our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K have been prepared in accordance with GAAP.

These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature.

2 unchanged sentences

However, other operating expenses do reflect general levels of inflation.

The Federal Reserve increased interest rates during 2022 to address rising inflation in the U.S.

The impact of rising interest rates associated with inflation impacted First Guaranty's net interest income and net interest margin along with the value of its financial assets.

Selected Financial Data

The following table presents consolidated selected financial data for First Guaranty.

It does not purport to be complete and is qualified in its entirety by more detailed financial information and the audited consolidated financial statements contained elsewhere in this annual report.

At or For the Years Ended December 31,

(in thousands except for %) 2022 2021 2020 2019 2018

Year End Balance Sheet Data:

Investment securities $ 451,526 $ 364,156 $ 238,548 $ 426,516 $ 405,303

Federal funds sold $ 423 $ 183 $ 702 $ 914 $ 549

Loans, net of unearned income $ 2,519,077 $ 2,159,359 $ 1,844,135 $ 1,525,490 $ 1,225,268

Allowance for loan and lease losses $ 23,518 $ 24,029 $ 24,518 $ 10,929 $ 10,776

Total assets $ 3,151,347 $ 2,878,120 $ 2,473,078 $ 2,117,216 $ 1,817,211

Total deposits $ 2,723,792 $ 2,596,492 $ 2,166,318 $ 1,853,013 $ 1,629,622

Borrowings $ 183,369 $ 49,635 $ 116,630 $ 86,747 $ 34,538

Shareholders' equity $ 234,991 $ 223,889 $ 178,591 $ 166,035 $ 147,284

Common shareholders' equity $ 201,933 $ 190,831 $ 178,591 $ 166,035 $ 147,284

Performance Ratios and Other Data:

Return on average assets 0.97 % 1.01 % 0.87 % 0.76 % 0.82 %

Return on average common equity 13.64 % 14.06 % 11.36 % 8.99 % 9.98 %

Return on average tangible assets (1) 0.99 % 1.04 % 0.90 % 0.78 % 0.85 %

Return on average tangible common equity (1) 15.31 % 15.98 % 13.08 % 9.68 % 10.77 %

Net interest margin 3.47 % 3.44 % 3.35 % 3.41 % 3.41 %

Average loans to average deposits 85.94 % 83.65 % 81.25 % 78.59 % 75.39 %

Efficiency ratio (2) 63.94 % 63.63 % 58.95 % 67.48 % 69.46 %

Efficiency ratio (excluding amortization of intangibles and securities transactions) (2) 63.30 % 63.32 % 68.44 % 66.77 % 66.63 %

Full time equivalent employees (year end) 472 470 429 431 346

(Footnotes follow on next page)

At or For the Years Ended December 31,

(in thousands except for % and share data) 2022 2021 2020 2019 2018

Capital Ratios:

Average shareholders' equity to average assets 7.62 % 7.65 % 7.62 % 8.42 % 8.20 %

Average tangible equity to average tangible assets (3) 7.08 % 7.02 % 6.86 % 8.02 % 7.86 %

Common shareholders' equity to total assets 6.41 % 6.63 % 7.22 % 7.84 % 8.10 %

Tangible common equity to tangible assets (3) 5.89 % 6.04 % 6.51 % 6.99 % 7.79 %

Interest income $ 136,576 $ 111,917 $ 100,684 $ 91,643 $ 78,390

Interest expense $ 36,534 $ 22,299 $ 26,017 $ 29,966 $ 21,366

Net interest income $ 100,042 $ 89,618 $ 74,667 $ 61,677 $ 57,024

Provision for loan losses $ 3,656 $ 2,055 $ 14,877 $ 4,860 $ 1,354

Noninterest income (excluding securities transactions) $ 11,026 $ 10,046 $ 8,989 $ 8,456 $ 7,110

Securities (losses) gains $ (17) $ 714 $ 14,791 $ (157) $ (1,830)

Noninterest expense $ 71,005 $ 63,868 $ 58,033 $ 47,219 $ 43,275

Earnings before income taxes $ 36,390 $ 34,455 $ 25,537 $ 17,897 $ 17,675

Net income $ 28,884 $ 27,297 $ 20,318 $ 14,241 $ 14,213

Net income available to common shareholders $ 26,556 $ 25,913 $ 20,318 $ 14,241 $ 14,213

Per Common Share Data:

Net earnings $ 2.48 $ 2.42 $ 1.90 $ 1.34 $ 1.33

Cash dividends paid $ 0.64 $ 0.60 $ 0.58 $ 0.54 $ 0.53

Book value $ 18.84 $ 17.81 $ 16.66 $ 15.49 $ 13.82

Tangible book value (4) $ 17.23 $ 16.13 $ 14.92 $ 13.68 $ 13.24

Dividend payout ratio for Common and Preferred 31.81 % 28.49 % 30.68 % 40.74 % 39.65 %

Weighted average number of shares outstanding 10,716,796 10,716,796 10,716,796 10,666,055 10,657,245

Number of shares outstanding 10,716,796 10,716,796 10,716,796 10,716,796 10,657,245

Asset Quality Ratios:

Non-performing assets to total assets 0.47 % 0.70 % 1.25 % 1.04 % 0.55 %

Non-performing assets to total loans 0.59 % 0.93 % 1.68 % 1.44 % 0.82 %

Non-performing loans to total loans 0.58 % 0.83 % 1.55 % 1.12 % 0.73 %

Loan loss reserve to non-performing assets 158.68 % 119.95 % 79.33 % 49.86 % 107.48 %

Net charge-offs to average loans 0.18 % 0.13 % 0.08 % 0.36 % (0.02) %

Provision for loan and lease loss to average loans 0.16 % 0.10 % 0.89 % 0.37 % 0.12 %

Allowance for loan and lease loss to total loans 0.93 % 1.11 % 1.33 % 0.72 % 0.88 %

(1) Tangible calculation eliminates goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization, net of tax.

See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Historical Consolidated Financial and Other Data— Non-GAAP Financial Measures."

(2) Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.

We calculate both a GAAP and a non-GAAP efficiency ratio.

The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income.

See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Financial Data— Non-GAAP Financial Measures.

(3) We calculate tangible common equity as total shareholders' equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and core deposit intangibles.

Tangible common equity to tangible assets is a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total shareholders' equity to total assets.

(4) We calculate tangible book value per common share as total shareholders' equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization at the end of the relevant period, divided by the outstanding number of shares of our common stock at the end of the relevant period.

Tangible book value per common share is a non-GAAP financial measure, and, as we calculate tangible book value per common share, the most directly comparable GAAP financial measure is book value per common share.

See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Financial Data— Non-GAAP Financial Measures."

Non-GAAP Financial Measures

Our accounting and reporting policies conform to accounting principles generally accepted in the United States, or GAAP, and the prevailing practices in the banking industry.

However, we also evaluate our performance based on certain additional metrics.

Tangible book value per share and the ratio of tangible equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures.

Our management, banking regulators, many financial analysts and other investors use these non-GAAP financial measures to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

Tangible equity, tangible assets, tangible book value per share or related measures should not be considered in isolation or as a substitute for total shareholders' equity, total assets, book value per share or any other measure calculated in accordance with GAAP.

Moreover, the manner in which we calculate tangible equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names.

The following table reconciles, as of the dates set forth below, shareholders' equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates our tangible book value per share.

At December 31,

(in thousands except for share data and %) 2022 2021 2020 2019 2018

Tangible Common Equity

Total shareholders' equity $ 234,991 $ 223,889 $ 178,591 $ 166,035 $ 147,284

Preferred Stock 33,058 33,058 — — —

Goodwill 12,900 12,900 12,900 12,942 3,472

Acquisition intangibles 4,355 5,051 5,815 6,527 2,704

Tangible common equity $ 184,678 $ 172,880 $ 159,876 $ 146,566 $ 141,108

Common shares outstanding 10,716,796 10,716,796 10,716,796 10,716,796 10,657,245

Book value per common share $ 18.84 $ 17.81 $ 16.66 $ 15.49 $ 13.82

Tangible book value per common share $ 17.23 $ 16.13 $ 14.92 $ 13.68 $ 13.24

Tangible Assets

Total Assets $ 3,151,347 $ 2,878,120 $ 2,473,078 $ 2,117,216 $ 1,817,211

Goodwill 12,900 12,900 12,900 12,942 3,472

Acquisition intangibles 4,355 5,051 5,815 6,527 2,704

Tangible Assets $ 3,134,092 $ 2,860,169 $ 2,454,363 $ 2,097,747 $ 1,811,035

Tangible common equity to tangible assets 5.89 % 6.04 % 6.51 % 6.99 % 7.79 %

The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions.

We calculate the efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income, excluding amortizations of intangibles and securities transactions.

The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income.

The following table reconciles, as of the dates set forth below, our efficiency ratio to the GAAP-based efficiency ratio:

For the Year Ended December 31,

(in thousands except for share data and %) 2022 2021 2020 2019 2018

GAAP-based efficiency ratio 63.94 % 63.63 % 58.95 % 67.48 % 69.46 %

Noninterest expense $ 71,005 $ 63,868 $ 58,033 $ 47,219 $ 43,275

Amortization of intangibles 696 764 711 390 545

Noninterest expense, excluding amortization 70,309 63,104 57,322 46,829 42,730

Net interest income 100,042 89,618 74,667 61,677 57,024

Noninterest income 11,009 10,760 23,780 8,299 5,280

Securities transactions (17) 714 14,691 (157) (1,830)

Noninterest income, excluding securities transactions $ 11,026 $ 10,046 $ 9,089 $ 8,456 $ 7,110

Efficiency ratio 63.30 % 63.32 % 68.44 % 66.77 % 66.63 %

Liquidity and Capital Resources

4 unchanged sentences

Loans maturing within one year or less at December 31, 2022 totaled $372.1 million compared to $357.1 million at December 31, 2021.

At December 31, 2021, time deposits maturing within one year or less totaled $267.0 compared to $355.1 million at December 31, 2020.

At December 31, 2022, time deposits maturing within one year or less totaled $312.9 million compared to $267.0 million at December 31, 2021.

Time deposits maturing after one year through three years totaled $183.0 million at December 31, 2022 compared to $269.7 million at December 31, 2021.

Time deposits maturing after three years totaled $37.4 million at December 31, 2022 compared to $50.0 million at December 31, 2021.

First Guaranty's held to maturity ("HTM") investment securities portfolio at December 31, 2021 was $153.5 million or 42.2% of the investment portfolio compared to $0 at December 31, 2020.

First Guaranty's held to maturity ("HTM") investment securities portfolio at December 31, 2022 was $320.1 million or 70.9% of the investment portfolio compared to $153.5 million at December 31, 2021.

First Guaranty's available for sale ("AFS") portfolio was $131.5 million, or 29.1% of the investment portfolio at December 31, 2022 compared to $210.6 million, or 57.8% at December 31, 2021.

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We maintained a net borrowing capacity at the FHLB totaling $369.5 million and $456.3 million at December 31, 2022 and December 31, 2021, respectively with $120.0 million and $3.2 million in FHLB advances outstanding at December 31, 2022 and December 31, 2021, respectively.

First Guaranty paid off the short-term advance acquired in response to the COVID-19 pandemic during the first quarter of 2021.

In the second quarter of 2021, First Guaranty increased liquidity by utilizing a $49.4 million advance under the Federal Reserve PPPLF.

First Guaranty redeemed the PPPLF advance during the third quarter of 2021 as the additional liquidity was not required.

At December 31, 2021, First Guaranty maintained the $3.2 million long-term FHLB advance acquired from the Union acquisition.

The advances outstanding at December 31, 2022 were comprised of three short-term advances that were paid off in January 2023.

The advance outstanding at December 31, 2021 was comprised of a long-term advance that totaled $3.2 million.

First Guaranty paid off the $3.2 million long-term advance acquired from the Union acquisition in the first quarter of 2022.

The change in borrowing capacity with the Federal Home Loan Bank was due to changes in the value that First Guaranty receives on pledged collateral and due to First Guaranty's usage of the line.

1 unchanged sentence

At December 31, 2022, we had outstanding letters of credit from the FHLB in the amount of $388.6 million that were primarily used to collateralize public funds deposits.

We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $100.5 million and two revolving lines of credit totaling $26.5 million secured by a pledge of the Bank's common stock, with no outstanding balance at December 31, 2021.

We also have a discount window line with the Federal Reserve Bank that totaled $29.0 million at December 31, 2022.

First Guaranty had loans eligible to be pledged under the Federal Reserve's PPP lending facility that totaled $35.4 million at December 31, 2021.

First Guaranty did not have any advances under this facility at December 31, 2021.

Management believes there is sufficient liquidity to satisfy current operating needs.

3 unchanged sentences

Total shareholders' equity increased to $235.0 million at December 31, 2022 from $223.9 million at December 31, 2021.

The $33.1 million increase in preferred stock was the result of the issuance of 34,500 shares of non-cumulative perpetual preferred stock on April 27, 2021.

The increase in shareholders' equity was principally the result of an increase of $19.7 million in retained earnings, partially offset by a decrease of $8.6 million in accumulated other comprehensive income.

The $19.7 million increase in retained earnings was due to net income of $28.9 million during the year ended December 31, 2022, partially offset by $6.9 million in cash dividends paid on our common stock and $2.3 million in cash dividends paid on shares of our preferred stock.

22 unchanged sentences

Contract Amount

(in thousands) December 31, 2021 December 31, 2020 December 31, 2019

(in thousands) December 31, 2022 December 31, 2021

Commitments to Extend Credit $ 246,968 $ 198,444

19 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 7. Management’s Discussion and Analysis