fgbi-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from __________ to __________

Commission File Number: 001-37621

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Louisiana		26-0513559
(State or other jurisdiction incorporation or organization)		(I.R.S. Employer Identification Number)

400 East Thomas Street
Hammond,	Louisiana	70401
(Address of principal executive offices)		(Zip Code)

(985)		345-7685
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

FGBI

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filers," "accelerated filers," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 6, 2020 the registrant had 9,741,253 shares of $1 par value common stock outstanding.

Table of Contents


		Page
Part I.	Financial Information	4

Item 1.	Financial Statements (unaudited)	4

	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	4

	Consolidated Statements of Income for the three and nine months ended Sep t ember 30, 2020 and 2019	5

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Shareholders' Equity for the nine months ended September 30, 2020 and 2019	7

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	56

Part II.	Other Information	57

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 6.	Exhibits	58

Signatures		59

-3-

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)


(in thousands, except share data)	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents:
Cash and due from banks	$	191,533	$	66,511
Federal funds sold	773		914
Cash and cash equivalents	192,306		67,425

Investment securities:
Available for sale, at fair value	416,319		339,937
Held to maturity, at cost (estimated fair value of $0 and $86,817 respectively)	—		86,579
Investment securities	416,319		426,516

Federal Home Loan Bank stock, at cost	3,336		3,308
Loans held for sale	235		—

Loans, net of unearned income	1,788,716		1,525,490
Less: allowance for loan losses	14,588		10,929
Net loans	1,774,128		1,514,561

Premises and equipment, net	58,611		56,464
Goodwill	12,901		12,942
Intangible assets, net	6,819		7,166
Other real estate, net	3,341		4,879
Accrued interest receivable	16,287		8,412
Other assets	28,225		15,543
Total Assets	$	2,512,508	$	2,117,216

Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	467,615	$	325,888
Interest-bearing demand	807,946		635,942
Savings	176,525		135,156
Time	741,158		756,027
Total deposits	2,193,244		1,853,013

Short-term advances from Federal Home Loan Bank	50,000		13,079
Repurchase agreements	6,895		6,840
Accrued interest payable	5,358		6,047
Long-term advances from Federal Home Loan Bank	3,404		3,533
Senior long-term debt	43,926		48,558
Junior subordinated debentures	14,767		14,737
Other liabilities	10,103		5,374
Total Liabilities	2,327,697		1,951,181

Shareholders' Equity
Common stock:
$1 par value - authorized 100,600,000 shares; issued 9,741,253 shares	9,741		9,741
Surplus	110,836		110,836
Retained earnings	52,798		43,283
Accumulated other comprehensive income	11,436		2,175
Total Shareholders' Equity	184,811		166,035
Total Liabilities and Shareholders' Equity	$	2,512,508	$	2,117,216

See Notes to Consolidated Financial Statements

-4-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share data)	2020		2019		2020		2019
Interest Income:
Loans (including fees)	$	22,519	$	19,263	$	67,420	$	57,665
Deposits with other banks	51		872		348		2,461
Securities (including FHLB stock)	2,605		1,959		8,162		7,381
Federal funds sold	—		—		—		1
Total Interest Income	25,175		22,094		75,930		67,508

Interest Expense:
Demand deposits	1,291		2,504		4,645		8,146
Savings deposits	62		127		210		407
Time deposits	4,139		4,358		13,137		12,721
Borrowings	644		392		2,136		1,226
Total Interest Expense	6,136		7,381		20,128		22,500

Net Interest Income	19,039		14,713		55,802		45,008
Less: Provision for loan losses	1,545		1,727		4,626		4,148
Net Interest Income after Provision for Loan Losses	17,494		12,986		51,176		40,860

Noninterest Income:
Service charges, commissions and fees	652		707		1,852		1,928
ATM and debit card fees	818		579		2,233		1,686
Net gains (losses) on securities	789		29		2,631		(387)
Net gains on sale of loans	679		1,307		974		1,371
Other	612		557		1,612		1,528
Total Noninterest Income	3,550		3,179		9,302		6,126

Noninterest Expense:
Salaries and employee benefits	7,254		6,012		22,189		18,120
Occupancy and equipment expense	1,922		1,423		5,616		4,438
Other	5,342		3,875		14,806		11,582
Total Noninterest Expense	14,518		11,310		42,611		34,140

Income Before Income Taxes	6,526		4,855		17,867		12,846
Less: Provision for income taxes	1,344		1,008		3,676		2,654
Net Income	$	5,182	$	3,847	$	14,191	$	10,192

Per Common Share: (1)
Earnings	$	0.53	$	0.40	$	1.46	$	1.05
Cash dividends paid	$	0.16	$	0.15	$	0.48	$	0.44

Weighted Average Common Shares Outstanding	9,741,253		9,687,123		9,741,253		9,687,123

See Notes to Consolidated Financial Statements

(1) All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 16, 2019 to shareholders of record as of December 9, 2019.

-5-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Net Income	$	5,182	$	3,847	$	14,191	$	10,192
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during the period	2,336		621		14,254		10,746
Reclassification adjustments for (gains) losses included in net income	(789)		(29)		(2,631)		387
Reclassification of OTTI losses included in net income	50		—		100		—
Change in unrealized gains on securities	1,597		592		11,723		11,133
Tax impact	(335)		(124)		(2,462)		(2,338)
Other comprehensive income	1,262		468		9,261		8,795
Comprehensive Income	$	6,444	$	4,315	$	23,452	$	18,987

See Notes to Consolidated Financial Statements

-6-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)


	Common Stock $1 Par		Surplus		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Total
(in thousands, except per share data)
Balance December 31, 2018 (1)	$	9,687	$	109,788	$	34,947	$	(7,138)	$	147,284
Net income	—		—		10,192		—		10,192
Other comprehensive income	—		—		—		8,795		8,795
Cash dividends on common stock ($0.44 per share)(1)	—		—		(4,227)		—		(4,227)
Balance September 30, 2019 (unaudited)	$	9,687	$	109,788	$	40,912	$	1,657	$	162,044

Balance December 31, 2019	$	9,741	$	110,836	$	43,283	$	2,175	$	166,035
Net income	—		—		14,191		—		14,191
Other comprehensive income	—		—		—		9,261		9,261
Cash dividends on common stock ($0.48 per share)	—		—		(4,676)		—		(4,676)
Balance September 30, 2020 (unaudited)	$	9,741	$	110,836	$	52,798	$	11,436	$	184,811

See Notes to Consolidated Financial Statements

(1) All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 16, 2019 to shareholders of record as of December 9, 2019.

-7-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended September 30,
(in thousands)	2020		2019
Cash Flows From Operating Activities
Net income	$	14,191	$	10,192
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,626		4,148
Depreciation and amortization	2,512		2,218
Amortization/Accretion of investments	2,245		873
(Gain) loss on sale/call of securities	(2,631)		387
Other Than Temporary Impairment Charge on Securities	100		—
(Gain) loss on sale of assets	(966)		(1,305)
Repossessed asset write downs, gains and losses on dispositions	869		105
FHLB stock dividends	(28)		(44)
Net (increase) decrease in loans held for sale	(235)		344
Change in other assets and liabilities, net	(6,365)		4,433
Net Cash Provided By Operating Activities	14,318		21,351

Cash Flows From Investing Activities
Proceeds from maturities, calls and sales of HTM securities	34,022		17,946
Proceeds from maturities, calls and sales of AFS securities	577,801		244,411
Funds Invested in AFS securities	(589,619)		(116,443)
Net increase in loans	(276,143)		(73,041)
Purchase of premises and equipment	(4,272)		(7,947)
Proceeds from sales of premises and equipment	80		5
Proceeds from sales of other real estate owned	988		365
Net Cash (Used In) Provided By Investing Activities	(257,143)		65,296

Cash Flows From Financing Activities
Net increase (decrease) in deposits	340,136		(29,211)
Net increase in federal funds purchased and short-term borrowings	36,976		—
Repayment of long-term borrowings	(4,730)		(2,206)
Dividends paid	(4,676)		(4,227)
Net Cash Provided By (Used In) Financing Activities	367,706		(35,644)

Net Increase In Cash and Cash Equivalents	124,881		51,003
Cash and Cash Equivalents at the Beginning of the Period	67,425		127,965
Cash and Cash Equivalents at the End of the Period	$	192,306	$	178,968

Noncash Activities:
Acquisition of real estate in settlement of loans	$	319	$	2,704
Transfer of securities from HTM to AFS	$	52,553	$	—

Cash Paid During The Period:
Interest on deposits and borrowed funds	$	20,817	$	21,159
Federal income taxes	$	4,808	$	2,750
State income taxes	$	25	$	23

See Notes to the Consolidated Financial Statements.

-8-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. ("First Guaranty") thereto should be read in conjunction with the audited consolidated financial statements and note disclosures for First Guaranty previously filed with the Securities and Exchange Commission in First Guaranty's Annual Report on Form 10-K for the year ended December 31, 2019.

The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc. and its wholly owned subsidiary First Guaranty Bank (the "Bank"). All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations at September 30, 2020 and for the three and nine month periods ended September 30, 2020 and 2019 are not necessarily indicative of the results expected for the full year or any other interim period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of investment securities.

-9-

Note 2. Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments- Credit Losses: Measurement of Credit Losses on Financial Instruments". This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The ASU amendments require the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires assets held at cost basis to reflect the company's current estimate of all expected credit losses. For available for sale debt securities, credit losses should be presented as an allowance rather than as a write-down. In addition, this ASU amends the accounting for purchased financial assets with credit deterioration. On October 16, 2019, the FASB approved an effective date delay applicable to smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. First Guaranty is a smaller reporting company and has delayed the adoption of ASU 2016-13.

-10-

Note 3. Merger Transaction

Effective at the close of business on November 7, 2019, First Guaranty completed its acquisition of 100% of the outstanding shares of Union Bancshares, Incorporated, a Louisiana corporation ("Union"), a single bank holding company headquartered in Marksville, Louisiana and its wholly owned subsidiary, Union Bank for $43.4 million in cash. This acquisition allowed First Guaranty to expand its presence into the Central Louisiana market area. The purchase price resulted in approximately $9.4 million in goodwill and $4.2 million in core deposit intangible, none of which is deductible for tax purposes.

First Guaranty accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, for each transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition. In conjunction with the adoption of ASU 2015-16, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition date, First Guaranty records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. First Guaranty is continuing to finalize the purchase price allocations related to the Union acquisition. Based on management's preliminary valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Union acquisition is allocated in the table below. These allocations are subject to change.


(in thousands)	Union Bancshares, Incorporated

Cash and due from banks	$	20,063
Securities available for sale	38,813
Loans	184,344
Premises and equipment	7,223
Goodwill	9,428
Intangible assets	4,213
Other real estate	1,595
Other assets	9,480
Total assets acquired	$	275,159

Deposits	205,078
FHLB borrowings	16,617
Repurchase agreements	6,863
Other liabilities	3,218
Total liabilities assumed	$	231,776
Net assets acquired	$	43,383

-11-

Note 4. Securities

A summary comparison of securities by type at September 30, 2020 and December 31, 2019 is shown below.


	September 30, 2020								December 31, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale:
U.S. Treasuries	$	43,700	$	—	$	—	$	43,700	$	—	$	—	$	—	$	—
U.S. Government Agencies	—		—		—		—		16,380		15		(2)		16,393
Corporate debt securities	186,515		9,458		(723)		195,250		94,561		1,110		(302)		95,369
Municipal bonds	30,863		1,651		(3)		32,511		30,297		1,870		(14)		32,153
Collateralized mortgage obligations	5,428		136		(4)		5,560		16,400		40		(43)		16,397
Mortgage-backed securities	135,338		3,963		(3)		139,298		179,546		317		(238)		179,625
Total available for sale securities	$	401,844	$	15,208	$	(733)	$	416,319	$	337,184	$	3,352	$	(599)	$	339,937

Held to maturity:
U.S. Government Agencies	$	—	$	—	$	—	$	—	$	18,175	$	—	$	(32)	$	18,143
Municipal bonds	—		—		—		—		5,107		182		—		5,289
Mortgage-backed securities	—		—		—		—		63,297		200		(112)		63,385
Total held to maturity securities	$	—	$	—	$	—	$	—	$	86,579	$	382	$	(144)	$	86,817

First Guaranty sold securities in the held to maturity portfolio in the first quarter of 2020 in order to manage its interest rate and liquidity risk due to changes in economic conditions. First Guaranty sold $18.2 million in U.S. Government agency securities, $13.5 million in mortgage-backed securities and $0.2 million in municipal securities. The total gain on the sale of these securities was $0.1 million. First Guaranty terminated its held to maturity portfolio after these sales.

The scheduled maturities of securities at September 30, 2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to calls or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below.


	At September 30, 2020
(in thousands)	Amortized Cost		Fair Value
Available for sale:
Due in one year or less	$	61,441	$	61,631
Due after one year through five years	78,391		82,244
Due after five years through 10 years	106,088		111,699
Over 10 years	15,158		15,887
Subtotal	261,078		271,461
Collateralized mortgage obligations	5,428		5,560
Mortgage-backed securities	135,338		139,298
Total available for sale securities	$	401,844	$	416,319

Held to maturity:
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through 10 years	—		—
Over 10 years	—		—
Subtotal	—		—
Mortgage-backed securities	—		—
Total held to maturity securities	$	—	$	—

At September 30, 2020, $206.7 million of First Guaranty's securities were pledged to secure public funds deposits and borrowings. The pledged securities had a market value of $206.7 million as of September 30, 2020.

-12-

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at September 30, 2020.


						At September 30, 2020
	Less Than 12 Months					12 Months or More					Total
(in thousands)	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries	3	$	43,700	$	—	—	$	—	$	—	3	$	43,700	$	—
U.S. Government Agencies	—	—		—		—	—		—		—	—		—
Corporate debt securities	28	13,741		(514)		7	1,693		(209)		35	15,434		(723)
Municipal bonds	3	198		(3)		—	—		—		3	198		(3)
Collateralized mortgage obligations	3	741		(4)		—	—		—		3	741		(4)
Mortgage-backed securities	9	185		(3)		—	—		—		9	185		(3)
Total available for sale securities	46	$	58,565	$	(524)	7	$	1,693	$	(209)	53	$	60,258	$	(733)

Held to maturity:
U.S. Government Agencies	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Municipal bonds	—	—		—		—	—		—		—	—		—
Mortgage-backed securities	—	—		—		—	—		—		—