First Guaranty Bancshares Inc

Previous wording

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at March 31, 2024 and for the three months ended March 31, 2024 and 2023 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Current wording

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Previous wording

Financial highlights for the first quarter and three months ended March 31, 2024 are as follows:

Current wording

Key developments and financial highlights for the second quarter and six months ended June 30, 2024 are as follows:

Previous wording

•Total assets increased $3.0 million and were $3.6 billion at March 31, 2024 and December 31, 2023. Total loans at March 31, 2024 were $2.8 billion, an increase of $3.5 million, or 0.1%, compared with December 31, 2023. Total deposits were $3.1 billion at March 31, 2024, an increase of $54.8 million, or 1.8%, compared with December 31, 2023. Retained earnings were $67.7 million at March 31, 2024, a decrease of $0.3 million compared to $68.0 million at December 31, 2023. Shareholders' equity was $250.3 million and $249.6 million at March 31, 2024 and December 31, 2023, respectively.

Current wording

•Total assets increased $62.8 million and were $3.6 billion at June 30, 2024 and December 31, 2023. Total loans at June 30, 2024 were $2.8 billion, an increase of $84.6 million, or 3.1%, compared with December 31, 2023. Total deposits were $3.0 billion at June 30, 2024, an increase of $34.4 million, or 1.1%, compared with December 31, 2023. Retained earnings were $72.3 million at June 30, 2024, an increase of $4.3 million compared to $68.0 million at December 31, 2023. Shareholders' equity was $255.1 million and $249.6 million at June 30, 2024 and December 31, 2023, respectively.

Previous wording

•Earnings per common share were $0.14 and $0.27 for the first quarter of 2024 and 2023, respectively. Total weighted average shares outstanding were 12,489,910 and 10,716,796 for the first quarter of 2024 and 2023, respectively. The change in shares was due to the issuance of 29,293 shares of common stock under the Equity Bonus Plan during the first quarter of 2024 and the issuance of 1,714,287 shares of common stock under private placement in 2023.

Current wording

•Earnings per common share were $0.53 and $0.19 for the second quarter of 2024 and 2023, respectively, and $0.67 and $0.46 for the six months ended June 30, 2024 and 2023, respectively. Total weighted average shares outstanding were 12,504,717 and 10,913,029 for the second quarter of 2024 and 2023, respectively, and 12,497,313 and 10,815,454 for the six months ended June 30, 2024 and 2023, respectively. The change in shares was due to the issuance of 44,341 and 29,293 shares of common stock under the Equity Bonus Plan during the fourth quarter of 2023 and the first quarter of 2024, respectively, and the issuance of 1,714,287 shares of common stock under private placement in 2023.

Previous wording

•The allowance for credit losses was 1.14% of total loans at March 31, 2024 compared to 1.13% at December 31, 2023.

Current wording

•The allowance for credit losses was 1.07% of total loans at June 30, 2024 compared to 1.13% at December 31, 2023.

Previous wording

•First Guaranty had $1.3 million of other real estate owned as of March 31, 2024 and December 31, 2023.

Current wording

•First Guaranty had $1.0 million of other real estate owned as of June 30, 2024 compared to $1.3 million at December 31, 2023, respectively.

Previous wording

•The net interest margin for the three months ended March 31, 2024 was 2.58% which was a decrease of 41 basis points from the net interest margin of 2.99% for the same period in 2023. First Guaranty attributed the decrease in the net interest margin to the increase in market interest rates that began in 2022 and continued through 2023 that increased the cost of liabilities. Loans as a percentage of average interest earning assets decreased to 80.8% at March 31, 2024 compared to 83.5% at March 31, 2023.

Current wording

•The net interest margin for the three months ended June 30, 2024 was 2.48% which was a decrease of 26 basis points from the net interest margin of 2.74% for the same period in 2023. The net interest margin for the six months ended June 30, 2024 was 2.53% which was a decrease of 33 basis points from the net interest margin of 2.86% for the same period in 2023. First Guaranty attributed the decrease in the net interest margin to the increase in market interest rates that began in 2022 and continued through 2023 that increased the cost of liabilities. Loans as a percentage of average interest earning assets decreased to 81.1% at June 30, 2024 compared to 83.6% at June 30, 2023.

Previous wording

•Investment securities totaled $358.7 million at March 31, 2024, a decrease of $45.5 million when compared to $404.1 million at December 31, 2023. At March 31, 2024, available for sale securities, at fair value, totaled $37.8 million, a decrease of $45.7 million when compared to $83.5 million at December 31, 2023. At March 31, 2024, held to maturity securities, at amortized cost and net of the allowance for credit losses totaled $320.9 million, an increase of $0.3 million when compared to $320.6 million at December 31, 2023. The allowance for credit losses for HTM securities was $0.1 million at March 31, 2024 and December 31, 2023.

Current wording

•Investment securities totaled $358.6 million at June 30, 2024, a decrease of $45.6 million when compared to $404.1 million at December 31, 2023. At June 30, 2024, available for sale securities, at fair value, totaled $37.4 million, a decrease of $46.1 million when compared to $83.5 million at December 31, 2023. The decrease in available for sale securities was primarily due to the maturity of low yielding Treasury securities of which the proceeds were subsequently reinvested in higher yielding loans and or cash equivalents. At June 30, 2024, held to maturity securities, at amortized cost and net of the allowance for credit losses totaled $321.2 million, an increase of $0.5 million when compared to $320.6 million at December 31, 2023. The allowance for credit losses for HTM securities was $0.1 million at June 30, 2024 and December 31, 2023.

Previous wording

•Total loans net of unearned income were $2.8 billion at March 31, 2024, a net increase of $3.5 million from December 31, 2023. Total loans net of unearned income are reduced by the allowance for credit losses which totaled $31.5 million at March 31, 2024 and $30.9 million at December 31, 2023, respectively.

Current wording

•Total loans net of unearned income were $2.8 billion at June 30, 2024, a net increase of $84.6 million from December 31, 2023. Total loans net of unearned income are reduced by the allowance for credit losses which totaled $30.3 million at June 30, 2024 and $30.9 million at December 31, 2023, respectively.

Previous wording

•Nonaccrual loans increased $3.4 million to $28.6 million at March 31, 2024 compared to $25.2 million at December 31, 2023.

Current wording

•Nonaccrual loans increased $37.1 million to $62.3 million at June 30, 2024 compared to $25.2 million at December 31, 2023. The increase in total nonaccrual loans was concentrated primarily in one commercial real estate relationship that totaled $36.9 million. This relationship is comprised of five loans secured by real estate located in the Midwest. $13.9 million of this relationship was previously reported in 90 day plus but still accruing at December 31, 2023.

Previous wording

•Return on average assets for the three months ended March 31, 2024 and 2023 was 0.26% and 0.45%, respectively. Return on average common equity for the three months ended March 31, 2024 and 2023 was 3.17% and 5.80%, respectively. Return on average assets is calculated by dividing annualized net income by average assets. Return on average common equity is calculated by dividing annualized net income by average common equity.

Current wording

•Return on average assets for the three months ended June 30, 2024 and 2023 was 0.81% and 0.34%, respectively. Return on average assets for the six months ended June 30, 2024 and 2023 was 0.54% and 0.39%, respectively. Return on average common equity for the three months ended June 30, 2024 and 2023 was 12.16% and 4.19%, respectively. Return on average common equity for the six months ended June 30, 2024 and 2023 was 7.66% and 4.99%, respectively. Return on average assets is calculated by dividing annualized net income by average assets. Return on average common equity is calculated by dividing annualized net income by average common equity.

Previous wording

•Book value per common share was $17.37 as of March 31, 2024 compared to $17.36 as of December 31, 2023. The increase was due primarily to the recent issuance of new shares and changes in accumulated other comprehensive income ("AOCI"). AOCI is comprised of unrealized gains and losses on available for sale securities, including unrealized losses on available for sale securities at the time of transfer to held to maturity.

Current wording

•Book value per common share was $17.76 as of June 30, 2024 compared to $17.36 as of December 31, 2023. The increase was due primarily to the recent issuance of new shares and changes in accumulated other comprehensive income ("AOCI"). AOCI is comprised of unrealized gains and losses on available for sale securities, including unrealized losses on available for sale securities at the time of transfer to held to maturity.

Previous wording

•First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the first quarter of 2024 and 2023. First Guaranty has paid 123 consecutive quarterly dividends as of March 31, 2024.

Current wording

•First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the second quarter of 2024 and 2023. First Guaranty has paid 124 consecutive quarterly dividends as of June 30, 2024.

Previous wording

•First Guaranty paid preferred stock dividends of $0.6 million during the first three months of 2024 and 2023.

Current wording

•First Guaranty paid preferred stock dividends of $1.2 million during the first six months of 2024 and 2023.

Previous wording

Total assets at March 31, 2024 were $3.6 billion, an increase of $3.0 million, or 0.1%, from December 31, 2023. Assets increased primarily due to increases in net loans of $3.0 million and cash and cash equivalents of $45.6 million, partially offset by a decrease in investment securities of $45.5 million at March 31, 2024 compared to December 31, 2023.

Current wording

Total assets at June 30, 2024 were $3.6 billion, an increase of $62.8 million, or 1.8%, from December 31, 2023. Assets increased primarily due to increases in net loans of $85.3 million and cash and cash equivalents of $12.5 million, partially offset by a decrease in investment securities of $45.6 million at June 30, 2024 compared to December 31, 2023.

Previous wording

Net loans increased $3.0 million, or 0.1%, to $2.7 billion at March 31, 2024 from December 31, 2023. Non-farm non-residential loan balances increased $87.7 million due to new originations. Multifamily loans increased $46.2 million primarily due to the conversion of existing construction loans to permanent financing and the origination of new loans. One-to-four family residential loans increased $11.8 million primarily due to new originations. Farmland loans increased $5.0 million primarily due to seasonal activity. Agricultural loans increased $2.4 million due to seasonal activity. Consumer and other loans decreased $5.0 million primarily due to paydowns. Commercial lease loan balances decreased $32.4 million primarily due to paydowns. First Guaranty's commercial lease portfolio generally has higher yields than commercial real estate loans but shorter average lives. Commercial and industrial loans decreased $41.7 million primarily due to paydowns. Construction and land development loans decreased $71.3 million principally due to the conversion of loans to permanent financing. First Guaranty had approximately 2.7% of funded and 2.0% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. First Guaranty's hotel and hospitality portfolio totaled $181.4 million at March 31, 2024. As part of the management of risks in our loan portfolio, First Guaranty had previously established an internal guidance limit of approximately $200.0 million for its hotel and hospitality portfolio. First Guaranty had $377.3 million in loans related to our Texas markets at March 31, 2024 which was an increase of $1.6 million or 0.4% from $375.7 million at December 31, 2023. First Guaranty anticipates additional growth opportunities in Texas. First Guaranty had $277.2 million in loans related to our new Mideast markets in Kentucky and West Virginia at March 31, 2024 compared to $278.1 million at December 31, 2023. Syndicated loans at March 31, 2024 were $58.5 million, of which $24.4 million were shared national credits. Syndicated loans decreased $18.2 million from $76.7 million at December 31, 2023.

Current wording

Net loans increased $85.3 million, or 3.1%, to $2.8 billion at June 30, 2024 from December 31, 2023. Non-farm non-residential loan balances increased $118.3 million due to new originations. Multifamily loans increased $41.3 million primarily due to the conversion of existing construction loans to permanent financing and the origination of new loans. One-to-four family residential loans increased $12.4 million primarily due to new originations. Agricultural loans increased $6.8 million due to seasonal activity. Farmland loans increased $6.0 million primarily due to seasonal activity. Consumer and other loans decreased $6.6 million primarily due to paydowns. Commercial lease loan balances decreased $16.0 million primarily due to paydowns. First Guaranty's commercial lease portfolio generally has higher yields than commercial real estate loans but shorter average lives. Commercial and industrial loans decreased $34.4 million primarily due to paydowns. Construction and land development loans decreased $44.2 million principally due to the conversion of loans to permanent financing. First Guaranty had approximately 3.0% of funded and 1.7% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. First Guaranty's hotel and hospitality portfolio totaled $181.3 million at June 30, 2024. As part of the management of risks in our loan portfolio, First Guaranty had previously established an internal guidance limit of approximately $200.0 million for its hotel and hospitality portfolio. First Guaranty had $385.1 million in loans related to our Texas markets at June 30, 2024 which was an increase of $9.5 million or 2.5% from $375.7 million at December 31, 2023. First Guaranty anticipates additional growth opportunities in Texas. First Guaranty had $310.2 million in loans related to our new Mideast markets in Kentucky and West Virginia at June 30, 2024 compared to $278.1 million at December 31, 2023. Syndicated loans at June 30, 2024 were $58.9 million, of which $25.1 million were shared national credits. Syndicated loans decreased $17.8 million from $76.7 million at December 31, 2023.

Previous wording

As of March 31, 2024, 76.8% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 41.1% as of March 31, 2024, was non-farm non-residential loans secured by real estate. Approximately 48.1% of the loan portfolio was based on a floating rate tied to the prime rate, Secured Overnight Financing Rate ("SOFR"), or Treasury rates as of March 31, 2024. 52.5% of the loan portfolio is scheduled to mature within five years from March 31, 2024.

Current wording

As of June 30, 2024, 76.5% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 41.0% as of June 30, 2024, was non-farm non-residential loans secured by real estate. Approximately 49.7% of the loan portfolio was based on a floating rate tied to the prime rate, Secured Overnight Financing Rate ("SOFR"), or Treasury rates as of June 30, 2024. 50.4% of the loan portfolio is scheduled to mature within five years from June 30, 2024.

Previous wording

First Guaranty has diversified its CRE portfolio across both industries and geographic location. The following is a summary of the largest CRE related loans associated with hotel and motels, office properties, apartment complexes, healthcare related properties, and properties under construction as of March 31, 2024. First Guaranty does not finance standalone multi-story office buildings in major metropolitan areas. The largest CRE loan secured by a hotel or motel totaled $20.1 million. The property is a flagged hotel located in Texas. The largest CRE loan secured by an office related property totaled $21.6 million and is located in West Virginia. The largest CRE loan secured by an apartment complex totaled $40.9 million and was secured by a property located in Louisiana. This loan was under construction as of December 31, 2023 and converted to permanent financing at March 31, 2024. First Guaranty also has a $25.9 million apartment complex that is located in Texas. The largest healthcare related loan is a $30.3 million property secured by an assisted living center located in Alabama. The largest CRE loan under construction totaled $29.9 million for land development and is secured by a property located in Texas.

Current wording

First Guaranty has diversified its CRE portfolio across both industries and geographic location. The following is a summary of the largest CRE related loans associated with hotel and motels, office properties, apartment complexes, healthcare related properties, and properties under construction as of June 30, 2024. First Guaranty does not finance standalone multi-story office buildings in major metropolitan areas. The largest CRE loan secured by a hotel or motel totaled $20.1 million. The property is a flagged hotel located in Texas. The largest CRE loan secured by an office related property totaled $21.5 million and is located in West Virginia. The largest CRE loan secured by an apartment complex totaled $41.6 million secured by a property located in Louisiana. First Guaranty also holds a $25.9 million loan secured by an apartment complex that is located in Texas. The largest healthcare related loan is a $30.9 million property secured by an assisted living center located in Alabama. The largest CRE loan under construction totaled $29.9 million for land development and is secured by a property located in Texas.

Previous wording

The increase in classified assets at March 31, 2024 as compared to December 31, 2023 was due to a $0.9 million increase in substandard loans offset by a $0.6 million decrease in doubtful loans. The increase in substandard loans was primarily the result of the downgrade of one $1.7 million lease loan relationship from pass to substandard during the first quarter of 2024, offset by loans that were upgraded to special mention status. The decrease in doubtful loans was primarily the result of the payoff of a $0.4 million one-to four family loan classified as doubtful during the first quarter of 2024. Special mention loans decreased by $13.8 million in 2024. The decrease in special mention loans was primarily the result of the upgrade of one commercial lease loan relationship from special mention to pass status totaling $13.2 million.

Current wording

The increase in classified assets at June 30, 2024 as compared to December 31, 2023 was due to a $41.9 million increase in substandard loans offset by a $1.0 million decrease in doubtful loans. The increase in substandard loans was primarily the result of downgrades during the second quarter of 2024 of two commercial loan relationships, with balances of $24.0 million and $18.2 million, from pass to substandard status. The decrease in doubtful loans was primarily the result of the payoff of a $0.4 million one-to-four family loan classified as doubtful during the first quarter of 2024. Special mention loans increased by $23.8 million in 2024. The increase in special mention loans was primarily the result of the downgrade of one commercial and industrial loan relationship from pass to special mention totaling $24.6 million.

Previous wording

Net loans are reduced by the allowance for credit losses which totaled $31.5 million at March 31, 2024 and $30.9 million at December 31, 2023. First Guaranty adopted ASC 326 effective January 1, 2023 and recorded a cumulative adjustment to the allowance of $7.0 million. Loan charge-offs were $2.3 million during the first three months of 2024 and $1.0 million during the same period in 2023. Recoveries totaled $0.3 million during the first three months of 2024 and $0.5 million during the same period in 2023. The provision for credit losses totaled $2.3 million for the first three months of 2024 and $0.3 million for the same period in 2023. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for more information on the allowance for credit losses.

Current wording

Net loans are reduced by the allowance for credit losses which totaled $30.3 million at June 30, 2024 and $30.9 million at December 31, 2023. First Guaranty adopted ASC 326 effective January 1, 2023 and recorded a cumulative adjustment to the allowance of $7.0 million. Loan charge-offs were $11.1 million during the first six months of 2024 and $1.5 million during the same period in 2023. Recoveries totaled $0.5 million during the first six months of 2024 and $1.0 million during the same period in 2023. The provision for credit losses totaled $9.1 million for the first six months of 2024 and $0.9 million for the same period in 2023. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for more information on the allowance for credit losses.

Previous wording

Investment securities at March 31, 2024 totaled $358.7 million, a decrease of $45.5 million compared to $404.1 million at December 31, 2023. The portfolio consists of both available for sale (AFS) and held to maturity securities (HTM). The securities designated as held to maturity are agency and corporate debt securities that are part of First Guaranty’s investment strategy and public funds collateralization program. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings.

Current wording

Investment securities at June 30, 2024 totaled $358.6 million, a decrease of $45.6 million compared to $404.1 million at December 31, 2023. The portfolio consists of both available for sale (AFS) and held to maturity securities (HTM). The securities designated as held to maturity are agency and corporate debt securities that are part of First Guaranty’s investment strategy and public funds collateralization program. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings.

Previous wording

Our available for sale securities portfolio totaled $37.8 million at March 31, 2024, a decrease of $45.7 million, or 54.8%, compared to $83.5 million at December 31, 2023. The decrease was primarily due to the maturity of U.S. Treasury securities.

Current wording

Our available for sale securities portfolio totaled $37.4 million at June 30, 2024, a decrease of $46.1 million, or 55.2%, compared to $83.5 million at December 31, 2023. The decrease was primarily due to the maturity of U.S. Treasury securities.

Previous wording

Our held to maturity securities portfolio totaled $320.9 million at March 31, 2024, an increase of $0.3 million, or 0.1%, compared to $320.6 million at December 31, 2023.

Current wording

Our held to maturity securities portfolio totaled $321.2 million at June 30, 2024, an increase of $0.5 million, or 0.2%, compared to $320.6 million at December 31, 2023.

Previous wording

At March 31, 2024, $0.8 million, or 0.2%, of the securities portfolio was scheduled to mature in less than one year. $7.5 million, or 2.1%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between one and five years. The majority of these securities were corporate bonds. $135.5 million, or 37.8%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between five and ten years. Securities, not including collateralized mortgage obligations and mortgage-backed securities, with contractual maturity dates over 10 years totaled $210.0 million, or 58.6%, of the total securities portfolio at March 31, 2024. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of March 31, 2024, management believes that the securities portfolio has a forecasted weighted average life of approximately 11.28 years based on the current interest rate environment. The portfolio had an estimated effective duration of 8.93 years at March 31, 2024.

Current wording

At June 30, 2024, $0.6 million, or 0.2%, of the securities portfolio was scheduled to mature in less than one year. $7.8 million, or 2.2%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between one and five years. The majority of these securities were corporate bonds. $159.3 million, or 44.4%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between five and ten years. Securities, not including collateralized mortgage obligations and mortgage-backed securities, with contractual maturity dates over 10 years totaled $186.0 million, or 51.9%, of the total securities portfolio at June 30, 2024. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of June 30, 2024, management believes that the securities portfolio has a forecasted weighted average life of approximately 11.07 years based on the current interest rate environment. The portfolio had an estimated effective duration of 8.77 years at June 30, 2024.

Previous wording

There were no credit related impairment of available for sale securities during the three months ended March 31, 2024. The allowance for credit losses for held to maturity securities was $0.1 million at March 31, 2024 and December 31, 2023.

Current wording

There were no credit related impairment of available for sale securities during the six months ended June 30, 2024. The allowance for credit losses for held to maturity securities was $0.1 million at June 30, 2024 and December 31, 2023.

Previous wording

Non-performing assets consist of non-performing loans and other real-estate owned. Non-performing loans are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the asset is well secured and in the process of collection. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest and a reasonable payment performance period is observed (generally considered six months or longer). Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.

Current wording

Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the asset is well secured and in the process of collection. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest and a reasonable payment performance period is observed (generally considered six months or longer). Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.

Previous wording

At March 31, 2024, nonperforming assets totaled $44.5 million, or 1.25% of total assets, compared to $41.7 million, or 1.17%, of total assets at December 31, 2023, which represented an increase of $2.8 million, or 6.8%. The increase in non-performing assets occurred primarily due to an increase in nonaccrual loans and other real estate owned, offset by a decrease in loans 90 days greater delinquent and still accruing. Nonperforming loans included loans previously classified as purchase credit deteriorated following the adoption of CECL.

Current wording

At June 30, 2024, nonperforming assets totaled $63.6 million, or 1.76% of total assets, compared to $41.7 million, or 1.17%, of total assets at December 31, 2023, which represented an increase of $21.8 million, or 52.3%. The increase in nonperforming assets occurred primarily due to an increase in nonaccrual loans, partially offset by a decrease in loans 90 days greater delinquent and still accruing and other real estate owned. Nonperforming loans included loans previously classified as purchase credit deteriorated following the adoption of CECL.

Previous wording

Nonaccrual loans increased from $25.2 million at December 31, 2023 to $28.6 million at March 31, 2024. The increase in nonaccrual loans was concentrated primarily in commercial and industrial and one-to four family loans. Nonaccrual loans included $2.5 million in loans with a government guarantee. These are structured as net loss guarantees in which up to 90% of loss exposure is covered.

Current wording

Nonaccrual loans increased from $25.2 million at December 31, 2023 to $62.3 million at June 30, 2024. The increase in nonaccrual loans was concentrated primarily in non-farm non-residential, commercial and industrial, construction and land development, commercial leases, one-to-four family, and agricultural loans. Nonaccrual loans included $2.1 million in loans with a government guarantee. These are structured as net loss guarantees in which up to 90% of loss exposure is covered.

Previous wording

At March 31, 2024, loans 90 days or greater delinquent and still accruing totaled $14.7 million, a decrease of $0.6 million compared to $15.3 million at December 31, 2023. The decrease in loans 90 days or greater delinquent and still accruing was concentrated primarily in commercial and industrial, non-farm non-residential, and one-to four family.

Current wording

At June 30, 2024, loans 90 days or greater delinquent and still accruing totaled $0.2 million, a decrease of $15.1 million compared to $15.3 million at December 31, 2023. The decrease in loans 90 days or greater delinquent and still accruing was attributed to moving those loans to nonaccrual, and was concentrated primarily in non-farm non-residential, commercial and industrial, agricultural, and one-to-four family loans.

Previous wording

Other real estate owned totaled $1.3 million at March 31, 2024 and December 31, 2023.

Current wording

Other real estate owned totaled $1.0 million at June 30, 2024, a decrease of $0.2 million compared to $1.3 million at December 31, 2023.

Previous wording

At March 31, 2024, our largest non-performing assets were comprised of the following nonaccrual loans and 90 days or greater delinquent and still accruing loans: (1) a non-farm non-residential loan that totaled $13.9 million; (2) a non-farm non-residential loan that totaled $4.7 million; (3) a $2.0 million loan relationship that is classified as purchased credit deteriorated; (4) a commercial lease loan that totaled $1.8 million; (5) a commercial and industrial loan that totaled $1.8 million; (6) a non-farm non-residential loan that totaled $1.3 million; (7) a non-farm non-residential loan that totaled $1.3 million.

Current wording

At June 30, 2024, our largest nonperforming assets were comprised of the following nonaccrual loans and 90 days or greater delinquent and still accruing loans: (1) $36.9 million non-farm non-residential loan relationship comprised of five loans secured by real estate in the Midwest; (2) a $2.0 million loan relationship that is classified as purchased credit deteriorated; (3) a commercial lease loan that totaled $1.8 million; (4) a construction and land development loan that totaled $1.7 million; (5) a commercial lease loan that totaled $1.7 million; and (6) a $1.3 million one-to-four family loan relationship.

Previous wording

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. See Recent Accounting Pronouncements for more information on the adoption of ASC 326.

Current wording

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.

Previous wording

The allowance for credit losses on loans was $31.5 million, or 1.14% of total loans, and 72.7% of nonperforming loans at March 31, 2024.

Current wording

The allowance for credit losses on loans was $30.3 million, or 1.07% of total loans, and 48.4% of nonperforming loans at June 30, 2024.

Previous wording

A provision for credit losses of $2.3 million was made during the three months ended March 31, 2024 and $0.3 million for the same period in 2023. The $2.3 million provision made in 2024 included a $0.3 million negative provision for credit losses related to unfunded commitments. First Guaranty's unfunded commitments declined during the quarter which resulted in a reduced liability. The provisions made were taken to provide for current credit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio.

Current wording

A provision for credit losses of $9.1 million was made during the six months ended June 30, 2024 and $0.9 million for the same period in 2023. The $9.1 million provision made in 2024 included a $0.8 million negative provision for credit losses related to unfunded commitments. First Guaranty's unfunded commitments declined during the quarter which resulted in a reduced liability. The provisions made were taken to provide for current credit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio.

Previous wording

The loan portfolio factors in the first three months of 2024 that primarily affected the allocation of the allowance included the following:

Current wording

The loan portfolio factors in the first six months of 2024 that primarily affected the allocation of the allowance included the following:

Previous wording

•Construction and land development loans decreased during the first three months of 2024 due to loans converted to permanent financing. The allowance decrease related to this portfolio was due to a decline in the portfolio along with changes in the qualitative analysis of the portfolio related to economic conditions.

Current wording

•Construction and land development loans decreased during the first six months of 2024 due to loans converted to permanent financing. The allowance decrease related to this portfolio was due to a decline in the portfolio along with changes in the qualitative analysis of the portfolio related to economic conditions.

Previous wording

•One-to four-family residential loans increased $11.8 million during the first three months of 2024. The allowance decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio.

Current wording

•One-to-four family residential loans increased $12.4 million during the first six months of 2024. The allowance decrease related to this portfolio was due to charge-offs and changes in the qualitative analysis of the portfolio.

Previous wording

•Multifamily loans increased during the first three months of 2024. The allowance related to this portfolio was increased due to the growth in the portfolio which increased by $46.2 million during the first three months of 2024.

Current wording

•Multifamily loans increased during the first six months of 2024. The allowance related to this portfolio was increased due to the growth in the portfolio which increased by $41.3 million during the first three months of 2024.

Previous wording

•Non-farm non-residential loans increased by $87.7 million during the first three months of 2024. The allowance increase related to this portfolio was due primarily to growth in the portfolio.

Current wording

•Non-farm non-residential loans increased by $118.3 million during the first six months of 2024. The allowance decrease related to this portfolio was due to charge-offs and changes in the qualitative analysis of the portfolio.

Previous wording

•Commercial and industrial loans decreased during the first three months of 2024. The allowance increase related to this portfolio was due to the qualitative analysis of the portfolio.

Current wording

•Commercial and industrial loans decreased during the first six months of 2024. The allowance decrease related to this portfolio was due to charge-offs and changes in the qualitative analysis of the portfolio.