First Guaranty Bank(FGBI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis of First Guaranty Bancshares, Inc Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of First Guaranty Bancshares, Inc. and its subsidiary, First Guaranty Bank, for the periods ended June 30, 2025, and December 31, 2024. It includes the balance sheets, income statements, comprehensive income statements, shareholders' equity statements, cash flow statements, and detailed notes to these financial statements Consolidated Balance Sheets This table presents the consolidated financial position, detailing assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Assets | | | | | | Cash and cash equivalents | $714,870 | $564,208 | $150,662 | 26.7% | | Investment securities | $719,722 | $602,719 | $117,003 | 19.4% | | Net loans | $2,351,634 | $2,658,969 | $(307,335) | -11.6% | | Total Assets | $3,969,581 | $3,972,728 | $(3,147) | -0.1% | | Liabilities | | | | | | Total deposits | $3,481,338 | $3,476,260 | $5,078 | 0.1% | | Total Liabilities | $3,706,493 | $3,717,679 | $(11,186) | -0.3% | | Shareholders' Equity | | | | | | Total Shareholders' Equity | $263,088 | $255,049 | $8,039 | 3.1% | Consolidated Statements of Income This table outlines the company's financial performance, including interest income, expenses, and net income for the reported periods Consolidated Statements of Income | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | Total Interest Income | $54,321 | $53,651 | $670 | $108,784 | $106,559 | $2,225 | | Total Interest Expense | $32,081 | $32,409 | $(328) | $64,321 | $63,396 | $925 | | Net Interest Income | $22,240 | $21,242 | $998 | $44,463 | $43,163 | $1,300 | | Provision for credit losses | $16,610 | $6,805 | $9,805 | $31,158 | $9,109 | $22,049 | | Net (Loss) Income | $(7,303) | $7,201 | $(14,504) | $(13,469) | $9,511 | $(22,980) | | Net (Loss) Income Available to Common Shareholders | $(7,885) | $6,619 | $(14,504) | $(14,633) | $8,347 | $(22,980) | | (Loss) Earnings Per Common Share | $(0.61) | $0.53 | $(1.14) | $(1.15) | $0.67 | $(1.82) | Consolidated Statements of Comprehensive Income This table details net income and other comprehensive income components, leading to total comprehensive income for the periods Consolidated Statements of Comprehensive Income | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :---------------------- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | Net (Loss) Income | $(7,303) | $7,201 | $(14,504) | $(13,469) | $9,511 | $(22,980) | | Other comprehensive income | $971 | $206 | $765 | $2,659 | $834 | $1,825 | | Comprehensive (Loss) Income | $(6,332) | $7,407 | $(13,739) | $(10,810) | $10,345 | $(21,155) | Consolidated Statements of Shareholders' Equity This table tracks changes in shareholders' equity, including preferred stock, common stock, surplus, retained earnings, and comprehensive income adjustments Consolidated Statements of Shareholders' Equity | Metric (in thousands) | Balance December 31, 2024 | Balance June 30, 2025 | Change | | :-------------------------------- | :------------------------ | :-------------------- | :----- | | Preferred Stock | $33,058 | $33,058 | $0 | | Common Stock | $12,505 | $15,120 | $2,615 | | Surplus | $149,389 | $167,041 | $17,652 | | Retained Earnings | $72,965 | $58,078 | $(14,887) | | Accumulated Other Comprehensive (Loss) Income | $(12,868) | $(10,209) | $2,659 | | Total Shareholders' Equity | $255,049 | $263,088 | $8,039 | - The increase in common stock and surplus was primarily due to the issuance of common stock in private placements and the conversion of subordinated debt during the first six months of 2025[14] Consolidated Statements of Cash Flows This table summarizes cash inflows and outflows from operating, investing, and financing activities for the reported periods Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | | Net Cash (Used In) Provided By Operating Activities | $(12,928) | $9,895 | $(22,823) | | Net Cash Provided By (Used In) Investing Activities | $156,271 | $(35,268) | $191,539 | | Net Cash Provided By Financing Activities | $7,319 | $37,884 | $(30,565) | | Net Increase In Cash and Cash Equivalents | $150,662 | $12,511 | $138,151 | | Cash and Cash Equivalents at the End of the Period | $714,870 | $298,966 | $415,904 | Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures and explanations for the unaudited consolidated financial statements, covering accounting policies, recent pronouncements, specific asset and liability categories, fair value measurements, and segment reporting Note 1. Basis of Presentation This note describes the accounting principles and consolidation policies used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim information and include all adjustments necessary for fair presentation, which are of a normal recurring nature[17][19] - The consolidated financial statements include First Guaranty Bancshares, Inc. and its wholly-owned subsidiary, First Guaranty Bank, with all significant intercompany balances and transactions eliminated[18] Note 2. Recent Accounting Pronouncements This note outlines recently issued accounting standards and their expected impact on the company's financial statements - ASU No. 2023-09, "Improvements to Tax Disclosures," effective for annual periods after December 15, 2024, is not expected to materially affect First Guaranty's financial statements[21] - ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures," effective for annual periods after December 15, 2026, is currently being evaluated for its impact on disclosures[22] Note 3. Securities This note provides details on investment securities, including fair value, unrealized losses, and credit loss assessments Security Type | Security Type (in thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | Change | | :----------------------------- | :----------------------- | :--------------------------- | :----- | | Available for sale | $397,573 | $281,097 | $116,476 | | Held to maturity | $260,080 | $251,458 | $8,622 | | Total Investment Securities | $657,653 | $532,555 | $125,098 | - At June 30, 2025, 178 debt securities had unrealized losses totaling 12.7% of their amortized cost, with 129 of these in a continuous loss position for over 12 months, amounting to $63.2 million in unrealized losses[28] - First Guaranty had no charge-offs or provisions for credit losses recognized on securities during the six months ended June 30, 2025 and 2024, as management intends and has the ability to hold these securities until recovery or maturity[32][30][31] Note 4. Loans This note details the composition and credit quality of the loan portfolio, including nonaccrual loans and credit classifications Loan Category | Loan Category (in thousands) | June 30, 2025 Balance | December 31, 2024 Balance | Change | | :----------------------------- | :-------------------- | :------------------------ | :----- | | Construction & land development | $268,828 | $330,048 | $(61,220) | | 1-4 Family | $440,465 | $450,371 | $(9,906) | | Multifamily | $144,864 | $165,121 | $(20,257) | | Non-farm non-residential | $1,052,503 | $1,159,842 | $(107,339) | | Commercial and industrial | $238,144 | $257,518 | $(19,374) | | Commercial leases | $159,209 | $220,200 | $(60,991) | | Total Loans Net of Unearned Income | $2,410,505 | $2,693,780 | $(283,275) | - Nonaccrual loans increased to $119.2 million at June 30, 2025, from $108.5 million at December 31, 2024, with a significant portion in real estate categories[41][39] Credit Quality Classification | Credit Quality Classification (in thousands) | June 30, 2025 Total Loans | December 31, 2024 Total Loans | Change | | :------------------------------------------- | :-------------------------- | :---------------------------- | :----- | | Pass | $1,953,548 | $2,390,876 | $(437,328) | | Special Mention | $186,589 | $125,658 | $60,931 | | Substandard | $276,787 | $185,112 | $91,675 | | Doubtful | $427 | $434 | $(7) | | Total Loans Before Unearned Income | $2,417,351 | $2,702,080 | $(284,729) | Note 5. Allowance for Credit Losses on Loans This note explains the changes in the allowance for credit losses on loans, including provisions, charge-offs, and recoveries Allowance for Credit Losses | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :-------------------- | :------------------------------- | :------------------------------- | :----- | | Beginning Allowance | $34,811 | $30,926 | $3,885 | | Charge-offs | $(8,017) | $(11,052) | $3,035 | | Recoveries | $409 | $504 | $(95) | | Provision | $31,668 | $9,909 | $21,759 | | Ending Allowance | $58,871 | $30,287 | $28,574 | - The allowance for credit losses on loans increased significantly to $58.9 million at June 30, 2025, from $34.8 million at December 31, 2024, primarily due to a $31.2 million provision for credit losses in the first six months of 2025[48][138] - Loan modifications to borrowers experiencing financial difficulty during the six months ended June 30, 2025, consisted of a $16.6 million term extension, with no payment defaults on modified loans within the previous 12 months[53][54] Note 6. Goodwill and Other Intangible Assets This note provides information on goodwill and other intangible assets, including amortization and impairment assessments - Goodwill remained stable at $12.9 million at June 30, 2025, and December 31, 2024, with no impairment charges recognized since acquisition[56] - Core deposit intangibles are amortized, with a weighted-average amortization period of 3.8 years remaining at June 30, 2025[56] Note 7. Other Real Estate (ORE) This note details the company's other real estate owned, including changes in its balance and composition ORE Category | ORE Category (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :------------ | :---------------- | :----- | | Residential | $192 | $226 | $(34) | | Construction & land development | $7,384 | $3 | $7,381 | | Non-farm non-residential | $81 | $90 | $(9) | | Total ORE | $7,657 | $319 | $7,338 | - Other real estate owned (OREO) significantly increased to $7.7 million at June 30, 2025, from $0.3 million at December 31, 2024, primarily due to a $7.4 million land development project[57] Note 8. Borrowings This note describes the company's borrowing activities, including debt conversions, interest payments, and covenant compliance - First Guaranty exchanged $15.0 million of floating rate subordinated debt for 1,981,506 shares of common stock with a related party[58] - The company issued 36,060 shares of common stock for payment-in-kind (PIK) interest on senior debt and 52,422 shares for PIK interest on subordinated debt for the quarter ended June 30, 2025[61] - A waiver was obtained for a breach of a financial covenant (adjusted Texas Ratio exceeding 35%) under its senior debt credit agreement, effective through March 31, 2026, resulting in a 1% interest rate increase for Q2 2025[60] Note 9. Commitments and Contingencies This note outlines the company's off-balance-sheet commitments and potential liabilities from legal proceedings Commitment Type | Commitment Type (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :----------------------------- | :------------ | :---------------- | :----- | | Commitments to Extend Credit | $72,011 | $134,178 | $(62,167) | | Unfunded Commitments under lines of credit | $164,845 | $186,006 | $(21,161) | | Commercial and Standby letters of credit | $13,526 | $13,576 | $(50) | - The provision for credit losses on unfunded commitments was a reversal of $0.5 million for the six months ended June 30, 2025, reducing the ACL on off-balance-sheet credit exposures to $0.7 million[65] - First Guaranty is a defendant in a lawsuit alleging fraud-related loss of funds by a customer, with a possible loss range of $0.0 million to $1.5 million, for which no liability has been accrued[66] Note 10. Leases This note provides details on the company's lease arrangements, including sale-leaseback transactions and lease assets/liabilities - First Guaranty completed a sale-leaseback transaction on June 28, 2024, selling three properties for $14.7 million and concurrently entering into 15-year absolute net lease agreements, resulting in a pre-tax gain of $13.3 million[68][69] - Operating lease ROU assets were $11.3 million and related operating lease liabilities were $11.4 million at June 30, 2025[71] - Operating lease expense, including short-term leases, was $0.8 million for the six months ended June 30, 2025, compared to $0.2 million for the same period in 2024[72] Note 11. Fair Value Measurements This note explains the methodology and hierarchy used for fair value measurements of financial instruments - Fair value measurements are categorized into a three-level hierarchy based on the observability of inputs, with Level 1 for quoted prices in active markets, Level 2 for significant observable inputs, and Level 3 for significant unobservable inputs[74][75][76] Fair Value Measurement | Fair Value Measurement (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Available for Sale Securities | | | | Level 1 | $49,615 | $147,780 | | Level 2 | $342,139 | $127,222 | | Level 3 | $5,819 | $6,095 | | Total AFS Securities | $397,573 | $281,097 | | Loans Individually Evaluated for Impairment (Level 3) | $73,019 | $50,449 | | Other Real Estate Owned (Level 2) | $7,657 | $319 | Note 12. Financial Instruments This note provides fair value estimates for various financial instruments, comparing them to their carrying amounts - Fair value estimates are subjective and depend on assumptions like discount rates, risks, future cash flows, and market information, and may not reflect immediate settlement values[86][87] - Fair values for investment securities are based on quoted market prices or discounted cash flow analyses, while loans are valued using net present value formulas with appropriate discount rates[90][92] Financial Instrument | Financial Instrument (in thousands) | Carrying Amount (June 30, 2025) | Fair Value (June 30, 2025) | | :---------------------------------- | :------------------------------ | :------------------------- | | Assets | | | | Cash and due from banks | $714,313 | $714,313 | | Securities, available for sale | $397,573 | $397,573 | | Securities, held for maturity | $322,149 | $260,080 | | Loans, net | $2,351,634 | $2,316,332 | | Liabilities | | | | Deposits | $3,481,338 | $3,488,045 | | Long-term advances from FHLB | $135,000 | $136,225 | | Senior long-term debt | $14,186 | $14,266 | | Junior subordinated debentures | $29,775 | $29,775 | Note 13. Segment Reporting This note clarifies the company's operating segments and how financial performance is reported - First Guaranty operates as a single operating segment, providing banking, financial, and trust services, with the President and CEO acting as the chief operating decision maker[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on First Guaranty's financial condition and results of operations for the second quarter and six months ended June 30, 2025, compared to the prior year. It highlights key financial trends, strategic initiatives, and factors influencing performance, including loan portfolio management, credit quality, and capital actions Overview and Forward-Looking Statements This section provides an overview of the financial discussion and highlights the nature of forward-looking statements - The discussion highlights significant factors affecting First Guaranty's financial condition and results, derived from unaudited consolidated financial statements[103] - The report contains forward-looking statements, subject to various factors and uncertainties, including economic conditions, competition, interest rate changes, and regulatory policies[104] Second Quarter and Six Months Ended June 30, 2025, Financial Overview This section summarizes the company's financial performance for the second quarter and six months, highlighting key trends and metrics - First Guaranty reported a net loss of $(7.3) million for Q2 2025 and $(13.5) million for the six months ended June 30, 2025, a significant decrease from net income in the prior year periods, primarily driven by increased provision for credit losses[106] - The company continued its strategy to reduce risk in the loan portfolio, decreasing non-performing assets by $6.8 million and total loans by $283.3 million (10.5%) from December 31, 2024[106] Financial Overview Metrics | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Allowance for Credit Losses (ACL) | $58.9 million | $34.8 million | $24.1 million | | ACL as % of Total Loans | 2.44% | 1.29% | 1.15 pp | | Nonaccrual Loans | $119.2 million | $108.5 million | $10.7 million | | Book Value Per Common Share | $15.21 | $17.75 | $(2.54) | Financial Condition This section details the changes in First Guaranty's balance sheet components, including assets, liabilities, and shareholders' equity, from December 31, 2024, to June 30, 2025. It covers shifts in loan portfolio composition, investment securities, nonperforming assets, allowance for credit losses, deposits, and borrowings, along with the impact on capital Assets This section details the changes in the company's asset composition, including loans, cash, and investment securities - Total assets decreased by $3.1 million to $4.0 billion at June 30, 2025, primarily due to a $307.3 million decrease in net loans, partially offset by increases in cash and cash equivalents ($150.7 million) and investment securities ($117.0 million)[110] Loans This section provides an in-depth analysis of the loan portfolio, including changes in balances, composition, and credit quality - Net loans decreased by $307.3 million (11.6%) to $2.4 billion at June 30, 2025, driven by reductions in non-farm non-residential, construction & land development, and commercial lease loans[111] - The loan portfolio is 80.1% secured by real estate, with 55.3% based on a floating rate, and 46.2% scheduled to mature within five years[112] - Classified assets increased due to a $91.7 million rise in substandard loans and a $60.9 million increase in special mention loans, resulting from downgrades of various loan relationships[115] Investment Securities This section details the composition and changes in the investment securities portfolio, including available-for-sale and held-to-maturity categories - Investment securities increased by $117.0 million to $719.7 million at June 30, 2025, with available-for-sale (AFS) securities rising by $116.5 million (41.4%) due to purchases of collateralized mortgage obligations and mortgage-backed securities[118][120] - The portfolio consists primarily of U.S. Government and agency securities, with a forecasted weighted average life of approximately 7.01 years and an effective duration of 5.24 years at June 30, 2025[119][122] - There were no credit-related impairments for AFS securities or provisions for credit losses on held-to-maturity (HTM) securities during the six months ended June 30, 2025 or 2024[123] Nonperforming Assets This section analyzes trends in nonperforming assets, including nonaccrual loans and other real estate owned Nonperforming Assets Summary | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Total nonaccrual loans | $119,179 | $108,529 | $10,650 | | Loans 90 days and greater delinquent & accruing | $284 | $11,502 | $(11,218) | | Total nonperforming loans | $119,463 | $120,031 | $(568) | | Total Real Estate Owned | $7,657 | $319 | $7,338 | | Total nonperforming assets | $127,120 | $120,350 | $6,770 | | Nonperforming assets to total assets | 3.20% | 3.03% | 0.17 pp | | Nonaccrual loans to total loans | 4.94% | 4.03% | 0.91 pp | - The largest non-performing loan relationships include a $27.5 million loan secured by an independent living center, a $25.9 million multifamily apartment complex loan, and a $15.6 million assisted living center loan, all on nonaccrual status[130] - Other real estate owned (OREO) increased by $7.3 million to $7.7 million, primarily due to a $7.4 million land development project under contract for sale in Q4 2025[130] Allowance for Credit Losses This section discusses the allowance for credit losses, including changes in the provision, charge-offs, and overall coverage - The allowance for credit losses (ACL) on loans was $58.9 million, or 2.44% of total loans, at June 30, 2025, compared to $34.8 million, or 1.29%, at December 31, 2024[136] - A provision for credit losses of $31.2 million was made during the six months ended June 30, 2025, significantly higher than $9.1 million in the prior year, driven by increased reserves on individually evaluated loans and charge-offs[138][185] - Total charge-offs for the six months ended June 30, 2025, were $8.0 million, concentrated in commercial and industrial, lease, consumer, and construction & land development loans[141][185] Deposits This section details the composition and changes in the company's deposit base, including interest-bearing and noninterest-bearing accounts - Total deposits increased by $5.1 million (0.1%) to $3.5 billion from December 31, 2024, to June 30, 2025[143] Deposit Type | Deposit Type (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :------------ | :---------------- | :----- | | Noninterest-bearing demand | $442,267 | $404,056 | $38,211 | | Interest-bearing demand | $1,402,960 | $1,387,068 | $15,892 | | Savings | $247,120 | $234,444 | $12,676 | | Time | $1,388,991 | $1,450,692 | $(61,701) | | Total Deposits | $3,481,338 | $3,476,260 | $5,078 | - Public funds deposits totaled $1.1 billion at June 30, 2025, representing 31.8% of total deposits, with $514.7 million collateralized by reciprocal deposit insurance programs[150][152] Borrowings This section outlines the company's borrowing activities, including short-term and long-term debt and related changes - Short-term borrowings (repurchase agreements) increased slightly to $7.1 million at June 30, 2025, from $7.0 million at December 31, 2024[153] - Long-term advances from the FHLB remained at $135.0 million, consisting of two advances maturing in 2027[154] - Senior long-term debt decreased to $14.2 million, and subordinated debt decreased to $29.8 million at June 30, 2025, from $15.2 million and $44.7 million, respectively, at December 31, 2024[155] Total Shareholders' Equity This section explains the changes in total shareholders' equity, including contributions from stock issuance and retained earnings - Total shareholders' equity increased to $263.1 million at June 30, 2025, from $255.0 million at December 31, 2024[156] - The increase was driven by a $17.7 million increase in surplus, a $2.7 million decrease in accumulated other comprehensive loss, and a $2.6 million increase in common stock, partially offset by a $14.9 million decrease in retained earnings due to net loss and dividends[156] Results of Operations for the Second Quarter Ended June 30, 2025 and 2024 This section analyzes the company's financial performance for the three and six months ended June 30, 2025, compared to the same periods in 2024, focusing on net interest income, noninterest income, noninterest expense, and income taxes Performance Summary This section provides a high-level summary of the company's financial performance for the reported periods, focusing on net loss and earnings per share - Net loss for the three months ended June 30, 2025, was $7.3 million, a $14.5 million decrease from net income of $7.2 million in the prior year, primarily due to increased provision for credit losses and decreased noninterest income[157] - Loss per common share was $(0.61) for the three months and $(1.15) for the six months ended June 30, 2025, compared to earnings of $0.53 and $0.67, respectively, in the prior year periods[157][158] Net Interest Income This section analyzes the components of net interest income, including interest income, interest expense, and net interest margin - Net interest income increased to $22.2 million for Q2 2025 (from $21.2 million in Q2 2024) and to $44.5 million for the six months ended June 30, 2025 (from $43.2 million in 2024)[162][163] - The net interest margin decreased by 14 basis points to 2.34% for Q2 2025 and by 18 basis points to 2.35% for the six months ended June 30, 2025, compared to the prior year periods[162][163] - The increase in net interest income was primarily due to an increase in average interest-earning assets and a decrease in the average rate of interest-bearing liabilities, partially offset by a decrease in the average yield of interest-earning assets[162][163] Interest Income This section details the sources and changes in interest income, primarily from loans and investment securities - Total interest income increased by $0.7 million (1.2%) to $54.3 million for Q2 2025 and by $2.2 million (2.1%) to $108.8 million for the six months ended June 30, 2025[164][168] - Interest income on loans decreased by $6.5 million (13.8%) for Q2 2025 and $10.5 million (11.1%) for the six months, due to lower average balances and yields[166][170] - Interest income on securities increased by $3.3 million for Q2 2025 and $6.3 million for the six months, driven by higher average balances and yields in the investment portfolio[165][169] Interest Expense This section analyzes the components and changes in interest expense, primarily from interest-bearing deposits and borrowings - Total interest expense decreased by $0.3 million (1.0%) to $32.1 million for Q2 2025, but increased by $0.9 million (1.5%) to $64.3 million for the six months ended June 30, 2025[172][173] - The average rate of interest-bearing demand deposits decreased to 3.73% for Q2 2025 and 3.67% for the six months, primarily due to repricing of public funds indexed to Treasury rates[172][173] - The average balance of interest-bearing liabilities increased by $342.7 million for Q2 2025 and $376.7 million for the six months, mainly due to growth in interest-bearing deposits[172][173] Average Balance Sheets, Yields and Costs This section presents average balance sheet data, yields on earning assets, and costs of interest-bearing liabilities to derive net interest margin Average Balance Sheets, Yields and Costs | Metric (in thousands, except %) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Average Interest-Earning Assets | $3,808,097 | $3,449,900 | $3,820,935 | $3,432,979 | | Average Yield on Earning Assets | 5.72% | 6.25% | 5.74% | 6.24% | | Average Interest-Bearing Liabilities | $3,218,257 | $2,875,514 | $3,236,248 | $2,859,552 | | Average Rate on Liabilities | 4.00% | 4.53% | 4.01% | 4.46% | | Net Interest Rate Spread | 1.72% | 1.72% | 1.73% | 1.78% | | Net Interest Margin | 2.34% | 2.48% | 2.35% | 2.53% | Provision for Credit Losses This section details the provision for credit losses, explaining the factors contributing to its changes - The provision for credit losses increased to $16.6 million for Q2 2025 (from $6.8 million in Q2 2024) and to $31.2 million for the six months ended June 30, 2025 (from $9.1 million in 2024)[184][185] - The increase was primarily due to higher reserves on individually evaluated loans and charge-offs related to loan sales in Q1 2025[184][185] - Total charge-offs were $1.1 million for Q2 2025 and $8.0 million for the six months ended June 30, 2025, with no provision for credit losses on AFS or HTM securities[184][185][187] Noninterest Income This section analyzes the components and changes in noninterest income, excluding interest-related revenues - Noninterest income decreased significantly to $2.2 million for Q2 2025 (from $15.5 million in Q2 2024) and to $4.5 million for the six months ended June 30, 2025 (from $17.8 million in 2024)[189][190] - The primary driver for the decrease was the absence of net gains on the sale of assets, which included a $13.2 million gain from a sale-leaseback transaction in Q2 2024[189][190] Noninterest Expense This section details the components and changes in noninterest expense, including salaries, benefits, and professional fees - Noninterest expense decreased to $17.3 million for Q2 2025 (from $20.6 million in Q2 2024) and to $35.3 million for the six months ended June 30, 2025 (from $39.5 million in 2024)[191][192] - The decrease was primarily due to reduced salaries and employee benefits, and lower legal and professional fees[191][192][193] Other Noninterest Expense | Other Noninterest Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Legal and professional fees | $671 | $1,504 | $1,759 | $2,477 | | Software expense and amortization | $1,188 | $1,367 | $2,404 | $2,620 | | Regulatory assessment | $1,609 | $989 | $3,153 | $1,922 | Income Taxes This section explains the company's income tax expense or benefit and the factors influencing its effective tax rate - First Guaranty recorded an income tax benefit of $2.2 million for Q2 2025 and $4.0 million for the six months ended June 30, 2025, compared to a provision of $2.2 million and $2.8 million, respectively, in the prior year periods[194][195] - The shift to a tax benefit was due to a decrease in income before income taxes, with a statutory tax rate of 21.0% for both periods[194][195] Liquidity and Capital Resources This section discusses First Guaranty's liquidity position, including cash flows and borrowing capacities, and its capital resources, highlighting changes in shareholders' equity and compliance with regulatory capital requirements Liquidity This section discusses the company's liquidity position, including cash levels and available borrowing capacities - Cash and cash equivalents increased to $714.9 million at June 30, 2025, from $564.2 million at December 31, 2024[197] - First Guaranty maintained a net borrowing capacity of $247.2 million at the Federal Home Loan Bank (FHLB) and $93.0 million in federal funds lines of credit at correspondent banks[198] - The company also has a discount window line with the Federal Reserve Bank totaling $239.6 million, with no advances outstanding at June 30, 2025[198] Capital Resources This section details the company's capital resources, focusing on changes in shareholders' equity and capital generation - Total shareholders' equity increased to $263.1 million at June 30, 2025, from $255.0 million at December 31, 2024[200] - The increase was primarily due to a $17.7 million increase in surplus and a $2.6 million increase in common stock from subordinated debt conversion and private placement, and a $2.7 million decrease in accumulated other comprehensive loss, partially offset by a $14.9 million decrease in retained earnings[200] Regulatory Capital This section outlines the company's compliance with regulatory capital requirements and its 'well capitalized' status - First Guaranty and First Guaranty Bank satisfied all minimum regulatory capital requirements and were considered 'well capitalized' at June 30, 2025[205] Capital Ratios | Capital Ratio | Well Capitalized Minimums | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | :---------------------- | | Bank Tier 1 Leverage Ratio | 5.00% | 7.65% | 7.82% | | Consolidated Tier 1 Leverage Ratio | 5.00% | 6.65% | 6.42% | | Bank Common Equity Tier One Capital Ratio | 6.50% | 11.78% | 11.00% | | Consolidated Common Equity Tier One Capital Ratio | 6.50% | 8.93% | 7.87% | - The Bank's capital conservation buffer was 5.03% and First Guaranty's was 4.24% at June 30, 2025, both exceeding the minimum of 2.50%[202] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section describes First Guaranty's approach to managing market risk, particularly interest rate risk, through its asset/liability management (ALM) process. It outlines the company's interest sensitivity position and strategies to mitigate exposure to interest rate fluctuations Asset/Liability Management and Market Risk This section describes the company's strategy for managing interest rate risk through its asset/liability management process - First Guaranty's ALM process quantifies, analyzes, and controls interest rate risk (IRR) to maintain stable net interest income, overseen by management and board committees[207][208] - The company has generally been liability-sensitive and is working to reduce this by creating a more balanced mix of rate-sensitive assets and liabilities, including purchasing amortizing mortgage-backed securities and short-term U.S. Treasury securities[209] Interest Sensitivity | Interest Sensitivity (in thousands, except %) | 3 Months Or Less | Over 3 Months thru 12 Months | Total One Year | Over One Year | | :------------------------------------------ | :--------------- | :--------------------------- | :------------- | :------------ | | Total Earning Assets | $1,567,470 | $450,204 | $2,017,674 | $1,789,193 | | Total Source of Funds | $1,860,844 | $698,275 | $2,559,119 | $1,247,748 | | Period Gap | $(293,374) | $(248,071) | $(541,445) | $541,445 | | Cumulative Gap | $(293,374) | $(541,445) | $(541,445) | $0 | | Cumulative Gap as a percent of earning assets | (7.7)% | (14.2)% | (14.2)% | | Item 4. Controls and Procedures This section addresses the effectiveness of First Guaranty's disclosure controls and internal control over financial reporting. It identifies a material weakness related to loan operations quality control and outlines the remediation steps taken Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of the company's disclosure controls and procedures, noting any material weaknesses - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness in internal control over financial reporting[214] - Despite the material weakness, management believes the consolidated financial statements fairly present the company's financial condition, results of operations, and cash flows[216] Material Weakness in Internal Control Over Financial Reporting This section identifies and describes a specific material weakness in the company's internal control over financial reporting - A material weakness was identified in the company's internal control over financial reporting, specifically relating to the timely performance of controls in the loan operations quality control review function for new loans[217] Remediation Steps and Changes in Internal Control Over Financial Reporting This section outlines the actions taken to remediate identified material weaknesses and other control changes - Remediation steps include new leadership for the loan operations department, additional staff for quality control, and enhanced monitoring processes[218][219] - Other than the described material weakness and remediation, there were no other material changes in internal control over financial reporting during the last fiscal quarter[218] PART II. OTHER INFORMATION This section provides additional disclosures, including legal proceedings, risk factors, equity sales, and other required information Item 1. Legal Proceedings This section details the company's involvement in legal actions and management's assessment of potential financial impact - First Guaranty Bank is a defendant in a lawsuit alleging fault for a customer's loss of funds due to third-party fraud, with a possible loss range of $0.0 million to $1.5 million, for which no liability has been accrued[220] - Management believes current legal proceedings are not expected to have a material adverse effect on consolidated results, financial condition, or cash flows, though unfavorable outcomes could be costly[220] Item 1A. Risk Factors This section highlights key risks, including a newly identified material weakness, that could affect the company's operations and financial results - The company has identified a material weakness in its internal control over financial reporting, which could materially and adversely affect its business, financial condition, results of operations, and stock price[222][223] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the issuance of equity securities not registered under the Securities Act and the application of proceeds - On June 30, 2025, First Guaranty issued 2,231,748 shares of common stock for aggregate proceeds of $15.1 million through a private placement and the conversion of subordinated debt[228] - The proceeds from these transactions were used for general corporate purposes, including supporting continued growth and enhancing regulatory capital ratios[228] Item 3. Defaults Upon Senior Securities This section confirms the absence of any defaults on senior securities during the reporting period - There were no defaults upon senior securities during the period[225] Item 4. Mine Safety Disclosures This section states the inapplicability of mine safety disclosure requirements to the registrant - Mine safety disclosures are not applicable to the registrant[226] Item 5. Other Information This section provides supplementary information, including further details on equity transactions and trading arrangements - On June 30, 2025, First Guaranty issued 2,231,748 shares of common stock for $15.1 million through a private placement and debt conversion, with proceeds used for general corporate purposes and to enhance regulatory capital ratios[228] - No First Guaranty officer or director adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading agreement" during the six months ended June 30, 2025[230] Item 6. Exhibits This section lists all supporting documents and certifications filed as exhibits to the report - The report includes various exhibits such as Restated Articles of Incorporation, Bylaws, Common Stock and Preferred Stock forms, Subordinated Notes, Exchange Agreements, and certifications by the CEO and CFO[232] Signatures This section contains the official certifications by the company's principal executive and financial officers - The report is signed by Michael R. Mineer, President and Chief Executive Officer, and Eric J. Dosch, Chief Financial Officer, Secretary and Treasurer, on August 18, 2025[237]