What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-16 · 358 added, 283 removed, 1184 unchanged (35% of the section changed)

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Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and Subsidiary (First Guaranty) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, 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, 2023, 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, 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.

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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, 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, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

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

Allowance for Loan and Lease Losses

As described in Notes 1, 5 and 6 to the financial statements, at December 31, 2022, First Guaranty’s total loans were $2.5 billion and the associated allowance for loan and lease losses balance was $23.5 million.

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

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

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

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

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

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

Allowance for Credit Losses

As described in Notes 1, 5 and 6 to the financial statements, at December 31, 2023, First Guaranty’s total loans were $2.7 billion and the associated allowance for credit losses balance was $30.9 million.

The allowance for credit losses is management’s evaluation of expected credit losses over the life of the loans in the portfolio in accordance with Accounting Standards Codification ASC 326:

Financial Instruments – Credit Losses.

The Company uses the discounted cash flow method to estimate expected losses for all of the Company’s loan segments that exhibit similar risk characteristics and loans that do not share risk characteristics are evaluated on an individual basis.

For each loan segment, the Company generates cash flow projections at the instrument level adjusting payment expectations for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default.

Additional qualitative adjustments are applied for risk factors that are not considered within the modeling process but are relevant in assessing the expected credit losses within the loan segments.

Consideration is given to the following factors:

changes in lending policies, procedures and strategies;

changes in nature and volume of the portfolio;

staff experience;

changes in volume and trends in classified loans, delinquencies and nonaccruals;

concentration risk;

trends in underlying collateral values;

external factors such as competition, legal and regulatory environment;

changes in the quality of the loan review system;

and economic conditions.

Auditing management’s estimate of the allowances for loan credit losses, and more specifically the qualitative factor adjustments applied in the ACL, is a critical audit matter.

The principal consideration for our determination of the critical audit matter is a high degree of subjectivity of the assumptions utilized in calculating the qualitative reserve component within the model.

Furthermore, certain inputs and assumptions lack observable data and, therefore, applying audit procedures required a higher degree of auditor judgement and subjectivity due to the nature and extent of audit evidence and effort required to address this matter.

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.

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

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

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

• Obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL including:

◦ Loan data completeness and accuracy,

◦ Grouping of loans by segment,

◦ Model inputs utilized,

◦ Approval of model assumptions selected, and

◦ Qualitative factors have been appropriately identified, are adequately supported, and accurately applied.

• Evaluated and tested the data and inputs utilized within the ACL calculation for completeness and accuracy including mathematical accuracy of the calculation.

• Evaluated the qualitative factors for appropriate identification and application including reasonableness of the basis for adjustment.

• Analyzed the total qualitative factor adjustment applied to each loan segment, in comparison to changes in the Company’s quantitatively driven expected credit losses and loan segments and evaluated the appropriateness of the total qualitative factor adjustments applied in the overall allowance.

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

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March 15, 2024

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

March 16, 2022

FIRST GUARANTY BANCSHARES, INC.

AND SUBSIDIARY

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Available for sale, at fair value 83,485 131,458

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

Held to maturity, at cost and net of allowance for credit losses of $ 80 and $ 0 (estimated fair value of $ 253,584 and $ 242,560 , respectively)

320,638 320,068

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Loans, net of unearned income 2,748,708 2,519,077

allowance for loan and lease losses 23,518 24,029

allowance for credit losses 30,926 23,518

Net loans 2,717,782 2,495,559

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$ 33,058 $ 33,058

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

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

12,475,424 and 10,716,796 shares issued and outstanding

12,475 10,717

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Net Interest Income 84,705 100,042

Provision for loan losses 3,656 2,055

Net Interest Income after Provision for Loan Losses 96,386 87,563

Provision for credit losses 3,714 3,656

Net Interest Income after Provision for Credit Losses 80,991 96,386

Noninterest Income:

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ATM and debit card fees 3,242 3,406

Net (losses) gains on securities ( 17 ) 714

Net gains (losses) on securities — ( 17 )

Net gains on sale of loans 12 1,774

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Other comprehensive income:

Unrealized (losses) gains on securities:

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

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) arising during the period 2,872 ( 10,897 )

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

Reclassification of OTTI losses included in net income — —

Change in unrealized (losses) gains on securities ( 10,880 ) ( 9,215 )

Change in unrealized gains (losses) on securities 2,872 ( 10,880 )

Tax impact ( 603 ) 2,285

Other comprehensive (loss) income ( 8,595 ) ( 7,280 )

Other comprehensive income (loss) 2,269 ( 8,595 )

Comprehensive Income $ 11,488 $ 20,289

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Net income — — — 7,585 — 7,585

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

Other comprehensive income (loss) — — — — ( 7,425 ) ( 7,425 )

Preferred stock dividends — — — ( 582 ) — ( 582 )

Cash dividends on common stock ($ 0.16 per share)

— — — ( 1,715 ) — ( 1,715 )

Balance March 31, 2022 $ 33,058 $ 10,717 $ 130,093 $ 61,942 $ ( 14,058 ) $ 221,752

Net income — — — 8,124 — 8,124

Other comprehensive income (loss) — — — — ( 1,043 ) ( 1,043 )

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— — — ( 1,715 ) — ( 1,715 )

Balance June 30, 2022 $ 33,058 $ 10,717 $ 130,093 $ 67,769 $ ( 15,101 ) $ 226,536

Net income — — — 8,053 — 8,053

Other comprehensive income (loss) — — — — ( 855 ) ( 855 )

Preferred stock dividends — — — ( 582 ) — ( 582 )

Cash dividends on common stock ($ 0.16 per share)

— — — ( 1,714 ) — ( 1,714 )

Balance September 30, 2022 $ 33,058 $ 10,717 $ 130,093 $ 73,526 $ ( 15,956 ) $ 231,438

Net income — — — 5,122 — 5,122

Other comprehensive income — — — — 728 728

Preferred stock dividends — — — ( 582 ) — ( 582 )

Cash dividends on common stock ($ 0.16 per share)

— — — ( 1,715 ) — ( 1,715 )

Balance December 31, 2022 $ 33,058 $ 10,717 $ 130,093 $ 76,351 $ ( 15,228 ) $ 234,991

Preferred Stock $ 1,000 Par

Surplus Retained

Earnings Accumulated

Other Comprehensive

Income/(Loss) Total

Balance December 31, 2022 $ 33,058 $ 10,717 $ 130,093 $ 76,351 $ ( 15,228 ) $ 234,991

Net income — — — 3,468 — 3,468

Cumulative effect of adoption of ASC Topic 326, net of tax — — — ( 7,900 ) — ( 7,900 )

Other comprehensive income — — — — 414 414

Preferred stock dividends — — — ( 582 ) — ( 582 )

Cash dividends on common stock ($ 0.16 per share)

— — — ( 1,715 ) — ( 1,715 )

Balance March 31, 2023 $ 33,058 $ 10,717 $ 130,093 $ 69,622 $ ( 14,814 ) $ 228,676

Net income — — — 2,676 — 2,676

Common stock issued in private placement, 714,287 shares

— 714 9,286 — — 10,000

Other comprehensive income (loss) — — — — ( 84 ) ( 84 )

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— — — ( 1,829 ) — ( 1,829 )

Balance June 30, 2023 $ 33,058 $ 11,431 $ 139,379 $ 69,887 $ ( 14,898 ) $ 238,857

Net income — — — 1,772 — 1,772

Other comprehensive income — — — — 605 605

Preferred stock dividends — — — ( 582 ) — ( 582 )

Cash dividends on common stock ($ 0.16 per share)

— — — ( 1,830 ) — ( 1,830 )

Balance September 30, 2023 $ 33,058 $ 11,431 $ 139,379 $ 69,247 $ ( 14,293 ) $ 238,822

Net income — — — 1,303 — 1,303

Common stock issued in private placement, 1,000,000 shares

— 1,000 9,000 — — 10,000

Common stock issued under Equity Bonus Plan, 44,341 shares

— 44 706 — — 750

Other comprehensive income — — — — 1,334 1,334

Preferred stock dividends — — — ( 582 ) — ( 582 )

Cash dividends on common stock ($ 0.16 per share)

— — — ( 1,996 ) — ( 1,996 )

Balance December 31, 2023 $ 33,058 $ 12,475 $ 149,085 $ 67,972 $ ( 12,959 ) $ 249,631

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Funds invested in AFS securities ( 2,626 ) ( 153,053 )

Funds invested in preferred securities — ( 1,000 )

Proceeds from redemption of preferred securities — 1,500

Proceeds from maturities and calls of HTM securities 289 —

Proceeds from sale/redemption of Federal Home Loan Bank stock 2,425 2,182

Funds invested in Federal Home Loan Bank stock ( 8,929 ) ( 7,331 )

Funds invested in intangibles ( 100 ) —

Net increase in loans ( 234,123 ) ( 362,543 )

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Net (decrease) increase in federal funds purchased and short-term borrowings ( 80,145 ) 140,003

Proceeds of long-term borrowings, net of costs 195,097 —

Repayment of long-term borrowings ( 22,946 ) ( 5,783 )

Net proceeds from issuance of preferred stock — 33,058

Common stock issued in private placement 20,000 —

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

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Transfer of securities from AFS to HTM $ — $ 176,181

Common stock issued for stock grants $ 750 $ —

Cash Paid During the Period:

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

The Bank has thirty-six banking facilities and forty-eight 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-nine 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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Discounts and premiums related to debt securities are amortized using the effective interest rate method.

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer.

On January 1, 2023 the Bank adopted ASC 326, which requires expected credit related losses on available for sale debt securities to be recorded through an allowance for credit losses, while non-credit related losses or declines in fair value continue to be recognized through other comprehensive income.

Under the new guidance, First Guaranty is also required to evaluate held to maturity debt securities for expected credit losses.

Management evaluates securities for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

In estimating losses, management considers the extent that fair value has been less than cost and the financial condition and near term prospects of the issuer.

Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through an allowance for credit losses.

For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows:

1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

1) impairment related to credit loss, which must be recognized in the income statement and 2) impairment related to other factors, which is recognized in other comprehensive income.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis but cannot be more than the difference between amortized cost and the fair value of the security.

Loans held for sale

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Loans that are past due 90 - 120 days and deemed uncollectible are charged-off.

The loan charge off is a reduction of the allowance for loan and lease losses.

The loan charge off is a reduction of the allowance for credit losses.

Troubled Debt Restructurings (TDRs)

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Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values.

A loan is considered impaired when, based on current information and events, it is probable that First Guaranty will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by Management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price or the fair value of the collateral if the loan is collateral dependent.

This process is only applied to impaired loans or relationships in excess of $ 500,000 .

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Loans that have been restructured in a troubled debt restructuring will continue to be evaluated individually for impairment, including those no longer requiring disclosure.

Acquired Loans

Loans are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses.

Acquired loans are segregated between those with deteriorated credit quality at acquisition and those deemed as performing.

To make this determination, Management considers such factors as past due status, nonaccrual status, credit risk ratings, interest rates and collateral position.

The fair value of acquired loans deemed performing is determined by discounting cash flows, both principal and interest, for each pool at prevailing market interest rates as well as consideration of inherent potential losses.

The difference between the fair value and principal balances due at acquisition date, the fair value discount, is accreted into income over the estimated life of each loan pool.

Loans acquired in a business combination are recorded at their estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses.

Performing acquired loans are subsequently evaluated for any required allowance at each reporting date.

An allowance for loan and lease losses is calculated using a similar methodology for originated loans.

Loan fees and costs

Nonrefundable loan origination and commitment fees and direct costs associated with originating loans are deferred and recognized over the lives of the related loans as an adjustment to the loans' yield using the level yield method.

Allowance for loan and lease losses

The allowance for loan and lease losses is established through a provision for loan losses charged to expense.

Loans are charged against the allowance for loan and lease losses when Management believes that the collectability of the principal is unlikely.

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

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

The following are general credit risk factors that affect First Guaranty's loan portfolio segments.

Allowance for credit losses

The allowance for credit losses is established through a provision for loan losses charged to expense.

Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely.

The allowance is based on management’s evaluation of expected credit losses over the life of the loans in the portfolio, in accordance with ASC 326.

The loan portfolio is divided into segments to evaluate expected losses.

Loans that do not share risk characteristics with a segment are evaluated individually.

Management estimates the allowance balance using available information such as past events, current conditions and reasonable forecasts.

Adjustments to historical information are made using qualitative and qualitative factors developed by management.

The following are general credit risk factors that affect our loan portfolio segments.

These factors do not encompass all risks associated with each loan category.

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Farmland and agricultural loans have risks such as weather, government agricultural policies, fuel and fertilizer costs, and market price volatility.

1-4 family, multi-family, and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy.

One- to four-family residential, multifamily, and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy.

Non-farm non-residential loans include both owner-occupied real estate and non-owner occupied real estate.

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Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral.

Although Management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan and lease losses in the near term.

However, the amount of the change that is reasonably possible cannot be estimated.

The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals.

Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change.

Accordingly, First Guaranty may ultimately incur losses that vary from Management's current estimates.

Adjustments to the allowance for loan and lease losses will be reported in the period such adjustments become known or can be reasonably estimated.

All loan losses are charged to the allowance for loan and lease losses when the loss actually occurs or when the collectability of the principal is unlikely.

Recoveries are credited to the allowance at the time of recovery.

The allowance consists of specific, general, and unallocated components.

The specific component relates to loans that are classified as doubtful, substandard, and impaired.

For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

Also, a specific reserve is allocated for syndicated loans.

The specific component relates to loans that are classified as doubtful, substandard, and individually evaluated for impairment.

For such loans that are also classified as individually evaluated for impairment, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the loan is lower than the carrying value of that loan.

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, 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.

The allowance for loan and lease losses is reviewed on a monthly basis.

The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit.

A reserve is established as needed for estimates of probable losses on such commitments.

The allowance for credit losses on unfunded commitments represents expected credit losses over the contractual period for which First Guaranty is exposed to credit risk from a contractual obligation to extend credit.

No allowance is recorded if there is an unconditional right to cancel the obligation.

The allowance is reported as a component of Other Liabilities on the Consolidated Balance Sheets.

Adjustments to the allowance for unfunded commitments are included in the provision for credit losses on the Consolidated Statements of Income.

Goodwill and intangible assets

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Recent Accounting Pronouncements

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

Measurement of Credit Losses on Financial Instruments".

This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

The ASU amendments require the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts.

The ASU requires assets held at cost basis to reflect the company's current estimate of all expected credit losses.

For available for sale debt securities, credit losses should be presented as an allowance rather than as a write-down.

In addition, this ASU amends the accounting for purchased financial assets with credit deterioration.

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 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.

Accounting Standards Adopted in 2023

First Guaranty adopted FASB ASC Topic 326 “Financial Instruments – Credit Losses:

Measurement of Credit Losses on Financial Instruments” Update No.

2016-13 (“ASU 2016-13”).

ASU 2016-13 on January 1, 2023.

ASU 2016-13, referred to as the Current Expected Credit Loss (“CECL”) standard, requires financial assets measured on an amortized cost basis, including loans and held-to-maturity debt securities, to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset.

Unfunded lending commitments are also within the scope of this topic.

Under prior GAAP losses were not recognized until the occurrence of the loss was probable.

CECL requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

The CECL methodology requires that lifetime expected credit losses be recorded at the time the financial asset is originated or acquired, and be adjusted each period as a provision for credit losses for changes in expected lifetime credit losses.

ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the lifetime credit loss estimate.

First Guaranty developed a CECL model methodology that calculates expected credit losses over the life of the portfolio by analyzing the composition, characteristics and quality of the loan and securities portfolios, as well as prevailing economic conditions and forecasts.

First Guaranty’s CECL calculation estimates loan losses using a combination of discounted cash flow and remaining life analyses.

First Guaranty adopted ASU 2016-13 using the modified retrospective approach for all loans and off-balance sheet credit exposures measured at amortized cost, other than purchased credit deteriorated (“PCD”) financial assets.

Results for reporting periods beginning after December 31, 2022 are presented in accordance with ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

ASU 2016-13 also amended the accounting model for purchased financial assets and replaced the guidance for purchased credit impaired (“PCI”) financial assets with the concept of PCDs.

For PCD assets, the CECL estimate is recognized through the allowance for credit losses with an offset to the amortized cost basis of the PCD asset at the date of acquisition.

Subsequent changes in the allowance for credit losses for PCD assets are recognized through a provision for credit losses on loans.

First Guaranty used the prospective transition approach for PCD loans that were previously classified as PCI and accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”).

First Guaranty determined that certain PCI assets no longer met meet the criteria of PCD assets as of the date of adoption.

First Guaranty adopted ASU 2016-13 on January 1, 2023, and recorded a one-time, cumulative effect adjustment as shown in the table below (dollars in thousands).

December 31, 2022 Impact of ASU 2016-13 Adoption January 1, 2023

Allowance for credit losses $ ( 23,518 ) $ ( 8,220 ) $ ( 31,738 )

Deferred tax asset 6,420 2,100 8,520

Remaining purchase discount on loans ( 1,120 ) 1,120 —

Reserve for unfunded loan commitments — ( 2,900 ) ( 2,900 )

Stockholders’ Equity

Retained earnings 76,351 ( 7,900 ) 68,451

In addition, ASU 2016-13 amends the accounting for credit losses on available for sale (“AFS”) securities, requiring expected credit losses on AFS securities to be recorded in an allowance for credit losses rather than as a write-down of the securities’ amortized cost.

Declines in the fair value of AFS securities that are not considered credit related are recognized in accumulated other comprehensive income.

In addition, expected credit losses on held to maturity (“HTM”) securities are required to be recorded in an allowance for credit losses rather than as a write-down of the securities’ amortized cost basis.

First Guaranty’s AFS securities portfolio was not materially impacted by the adoption of ASC 326.

A $ 100,000 allowance for HTM securities was recorded at the adoption of ASC 326.

The allowance for credit losses is measured on a pool basis when similar risk characteristics exist and is maintained at an amount which management believes is a current estimate of the expected credit losses for the full life of the relevant pool of loans and related unfunded lending commitments.

For modeling purposes, loan pools include:

Real Estate based pools for construction and land development, farmland, 1-4 family residential, multifamily, and non-farm non-residential and non-real-estate pools for agricultural, commercial and industrial, commercial leases and consumer and other.

Management periodically reassesses each pool to confirm the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.

The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded lending commitments to calculate an allowance for credit losses.

Loans that do not share similar risk characteristics with other loans are excluded from the loan pools and individually evaluated for impairment.

Individually evaluated loans are loans for which it is probable that all the amounts due under the contractual terms of the loan will not be collected.

FASB ASC Topic 326 “Financial Instruments – Credit Losses, Troubled Debt Restructurings and Vintage Disclosures” Update No.

2022-02 (“ASU 2022-02”).

ASU 2022-02 became effective for First Guaranty on January 1, 2023 and is applied prospectively.

ASU 2022-02 amends Topic 326 to eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted ASU 2016-13 and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan.

The amendment also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases.

The adoption of ASU 2022-02 did not have a material impact on First Guaranty’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

2023-09, "Improvements to Tax Disclosures" ("ASU 2023-09") is intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information.

This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted.

We do not expect it to have a material effect on First Guaranty's consolidated financial statements.

Cash and Due from Banks

43 unchanged sentences

Total held to maturity securities $ 320,718 $ 253,584

At December 31, 2023 and 2022 the carrying value of pledged securities totaled $ 192.2 million and $ 260.8 million, respectively.

Accrued interest receivable on First Guaranty's investment securities was $ 1.8 million and $ 2.0 million at December 31, 2023 and 2022, respectively, and was included in accrued interest receivable on the consolidated balance sheet.

First Guaranty had a $ 0.1 million allowance for credit losses related to the held to maturity portfolio at December 31, 2023.

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2023.

38 unchanged sentences

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 )

3 unchanged sentences

Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery.

Securities are evaluated for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation.

Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of First Guaranty to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Securities are evaluated for impairment from credit losses at least quarterly and more frequently when economic or market conditions warrant such evaluation.

Consideration is given to (i) the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of First Guaranty to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Investment securities issued by the U.S.

Government and Government sponsored enterprises with unrealized losses and the amount of unrealized losses on those investment securities that are the result of changes in market interest rates will not be other-than-temporarily impaired.

First Guaranty has the ability and intent to hold these securities until recovery, which may not be until maturity.

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

There were no securities with an other-than-temporary impairment loss at December 31, 2022.

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

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

There 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, 2022 Year Ended December 31, 2021

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

Other-than-temporary impairment credit losses on securities not previously OTTI — —

Increases for additional credit losses on securities previously determined to be OTTI — —

Reduction for increases in cash flows — —

Reduction due to credit impaired securities sold or fully settled — ( 100 )

Ending balance of cumulative credit losses recognized in earnings at end of year $ — $ —

In 2022 and 2021 there were no other-than-temporary impairment credit losses on securities for which First Guaranty had previously recognized OTTI.

For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident.

Estimated cash flows are determined using management's best estimate of future cash flows based on specific assumptions.

The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities.

Management reviews reports from credit rating agencies and public filings of issuers.

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 $ 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.

There was one charge-off, net of recovery, of $ 0.1 million recognized on a corporate security during the year ended December 31, 2023.

There was a $ 0.1 million provision for credit losses recognized on securities during the year ended December 31, 2023.

Gross realized gains on sales of securities were $ 0 and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively.

Gross realized losses were $ 0 and $ 0.1 million for the years ended December 31, 2023 and 2022.

The tax applicable to these transactions amounted to $ 0 and $ 3,000 for 2023 and 2022, respectively.

Proceeds from sales of securities classified as available for sale amounted to $ 0 and $ 3.1 million for the years ended December 31, 2023 and 2022, respectively.

Net unrealized losses on available for sale securities included in accumulated other comprehensive income (loss) ("AOCI"), net of applicable income taxes, totaled $ 13.0 million and $ 15.2 million at December 31, 2023 and 2022.

During 2023 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 0 .

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 .

At December 31, 2023, First Guaranty's exposure to investment securities issuers that exceeded 10% of shareholders' equity was as follows:

26 unchanged sentences

(1) Includes PPP loans fully guaranteed by the SBA of $ 2.8 million and $ 5.9 million at December 31, 2023 and December 31, 2022, respectively.

Accrued interest receivable on First Guaranty's loans totaled $ 13.9 million and $ 11.0 million at December 31, 2023 and December 31, 2022, respectively, and is included in accrued interest receivable on the consolidated balance sheet.

Accrued interest receivable is excluded from First Guaranty's estimate of the allowance for credit losses.

The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of December 31, 2023 and December 31, 2022 unadjusted for scheduled principal payments, prepayments, or repricing opportunities.

56 unchanged sentences

As of December 31, 2023

(in thousands) 2022 2021

(in thousands) With Related Allowance Without Related Allowance Total

Construction & land development $ 530 $ — $ 530

11 unchanged sentences

Total Nonaccrual Loans $ 18,978 $ 6,209 $ 25,187

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

As of December 31, 2022 As of December 31, 2021

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

(in thousands) As of December 31, 2022

Construction & land development $ 225

1- 4 family 3,826

Multifamily —

Non-farm non-residential 3,746

Total Real Estate 8,087

Non-Real Estate:

Agricultural 1,622

Commercial and industrial 819

Commercial leases 1,799

Consumer and other 1,239

Total Non-Real Estate 5,479

Total Nonaccrual Loans $ 13,566

The following table presents First Guaranty's loan portfolio by credit quality classification and origination year as of the date indicated:

As of December 31, 2023

Term Loans by Origination Year

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Total

Construction & land development:

Pass $ 134,527 $ 140,068 $ 75,884 $ 3,369 $ 8,533 11,940 $ 18,907 $ 393,228

Special Mention 789 1,579 170 — 90 250 — 2,878

Substandard — 716 458 263 94 1,668 — 3,199

Doubtful — 39 91 — — — — 130

Total Construction & land development 135,316 142,402 76,603 3,632 8,717 13,858 18,907 399,435

Current period gross charge-offs — — — — — — — —

Pass 9,513 4,032 3,340 1,768 253 2,730 2,162 23,798

Special Mention — 194 — 514 — 359 — 1,067

Substandard — 251 1,369 3,877 115 653 1,355 7,620

Doubtful — — — — — — 45 45

Total Farmland 9,513 4,477 4,709 6,159 368 3,742 3,562 32,530

Current period gross charge-offs — — — — — — — —

Pass 112,636 110,978 70,599 41,766 19,542 47,374 17,215 420,110

Special Mention

1,307 2,505 749 1,544 775 997 667 8,544

Substandard 48 2,625 5,368 1,357 1,956 3,086 773 15,213

Doubtful — 122 391 — 239 159 72 983

Total 1- 4 family 113,991 116,230 77,107 44,667 22,512 51,616 18,727 444,850

Current period gross charge-offs — — — — — 964 — 964

Pass 9,945 76,217 6,121 15,131 1,877 2,311 5,110 116,712

Special Mention — — — — — 1,648 24 1,672

Substandard — — — — — 537 — 537

Doubtful — — — — — — — —

Total Multifamily 9,945 76,217 6,121 15,131 1,877 4,496 5,134 118,921

Current period gross charge-offs — — — — — — — —

Non-farm non-residential

Pass 162,234 247,182 111,054 88,039 73,797 256,032 33,907 972,245

Special Mention 708 369 1,014 388 15,846 5,191 1,525 25,041

Substandard 247 18,930 18,488 — — 6,125 4,723 48,513

Doubtful — — — 66 — — — 66

Total non-farm non-residential 163,189 266,481 130,556 88,493 89,643 267,348 40,155 1,045,865

Current period gross charge-offs — — — 138 — — — 138

Total Real Estate 431,954 605,807 295,096 158,082 123,117 341,060 86,485 2,041,601

Non-Real Estate:

Pass 2,555 10,406 3,142 1,336 1,532 2,378 16,259 37,608

Special Mention — 104 — 81 — — 25 210

Substandard — — 692 279 20 2,100 57 3,148

Doubtful — — — — — 42 — 42

Total Agricultural 2,555 10,510 3,834 1,696 1,552 4,520 16,341 41,008

Current period gross charge-offs — — — — — — — —

Commercial and industrial

Pass 41,105 27,800 48,097 53,585 5,613 27,634 119,886 323,720

Special Mention 63 37 4,382 146 — 53 598 5,279

Substandard 45 283 178 602 27 4,531 145 5,811

Doubtful — — — — — 162 — 162

Total Commercial and industrial 41,213 28,120 52,657 54,333 5,640 32,380 120,629 334,972

Current period gross charge-offs 29 791 133 532 — 209 — 1,694

Commercial leases

Pass 74,456 117,566 67,615 6,087 4,428 — — 270,152

Special Mention — 11,867 1,597 — — — — 13,464

Substandard — 1,799 — — — — — 1,799

Doubtful — — — — — — — —

Total Commercial leases 74,456 131,232 69,212 6,087 4,428 — — 285,415

Current period gross charge-offs — — — — — — — —

Consumer and other loans

Pass 21,257 8,770 6,463 6,164 650 7,887 150 51,341

Special Mention 36 151 255 87 15 19 — 563

Substandard 164 1,077 790 265 86 68 — 2,450

Doubtful — — 34 79 2 16 — 131

Total Consumer and other loans 21,457 9,998 7,542 6,595 753 7,990 150 54,485

Current period gross charge-offs 598 1,126 820 359 28 44 — 2,975

Total Non-Real Estate 139,681 179,860 133,245 68,711 12,373 44,890 137,120 715,880

Pass 568,228 743,019 392,315 217,245 116,225 358,286 213,596 2,608,914

Special Mention 2,903 16,806 8,167 2,760 16,726 8,517 2,839 58,718

Substandard 504 25,681 27,343 6,643 2,298 18,768 7,053 88,290

Doubtful — 161 516 145 241 379 117 1,559

Total Loans Before Unearned Income $ 571,635 $ 785,667 $ 428,341 $ 226,793 $ 135,490 $ 385,950 $ 223,605 $ 2,757,481

Unearned income ( 8,773 )

Total Loans Net of Unearned Income $ 2,748,708

Total Current Period Gross Charge-offs $ 627 $ 1,917 $ 953 $ 1,029 $ 28 $ 1,217 $ — $ 5,771

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

As of December 31, 2022

(in thousands) Pass Special Mention Substandard Doubtful Total

Construction & land development $ 229,416 $ 2,846 $ 829 $ — $ 233,091

Farmland 19,722 35 5,066 — 24,823

12 unchanged sentences

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

Purchased Impaired Loans

Purchased Credit Deteriorated Loans

As part of the acquisition of Union Bancshares, Inc.

1 unchanged sentence

on June 16, 2017, First Guaranty purchased credit impaired loans for which there was, at acquisition, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected.

The carrying amount of those loans is as follows at December 31, 2022 and 2021.

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

The carrying amount of those loans is as follows at December 31, 2022.

(in thousands) As of December 31, 2022

Construction & land development $ 301

10 unchanged sentences

Total $ 4,258

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.

Where First Guaranty cannot reasonably estimate the cash flows expected to be collected on the loans, it has decided to account for those loans using the cost recovery method of income recognition.

As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method.

If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be 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 would be recognized as interest income over the remaining life of the loan.

Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero.

The accretable yield, or income expected to be collected, on the purchased loans above is as follows for the years ended December 31, 2022 and 2021.

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

Balance, beginning of period $ 2,378 $ 2,892

Acquisition accretable yield — —

Accretion ( 268 ) ( 514 )

Net transfers from nonaccretable difference to accretable yield — —

Balance, end of period $ 2,110 $ 2,378

Allowance for Loan and Lease Losses

A summary of changes in the allowance for loan and lease losses, by loan type, for the years ended December 31, 2022 and 2021 are as follows:

As of December 31,

(in thousands) Beginning Allowance (12/31/21) Charge-offs Recoveries Provision Ending Allowance (12/31/22) Beginning Allowance (12/31/20) Charge-offs Recoveries Provision Ending Allowance (12/31/21)

Allowance for Credit Losses on Loans

A summary of changes in the allowance for credit losses, by portfolio type, for the years ended December 31, 2023 and 2022 are as follows:

For the Year ended December 31,

(in thousands) Beginning Allowance (12/31/2022) ASC 326 Adoption Day 1 Adjustment Charge-offs Recoveries Provision Ending Allowance (12/31/2023)

Construction & land development $ 1,232 $ 1,891 $ — $ 7 $ 2,715 $ 5,845

12 unchanged sentences

Total $ 23,518 $ 8,120 $ ( 5,771 ) $ 1,375 $ 3,684 $ 30,926

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

The result is an allocation of the loan loss reserve from one category to another.

A summary of the allowance along with loans and leases, including loans acquired with deteriorated credit quality, individually and collectively evaluated for impairment are as follows:

As of December 31, 2022

(in thousands) Allowance

for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance

Collectively Evaluated

for Impairment Total Allowance

for Credit Losses Loans

for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans

for Impairment Total Loans

Unearned Income

For the Year ended December 31,

(in thousands) Beginning Allowance (12/31/2021) Charge-offs Recoveries Provision Ending Allowance (12/31/2022)

Construction & land development $ 769 $ ( 65 ) $ 340 $ 188 $ 1,232

12 unchanged sentences

Total $ 24,029 $ ( 6,086 ) $ 1,919 $ 3,656 $ 23,518

Unearned Income ( 7,643 )

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

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

The result is an allocation of the credit loss reserve from one category to another.

A summary of the allowance along with loans and leases individually and collectively evaluated are as follows:

As of December 31, 2023

(in thousands) Allowance

for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance

for Impairment Total Allowance

Evaluated Allowance

Collectively Evaluated Total Allowance

for Credit Losses Loans

for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans

for Impairment Total Loans

Evaluated Loans

Evaluated Total Loans

Unearned Income

15 unchanged sentences

Total Loans Net of Unearned Income $ 2,748,708

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.

The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class at December 31, 2022:

All loans individually evaluated for impairment as of December 31, 2023 were considered collateral dependent loans.

As of December 31, 2022

(in thousands) Recorded

Investment Unpaid

Principal Balance Related

Allowance Average

Recorded Investment Interest Income

Impaired Loans with no related allowance:

Construction & land development $ 68 $ 68 $ — $ 68 $ —

Farmland 4,240 4,240 — 4,242 51

1- 4 family 949 949 — 949 5

Multifamily — — — — —

Non-farm non-residential 1,814 1,814 — 1,817 56

Total Real Estate 7,071 7,071 — 7,076 112

Non-Real Estate:

Agricultural 2,366 2,521 — 2,366 7

Commercial and industrial 4,871 4,988 — 4,988 33

Commercial leases — — — — —

Consumer and other — — — — —

Total Non-Real Estate 7,237 7,509 — 7,354 40

Total Impaired Loans with no related allowance 14,308 14,580 — 14,430 152

Impaired Loans with an allowance recorded:

(in thousands) Allowance

for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance

for Impairment Total Allowance

for Credit Losses Loans

for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans

for Impairment Total Loans

Unearned Income

Construction & land development $ — $ — $ 1,232 $ 1,232 $ 68 $ 301 $ 232,722 $ 233,091

9 unchanged sentences

Consumer and other — — 2,506 2,506 — — 47,864 47,864

Unallocated — — 597 597 — — — —

Total Non-Real Estate 2,211 212 7,993 10,416 10,084 742 778,936 789,762

Total Impaired Loans with an allowance recorded 5,128 5,715 2,877 5,208 67

Total Impaired Loans $ 19,436 $ 20,295 $ 2,877 $ 19,638 $ 219

The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class at December 31, 2021:

Total $ 2,877 $ 724 $ 19,917 $ 23,518 $ 19,436 $ 4,258 $ 2,503,026 $ 2,526,720

Unearned Income ( 7,643 )

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

As of December 31, 2023 and 2022, First Guaranty had loans totaling $ 25.2 million and $ 13.6 million, respectively, not accruing interest.

As of December 31, 2023, and 2022, First Guaranty had loans past due 90 days or more and still accruing interest totaling $ 15.3 million and $ 1.1 million, respectively.

The average outstanding balance of nonaccrual loans in 2023 was $ 22.5 million compared to $ 12.8 million in 2022.

Payment status, collateral value and the probability of collecting scheduled principal and interest payments when due are considered in evaluating loan impairment.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class as of the date indicated:

As of December 31, 2022

33 unchanged sentences

Total Impaired Loans $ 19,436 $ 20,295 $ 2,877 $ 19,638 $ 219

Troubled Debt Restructurings

A Troubled Debt Restructuring ("TDR") is considered such if the lender for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider.

The modifications to First Guaranty's TDRs were concessions on either the interest rate charged or the amortization.

The effect of the modifications to First Guaranty was a reduction in interest income.

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

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.

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

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

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

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

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

The following table is an age analysis of TDRs as of December 31, 2022 and December 31, 2021:

December 31, 2022 December 31, 2021

Accruing Loans Accruing Loans

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

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

Farmland 1,094 — — 1,094 — — — —

1- 4 family — — — — — — — —

Multifamily — — — — — — — —

Non-farm non-residential — — — — — — 3,382 3,382

Total Real Estate 1,094 — — 1,094 — — 3,382 3,382

Non-Real Estate:

Agricultural — — — — — — — —

Commercial and industrial — — — — — — — —

Commercial leases — — — — — — — —

Consumer and other — — — — — — — —

Total Non-Real Estate — — — — — — — —

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

9 unchanged sentences

Depreciation expense amounted to $ 3.0 million and $ 3.1 million for 2023 and 2022, respectively.

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

Interest cost capitalized as a construction cost was $ 0 for 2023 and 2022, respectively.

Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing.

Other intangible assets continue to be amortized over their useful lives.

Other intangible assets, such as core deposit intangibles and loan servicing assets, continue to be amortized over their useful lives.

Goodwill represents the purchase price over the fair value of net assets acquired from the Homestead Bancorp in 2007, Premier Bancshares, Inc.

2 unchanged sentences

Goodwill totaled $ 12.9 million at December 31, 2023 and 2022.

Other intangible assets not subject to amortization totaled $ 0.1 million and $ 0 at December 31, 2023 and 2022.

The following table summarizes intangible assets subject to amortization.

12 unchanged sentences

The weighted-average amortization period remaining for the core deposit intangibles is 5.3 years.

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 relating to purchase accounting intangibles totaled $ 0.7 million for the years ended December 31, 2023 and 2022, respectively.

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

16 unchanged sentences

Net Other Real Estate Owned and Foreclosed Property $ 1,250 $ 113

Loans secured by one-to-four family residential properties in the process of foreclosure totaled $ 1.3 million as of December 31, 2023.

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

3 unchanged sentences

Total $ 820,725

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

The table above includes $ 175.1 million in brokered deposits for December 31, 2023.

The aggregate amount of jumbo time deposits, each with a minimum denomination of $250,000 totaled $ 196.9 million and $ 155.0 million at December 31, 2023 and 2022, respectively.

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Long-term debt is summarized as follows:

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.

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

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

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.

First Guaranty refinanced this note in October of 2023.

Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 50 basis points (currently 8.00 %), totaled $ 39.1 million at December 31, 2023 and $ 0 at December 31, 2022.

First Guaranty refinanced this note on October 2023.

First Guaranty pays $ 1.0 million principal plus interest quarterly.

First Guaranty refinanced this note on October 2023.

This loan has a contractual maturity date of October 5, 2033.

This long-term debt is secured by a pledge of 86.77 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary).

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.

Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points ( 9.25 % as of December 31, 2023), totaled 15.0 million at December 31, 2023 and 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.

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.

First Guaranty maintains two revolving lines of credit.

First Guaranty maintains one revolving line of credit.

A $ 20.0 million line of credit with an availability of $ 10.0 million at December 31, 2023.

This line of credit is secured by a pledge of 86.77 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary) and is priced at 8.50 %.

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 %.

At December 31, 2023, letters of credit issued by the FHLB totaling $ 513.3 million were outstanding and carried as off-balance sheet items, all of which expire by 2024.

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2025 20,000 4,031 —

2026 — 4,031 —

2027 135,000 4,031 —

2028 — 4,031 —

2029 and thereafter — 19,149 15,000

21 unchanged sentences

The new rule took effect on January 1, 2020.

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

The Bank has not elected to follow the Community Bank Leverage Ratio.

As of December 31, 2023, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

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Hood, a director of First Guaranty, is President.

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.

During the years ended 2023 and 2022, First Guaranty paid approximately $ 0.7 million and $ 58,000 , 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.

8 unchanged sentences

First Guaranty is in the process of terminating the plan.

On May 19, 2022 the shareholders of First Guaranty adopted the First Guaranty Bank Equity Bonus Plan.

The plan established an equity bonus pool of 80,000 shares.

All full time employees of First Guaranty are eligible to participate.

In December 31, 2023, 44,341 shares were distributed to a total of 311 employees.

Grant date fair market value of the shares issued was $ 750,000 .

All shares were vested on the date of issuance.

Other Expenses

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Other 107 ( 28 )

State tax expense 220 —

Total $ 2,677 $ 7,506

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Deferred tax assets:

Allowance for loan and lease losses $ 4,939 $ 4,817

Allowance for credit losses $ 7,101 $ 4,939

Other real estate owned 18 5

Unrealized losses on available for sale securities 416 711

Unrealized losses on available for sale securities transferred to held to maturity 3,029 3,337

Net operating loss 914 1,006

82 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, 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.

The change in Level 1 securities available for sale from December 31, 2022 to December 31, 2023 was due to a net decrease in Treasury bills of $ 48.6 million.

There were no transfers between Level 1 and 2 securities available for sale from December 31, 2022 to December 31, 2023.

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

There were no transfers between Level 2 and Level 3 from December 31, 2022 to December 31, 2023.

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

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Fair Value Measurements Using:

Impaired Loans

Loan Individually Evaluated for Impairment

Quoted Prices in Active Markets For Identical Assets $ — $ —

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These loans are classified within level 3 of the fair value hierarchy.

Impaired loans.

Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3).

Loan individually evaluated for impairment.

Fair value is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3).

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

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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

23 unchanged sentences

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.

The Bank denies the allegations and intends to vigorously defend against this lawsuit, which is in early stages and no trial date has been set.

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.

A receivable for $ 0.9 million has been recorded for recovery by a claim against First Guaranty's insurer.

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.

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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

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Cash flows from financing activities:

Net increase in short-term borrowings 20,000 —

Net (decrease) increase in short-term borrowings ( 10,000 ) 20,000

Proceeds from long-term borrowings, net of costs 40,097 —

Repayment of long-term debt ( 22,946 ) ( 3,250 )

Net proceeds from issuance of preferred stock — 33,058

Net proceeds from issuance of common stock 20,000 —

Subsidiary payment for stock grants issued 750 —

Dividends paid ( 9,698 ) ( 9,187 )

5 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data