FIRST GTY BANCSH(FGBIP) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details the company's financial statements, management's analysis, market risk, and internal control effectiveness Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and notes Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and shareholders' equity Consolidated Balance Sheet Highlights (in millions) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Assets | | | | Cash and cash equivalents | $714.87 | $564.21 | | Investment securities | $719.72 | $602.72 | | Net loans | $2,351.63 | $2,658.97 | | Total Assets | $3,969.58 | $3,972.73 | | Liabilities | | | | Total deposits | $3,481.34 | $3,476.26 | | Total Liabilities | $3,706.49 | $3,717.68 | | Shareholders' Equity | | | | Total Shareholders' Equity | $263.09 | $255.05 | Consolidated Statements of Income This section presents the company's financial performance over specific periods, detailing revenues, expenses, and net income Consolidated Statements of Income Highlights (in millions, except share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | $54.32 | $53.65 | $108.78 | $106.56 | | Total Interest Expense | $32.08 | $32.41 | $64.32 | $63.40 | | Net Interest Income | $22.24 | $21.24 | $44.46 | $43.16 | | Provision for credit losses | $16.61 | $6.81 | $31.16 | $9.11 | | Total Noninterest Income | $2.16 | $15.53 | $4.51 | $17.83 | | Total Noninterest Expense | $17.27 | $20.61 | $35.28 | $39.54 | | Net (Loss) Income | $(7.30) | $7.20 | $(13.47) | $9.51 | | Net (Loss) Income Available to Common Shareholders | $(7.89) | $6.62 | $(14.63) | $8.35 | | (Loss) Earnings Per Common Share | $(0.61) | $0.53 | $(1.15) | $0.67 | | Cash dividends paid per share | $0.01 | $0.16 | $0.02 | $0.32 | Consolidated Statements of Comprehensive Income This section reports the total comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income Highlights (in millions) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (Loss) Income | $(7.30) | $7.20 | $(13.47) | $9.51 | | Other comprehensive income | $0.97 | $0.21 | $2.66 | $0.83 | | Comprehensive (Loss) Income | $(6.33) | $7.41 | $(10.81) | $10.35 | Consolidated Statements of Shareholders' Equity This section details changes in the company's shareholders' equity over time, including preferred stock, common stock, surplus, and retained earnings Shareholders' Equity Changes (in millions) | Item | Balance December 31, 2024 | Balance June 30, 2025 | | :----------------------------------- | :------------------------ | :-------------------- | | Preferred Stock | $33.06 | $33.06 | | Common Stock | $12.51 | $15.12 | | Surplus | $149.39 | $167.04 | | Retained Earnings | $72.97 | $58.08 | | Accumulated Other Comprehensive (Loss) Income | $(12.87) | $(10.21) | | Total Shareholders' Equity | $255.05 | $263.09 | - Total Shareholders' Equity increased by $8.0 million from December 31, 2024, to June 30, 2025, primarily due to an increase in surplus and common stock from private placements and subordinated debt conversion, partially offset by a net loss and common stock dividends[14] Consolidated Statements of Cash Flows This section reports the cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in millions) | Activity | 2025 | 2024 | | :----------------------------------- | :--------- | :--------- | | Net Cash (Used In) Provided By Operating Activities | $(12.93) | $9.90 | | Net Cash Provided By (Used In) Investing Activities | $156.27 | $(35.27) | | Net Cash Provided By Financing Activities | $7.32 | $37.88 | | Net Increase In Cash and Cash Equivalents | $150.66 | $12.51 | | Cash and Cash Equivalents at the End of the Period | $714.87 | $298.97 | - Noncash activities for the six months ended June 30, 2025, included the acquisition of real estate in settlement of loans ($7.5 million), common stock issued for debt conversion ($15.0 million), and common stock issued for payment-in-kind ($0.7 million)[16] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and additional information supporting the unaudited consolidated financial statements Note 1. Basis of Presentation This note describes the accounting principles and estimation methods used in preparing the unaudited financial statements - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, including all necessary normal recurring adjustments[17][19] - Management's estimates, particularly for allowance for credit losses, real estate valuation, and investment securities, are susceptible to change[17][19] Note 2. Recent Accounting Pronouncements This note discusses the impact of recently issued accounting standards 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 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 detailed information on the company's investment securities portfolio, including classification, fair value, and unrealized gains or losses Securities Portfolio (in millions) | Category | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :----------------------------------- | :----------------------- | :------------------------- | | Available for sale | $397.57 | $281.10 | | Held to maturity (estimated fair value) | $260.08 | $251.46 | | Total Investment Securities | $757.65 | $532.56 | Unrealized Losses on Securities (June 30, 2025, in millions) | Category | Gross Unrealized Losses | | :----------------------------------- | :---------------------- | | Available for sale | $(2.02) | | Held to maturity | $(62.22) | - At June 30, 2025, 178 debt securities had unrealized losses totaling 12.7% of their amortized cost basis, with 129 securities in a continuous loss position for over 12 months[28][30][31] - Management intends and has the ability to hold these securities until maturity or anticipated recovery, believing no credit-related impairment exists for U.S. Government and Government-sponsored enterprise securities[28][30][31] - As of June 30, 2025, $488.2 million of securities were pledged to secure public funds deposits and borrowings, with a market value of $439.1 million[24] Note 4. Loans This note provides a detailed breakdown of the loan portfolio, including composition, credit quality, and nonaccrual status Loan Portfolio Composition (in millions) | Loan Type | June 30, 2025 Balance | December 31, 2024 Balance | | :----------------------------------- | :---------------------- | :------------------------ | | Real Estate Loans | $1,938.93 | $2,141.37 | | Non-Real Estate Loans | $478.42 | $560.71 | | Total Loans Net of Unearned Income | $2,410.51 | $2,693.78 | Past Due Loans (June 30, 2025, in millions) | Category | 30-89 Days Past Due | 90 Days or Greater Past Due | | :----------------------------------- | :------------------ | :-------------------------- | | Total Real Estate | $6.69 | $110.04 | | Total Non-Real Estate | $1.17 | $9.43 | | Total Past Due Loans | $7.86 | $119.46 | Nonaccrual Loans (in millions) | Category | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total Nonaccrual Loans | $119.18 | $108.53 | - The loan portfolio saw a decrease in total loans net of unearned income by $283.3 million from December 31, 2024, to June 30, 2025[35] - Real estate loans constitute 80.1% of the portfolio, with non-farm non-residential loans being the largest segment at 43.5%[35][112] - Nonaccrual loans increased by $10.7 million to $119.2 million at June 30, 2025, compared to December 31, 2024[39][41][51] - Loans 90 days or greater past due and still accruing significantly decreased from $11.5 million to $0.3 million in the same period[39][41][51] Note 5. Allowance for Credit Losses on Loans This note details the allowance for credit losses on loans, including changes, evaluation methods, and related provisions Allowance for Credit Losses (ACL) on Loans (Six Months Ended June 30, in millions) | Item | 2025 | 2024 | | :----------------------------------- | :--------- | :--------- | | Beginning Allowance | $34.81 | $30.93 | | Charge-offs | $(8.02) | $(11.05) | | Recoveries | $0.41 | $0.50 | | Provision | $31.67 | $9.91 | | Ending Allowance | $58.87 | $30.29 | ACL by Evaluation Method (June 30, 2025, in millions) | Evaluation Type | Allowance for Credit Losses | | :----------------------------------- | :-------------------------- | | Individually Evaluated | $22.23 | | Collectively Evaluated | $36.64 | | Total | $58.87 | - The allowance for credit losses increased significantly to $58.9 million at June 30, 2025, from $34.8 million at December 31, 2024, primarily driven by a $31.7 million provision for credit losses in the first six months of 2025[48][138][142] - This increase reflects changes in the loan portfolio's composition and credit quality, including increased reserves on individually evaluated loans[48][138][142] - All loans individually evaluated for impairment at June 30, 2025, were considered collateral-dependent loans, with the ACL based on the fair value of the underlying collateral[52] Note 6. Goodwill and Other Intangible Assets This note provides information on the company's goodwill and other intangible assets, including their carrying amounts and amortization policies Goodwill and Intangible Assets (in millions) | Asset Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Goodwill | $12.90 | $12.90 | | Intangible assets, net | $3.06 | $3.47 | | Loan servicing assets | $0.30 | $0.40 | | Core deposit intangibles (amortized) | Included in Intangible assets, net | Included in Intangible assets, net | - Goodwill remained stable at $12.9 million, with no impairment charges recognized[56] - Core deposit intangibles, amortized over a weighted-average period of 3.8 years, reflect the value of deposit relationships from acquisitions[56] Note 7. Other Real Estate (ORE) This note details the company's other real estate owned (OREO), including its composition and changes over the period Other Real Estate Owned (OREO) (in millions) | Category | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Residential | $0.19 | $0.23 | | Construction & land development | $7.38 | $0.00 | | Non-farm non-residential | $0.08 | $0.09 | | Total Net OREO | $7.66 | $0.32 | - Net Other Real Estate Owned 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 acquired by foreclosure[57] Note 8. Borrowings This note provides information on the company's various borrowing arrangements, including subordinated debt, senior debt, and related terms - First Guaranty exchanged $15.0 million in subordinated debt for 1,981,506 shares of common stock during Q2 2025[58][59] - Amendments to senior and subordinated debt notes allow for interest payments in cash or common stock through March 2026[58][59] - The company issued 36,060 shares of common stock for PIK interest on senior debt and 52,422 shares for PIK interest on $30.0 million subordinated debt for Q2 2025[61] - A financial covenant breach (adjusted Texas Ratio exceeding 35%) on senior debt at March 31, 2025, led to a 1% interest rate increase to 8.0% for Q2 2025, but a waiver was provided by the lender through March 31, 2026[60] Note 9. Commitments and Contingencies This note outlines the company's off-balance sheet commitments, such as credit extensions and letters of credit, and discusses legal contingencies Off-Balance Sheet Commitments (in millions) | Commitment Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Commitments to Extend Credit | $72.01 | $134.18 | | Unfunded Commitments under lines of credit | $164.85 | $186.01 | | Commercial and Standby letters of credit | $13.53 | $13.58 | - 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[66] - No liability has been accrued, and management believes current legal proceedings will not have a material adverse effect[66] Note 10. Leases This note provides information on the company's lease arrangements, including operating lease assets, liabilities, and future minimum lease payments - On June 28, 2024, First Guaranty sold three properties for approximately $14.7 million in a sale-leaseback transaction, resulting in a pre-tax gain of $13.3 million[68][69] - Concurrently, it entered into 15-year absolute net lease agreements with annual payments of approximately $1.3 million[68][69] Operating Lease Information (in millions) | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Operating ROU assets | $11.30 | $11.60 | | Operating lease liabilities | $11.40 | $11.60 | Minimum Lease Payments (June 30, 2025, in millions) | Year | Amount | | :----------------------------------- | :------- | | 2025 | $0.70 | | 2026 | $1.41 | | 2027 | $1.41 | | 2028 | $1.35 | | 2029 | $1.31 | | Thereafter | $12.80 | | Total Lease Payments | $18.97 | Note 11. Fair Value Measurements This note describes the methodologies and assumptions used to determine the fair value of financial instruments, categorized by valuation input levels Available for Sale Securities Fair Value Measurements (in millions) | Level | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Level 1 (Quoted Prices in Active Markets) | $49.62 | $147.78 | | Level 2 (Significant Other Observable Inputs) | $342.14 | $127.22 | | Level 3 (Significant Unobservable Inputs) | $5.82 | $6.10 | | Total AFS Securities | $397.57 | $281.10 | Non-Recurring Fair Value Measurements (in millions) | Item | June 30, 2025 (Level 3) | December 31, 2024 (Level 3) | | :----------------------------------- | :---------------------- | :-------------------------- | | Loans Individually Evaluated for Impairment | $73.02 | $50.45 | | Other Real Estate Owned (Level 2) | $7.66 | $0.32 | - The change in Level 1 AFS securities was a net decrease of $98.2 million, primarily due to a reduction in Treasury bills[82] - There were no transfers between Level 1, 2, or 3 for AFS securities during the period[82] Note 12. Financial Instruments This note provides information on the carrying amounts and estimated fair values of various financial instruments - Fair value estimates are subjective and based on assumptions like discount rates, future cash flows, and market information[86][87][88] - They are not necessarily indicative of net realizable value or future fair values, nor do they account for premiums/discounts from ownership concentrations or tax ramifications[86][87][88] Carrying Amounts and Estimated Fair Values of Financial Instruments (June 30, 2025, in millions) | Item | Carrying Amount | Total Fair Value | | :----------------------------------- | :-------------- | :--------------- | | Assets | | | | Cash and due from banks | $714.31 | $714.31 | | Federal funds sold | $0.56 | $0.56 | | Securities, available for sale | $397.57 | $397.57 | | Securities, held for maturity | $322.15 | $260.08 | | Loans, net | $2,351.63 | $2,316.33 | | Accrued interest receivable | $13.31 | $13.31 | | Liabilities | | | | Deposits | $3,481.34 | $3,488.05 | | Repurchase agreements | $7.12 | $7.13 | | Accrued interest payable | $19.50 | $19.50 | | Long-term advances from FHLB | $135.00 | $136.23 | | Senior long-term debt | $14.19 | $14.27 | | Junior subordinated debentures | $29.78 | $29.78 | Note 13. Segment Reporting This note clarifies that First Guaranty operates as a single operating segment, providing banking, financial, and trust services - First Guaranty operates as a single operating segment, providing banking, financial, and trust services[102] - The CEO, as CODM, manages the business using consolidated net income, with interest income and expense being the most significant sources of income and expense[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, highlighting key factors and trends Financial Overview This section summarizes the company's financial performance, strategic initiatives, and key financial metrics for the reported periods - First Guaranty continued its strategy to reduce loan portfolio risk, decreasing non-performing assets by $6.8 million in Q2 2025 and reducing commercial real estate (CRE) secured loans[106] - The company anticipates further reductions in CRE loans in 2025[106] Key Financial Highlights (in millions, except share data and percentages) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net (Loss) Income | $(7.30) | $7.20 | $(13.47) | $9.51 | | (Loss) Earnings Per Common Share | $(0.61) | $0.53 | $(1.15) | $0.67 | | Provision for Credit Losses | $16.61 | $6.81 | $31.16 | $9.11 | | Net Interest Income | $22.24 | $21.24 | $44.46 | $43.16 | | Noninterest Expense | $17.27 | $20.61 | $35.28 | $39.54 | | Net Interest Margin | 2.34% | 2.48% | 2.35% | 2.53% | Balance Sheet Highlights (in millions, except percentages) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total Assets | $3,969.58 | $3,972.73 | | Total Loans (net of unearned income) | $2,410.51 | $2,693.78 | | Allowance for Credit Losses (ACL) | $58.87 | $34.81 | | ACL as % of Total Loans | 2.44% | 1.29% | | Nonaccrual Loans | $119.18 | $108.53 | | Other Real Estate Owned | $7.66 | $0.32 | | Total Shareholders' Equity | $263.09 | $255.05 | | Book Value Per Common Share | $15.21 | $17.75 | - Noninterest expense decreased by $3.3 million (Q2 2025 vs Q2 2024), translating to an annual run rate savings of approximately $13.4 million, aligning with strategic plans[106][107] - The company also reduced full-time equivalent employees from 495 at June 30, 2024, to 360 at June 30, 2025[106][107] - Capital actions included issuing 1,981,506 common shares for $15.0 million in subordinated debt, a private placement of 161,760 common shares, and issuing 88,482 common shares for PIK interest on senior and subordinated debt[109] - Common stock dividends were reduced from $0.16 to $0.01 per share to increase capital[109] Financial Condition This section analyzes the company's balance sheet components, including loans, investment securities, nonperforming assets, and capital Loans This section analyzes the loan portfolio's composition, changes, and credit quality trends - Net loans decreased by $307.3 million (11.6%) to $2.4 billion at June 30, 2025, from December 31, 2024, driven by reductions in non-farm non-residential, construction & land development, and commercial lease loans due to sales, paydowns, and conversions[111] - The loan portfolio is 80.1% secured by real estate, with 43.5% in non-farm non-residential loans[112] - Approximately 55.3% of the portfolio is floating rate, and 46.2% is scheduled to mature within five years[112] - Classified assets increased due to a $91.7 million rise in substandard loans, resulting from downgrades of non-farm non-residential, construction & land development, and commercial loan relationships[115] - Special mention loans also increased by $60.9 million[115] Investment Securities This section reviews the investment securities portfolio, including its composition, changes, and maturity profile Investment Securities Portfolio (in millions) | Category | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total Investment Securities (net of ACL) | $719.70 | $602.70 | | Available for Sale (AFS) | $397.60 | $281.10 | | Held to Maturity (HTM) | $322.10 | $321.60 | - The AFS portfolio increased by $116.5 million (41.4%) due to purchases of collateralized mortgage obligations and mortgage-backed securities[120][121] - The HTM portfolio saw a slight increase of $0.5 million (0.2%)[120][121] - At June 30, 2025, 7.0% of the securities portfolio matures in less than one year, and the portfolio has a forecasted weighted average life of approximately 7.01 years with an effective duration of 5.24 years[122] Nonperforming Assets This section analyzes trends in nonperforming assets, including nonaccrual loans and other real estate owned Nonperforming Assets (in millions, except percentages) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total nonaccrual loans | $119.18 | $108.53 | | Loans 90 days and greater delinquent & accruing | $0.28 | $11.50 | | Total nonperforming loans | $119.46 | $120.03 | | Total Real Estate Owned | $7.66 | $0.32 | | Total nonperforming assets | $127.12 | $120.35 | | Nonperforming assets to total assets | 3.20% | 3.03% | | Nonaccrual loans to total loans | 4.94% | 4.03% | - Total nonperforming assets increased by $6.8 million (5.6%) to $127.1 million at June 30, 2025, primarily due to an increase in nonaccrual loans and other real estate owned, partially offset by a decrease in 90+ day delinquent loans[127] - The largest 6 non-performing loan relationships comprise 75% of total non-performing loans, including a $27.5 million independent living center loan and a $25.9 million multifamily apartment complex loan, both placed on nonaccrual in Q4 2024[130] Allowance for Credit Losses This section discusses the allowance for credit losses, including changes, provision amounts, and coverage ratios Allowance for Credit Losses (ACL) (in millions, except percentages) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | ACL on loans | $58.87 | $34.81 | | ACL as % of total loans | 2.44% | 1.29% | | ACL as % of nonperforming loans | 49.3% | 32.08% | Provision for Credit Losses (Six Months Ended June 30, in millions) | Year | Provision | | :----------------------------------- | :-------- | | 2025 | $31.16 | | 2024 | $9.11 | - The provision for credit losses significantly increased to $31.2 million for the six months ended June 30, 2025, from $9.1 million in the prior year, primarily due to increased reserves on individually evaluated loans and charge-offs from loan sales[138][185] - Loan charge-offs for the first six months of 2025 totaled $8.0 million, concentrated in construction & land development, commercial & industrial, commercial leases, and consumer loans[141][185] - Recoveries totaled $0.4 million[141][185] Deposits This section analyzes the company's deposit base, including composition, changes, and uninsured deposit levels Deposit Balances (in millions) | Deposit Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Noninterest-bearing demand | $442.27 | $404.06 | | Interest-bearing demand | $1,402.96 | $1,387.07 | | Savings | $247.12 | $234.44 | | Time | $1,388.99 | $1,450.69 | | Total Deposits | $3,481.34 | $3,476.26 | Public Funds Deposits (in millions, except percentages) | Public Fund Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total Public Funds | $1,106.91 | $1,046.80 | | Public Funds as % of Total Deposits | 31.8% | 30.1% | - Total deposits increased slightly by $5.1 million (0.1%) to $3.5 billion[143] - Noninterest-bearing demand deposits increased by $38.2 million (9.5%), while time deposits decreased by $61.7 million (4.3%), mainly due to brokered time deposits[143] - Uninsured deposits were estimated at $263.4 million, excluding collateralized public funds[146] - Including collateralized public funds, uninsured deposits totaled $838.6 million at June 30, 2025[146] Borrowings This section details the company's borrowing activities, including repurchase agreements, FHLB advances, and subordinated debt Borrowings (in millions) | Borrowing Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Repurchase agreements | $7.12 | $7.01 | | Long-term advances from FHLB | $135.00 | $135.00 | | Senior long-term debt | $14.19 | $15.17 | | Junior subordinated debentures | $29.78 | $44.75 | | FHLB letters of credit | $450.40 | $455.70 | - Long-term FHLB advances remained at $135.0 million[154][155] - Junior subordinated debentures decreased to $29.8 million from $44.7 million, reflecting the conversion of $15.0 million into common stock[154][155] Total Shareholders' Equity This section analyzes changes in total shareholders' equity, including contributions from capital actions and impacts from net income/loss and dividends Total Shareholders' Equity (in millions) | Date | Amount | | :----------------------------------- | :----- | | June 30, 2025 | $263.09 | | December 31, 2024 | $255.05 | - Total shareholders' equity increased by $8.0 million to $263.1 million, driven by a $17.7 million increase in surplus and a $2.6 million increase in common stock from subordinated debt conversion and private placement[156] - This was partially offset by a $14.9 million decrease in retained earnings due to a 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 second quarter and six months ended June 30, 2025, compared to the prior year Performance Summary This section provides a high-level overview of the company's financial results, including net income/loss and earnings per share Performance Summary (in millions, except share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net (Loss) Income | $(7.30) | $7.20 | $(13.47) | $9.51 | | (Loss) Earnings Per Common Share | $(0.61) | $0.53 | $(1.15) | $0.67 | - Net loss for Q2 2025 was $7.3 million, a $14.5 million decrease from net income in Q2 2024, primarily due to a higher provision for credit losses and decreased noninterest income from the prior year's asset sale-leaseback gain[157][158] - H1 2025 also saw a net loss of $13.5 million, a $23.0 million decrease[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 (in millions, except percentages) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net Interest Income | $22.24 | $21.24 | $44.46 | $43.16 | | Net Interest Rate Spread | 1.72% | 1.72% | 1.73% | 1.78% | | Net Interest Margin | 2.34% | 2.48% | 2.35% | 2.53% | - Net interest income increased for both Q2 and H1 2025, driven by growth in interest-earning assets (securities and deposits with banks) and a decrease in the average rate of interest-bearing liabilities, despite a lower average yield on interest-earning assets[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 H1 2025, primarily due to a lower yield on interest-earning deposits with banks and a decrease in the cost of liabilities from repricing public funds indexed to Treasury rates[162][163] Interest Income This section details the sources and changes in interest income, including contributions from loans, deposits, and securities Interest Income Breakdown (in millions) | Source | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Loans | $41.01 | $47.55 | $83.98 | $94.47 | | Deposits with other banks | $7.51 | $3.63 | $13.51 | $7.10 | | Securities | $5.80 | $2.47 | $11.29 | $4.99 | | Total Interest Income | $54.32 | $53.65 | $108.78 | $106.56 | - Total interest income increased by $0.7 million (1.2%) for Q2 2025 and $2.2 million (2.1%) for H1 2025[164][168] - This was driven by higher interest income from securities and deposits with other banks, which offset a decrease in loan interest income[164][168] - Loan interest income decreased by $6.5 million (13.8%) for Q2 2025 and $10.5 million (11.1%) for H1 2025, primarily due to a decrease in average loan balances from sales and payoffs[166][170] Interest Expense This section analyzes the components and changes in interest expense, including costs associated with deposits and borrowings Interest Expense Breakdown (in millions) | Source | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Demand deposits | $12.71 | $17.06 | $24.91 | $34.04 | | Savings deposits | $1.34 | $1.33 | $2.60 | $2.55 | | Time deposits | $15.20 | $10.45 | $31.09 | $20.02 | | Borrowings | $2.84 | $3.58 | $5.73 | $6.79 | | Total Interest Expense | $32.08 | $32.41 | $64.32 | $63.40 | - Total interest expense decreased by $0.3 million (1.0%) for Q2 2025 but increased by $0.9 million (1.5%) for H1 2025[172][173] - The Q2 decrease was mainly due to a lower average rate on interest-bearing deposits, particularly public funds indexed to Treasury rates, despite an increase in average interest-bearing liabilities[172][173] - The average rate of interest-bearing demand deposits decreased from 4.52% to 3.73% in Q2 and from 4.47% to 3.67% in H1[172][173] - The average rate of time deposits decreased from 4.74% to 4.33% in Q2 and from 4.64% to 4.40% in H1[172][173] Provision for Credit Losses This section analyzes the provision for credit losses, including the amounts recognized and the factors driving these provisions Provision for Credit Losses (in millions) | Period | Provision | | :----------------------------------- | :-------- | | Three months ended June 30, 2025 | $16.61 | | Three months ended June 30, 2024 | $6.81 | | Six months ended June 30, 2025 | $31.16 | | Six months ended June 30, 2024 | $9.11 | - The provision for credit losses significantly increased to $16.6 million for Q2 2025 and $31.2 million for H1 2025, primarily due to increased reserves on individually evaluated loans and charge-offs related to loan sales[184][185] - This includes a subsequent $1.9 million provision after the initial press release[184][185] - Total charge-offs were $1.1 million for Q2 2025 and $8.0 million for H1 2025, concentrated in commercial & industrial, lease, consumer, and construction & land development loans[184][185] - Recoveries totaled $0.2 million for Q2 and $0.4 million for H1[184][185] Noninterest Income This section analyzes the components and changes in noninterest income, including service charges, fees, and gains on asset sales Noninterest Income (in millions) | Source | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Service charges, commissions and fees | $0.83 | $0.80 | $1.68 | $1.53 | | ATM and debit card fees | $0.78 | $0.80 | $1.53 | $1.57 | | Net gains on sale of assets | $0.00 | $13.21 | $0.00 | $13.21 | | Total Noninterest Income | $2.16 | $15.53 | $4.51 | $17.83 | - Total noninterest income decreased significantly by $13.4 million for Q2 2025 and $13.3 million for H1 2025, primarily due to the absence of net gains on the sale of assets[189][190] - This included a $13.2 million gain from a sale-leaseback transaction in Q2 2024[189][190] Noninterest Expense This section analyzes the components and changes in noninterest expense, including salaries, occupancy costs, and other operating expenses Noninterest Expense (in millions) | Category | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Salaries and employee benefits | $7.84 | $10.44 | $16.28 | $20.34 | | Occupancy and equipment expense | $2.61 | $2.55 | $5.25 | $4.82 | | Other noninterest expense | $6.82 | $7.62 | $13.76 | $14.39 | | Total Noninterest Expense | $17.27 | $20.61 | $35.28 | $39.54 | - Total noninterest expense decreased by $3.3 million for Q2 2025 and $4.2 million for H1 2025, primarily driven by reduced salaries and employee benefits, and lower legal and professional fees[191][192] Other Noninterest Expense Categories (in millions) | Category | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Legal and professional fees | $0.67 | $1.50 | $1.76 | $2.48 | | Regulatory assessment | $1.61 | $0.99 | $3.15 | $1.92 | | Software expense and amortization | $1.19 | $1.37 | $2.40 | $2.62 | Income Taxes This section discusses the company's income tax expense or benefit and the factors influencing the effective tax rate Income Tax (Benefit) Provision (in millions) | Period | (Benefit) Provision | | :----------------------------------- | :------------------ | | Three months ended June 30, 2025 | $(2.18) | | Three months ended June 30, 2024 | $2.15 | | Six months ended June 30, 2025 | $(4.00) | | Six months ended June 30, 2024 | $2.83 | - First Guaranty recorded an income tax benefit of $2.2 million for Q2 2025 and $4.0 million for H1 2025, compared to a provision in the prior year periods, due to a decrease in income before income taxes[194][195] - The statutory tax rate remained 21.0%[194][195] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details First Guaranty's approach to managing market risk, primarily interest rate risk (IRR), through its asset/liability management (ALM) process Asset/Liability Management and Market Risk This section describes the company's strategies for managing interest rate risk and maintaining a balanced mix of rate-sensitive assets and liabilities - First Guaranty's ALM process quantifies, analyzes, and controls interest rate risk (IRR) to maintain stable net interest income[207][209] - The company aims to reduce its liability-sensitive position by creating a more balanced mix of rate-sensitive assets and liabilities[207][209] Interest Sensitivity Analysis (June 30, 2025, in millions, except percentages) | Period | Period Gap | Cumulative Gap | | :----------------------------------- | :--------- | :------------- | | 3 Months Or Less | $(293.37) | $(293.37) | | Over 3 Months thru 12 Months | $(248.07) | $(541.45) | | Total One Year | $(541.45) | $(541.45) | | Cumulative Gap as a % of Earning Assets | | (14.2)% | - The interest sensitivity analysis at June 30, 2025, reflects a liability-sensitive position with a negative cumulative gap of $541.4 million on a one-year basis, indicating more liabilities are subject to repricing than assets within this timeframe[211][213] Item 4. Controls and Procedures This section addresses the effectiveness of First Guaranty's disclosure controls and internal control over financial reporting, including identified material weaknesses and remediation efforts Evaluation of Disclosure Controls and Procedures This section presents the conclusions of management's evaluation regarding the effectiveness of the company's disclosure controls and procedures - 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 in all material respects[216] Material Weakness in Internal Control Over Financial Reporting This section identifies and describes a material weakness in the company's internal control over financial reporting - A material weakness was identified: the Company did not effectively perform controls on a timely basis relating to the loan operations quality control review function for all new loans originated during the period[217] Remediation Steps This section outlines the actions taken or planned by management to address the identified material weakness in internal control - Remediation steps include new leadership for the loan operations department, additional staff for the quality control function, and enhanced monitoring processes instituted by the new leadership[218][219] Changes in Internal Control Over Financial Reporting This section reports any material changes in the company's internal control over financial reporting during the last fiscal quarter - Other than the described material weakness and remediation efforts, 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 information not covered in the financial statements, including legal proceedings, risk factors, and equity sales Item 1. Legal Proceedings This section outlines First Guaranty's involvement in various legal proceedings in the normal course of business - 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[220] - No accrued liability has been recorded[220] - Management believes that current legal proceedings, individually or in aggregate, are not expected to have a material adverse effect on First Guaranty's consolidated results of operations, financial condition, or cash flows[220] Item 1A. Risk Factors This section refers readers to the risk factors detailed in the company's Annual Report on Form 10-K and highlights a newly identified material weakness in internal control over financial reporting - A material weakness in internal control over financial reporting has been identified, which could lead to failure in meeting SEC reporting obligations or material misstatements, potentially affecting investor confidence and stock price[222][223] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of common stock through unregistered sales, including a private placement and conversions of subordinated debt - 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, an exchange agreement for subordinated debt, and amendments to promissory notes for PIK interest[228] - The proceeds are for general corporate purposes and to enhance regulatory capital ratios[228] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - No defaults upon senior securities were reported[225] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to First Guaranty Bancshares, Inc - Mine Safety Disclosures are not applicable[226] Item 5. Other Information This section confirms that there is no other material information to report under this item, specifically noting no Rule 10b5-1 trading arrangements adopted or terminated by officers or directors - 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 provides a comprehensive list of exhibits filed as part of the report or incorporated by reference, including organizational documents, stock certificates, debt agreements, and certifications - The report includes various exhibits such as Restated Articles of Incorporation, Bylaws, Common and Preferred Stock forms, Subordinated Notes, Exchange Agreements, and certifications from the CEO and CFO[232][233] Signatures This section contains the required signatures of the President and Chief Executive Officer (Principal Executive Officer) and the Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) of First Guaranty Bancshares, Inc., certifying the report - The report is signed by Michael R. Mineer, President and Chief Executive Officer (Principal Executive Officer), and Eric J. Dosch, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer), on August 18, 2025[237]