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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-16 · 124 added, 152 removed, 1343 unchanged (17% of the section changed)

Item 8 - Financial Statements and Supplementary Data

Castaing, Hussey & Lolan, LLC

Griffith, DeLaney, Hillman & Lett, CPAs, PSC

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and Subsidiary (First Guaranty) as of December 31, 2021 and 2020, and the related statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes collectively referred to as the financial statements.

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

and Subsidiary (First Guaranty) as of December 31, 2022, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes collectively referred to as the financial statements.

We also have audited First Guaranty’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Guaranty as of December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Guaranty as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, First Guaranty maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

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

Critical Audit Matter

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

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

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

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

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

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

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

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

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

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We have served as First Guaranty's auditor since 2022.

Ashland, Kentucky

March 16, 2023

Castaing, Hussey & Lolan, LLC

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

First Guaranty Bancshares, Inc.

Opinion on the Financial Statements

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

and Subsidiary (First Guaranty) as of December 31, 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of First Guaranty as of December 31, 2021 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We served as First Guaranty’s auditor from 2001 to 2022.

New Iberia, Louisiana

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Held to maturity, at cost (estimated fair value of $ 242,560 and $ 150,585 , respectively)

320,068 153,536

Investment securities 451,526 364,156

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Short-term advances from Federal Home Loan Bank 120,000 —

Short-term borrowings 20,000 —

Repurchase agreements 6,442 6,439

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Non-cumulative perpetual;

34,500 and 0 shares issued and outstanding, respectively

34,500 shares issued and outstanding, respectively

$ 33,058 $ 33,058

Common stock, $ 1 par value - 100,600,000 shares authorized and 10,716,796 shares issued

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See Notes to Consolidated Financial Statements.

1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021.

FIRST GUARANTY BANCSHARES, INC.

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ATM and debit card fees 3,406 3,562

Net gains (losses) on securities 714 14,791 ( 157 )

Net (losses) gains on securities ( 17 ) 714

Net gains on sale of loans 1,774 942

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See Notes to Consolidated Financial Statements

1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021.

FIRST GUARANTY BANCSHARES, INC.

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Unrealized holding (losses) gains arising during the period ( 10,897 ) ( 8,501 )

Reclassification adjustments for (gains) losses included in net income ( 714 ) ( 14,791 ) 353

Reclassification adjustments for losses (gains) included in net income 17 ( 714 )

Reclassification of OTTI losses included in net income — —

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Net income — — — 27,297 — 27,297

Common stock issued in private placement, 59,551 shares 1

— 60 1,155 ( 215 ) — 1,000

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

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

Preferred stock issued, 34,500 shares, net of costs

33,058 — — — — 33,058

Balance December 31, 2019 $ — $ 10,717 $ 130,093 $ 23,050 $ 2,175 $ 166,035

Net income — — — 20,318 — 20,318

Other comprehensive income (loss) — — — — ( 7,280 ) ( 7,280 )

Preferred stock dividends — — — ( 1,384 ) ( 1,384 )

Cash dividends on common stock ($ 0.60 per share)

2 unchanged sentences

Net income — — — 28,884 — 28,884

Preferred stock issued, 34,500 shares, net of costs

33,058 — — — — 33,058

Other comprehensive income (loss) — — — — ( 8,595 ) ( 8,595 )

4 unchanged sentences

See Notes to Consolidated Financial Statements

1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021.

FIRST GUARANTY BANCSHARES, INC.

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(Gain) loss on sale/call of securities 17 ( 714 )

Other Than Temporary Impairment Charge on Securities — 100 —

Gain on sale of assets ( 1,857 ) ( 965 )

1 unchanged sentence

FHLB stock dividends ( 20 ) ( 13 )

Net decrease in loans held for sale — — 344

Change in other assets and liabilities, net 179 ( 6,347 )

1 unchanged sentence

Cash Flows From Investing Activities:

Proceeds from maturities, calls and sales of HTM securities — 34,022 21,190

Proceeds from maturities, calls and sales of AFS securities 52,986 417,557

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Proceeds from sales of other real estate owned 2,421 1,330

Cash paid in excess of cash received in acquisition — — ( 23,325 )

Net Cash Used In Investing Activities ( 467,911 ) ( 452,645 )

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Net (decrease) increase in federal funds purchased and short-term borrowings 140,003 ( 49,682 )

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

Repayment of long-term borrowings ( 5,783 ) ( 17,321 )

Net proceeds from issuance of preferred stock — 33,058

Common stock issued in private placement — — 1,000

Dividends paid on preferred stock ( 2,328 ) ( 1,384 )

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Acquisition of real estate in settlement of loans $ 558 $ 1,782

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

Transfer of securities from AFS to HTM $ 176,181 $ 160,014

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First Guaranty owns all of the outstanding shares of common stock of First Guaranty Bank.

First Guaranty Bank (the "Bank") is a Louisiana state-chartered commercial bank that offers a wide range of financial services and focuses on building client relationships and providing exceptional customer service.

First Guaranty Bank (the "Bank") is a Louisiana-chartered commercial bank that offers a wide range of financial services and focuses on building client relationships and providing exceptional customer service.

These services include consumer and commercial lending, mortgage loan origination, the issuance of credit cards and retail banking services.

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

The Bank has thirty-six banking facilities and forty-nine automated teller machines (ATMs) in Southeast, Southwest, Central and North Louisiana, North Central Texas, Kentucky and West Virginia.

The Bank has thirty-six banking facilities and forty-eight automated teller machines (ATMs) in Southeast, Southwest, Central and North Louisiana, North Central Texas, Kentucky and West Virginia.

Summary of significant accounting policies

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TDRs are undertaken in order to improve the likelihood of recovery on the loan and may take the form of modifications made with the stated interest rate lower than the current market rate for new debt with similar risk, other modifications to the structure of the loan that fall outside of normal underwriting policies and procedures, or in limited circumstances forgiveness of principal and / or interest.

TDRs can involve loans remaining on non-accrual, moving to non-accrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower.

TDRs are subject to policies governing accrual and non-accrual evaluation consistent with all other loans as discussed in the "Loans" section above.

TDRs can involve loans remaining on non-accrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower.

TDRs are subject to policies governing accrual and nonaccrual evaluation consistent with all other loans as discussed in the "Loans" section above.

All loans with the TDR designation are considered to be impaired, even if they are accruing.

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A loan determined to either be restructured to below market terms or to be impaired will remain a TDR.

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

Credit Quality

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

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

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.

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

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

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

First Guaranty adopted this guidance on January 1, 2023.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.

ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model.

The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

The effective date is January 1, 2023.

We do not expect it will have a material impact on the consolidated financial statements.

Cash and Due from Banks

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These accounts were over the insurable limit by $ 4.6 million.

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

At December 31, 2021 First Guaranty had three accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000.

These accounts were over the insurable limit by $ 2.0 million.

A summary comparison of securities by type at December 31, 2022 and 2021 is shown below.

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Government Agencies $ 265,032 $ — $ ( 69,503 ) $ 195,529 $ 153,536 $ — $ ( 2,951 ) $ 150,585

Corporate debt securities 55,036 — ( 8,005 ) 47,031 — — — —

Total held to maturity securities $ 320,068 $ — $ ( 77,508 ) $ 242,560 $ 153,536 $ — $ ( 2,951 ) $ 150,585

First Guaranty designated available for sale U.S.

Government Agency securities with an amortized cost of $ 160.0 million and a corresponding fair value of $ 152.9 million for held to maturity status in the first quarter of 2021.

The net unrealized loss net of taxes at the date of transfer was $ 5.7 million.

This was done following the review of guidance for held to maturity portfolios in light of the COVID-19 pandemic.

First Guaranty had terminated its held to maturity portfolio in the first quarter of 2020 due to the economic conditions associated with COVID-19.

ASC 320-10-25 provides an exemption for events that are isolated, nonrecurring, and unusual for the reporting entity.

The termination of the held to maturity portfolio in the first quarter of 2020 did not taint the portfolio under this guidance.

The securities designated as held to maturity are agency securities that are part of First Guaranty’s investment strategy and public funds collateralization program.

The fair value of the held to maturity securities at the date of transfer becomes the securities' new cost basis.

The unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield.

The amortization of the unamortized holding loss reported in accumulated other comprehensive income will directly offset the effect on interest income from the accretion of the reduced amortized cost for the transferred securities.

Because of this transfer, the total losses less than 12 months and greater than 12 months reported in the table below will not agree to the unrealized losses reported in the inventory of held to maturity securities.

The inventory table reports unrealized gains and losses based upon the transferred securities adjusted cost basis and current fair value.

The reporting of losses less than 12 months and greater than 12 months represents that actual period of time that these securities have been in an unrealized loss position and the securities amortized cost basis as if the transfer did not occur.

The scheduled maturities of securities at December 31, 2022, by contractual maturity, are shown below.

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Government Agencies 13 $ 89,695 ( 21,724 ) 16 $ 105,834 $ ( 47,779 ) 29 $ 195,529 $ ( 69,503 )

Corporate debt securities 59 47,031 ( 8,005 ) — — — 59 47,031 ( 8,005 )

Total held to maturity securities 72 $ 136,726 $ ( 29,729 ) 16 $ 105,834 $ ( 47,779 ) 88 $ 242,560 $ ( 77,508 )

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Total available for sale securities 75 $ 177,727 $ ( 2,300 ) 8 $ 454 $ ( 174 ) 83 $ 178,181 $ ( 2,474 )

As of December 31, 2021, 99 of First Guaranty's debt securities had unrealized losses totaling 1.6 % of the individual securities' amortized cost basis and 1.5 % of First Guaranty's total amortized cost basis of the investment securities portfolio.

Eight of the 99 securities had been in a continuous loss position for over 12 months at such date.

Held to maturity:

Government Agencies 16 $ 150,585 ( 2,951 ) — $ — $ — 16 $ 150,585 $ ( 2,951 )

Total held to maturity securities 16 $ 150,585 $ ( 2,951 ) — $ — $ — 16 $ 150,585 $ ( 2,951 )

As of December 31, 2022, 169 of First Guaranty's debt securities had gross unrealized losses totaling 18.1 % of the individual securities' amortized cost basis and 17.8 % of First Guaranty's total amortized cost basis of the investment securities portfolio.

34 of the 169 securities had been in a continuous loss position for over 12 months at such date.

The 34 securities had an aggregate amortized cost basis of $ 256.5 million and an unrealized loss of $ 50.1 million at December 31, 2022.

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

There were no other-than-temporary impairment losses recognized on securities during the year ended December 31, 2021.

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

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

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

There were no other-than-temporary impairment losses recognized on securities during the year December 31, 2019.

There were no other-than-temporary impairment losses recognized on securities during the years ended December 31, 2022 and 2021.

The following table presents a roll-forward of the amount of credit losses on debt securities held by First Guaranty for which a portion of OTTI was recognized in other comprehensive income for the year ended December 31, 2022 and 2021:

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

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

Beginning balance of credit losses at beginning of year $ — $ 100

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At December 31, 2022 and 2021 the carrying value of pledged securities totaled $ 260.8 million and $ 234.9 million, respectively.

Gross realized gains on sales of securities were $ 1.0 million, $ 14.7 million and $ 0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Gross realized losses were $ 0.4 million, $ 0.1 million and $ 1.1 million for the years ended December 31, 2021, 2020 and 2019.

The tax applicable to these transactions amounted to $ 0.1 million, $ 3.1 million, and $( 79,000 ) for 2021, 2020 and 2019, respectively.

Proceeds from sales of securities classified as available for sale amounted to $ 49.7 million, $ 394.9 million and $ 90.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Gross realized gains on sales of securities were $ 0.1 million and $ 1.0 million for the years ended December 31, 2022 and 2021, respectively.

Gross realized losses were $ 0.1 million and $ 0.4 million for the years ended December 31, 2022 and 2021.

The tax applicable to these transactions amounted to $ 3,000 and $ 0.1 million for 2022 and 2021, respectively.

Proceeds from sales of securities classified as available for sale amounted to $ 3.1 million and $ 49.7 million for the years ended December 31, 2022 and 2021, respectively.

Net unrealized losses on available for sale securities included in accumulated other comprehensive income (loss) ("AOCI"), net of applicable income taxes, totaled $ 15.2 million at December 31, 2022.

At December 31, 2021 net unrealized gains included in AOCI, net of applicable income taxes, totaled $ 6.6 million.

During 2021 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 0.6 million.

During 2022 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 13,000 .

During 2021 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 0.6 million.

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(in thousands) Amortized Cost Fair Value

Government Treasuries (U.S.) $ 100,642 $ 98,500

Federal Home Loan Bank (FHLB) 32,090 25,047

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Commercial and industrial (1)

385,279 15.3 % 398,391 18.4 %

Commercial leases 317,574 12.6 % 246,022 11.4 %

Consumer and other 47,864 1.9 % 48,142 2.2 %

48,142 2.2 % 44,642 2.4 %

Total Non-Real Estate 789,762 31.3 % 719,302 33.2 %

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Total Loans Net of Unearned Income $ 2,519,077 $ 2,159,359

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 their interest rate floor.

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 years .

The following tables present the age analysis of past due loans at December 31, 2022 and December 31, 2021:

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Total $ 4,258 $ 5,143

For those purchased loans disclosed above, there was an allowance for loan and lease losses of $ 0.7 million at December 31, 2021 and $ 0.5 million at December 31, 2020.

For those purchased loans disclosed above, there was an allowance for loan and lease losses of $ 0.7 million at December 31, 2022 and December 31, 2021.

Where First Guaranty can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion is being recognized as interest income over the remaining life of the loan.

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Total $ 24,029 $ ( 6,086 ) $ 1,919 $ 3,656 $ 23,518 $ 24,518 $ ( 3,122 ) $ 578 $ 2,055 $ 24,029

As of December 31,

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

Construction & land development $ 581 $ — $ — $ ( 158 ) $ 423

Farmland 41 — — 9 50

1- 4 family 911 ( 552 ) 39 629 1,027

Multifamily 1,318 — — ( 280 ) 1,038

Non-farm non-residential 4,771 ( 2,603 ) 5 3,104 5,277

Total Real Estate 7,622 ( 3,155 ) 44 3,304 7,815

Non-Real Estate:

Agricultural 339 ( 40 ) — ( 204 ) 95

Commercial and industrial 1,909 ( 879 ) 267 612 1,909

Commercial leases 262 — — 306 568

Consumer and other 629 ( 1,190 ) 246 857 542

Unallocated 15 — — ( 15 ) —

Total Non-Real Estate 3,154 ( 2,109 ) 513 1,556 3,114

Total $ 10,776 $ ( 5,264 ) $ 557 $ 4,860 $ 10,929

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

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Total Loans Net of Unearned Income $ 2,159,359

As of December 31, 2021, 2020 and 2019, First Guaranty had loans totaling $ 16.7 million, $ 15.6 million and $ 14.4 million, respectively, not accruing interest.

As of December 31, 2021, 2020 and 2019, First Guaranty had loans past due 90 days or more and still accruing interest totaling $ 1.2 million, $ 13.1 million and $ 2.6 million, respectively.

The average outstanding balance of nonaccrual loans in 2021 was $ 17.1 million compared to $ 19.8 million in 2020 and $ 12.0 million in 2019.

As of December 31, 2022 and 2021, First Guaranty had loans totaling $ 13.6 million and $ 16.7 million, respectively, not accruing interest.

As of December 31, 2022, and 2021, First Guaranty had loans past due 90 days or more and still accruing interest totaling $ 1.1 million and $ 1.2 million, respectively.

The average outstanding balance of nonaccrual loans in 2022 was $ 12.8 million compared to $ 17.1 million in 2021.

As of December 31, 2022, First Guaranty has no outstanding commitments to advance additional funds in connection with impaired loans.

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Recorded Investment Interest Income

Recognized Interest Income

Impaired Loans with no related allowance:

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Recorded Investment Interest Income

Recognized Interest Income

Impaired Loans with no related allowance:

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

First Guaranty has not restructured any loans that are considered TDRs in the year ended December 31, 2021.

First Guaranty restructured one loan that is considered TDR in the year ended December 31, 2022.

First Guaranty did not restructure any loans that are considered TDRs in the year ended December 31, 2021.

At December 31, 2022, First Guaranty had one outstanding TDR.

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Total $ 1,094 $ — $ — $ 1,094 $ — $ — $ 3,382 $ 3,382

The following table discloses TDR activity for the year ended December 31, 2021.

Troubled Debt Restructured Loans Activity Year Ended December 31, 2021

(in thousands) Beginning balance (December 31, 2020) New TDRs Charge-offs

post-modification Transferred

to ORE Paydowns Construction to

permanent financing Restructured

to market terms Other adjustments Ending balance (December 31, 2021)

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

Farmland — — — — — — — — —

1- 4 family — — — — — — — — —

Multifamily — — — — — — — — —

Non-farm non-residential 3,591 — — — ( 250 ) — — 41 3,382

Total Real Estate 3,591 — — — ( 250 ) — — 41 3,382

Non-Real Estate:

Agricultural — — — — — — — — —

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

Commercial leases — — — — — — — — —

Consumer and other — — — — — — — — —

Total Non-Real Estate — — — — — — — — —

Total Impaired Loans with no related allowance $ 3,591 $ — $ — $ — $ ( 250 ) $ — $ — $ 41 $ 3,382

There were no commitments to lend additional funds to debtors whose terms have been modified in a troubled debt restructuring at December 31, 2022.

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

Premises and Equipment

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Net book value $ 58,206 $ 58,637

Depreciation expense amounted to $ 3.4 million, $ 2.8 million and $ 2.3 million for 2021, 2020 and 2019, respectively.

Depreciation expense amounted to $ 3.1 million and $ 3.4 million for 2022 and 2021, respectively.

Interest cost capitalized as a construction cost was $ 0 and $ 61,000 for 2022 and 2021, respectively.

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No impairment charges have been recognized since acquisition.

Goodwill totaled $ 12.9 million at December 31, 2021 and 2020, respectively.

Goodwill totaled $ 12.9 million at December 31, 2022 and 2021.

The following table summarizes intangible assets subject to amortization.

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The weighted-average amortization period remaining for the core deposit intangibles is 6.3 years.

Amortization expense relating to purchase accounting intangibles totaled $ 0.8 million, $ 0.7 million, and $ 0.4 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Amortization expense relating to purchase accounting intangibles totaled $ 0.7 million and $ 0.8 million for the years ended December 31, 2022 and 2021, respectively.

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

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Total $ 533,358

The table above includes $ 3.4 million in brokered deposits for December 31, 2021.

The table above includes $ 250,000 in brokered deposits for December 31, 2022.

The aggregate amount of jumbo time deposits, each with a minimum denomination of $250,000 totaled $ 155.0 million and $ 159.1 million at December 31, 2022 and 2021, respectively.

3 unchanged sentences

Repurchase agreements 6,442 6,439

Line of credit 20,000 —

Total short-term borrowings $ 146,442 $ 6,439

1 unchanged sentence

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.

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

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

Available lines of credit totaled $ 505.5 million at December 31, 2022 and $ 597.6 million at December 31, 2021.

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Long-term debt is summarized as follows:

Long-term Federal Home Loan Bank advance, fixed at 2.12 %, totaled $ 3.2 million at December 31, 2021 and $ 3.4 million at December 31, 2020.

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

Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 25 basis points ( 3.00 %), totaled $ 0 at December 31, 2021 and $ 14.0 million at December 31, 2020.

First Guaranty paid off this loan using proceeds from its preferred stock capital offering during the second quarter of 2021.

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

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.

Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 70 basis points ( 6.80 %), totaled $ 21.9 million at December 31, 2022 and $ 25.2 million at December 31, 2021.

2 unchanged sentences

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

Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points ( 4.00 %), totaled $ 14.8 million at December 31, 2021 and 2020.

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

Subordinated debt, priced at Wall Street Journal Prime plus 75 basis points totaled $ 0 at December 31, 2022 and $ 14.8 million at December 31, 2021.

First Guaranty redeemed this Note on June 21, 2022.

Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points ( 8.25 % as of December 31, 2022), totaled 15.0 million at December 31, 2022.

First Guaranty pays interest quarterly.

The Note is unsecured and ranks junior in right of payment to any senior indebtedness and obligations to general and secured creditors.

The Note was originated in December 2015 and is scheduled to mature on December 21, 2025.

This note replaced the previously mentioned $ 15.0 million junior subordinated note above in June 2022.

The current Note is scheduled to mature on June 21, 2032.

The Note qualifies for treatment as Tier 2 capital for regulatory capital purposes.

2 unchanged sentences

This line of credit is secured by a pledge of 13.2 % ( 735,745 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary) and is priced at 7.50 %.

A $ 20.0 million line of credit with an availability of $ 20.0 million at December 31, 2021.

A $ 20.0 million line of credit with an availability of $ 0 at December 31, 2022.

This line of credit is secured by a pledge of 85 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary) and is priced at 7.25 %.

12 unchanged sentences

2024 — 18,687 —

2025 — — 15,000

2028 and thereafter — — 15,000

68 unchanged sentences

There were no participations in loans purchased from affiliated financial institutions included in First Guaranty's loan portfolio in 2022 or 2021.

During the years ended 2021, 2020 and 2019, First Guaranty paid approximately $ 0.3 million, $ 0.5 million and $ 0.5 million, respectively, for printing services and supplies and office furniture and equipment to Champion Industries, Inc., of which Mr.

During the years ended 2022 and 2021, First Guaranty paid approximately $ 0.3 million, respectively, for printing services and supplies and office furniture and equipment to Champion Industries, Inc., of which Mr.

Reynolds, the Chairman of First Guaranty's Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors and a major shareholder of Champion.

On December 21, 2015, First Guaranty issued a $ 15.0 million subordinated note (the "2015 Note") to Edgar Ray Smith III, a director of First Guaranty.

The Note is for a ten-year term (non-callable for first five years ) and will bear interest at a fixed annual rate of 4.0 % for the first five years of the term and then adjust to a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points for the period of time after the fifth year until redemption or maturity.

During the years ended 2021, 2020 and 2019, First Guaranty paid interest of $ 0.8 million, $ 0.6 million and $ 0.6 million, respectively, for this note.

The 2015 Note had a ten-year term (non-callable for first five years ) and bore interest at a fixed annual rate of 4.0 % for the first five years of the term and then adjusted to a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points for the period of time after the fifth year until redemption or maturity.

On June 21, 2022, First Guaranty issued a $ 15.0 million subordinated note (the “2022 Note”) to Mr.

Smith, and used the proceeds of such issuance to redeem the 2015 Note in full.

The 2022 Note has a ten-year term, maturing on June 21, 2032, is non-callable for the first five years , and bears interest at a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points.

During the years ended 2022 and 2021, First Guaranty paid interest of $ 0.7 million and $ 0.8 million, respectively, under the 2015 Note and the 2022 Note.

During the years ended 2022 and 2021, First Guaranty paid approximately $ 0.1 million and $ 0.1 million, respectively, for the purchase and maintenance of First Guaranty's automobiles to subsidiaries of Hood Automotive Group, of which William K.

Hood, a director of First Guaranty, is President.

During the years ended 2021, 2020 and 2019, First Guaranty paid approximately $ 0 , $ 0.1 million and $ 69,000 , respectively, for architectural services in relation to bank branches to Gasaway Gasaway Bankston Architects, of which bank subsidiary board member Andrew B.

During the years ended 2022 and 2021, First Guaranty paid approximately $ 58,000 and $ 0 , respectively, for architectural services in relation to bank branches to Gasaway Gasaway Bankston Architects, of which bank subsidiary board member Andrew B.

Gasaway is part owner.

During the years ended 2021, 2020 and 2019, First Guaranty paid approximately $ 0.6 million, $ 0.5 million and $ 0.3 million, respectively, to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance.

During the years ended 2022 and 2021, First Guaranty paid approximately $ 0.7 million and $ 0.6 million, respectively, to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance.

First Guaranty owns a 50 % interest in Centurion and accounts for this investment under the equity method.

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They are expensed as incurred and are included in other noninterest expense on the Consolidated Statements of Income.

Advertising expense was $ 1.0 million, $ 0.4 million and $ 0.8 million for 2021, 2020 and 2019, respectively.

Advertising expense was $ 1.0 million for 2022 and 2021.

The following is a summary of the provision for income taxes included in the Consolidated Statements of Income:

102 unchanged sentences

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

The change in Level 1 securities available for sale from December 31, 2020 was due to a net decrease in Treasury bills of $ 3.0 million.

The change in Level 2 securities available for sale from December 31, 2020 was due to the increase in corporate securities offset by the transfer of $ 152.9 million in U.S.

Government agency securities from the available for sale to the held to maturity portfolio.

$ 1.8 million in corporate securities and $ 3.1 million in municipal securities were transferred from Level 3 to Level 2 from December 31, 2020 to December 31, 2021.

The change in Level 1 securities available for sale from December 31, 2021 to December 31, 2022 was due to a net increase in Treasury bills of $ 98.5 million.

The change in Level 2 securities available for sale from December 31, 2021 to December 31, 2022 was due to the transfer of $ 111.0 million in U.S.

Government agency securities and $ 54.8 million in corporate debt securities from the available for sale to the held to maturity portfolio.

There were no transfers between Level 1 and 2 securities available for sale from December 31, 2021 to December 31, 2022.

There were no transfers between Level 2 and 3 from December 31, 2021 to December 31, 2022.

The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs ( Level 3 ):

93 unchanged sentences

Short-term advances from Federal Home Loan Bank 120,000 — — 120,000 120,000

Short-term borrowings 20,000 — — 20,000 20,000

Repurchase agreements 6,442 — — 6,509 6,509

34 unchanged sentences

Under certain circumstances, the withdrawal of all of, or a significant portion of, the deposits of one or more of the depositing authorities may result in a temporary reduction in liquidity, depending primarily on the maturities and/or classifications of the securities pledged against such deposits and the ability to replace such deposits with either new deposits or other borrowings.

Public fund deposits totaled $ 957.9 million at December 31, 2021.

Public fund deposits totaled $ 1.1 billion at December 31, 2022.

First Guaranty is subject to various legal proceedings in the normal course of its business.

2 unchanged sentences

First Guaranty does not record a loss if the loss is not probable or the amount of the loss is not estimable.

First Guaranty is a defendant in a lawsuit alleging overpayment of interest on a loan with a possible loss range of $ 0.0 million to $ 0.5 million.

Judgment has been rendered against First Guaranty for the full amount, but First Guaranty is exercising its appeal rights.

First Guaranty had an accrued liability of $ 0.1 million at December 31, 2021 related to this lawsuit.

First Guaranty is also a defendant in a lawsuit alleging fault for a loss of funds by a customer with a possible loss range of $ 0.0 million to $ 1.5 million.

No accrued liability has been recorded related to this lawsuit.

First Guaranty Bank is a defendant in a lawsuit alleging fault for a loss of funds by a customer related to fraud by a third party with a possible loss range of $ 0.0 million to $ 1.5 million.

The Bank denies the allegations and intends to vigorously defend against this lawsuit, which is in very early stages.

No trial date has been set, therefore and no accrued liability has been recorded related to this lawsuit.

First Guaranty settled a case in the third quarter of 2021 for $ 1.1 million.

A receivable for $ 0.9 million has been recorded for recovery through First Guaranty's insurance coverage.

In the opinion of management, neither First Guaranty nor First Guaranty Bank is currently involved in such legal proceedings, either individually or in the aggregate, that the resolution is expected to have a material adverse effect on First Guaranty’s consolidated results of operations, financial condition, or cash flows.

However, one or more unfavorable outcomes in these ordinary claims or litigation against First Guaranty or First Guaranty Bank could have a material adverse effect for the period in which they are resolved.

In addition, regardless of their merits or ultimate outcomes, such matters are costly, divert management’s attention, and may materially and adversely affect the reputation of First Guaranty and First Guaranty Bank, even if resolved favorably.

Subsequent Events

On January 6, 2023, First Guaranty and First Guaranty Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lone Star Bank (“Lone Star”), pursuant to which First Guaranty will, subject to the terms and conditions set forth in the Agreement, acquire all of the issued and outstanding shares of Lone Star common stock in exchange solely for shares of First Guaranty common stock through the merger of Lone Star with and into First Guaranty Bank, with First Guaranty Bank as the surviving banking corporation (the “Transaction”).

Under the terms of the Agreement, First Guaranty will issue shares of First Guaranty common stock with an assumed value of $ 23.67 per share on the closing date of the Transaction to the shareholders of Lone Star with an aggregate value equal to 1.5 times Lone Star’s tangible book value as of the month end prior to the closing date, subject to certain adjustments described in the Agreement.

Outstanding options to purchase Lone Star common stock will be cashed out.

The combined financial institutions will 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 Transaction.

The Agreement was approved by the board of directors of each of First Guaranty, FGB, and Lone Star.

The Agreement contains certain termination rights for both First Guaranty and Lone Star and further provides that a termination fee of $ 1.0 million will be payable by Lone Star to First Guaranty upon termination of the Agreement under certain specified circumstances.

Condensed Parent Company Information

9 unchanged sentences

Liabilities and Shareholders' Equity

Short-term debt 20,000 —

Senior long-term debt 21,927 25,170

30 unchanged sentences

Depreciation and amortization 225 102

Gain on sale of securities — — ( 196 )

Net change in other liabilities 350 ( 145 )

5 unchanged sentences

Funds invested in bank subsidiary ( 30,000 ) ( 25,000 )

Purchases of premises and equipment — — ( 136 )

Cash paid in acquisition — — ( 43,383 )

Net cash (used in) provided by investing activities ( 24,500 ) 10 ( 42,323 )

Net cash used in investing activities ( 30,000 ) ( 24,500 )

Cash flows from financing activities:

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

Net increase in short-term borrowings 20,000 —

Repayment of long-term debt ( 3,250 ) ( 17,221 )

Net proceeds from issuance of preferred stock — 33,058

Common stock issued in private placement — — 1,000

Dividends paid ( 9,187 ) ( 7,777 )

Net cash provided by (used in) financing activities 8,060 ( 12,425 ) 23,908

Net increase (decrease) in cash and cash equivalents 3,347 1,163 ( 7,436 )

Net cash provided by financing activities 7,563 8,060

Net (decrease) increase in cash and cash equivalents ( 1,819 ) 3,347

Cash and cash equivalents at the beginning of the period 5,143 1,796

1 unchanged sentence

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with accountants on accounting and financial disclosures for the year ended December 31, 2021.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data