First Guaranty Bancshares, Inc.
Annual Report 2020

Plain-text annual report

www.fgb.net 2 0 2 0 F I R S T G U A R A N T Y B A N C S H A R E S , I N C . A N N U A L R E P O R T #1 Best Small Bank in the U.S. A NN UA L REPO RT 2020 BEST SMALL BANK FGB Named #1 Best Small Bank 2021 In Newsweek’s first ranking of the financial institutions that best serve their customers’ needs in today’s challenging times, First Guaranty Bank was named the No. 1 BEST SMALL BANK IN THE U.S.! And when compared to all other banks in the state of Louisiana, we were named the No. 1 BEST SMALL BANK IN LOUISIANA, too! This recognition is amazing and a true testament to the hard work of the entire team. We hold this title with pride and commit to continuing to be the best small bank in the U.S. for all time. "This is a totally unexpected and overwhelming honor. It is a tribute to each and every one of our First Guaranty Bank members and to our dedication and determination to be a true community bank providing the best service possible to our communities and customers. This is the goal of all of us from the Board of Directors throughout the entire Bank." - Alton B. Lewis, President & CEO "It is truly a great honor to be the #1 Bank in the country and the best small bank in Louisiana. This is a testament to the efforts and contributions of every team member at FGB. Although we have known it for a while, I’m excited that the rest of the country will get to learn about the great team at FGB!" - Randy Vicknair CRC, Chief Lending Officer First Guaranty Bank Table of Contents Financial Snapshot .....................................................................................Page 2 2020 Snapshot ...........................................................................................Page 3 #1 Best Small Bank in the U.S.! .................................................................Page 4 Our Mission ................................................................................................Page 12 Letter from the Chairman, Marshall T. Reynolds ........................................Page 13 Letter from the Chief Executive Officer & President, Alton B. Lewis ..........Page 14 Report from the Chief Financial Officer, Eric J. Dosch ...............................Page 15 Report from the Chief Lending Officer, Randy S. Vicknair .........................Page 16 Report from the Central Louisiana President, Darrel D. Ryland .................Page 17 Report from the Texas President, Jordan M. Lewis ...................................Page 18 Report from the Senior Vice President, Glenn A. Duhon, Sr. .....................Page 19 Memorial – Charles “Chuck” Brister, Director ............................................Page 20 First Guaranty Bank Board of Directors .....................................................Page 21 First Guaranty Bank Advisory Board ..........................................................Page 22 First Guaranty Bank Officers ......................................................................Page 23 Performance Graphs ..................................................................................Page 24 The FGB Center .........................................................................................Page 27 Accomplishments & Highlights ..................................................................Page 28 Earnings & Dividends .................................................................................Page 29 Central Louisiana Open Houses .................................................................Page 30 First Guaranty Bank Branch & ATM/ITM Locations ....................................Page 32 First Guaranty Bank Departments & Branches Departments & Main Office – Hammond ............................................Page 34 Abbeville & Alexandria .........................................................................Page 47 Amite & Benton ...................................................................................Page 48 Bossier City & Bunkie ..........................................................................Page 49 Denham Springs & Denton ..................................................................Page 50 Dubach & Fort Worth ...........................................................................Page 51 Garland & Greensburg .........................................................................Page 52 Hammond – Guaranty West & Haynesville ..........................................Page 53 Hessmer & Homer ...............................................................................Page 54 Independence & Jennings ...................................................................Page 55 Kentwood and remembering Lance Davis ..........................................Page 56 Kentwood West & Lake Charles ...........................................................Page 57 Marksville & Marksville Tunica .............................................................Page 58 McKinney & Montpelier ........................................................................Page 59 Moreauville & Oil City ...........................................................................Page 60 Pineville & Ponchatoula ........................................................................Page 61 Vivian & Waco ......................................................................................Page 62 Walker & Watson ..................................................................................Page 63 FGB Gives Back .........................................................................................Page 64 Banks Headquartered in LA .......................................................................Page 76 Financial Table of Contents .........................................................................Page 77 Corporate Information .................................................................................Page 152 Visit www.fgb.net for additional information. NASDAQ Stock Ticker Symbol: FGBI 1 #1 Best Small Bank in the U.S.First Guaranty Bancshares, Inc. Financial Snapshot First Guaranty Bancshares, Inc. 2020 Snapshot First Guaranty Bancshares, Inc. At December 31, 2020, total assets were $2.47 billion, net income was $20.3 million and earnings per common share were $2.09. Return on average assets was 0.87% and return on average common equity was 11.36%. First Guaranty Bancshares, Inc. shares traded at the NASDAQ Global Market Exchange and has paid quarterly dividends for 110 consecutive quarters at December 31, 2020. First Guaranty Bancshares, Inc. is committed to customer service and shareholder value. #1 Best Small Bank in the U.S.! Profile First Guaranty Bancshares, Inc. is the holding company of First Guaranty Bank, which it wholly owns. The Bank is a full-service financial institution with a major presence throughout Louisiana and in northeast Texas, serving customers from 33 branch locations and one loan production office. Headquartered in Hammond, Louisiana, the Company had 422 employees as of December 31, 2020. PERFORMANCE GRAPHS Book Value Growth Per One 1993 Share [1] (per common share) Dividends Per One 1993 Common Share [2] Book Value per one 1993 share has increased from $3.70 to $53.71 since 1993. [1] Book value has been adjusted for cumulative stock splits and dividends of 2.93 times since 1993 [2] Cash dividends from the perspective of one original common stock from 1993 to present, this considers the impact of stock splits and stock dividends. Cash Dividends on Common Stock (In thousands) First Guaranty has paid $84,569,000 in Cash Dividends to common shareholders since 1993. Branches 33 ATMs 46 Total Assets Deposits $2.5 Billion $2.2 Billion Total Loans $1.84 Billion $20.3 Million 2020 Earnings 110 (and counting) Consecutive Dividends Paid 86 Years in Banking 2 3 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bancshares, Inc. #1 Best Small Bank in the U.S. Contained in his December letter to Shareholders, Alton B. Lewis, President and CEO of First Guaranty Bancshares, Inc. and First Guaranty Bank shared outstanding news regarding a strong fourth quarter performance, which closed a robust 2020. The fourth quarter began with First Guaranty Bank being named America’s Best Small Bank for 2021 by Newsweek/Lending Tree. This positive news was followed by continued strong loan growth in the Fourth Quarter. First Guaranty grew the loan portfolio to $1.8 billion. First Guaranty also increased the loan loss reserve in order to manage for continued economic uncertainty associated with COVID-19. Fourth quarter and year-end results demonstrate strong operational profits with significant progress toward enhancing shareholder value and strengthening a decade’s long dedication to a fortress balance sheet. Shareholders received their 110th consecutive quarterly dividend payment from First Guaranty Bancshares, Inc.! With impressive profitability and reliable dividends, 2020 marked another successful year, especially amid the COVID-19 worldwide pandemic, the strongest hurricane season on record and a presidential election. Earthquakes, floods, wildfires and unemployment were all on the minds of customers, employees and fellow Americans. In addition to a strong balance sheet and financial performance, why was First Guaranty Bank named #1 Best Small bank? At First Guaranty Bank, people care about each other, customers, shareholders and community. The Bank’s culture of financial responsibility, coupled with its culture of caring contributes to this distinction. New Product 2020 brought a new Online Banking system and mobile app with state-of-the-art banking functionality, convenience and security. Download the new and improved MyFGB App from your app store! Outstanding Employees and Teamwork First Guaranty Bank acted swiftly, responsibly and with an adaptable emergency plan to effectively manage health and safety issues. Concern for customers, employees and the community were paramount and considered first above all else. Employee morale and health, customer service and safety, combined with community involvement were all vital elements addressed and rank among the many reasons First Guaranty Bank is named The Best Small Bank in the U.S.! First Guaranty steadfastly maintains a culture of caring. Although many in-person events were cancelled, FGB continued to give. (Please see pages 8 for COVID-19 details and 64 for FGB Gives Back featuring organizations and charities we support.) Banks were designated essential businesses and remained open. FGB Front Line teams were literally on the front lines serving customers, and remain so today, providing important financial services. Those employees located within any one department at headquarters were divided among other locations to ensure an entire department did not contract COVID, thus allowing continuity of customer service and greater health. Wearing masks, cleaning counters, staying behind plexiglass and urging everyone stay six feet apart were all key components of our safety procedures. Masks are required for customers to enter the bank and employees wear them when they are not in their separate offices. Leslie, a First Guaranty Bank employee in Texas, made creative mustache masks, making it a bit more fun to wear! Hats off to Leslie! Focus on Small Businesses get these loans through the system quickly! ” A sincere desire to help our customers is fundamental to FGB being named #1 Small Bank. This degree of care and concern also fuels employee motivation and satisfaction. Commitment First Guaranty Bank's training and education continued while communication was enhanced. We offered a myriad of ways for customers to easily complete all of their banking needs including mobile pay, online banking and ATMs/ITMs. Many people simply call their local branch for personal assistance. To ensure all customers were properly served, the Customer Support Center began Saturday hours. Additionally, in order to help customers, particularly those who could not work or experienced layoffs, ALL NSF and overdraft fees were waived through April 15th. Beyond the Front Line at each location, First Guaranty Bank assisted 917 small businesses through the SBA’s Paycheck Protection Program (PPP) with $111.1 million in loans. First Guaranty Bank was quick to facilitate PPP loans for small business owners and implemented a plan named Team Midnight. Team Midnight should be commended for their amazing efforts as they worked around the clock to complete their tasks. The Bank received over 1,000 telephone calls per day, twice the normal volume. This hard work was recognized during the annual shareholders meeting and shared on the First Guaranty Bank website and social media. “Helping customers is always our top priority and we couldn't do it without our employees! A special thanks to our ENTIRE lending and support teams. They have worked tirelessly to From a business involvement standpoint, Randy Vicknair was named one of Independent Banker’s 40 Under 40. In addition, other employees completed continuing Banking education classes, such as Leadership Banking School, while others served on various committees in their local areas. 4 5 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bancshares, Inc. #1 Best Small Bank in Louisiana and the U.S. Eventful Celebrations and giving continued, albeit remotely. Many events and galas were not held, yet fundraising continued to serve the needs of the many organizations throughout the communities and service areas of all 34 FGB locations. Innovative ways to meet, donate and be involved with the community included Zoom classroom sessions with Denham Springs students for Junior Achievement. Similar to FGB employee morale efforts, First Guaranty strived to involve customers and community too. For the annual Independence Sicilian Heritage Festival, which First Guaranty supports each year, the poster contest winner Three employees celebrated their 30th anniversaries with the bank including Jeanette Ernst, Elisa Costanza and Dot Frazier. Vanessa Drew was also honored with an event and cake recognizing her 40th anniversary. Congratulations and thank you to these dedicated team members! First Guaranty Bank celebrated its 86th anniversary, complete with cake and an Apple Pack giveaway for customers. was the youngest ever. It just so happened that Gracie, the selected artist, is also the daughter of an employee, Casie Qualls! Now that’s a wonderful way to involve the Bank, family and community! St. Thomas Aquinas girls basketball The focus in 2020 resides in our commitment to customer service. First Guaranty invested in facilities and enjoyed Central Louisiana Open Houses. (Please see the article on page 30.) First Guaranty Bank is thrilled, honored and humbled to be named #1 Small Bank in Louisiana and the U.S.! Please see the Newsweek/Lending Tree article on pages 10 and 11. We will continue on our established path to continue to earn this title. As mentioned in the 2019 annual report, resilience, knowledge and passion with an overarching desire to be valuable to other individuals and businesses is fundamental to First Guaranty’s success. First Guaranty Bancshares, Inc. is committed to customer service and shareholder value. We take this opportunity to thank all of our customers, employees, officers, Board of Directors and shareholders. Employee morale boosting events and other team building endeavors were enjoyed during 2020. Christmas branch and door decorating, a Santa Mask coloring contest and employee events during Thanksgiving and Halloween are several examples during fourth quarter. Holden High School softball champions 2020 was a year of achievement, success and championships, particularly for Holden High School softball who earned the state championship! St. Thomas Aquinas girls basketball team was crowned state champions when they won the 2020 Allstate Sugar Bowl/LHSAA tournament. Congratulations to ALL of our local teams! 6 7 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bancshares, Inc. Covid-19 & Hurricane Response BANKING & COVID-19 When the pandemic started, we knew this was going to be something never experienced before in our lives. Thinking quickly to keep operations open and everyone safe were at the forefront of our minds. We acted decisively and thoughtfully to put measures in place to ensure we were as close to business as usual while keeping everyone as safe as possible. The following highlights the messaging we put out to our employees and customers. Banking may look a little different these days. Whether you're utilizing mobile pay, online banking, or our ATMs/ ITMs—First Guaranty Bank offers banking alternatives at your local branch. Don't forget: our lobbies are appointment only, but you can still visit us via the drive thru or make an appointment at your local branch. Additional information and links are available online at www.fgb.net. Q Online Banking. View your account balances and detailed transaction history, transfer money between accounts, and pay bills online, It's fast, free, and easy to sign up! Q Mobile Banking. Take fanatical banking wherever you go with the convenience of the MyFGB app. Bank on the go with easy mobile check deposit, seamless money transfers and convenient bill pay – all in palm of your hand. Q Call us. Our Customer Support Center is here to help you with any of your banking needs! You can also use Telephone Banking 24/7 for basic account information like account balances and a list of recent transactions. Q Mobile Check Deposit. Sign, snap, and deposit Q Mobile Pay. Pay for things you need right from your smartphone, smartwatch or tablet – no need to handle cash. It's password protected by the security of the app and your phone. Q ATMs. Q ITMs. Our Interactive Teller Machines, also known as MiBYs, are unique state-of-the-art, face-to-face experiences that provide faster service and extended drive-thru banking hours. Use an ITM for the following transactions: make deposits, withdraw cash, check balances, transfer funds, make loan payments, and cash checks. For the latest bank updates, visit our website: www.fgb.net/covid-19. We are following federal guidelines to keep you and our employees safe. Q Prior to entering, masks should be lowered for identification purposes, but may be worn after identification has been established Q Markers will be applied every six feet on our lobby floors and at our entrances. Please adhere to social distancing guidelines. Q Shields are placed at each teller counter checks without ever leaving home. Q Customer flow will be limited in our lobbies ! L A I T N E S S E S Y A W L A e r a s e e y o l p m E B G F 8 Q Public restrooms will not be available at this time Q If you have a fever or have tested positive for COVID-19 within the last 14 days, please use our drive thru. First Guaranty Bank management meets frequently to update and improve plans for this unprecedented time. Updates can be found online at www.fgb.net or on social media. What We're Doing When visiting one of our 34 locations, know that we have ramped up cleaning in common areas, follow CDC guidelines and provide CDC-approved hand-sanitizer. 2020 HURRICANE SEASON Emerging Stronger Living and working in Louisiana, Texas and the Gulf Coast region requires hurricane season preparation. With sufficient experience and respect for natural disasters, 2020 delivered the added challenge of hurricane season during a pandemic. Hurricane Laura devastated Lake Charles, Louisiana and it was followed shortly thereafter by Hurricane Zeta. The FGB Loan Production Office in Lake Charles assisted the community with loans, including PPP loans. Hurricanes Delta and Zeta required FGB to reschedule central Louisiana Open Houses. In October alone, FGB closed offices early in advance of the storms in more than half of the branch locations. Safety remained the most important factor in all decisions. Because Hurricanes Katrina and Rita devastated Louisiana in 2005 and the Great Flood of 2016 impacted both the Bank and its customers, hurricane season remains on the FGBI radar. The extremely active 2020 Atlantic hurricane season had a record-breaking 30 named storms and 12 landfalling storms in the continental United States. NOAA’s seasonal hurricane outlooks accurately predicted a high likelihood of an above-normal season with a strong possibility of it being extremely active. In total, the 2020 season produced 30 named storms (top winds of 39 mph or greater), of which 13 became hurricanes (top winds of 74 mph or greater), including six major hurricanes (top winds of 111 mph or greater). This is the most storms on record, surpassing the 28 from 2005, and the second-highest number of hurricanes on record. The 2020 season got off to an early and rapid pace with a record nine named storms from May through July, and then quickly exhausted the 21-name Atlantic list when Tropical Storm Wilfred formed on September 18. For only the second time in history, the Greek alphabet was used for the remainder of the season, extending through the 9th name in the list, Iota. This historic hurricane season saw record water levels in several locations, including the Gulf Coast where Hurricane Sally brought the highest observed water levels since Hurricane Katrina in 2005 to Pensacola, Florida. Because First Guaranty had already incorporated technology and guidelines to make banking easier, more convenient and safer for COVID-19, many of those same measures served both customers and employees well during hurricanes. Online and mobile banking advances, an enhanced telephone system and availability of ITMs reduced the necessity for in-person banking. Through these challenges, First Guaranty Bank emerged stronger and better equipped to best fulfill its mission. The mindset and ability to adapt, change and grow allows First Guaranty to continue emerging stronger. https://www.noaa.gov/media-release/record-breaking-atlantic- hurricane-season-draws-to-end 9 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Data sources for the project included DepositAccounts.com, information published by each bank, quarterly call reports filed with the FDIC, Consumer Financial Protection Bureau complaints and mobile app reviews. All together, 55 separate factors were assessed, covering a wide variety of fees, current and historical interest rates, account terms, consumer service features, mobile app satisfaction and bank profile. Among the specific data collected: the average service charges collected on deposit accounts during the second quarter of 2020; average interest paid on deposit accounts during the second quarter of 2020; the number of complaints submitted to the Consumer Financial Protection Bureau and how quickly the bank responded, the kinds of loan and account products offered; mobile app scores; and, depending on the best bank accolade, branch presence. For best bank state winners, the best big bank in each state needed to have at least one branch per 100,000 residents and at least $10 billion in assets, while the best small bank in each state had less than $10 billion in assets and had to be among the five banks with the most branches in the state. A bank couldn't have more than one branch to be considered for best online bank, with factors like mobile app score carrying greater weight in this ranking. For best customer service, a bank had to have responded to at least 97 percent of complaints filed with the CFPB in a timely fashion to be considered; other features such as languages provided on the bank's website and app as well as banking and credit card service lines were also evaluated. Individual best bank account winners were selected based on different criteria, including: current interest rate; average interest rate over the past year; minimum deposit required to open an account, the monthly service fee changed to maintain the account, fees charged for nonsufficient funds, overdraft, or/and overdraft protection; amount charged to use an out- of-network ATM; amount refunded for out-of-network ATM usage; cost to replace debit card; and the bank's average mobile app score. To be considered for best online savings or online checking accounts, a bank had to have fewer than 100 branches, while banks needed more than 100 branches to win for either the best checking or best savings account award. The weighting given to each factor varied depending on the best bank accolade; Newsweek exercised final editorial judgment when selecting winners. Current interest rate information is accurate as of September 24, 2020 and represents the highest possible rate a customer could earn, if all qualifications are met (common qualifications include having direct deposit tied to the account, having more than one account with the bank or making a certain minimum number of debit-card transactions a month). The complete data set was last updated by LendingTree on September 10, 2020. www.newsweek.com/americas-best-banks-2021/best- small-banks-state BY NEWSWEEK – SHARE Introducing Newsweek's first ranking of the financial institutions that best serve their customers' needs in today's challenging times Like virtually every other aspect of our lives—work, school, shopping, dating, entertainment, you name it—the pandemic is changing the way Americans bank. And those changes, in turn, are creating a new set of challenges and opportunities when it comes to picking the financial institution that best suits our banking needs. For one thing, we have a newfound need and affection for savings accounts, evidenced by a more- than-doubling of the personal savings rate over the past several months, as the idea of building a solid emergency fund morphed from being an aspiration to an economic imperative. "The savings growth has been record-breaking," says Ken Tumin, founder of the bank comparison site DepositAccounts.com. But it's tougher than ever to find a suitable account to house those savings—one that doesn't actually cost you money after factoring in fees, given that the average savings rate is now near zero due to the Federal Reserve's efforts to stimulate the economy via low interest rates. Meanwhile, lockdown mode is pushing many of us to finally embrace online banking in a major way. Traffic at local banks is down substantially compared to last year, with about half of customers who previously relied on physical branches and ATMs saying they've increased their use of mobile apps and 35 percent making more use of their bank's website, according to a recent survey by Kearney, a management consulting group. Experts believe the shift is likely to stick. "Once you get used to the technology and how easy and convenient it is to bank this way, it's hard to go back," says Tumin. Customer service is also becoming a more important consideration, as complaints about financial services providers have surged during the pandemic, up 50 10 percent from March through July compared with the same time period in 2019, according to the consumer advocacy group U.S. PIRG. "The record level of consumer complaints is a blaring red light signaling the huge challenges consumers are facing during the COVID-19 pandemic," says Gideon Weissman of Frontier Group, who co-authored the organization's report. To help you navigate this new financial landscape and find the institution that best serves your needs, Newsweek has partnered with LendingTree, the online loan marketplace and comparison site for financial services, for our first-ever Best Banks rankings. From a universe of more than 2,500 FDIC-insured institutions, we assessed U.S. banks and the savings and checking accounts they offer based on 55 separate factors to come up with a best-in-class option in 19 categories— including the best big and small bank in every state, because banking in many ways remains a local endeavor. One or more of these winning banks may be the perfect choice for your family. —Diane Harris, Deputy Editor in Chief. STATE WINNER Louisiana First Guaranty Bank Methodology To identify America's Best Banks, LendingTree in consultation with Newsweek culled candidates from an initial universe of more than 2,500 FDIC-insured financial institutions (credit unions were excluded from consideration). LendingTree then applied a series of filters to create a short list of eligible candidates in each category, based on the most salient features for each bank type or account; LendingTree supplied the data and made recommendations for a proprietary scoring system developed by Newsweek, based on the factors that would be most important to consumers for that type of bank or account. 11 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Letter from the Chairman Our Mission The mission of First Guaranty Bank and First Guaranty Bancshares is to increase the shareholder value while providing financial services for and contributing to the growth and welfare of the communities we serve. We believe that each customer is our most important customer and should be treated as such. We endeavor to provide levels of service that exceed the expectations of all our customers. Marshall T. Reynolds Chairman of the Board We believe that our employees are our greatest asset as demonstrated in their professionalism and dedication. We encourage open communications and strive to cultivate an entrepreneurial environment in which our employees feel highly responsible for the performance of the bank, and an environment where they will contribute new ideas and innovations that will help us excel. We seek to enhance stockholder value by continually improving the quality of earnings, growth in earnings, return on equity and dividend payout. We strive to be a socially responsible corporate citizen by supporting community activities and encouraging our employees to be actively involved in our communities. We are committed to the success of the communities that we serve, the same communities our employees call home. Our goal is to participate in making our communities better places in which to live, work and play. FIRST GUARANTY BANCSHARES, INC. Dear Shareholders, The year 2020 was quite a year for our bank. Not only for the excellent results but also for the positioning for the coming year. First Guaranty Bank made twenty million dollars for the year 2020. This compares to a fourteen million dollar year in 2019. That was a forty-three percent increase in profitability. Also, the bank made a substantial contribution to loan loss reserve during 2020 bringing our total LLR to 1.33% – that is what I call “Building a Fortress Balance Sheet.” As you are aware loans are probably the most important part of banking. During 2019 we ended the year with $1,525,000 in loans. By the end of 2020 we were at $1,844,000 in loans outstanding. This is a whopping $319,000,000 dollar increase. Randy Vicknair (Chief Lending Officer) and Jordan Lewis (Texas Area President) did an outstanding job, as did Bill Hood and the Directors Loan Committee who vetted every loan. But the good news is yet to come. We will have growth in loans both in the first and second quarter as the pipeline is full. I wholeheartedly commend these admirable results from the Board of Directors, Management and All of the Employees I want to say, “Thank You.” MARSHALL T. REYNOLDS Chairman of the Board FIRST GUARANTY BANCSHARES, INC. Chairman of the Board FIRST GUARANTY BANK 12 #1 Best Small Bank in the U.S. 13 FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Letter from the Chief Executive Officer & President Report from the Chief Financial Officer Alton B. Lewis Chief Executive Officer & President #1 Best Small Bank in Louisiana and the U.S. Dear Shareholders, Being named the Best Small Bank in The United States and Louisiana by Newsweek Magazine and Lending Tree is certainly a great indicator that we did something right in 2020. Recording record earnings for the year is another indicator that we did some things right in 2020. Recording record earnings for the year while also adding approximately $14 million to the loan loss reserve in recognition of continued COVID uncertainty is another strong indicator that we did some things right in 2020. Increasing our loan portfolio by approximately 20% during the Covid pandemic is another indicator that we have done some things right in 2020. There is no doubt that 2020 was an outstanding year for First Guaranty Bancshares, Inc.. With the leadership of the Board of Directors, strategies were developed, and actions were taken to quickly and effectively deal with the adversities presented and to succeed in spite of those adversities. We should enjoy our success. But 2020 is now history. It is our goal at First Guaranty Bancshares, Inc. to simply use 2020 as a stepping stone toward greater success, toward better banking, toward increased growth, toward increased earnings, toward enhanced shareholder value, and toward a fortress balance sheet. Thank you for your support. Please do not hesitate to contact me if you have any questions. Sincerely, Alton B. Lewis Vice Chairman of the Board and Chief Executive Officer/President FIRST GUARANTY BANCSHARES, INC. Vice Chairman of the Board and Chief Executive Officer/President FIRST GUARANTY BANK #1 Best Small Bank in the U.S. First Guaranty Bancshares, Inc. continued its consistent track record of loan growth, dividend payments, and capital growth in 2020 while managing through the COVID-19 pandemic. First Guaranty took decisive action at the beginning of the COVID-19 crisis to protect the bank, our employees and help our customers. The actions taken reflect First Guaranty’s business philosophy provided by the Board of Directors. It is not surprising that Newsweek and Lending Tree ranked First Guaranty Bank as the number one small bank in the United States. We are honored by this tribute and will continue to make our bank better every day. Eric J. Dosch First Guaranty’s COVID-19 response included the following notable actions. We increased on balance sheet liquidity by $100 million through FHLB borrowings and brokered deposits. These funds were profitably invested in corporate securities that provided both liquidity and earnings during 2020. First Guaranty provided relief loans to employees and customers prior to participation in the SBA Paycheck Protection Program (PPP). We provided loan payment deferments to over 1,000 loans that totaled $590 million. First Guaranty waived or suspended several fees during the onset of the crisis. 901 SBA PPP loans were originated that totaled $111.1 million before SBA forgiveness payments reduced balances at the end of 2020. Our employees worked countless extra hours ensuring that our branches remained open and that our customers received their essential banking services during the COVID-19 pandemic. Chief Financial Officer First Guaranty continued to execute its plan to grow loans as a percentage of our balance sheet despite the significant economic headwinds associated with the pandemic. Loans grew by 20.9% or $318.6 million from $1.53 billion in 2019 to $1.84 billion in 2020. Included in this growth were $92.3 million in SBA PPP loans. First Guaranty continued to expand its commercial lease lending program which is included in total loans. Commercial leases grew $34.0 million to $104.1 million in 2020. We increased loan interest income by $11.9 million in 2020. The loan portfolio finished December 31, 2020 at 75% of total assets. Five years ago, the loan portfolio was only 58% of assets at December 31, 2015. The loan to deposit ratio was 85.1% at December 31, 2020 which still leaves us room to grow. Our average loan yield has remained consistently above 5.0% during the last several years. The average loan yield averaged 5.46% for 2020 even though market interest rates declined significantly during 2020. FPO The Texas loan portfolio grew to $244.9 million at December 31, 2020 which is a $40.4 million increase from $204.5 million at December 31, 2019. Texas loans have grown a total of $116.9 million from $128.0 million at the acquisition date in June 2017. Texas deposits grew to $275.2 million at December 31, 2020 from $230.5 million at December 31, 2019. Texas deposits have grown a total of $148.0 million from $127.2 million at June 2017. First Guaranty improved the composition and cost of its deposit portfolio during 2020. Total interest expense declined $3.9 million in 2020. First Guaranty increased non-interest bearing deposits $85.5 million or 26% during 2020. Total cost of interest bearing liabilities declined to 1.48% for 2020 compared to 2.06% for 2019. The net interest margin was 3.35% for 2020. Total common shareholder’s equity increased $12.6 million from $166.0 million in 2019 to $178.6 million in 2020. Retained earnings increased $14.1 million from $43.3 million in 2019 to $57.4 million in 2020. The loan loss reserve increased to $24.5 million at the end of 2020 compared to $10.9 million at the end of 2019. First Guaranty increased the loan loss reserve to manage for uncertainty related to COVID-19 and to accommodate the strong loan growth in the latter half of 2020. Earnings per common share were $2.09 in 2020 compared to $1.47 in 2019. Tangible book value per share increased from $15.05 at December 31, 2019 to $16.41 at December 31, 2020. Return on average assets was 0.87% for 2020. Return on average common equity was 11.36% in 2020. First Guaranty Bancshares, Inc. paid a total of $6,234,400 in cash dividends to common shareholders in 2020. The Company has paid 110 consecutive quarters of dividends as of December 31, 2020. First Guaranty continues to build strength for the future. We increased loans and capital in 2020 despite the challenges due to COVID-19. First Guaranty continues to maintain a leading deposit market share in the communities that we serve in Louisiana. We continue to expand our business in Texas. Our continuing investment in the education of our employees and our planning and reporting systems has increased productivity. We believe that the combination of these efforts will lead to a strong and profitable future for First Guaranty Bancshares, Inc. Sincerely, Eric J. Dosch Chief Financial Officer FIRST GUARANTY BANCSHARES, INC. Chief Financial Officer FIRST GUARANTY BANK 14 15 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Report from the Chief Lending Officer Report from the Central Louisiana Area President Randy S. Vicknair Senior Vice President/ Chief Lending Officer 2020 was a great year for First Guaranty Bank! We were successful in assisting our customers and the community with relief programs related to COVID19 and multiple hurricanes, providing PPP loans to our customers and non-customers, implementing multiple new software platforms to improve our efficiency, growing our loan portfolio by 21%, and achieving a ranking of #1 bank in the country! All of this was accomplished while working through the economic/staffing challenges created by the COVID19 virus and government mandated shutdowns. This accomplishment is a direct result of the guidance of our Board of Directors combined with the focus, determination, and collaboration of our team. In 2020, the total loan portfolio grew to $1.844 billion which was a $319 million increase over the previous year end of $1.525 billion. Our strong growth is due to the contributions of multiple lines of business including commercial real estate loans, commercial and industrial loans, mortgage loans, and commercial leases. We were able to maintain loan yields despite significant reductions in interest rate indexes and competition creating downward pressure on loan pricing. Loan yields were 5.46% in 2020 as compared to 5.99% in 2019. This is only a 0.53% year-over-year decrease while our major index, Wall Street Journal Prime, decreased by 1.50%. Additionally, loan interest income was $90.8 million in 2020 compared to $78.9 million in 2019, an increase of $11.9 million or 15%. This was achieved primarily from our loan growth. The focus of First Guaranty Bank continues to be our local markets and customers. We added six new Financial Relationship Manager positions in 2020, with at least one position in each of our regions. These new team members will enable us to better service our existing client base while pursuing additional new client relationships. Additionally, we created two new positions to focus on the training and development of our Financial Relationship Managers and Loan Assistants. This new initiative will continue to build on the growth of our teams, our markets, and our customer service. The bank’s markets remained strong in 2020, with significant contributions from our Texas, North Louisiana, and Southeast Louisiana regions. Our Southwest Louisiana region had a great first half of 2020 with hurricanes slowing their progress for the 2nd half of 2020. It takes focus, commitment, and teamwork to be #1. In 2020, our team showed what we are capable of accomplishing and we are ready to deliver another great performance in 2021! Sincerely, Randy S. Vicknair Senior Vice President/Chief Lending Officer FIRST GUARANTY BANK Darrel D. Ryland Director/Central Louisiana Area President When we first met last year in January, little did we know how interesting 2020 would be. It is easy to lament the unfortunate events of the year; at the same we must celebrate the personal and professional achievements of the First Guaranty Bank officers and staff. Of course, I am referring to the recognition of First Guaranty Bank as the Best Small Bank in America, and the preeminent bank in the Central Louisiana market. Over 2,500 FDIC insured financial institutions were eligible candidates for this honor. First Guaranty Bank was ranked number one not only for financial metrics, but for offering its customers the best banking experience in the State of Louisiana. PERIOD. Financial customers in Central Louisiana, we call this area CENLA, now have access to state-of-the-art online banking options which are being utilized now more than ever. Even technologically reluctant customers comment about the ease of online banking at First Guaranty Bank. This in turn increases customer satisfaction to an all time high. This was our highest goal. Finally, as our state and national economies improve, the need for loans will increase. First Guaranty Bank stands ready to approve qualified borrowers much faster than our markets competitors. Shareholders can rest assured that their investments will grow; depositors can rest assured that their assets are safe and secure; and borrowers can rest assured that First Guaranty Bank will accommodate their every need. Yes, 2020 was an interesting year. Here at First Guaranty Bank, we are resolved to make 2021 even better for our customers, employees, and shareholders. Sincerely, Darrel D. Ryland Director FIRST GUARANTY BANCSHARES, INC. Central Louisiana Area President FIRST GUARANTY BANK l e v a r T a n a s u o L i i : t i d e r C 16 #1 Best Small Bank in the U.S. 17 FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Report from the Texas Area President Best Small Bank Report from the Senior Vice President The perfect may be the enemy of the good, but a champion never accepts what is good enough when it really matters. In 2020, First Guaranty Bank showed it is a champion: that it had the heart of a champion in serving its communities in times of crisis, and that it had the focus of a champion in improving every aspect of its customer experience despite tremendous challenges throughout the year. Nowhere was the bank’s grit, determination to prevail, and strength of character more on display in 2020 than in Texas. JORDAN M. LEWIS Texas Area President The 2020 numbers tell part of the story: not including PPP loans, First Guaranty Bank increased its Texas loan new money production by 34% (+$138 million), almost tripled its total loans originated, and grew its loan portfolio by 20% (+$40.4 million). Deposits increased 20% across its five branches to $275 million. Profitability grew and cost of funds dropped. Glenn A. Duhon, Sr. Senior Vice President/ Regional Manager But that part of the story seems inconsequential to the real story: countless hours of communicating, planning, and collaborating by leaders from departments across the bank working out how to keep local economies rolling while keeping team members and their families safe; schedules constantly disrupted and plans changed on a dime due to an ever-changing and dangerous environment. Team members who moved quickly and willingly to fill gaps in personnel chains with incredible attitudes despite significant personal sacrifice. A unified force working to make sure our customers were never let down – not even for a second – during a national emergency. Dedicated employees of First Guaranty Bank across Texas and Louisiana in 2020 showed what it means to be the best: to care, to do one’s best, and to go the extra effort even when the situation is at its worst. Their heart and focus demonstrated that they were champions of what banking should be. They showed that they are prepared for anything, and that the future is in good hands. Ever onward, Jordan M. Lewis Texas Area President FIRST GUARANTY BANK The Southwest Louisiana Region of First Guaranty Bank continues to be persistent and treat customers as they would like to be treated. Surely, this has helped the bank to be named #1 Best Small Bank in the United States. Our hotel/motel owners survived 2020 with the help of PPP loans, extensions and deferments. Their room rentals seem to be getting better and should fully recover after most people receive the coronavirus vaccine. Other commercial business customers have also taken advantage of available federal aid and should be able to survive. Our agriculture business was also affected by coronavirus, especially crawfish farmers. They had a decent year in catching but were not able to sell the product due to so many restaurants either closing or serving to-go only, and the demand for crawfish fell. Demand was also affected by the many company, friend and family crawfish boils cancelled due to the disease. Rice and sugarcane yields were good with stable prices, and the majority of farmers were able to meet their financial obligations. Jennings deposits ended the year with $38.6 million compared to $40.6 million from the previous year, resulting in a decrease of $2 million. Abbeville deposits ended with $142.2 million compared to $137.3 million from the previous year, or $4.9 million above one year ago. Combined deposits for this region ended at $2.9 million above a year ago. Jennings loan volume ended at $11.4 million compared to $14.3 million the previous year, a $2.9 million decrease. Abbeville loan volume ended with $74.5 million compared to $73.1 million the previous year, or a $1.4 million increase. Lake Charles loan production office ended with $18.9 million in loans compared to $17.9 from the previous year, or an increase of $1 million. Combined loan volume was $104.8 million compared to last year of $105.3 million, a decrease of $500,000. With the continued support of our loyal customers, dedicated employees, management and our Board of Directors, we should be able to increase loan volume, deposits and our customer base. Sincerely, Glenn A. Duhon, Sr. Senior Vice President/Regional Manager FIRST GUARANTY BANK 18 FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT #1 Best Small Bank in the U.S. 19 Memorial Charles "Chuck" Brister, Director First Guaranty Bank BOARD OF DIRECTORS e r t s i k B r 1 9 5 1 – N o v e m b e r 2 0 20 2 3 , C h u c 2 6 , S e p t e m b e r 2020 was a challenging year in many ways and we mourned the loss of Chuck Brister on November 23rd, while honoring his 25 years of service to First Guaranty Bank and the Board of Directors. Born in Independence, Louisiana on September 26, 1951 to J.H. and Betty Brister of Roseland, Chuck Brister graduated from Amite High School. He was a resident of Amite and a member of First Baptist Church. He is survived by his wife of 51 years, Mary Ellen Brister and two daughters and sons-in- law, four grandchildren, a sister, brother-in-law and one niece. Chuck began his business in November 1972 as Chuck’s Glass & Radiator Works in Roseland. In 1975, he moved to Amite and started Amite Glass & Radiator Works. In 1985, they sold Amite Glass Works and Chuck took over his father’s manufacturing business of Go Karts, known as Brister’s Thunder Karts. Under his leadership, Thunder Karts earned national recognition and developed utility vehicles named the Chuck Wagon. Chuck lived life fully and enjoyed boating, flying, car shows, traveling and his many friends. His greatest enjoyment was spending time with his wife, children and grandchildren and being involved in their activities. He served as the 2008 Amite Oyster King and was a board member of Smitty’s Supply. Chuck Brister was always committed to First Guaranty Bank and served as a board member since May, 1996. He sat on the Directors Loan Committee and the IT Steering Committee. The Board of Directors of First Guaranty Bank are proud to have had the pleasure of serving with Mr. Charles “Chuck” Brister and will cherish the wisdom, guidance and joy he provided. 20 Front Row (left to right): Edgar R. Smith III, Nancy C. Ribas, Gloria M. Dykes, Dr. Phillip E. Fincher. Middle Row (left to right): Andrew Gasaway, Jr., Bruce McAnally, Marshall T. Reynolds, Ann A. Smith, William K. Hood, Jack Rossi, Robert H. Gabriel. Back Row (left to right): Jack M. Reynolds, Richard W. “Dickie” Sitman, Alton B. Lewis, Edwin L. Hoover, Jr., Anthony J. Berner, Morgan S. Nalty Not Pictured: Darrel D. Ryland (Photo taken pre-Covid 19) ANTHONY J. BERNER, JR. Consultant, Gold Star Food Group. Former President of Pon Food Corporation of Ponchatoula. GLORIA M. DYKES Owner of Dykes Beef Farm and Part Owner of Dykes Feed & Fertilizer Inc. and Bluff Creeks Properties. DR. PHILLIP E. FINCHER North Louisiana Advisory Board. Retired Economics/Finance Professor of Louisiana Tech University. Board member of Claiborne Electric Cooperative. Owner of C & B Ranch since 1969. ROBERT H. GABRIEL President of Gabriel Building Supply Company of Ponchatoula and Amite. ANDREW GASAWAY, JR. Secretary, Board of Directors of First Guaranty Bank. President of Gasaway-Gasaway-Bankston Architects. WILLIAM K. HOOD Chairman of the Audit Committee, Directors’ Loan Committee. President, Hood Automotive Group. EDWIN L. HOOVER, JR. President of Encore Development Corporation. ALTON LEWIS Vice Chairman of the Board, Chief Executive Officer/President of First Guaranty Bank and Vice Chairman of the Board, Chief Executive Officer/President of First Guaranty Bancshares. BRUCE MCANALLY Registered pharmacist, Director of Paragon HealthCare in Dallas, RxPreferred Benefits in Nashville and Best Value Pharmacies in Ft. Worth. MORGAN S. NALTY Investment Banking Executive and Partner in the firm of Johnson Rice & Company, LLC. JACK M. REYNOLDS Vice President of Trifecta Productions, Vice President of Pritchard Electric and Secretary, ADJ Corporation. Board member of Energy Services of America, The Harrah and Reynolds Corporation and Citizens Deposit Bank. MARSHALL T. REYNOLDS Chairman of the Board of First Guaranty Bancshares, Inc. and Chairman of the Board of First Guaranty Bank. Chairman of Champion Industries, Inc. NANCY C. RIBAS Owner of Ribas Holdings LLC and University Motors. JACK ROSSI Chairman of First Guaranty Bancshares Audit Committee. Certified Public Accountant in West Virginia and Vice President Business Development at Summit Community Bank in West Virginia and Virginia, on the Board of Trustees of the West Virginia Investment Management Board, a member of the Charleston Area Alliance Board and the Treasurer and Past Chairman and the Charleston Regional Chamber Of Commerce Board and West Virginia University Business Economics Visiting Committee. DARREL RYLAND First Guaranty Bank Central Louisiana Area President. Darrel D. Ryland, LLC, attorney and owns Red River Ranch, a cattle operation. RICHARD W. “DICKIE” SITMAN Director of Dixie Electric Membership Corporation. Board President of Dixie Business Center. Past owner of Jos. M. Sitman, Inc. He is a past board member of CoBank ABC and Bank of Greensburg. ANN A. SMITH Member of the Southern University Board of Supervisors, Southern University Chairwoman Emeritus, former member of Louisiana Office of Student Financial Assistance Advisory Board (LOSFA). Retired member of the Tangipahoa Parish School Board. EDGAR R. SMITH, III Chairman and CEO of Smitty’s Supply, Inc. Chairman and CEO of Latch Oil, Cam2 International, Big 4 Trucking and Big 4 Investments. 21 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bank ADVISORY BOARD Left to Right: Britt L. Synco, Thomas “Tommy” D. Crump, Gil Dowies, III, Dr. Philip E. Fincher Not pictured: John D. Gladney, M.D. These adept gentlemen assist the bank in moving forward by sharing their breadth of experience and providing critical insight into essential business interests including oil and gas production, agriculture and forestry. The Advisory Board works with the Board of Directors and management to develop lending and marketing philosophies to best affect First Guaranty Bank. With wholesale and retail expertise throughout north Louisiana, this group examines financial and civic activities. The five men who make up the North Louisiana Advisory Board were all born and reared in Claiborne Parish and have deep roots in the communities and business affairs of this area. In the period where big banks began to buy up small and medium size banks across the country, it became apparent to us that the banking needs of individuals and small businesses were not being met by these megabanks in our area of Northwest Louisiana. These concerns led the Advisory Group to join with others to form a new community bank for Claiborne Parish. Shortly after the formation of this bank, the group had the opportunity to join with FIRST GUARANTY BANK to create a stronger and better institution to meet the banking needs of a much larger community of individuals and businesses across the whole area of Northwest Louisiana. As First Guaranty has grown in size and strength, it has never failed to fulfill its mission to function as a true, community-oriented bank–like all those which had preceded it in our rural communities. The ranking of First Guaranty as the best small bank in the U.S. by a national publication only confirms what the Advisory Group has known for a long time—our bank is one of the best things that has happened in our area in the last 20 years! First Guaranty Bank OFFICERS Chairman MARSHALL T. REYNOLDS* Chairman of the Board Executive Officers ALTON B. LEWIS* President and CEO ERIC J. DOSCH* Chief Financial Officer Senior Vice Presidents THOMAS F. BROTHERS Director of Internal Audit SCHELIA M.DAVIS Operations Officer MARK J. DUCOING Chief Deposit Officer GLENN A. DUHON, SR. Regional Manager Abbeville RONALD R. FOSHEE Director of Lending Development KEVIN J. FOSTER Regional Manager Denham Springs ADAM J. JOHNSTON Regional Manager North Louisiana MIKKI M. KELLEY Human Resources Department Manager JORDAN M. LEWIS Texas Area President GREGORY P. PRUDHOMME Regional Manager Central Louisiana DARREL D. RYLAND Central LA Area President CRAIG E. SCELFO Regional Manager Ponchatoula & St. Tammany DESIREE B. SIMMONS Loan Administration, Marketing & Training EVAN M. SINGER Director of Mergers & Acquisitions Regional Manager Greensburg JASON D. NORMAND STEVEN F. OSMAN SCOTT B. SCHILLING AMBER L. SMITH LISA K. STOKER JOHN A. SYNCO J. RICHARD STARK Operations RANDY S. VICKNAIR Chief Lending Officer CHRISTY L. WELLS Regional Manager Hammond MATTHEW B. WISE Chief Credit Officer Vice Presidents CHARLES L. BAGGS ASHLEY N. BELL BETTY A. BONEY BRENDA A. BRISCOE CHERYL Q. BRUMFIELD KATHERINE K. CAMPBELL, Controller CHRISTINA M. CARTER TIMOTHY L. CHESNEY ROBERT W. CLIFTON, Chief ISO LOUIS J. CUSIMANO VIKKI W. DUPAQUIER RONALD W. EDMONDS DENISE D. FLETCHER SHIRLEY P. JONES JOELLEN K. JUHASZ, BSA Officer MICHAEL D. KNIGHTEN TERRIE E. MCCARTNEY COLTON C. MCDANIEL Assistant Vice Presidents CONRAD H. ARRAMBIDE EVAN A. BARANOSKY DARRYL P. BOUDREAUX LAURYN H. COBURN MIRANDA M. DERVELOY SUSAN M. DESOTO LANDA G. DOMANGUE VANESSA R. DREW CHRISTY L. FRIERSON HARRISON R. GILL BONNIE J. GRIENER LUDRICK P. HIDALGO LESLIE A. HINZMAN A. SHANE HUGHES KEITH T. KLEIN PAMELA R. NORMAND DEV M. PATEL RAHUL R. PATEL NIEKITSHA S. RIDLEY MELINA V. WEST Officers REBECCA G. BROWN CALVIN P. DUCOTE JEANNETTE N. ERNST KRISTIN M. WILLIAMS *Officers of both First Guaranty Bank and First Guaranty Bancshares, Inc. The members of the First Guaranty Bank Advisory Board include: Thomas D. “Tommy” Crump, Jr., Carrell G. “Gil” Dowies, III, Dr. Phillip E. Fincher, John D. Gladney, M.D. and Britt L. Synco. 22 23 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bank PERFORMANCE GRAPHS First Guaranty Bank PERFORMANCE GRAPHS Tangible Common Equity [3] (in thousands) Tangible Common Equity (in thousands) Net Income (in millions) Total Assets (in millions) 1993 1998 2003 2008 2013 2016 2017 2018 2019 2020 $9,005 $17,376 $43,557 $61,429 $80,033 $121,372 $137,262 $141,108 $146,566 $159,876 Tangible Common Equity has increased $150.9 million since 1993. Total Assets (in millions) 1993 1998 2003 2008 2013 2016 2017 2018 2019 2020 $159 $245 $485 $871 $1,436 $1,501 $1,750 $1,817 $2,117 $2,473 First Guaranty Assets have increased 1,455% since 1993. Total Deposits (in millions) Net Income (in millions) 1993 1998 2003 2008 2013 2016 2017 2018 2019 2020 $2.1 $3.7 $7.0 $5.5 $9.1 $14.1 $11.8 $14.2 $14.2 $20.3 Total Deposits (in millions) 1993 1998 2003 2008 2013 2016 2017 2018 2019 2020 $149 $257 $376 $780 $1,303 $1,326 $1,549 $1,630 $1,853 $2,166 [3]Total equity less preferred equity, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization. [4] Available for sale securities at fair value, held to maturity at amortized cost 24 25 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bank PERFORMANCE GRAPHS First Guaranty Bank The FGB Center Loans, Net of Unearned Income (in millions) Loans, Net of Unearned Income (in millions) 1993 1998 2003 2008 2013 2016 2017 2018 2019 2020 $105 $177 $381 $606 $703 $949 $1,149 $1,225 $1,525 $1,844 Investments (in millions) 1993 1998 2003 2008 2013 2016 2017 2018 2019 2020 $30 $73 $59 $139 $635 $499 $502 $405 $427 $239 Investments [4] (in millions) Photo courtesy of Phillip Colwart The FGB Center is officially complete and we couldn’t be more excited! This beautiful 3-story building sits in the heart of Hammond, LA, (right across the street from our main operations center) and houses our IT, Customer Support Center, ITM Agents and Learning & Development Departments. With our future in mind, we have additional space available for growth. To round out this beautiful center, we have two new training rooms and a large auditorium. All rooms are equipped with state-of-the- art audio/visual equipment to enhance learning, collaboration and networking. Already, the training rooms are being used not only by the L&D Department, but also other departments to continue their education outside of their offices. The auditorium will be used for larger internal gatherings such as our Annual Shareholders meetings, Chamber After Hours events, and internal conferences. Our Customer Support Center, along with our ITM Agents, have settled in nicely as they have room to spread out and room for growth. Our IT Department has also officially settled in and enjoying the space for all the servers and security functions that keep the bank running without skipping a beat. We are so proud of this new building; we will take any opportunity to show it off. That’s why it was the location for our main office photo shoot for this year’s annual report and was also the location for our newest TV commercials. We look forward to continuous growth and filling this building to capacity in the near future. 26 27 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bank 2020 Accomplishments and Highlights EARNINGS & DIVIDENDS Celebrated open houses in Central Louisiana branches t n 1 0 0 % C ommitme 110TH CONSECUTIVE DIVIDEND PAID 100% of the T i m e Earnings increased by $6.1 million from $14.2 million in 2019 to for 2020 Provided to small businesses for a total of $111.1 million STRONG Growth: The allowance for loan losses increased from $10.9 million at December 31, 2019 to at December 31, 2020 Earnings Total Common Dividends Paid Cumulative Retained Earnings (Deficit)* Notable Events $2.1 million $ 200,000 $(4,984,000) ■ Investors purchased $3.6 million of common stock $1.7 million $ 601,000 $(3,879,070) $2.1 million $ 815,000 $(2,796,000) ■ Investors purchased $337,000 of common stock $3.3 million $1,020,000 $ (774,000) ■ Three-for-two stock split $3.4 million $1,223,000 $ 1,205,000 $3.4 million $1,223,000 $ 3,482,000 $3.4 million $1,316,000 $ 4,473,000 ■ Investors purchased $9.6 million of common stock ■ Acquired 13 branches from Bank One of Louisiana ■ Acquired First Southwest Bank $5.0 million $1,530,000 $ 5,027,000 ■ Gains from sale of acquired branches net of tax totaling $2.8 million $6.0 million $1,668,000 $ 8,638,000 ■ Acquired Woodlands Bancorp ■ Gains from sale of acquired branches net of tax totaling $1.3 million $3.5 million $1,751,000 $10,426,000 $7.0 million $2,086,000 $13,967,000 $8.6 million $2,752,000 $19,771,000 $6.0 million $3,173,000 $23,351,000 ■ Four-for-three stock split $8.4 million $3,335,000 $28,402,000 $9.8 million $3,503,000 $34,671,000 ■ Acquired Homestead Bancorp $5.5 million $3,558,000 $36,626,000 $7.6 million $3,558,000 $40,069,000 $10.0 million $3,558,000 $45,203,000 $8.0 million $3,610,000 $47,650,000 ■ Acquired Greensburg Bancshares 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Opened the FGB Center Completed acquisition of The Union Bank Technology Updates: FGB has Amite Denham Springs Guaranty West (Hammond) Hammond Main Office Ponchatoula Bossier City Kentwood Updated MyFGB app Initiated Customer Surveys Upgraded Telephone System (FGB experienced high call volume due to PPP and more customers utilizing banking by phone.) FGBI STOCK WATCH NEWS: April 2020 Zacks Equity Research named First Guaranty Bancshares (FGBI) as a “company to watch” with a Zack’s Rank of #2 (Buy) and an A for Value. Zack’s evaluated and commended FGBI’s equity, book value, stock price and operating cash flow. Zack’s concluded FGBI stock was undervalued and had a strong earnings outlook. 2012 $12.1 million $4,035,000 $53,702,000 ■ 10% common stock dividend ■ Dividend rate per share remains $0.16 per quarter 2013 $9.1 million $4,027,000 $58,102,000 ■ Total loans exceeded $700 million (ITMs) in: 2014 $11.2 million $4,027,000 $64,905,000 2015 $14.5 million $4,247,000 $73,445,000 ■ Retained earnings grew by $6.8 million ■ Total loans reached $790 million ■ 10% common stock dividend ■ Listed in NASDAQ ■ Redeemed SBLF Preferred Stock 2016 $14.1 million $4,870,000 $82,668,000 ■ Loans totaled $949 million 2017 $11.8 million $5,210,000 $89,209,000 2018 $14.2 million $5,636,000 $97,786,00 2019 $14.2 million $5,803,000 $106,244,000 2020 $20.3 million $6,234,000 $120,328,000 $226.3 million $84,569,000 ■ Grand openings of Bossier City, LA Banking Center ■ Acquisition of Synergy Bank and addition of five new Texas locations ■ 50% ownership in Centurion Insurance Services allowing First Guaranty to sell insurance products ■ Grand opening of Lake Charles, LA Loan Production Office ■ Total loans surpassed $1.2 billion ■ Acquisition of Union Bank and addition of seven new Louisiana locations ■ 110th consecutive quarterly dividend ■ Named the No. 1 BEST SMALL BANK IN THE U.S.! ■ Assisted 917 Small Businesses through PPP with $111.1 million in loans. ■ Retained earnings of $57.4 million ■ Strengthened loan loss reserve and strong loan growth * Retained earnings has not been adjusted to consider stock splits or stock dividends. This better reflects earnings that have been retained as capital. Retained earnings is the product of Company earnings less common and preferred dividends. The accumulated deficits in 1993 through 1996 were due to losses incurred prior to 1993. 28 FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT 29 #1 Best Small Bank in the U.S. First Guaranty Bank Central Louisiana Open Houses Our Open House events allow customers, employees and the surrounding communities to come together and get to know us through an afternoon of food and fun. During these events, we also highlight local charities and give back with donations. This year, each Central Louisiana branch hosted their own Open House event with the purpose of introducing FGB, better banking and the people behind that promise to the community. After dodging hurricanes and planning through a pandemic, we were able to host the events safely, albeit slightly different from those of years past. Beneficiaries included: • Food Bank of Central Louisiana • Open Hands • Avoyelles Council on Aging, Inc. • Save CENLA • Children’s Advocacy Network • Rotary Club of Bunkie • Boudreaux’s Animal Rescue Krewe 127 24 6 7 12 14 10 26 4 21 20 23 8 13 25 16 19 3 17 18 5 15 1 2 11 22 28 9 29 26 30 33 31 32 34 Come see what better banking is all about at our... Open HOUSE It’s a Party! Better Banking is more than just a catchy phrase, it’s our commitment to always finding ways to improve — for you! Our open house event is a great way for you to get to know the people behind the commitment. Join us for food, fun and some great music! New Date! TUESDAY, NOVEMBER 17TH 3PM — 5PM 1701 Metro Drive Alexandria, LA 71301 Masks are required At FGB, we aren’t just a bank — we’re real people that work, live and play in your community. Come by our open house to see how! Come see what better banking is all about at our... Open HOUSE It ’s a Par ty! Bet ter Banking is more than just a catchy phrase, it’s our commitment to always finding ways to improve — for you! Our open house event is a great way for you to get to know the people behind the commitment. Join us for food, fun and some great music! 2 E VENTS WEDNESDAY, OCTOBER 7TH TUNICA BRANCH 11AM — 1PM 211 East Tunica Drive Marksville, L A 71351 & MARKSVILLE BRANCH 3PM — 5PM 305 Nor th Main Street Marksville, L A 71351 At FGB, we aren’t just a bank — we’re real people that work , live and play in your community. Come by our open house to see how! 30 31 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT 1049205512First Guaranty Bank BANKING BRANCHES First Guaranty Bank BRANCHES AND ATM/ITM LOCATIONS 30 33 31 32 34 127 24 6 7 12 14 10 Texas Louisiana 25 4 21 20 13 23 8 16 19 3 17 18 5 15 11 22 28 9 29 12 26 32 BRANCHES 1 Main Office Hammond, LA – Guaranty Square 2 Hammond, LA – Guaranty West 3 Abbeville, LA 4 Alexandria, LA 5 Amite, LA 6 Benton, LA 7 Bossier City, LA 8 Bunkie, LA 9 Denham Springs, LA 10 Dubach, LA 11 Greensburg, LA 12 Haynesville, LA 13 Hessmer, LA 14 Homer, LA Independence, LA 15 16 Jennings, LA 17 Kentwood, LA 18 Kentwood, LA – West 19 Lake Charles, LA – Loan Production Office 20 Marksville, LA – Main Street 21 Marksville, LA – Tunica 22 Montpelier, LA 23 Moreauville, LA 24 Oil City 25 Pineville, LA 26 Ponchatoula, LA 27 Vivian, LA 28 Walker, LA 29 Watson, LA 30 Denton, TX 31 Fort Worth, TX 32 Garland, TX 33 McKinney, TX 34 Waco, TX CENTRAL LOUISIANA ALEXANDRIA, LA 1701 Metro Drive 6201 Coliseum Boulevard BUNKIE, LA 1110 Shirley Road HESSMER, LA 2705 Main Street MARKSVILLE, LA 211 East Tunica Drive 711 Paragon Place (Paragon Casino & Resort) MOREAUVILLE, LA 10710 Highway 1 PINEVILLE, LA 40 Pinecrest Drive TEXAS FORT WORTH, TX** 2001 North Handley Ederville Road WACO, TX* 7600 Woodway Drive ATM LOCATIONS SOUTH LOUISIANA ABBEVILLE, LA 799 West Summers Drive AMITE, LA 100 East Oak Street 1014 West Oak Street BEDICO, LA Bedico Supermarket, 28473 Highway 22 DENHAM SPRINGS, LA 2231 South Range Avenue GREENSBURG, LA 6151 Highway 10 HAMMOND, LA 1201 West University Avenue 2111 West Thomas Street 400 East Thomas Street North Oaks Medical Center: 4 Medical Center Drive North Oaks Rehabilitation Center: 1900 South Morrison Boulevard INDEPENDENCE, LA 455 Railroad Avenue JENNINGS, LA 500 North Cary Avenue KENTWOOD, LA 723 Avenue G LIVINGSTON, LA (LPMC) Livingston Parish Medical Center: 17199 Spring Ranch Road LORANGER, LA* 19518 Highway 40 MONTPELIER, LA 35651 Highway 16 PONCHATOULA, LA 500 West Pine Street ROBERT, LA Robert’s Supermarket - 22628 Highway 190 WALKER, LA 29815 Walker Road South WATSON, LA 33818 Highway 16 NORTH LOUISIANA BENTON, LA 189 Burt Boulevard BOSSIER CITY, LA 4221 Airline Drive DUBACH, LA 117 East Hico Street HAYNESVILLE, LA 10065 Highway 79 HOMER, LA Homer Memorial Hospital 401 North 2nd Street OIL CITY, LA 126 South Highway 1 VIVIAN, LA 102 East Louisiana Avenue ITM LOCATIONS* All MiBY hours are Monday-Friday: 7:00 AM to 6:00 PM Saturday: 7:00 AM to 3:00 PM AMITE, LA* 632 West Oak Street BOSSIER CITY, LA* 4221 Airline Drive HAMMOND MAIN OFFICE* 400 East Thomas Street KENTWOOD* 723 Avenue G DENHAM SPRINGS, LA* 2231 South Range Avenue PONCHATOULA, LA* 500 West Pine Street GUARANTY WEST* 2111 West Thomas Street *Deposit Enabled **Coming Soon 33 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT 1049205512First Guaranty Bank DEPARTMENTS & BRANCHES FGB employees are a team. This year’s photographs utilized social distancing and some departments were divided into smaller groups for safety. Guaranty Square (985) 345-7685 (888) 375-3093 400 East Thomas Street Hammond, LA 70401 BSA WALKER Kendra Fairburn BSA MARKSVILLE Front: Lucinda Jacobs Back: Cathy Butter APPRAISAL REVIEW Front: Bailey Janke Middle: Starr Bernier Back: Luke Orlando Not Pictured: Aaron Flores, Emma Willman BSA MAIN Front (Left to Right): Sharmaine Robertson, Linda Miller, Taylor Barnard Middle (Left to Right): JoEllen Juhasz, Jonathan Fandal Back: Christe Feimster 34 COLLATERAL Front (Left to Right): Sarah Sheridan, Heather Coslan, Emily McIntyre, Lauryn Coburn Middle (Left to Right): Tylishia Randell, Krystal Gregory, Sarah Jenkins Back (Left to Right): Cate Mathes, Paul Lee COMPLIANCE MARKSVILLE Pamela Landry COMPLIANCE MAIN Front (Left to Right): Christina Carter, Sara Schaffer Back (Left to Right): Becky Brown, Ann Morgan 35 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT CREDIT CARD DEPARTMENT: Front: Debbie Dubuisson CREDIT MCKINNEY Front (Left to Right): Ben Golane, Michael Wiggins Back (Left to Right): Jason Wilson, Derhonda Gaines Back (Left to Right): Stacy Dutcher Not Pictured: Keith Klein, Adam Smith DEPOSIT MANAGEMENT AND PUBLIC FUNDS Front (Left to Right): Holly Tamburello, Brandi Steffek Middle (Left to Right): Mark Ducoing, Mary Mayo, Steve Osman Not Pictured: Areeb Rashid CREDIT MAIN Row 1 (Left to Right): Matthew Wise, Madison Amos, Benjamin Lopez, Brittanie Wallace Row 2 (Left to Right): Corey Hayden, Louis Cusimano, Lana Quinn, Colton McDaniel Row 3 (Left to Right): Joshua Madere, Claire Roberts, Megan Elkins, Jakayla Brown Row 4 (Left to Right): Ethan Hunt, Davon Mitchell, Heidi Romefanger DEPOSIT MANAGEMENT NORTH LOUISIANA Daniel Loe DEPOSIT MANAGEMENT FORT WORTH: Le’Triche Miller DEPOSIT OPERATIONS Front (Left to Right): Lori Lloyd, Shirley Jones Middle (Left to Right): Glenda Saucier, Maya Loving, Amanda Johnson Back (Left to Right): Letitia Cox, Megan Nelson 36 CUSTOMER SUPPORT CENTER: Front (Left to Right): Destiny Brumfield, Tasha Jackson, Leila Spears, Danyelle Green Back (Left to Right): Eboni Jackson, Victoria Boren DEPOSIT OPERATIONS REMOTE Divetta Stallworth, Tammy Graves and Sandra Edwards 37 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT EXECUTIVE Front (Left to Right): Alton Lewis, Kristin Williams Back (Left to Right): Vanessa Drew FINANCE MAIN Front (Left to Right): Wendy Caillouet, Katherine Campbell, Karli Montero, Donna Scamardo Middle (Left to Right): Pemba Sherpa, Eric Dosch, Rhesha Lamonte, Chandra McKinney Back (Left to Right): Chuck Lyles, Brody McDaniel, Lauren Bush, Michael Moye FRONTLINE MAIN: Front (Left to Right): Emma McDonald, Breanna Bankston Middle (Left to Right): Vickie Vanlandingham, Ashley Oliver, Jessica Merriman Back (Left to Right): Latonia Cotton, Jeannette Ernst Not pictured: Kyleen Tulion, Laura Day, Brittany Gill FINANCE MARKSVILLE FINANCE TEXAS Calvin Ducote Charles Baggs FINANCE MAIN REMOTE Front (Left to Right): Eric Fuller, Jessica West Back (Left to Right): Diane Lanier, Laquita Johnson 38 HUMAN RESOURCES MAIN Front: Mikki Kelly Back (Left to Right): Casey Waters, Mandi Aguillard, Danielle Willie HUMAN RESOURCES MARKSVILLE Jason Normand HUMAN RESOURCES MAIN REMOTE Landa Domangue 39 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT INFORMATION TECHNOLOGY MAIN Front (Left to Right): Mark Montalbano, Michelle Saucier, David Couvillon, Samantha Petracek Middle (Left to Right): Joshua Valladares, Averi Dickerson, Moises Rodriguez, Star Lala, Austin Grant, Keith Mills Back (Left to Right): Julian Oseng, Tim Chesney, Nick Schmitt Not Pictured: Joshua Elliott, Christopher Hoffman, Keldrick Allums, Merrill Magday INTERACTIVE BANKERS: Front (Left to Right): Tierra Parker, Danyelle Green, Stevie Bourg Middle (Left to Right): James Lewis, Brittany Berryhill, Ethan Sansoni Back (Left to Right): Cassandra Brumfield, Chasity Williams, Leila Spears Not Pictured: Laura Ard, Elizabeth Roy INFORMATION TECHNOLOGY WACO Federico Guerrero INFORMATION TECHNOLOGY MARKSVILLE Front: Juan Bautista Back: Tyler Roy 40 INTERNAL AUDIT, LOAN REVIEW, & INFORMATION SECURITY MAIN Front (Left to Right): Tae Anderson, Hannah Primes Middle (Left to Right): Travis Hester, Michelle Dionne, Cristen Williams Back (Left to Right): Tom Brothers, Bill Worthy Not Pictured: Rob Clifton AUDIT FORT WORTH Nancy Rodriguez INFORMATION SECURITY WACO Kenny Wilson 41 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT LENDING MAIN Front (Left to Right): Catherine Egnew, Christy Wells, Jane Wear Middle (Left to Right): Vickie Jenkins, Michael Knighten Back: Daryl Ferrara Not Pictured: Dev Patel LENDING MAIN Front: Randy Vicknair Back: Melanie Gottschalck LEARNING AND DEVELOPMENT: Top (Left to Right): Amber Smith, Casie Qualls, Kendra Phipps Middle (Left to Right): Kristen Bell, Miranda Derveloy Bottom (Left to Right): Sue Tillman, Vikki Dupaquier LOAN OPERATIONS MAIN Front (Left to Right): Kellie DeMarco, Allison Duke, Leah Hunter, Destiny Bankston Middle (Left to Right): Bonnie Griener, Audrey Carter, Luke Lavergne, Laura LaCoste, Donna Hodges Back (Left to Right): Sharon Rogers, Christy Frierson, Julie Carmo Not Pictured: Darlene Albert, Clifton Fincher LOAN OPERATIONS MARKSVILLE Front (Left to Right): Brittany Dauzat, Stephanie Moses Back (Left to Right): Carolyn Bordelon, Melissa Small Not Pictured: Christy Marcotte LOAN OPERATIONS MCKINNEY: Top to Bottom: Lisa Stoker Carmen Murphy Jenny Bae Not Pictured: Jan Brownd 43 42 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT MARKETING Front (Left to Right): Desiree Simmons, Lauren Lee, April Alford Middle (Left to Right): Allison Ryan, Brian Friel Back: Carl Duplessis MERGERS & ACQUISITIONS Front: Evan Singer Back: Jake Schembre OPERATIONS MAIN Front (Left to Right): Betty Boney, Carla Cook, Denise Rehage Middle (Left to Right): Jessica Spears, Scheila Davis Back (Left to Right): Julie Nevels, Richard Stark, Elisa Costanza Not Pictured: Susan Kimmerling MORTGAGE TX Angela Moore OPERATIONS MAIN REMOTE Front: Pam Stafford Back: Tracey Robertson MORTGAGE MAIN Front (Left to Right): Melissa Duchmann, Christine Zeringue Middle (Left to Right): Anna Borgstede, Megan Braden, Theresa Steward Back (Left to Right): Joshua Wooley, Brandon Wear Not pictured: Lisa Armstrong, Nikki Hall 44 OPERATIONS TEXAS: Ashley Bell OPERATIONS CENTRAL LOUISIANA: OPERATIONS SOUTHEAST LOUISIANA: OPERATIONS NORTH LOUISIANA: Chanyon Robertson Marsha Spring Shane Hughes 45 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Abbeville Branch (337) 893-1777 / (800) 306-3276 799 West Summers Drive Abbeville, LA 70510 PURCHASING MARKSVILLE Front: Stravis St. Romain Back: Armenio Magday Sitting (Left to Right): Amy Broussard, Gretchen Meaux, Tanya Menard Standing (Left to Right): Lisa Kritzer, Melina West, Ruth Cuevas, Glenn Duhon, Diane Frederick Not Pictured: Cody Gil, Terry Fendley PURCHASING Front: Donna Turnage Middle: Darryl Boudreaux Back: Joseph Ernest Alexandria Branch (318) 443-8994 1701 Metro Drive Alexandria, LA 70301 SPECIAL ASSETS Front (Left to Right): Kriss Patterson, Lee Ann Sibley Back (Left to Right): Ronnie Pittman, Luke Hammonds SPECIAL ASSETS MARKSVILLE (Left to Right): Benjamin Wood, Joann Moreau Front (Left to Right): Jeanette Brown, Jajuanna Pardue Back (Left to Right): Lani Thompson, Rachel Hazelton Not Pictured: Pam Normand, Becki Normand 46 47 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Front (Left to Right): Jenny Sue Weedman, Nicole D Brown, Suzette Brooks, Roxane Williams Middle (Left to Right): Miranda Rainey, Tammy Chavers, Shana Wells, Stephanie Campo, Saleatha Gordon Back (Left to Right): Wiletha Brown, Scott Schilling Amite Branch (985) 748-5111 632 West Oak Street Amite, LA 70422 Benton Branch (318) 965-2221 189 Burt Boulevard Benton, LA 71006 Front (Left to Right): Jordan Colvin, Courtney Tramiel Back (Left to Right): Benita Douglas, Erika Taylor, Lynn Henry Not Pictured: Matthew Hudnall, Stephanie Medford Dempsey Adam Johnston Bossier City Branch (318) 383-5234 4221 Airline Drive Bossier City, LA 71111 Bunkie Branch (318) 346-4981 1110 Shirley Road Bunkie, LA 71322 Front (Left to Right): Donna Cummings, Alisha Blankenship Back (Left to Right): Larry Ross, Monique Rochelle, Karen Varilek, Linda Blankenship Not Pictured: Stephanie Bracken Front (Left to Right): Rebekah Turner, Rikki Deaville Back (Left to Right): Cheri Moses, Dominique Wilson Not Pictured: Erica O’Neal, Kim Ferguson 48 49 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Denham Springs Branch (225) 791-7964 2231 South Range Avenue Denham Springs, LA 70726 Dubach Branch (318) 777-3461 117 East Hico Street Dubach, LA 71235 Front: Courtney Lachney, Brittanie Wallace Middle (Left to Right): Jennifer Rizzi, Clint Trant, Ludrick Hidalgo, Sharon Moore Back (Left to Right): Michelle O’Quin, Kathie Alimia, Robyn Giacone Not Pictured: Kevin Foster Ronnie Foshee Front (Left to Right): Judy Wilkerrson, Sue Yates Middle (Left to Right): Diane Shoemaker, Kemberlin Locks Back (Left to Right): Christine Harrel, Kristy Puckett Denton Branch (940) 383-0700 2209 West University Drive Denton, TX 76201 Fort Worth Branch (817) 502-6611 2001 North Handley Ederville Road Fort Worth, TX 76118 Front (Left to Right): Evan Baranosky, Leslie Hinzman Back (Left to Right): Sandra Whittington, Daniel Prince, Karen Stevenson Front (Left to Right): Indra Pant, Alyssa Al Sabi, Briana Eilert Not Pictured: Amanda Arizpe, Dot Frazier, Briana Ochoa, Maty Sanchez 50 51 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Garland Branch (214) 227-4550 603 Main Street #101 Garland, TX 75040 Hammond – Guaranty West Branch (985) 375-0371 2111 West Thomas Street Hammond, LA 70401 Front (Left to Right): Callistus Amajoyi, Corinne Forbes, Jennifer Petty Back (Left to Right): Angelia Simmers, Brenda Briscoe, Sara Wayne Not Pictured: Amy Turner, Perla Alvizo Front (Left to Right): Chris Martin, Latoria Burnett, Christina Lacara Back (Left to Right): Keema Muse, Brittany Morgan Greensburg Branch (225) 222-6101 / (800) 227-6101 6151 Highway 10 Greensburg, LA 70441 Haynesville Branch (318) 624-1171 10065 Highway 79 Haynesville, LA 70138 Front (Left to Right): Trella Page, Melissa Smith Back (Left to Right): Paige Rushing, Harrison Gill, Deionna Frank Not Pictured: Kelsey Travis Front (Left to Right): Hailee Ray, Tammy Burley Back: Julia Tabor Not Pictured: Jane Cleveland 52 53 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Hessmer Branch (318) 563-4583 2705 Main Street Hessmer, LA 71341 Homer Branch (318) 927-3000 401 North 2nd Street Homer, LA 71040 Independence Branch (985) 878-6777 455 West Railroad Avenue Independence, LA 70443 Front: Katherine Ponthieux Back (Left to Right): Courtney Lacombe, Lakin Lemoine Front (Left to Right): Caitlyn Doty, Peggy Garon, Karen Paille Back (Left to Right): Sonja Johnson, Chelsey Weedman, Cheryl Brumfield Jennings Branch (337) 824-1712 500 North Cary Avenue Jennings, LA 70546 Front (Left to Right): Chanyon Robinson, Gwendolyn Pete Back (Left to Right): Keisha Miller, Amanda Crochet Sitting (Left to Right): Ranelle Stovall, C’nya Anderson, Candie White, Ashley Bailey Standing (Left to Right): Debra Spigener, Caree Bailey, Aleshia Lee, Laura Pair Homer Lending Front: Tristan Lowe Back: John Synco Not Pictured: Ron Edmonds, Jamie Williams, Kitsha Ridley 54 55 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Kentwood Branch (888) 375-3093 301 Avenue F Kentwood, LA 70444 Kentwood West Branch (985) 229-6101 723 Avenue G Kentwood, LA 70444 Left to Right: Ruby Carter, Allison Keating Not Pictured: Cara Garner Front (Left to Right): Lindsey George, Connie Butler, Karen Griffin Back (Left to Right): Christopher Geraci, Kelsey Travis, Jhameilla McCray Anderson Not Pictured: Lisa Rushing respectful, genuine and compassionate. When a person possesses these virtues, they are appreciated and, thus, remembered. In addition to his thoughtful and kind ways, Lance was known for a few quotes and quips. When asked how he was, he would enthusiastically reply, “Just living the dream!” He would sometimes reply, “Just another day in paradise!” Harrison Gill shared a special, touching experience shortly after Lance Davis passed. On a Toledo Bend fishing trip, his guide service was named “Just Living the Dream!” and their catch was bountiful! His buddy was looking out for him and letting him know he is indeed Living the Dream. Lance Davis joked a lot and was kind to all. What a fine legacy to leave to customers, coworkers and his son, Noah, whom he loved more than anything. Lance is spoken of affectionately and missed daily. Customers tell his coworkers that they have big shoes to fill. It is an honor to have known Lance and to strive to be like him. God Bless America and God Bless Lance Davis. ¹ https://goodmenproject.com/featured-content/how-to-be- remembered-after-your-death-hlg/ Re m e m b e g L a n c i n 1 9 7 1 - 2 0 2 0 r e D a v i s Just living the dream! The greatness of all truly great human beings, lies not so much in their specific accomplishments as in the way they lived. People who enrich their environment have one thing in common: they consciously commit the full measure of their talents to serving a need beyond their personal desires. Whatever the goal, choosing to dedicate their lives to something larger than themselves enlarges the scope of their influence.¹ Lance Davis is remembered by customers and fellow team members who adored him and his easy-going ways. Lance was generous, helpful, Lake Charles - Loan Production Office (337) 824-1712 4740 Nelson Road, #320 Lake Charles, LA 70605 Lobby Hours: By Appointment Rahul Patel 56 57 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Marksville Branch (318) 253-4531 305 North Main Street Marksville, LA 71351 Marksville Front Line Front (Left to Right): Liz Lemoine, Lakin Lemoine Middle (Left to Right): Sheila Smith, Ronald Chatelain, Ariel Jueschke Back (Left to Right): Colleen McGehee, Ronny Green, Ann Tassin Marksville Main Lending Front (Left to Right) Greg Prudhomme, Samantha Lachney Back (left to Right) Jana Joshua, Josiah Blood McKinney Branch (972) 562-1400 8951 Synergy Drive, #100 McKinney, TX 75070 McKinney Front Line Front (Left to Right): Deborah King, Linda Kolosey Back: Rebecca McKenna Jordan Lewis McKinney Lending Front: Krista Peterson Back: Conrad Arrambide Montpelier Branch (225) 777-4304 35651 Highway 16 Montpelier, LA 70422 Front (Left to Right): Nickie Dauzat, Tammy Washington Back (Left to Right): Claire Lacombe, Cynthia Wyatt, Elizabeth Bordelon Not Pictured: Casey Brouillette, Katherine Scallan Front (Left to Right): Trella Page, Betsy Ehret Back (Left to Right): Heather Burrell, Elizabeth Zito Not Pictured: Christina Lacara Marksville - Tunica Branch (318) 253-9835 211 East Tunica Drive Marksville, LA 71351 Tunica- Tag and Title Front: Minnie Deshotel Back: Kenneth Ducote 58 59 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Moreauville Branch (318) 985-2299 10710 Highway 1 Moreauville, LA 71355 Oil City Branch (318) 995-6682 126 South Highway 1 Oil City, LA 71061 Pineville Branch (318) 641-7564 40 Pinecrest Drive Pineville, LA 71360 Front (Left to Right): Laura Dufore, Susan Desoto Back (Left to Right): Steve Osman, Melinda Kidder, Chanyon Robinson Front (Left to Right): Chaston Price, Lynn James Middle (Left to Right): Evelyn Pickney, Jajuanna Pardue Back (Left to Right): Austin Mathews, Luis Juneau Ponchatoula Branch (888) 375-3093 500 West Pine Street Ponchatoula, LA 70454 Front (Left to Right): Emma Rolling, Dollie Ogletree Middle (Left to Right): Tina Gay, Qanisha Thomas Back (Left to Right): Elaine Bounds, Lacie Walton Not Pictured: Glenda Graham Front (Left to Right): Renee Stewart, Amiee Gervais Middle (Left to Right): Laura Perez, Denise Fletcher, Misty Chauvin Back (Left to Right): Craig Scelfo, Philip Jeanfreau, III, Ashton Wilson 60 61 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Vivian Branch (318) 375-3202 102 East Louisiana Avenue Vivian, LA 71082 Walker Branch (225) 664-5549 29815 Walker Road South Walker, LA 70785 Front (Left to Right): Caroline Caldwell, Heather Webb, Nancy Garsee Middle (Left to Right): Glenda Sepulveda, Brandy Moon Back (Left to Right): Megan Hall, Stacy Thompson Not Pictured: Lisa Milligan, Shawn Hall Front: Angela Wales, Sheila Lofton Back (Left to Right): Sylvia Moore, Maryan Jillo, Nicole Mouton Waco Branch (254) 399-0700 7600 Woodway Drive Waco, TX 76712 Watson Branch (225) 665-0400 33818 Highway 16 Denham Springs, LA 70706 Front: Pam Lambert Middle (Left to Right) Russell Daniel, Christopher Henderson Back (Left to Right): Amy Dennis, Terrie McCartney Not Pictured: Angelia Simmers Front: Bill Smith Back (Left to Right): Judy Hughes, Emily Galviano Not Pictured: Krystal Dunaway Ludrick Hidalgo 62 63 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Community contributions are a priority budget item for First Guaranty Bank. Listed are the institutions, organizations and associations that we have assisted with contributions and sponsorships during 2020. At First Guaranty Bank, our goal is to help improve the communities we serve. In addition to monetary contributions, our employees dedicated time, energy and effort to many of these worthy causes. FGB Gives Back First Guaranty Bank contributions for community support exceeded $281,306 in 2020. A contribution was presented to Ponchatoula High School Lady Wave Basketball. Left to right: Amiee Gervais, Amaya Gervais, PHS Lady Wave Basketball Player and Keema Muse. Vanessa Drew presented a contribution to Pastor Dennis Hebert for the Beacon Light Academy program. Steve Osman presented a contribution to John Barbry, Director of Development & Programming for the Tunica- Biloxi Tribe of Louisiana. Catherine Egnew presented a contribution to Coach Blanchard for the Springfield High School Baseball team. Vanessa Drew presented a contribution to Patti Roubique, Executive Director of Louisiana Children’s Discovery Center. A contribution was presented to Christmas on Caddo. Left to right, Emma Rolling, Tina Gay, Cassie Hartley, Christmas On Caddo Vice President and Glenda Graham. Jason Wilson presented a contribution to Hammond – Ponchatoula Sunrisers Rotary for the Hammond – Ponchatoula Chili Cookoff. Left to right, are John Daniel Guerin, Jason Wilson and Deek Deblieux. Melina West presented a contribution to Samantha, School Secretary, for the Safe and Sober program following prom for Hathaway High School. 64 65 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT FGB Gives Back FGB Gives Back Kelsey Travis and Jhameilla Anderson presented a contribution to Yolanda Callahan of the Town of Kentwood. Adam Johnston presented a contribution to Ashley Busada, VP Government Relations & Business Development for the North Louisiana Economic Partnership. A contribution was presented to Southeastern Louisiana University. Left to right are CEO Alton Lewis, Jay Artigues, Athletic Director, Allie Crain, Assistant to the Athletic Director, Kristin Williams and Desiree Simmons. Kristin Williams presented a contribution to Heather Poole, Development Manager & Marketing Director, of Our Daily Bread. Jason Wilson presented a contribution for Geaux Yoga to Erica Kelt, Director of Development of Mary Bird Perkins Cancer Center of Hammond. JoEllen Juhasz presented a contribution to Rob Carlisle, Chief Executive Officer and Lauren Reynolds, Community Outreach Director, of Child Advocacy Services, for the Threading Hope “Social Media-Thon” event. Jason Wilson presented a contribution to Ryan Barker, Director of Chappapeela Sports park for an annual sponsorship. 66 67 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT FGB Gives Back FGB Gives Back Desiree Simmons presented a contribution to Michelle Gallo, CEO/Executive Director of Crime Stoppers of Tangipahoa, Inc. for the Drive In Concert event. Courtney Tramiel presented a contribution to Eddie Hamilton for the Airline High school basketball team. Casie Qualls presented a contribution to Charlie Vance for the Talented Theatre program. Evan Singer presented a contribution to Chesteron Frye, Band Director and Brandon Dorsey, Assistant Band Director for the St. Helena Marching Band. Alton Lewis presented a contribution to Pastor Dennis Hebert for the Beacon Light Academy program. A contribution was made to Independence High School. In the photo is Principal Collier. 68 69 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT FGB Gives Back FGB Gives Back Melanie Gottschalck presented a contribution to LT. Calvin Miller and Chief Edwin Bergeron, for the Hammond Union of Police for the Annual Policeman’s Ball. Vanessa Drew presented a contribution to Debi Fleming, Executive Director of Tangipahoa Council on Aging. A contribution was presented to the Independence Volunteer Fire Department. In the photo, left to right are: Assistant Fire Chief Eric Anthony, Firefighter Daniel Yonker and Captain Tommie Spencer. Evan Singer presented a contribution to Brandon Fontenot, principal of St. Helena’s College and Career Academy for Lena’s Closet. 70 Jason Wilson and Daryl Ferrara presented a contribution to John Hair, Executive Director of Our Daily Bread. Courtney Tramiel, Tristan Lowe, and Joedi Snipes presented a contribution to Jessica Milan Miller, Executive Director and other members of the Gingerbread House Organization. 71 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT FGB Gives Back FGB Gives Back Cody Gil presented a contribution to the Officers of the Abbeville Police Department. A contribution was made to the Independence Magnet High School Baseball Program. In this photo are Chasity Collier, Independence High Magnet School Principal and Vernon Willie, Head Baseball Coach Courtney Tramiel presented a contribution to Gwendolyn Hamilton, Executive Director for AMI Kids Caddo. Courtney Tramiel presented a contribution to Coach J.A. Anglin, Head Men's Basketball Coach of Bossier Parish Community College. Adam Johnston and Joedi Snipes presented a contribution to the Bossier High School Boys Basketball. In the photo, left to right: Coach Marlon, Joedi Snipes, Coach Bo and Adam Johnston. 72 We contributed to the Springhill Piggly Wiggly St. Jude Steak Cook Off. Left to right: Lowell Kenyan, Mark Lowery, Dollie Ogletree, Bobby Vidrine. 73 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT FGB Gives Back A contribution was made to the Independence Magnet High School Basketball Program. In this photo are Chasity Collier, Independence High Magnet School Principal and Desmond Hunter, Head Basketball Coach. A Abbeville Police Department Albany High School – softball team sign American Legion Auxillary #47 – Girls State Program AMI Kids – Caddo Amite Oyster Festival Amy’s Friends dba New Friends New Life Avoyelles High School- Baseball and Lady Mustangs Avoyelles Parish School Board D Denton Parks Foundation – Senior Center Dances Sponsor Doyle High School – Girls Basketball Championship Rings Dubach Restoration and Beautification Organization – Chicken Festival Dubach School – Adopt-A- School Town of Dubach – Santa Run Sponsor B Baton Rouge Little League Beacon Light Baptist Church Bossier Chamber of Commerce – Pack the Bus School Supplies Bossier High School – Boys Basketball Championship Rings Boy Scouts of America – Istrouma Area Council Bunkie High School – Panther Club and Shootout Sponsor C Cajun Navy 2016 – Rescue Supplies CASA of Collin County Inc. Cavalier Athletic Association – Basketball contribution Child Advocacy Services Child Advocacy Center of Collin County – Back to School Fair Children’s Advocacy Network – Hessmer Open House Christmas on Caddo – Fireworks Festival Claiborne Academy - Billboard Claiborne Chamber of Commerce – Platinum Sponsor Claiborne Charity Inc. Claiborne Parish School Board – Teacher Token Program and Bicycle Award Claiborne Scholars Committee – Scholastic Banquet Crimestoppers of Tangipahoa – Drive In Concert Sponsor and Deputy Duck Derby Crying Eagle Brewing Company – Concert Supporter F Fairhaven Denton – Grand Opening Fifth Ward Community Center – Bingo Fundraiser Herbert S. Ford Memorial Museum Fuzzy Friends Rescue – 2020 Barkin’ Ball G Gingerbread House Bossier/ Caddo Greenville Park Leadership Academy – Teachers Appreciation Week Sponsorship H City of Hammond – Back to School Bash Hammond Area Recreation District 1 – Chappapeela Sports Park and Coloring Contest Sponsors Hammond High Magnet School – Girls Soccer Booster Club Hammond Police Union Local 345 – Policeman’s Ball Sponsor Hathaway High School – Safe and Sober Prom Haynesville High School – Teacher Token Program Homer Country Club Homer Golf Club – Tee Box Sign Homer High School – Pelican Quarterback Club FGB Gives Back I Independence High School – Graduation, Tiger Basketball Club Sponsor, Baseball Sponsor Independence Sicilian Heritage Independence Summer Baseball Independence Volunteer Fire – Smokin’ on the Tracks Sponsor J Jeff Davis Sheriff’s Office – Golf Tournament Sponsor Jennings Festival Association Jennings High School – Operation Graduation and Key Club Jennings High School Jazzers K Kedron Baptist Church – Hole Sponsor Kentwood Baseball/Softball Association – Baseball Sign Kentwood High Magnet School Kentwood Rotary Club Town of Kentwood – School Supply Giveaway Knights of Columbus – Le Jour de Cajun Fundraiser Knights of Columbus Marksville Council 1217 – Bass Fishing Tournament Sponsor L LA Childrens Discovery Center – Bubble Zone Exhibit Lake Arthur High School – Safe and Sober Event Lallie Kemp Foundation – Gala Sponsor Lincoln Parish Sheriff Loranger High School – Football Sponsor Louisiana Corn Festival LSU Ag Center – 5 Grand Champion Buckles LSU Ag Center – Vermilion Parish – Rice Education M Main Street Homer – Golf Tournament City of Marksville – Doll and Toy Fund Marksville High/Avoyelles Parish School Board – Tiger Touchdown Club Mary Bird Perkins Cancer Center – Geaux Yoga Sponsorship Monterey Country Club – Curing Carrie Benefit and Golf Tournament Moreauville Volunteer Fire Department – Back to School Bash Richard Murphy Hospice Foundation – Hospice Gala Sponsor N N Stitches Customer Monogramming NAACP – 2020 Scholarships New Beginnings Outreach Ministries – Outreach Program North Tangi Support Group Inc. – Mardi Gras Parade Gold Sponsor O Oak Forest Academy – Golf Tournament Oak Grove Church of Christ – Annual Food Fest Open Hands Sharing God’s Love – Moreauville Open House Options, Inc. Our Daily Bread of Tangipahoa – Food Bank P Pancreatic Cancer Action Network Inc. – Purple Stride 5K Walk/Run Petra Foundation - Fundraiser Piggly Wiggly – St. Jude's Steak Cook Off Ponchatoula Chamber of Commerce Ponchatoula High School – Teacher Appreciation, Lady Wave Basketball, Project Graduation and Cheerleader Sponsorship T Tangi Professional Women’s Organization – Women Mean Business Conference Tangipahoa Parish School System – Tangipahoa Schools Talented Theatre Program and Streamliner Project Tangipahoa Parish Sheriff’s Office – Mounted Division Rodeo Sponsor Village of Tangipahoa – Bike Drive Tangipahoa Voluntary Council on Aging The Mission Church Hammond Inc. – Christmas Ministry The Riff Ridgel Crawfish Cookoff Troop 2020 Tunica-Biloxi Indians Political Action Committee – Golf Tournament and BBQ Cookoff Tunica-Biloxi Tribe of Louisiana – Pow Wow Sponsor W Westminster Homes Inc. Westminster Place – Meal Delivery Contribution R Rotary Club of Denton, Texas – Flag Program Rotary Club of Hammond – Chili Cookoff and Shamrock Run Rotary Club of Oil City – Auction Sponsor Rotary Club of Ponchatoula – Scholarship Fund Rusheon Middle School – Football Uniforms S St. Genevieve Ladies Altar Society – Catfish Dinner St. Helena Marching Bank St. Helena School Board – Lena’s Closet St. Thomas Aquinas High School – Boys and Girls State Championship Rings Southeastern Louisiana University Athletic Association Southeastern Louisiana University Columbia Theatre for the Arts SLU Foundation – College of Business, Columbia Theatre, Community Music School, SLU Partner Sponsor, Chefs Evening Platinum Sponsor and Channel Sponsorship Special Olympics Louisiana – Trivia Night Springfield High School – Baseball Sponsor Summerfield High School – Softball Team 74 75 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Banks Headquartered in Louisiana Ranked by Asset Size as of December 31, 2020 Origin Bank b1Bank Red River Bank Home Bank, National Association First Guaranty Bank Investar Bank, National Association Gulf Coast Bank and Trust Company JD Bank Citizens National Bank, N.A. First Bank and Trust First Federal Bank of Louisiana Sabine State Bank and Trust Company First American Bank and Trust First National Banker's Bank Fidelity Bank Resource Bank Crescent Bank & Trust Liberty Bank and Trust Company The Evangeline Bank and Trust Company Progressive Bank Synergy Bank BOM Bank Community Bank of Louisiana United Community Bank Concordia Bank & Trust Company South Louisiana Bank, Houma, Louisiana First National Bank of Louisiana Home Federal Bank Century Next Bank Community First Bank Metairie Bank & Trust Company Gulf Coast Bank Gibsland Bank & Trust Company Fifth District Savings Bank Cross Keys Bank Rayne State Bank & Trust Company Jonesboro State Bank Merchants & Farmers Bank & Trust Company Cottonport Bank Bank of Commerce & Trust Co. Homeland Federal Savings Bank Delta Bank First National Bank in DeRidder Citizens Bank & Trust Company Farmers-Merchant Bank & Trust Company Choudrant Baton Rouge Alexandria Lafayette Hammond Baton Rouge New Orleans Jennings Bossier City New Orleans Lake Charles Many Vacherie Baton Rouge New Orleans Covington New Orleans New Orleans Ville Platte Monroe Houma Natchitoches Mansfield Raceland Vidalia Houma Crowley Shreveport Ruston New Iberia Metairie Abbeville Gibsland New Orleans Saint Joseph Rayne Jonesboro Leesville Cottonport Crowley Columbia Vidalia DeRidder Plaquemine Breaux Bridge Peoples Bank and Trust Company of Pointe Coupee Parish New Roads Southern Heritage Bank The First National Bank of Jeanerette St. Landry Bank and Trust Company Lakeside Bank M C Bank & Trust Company Guaranty Bank & Trust Company of Delhi, Louisiana The Bank Patterson State Bank City Bank & Trust Co. Bank of Zachary First National Bank Winnsboro State Bank & Trust Company Jonesville Jeanerette Opelousas Lake Charles Morgan City Delhi Jennings Patterson Natchitoches Zachary Arcadia Winnsboro 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 76 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Bank of Coushatta Citizens Savings Bank Guaranty Bank and Trust Company Washington State Bank Commercial Capital Bank American Bank & Trust Company St. Landry Homestead Federal Savings Bank CLB The Community Bank Hibernia Bank Franklin State Bank & Trust Company Caldwell Bank & Trust Company Marion State Bank Bank of Abbeville & Trust Company Citizens Progressive Bank Bank of St. Francisville American Bank & Trust Company Plaquemine Bank & Trust Company Tensas State Bank Bank of Sunset and Trust Company Anthem Bank & Trust Citizen's Bank & Trust Company of Vivian, Louisiana Landmark Bank First National Bank USA Vermilion Bank & Trust Company Coushatta Bogalusa New Roads Washington Delhi Opelousas Opelousas Jonesville New Orleans Winnsboro Columbia Marion Abbeville Winnsboro Saint Francisville Covington Plaquemine Newellton Sunset Plaquemine Vivian Clinton Boutte Kaplan Exchange Bank and Trust Company, Natchitoches, Louisiana Natchitoches Bank of Winnfield & Trust Company Citizens Bank & Trust Company South Lafourche Bank & Trust Company Heritage Bank of St. Tammany Farmers State Bank & Trust Co. Feliciana Bank & Trust Company Colfax Banking Company Simmesport State Bank State Bank & Trust Company Mississippi River Bank Bank of Erath Eureka Homestead Progressive National Bank of DeSoto Parish Jackson Parish Bank Bank of Louisiana Peoples Bank 100 Hodge Bank & Trust Company 101 Bank of Gueydan 102 Beauregard FSB 103 104 The Bank of Commerce First National Bank of Benton 105 Commerce Community Bank 106 Basile State Bank 107 Sicily Island State Bank 108 Bank of Oak Ridge 109 Rayne Building and Loan Association Winnfield Covington Larose Covington Church Point Clinton Colfax Simmesport Golden Meadow Belle Chasse Erath Metairie Mansfield Jonesboro New Orleans Chatham Hodge Gueydan Deridder White Castle Benton Oak Grove Basile Sicily Island Oak Ridge Rayne 110 Abbeville Building & Loan (A State-Chartered Savings Bank) Abbeville 111 The Mer Rouge State Bank 112 Mutual Savings and Loan Association Mer Rouge Metairie Financial Table of Contents Selected Financial Data ............................................................................................... 78 Management’s Discussion and Analysis of Financial Condition and Results of Operation .................................................. 82 Report of Independent Registered Public Accounting Firm ................................114 Consolidated Balance Sheets ....................................................................................116 Consolidated Statements of Income ........................................................................ 117 Consolidated Statements of Comprehensive Income (Loss) ................................ 118 Consolidated Statements of Changes in Shareholders’ Equity ............................. 118 Consolidated Statements of Cash Flows ................................................................. 119 Notes to Consolidated Financial Statements ......................................................... 120 77 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Selected Financial Data The following table presents consolidated selected financial data for First Guaranty. It does not purport to be complete and is qualified in its entirety by more detailed financial information and the audited consolidated financial statements contained elsewhere in this annual report. Year End Balance Sheet Data: Investment securities Federal funds sold Loans, net of unearned income Allowance for loan losses Total assets Total deposits Borrowings Shareholders' equity Common shareholders' equity At or For the Years Ended December 31, 2020 2019 2018 2017 2016 (in thousands, except for % and share data) $ 238,548 $ 426,516 $ 405,303 $ 501,656 $ 499,336 $ 702 $ 914 $ 549 $ 823 $ 271 $ 1,844,135 $ 1,525,490 $1,225,268 $1,149,014 $ 948,921 $ 24,518 $ 10,929 $ 10,776 $ 9,225 $ 11,114 $ 2,473,078 $ 2,117,216 $1,817,211 $1,750,430 $1,500,946 $ 2,166,318 $ 1,853,013 $1,629,622 $1,549,286 $1,326,181 $ 116,630 $ 86,747 $ 34,538 $ 52,938 $ 43,230 $ 178,591 $ 166,035 $ 147,284 $ 143,983 $ 124,349 $ 178,591 $ 166,035 $ 147,284 $ 143,983 $ 124,349 Performance Ratios and Other Data: Return on average assets Return on average common equity Return on average tangible assets (1) Return on average tangible common equity (1) Net interest margin Average loans to average deposits Efficiency ratio (2) Efficiency ratio (excluding amortization of intangibles and securities transactions) (2) Full time equivalent employees (year end) Capital Ratios: Average shareholders' equity to average assets Average tangible equity to average tangible assets (3) Common shareholders' equity to total assets Tangible common equity to tangible assets (3) 0.87 % 11.36 % 0.90 % 13.08 % 3.35 % 81.25 % 58.95 % 68.44 % 429 7.62% 6.86% 7.22% 6.51% 0.76% 8.99% 0.78% 9.68% 3.41% 78.59% 67.48% 66.77% 431 8.42% 8.02% 7.84% 6.99% 0.82% 9.98% 0.85% 10.77% 3.41% 75.39% 69.46% 66.63% 346 8.20% 7.86% 8.10% 7.79% 0.71% 8.59% 0.73% 9.15% 3.33% 72.23% 62.64% 63.38% 338 8.31% 8.01% 8.23% 7.87% 0.97% 11.18% 0.98% 11.64% 3.39% 68.57% 56.85% 60.19% 293 8.63% 8.44% 8.28% 8.10% t n 1 0 0 % C ommitme 110TH CONSECUTIVE DIVIDEND PAID 100% of the T i m e Income Data: Interest income Interest expense Net interest income Provision for loan losses Noninterest income (excluding securities transactions) Securities (gains) losses Noninterest expense Earnings before income taxes Net income Net income available to common shareholders Per Common Share Data: Net earnings Cash dividends paid Book value Tangible book value (4) Dividend payout ratio $ 100,684 $ $ $ $ $ $ $ $ $ $ $ $ $ 26,017 74,667 14,877 8,989 14,791 58,033 25,537 20,318 20,318 2.09 0.64 18.33 16.41 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 91,643 29,966 61,677 4,860 8,456 (157) 47,219 17,897 14,241 14,241 1.47 0.60 17.04 15.05 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 78,390 21,366 57,024 1,354 7,110 (1,830) 43,275 17,675 14,213 14,213 1.47 0.58 15.20 14.57 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 67,546 14,393 53,153 3,822 6,943 1,397 38,521 19,150 11,751 11,751 1.24 0.54 14.86 14.17 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 58,532 10,140 48,392 3,705 5,656 3,799 32,885 21,257 14,093 14,093 1.53 0.53 13.51 13.18 30.68 % 40.74% 39.65% 44.34% 34.56% Weighted average number of shares outstanding 9,741,253 9,695,131 9,687,123 9,468,145 9,205,635 Number of shares outstanding 9,741,253 9,741,253 9,687,123 9,687,123 9,205,635 Asset Quality Ratios: Non-performing assets to total assets Non-performing assets to total loans Non-performing loans to total loans Loan loss reserve to non-performing assets Net charge-offs to average loans Provision for loan loss to average loans Allowance for loan loss to total loans 1.25 % 1.68 % 1.55 % 1.04% 1.44% 1.12% 0.55% 0.82% 0.73% 0.84% 1.28% 1.17% 1.48% 2.34% 2.30% 79.33 % 49.86% 107.48% 62.88% 50.04% 0.08 % 0.89 % 1.33 % 0.36% 0.37% 0.72% (0.02)% 0.12% 0.88% 0.54% 0.36% 0.80% 0.23% 0.42% 1.17% 1. 2. Tangible calculation eliminates goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization, net of tax. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Historical Consolidated Financial and Other Data— Non-GAAP Financial Measures." Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income. We calculate both a GAAP and a non- GAAP efficiency ratio. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Financial Data— Non- GAAP Financial Measures." 3. We calculate tangible common equity as total shareholders' equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and core deposit intangibles. Tangible common equity to tangible assets is a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total shareholders' equity to total assets. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Historical Consolidated Financial and Other Data— Non-GAAP Financial Measures." 4. We calculate tangible book value per common share as total shareholders' equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization at the end of the relevant period, divided by the outstanding number of shares of our common stock at the end of the relevant period. Tangible book value per common share is a non-GAAP financial measure, and, as we calculate tangible book value per common share, the most directly comparable GAAP financial measure is book value per common share. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Financial Data— Non-GAAP Financial Measures." 78 79 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Non-GAAP Financial Measures Our accounting and reporting policies conform to accounting principles generally accepted in the United States, or GAAP, and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional metrics. Tangible book value per share and the ratio of tangible equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures. which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible equity, tangible assets, tangible book value per share or related measures should not be considered in isolation or as a substitute for total shareholders' equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. Our management, banking regulators, many financial analysts and other investors use these non-GAAP financial measures to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, The following table reconciles, as of the dates set forth below, shareholders' equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates our tangible book value per share. Tangible Common Equity Total shareholders' equity Adjustments: Preferred Goodwill Acquisition intangibles Tangible common equity Common shares outstanding At December 31, 2020 2019 2018 2017 2016 (in thousands, except for share data and %) $ 178,591 $ 166,035 $ 147,284 $ 143,983 $ 124,349 - - - - - 12,900 12,942 3,472 3,472 1,999 5,815 6,527 2,704 3,249 978 $ 159,876 $ 146,566 $ 141,108 $ 137,262 $ 121,372 9,741,253 9,741,253 9,687,123 9,687,123 9,205,635 Book value per common share Tangible book value per common share $ 18.33 $ 17.04 $ 15.20 $ 16.41 $ 15.05 $ 14.57 $ $ 14.86 14.17 $ $ 13.51 13.18 Tangible Assets Total Assets Adjustments: Goodwill Acquisition intangibles Tangible Assets $ 2,473,078 $ 2,117,216 $ 1,817,211 $ 1,750,430 $ 1,500,946 12,900 12,942 3,472 3,472 1,999 5,815 6,527 2,704 3,249 978 $ 2,454,363 $ 2,097,747 $ 1,811,035 $ 1,743,709 $ 1,497,969 Tangible common equity to tangible assets 6.51% 6.99% 7.79% 7.87% 8.10% The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate the efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income, excluding amortizations of intangibles and securities transactions. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income. The following table reconciles, as of the dates set forth below, our efficiency ratio to the GAAP-based efficiency ratio: GAAP-based efficiency ratio Noninterest expense Amortization of intangibles Noninterest expense, excluding amortization Net interest income Noninterest income Adjustments: Securities transactions Noninterest income, excluding securities transactions Efficiency ratio For the Year Ended December 31, 2020 2019 2018 2017 2016 (in thousands, except for share data and %) 58.95% 67.48% 69.46% 62.64% 56.85% $58,033 $47,219 $43,275 $38,521 $32,885 711 390 545 432 320 57,322 74,667 23,780 46,829 61,677 8,299 42,730 57,024 5,280 38,089 32,565 53,153 48,392 8,340 9,455 14,691 (157) (1,830) 1,397 3,739 $ 9,089 $ 8,456 $ 7,110 $ 6,943 $ 5,716 68.44% 66.77% 66.63% 63.38% 60.19% 80 81 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6, "Selected Financial Data" and our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under "Forward-Looking Statements," "Risk Factors" and elsewhere in this Annual Report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements. Special Note Regarding Forward-Looking Statements Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a Company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from Management expectations. This discussion and analysis contains forward-looking statements and reflects Management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, but not limited to, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; the impact of the COVID-19 pandemic; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements. Overview First Guaranty Bancshares is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana. Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 34 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and Alexandria, Louisiana and Dallas-Fort Worth-Arlington and Waco, Texas. We emphasize personal relationships and localized decision making to 82 ensure that products and services are matched to customer needs. We compete for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees. Total assets were $2.5 billion at December 31, 2020 and $2.1 billion at December 31, 2019. Total deposits were $2.2 billion at December 31, 2020 and $1.9 billion at December 31, 2019. Total loans were $1.8 billion at December 31, 2020, an increase of $318.6 million, or 20.9%, compared with $1.5 billion at December 31, 2019. Total shareholders' equity was $178.6 million and $166.0 million at December 31, 2020 and December 31, 2019, respectively. Net income was $20.3 million, $14.2 million and $14.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. We generate most of our revenues from interest income on loans, interest income on securities, sales of securities, ATM and debit card fees and service charges, commissions and fees. We incur interest expense on deposits and other borrowed funds and noninterest expense such as salaries and employee benefits and occupancy and equipment expenses. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is our largest source of revenue. To evaluate net interest income, we measure and monitor: (1) yields on our loans and other interest-earning assets; (2) the costs of our deposits and other funding sources; (3) our net interest spread and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources. Changes in market interest rates and interest rates we earn on interest- earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions, conditions in domestic and foreign financial markets and in 2020 the economic and social effects of the COVID-19 pandemic. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Louisiana, Texas and our other out-of-state market areas. During the extended period of historically low interest rates, we continue to evaluate our investments in interest-earning assets in relation to the impact such investments have on our financial condition, results of operations and shareholders' equity. Financial highlights for 2020 and 2019: • Total assets at December 31, 2020 increased $355.9 million, or 16.8%, to $2.5 billion when compared with December 31, 2019. Total loans at December 31, 2020 were $1.8 billion, an increase of $318.6 million, or 20.9%, compared with December 31, 2019. Total deposits were $2.2 billion at December 31, 2020, an increase of $313.3 million, or 16.9% compared with December 31, 2019. Retained earnings were $57.4 million at December 31, 2020, an increase of $14.1 million compared to $43.3 million at December 31, 2019. Shareholders' equity was $178.6 million and $166.0 million at December 31, 2020 and December 31, 2019, respectively. • Net income for each of the years ended December 31, 2020 and 2019 was $20.3 million and $14.2 million, respectively. • Earnings per common share were $2.09 for the year ended December 31, 2020 and $1.47 for the year ended December 31, 2019. Total weighted average shares outstanding were 9,741,253 at December 31, 2020 compared to 9,695,131 at December 31, 2019. The increase in shares was due to the issuance of 54,130 shares of stock in a private placement in November 2019. • The allowance for loan losses was 1.33% of loans at December 31, 2020 compared to 0.72% at December 31, 2019. First Guaranty attributes the increase in the allowance to provisions made for the COVID-19 pandemic, for growth in the loan portfolio and other identified risks. Loan discounts related to acquisition accounting from the Union transaction was approximately $1.8 million at December 31, 2020. First Guaranty had $92.3 million at December 31, 2020 of SBA guaranteed PPP loans (as defined below) that have no related allowance due to the 100% government guarantee in accordance with regulatory guidance. • The provision for loan losses totaled $14.9 million for 2020 compared to $4.9 million in 2019. The impact of the COVID-19 pandemic, growth in the loan portfolio and other identified risks were the main factors that resulted in an increased provision for 2020 compared to 2019. • First Guaranty undertook several COVID-19 related actions during 2020 that began in the first quarter of 2020. First Guaranty increased on-balance sheet liquidity by approximately $100 million prior to March 31, 2020 through borrowings with the FHLB and brokered deposits. These borrowings remained at December 31, 2020. First Guaranty is participating in the SBA Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act authorized the SBA to guarantee loans under a new 7(a) loan program known as the PPP. As a qualified SBA lender, we were automatically authorized to originate PPP loans. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. First Guaranty funded over 900 loans under the SBA PPP program that totaled approximately $111.1 million at the peak of the program. Fees generated by the SBA PPP program were $3.4 million. $2.2 million in fees were recognized in 2020. $1.2 million in fees were deferred as of December 31, 2020. First Guaranty has processed forgiveness applications for PPP loans with payoffs of $19.0 million in the fourth quarter of 2020. First Guaranty also waived service related charges and other fees for several weeks following the onset of the COVID-19 crisis. • First Guaranty originally granted loan deferments to over 1,000 loans that totaled approximately $590 million as part of its COVID-19 related actions during 2020. These deferments were typically for 90 days. As of December 31, 2020, approximately $18.3 million of these loans remain on deferral status. • First Guaranty, in furtherance of the strategy adopted in March 2020, initiated a plan to manage for economic uncertainty by converting unrealized gains in the securities portfolio to realized gains in the fourth quarter of 2020. First Guaranty sold approximately $140 million in mortgage-backed securities and $150 million in corporate securities in October 2020. First Guaranty generated $12.1 million in pre-tax gains from the sales. First Guaranty has proceeded to reinvest the proceeds in securities and loans and subsequently reduced FHLB borrowings by $50.0 million in February 2021. • Net interest income for 2020 was $74.7 million compared to $61.7 million for 2019. • Noninterest income for 2020 was $23.8 million compared to $8.3 million for 2019. • The net interest margin was 3.35% for 2020 and 3.41% for 2019. First Guaranty attributed the decrease in the net interest margin to the significant actions related to COVID-19 that impacted balance sheet composition for both assets and liabilities along with decreased rates on assets and liabilities. Loans as a percentage of average interest earning assets increased to 74.7% at December 31, 2020 compared to 72.7% at December 31, 2019. • Investment securities totaled $238.5 million at December 31, 2020, a decrease of $188.0 million when compared to $426.5 million at December 31, 2019. Gains on the sale of securities were $14.8 million for 2020 as compared to losses of $0.2 million for 2019. At December 31, 2020, available for sale securities, at fair value, totaled $238.5 million, a decrease of $101.4 million when compared to $339.9 million at December 31, 2019. At December 31, 2020, held to maturity securities, at amortized cost, totaled $0, a decrease of $86.6 million when compared December 31, 2019. First Guaranty terminated its held to maturity securities portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity. • Total loans net of unearned income were $1.8 billion at December 31, 2020 compared to $1.5 billion at December 31, 2019. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $24.5 million at December 31, 2020 and $10.9 million at December 31, 2019. • Total impaired loans decreased $4.8 million to $15.9 million at December 31, 2020 compared to $20.7 million at December 31, 2019. • Nonaccrual loans increased $1.2 million to $15.6 million at December 31, 2020 compared to $14.4 million at December 31, 2019. • Return on average assets was 0.87% and 0.76% for the years ended December 31, 2020 and 2019, respectively. Return on average common equity was 11.36% and 8.99% for 2020 and 2019, respectively. Return on average assets is calculated by dividing net income by average assets. Return on average common equity is calculated by dividing net income by average common equity. • Book value per common share was $18.33 as of December 31, 2020 compared to $17.04 as of December 31, 2019. Tangible book value per common share was $16.41 as of December 31, 2020 compared to $15.05 as of December 31, 2019. The increase in book value was due primarily to an increase in retained earnings, offset by a decrease in accumulated other comprehensive income ("AOCI"). AOCI is comprised of unrealized gains and losses on available for sale securities. • First Guaranty's Board of Directors declared cash dividends of $0.64 per common share in 2020. First Guaranty also declared cash dividends of $0.64 in 2019, which was the equivalent of $0.60 per common share after adjusting for the 10% common stock dividend paid in December 2019. First Guaranty has paid 110 consecutive quarterly dividends as of December 31, 2020. • First Guaranty terminated its At-The-Market Equity Offering program ("ATM Offering"). First Guaranty did not sell any shares of common stock under the ATM Offering during 2020 or 2019. First Guaranty renewed its shelf registration in the fourth quarter of 2020. • First Guaranty completed the data conversion with the Union Bancshares, Incorporated acquisition. Total one-time merger related costs were $0.5 million for 2020. The data conversion was completed on March 27, 2020. • First Guaranty currently has one new facility under construction in order to facilitate future expansion. This construction commitment totals $11.4 million with $11.1 million incurred as of December 31, 2020. 83 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Application of Critical Accounting Policies Our accounting and reporting policies conform to generally accepted accounting principles in the United States and to predominant accounting practices within the banking industry. Certain critical accounting policies require judgment and estimates which are used in the preparation of the financial statements. Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The allowance, which is based on evaluation of the collectability of loans and prior loan loss experience, is an amount that, in the opinion of management, reflects the risks inherent in the existing loan portfolio and exists at the reporting date. The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower's ability to pay, adequacy of loan collateral and other relevant factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require additional recognition of losses based on their judgments about information available to them at the time of their examination. The following are general credit risk factors that affect our loan portfolio segments. These factors do not encompass all risks associated with each loan category. Construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property. Farmland and agricultural loans have risks such as weather, government agricultural policies, fuel and fertilizer costs, and market price volatility. One- to four-family residential, multifamily, and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy. Non-farm non-residential loans include both owner- occupied real estate and non-owner occupied real estate. Common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses. Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral. Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, we may ultimately incur losses that vary from management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for our syndicated loans. The general component covers non- 84 classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors include analysis of levels and trends in delinquencies, nonaccrual loans, charge-offs and recoveries, loan risk ratings, trends in volume and terms of loans, changes in lending policy, credit concentrations, portfolio stress test results, national and local economic trends including the impact of COVID-19, industry conditions, and other relevant factors. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for loan losses is reviewed on a monthly basis. The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit. A reserve is established as needed for estimates of probable losses on such commitments. Other-Than-Temporary Impairment of Investment Securities. Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Declines in the fair value of securities below their cost that are other-than- temporary are reflected as realized losses. In estimating other-than- temporary losses, management considers the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings. Valuation of Goodwill, Intangible Assets and Other Purchase Accounting Adjustments. First Guaranty accounts for acquisitions in accordance with ASC Topic No. 805, Business Combinations, which requires the use of the acquisition method of accounting. Under this method, First Guaranty is required to record the assets acquired, including identified intangible assets, and liabilities assumed, at their respective fair values, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization method for such intangible assets. In addition, business combinations typically result in recording goodwill. Intangible assets are comprised of goodwill, core deposit intangibles and loan servicing assets. Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Our goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate impairment may exist. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill. If the reporting unit fair value is less than the carrying amount, a loss would be recognized in other noninterest expense to reduce the carrying amount. The qualitative test allows management to assess whether qualitative factors indicate that it is more likely than not that impairment exists. These qualitative indicators include factors such as earnings, share price, market conditions, etc. If the qualitative factors indicate that it is more likely than not that impairment exists, then the quantitative assessment would be necessary. The step one test compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of goodwill for that reporting unit exceeds the estimated fair value of that unit's goodwill, an impairment loss is recognized in an amount equal to the excess. First Guaranty concluded goodwill was not impaired as of October 1, 2020. Further, no events or changes in circumstances between October 1, 2020 and December 31, 2020 indicated that it was more likely than not the fair value of any reporting unit had been reduced below its carrying value. Goodwill impairment evaluations require management to utilize significant judgments and assumptions including, but not limited to, the general economic environment and banking industry, reporting unit future performance (i.e., forecasts), events or circumstances affecting a respective reporting unit (e.g., interest rate environment), and changes in First Guaranty's stock price, amongst other relevant factors. Management's judgments and assumptions are based on the best information available at the time. Results could vary in subsequent reporting periods if conditions differ substantially from the assumptions utilized in completing the evaluations. Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with related contract, asset or liability. Our intangible assets primarily relate to core deposits and loan servicing assets related to the SBA loan portfolio. Management periodically evaluates whether events or circumstances have occurred that would result in impairment of value. Financial Condition Assets. Our total assets were $2.5 billion at December 31, 2020, an increase of $355.9 million, or 16.8%, from total assets of $2.1 billion at December 31, 2019. Assets increased primarily due to increases in cash and cash equivalents of $232.2 million and net loans of $305.1 million, partially offset by a decrease in investment securities of $188.0 million at December 31, 2020 compared to December 31, 2019. Loans. Net loans increased $305.1 million, or 20.1%, to $1.8 billion at December 31, 2020 from $1.5 billion at December 31, 2019. Non-farm non-residential loan balances increased $207.6 million primarily due to new originations and the transition of construction and land development loans to permanent financing in the first quarter of 2020. Included in the new loan originations were the purchase of approximately $95.0 million in performing commercial real estate secured loans the majority of which were located outside of First Guaranty's Louisiana and Texas markets. The average size of these loans was $0.7 million with the largest credit totaling $4.9 million. These loans provide additional diversification to First Guaranty's portfolio. Commercial and industrial loans increased $84.8 million primarily due to new originations associated with the SBA PPP lending program that occurred in the second and third quarters of 2020. SBA PPP loans totaled $111.1 million at the end of the third quarter in 2020 which decreased to $92.3 million at December 31, 2020 as loans were subsequently processed for forgiveness and paid off by the SBA. Consumer and other loans increased $39.9 million primarily due to new originations in First Guaranty's commercial lease program. First Guaranty has continued to expand its commercial lease portfolio which generally have higher yields than commercial real estate loans but shorter average lives. First Guaranty's lease portfolio totaled $104.1 million at December 31, 2020 compared to $70.1 million at December 31, 2019. Multifamily loans increased $22.0 million primarily due to the conversion of existing construction loans to permanent financing. Farmland loans increased $4.1 million due to increases on agricultural loan commitments. Agricultural loans increased $1.6 million primarily due to seasonal activity. Construction and land development loans decreased $21.4 million principally due to paydowns and the conversion of interim construction loans to permanent financing that occurred in the first quarter of 2020. One-to four-family loans decreased $18.4 million primarily due to paydowns. First Guaranty had approximately 5.7% of funded and 2.5% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. First Guaranty's hotel and hospitality portfolio totaled $120.1 million at December 31, 2020. As part of the management of risks in our loan portfolio, First Guaranty had previously established an internal guidance limit of approximately $160.0 million for its hotel and hospitality portfolio. First Guaranty had $244.9 million in loans related to our Texas markets at December 31, 2020 which was an increase of $40.4 million or 19.8% from $204.5 million at December 31, 2019. First Guaranty continues to have significant loan growth associated with its Texas branches. We anticipate additional growth opportunities in Texas as it contains four major cities in Austin, Dallas, Houston, and San Antonio, plus the continued growth and development of these areas is exceeding that of other areas of the country. Syndicated loans at December 31, 2020 were $75.2 million, of which $29.3 million were shared national credits. Syndicated loans increased $35.3 million from $39.9 million at December 31, 2019. As of December 31, 2020, 71.4% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 44.6% as of December 31, 2020, was non-farm non-residential loans secured by real estate. Approximately 34.2% of the loan portfolio was based on a floating rate tied to the prime rate or LIBOR as of December 31, 2020. 74.5% of the loan portfolio is scheduled to mature within five years from December 31, 2020. 85 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Loan Portfolio Composition. Loan Portfolio Maturities. The table below sets forth the balance of loans, excluding loans held for sale, outstanding by loan type as of the dates presented, and the percentage of each loan type to total loans. The following tables summarize the scheduled repayments of our loan portfolio at December 31, 2020 and 2019. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Maturities are based on the final contractual payment date and do not reflect the effect of prepayments and scheduled principal amortization. At December 31, 2020 2019 2018 2017 2016 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent (in thousands, except for %) Real Estate: Construction & land development Farmland 1- 4 Family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Loans Before Unearned Income Less: Unearned income Total Loans Net Of Unearned Income $ 150,841 8.2% $ 172,247 11.3% $ 124,644 10.1 % $ 112,603 9.8% $ 84,239 26,880 271,236 45,932 824,137 1,319,026 28,335 353,028 148,783 530,146 1.4% 14.7% 2.5% 44.6% 71.4% 1.5% 19.1% 8.0% 28.6% 22,741 289,635 23,973 616,536 1,125,132 26,710 268,256 108,868 403,834 1.5% 18.9% 1.6% 40.3% 73.6% 1.8% 17.5% 7.1% 26.4% 18,401 1.5 % 25,691 2.2% 21,138 172,760 14.1 % 158,733 13.8% 135,211 42,918 586,263 944,986 3.5 % 47.7 % 76.9 % 16,840 1.4% 12,450 530,293 46.1% 417,014 844,160 73.3% 670,052 23,108 1.9 % 21,514 1.9% 23,783 200,877 16.4 % 230,638 20.0% 193,969 59,443 4.8 % 55,185 4.8% 63,011 283,428 23.1 % 307,337 26.7% 280,763 8.9% 2.2% 14.2% 1.3% 43.9% 70.5% 2.5% 20.4% 6.6% 29.5% 1,849,172 100.0% 1,528,966 100.0% 1,228,414 100.0 % 1,151,497 100.0% 950,815 100.0% (5,037) (3,476) (3,146) (2,483) (1,894) $1,844,135 $1,525,490 $1,225,268 $1,149,014 $948,921 December 31, 2020 More Than One Year Through Five Years One Year or Less After Five Years Total (in thousands) Real Estate: Construction & land development $ 23,276 $ 111,615 $ 15,950 $ 150,841 Farmland 1– 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 6,078 37,604 5,030 105,623 177,611 12,356 40,484 37,866 90,706 12,147 65,011 29,127 8,655 168,621 11,775 494,690 223,824 26,880 271,236 45,932 824,137 712,590 428,825 1,319,026 5,795 293,984 103,315 403,094 10,184 18,560 7,602 36,346 28,335 353,028 148,783 530,146 $ 1,849,172 (5,037) $ 1,844,135 Total Loans Before Unearned Income $ 268,317 $ 1,115,684 $ 465,171 Less: unearned income Total Loans Net Of Unearned Income December 31, 2019 More Than One Year Through Five Years One Year or Less After Five Years Total (in thousands) Real Estate: Construction & land development $ 35,393 $ 124,715 $ 12,139 $ 172,247 Farmland 1– 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 8,348 43,155 1,385 10,283 93,457 12,028 124,905 316,767 4,110 153,023 10,560 174,864 22,741 289,635 23,973 616,536 213,186 557,250 354,696 1,125,132 13,290 71,508 15,454 5,087 149,667 90,029 100,252 244,783 8,333 47,081 3,385 58,799 26,710 268,256 108,868 403,834 Total Loans Before Unearned Income $ 313,438 $ 802,033 $ 413,495 $ 1,528,966 Less: unearned income Total Loans Net Of Unearned Income (3,476) $ 1,525,490 86 87 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT The following table sets forth the scheduled repayments of fixed and adjustable-rate loans at December 31, 2020 that are contractually due after December 31, 2021. TOTAL ASSETS In Billions Due After December 31, 2021 (in thousands) Fixed Floating Total One to five years 740,358 368,259 1,108,617 Over five to 15 years 128,860 91,032 219,892 Over 15 years Subtotal Nonaccrual loans Total 146,830 92,325 239,155 $ 1,016,048 $ 551,616 $ 1,567,664 15,576 $ 1,583,240 As of December 31, 2020, $305.0 million of floating rate loans were at their interest rate floor. At December 31, 2019, $153.3 million of floating rate loans were at the floor rate. Nonaccrual loans have been excluded from these totals. Non-performing Assets. Non-performing assets consist of non-performing loans and other real- estate owned. Non-performing loans (including nonaccruing troubled debt restructurings described below) are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the estimated net available value of collateral is sufficient to cover the principal balance and accrued interest. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest. Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure. TOTAL LOANS In Millions 88 The following table shows the principal amounts and categories of our non-performing assets at December 31, 2020, 2019, 2018, 2017 and 2016. Nonaccrual loans: Real Estate: Construction and land development Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total nonaccrual loans Loans 90 days and greater delinquent & still accruing: Real Estate: Construction and land development Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total loans 90 days and greater delinquent & still accruing Total non-performing loans Other real estate owned and foreclosed assets: Real Estate: Construction and land development Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total other real estate owned and foreclosed assets Total non-performing assets Non-performing assets to total loans Non-performing assets to total assets Non-performing loans to total loans December 31, 2020 2019 2018 2017 2016 (in thousands) $ 621 $ 381 $ 311 $ 371 $ 551 857 2,227 - 7,449 11,154 3,472 701 249 4,422 15,576 1,000 - 4,980 366 4,699 11,045 1,274 2,759 - 4,646 9,060 4,800 327 216 5,343 14,403 48 - 923 - 1,603 2,574 1,293 2,246 - 864 4,714 3,651 317 61 4,029 8,743 - - 26 - - 26 65 1,953 - 3,758 6,147 1,496 4,826 81 6,403 12,550 - - - - - - 105 2,242 5,014 2,753 10,665 1,958 8,070 981 11,009 21,674 34 - 145 - - 179 67 1,856 123 2,046 13,091 $28,667 - 15 50 65 2,639 $17,042 - 53 66 119 145 $ 8,888 41 798 - 839 839 $13,389 - - - - 179 $21,853 311 - 131 - 1,798 2,240 669 - 559 - 3,651 4,879 241 - 120 - 777 1,138 - - - - 2,240 $30,907 - - - - 4,879 $21,921 - - - - 1,138 $10,026 304 - 23 - 954 1,281 - - - - 1,281 $14,670 - - 71 - 288 359 - - - - 359 $22,212 1.68% 1.25% 1.55% 1.44% 1.04% 1.12% 0.82% 0.55% 0.73% 1.28% 0.84% 1.17% 2.34% 1.48% 2.30% 89 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT For the years ended December 31, 2020 and 2019, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $0.6 million and $0.9 million, respectively. We recognized $22,000 and $69,000 of interest income on such loans during the years ended December 31, 2020 and 2019, respectively. For the years ended December 31, 2020 and 2019, gross interest income which would have been recorded had the troubled debt restructured loans been current in accordance with their original terms amounted to $0.1 million and $0, respectively. We recognized $11,000 and $0 of interest income on such loans during the years ended December 31, 2020 and 2019, respectively. Non-performing assets were $30.9 million, or 1.25%, of total assets at December 31, 2020, compared to $21.9 million, or 1.04%, of total assets at December 31, 2019, which represented an increase in non- performing assets of $9.0 million. The increase in non-performing assets occurred as a result of several factors. Nonaccrual loans increased from $14.4 million at December 31, 2019 to $15.6 million at December 31, 2020. The increase in nonaccrual loans was concentrated primarily in non-farm non-residential loans. Non-performing assets included $3.6 million in loans with a government guarantee, or 11.8% of non-performing assets. These are structured as net loss guarantees in which up to 90% of loss exposure is covered. At December 31, 2020 loans 90 days and greater delinquent and still accruing totaled $13.1 million, an increase of $10.5 million from $2.6 million at December 31, 2019. The increase in loans 90 days or greater delinquent and still accruing was concentrated primarily in one-to four-family residential loans, non-farm non-residential loans and commercial and industrial loans. One-to four-family loans in the 90 day category included loans acquired from the Union acquisition that have contractually matured but have not been renewed due to operations issues following the acquisition. First Guaranty expects to satisfactorily renew the majority of these acquired loans and return them to performing status. Other real estate owned at December 31, 2020 totaled $2.2 million, a decrease of $2.6 million from $4.9 million at December 31, 2019. The largest piece of property in other real estate owned is a former retail shopping center that totals $2.0 million. First Guaranty established a reserve for other real estate owned losses in the third quarter of 2020. This reserve totaled $0.4 million at December 31, 2020. Total write- downs and or reserves related to other real estate owned were $1.4 million in 2020 compared to $0.2 million in 2019. These expenses were included in other non-interest expense. At December 31, 2020, our largest non-performing assets were comprised of the following nonaccrual loans, 90 day plus and still accruing loans and other real estate owned: (1) a non-farm non- residential loan secured by a hotel that totaled $3.6 million that is classified as a troubled debt restructured loan or TDR; (2) a $2.0 million non-farm non-residential property included in other real estate owned; (3) a non-farm non-residential loan for $2.4 million secured by commercial real estate that has contractually matured and was 90 days past due and still accruing; (4) a non-farm non-residential loan secured by a hotel that totaled $1.8 million; (5) a non-farm non- residential loan secured by a sports facility that totaled $1.3 million which has a partial government guarantee; (6) a non-farm non- residential loan for $1.1 million secured by commercial real estate that has contractually matured and was 90 days past due and still accruing; (7) an agricultural/ farmland loan relationship that totaled $1.1 million; (8) an agricultural loan relationship that totaled $1.0 million; and (9) an agricultural loan relationship that totaled $1.0 million. The agricultural loans are partially guaranteed by the USDA Farm Service Agency. Troubled Debt Restructuring. Classified Assets. Another category of assets which contribute to our credit risk is troubled debt restructurings ("TDRs"). A TDR is a loan for which a concession has been granted to the borrower due to a deterioration of the borrower's financial condition. Such concessions may include reduction in interest rates, deferral of interest or principal payments, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. We strive to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before such loan reaches nonaccrual status. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. TDRs that are not performing in accordance with their restructured terms and are either contractually 90 days past due or placed on nonaccrual status are reported as non-performing loans. Our policy provides that nonaccrual TDRs are returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six consecutive months of timely payments and demonstrated ability to continue to repay. Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020 and subsequently modified by later legislation, financial institutions have the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. First Guaranty elected to adopt these provisions of the CARES Act. The following is a summary of loans restructured as TDRs at December 31, 2020, 2019 and 2018: At December 31, 2020 2019 2018 (in thousands) TDRs: In Compliance with Modified Terms Past Due 30 through 89 days and still accruing Past Due 90 days and greater and still accruing Nonaccrual Restructured Loans that subsequently defaulted $ - $ - $ 1,288 - - 3,591 - - - - - - - 304 - Total TDR $ 3,591 $ - $ 1,592 At December 31, 2020, First Guaranty had one outstanding TDR which was a $3.6 million non-farm non-residential loan secured by commercial real estate that is on nonaccrual. The restructuring of this loan was related to interest rate and amortization concessions. The loan is secured by a hotel facility. This loan was not eligible for a CARES act modification. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the FDIC to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified as "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as "special mention" by our management. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances. In connection with the filing of our periodic regulatory reports and in accordance with our classification of assets policy, we continuously assess the quality of our loan portfolio and we regularly review the problem loans in our loan portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the "watch list" initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or delinquency status, or if the loan possesses weaknesses although currently performing. Management reviews the status of our loan portfolio delinquencies, by product types, with the full board of directors on a monthly basis. Individual classified loan relationships are discussed as warranted. If a loan deteriorates in asset quality, the classification is changed to "special mention," "substandard," "doubtful" or "loss" depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified "substandard." We also employ a risk grading system for our loans to help assure that we are not taking unnecessary and/or unmanageable risk. The primary objective of the loan risk grading system is to establish a method of assessing credit risk to further enable management to measure loan portfolio quality and the adequacy of the allowance for loan losses. Further, we contract with an external loan review firm to complete a credit risk assessment of the loan portfolio on a regular basis to help determine the current level and direction of our credit risk. The external loan review firm communicates the results of their findings to the Bank's audit committee. Any material issues discovered in an external loan review are also communicated to us immediately. The following table sets forth our amounts of classified loans and loans designated as special mention at December 31, 2020, 2019 and 2018. Classified assets totaled $50.1 million at December 31, 2020, and included $28.7 million of non-performing loans. At December 31, 2020 2019 2018 (in thousands) $50,062 $53,072 $46,792 - - 523 $50,062 $53,072 $47,315 $99,201 $24,083 $26,413 Classification of Loans: Substandard Doubtful Total Classified Assets Special Mention The decrease in classified assets at December 31, 2020 as compared to December 31, 2019 was due to a $3.0 million decrease in substandard loans. The decrease in substandard loans during 2020 was primarily due to paydowns of impaired loans. Substandard loans at December 31, 2020 consisted of $16.0 million in non-farm non- residential, $12.7 million in one- to four-family residential, $7.9 million in multifamily, $4.1 million in agricultural, $3.7 million in commercial and industrial, $1.0 million in construction and land development, $4.0 million in farmland, and the remaining $0.6 million comprised of consumer and other loans. Special mention loans increased by $75.1 million in 2020 primarily due to the downgrade of loans in the portfolio. The increase in special mention loans was primarily the result of loan relationships that were downgraded due to the COVID-19 pandemic or relationship specific issues. Special mention loans at December 31, 2020 were concentrated in the following at risk industries affected by the COVID-19 pandemic. Approximately $27.6 million in loans were associated with oil and gas related industries; $29.3 million were associated with hotels or hospitality industries, and $5.8 million were loans associated with childcare related services. These loan relationships accounted for $62.7 million or 63% of special mention loans at December 31, 2020. Allowance for Loan Losses. The allowance for loan losses is maintained to absorb potential losses in the loan portfolio. The allowance is increased by the provision for loan losses offset by recoveries of previously charged-off loans and is decreased by loan charge-offs. The provision is a charge to current expense to provide for current loan losses and to maintain the allowance commensurate with management's evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to: • past due and non-performing assets; • specific internal analysis of loans requiring special attention; • the current level of regulatory classified and criticized assets and the associated risk factors with each; • changes in underwriting standards or lending procedures and policies; • charge-off and recovery practices; • national and local economic and business conditions including the COVID-19 pandemic; • nature and volume of loans; • overall portfolio quality and portfolio stress test results; 90 91 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT • adequacy of loan collateral; • quality of loan review system and degree of oversight by our board of directors; • competition and legal and regulatory requirements on borrowers; • examinations of the loan portfolio by federal and state regulatory agencies and examinations; and • review by our internal loan review department and independent accountants. The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available. The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for our syndicated loans, including shared national credits. The general component covers non-classified loans and special mention loans and is based on historical loss experience for the past three years adjusted for qualitative factors described above. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for losses was $24.5 million at December 31, 2020 compared to $10.9 million at December 31, 2019. Our allowance level was significantly impacted by the continuing effects of the COVID-19 pandemic. The balance in the allowance for loan losses is principally influenced by the provision for loan losses and by net loan loss experience. Additions to the allowance are charged to the provision for loan losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected. The table below reflects the activity in the allowance for loan losses for the years indicated. Balance at beginning of year $ 10,929 $ 10,776 $ 9,225 $ 11,114 $ 9,415 At or For the Years Ended December 31, 2020 2019 2018 2017 2016 (dollars in thousands) Charge-offs: Real Estate: Construction and land development Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial loans Consumer and other Total Non-Real Estate Total charge-offs Recoveries: Real Estate: Construction and land development Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial loans Consumer and other Total Non-Real Estate Total recoveries Net (charge-offs) recoveries Provision for loan losses Balance at end of year Ratios: (265) - (154) - (550) (969) (110) (265) (1,083) (1,458) (2,427) - - 39 - 178 217 70 128 724 922 1,139 (1,288) 14,877 - - (552) - (2,603) (3,155) (40) (879) (1,190) (2,109) (5,264) - - 39 - 5 44 - 267 246 513 557 (4,707) 4,860 - - (99) - (404) (503) (300) (179) (907) (1,386) (1,889) 3 - 90 20 89 202 26 1,642 216 1,884 2,086 197 1,354 - - (33) - (1,291) (1,324) (162) (3,629) (1,247) (5,038) (6,362) - - (244) - (1,373) (1,617) (83) (579) (635) (1,297) (2,914) 43 - 92 40 85 260 138 30 223 391 651 4 - 45 401 16 466 113 146 183 442 908 (5,711) (2,006) 3,822 3,705 $ 24,518 $ 10,929 $ 10,776 $ 9,225 $ 11,114 92 93 Net loan charge-offs to average loans Net loan charge-offs to loans at end of year Allowance for loan losses to loans at end of year Net loan charge-offs to allowance for loan losses Net loan charge-offs to provision charged to expense 0.08% 0.07% 1.33% 5.25% 8.66% 0.36% 0.31% 0.72% (0.02)% (0.02)% 0.88% 0.54% 0.50% 0.80% 43.07% (1.83)% 61.91% 96.85% (14.55)% 149.42% 0.23% 0.21% 1.17% 18.05% 54.14% #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT • Non-farm non-residential loans increased during 2020 with the largest increases during the third and fourth quarters. The growth in this portfolio contributed to the increased provision associated with this category along with the provisions previously noted for hospitality and hotel related loans. • Commercial and industrial loans increased during 2020. The majority of the increase was associated with SBA guaranteed PPP loans which do not have an allowance balance associated with them. The provision increase related to this portfolio in 2020 compared to 2019 was related to changes in the qualitative analysis of the portfolio related to COVID-19. • Consumer and other loans increased during 2020. The increase in the balance was concentrated in commercial leases. The provision made in 2020 was primarily related to qualitative analysis of the consumer portfolio related to COVID-19. • First Guaranty continues to monitor the acquired loans from the Union acquisition on November 7, 2019. Discounts on the acquired Union loans were approximately $1.8 million at December 31, 2020. First Guaranty charged off $2.4 million in loan balances during the year ended December 31, 2020 as compared to $5.3 million for 2019. Recoveries totaled $1.1 million for the year ended December 31, 2020 and $0.6 million during 2019. The charged-off loan balances were concentrated in five loan relationships which totaled $1.0 million or 40.7% of the total charged off amount during the year ended December 31, 2020. The details of the $1.0 million in charged off loans were as follows: • First Guaranty charged off $0.1 million on a purchased consumer loan pool during 2020. This pool had a remaining principal balance of $0.7 million at December 31, 2020. • First Guaranty charged off $0.3 million on a non-farm non-residential loan relationship during the third quarter of 2020. This relationship had no remaining principal balance at December 31, 2020. • First Guaranty charged off $0.3 million on a construction and land development loan during the third quarter of 2020. This loan had a remaining principal balance of $0.3 million at December 31, 2020. • First Guaranty charged off $0.2 million on a non-farm non-residential loan during the third quarter of 2020. This loan had a remaining principal balance of $0.1 million at December 31, 2020. • First Guaranty charged off $0.1 million on a one- to four-family residential loan during the third quarter of 2020. This loan had no remaining principal balance at December 31, 2020. • Smaller loans and overdrawn deposit accounts comprised the remaining $1.4 million of charge-offs for 2020. A provision for loan losses of $14.9 million was made during the year ended December 31, 2020 as compared to $4.9 million for 2019. The provisions made in 2020 were taken to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. First Guaranty’s loan loss calculation method incorporates risk factors in the loan portfolio and the composition of the loan portfolio affects the final allowance calculation. The primary reason for the increase in the provison in 2020 compared to 2019 was due to the impact of the COVID-19 pandemic and due to growth in First Guaranty's loan portfolio and other identified risks. First Guaranty made provisions to the allowance during the year of $14.9 million with $4.6 million incurred during the first three quarters of the year and $10.3 million incurred in the final quarter of 2020. First Guaranty made adjustments to its allowance provisions as facts and circumstances evolved due to COVID-19. The actions taken at the onset of the pandemic such as loan payment deferrals under the CARES Act along with SBA PPP relief loans were considered to improve the financial capacity of First Guaranty loan customers. There was, however, significant uncertainty as to the duration of the relief. Economic conditions began to improve by the middle part of the third quarter as loan customers ended their payment deferral periods and resumed normal payments. Both Louisiana and Texas lifted or reduced several COVID-19 restrictions. First Guaranty also experienced strong loan growth. During the latter part of 2020, First Guaranty continued to experience strong loan growth but COVID-19 cases significantly increased that resulted in new economic uncertainty. Louisiana reinstituted restrictions that had previously been lifted. The qualitative and quantitative analysis of the loan portfolio resulted in an increased provision to the allowance as of a result of the new COVID-19 related economic uncertainty along with the increased loan growth. First Guaranty's qualitative and quantitative factors accounted for the changes in economic conditions driven by the COVID-19 pandemic. The key factors included the following: industry specific conditions, changes in loan risk ratings, lending policy, and national and local economic trends. First Guaranty continued to update its analysis of these factors throughout 2020. The loan portfolio factors in 2020 that primarily affected the allocation of the allowance included the following: • The loan portfolio risks that changed and affected the allocation of the allowance were due to the adjustments of certain qualitative factors to take into account the possible impact of COVID-19 and related economic conditions on borrowers' ability to repay loans and for allocations to impaired loans within their respective categories. First Guaranty increased allocations within its qualitative and quantitative factors to account for possible COVID-19 related losses. The largest provision allocation was associated with non-farm non- residential loans primarily those associated with the hospitality and hotel industries. • Construction and land development loans declined during 2020 as several loans transitioned to permanent financing. The majority of these loans are now included in the non-farm non-residential category as of December 31, 2020. The increase in the provision related to this portfolio in 2020 compared to 2019 was primarily related to changes in the qualitative analysis of the portfolio related to COVID-19. • One- to four-family residential loans decreased moderately in 2020. The provision increase related to this portfolio in 2020 compared to 2019 was related to changes in the qualitative analysis of the portfolio related to COVID-19. 94 Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance for losses in other categories. At December 31, 2020 Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans Allowance for Loan Losses (dollars in thousands) 2019 Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans $ 1,029 462 2,510 978 15,064 181 2,802 1,490 4.2% 1.9% 10.2% 4.0% 61.5% 0.7% 11.4% 6.1% 8.2% 1.4% 14.7% 2.5% 44.6% 1.5% 19.1% 8.0% $ 423 50 1,027 1,038 5,277 95 1,909 1,110 3.9% 0.4% 9.4% 9.5% 48.3% 0.9% 17.5% 10.1% 11.3% 1.5% 18.9% 1.6% 40.3% 1.8% 17.5% 7.1% 2 -% -% - -% -% Real Estate: Construction and land development Farmland 1- 4 family Multifamily Non-farm non-residential Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Allowance $ 24,518 100.0% 100.0% $ 10,929 100.0% 100.0% At December 31, 2018 2017 Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans Real Estate: Construction and land development $ 581 Farmland 1- 4 family Multifamily Non-farm non-residential Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated (dollars in thousands) 10.1% 1.5% 14.1% 3.5% 47.7% 1.9% 16.4% 4.8% $ 628 5 1,078 994 2,811 187 2,377 1,125 6.8% 0.1% 11.7% 10.8% 30.4% 2.0% 25.8% 12.2% 5.4% 0.4% 8.5% 12.2% 44.3% 3.1% 17.7% 8.3% 41 911 1,318 4,771 339 1,909 891 15 0.1% -% 20 0.2% 9.8% 2.2% 13.8% 1.4% 46.1% 1.9% 20.0% 4.8% -% Total Allowance $ 10,776 100.0% 100.0% $ 9,225 100.0% 100.0% 95 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Real Estate: Construction and land development Farmland 1- 4 family Multifamily Non-farm non-residential Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Allowance At December 31, 2016 Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans (dollars in thousands) 11.1% 0.2% 10.8% 5.3% 31.0% 0.7% 31.9% 8.7% 8.9% 2.2% 14.2% 1.3% 43.9% 2.5% 20.4% 6.6% Allowance for Loan Losses $ 1,232 19 1,204 591 3,451 74 3,543 972 28 0.3% -% $ 11,114 100.0% 100.0% Investment Securities. Investment securities at December 31, 2020 totaled $238.5 million, a decrease of $188.0 million, or 44.1%, compared to $426.5 million at December 31, 2019. The entire investment portfolio consisted of available for sale securities at December 31, 2020. First Guaranty terminated its held to maturity portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings. The securities portfolio consisted principally of U.S. Government and Government agency securities, agency mortgage-backed securities, corporate debt securities and municipal bonds. U.S. government agencies consist of FHLB, Federal Farm Credit Bank ("FFCB"), Freddie Mac and Fannie Mae obligations. Mortgage-backed securities that we purchase are issued by Freddie Mac and Fannie Mae. Management monitors the securities portfolio for both credit and interest rate risk. We generally limit the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. U.S. Government securities consist of U.S. Treasury bills that have maturities of less than 30 days. Government agency securities generally have maturities of 15 years or less. Agency mortgage backed securities have stated final maturities of 15 to 20 years. At December 31, 2020, the U.S. Government and Government agency securities and municipal bonds qualified as securities available to collateralize public funds. Securities pledged as collateral totaled $184.0 million at December 31, 2020 and $212.8 million at December 31, 2019. Our public funds deposits have a seasonal increase due to tax collections at the end of the year and the first quarter. We typically collateralize the seasonal public fund increases with short term instruments such as U.S. Treasuries or other agency backed securities. The following table sets forth the amortized cost and fair values of our securities portfolio at the dates indicated. 2020 At December 31, 2019 (in thousands) 2018 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value $ 3,000 $ 3,000 $ - $ - $ - $ - 169,986 169,658 36,153 27,381 - 36,489 28,162 - 16,380 94,561 30,297 16,400 16,393 95,369 32,153 16,397 146,911 141,389 76,310 32,956 918 72,878 33,901 904 1,208 1,239 179,546 179,625 48,434 47,422 $ 237,728 $238,548 $337,184 $339,937 $305,529 $296,494 - - - - - - 18,175 5,107 63,297 18,143 5,289 63,385 28,172 5,227 74,927 27,091 5,126 72,623 $ - $ - $ 86,579 $ 86,817 $108,326 $104,840 Available for sale: U.S. Treasuries U.S. Government Agencies Corporate debt securities Municipal bonds Collateralized mortgage obligations Mortgage-backed securities Total available for sale securities Held to maturity: U.S. Government Agencies Municipal bonds Mortgage-backed securities Total held to maturity securities Our available for sale securities portfolio totaled $238.5 million at December 31, 2020, a decrease of $101.4 million, or 29.8%, compared to $339.9 million at December 31, 2019. The decrease was primarily due to the sale of securities and called bonds. First Guaranty had securities sales of $187.9 million in mortgage-backed securities, $168.9 million in corporate securities, $4.2 million in municipal securities and $2.2 million in U.S. Government agency securities. First Guaranty plans to reinvest the proceeds in securities and loans and reduce borrowings. First Guaranty had $14.1 million in U.S. Government agency securities and $15.4 million of corporate securities called during 2020 due to the decrease in interest rates. Our held to maturity securities portfolio had an amortized cost of $0 at December 31, 2020, a decrease of $86.6 million, or 100.0%, compared to December 31, 2019. First Guaranty terminated its held to maturity portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity. 96 97 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT At December 31, 2020, $9.7 million, or 4.1%, of the securities portfolio was scheduled to mature in less than one year. Securities, not including mortgage-backed securities and collateralized mortgage obligations, with contractual maturity dates over 10 years totaled $152.2 million, or 63.8%, of the total portfolio at December 31, 2020. We closely monitor the investment portfolio's yield, duration, and maturity to ensure a satisfactory return. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. First Guaranty, in furtherance of the strategy adopted in March 2020, initiated a plan to manage for economic uncertainty caused by the COVID-19 pandemic by converting unrealized gains in the securities portfolio to realized gains in the fourth quarter of 2020. First Guaranty sold approximately $140 million in mortgage-backed securities and $150 million in corporate securities in October 2020. First Guaranty generated $12.1 million in pre-tax gains from the sales. First Guaranty has proceeded to reinvest the proceeds in securities and loans and subsequently reduced FHLB borrowings by $50.0 million in February 2021. At December 31, 2020, the following table identifies the issuers, and the aggregate amortized cost and aggregate fair value of the securities of such issuers that exceeded 10% of our total shareholders' equity: Freddie Mac Federal Farm Credit Bank Total At December 31, 2020 Amortized Cost Fair Value (in thousands) 110,177 54,263 109,856 54,279 $ 164,440 $ 164,135 Deposits. Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December 31, 2019 to December 31, 2020, total deposits increased $313.3 million, or 16.9%, to $2.2 billion. Noninterest-bearing demand deposits increased $85.5 million, or 26.2% to $411.4 million at December 31, 2020. The increase in noninterest-bearing demand deposits was primarily due to economic conditions associated with the CARES Act and the SBA PPP program. First Guaranty consumer and business customers have increased their deposits due to the receipt of stimulus funds and proceeds from SBA PPP program loans. Interest-bearing demand deposits increased $224.5 million, or 35.3%, to $860.4 million at December 31, 2020. The increase in interest-bearing demand deposits was primarily concentrated in individual, business, and public funds interest-bearing demand deposits. Savings deposits increased $33.7 million, or 25.0%, to $168.9 million at December 31, 2020, primarily related to increases in individual savings deposits. Time deposits decreased $30.4 million, or 4.0%, to $725.6 million at December 31, 2020, primarily due to decreases in business deposits. As we seek to strengthen our net interest margin and improve our earnings, attracting noninterest-bearing or lower cost deposits will be a primary emphasis. Management will continue to evaluate and update our product mix in its efforts to attract additional customers. We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits and other lower cost deposits. TOTAL DEPOSITS In Millions The following tables set forth the stated maturities and weighted average yields of our investment securities at December 31, 2020 and 2019. One Year or Less Carrying Value Weighted Average Yield At December 31, 2020 More than One Year through Five Years More than Five Years through Ten Years Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield (in thousands, except for %) More than Ten Years Carrying Value Weighted Average Yield $ 3,000 - -% -% $ - - -% -% $ - -% $ - -% 29,958 1.2% 139,700 2.0% 5,633 3.5% 1,037 4.1% - 2.0% - -% 2,038 4.3% 27,762 4.9% 1,056 5.5% 4,956 3.9% 10,692 3.9% 11,477 3.2% - 3 -% 0.9% - 3 -% 2.0% - -% 1,233 1.0% Available for sale: U.S. Treasuries U.S. Government Agencies Corporate and other debt securities Municipal bonds Collateralized mortgage obligations Mortgage-backed securities Total available for sale securities $ 9,670 2.5% $ 6,997 4.0% $ 68,415 3.1% $ 153,466 2.1% One Year or Less Carrying Value Weighted Average Yield At December 31, 2019 More than One Year through Five Years More than Five Years through Ten Years Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield (in thousands, except for %) More than Ten Years Carrying Value Weighted Average Yield $ - -% $ - -% $ - -% $ - -% Available for sale: U.S. Treasuries U.S. Government Agencies 2,096 1.8% 4,647 2.2% 149 2.0% Corporate and other debt securities 640 3.4% 24,860 3.1% 68,129 3.6% 9,501 2.9% 1,740 4.7% Municipal bonds 1,785 4.1% 9,221 3.8% 9,665 3.8% 11,482 3.5% Collateralized mortgage obligations Mortgage-backed securities - - -% -% 55 2.1% 5,567 2.2% 10,775 2.2% 416 2.0% 1,393 2.2% 177,816 2.5% Total available for sale securities $ 4,521 2.9% $ 39,199 3.1% $ 84,903 3.5% $ 211,314 2.6% Held to maturity: U.S. Government Agencies Municipal bonds Mortgage-backed securities $ 5,000 1.5% $ 7,177 2.0% $ 5,998 2.1% $ - -% 50 1.6% 150 2.1% 1,498 2.6% 3,409 2.7% - -% - -% 11,628 2.0% 51,669 2.3% Total held to maturity securities $ 5,050 1.5% $ 7,327 2.0% $ 19,124 2.1% $ 55,078 2.4% 98 99 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT The following table sets forth the distribution of deposit accounts, by account type, for the dates indicated. The following table sets forth public funds as a percent of total deposits. Total Deposits 2020 2019 2018 For the Years Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (in thousands except for %) Noninterest-bearing Demand $ 393,734 19.2% -% $ 262,379 15.7% -% $ 252,531 16.3% Interest-bearing Demand Savings Time Total Deposits 722,433 35.3% 163,332 8.0% 767,075 37.5% 0.8% 0.2% 2.2% 592,113 35.4% 115,682 6.9% 703,685 42.0% 1.8% 0.4% 2.4% 556,528 35.9% 111,134 7.2% 628,457 40.6% $2,046,574 100.0% 1.1% $1,673,859 100.0% 1.7% $ 1,548,650 100.0% 1.3% Individual and Business Deposits 2020 2019 2018 For the Years Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (in thousands, except for %) Noninterest-bearing Demand $ 382,940 27.5% -% $ 256,099 23.7% -% $ 246,550 26.7% Interest-bearing Demand Savings Time Total Individual and Business Deposits 280,587 20.1% 127,804 9.2% 600,887 43.2% 1.0% 0.1% 2.5% 241,290 22.3% 86,972 8.0% 498,521 46.0% 1.4% 0.1% 2.6% 204,405 22.1% 84,844 9.2% 388,623 42.0% $1,392,218 100.0% 1.3% $1,082,882 100.0% 1.5% $ 924,422 100.0% 1.0% -% 1.5% 0.4% 1.7% -% 1.1% 0.1% 1.7% Public Fund Deposits 2020 2019 2018 For the Years Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (in thousands except for %) Noninterest-bearing Demand $ 10,794 1.7% -% $ 6,280 1.1% -% $ 5,981 1.0% Interest-bearing Demand Savings Time 441,846 67.5% 35,528 5.4% 166,188 25.4% 0.7% 0.4% 1.1% 350,823 59.3% 28,710 4.9% 205,164 34.7% 2.0% 1.6% 2.1% 352,123 56.4% 26,290 4.2% 239,834 38.4% -% 1.8% 1.4% 1.7% Total Public Fund Deposits $ 654,356 100.0% 0.8% $ 590,977 100.0% 1.9% $ 624,228 100.0% 1.7% At December 31, 2020, public funds deposits totaled $715.3 million compared to $610.7 million at December 31, 2019. Public funds time deposits totaled $158.9 million at December 31, 2020 compared to $146.4 million at December 31, 2019. Public funds deposits increased due to seasonal fluctuations. We have developed a program for the retention and management of public funds deposits. Since the end of 2012, we have maintained public funds deposits in excess of $400.0 million. These deposits are from public entities such as school districts, hospital districts, sheriff departments and municipalities. The majority of these funds are under fiscal agency agreements with terms of three years or less. Deposits under fiscal agency agreements are generally stable but public entities may maintain the ability to negotiate term deposits on a specific basis including with other financial institutions. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds will increase at the end of the year and during the first quarter. In addition to seasonal fluctuations, there are monthly fluctuations associated with internal payroll and short-term tax collection accounts for our public funds deposit accounts. Public funds deposit accounts are collateralized by FHLB letters of credit, by reciprocal deposit insurance programs, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac. First Guaranty has been growing the proportion of its public funds portfolio that is collateralized by reciprocal deposit insurance as an alternative to pledging securities or utilizing FHLB letters of credit. First Guaranty initiated this strategy to more efficiently invest these deposits in higher yielding loans to improve the net interest margin and earnings. Total public funds collateralized by reciprocal deposit insurance programs increased to $217.7 million at December 31, 2020 compared to $86.1 million at December 31, 2019. Public Funds: Noninterest-bearing Demand Interest-bearing Demand Savings Time Total Public Funds Total Deposits At December 31, 2020 2019 2018 (in thousands except for %) $ 5,109 $ 9,944 $ 6,930 514,416 36,862 158,925 424,732 29,570 146,420 364,692 26,903 247,004 $ 715,312 $ 610,666 $ 645,529 $2,166,318 $1,853,013 $1,629,622 Total Public Funds as a percent of Total Deposits 33.0% 33.0% 39.6% At December 31, 2020, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $505.5 million. At December 31, 2020, approximately $234.5 million of our certificates of deposit greater than or equal to $100,000 had a remaining term greater than one year. The following table sets forth the maturity of the total certificates of deposit greater than or equal to $100,000 at December 31, 2020. The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the years indicated. Due in one year or less Due after one year through three years Due after three years Total certificates of deposit greater than or equal to $100,000 December 31, 2020 (in thousands) $ 270,939 143,159 91,378 $ 505,476 Balance at end of year Maximum month-end outstanding Average daily outstanding Total weighted average rate during the year Weighted average rate at the end of the year At or For the Years Ended December 31, 2020 2019 2018 (in thousands, except for %) $56,121 $19,919 $ - $57,048 $48,277 $19,919 $ 3,320 $37,000 $ 7,119 0.95% 2.00% 2.21% 0.89% 2.00% -% Borrowings. First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long- term basis to meet liquidity needs. First Guaranty had $56.1 million in short-term borrowings outstanding at December 31, 2020 compared to $19.9 million outstanding at December 31, 2019. The short-term borrowings at December 31, 2020 were comprised of Federal Home Loan Bank advances of $50.0 million and repurchase agreements of $6.1 million. The $50.0 million short term Federal Home Loan Bank advance was the result of First Guaranty's COVID-19 related liquidity actions taken in the first quarter of 2020. Subsequent to December 31, 2020, First Guaranty redeemed this $50.0 million short term advance in February 2021. The long term Federal Home Loan Bank advance of $3.4 million and the repurchase agreements were assumed as a result of the Union acquisition in November 2019. First Guaranty has a line of credit for $6.5 million, with no outstanding balance at December 31, 2020. At December 31, 2020, we had $365.8 million in FHLB letters of credit outstanding obtained primarily for collateralizing public deposits. First Guaranty had senior long-term debt totaling $42.4 million at December 31, 2020 and $48.6 million at December 31, 2019. First Guaranty also had junior subordinated debentures totaling $14.8 million at December 31, 2020 and $14.7 million at December 31, 2019. Shareholders' Equity Total shareholders' equity increased to $178.6 million at December 31, 2020 from $166.0 million at December 31, 2019. The increase in shareholders' equity was principally the result of an increase of $14.1 million in retained earnings offset by a decrease of $1.5 million in accumulated other comprehensive income. The decrease in accumulated other comprehensive income was primarily attributed to the decrease in unrealized gains on available for sale securities during the year ended December 31, 2020. The $14.1 million increase in retained earnings was due to net income of $20.3 million during the year ended December 31, 2020, partially offset by $6.2 million in cash dividends paid on shares of our common stock. 100 10 1 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT TOTAL COMMON SHAREHOLDERS' EQUITY In Millions Results of Operations Performance Summary Year ended December 31, 2020 compared with year ended December 31, 2019. Net income for the year ended December 31, 2020 was $20.3 million, an increase of $6.1 million, or 42.7%, as compared to $14.2 million for the year ended December 31, 2019. The increase in net income of $6.1 million for the year ended December 31, 2020 was the result of several factors. First Guaranty experienced an increase in interest income associated with loans, increased noninterest income due to increased securities sales and lower interest expense. This was partially offset by an increase in the provision for loan losses and increased noninterest expense. Loan interest income increased due to the growth in First Guaranty's loan portfolio, including the loans acquired in the fourth quarter of 2019 in the Union acquisition and loan fees recognized as an adjustment to yield from the origination of the SBA guaranteed PPP loans. Noninterest income increased due to larger securities gains on sales for the year ended December 31, 2020 compared to losses on securities sales for the year ended December 31, 2019. Interest expense declined due to declines in market interest rates and First Guaranty's strategy to reduce interest expense. Interest expense declined during 2020 even after factoring in the additional deposit balances acquired from the Union acquisition, an increase in deposit balances associated with SBA PPP loans and stimulus payments, and additional borrowings associated with our COVID-19 contingency plans. Factors that partially offset income include increased noninterest expense primarily associated with the Union acquisition including one-time merger related expenses of $0.5 million paid in 2020 for the data conversion. The provision for loan losses increased to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio, including risks emerging from the COVID-19 pandemic and portfolio growth. Earnings per common share for the years ended December 31, 2020 was $2.09 per common share, an increase of 42.2% or $0.62 per common share from $1.47 per common share for the year ended December 31, 2019. Earnings per share was affected by the increase in earnings. Year ended December 31, 2019 compared with year ended December 31, 2018. Net income for the year ended December 31, 2019 was $14.2 million, an increase of $28,000, or 0.2%, as compared to the year ended December 31, 2018. The increase in net income of $28,000 for the year ended December 31, 2019 was the result of several factors. First Guaranty experienced an increase in interest income associated with loans and increased noninterest income, partially offset by an 102 increase in the provision for loan losses, increased interest expense and increased noninterest expense. Loan interest income increased due to the continued growth in First Guaranty's loan portfolio, an increase in the average yield on loans and due to the acquired loans from the Union acquisition. Noninterest income increased primarily as a result of gains on the sale of the guaranteed portion of SBA and USDA loans. Factors that partially offset this increase in income include increased interest expense and noninterest expense. The increase in interest expense was due to the rising interest rate environment, increased competition and due to the acquired deposits from the Union acquisition. Noninterest expense increased primarily due to expenses associated with the Union acquisition that included approximately $0.3 million in one-time merger related expenses, as well as expenses associated with additional compensation, occupancy and other operating expenses for the branch offices acquired in the Union acquisition. The provision for loan losses increased to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Earnings per common share for the years ended December 31, 2019 and December 31, 2018 was $1.47 per common share. TOTAL NET INCOME In Millions Net Interest Income Our operating results depend primarily on our net interest income, which is the difference between interest income earned on interest- earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest- earning assets and interest-bearing liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds. A financial institution's asset and liability structure is substantially different from that of a non-financial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a financial institution's performance. The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest- bearing liabilities. The effects of the low interest rate environment in recent years and our interest sensitivity position is discussed below. Year ended December 31, 2020 compared with year ended December 31, 2019. Net interest income for the years ended December 31, 2020 and 2019 was $74.7 million and $61.7 million, respectively. The increase in net interest income for the year ended December 31, 2020 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and a decrease in the average rate of our total interest-bearing liabilities, partially offset by a decrease in the average yield of our total interest-earning assets and by an increase in the average balance of our total interest- bearing liabilities. For the year ended December 31, 2020, the average balance of our total interest-earning assets increased by $417.3 million to $2.2 billion due to the assets acquired from the Union acquisition, COVID-19 related lending activities, including SBA PPP loans and loan growth. The average yield of our interest-earning assets decreased by 54 basis points to 4.52% from 5.06% for the year ended December 31, 2019 due to the general decline in market interest rates that affect the pricing of our assets and due to the increased lower yielding average cash balances on the balance sheet. For the year ended December 31, 2020, the average balance of our total interest- bearing liabilities increased by $310.9 million to $1.8 billion as our average deposits and average borrowings increased due to COVID-19 related contingency planning and government relief programs, and the average rate of our total interest-bearing liabilities decreased by 58 basis points to 1.48% from 2.06% for the year ended December 31, 2019 due to the decrease in market rates. As a result, our net interest rate spread increased four basis points to 3.04% for the year ended December 31, 2020 from 3.00% for the year ended December 31, 2019. Our net interest margin decreased six basis points to 3.35% for the year ended December 31, 2020 from 3.41% for the year ended December 31, 2019. Year ended December 31, 2019 compared with year ended December 31, 2018. Net interest income for the years ended December 31, 2019 and 2018 was $61.7 million and $57.0 million, respectively. The increase in net interest income for the year ended December 31, 2019 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest- bearing liabilities. For the year ended December 31, 2019, the average balance of our total interest-earning assets increased by $136.3 million to $1.8 billion, and the average yield of our interest-earning assets increased by 38 basis points to 5.06% from 4.68% for the year ended December 31, 2018. For the year ended December 31, 2019, the average balance of our total interest-bearing liabilities increased by $117.0 million to $1.5 billion, and the average rate of our total interest- bearing liabilities increased by 46 basis points to 2.06% from 1.60% for the year ended December 31, 2018. As a result, our net interest rate spread decreased eight basis points to 3.00% for the year ended December 31, 2019 from 3.08% for the years ended December 31, 2018. Our net interest margin remained stable at 3.41% for the year ended December 31, 2019 and 2018. Interest Income Year ended December 31, 2020 compared with year ended December 31, 2019. Interest income increased $9.0 million, or 9.9%, to $100.7 million for the year ended December 31, 2020 as compared to the prior year. First Guaranty's loan portfolio expanded during 2020 due to growth associated with the SBA PPP lending program and our other loan originations such as commercial leases and non-farm non-residential loans. These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, both loans and securities, including assets from the Union acquisition increased, partially offset by a decrease in the average yield of interest-earning assets due to the decline in market interest rates. The average balance of our interest-earning assets increased $417.3 million to $2.2 billion for the year ended December 31, 2020 as compared to the prior year. The average yield of interest-earning assets decreased by 54 basis points to 4.52% for the year ended December 31, 2020 compared to 5.06% for the year ended December 31, 2019. Interest income on securities decreased $0.3 million to $9.5 million for the year ended December 31, 2020 as compared to the prior year primarily as a result of a decrease in the average yield on securities. The average balance of securities increased $31.7 million to $381.0 million for the year ended December 31, 2020 from $349.2 million for the year ended December 31, 2019 due to an increase in balances, particularly corporate securities, as part of First Guaranty's strategy initiated at the end of the first quarter in 2020 to provide earnings and liquidity during the COVID-19 pandemic. The average yield on securities decreased by 32 basis points to 2.49% for the year ended December 31, 2020 from 2.81% for the year ended December 31, 2019 due to the decrease in market interest rates. Interest income on loans increased $11.9 million, or 15.1%, to $90.8 million for the year ended December 31, 2020 as a result of an increase in the average balance of loans. The average balance of loans (excluding loans held for sale) increased by $347.4 million to $1.7 billion for the year ended December 31, 2020 from $1.3 billion for the year ended December 31, 2019 as a result of new loan originations, primarily SBA PPP loans, commercial leases, non-farm non-residential loans, and acquired loans from the Union acquisition. The average yield on loans (excluding loans held for sale) decreased by 53 basis points to 5.46% for the year ended December 31, 2020 from 5.99% for the year ended December 31, 2019 due to the decrease in market interest rates and the impact of SBA PPP loans which have a 1.0% interest rate. Year ended December 31, 2019 compared with year ended December 31, 2018. Interest income increased $13.3 million, or 16.9%, to $91.6 million for the year ended December 31, 2019 as compared to the prior year. First Guaranty continues to transition assets from lower yielding securities and interest-earning bank balances to higher yielding loans in order to increase interest income. The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets principally as a result of the Union acquisition along with an increase in the average yield of interest-earning assets. The average balance of our interest-earning assets increased $136.3 million to $1.8 billion for the year ended December 31, 2019 as compared to the prior year. The average yield of interest-earning assets increased by 38 basis points to 5.06% for the year ended December 31, 2019 compared to 4.68% for the year ended December 31, 2018. Interest income on securities decreased $3.1 million to $9.8 million for the year ended December 31, 2019 as compared to the prior year primarily as a result of a decrease in the average balance of securities. The average balance of securities decreased $116.2 million to $349.2 million for the year ended December 31, 2019 from $465.4 million for the year ended December 31, 2018 due to a decrease in the average balance of our agency, mortgage-backed, corporate and municipal securities as a result of securities sales, calls and maturities. The average yield on securities increased by three basis points to 2.81% for the year ended December 31, 2019 from 2.78% for the year ended December 31, 2018 due to the rising interest rate environment for the majority of 2019. Interest income on loans increased $14.1 million, or 21.7%, to $78.9 million for the year ended December 31, 2019 as a result of an increase in the average balance of loans along with an increase in the average yield on loans. The average balance of loans (excluding loans held for sale) increased by $148.1 million to $1.3 billion for the year ended December 31, 2019 from $1.2 billion for the year ended December 31, 2018 as a result of new loan originations, purchased loans and loans acquired from the Union acquisition. The average yield on loans (excluding loans held for sale) increased by 44 basis points to 5.99% for the year ended December 31, 2019 from 5.55% for the year ended December 31, 2018 as a result of the rising interest rate environment for the majority of 2019. 10 3 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Interest Expense Year ended December 31, 2020 compared with year ended December 31, 2019. Interest expense decreased $3.9 million, or 13.2%, to $26.0 million for the year ended December 31, 2020 from $30.0 million for the year ended December 31, 2019 due primarily to a decrease in market interest rates partially offset by an increase in the average balance of interest-bearing liabilities. The average rate of interest-bearing demand deposits decreased by 92 basis points during the year ended December 31, 2020 to 0.84% as compared to 1.76% for the prior year. The decrease in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW and DDA accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short-term U.S. Treasury rates that declined sharply beginning in the first quarter of 2020. The average rate of time deposits decreased 24 basis points during the year ended December 31, 2020 to 2.20% as compared to 2.44% for the prior year. The decrease in the average rate of time deposits was due to First Guaranty's strategy to reduce deposit costs by expanding non-interest bearing and lower cost interest bearing deposits that has provided an alternative to higher cost time deposits and has helped First Guaranty maintain liquidity while lowering rates on time deposits. Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, which increased $310.9 million during the year ended December 31, 2020 to $1.8 billion as compared to the prior year as a result of a $130.3 million increase in the average balance of interest-bearing demand deposits, a $69.5 million increase in the average balance of borrowings, a $63.4 million increase in the average balance of time deposits and a $47.7 million increase in the average balance of savings deposits. Year ended December 31, 2019 compared with year ended December 31, 2018. Interest expense increased $8.6 million, or 40.3%, to $30.0 million for the year ended December 31, 2019 from $21.4 million for the year ended December 31, 2018 due primarily to an increase in the average balance of interest-bearing deposits along with an increase in the average rate paid on interest-bearing deposits. The average balance of interest-bearing deposits increased by $115.4 million during the year ended December 31, 2019 to $1.4 billion as a result of a $75.2 million increase in the average balance of time deposits, a $35.6 million increase in the average balance of interest-bearing demand deposits and a $4.5 million increase in the average balance of savings deposits. The average rate of interest-bearing demand deposits increased by 23 basis points during the year ended December 31, 2019 to 1.76% as compared to the prior year. The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates. The average rate of time deposits increased 74 basis points during the year ended December 31, 2019 to 2.44% as compared to the prior year. The increase in the average rate and average balance of time deposits was due to changes in market rates and the initiation of a deposit campaign by First Guaranty in order to fund future loan growth and diversify the deposit portfolio. First Guaranty initiated a deposit campaign in 2018 to grow time deposits generally with terms greater than two years. This strategy was designed to fund loan growth and increase long term funding for the Bank. Average Balances and Yields The following table sets forth average balance sheet balances, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. Loans, net of unearned income, include loans held for sale. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. The net interest income yield presented below is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from the balance sheet activities. It is affected by changes in the difference between interest on interest- earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities. December 31, 2020 December 31, 2019 December 31, 2018 Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate (in thousands, except for %) $ 182,339 $ 380,991 678 377 1,662,875 2,227,260 404 9,471 1 21 90,787 100,684 0.22% 2.49% 0.08% 5.56% 5.46% 4.52% $ 144,298 $ 2,956 9,800 1 24 78,862 91,643 349,247 592 324 1,315,524 1,809,985 2.05% 2.81% 0.25% 7.41% 5.99% 5.06% $ 39,005 $ 465,399 531 1,330 1,167,458 1,673,723 612 12,941 1 84 64,752 78,390 1.57% 2.78% 0.23% 6.32% 5.55% 4.68% Assets Interest-earning assets: Interest-earning deposits with banks(1) Securities (including FHLB stock) Federal funds sold Loans held for sale Loans, net of unearned income Total interest-earning assets Noninterest-earning assets: Cash and due from banks Premises and equipment, net Other assets Total assets 12,955 58,411 49,859 $2,348,485 11,951 45,037 15,256 $1,882,229 10,013 38,502 13,805 $1,736,043 Liabilities and Shareholders' Equity Interest-bearing liabilities: Demand deposits Savings deposits Time deposits Borrowings Total interest-bearing liabilities Noninterest-bearing liabilities: Demand deposits Other Total Liabilities Shareholders' equity Total liabilities and shareholders' equity Net interest income Net interest rate spread(2) Net interest-earning assets(3) Net interest margin(4)(5) Average interest-earning assets to interest-bearing liabilities $ 722,433 163,332 767,075 110,292 1,763,132 6,089 268 16,908 2,752 26,017 0.84% 0.16% 2.20% 2.50% 1.48% $ 592,113 115,682 703,685 40,766 1,452,246 10,447 527 17,141 1,851 29,966 1.76% 0.46% 2.44% 4.54% 2.06% $ 556,528 111,134 628,457 39,150 1,335,269 8,531 407 10,690 1,738 21,366 1.53% 0.37% 1.70% 4.44% 1.60% 393,734 12,714 2,169,580 178,905 $2,348,485 $ 464,128 262,379 9,204 1,723,829 158,400 $1,882,229 252,531 5,870 1,593,670 142,373 $1,736,043 $74,667 $61,677 $57,024 3.04% 3.35% $ 357,739 3.00% 3.41% $ 338,454 3.08% 3.41% 126.32% 124.63% 125.35% (1) Includes Federal Reserve balances reported in cash and due from banks on the consolidated balance sheets. (2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average total interest-earning assets. (5) The tax adjusted net interest margin was 3.36%, 3.42% and 3.42% for the years ended December 31, 2020, 2019 and 2018. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the years ended December 31, 2020, 2019 and 2018. 104 10 5 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Volume/Rate Analysis Noninterest Income Noninterest Expense The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the years indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior year's rate); (2) changes attributable to rate (change in rate multiplied by the prior year's volume) and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories. For the Years Ended December 31, 2020 vs. 2019 For the Years Ended December 31, 2019 vs. 2018 Increase (Decrease) Due To Increase (Decrease) Due To Volume Rate Increase/ Decrease Volume Rate Increase/ Decrease (in thousands, except, for %) $ 621 $ (3,173) $ (2,552) $ 2,105 $ 239 $ 2,344 846 (1,175) (329) (3,259) - 4 - (7) 19,433 20,904 (7,508) (11,863) 1,943 163 1,473 2,032 5,611 (6,301) (422) (1,706) (1,131) (9,560) - (3) 11,925 9,041 (4,358) (259) (233) 901 (3,949) - (72) 8,618 7,392 570 18 1,400 73 2,061 118 - 12 5,492 5,861 1,346 102 5,051 40 6,539 (3,141) - (60) 14,110 13,253 1,916 120 6,451 113 8,600 Interest earned on: Interest-earning deposits with banks Securities (including FHLB stock) Federal funds sold Loans held for sale Loans, net of unearned income Total interest income Interest paid on: Demand deposits Savings deposits Time deposits Borrowings Total interest expense Change in net interest income $ 15,293 $ (2,303) $ 12,990 $ 5,331 $ (678) $ 4,653 Provision for Loan Losses A provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loan losses. The provision is based on management's regular evaluation of current economic conditions in our specific markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values securing loans, and other factors which deserve recognition in estimating loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. We recorded a $14.9 million provision for loan losses for the year ended December 31, 2020 compared to $4.9 million for 2019. The allowance for loan losses at December 31, 2020 was $24.5 million or 1.33% of total loans, compared to $10.9 million or 0.72% of total loans at December 31, 2019. The increase in the provision was attributable to the increase in the loan portfolio, the effects of the COVID-19 pandemic and charge-offs not previously provided for. Total charge-offs were $2.4 million for year ended December 31, 2020 and $5.3 million for 2019. We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions that are significantly influenced by the COVID-19 pandemic, and current expected net charge-offs and non-performing asset levels. We expect economic uncertainty to continue which may result in additional increases to the allowance for loan losses in future periods. 106 For the year ended December 31, 2019, the provision for loan losses was $4.9 million compared to $1.4 million for 2018. The allowance for loan losses at December 31, 2019 was $10.9 million or 0.72% of total loans, compared to $10.8 million or 0.88% of total loans at December 31, 2018. The increase in the provision was attributed to additional provisions on loans evaluated individually for impairment. First Guaranty also received a $3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan on May 9, 2018. The payment resulted in a recovery of $1.6 million. The recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018. The increase in the provision was also attributable to the increase in the balance of the loan portfolio and charge-offs not previously provided for. Substandard loans increased $6.3 million to $53.1 million at December 31, 2019 from $46.8 million at December 31, 2018. Doubtful loans decreased $0.5 million to $0 at December 31, 2019 from $0.5 million at December 31, 2018. The impaired loan portfolio did not suffer additional declines in estimated fair value requiring further provisions. We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions, and current expected net charge-offs and non-performing asset levels. Our primary sources of recurring noninterest income are customer service fees, ATM and debit card fees, loan fees, gains on the sale of loans and available for sale securities and other service fees. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method. Noninterest income totaled $23.8 million for the year ended December 31, 2020, an increase of $15.5 million from $8.3 million for the year ended December 31, 2019. The increase was primarily due to gains on the sale of securities. Net securities gains were $14.8 million for the year ended December 31, 2020 as compared to net securities losses of $0.2 million for 2019. The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth and convert unrealized gains into realized earnings as previously noted as part of First Guaranty's plan to manage for economic uncertainty. Service charges, commissions and fees totaled $2.6 million for the year ended December 31, 2020 as compared to $2.8 million for 2019. The decline in these fees for 2020 compared to 2019 was the result of waivers initially provided for during the beginning of the COVID-19 pandemic. ATM and debit card fees totaled $3.0 million for the year ended December 31, 2020 and $2.3 million for 2019. The increase in these fees can be attributed to growth from the Union acquisition and to changes in customer behavior associated with the COVID-19 pandemic as customers used their debit cards as an alternative to cash. Net gains on the sale of loans were $1.1 million for the year ended December 31, 2020 and $1.4 million for 2019. Other noninterest income totaled $2.3 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively. Noninterest income totaled $8.3 million for the year ended December 31, 2019, an increase of $3.0 million from $5.3 million for the year ended December 31, 2018. The increase was primarily due to increased gains on the sale of the guaranteed portion of SBA and USDA loans along with lower losses on the sale of securities. Net securities losses were $0.2 million for the year ended December 31, 2019 as compared to net securities losses of $1.8 million for 2018. The losses on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth. Service charges, commissions and fees totaled $2.8 million for the year ended December 31, 2019 as compared to $3.0 million for 2018. ATM and debit card fees totaled $2.3 million for the year ended December 31, 2019 and $2.1 million for 2018. Net gains on the sale of loans were $1.4 million for the year ended December 31, 2019 and $0.3 million for 2018. Other noninterest income totaled $2.0 million and $1.7 million for the years ended December 31, 2019 and 2018, respectively. Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $58.0 million for the year ended December 31, 2020 and $47.2 million for the year ended December 31, 2019. Salaries and benefits expense totaled $29.6 million for the year ended December 31, 2020 and $25.0 million for the year ended December 31, 2019. The increase in salaries and benefits expense was primarily due to the increase in personnel expense from the Union acquisition, new hires and expenses associated with COVID-19. Occupancy and equipment expense increased to $7.7 million for the year ended December 31, 2020 from $6.1 million for the year ended December 31, 2019 due to the new offices acquired in the Union acquisition. Other noninterest expense totaled $20.7 million for the year ended December 31, 2020 and $16.1 million for 2019. The following are notable changes occurred within noninterest expense. Marketing and public relations expense declined $0.4 million during 2020 primarily due to the impacts of COVID-19. Software expense and amortization increased $1.0 million in 2020 compared to 2019 due to the Union acquisition and the continued development of First Guaranty's loan and deposit platforms. The amortization of core deposits increased $0.3 million due to the Union acquisition. Net costs from other real estate owned and repossessions increased by $1.2 million as First Guaranty established a reserve for other real estate expense and wrote down other real estate properties. First Guaranty's regulatory assessment increased by $1.0 million in 2020 compared to 2019 due to the Union acquisition and the substantial growth in deposits associated with COVID-19. Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $47.2 million for the year ended December 31, 2019 and $43.3 million for the year ended December 31, 2018. Salaries and benefits expense totaled $25.0 million for the year ended December 31, 2019 and $22.9 million for the year ended December 31, 2018. The increase in salaries and benefits expense was primarily due to the increase in personnel expense from the Union acquisition and new hires. Occupancy and equipment expense increased to $6.1 million for the year ended December 31, 2019 from $5.6 million for the year ended December 31, 2018 due to the new offices acquired in the Union acquisition. Other noninterest expense totaled $16.1 million for the year ended December 31, 2019 and $14.8 million for 2018. The following are notable changes within noninterest expense. Legal and professional fees increased approximately $0.3 million in 2019 compared to 2018 principally due to the Union acquisition. Data processing increased approximately $0.3 million principally due to the Union acquisition. 10 7 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT The following table presents, for the years indicated, the major categories of other noninterest expense: Other noninterest expense: Legal and professional fees Data processing ATM fees Marketing and public relations Taxes - sales, capital and franchise Operating supplies Software expense and amortization Travel and lodging Telephone Amortization of core deposits Donations Net costs from other real estate and repossessions Regulatory assessment Other Total other expense December 31, 2020 December 31, 2019 December 31, 2018 (in thousands) $ 2,919 $ 2,648 $ 2,362 2,465 1,332 1,046 1,251 921 2,354 726 256 712 393 1,653 1,716 2,980 1,972 1,217 1,456 1,094 674 1,308 908 193 390 603 422 683 2,536 1,692 1,214 1,329 1,066 562 1,119 978 208 545 380 186 941 2,204 $ 20,724 $ 16,104 $ 14,786 Income Taxes The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses. The provision for income taxes for the years ended December 31, 2020, 2019 and 2018 was $5.2 million, $3.7 million and $3.5 million, respectively. The provision for income taxes in 2020 increased as compared to 2019 due to the increase in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the years ended December 31, 2020, 2019 and 2018. Impact of Inflation Our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession. Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation. Liquidity and Capital Resources Liquidity We maintained a net borrowing capacity at the FHLB totaling $161.2 million and $170.3 million at December 31, 2020 and December 31, 2019, respectively with $53.4 million and $16.6 million in FHLB advances outstanding at December 31, 2020 and December 31, 2019, respectively. At December 31, 2020, we had outstanding letters of credit from the FHLB in the amount of $365.8 million that were primarily used to collateralize public funds deposits. We also have a discount window line with the Federal Reserve Bank that totaled $29.0 million at December 31, 2020. First Guaranty had loans eligible to be pledged under the Federal Reserve's PPP lending facility that totaled $92.3 million at December 31, 2020. First Guaranty did not have any advances under this facility at December 31, 2020. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $100.5 million at December 31, 2020. We have a revolving line of credit for $6.5 million, with no outstanding balance at December 31, 2020 secured by a pledge of the Bank's common stock. Management believes there is sufficient liquidity to satisfy current operating needs. Capital Resources Our capital position is reflected in total shareholders' equity, subject to certain adjustments for regulatory purposes. Further, our capital base allows us to take advantage of business opportunities while maintaining the level of resources we deem appropriate to address business risks inherent in daily operations. Total shareholders' equity increased to $178.6 million at December 31, 2020 from $166.0 million at December 31, 2019. The increase in shareholders' equity was principally the result of an increase of $14.1 million in retained earnings offset by a decrease of $1.5 million in accumulated other comprehensive income. The $14.1 million increase in retained earnings was due to net income of $20.3 million during the year ended December 31, 2020, partially offset by $6.2 million in cash dividends paid on our common stock. The decrease in accumulated other comprehensive income was primarily attributed to the decrease in unrealized gains on available for sale securities during the year ended December 31, 2020. Capital Management We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the Federal Reserve and the FDIC. We review capital levels on a monthly basis. We evaluate a number of capital ratios, including Tier 1 capital to total adjusted assets (the leverage ratio) and Tier 1 capital to risk-weighted assets. At December 31, 2020, First Guaranty Bank was classified as well-capitalized. First Guaranty Bank's capital conservation buffer was 4.22% at December 31, 2020. The following table presents First Guaranty Bank's capital ratios as of the indicated dates. "Well Capitalized Minimums" At December 31, 2020 "Well Capitalized Minimums" At December 31, 2019 Tier 1 Leverage Ratio 5.00% Tier 1 Risk-based Capital Ratio Total Risk-based Capital Ratio Common Equity Tier One Capital 8.00% 10.00% 6.50% 8.58% 10.97% 12.22% 10.97% 5.00% 8.00% 10.00% 6.50% 10.44% 11.96% 12.61% 11.96% Off-balance sheet commitments We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers and to reduce our own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments. Liquidity refers to the ability or flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available to meet customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Liquid assets include cash and due from banks, interest-earning demand deposits with banks, federal funds sold and available for sale investment securities. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk. First Guaranty's cash and cash equivalents totaled $299.6 million at December 31, 2020 compared to $67.4 million at December 31, 2019. Loans maturing within one year or less at December 31, 2020 totaled $265.9 million. At December 31, 2020, time deposits maturing within one year or less totaled $355.1 million. Time deposits maturing after one year through three years totaled $234.1 million at December 31, 2020 compared to $167.9 million at December 31, 2019. Time deposits maturing after three years totaled $136.5 million at December 31, 2020 compared to $243.4 million at December 31, 2019. First Guaranty increased interest-bearing deposits associated with brokered money market funds in order to increase on-balance sheet liquidity. Approximately $50.0 million of additional brokered money market funds were acquired in order to manage uncertainty associated with the COVID-19 crisis. First Guaranty's held to maturity ("HTM") investment securities portfolio at December 31, 2020 was $0 compared to $86.6 million or 20.3% of the investment portfolio at December 31, 2019. First Guaranty's available for sale ("AFS") portfolio was $238.5 million, or 100.0% of the investment portfolio at December 31, 2020 compared to $339.9 million, or 79.7% at December 31, 2019. The majority of the AFS portfolio was comprised of U.S. Treasuries, U.S. Government Agencies, mortgage backed securities, municipal bonds and investment grade corporate bonds. We believe these securities are readily marketable and enhance our liquidity. The notional amounts of the financial instruments with off-balance sheet risk at December 31, 2020, 2019 and 2018 are as follows: Contract Amount December 31, 2020 December 31, 2019 December 31, 2018 Commitments to Extend Credit Unfunded Commitments under lines of credit Commercial and Standby letters of credit $ 154,047 $ 169,151 $ 11,728 (in thousands) $ 117,826 $ 148,127 $ 11,258 $ 108,348 $ 122,212 $ 6,912 108 10 9 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the counterpart. Collateral requirements vary but may include accounts receivable, inventory, property, plant and equipment, residential real estate and commercial properties. Unfunded commitments under lines of credit are contractually obligated by us as long as the borrower is in compliance with the terms of the loan relationship. Unfunded lines of credit are typically operating lines of credit that adjust on a regular basis as a customer requires funding. There may be seasonal variations to the usage of these lines. At December 31, 2020, the largest concentrations of unfunded commitments were lines of credit associated with construction and land development loans and commercial and industrial loans. Commercial and standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The majority of these guarantees are short-term (one year or less); however, some guarantees extend for up to three years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral requirements are the same as on-balance sheet instruments and commitments to extend credit. There were no losses incurred on any commitments during the years ended December 31, 2020, 2019 and 2018. Contractual Obligations The following table summarizes our fixed and determinable contractual obligations and other funding needs by payment date at December 31, 2020. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments. Payments Due by Period: December 31, 2020 Operating leases Software contracts Time deposits Short-term advances from Federal Home Loan Bank Repurchase agreements Long-term advances from Federal Home Loan Bank Senior long-term debt Junior subordinated debentures Total contractual obligations Less Than One Year One to Three Years Over Three Years Total (in thousands) $ 141 $ 150 $ - $ 291 2,717 355,093 50,000 1,406 - 4,531 - 4,903 234,058 - 1,993 - 12,082 - 1,165 136,478 - 2,722 3,366 25,795 15,000 8,785 725,629 50,000 6,121 3,366 42,408 15,000 $ 413,888 $ 253,186 $ 184,526 $ 851,600 limit our exposure to interest rate fluctuations by maintaining a relatively balanced mix of rate sensitive assets and liabilities on a one-year time horizon and greater than one-year time horizon. Because of the significant impact on net interest margin from mismatches in repricing opportunities, we monitor the asset-liability mix periodically depending upon the management asset liability committee's assessment of current business conditions and the interest rate outlook. We maintain exposure to interest rate fluctuations within prudent levels using varying investment strategies. These strategies include, but are not limited to, frequent internal modeling of asset and liability values and behavior due to changes in interest rates. We monitor cash flow forecasts closely and evaluate the impact of both prepayments and extension risk. The following interest sensitivity analysis is one measurement of interest rate risk. This analysis, which we prepare quarterly, reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments or interest rate floors on loans which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at December 31, 2020 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis. Item 7A – Quantitative and Qualitative Disclosures about Market Risk Asset/Liability Management and Market Risk Asset/Liability Management. Our asset/liability management process consists of quantifying, analyzing and controlling interest rate risk to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of asset/liability management is to maximize net interest income while operating within acceptable limits established for interest rate risk and to maintain adequate levels of liquidity. The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk, which is inherent in our lending and deposit-taking activities. Our assets, consisting primarily of loans secured by real estate and fixed rate securities in our investment portfolio, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. The board of directors of First Guaranty Bank has established two committees, the management asset liability committee and the board investment committee, to oversee the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The management asset liability committee is comprised of senior officers of the Bank and meets as needed to review our asset liability policies and interest rate risk position. The board ALCO investment committee is comprised of certain members of the board of directors of the Bank and meets monthly. The management asset liability committee provides a monthly report to the board ALCO investment committee. The need for interest sensitivity gap management is most critical in times of rapid changes in overall interest rates. We generally seek to 110 11 1 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT December 31, 2020 Interest Sensitivity Within 3 Months Or Less Over 3 Months thru 12 Months Total One Year Over One Year Total (in thousands) $ 562,022 $ 195,966 $ 757,988 $ 1,086,147 $ 1,844,135 11,019 702 287,744 2,002 - - 13,021 702 287,744 228,878 241,899 - - 702 287,744 $ 861,487 $ 197,968 $1,059,455 $ 1,315,025 $ 2,374,480 $ 860,394 $ - $ 860,394 $ - $ 860,394 168,879 196,861 50,000 42,366 - - - 158,137 - - - - 168,879 354,998 50,000 42,366 - - - 370,631 5,902 3,366 14,777 503,167 168,879 725,629 55,902 45,732 14,777 503,167 $ 1,318,500 $ 158,137 $ 1,476,637 $ 897,843 $ 2,374,480 Net Interest Income at Risk. Net interest income at risk measures the risk of a decline in earnings due to changes in interest rates. The first table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in the yield curve over a 12-month horizon at December 31, 2020. The second table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from a gradual shift in the yield curve over a 12-month period. Shifts are measured in 100 basis point increments (+400 through -25 basis points) from base case. We do not present shifts less than 25 basis points because of the current low interest rate environment. The base case scenario encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous and gradual shocks are performed against that yield curve. December 31, 2020 Instantaneous Changes in Interest Rates (basis points) Percent Change in Net Interest Income +400 +300 +200 +100 Base -25 (7.18)% (7.08)% (6.99)% (2.71)% 0% 2.84% $ (457,013) $ 39,831 $ (417,182) $ 417,182 $ (457,013) $ (417,182) $ (417,182) $ - Gradual Changes in Interest Rates (basis points) Percent Change in Net Interest Income Earning Assets: Loans (including loans held for sale) Securities (including FHLB stock) Federal Funds Sold Other earning assets Total earning assets Source of Funds: Interest-bearing accounts: Demand deposits Savings deposits Time deposits Short-term borrowings Senior long-term debt Junior subordinated debt Noninterest-bearing, net Total source of funds Period gap Cumulative gap First Guaranty continues to pursue its strategy to increase loans as a percentage of average assets compared to securities. First Guaranty has also been collateralizing more of its public funds deposits with either FHLB letters of credit or with reciprocal deposit insurance programs. This facilitates the investment of our deposits in higher yielding loans rather than lower yielding securities that generally have higher interest rate risk. This strategy is designed to reduce interest rate risk and improve net interest income. New loans that are originated generally are either floating rate or were fixed rate with maturities that did not exceed five years. Loans as a percentage of average interest- earning assets increased to 74.7% in 2020 compared to 72.7% in 2019. Securities as a percentage of average interest-earning assets decreased from 19.3% in 2019 to 17.1% in 2020. Cumulative gap as a percent of earning assets (19.2)% (17.6)% (17.6)% FGB hosted Chamber After Hours Mardi Gras event! +400 +300 +200 +100 Base -25 (5.96)% (4.96)% (3.43)% (1.32)% 0% 2.40% These scenarios above are both instantaneous and gradual shocks that assume balance sheet management will mirror the base case. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring exposure to interest rate risk. 112 11 3 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors First Guaranty Bancshares, Inc. Opinion on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying balance sheets of First Guaranty Bancshares, Inc. and Subsidiary (First Guaranty) as of December 31, 2020 and 2019, and the related statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes collectively referred to as the financial statements. We also have audited First Guaranty's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Guaranty as of December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, First Guaranty maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. Basis for Opinion First Guaranty’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on First Guaranty’s financial statements and an opinion on First Guaranty’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to First Guaranty in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Loan Losses As described in Notes 1, 6 and 7 to the financial statements, at December 31, 2020 First Guaranty’s total loans were $1.8 billion and the associated allowance for loan losses balance was $24.5 million. The allowance for loan losses is management’s best estimate of probable losses inherent in its loan portfolio and is based on historical loss experience by loan segment and class with adjustments for current events and conditions. These factors include, among others, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, specific credit risks, industry concentrations, and unidentified losses inherent in the current loan portfolio. We identified management’s asset quality ratings of loans and determination of qualitative factors, which is based on general economic conditions and other qualitative risk factors both internal and external to First Guaranty, both of which are used in the allowance for loan losses calculation, as a critical audit matter. First Guaranty uses asset quality risk ratings to monitor portfolio performance and trends and to adjust historical loss percentages for classified loans. First Guaranty stratifies loans into pools based on collateral and type of loan, based on regulatory guidelines, and estimates inherent loss rates for each of the loan pools, which are used in the calculation of the allowance for loan losses. The general valuation allowance portion of the allowance for loan losses is used to estimate losses and is based on management’s evaluation of various factors that are not captured in the historical credit loss factors or on the specific impairment component. Auditing management’s judgments regarding the determination of the quantitative and qualitative portion of the allowance for loan losses involved a high degree of subjectivity. The primary procedures we performed to address the critical audit matters included: • Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for loan losses, including controls over the accuracy of asset quality ratings of loans, the loan pools based on collateral type, and the determination of the qualitative and quantitative factors of the allowance for loan losses. • Testing a risk-based targeted selection of loans to gain substantive evidence that First Guaranty is appropriately rating these loans in accordance with its policies, and that the asset quality ratings for the loans are reasonable. • Obtaining management’s analysis and supporting documentation related to the qualitative factors and testing whether the qualitative risk factors both internal and external to First Guaranty used in the calculation of the allowance for loan losses are supported by the analysis provided by management. • Testing of loans excluded from the qualitative general reserve calculations. • Testing the appropriateness of the methodology and assumptions used in the calculation of the allowance for loan losses, and testing the calculation itself, including completeness and accuracy of the data used in the calculation, application of the qualitative factors determined by management and used in the calculation, and recalculation of the allowance for loan losses balance. We have served as First Guaranty's auditor since 2001. Castaing, Hussey & Lolan, LLC New Iberia, Louisiana March 16, 2021 114 11 5 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY - CONSOLIDATED BALANCE SHEETS FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Assets Cash and cash equivalents: Cash and due from banks Federal funds sold Cash and cash equivalents Investment securities: Available for sale, at fair value Held to maturity, at cost (estimated fair value of $0 and $86,817, respectively) Investment securities Federal Home Loan Bank stock, at cost Loans held for sale Loans, net of unearned income Less: allowance for loan losses Net loans Premises and equipment, net Goodwill Intangible assets, net Other real estate, net Accrued interest receivable Other assets Total Assets Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand Interest-bearing demand Savings Time Total deposits Short-term advances from Federal Home Loan Bank Repurchase agreements Accrued interest payable Long-term advances from Federal Home Loan Bank Senior long-term debt Junior subordinated debentures Other liabilities Total Liabilities Shareholders' Equity Common stock: $1 par value - authorized 100,600,000 shares; issued 9,741,253 shares Surplus Retained earnings Accumulated other comprehensive income (loss) Total Shareholders' Equity Total Liabilities and Shareholders' Equity See Notes to the Consolidated Financial Statements. December 31, 2020 December 31, 2019 (in thousands, except share data) $ 298,903 702 299,605 $ 66,511 914 67,425 238,548 - 238,548 3,351 - 1,844,135 24,518 1,819,617 339,937 86,579 426,516 3,308 - 1,525,490 10,929 1,514,561 59,892 12,900 6,587 2,240 11,933 18,405 $ 2,473,078 56,464 12,942 7,166 4,879 8,412 15,543 $ 2,117,216 $ 411,416 860,394 168,879 725,629 2,166,318 $ 325,888 635,942 135,156 756,027 1,853,013 50,000 6,121 5,292 3,366 42,366 14,777 6,247 2,294,487 13,079 6,840 6,047 3,533 48,558 14,737 5,374 1,951,181 9,741 110,836 57,367 647 178,591 $ 2,473,078 9,741 110,836 43,283 2,175 166,035 $ 2,117,216 Interest Income: Loans (including fees) Deposits with other banks Securities (including FHLB stock) Federal funds sold Total Interest Income Interest Expense: Demand deposits Savings deposits Time deposits Borrowings Total Interest Expense Net Interest Income Less: Provision for loan losses Net Interest Income after Provision for Loan Losses Noninterest Income: Service charges, commissions and fees ATM and debit card fees Net gains (losses) on securities Net gains on sale of loans Other Total Noninterest Income Noninterest Expense: Salaries and employee benefits Occupancy and equipment expense Other Total Noninterest Expense Income Before Income Taxes Less: Provision for income taxes Net Income Per Common Share: Earnings Cash dividends paid Years Ended December 31, 2019 2020 2018 (in thousands, except share data) $ 90,808 404 9,471 1 100,684 6,089 268 16,908 2,752 26,017 74,667 14,877 59,790 2,571 3,022 14,791 1,054 2,342 23,780 29,600 7,709 20,724 58,033 25,537 5,219 $ 20,318 $ 78,886 2,956 9,800 1 91,643 $ 64,836 612 12,941 1 78,390 10,447 527 17,141 1,851 29,966 61,677 4,860 56,817 2,808 2,254 (157) 1,376 2,018 8,299 25,019 6,096 16,104 47,219 8,531 407 10,690 1,738 21,366 57,024 1,354 55,670 2,988 2,122 (1,830) 278 1,722 5,280 22,888 5,601 14,786 43,275 17,897 3,656 $ 14,241 17,675 3,462 $ 14,213 $ 2.09 $ 0.64 $ 1.47 $ 0.60 $ $ 1.47 0.58 Weighted Average Common Shares Outstanding 9,741,253 9,695,131 9,687,123 See Notes to Consolidated Financial Statements 116 11 7 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2019 2018 2020 Net Income Other comprehensive income: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period Reclassification adjustments for gains (losses) included in net income Reclassification of OTTI losses included in net income Change in unrealized gains (losses) on securities Tax impact Other comprehensive income (loss) Comprehensive Income See Notes to Consolidated Financial Statements (in thousands) $ 20,318 $ 14,241 $ 14,213 12,757 (14,791) 100 (1,934) 406 (1,528) 11,435 353 - 11,788 (2,475) 9,313 (8,508) 1,830 - (6,678) 1,402 (5,276) $ 18,790 $ 23,554 $ 8,937 FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Common Stock $1 Par Surplus Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total (in thousands, except share data) $ 9,687 $ 109,788 $26,064 $ (1,556) $ 143,983 - - - - $ 9,687 - 54 - - $ 9,741 - - - $ 9,741 - - - - $ 109,788 - 1,048 - - $ 110,836 - - - $ 110,836 306 14,213 - (5,636) $ 34,947 14,241 (102) - (5,803) $ 43,283 20,318 - (6,234) $ 57,367 (306) - (5,276) - - 14,213 (5,276) (5,636) $ (7,138) $ 147,284 14,241 - - 9,313 - $ 2,175 - (1,528) - $ 647 1,000 9,313 (5,803) $ 166,035 20,318 (1,528) (6,234) $ 178,591 Balance December 31, 2017 Reclassification of stranded tax effects in accumulated other comprehensive income Net income Other comprehensive income (loss) Cash dividends on common stock ($0.58 per share) Balance December 31, 2018 Net income Common stock issued in private placement, 54,130 shares Other comprehensive income (loss) Cash dividends on common stock ($0.60 per share) Balance December 31, 2019 Net income Other comprehensive income Cash dividends on common stock ($0.64 per share) Balance December 31, 2020 See Notes to Consolidated Financial Statements Cash Flows From Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Depreciation and amortization Amortization/Accretion of investments Gain (loss) on sale/call of securities Other than temporary impairment charge on securities Gain on sale of assets Repossessed asset writedowns, gains and losses on dispositions FHLB stock dividends Net decrease in loans held for sale Change in other assets and liabilities, net Net Cash Provided by Operating Activities Cash Flows From Investing Activities: Proceeds from maturities and calls of HTM securities Proceeds from maturities, calls and sales of AFS securities Funds Invested in AFS securities Net increase in loans Purchases of premises and equipment Proceeds from sales of premises and equipment Proceeds from sales of other real estate owned Cash paid in excess of cash received in acquisition Net Cash (Used In) Provided By Investing Activities Cash Flows From Financing Activities: Net increase in deposits Net increase (decrease) in federal funds purchased and short-term borrowings Proceeds from long-term borrowings, net of costs Repayment of long-term borrowings Common stock issued in private placement Dividends paid Net Cash Provided By Financing Activities Years Ended December 31, 2020 2019 2018 (in thousands) $ 20,318 $ 14,241 $ 14,213 14,877 3,781 2,594 (14,791) 100 (1,054) 1,245 (43) - (3,268) 23,759 34,022 1,242,559 (1,078,450) (322,745) (6,313) 127 2,345 - (128,455) 313,210 36,202 - (6,302) - (6,234) 336,876 4,860 3,057 1,347 157 - (1,304) 90 (63) 344 6,349 29,078 21,190 279,590 (274,437) (123,553) (11,933) 12 550 (23,325) (131,906) 18,408 (28) 32,465 (3,754) 1,000 (5,803) 42,288 1,354 3,289 1,445 1,830 - (301) (47) (42) 964 4,184 26,889 11,197 384,549 (309,346) (76,354) (3,787) 46 484 - 6,789 80,336 (15,500) - (2,941) - (5,636) 56,259 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at the Beginning of the Period Cash and Cash Equivalents at the End of the Period 232,180 67,425 $ 299,605 (60,540) 127,965 $ 67,425 89,937 38,028 $ 127,965 Noncash Activities: Acquisition of real estate in settlement of loans Transfer of securities from HTM to AFS Cash Paid During the Period: Interest on deposits and borrowed funds Federal income taxes State income taxes See Notes to the Consolidated Financial Statements. $ 951 $ 52,553 $ 2,789 $ - $ 297 $ - $ 26,772 $ 27,871 $ 19,902 $ 4,800 $ 25 $ 3,250 $ 23 $ 2,400 $ - 118 11 9 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business and Summary of Significant Accounting Policies Business First Guaranty Bancshares, Inc. ("First Guaranty") is a Louisiana corporation headquartered in Hammond, LA. First Guaranty owns all of the outstanding shares of common stock of First Guaranty Bank. First Guaranty Bank (the "Bank") is a Louisiana state-chartered commercial bank that provides a diversified range of financial services to consumers and businesses in the communities in which it operates. These services include consumer and commercial lending, mortgage loan origination, the issuance of credit cards and retail banking services. The Bank also maintains an investment portfolio comprised of government, government agency, corporate, and municipal securities. The Bank has thirty-four banking offices, including one drive-up banking facility, and forty-six automated teller machines (ATMs) in Southeast Louisiana, Southwest Louisiana, Central Louisiana, North Louisiana and North Central Texas. Summary of significant accounting policies The accounting and reporting policies of First Guaranty conform to generally accepted accounting principles and to predominant accounting practices within the banking industry. The more significant accounting and reporting policies are as follows: Consolidation The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc., and its wholly owned subsidiary, First Guaranty Bank. All significant intercompany balances and transactions have been eliminated in consolidation. Acquisition Accounting Acquisitions are accounted for under the purchase method of accounting. Purchased assets, including identifiable intangibles, and assumed liabilities are recorded at their respective acquisition date fair values. If the fair value of net assets purchased exceeds the consideration given, a gain on acquisition is recognized. If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. See Acquired Loans section below for accounting policy regarding loans acquired in a business combination. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. 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. In connection with the determination of the allowance for loan losses and real estate 120 owned, First Guaranty obtains independent appraisals for significant properties. Cash and cash equivalents For purposes of reporting cash flows, cash and cash equivalents are defined as cash, due from banks, interest-bearing demand deposits with banks and federal funds sold with maturities of three months or less. Securities First Guaranty reviews its financial position, liquidity and future plans in evaluating the criteria for classifying investment securities. Debt securities that Management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Securities available for sale are stated at fair value. The unrealized difference, if any, between amortized cost and fair value of these AFS securities is excluded from income and is reported, net of deferred taxes, in accumulated other comprehensive income as a part of shareholders' equity. Details of other comprehensive income are reported in the consolidated statements of comprehensive income. Realized gains and losses on securities are computed based on the specific identification method and are reported as a separate component of other income. Amortization of premiums and discounts is included in interest income. Discounts and premiums related to debt securities are amortized using the effective interest rate method. Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. Loans held for sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty days. Buyers generally have recourse to return a purchased loan under limited circumstances. Recourse conditions may include early payment default, breach of representations or warranties and documentation deficiencies. Mortgage loans held for sale are generally sold with the mortgage servicing rights released. Gains or losses on sales of mortgage loans are recognized based on the differences between the selling price and the carrying value of the related mortgage loans sold. Loans Loans are stated at the principal amounts outstanding, net of unearned income and deferred loan fees. In addition to loans issued in the normal course of business, overdrafts on customer deposit accounts are considered to be loans and reclassified as such. Interest income on all classifications of loans is calculated using the simple interest method on daily balances of the principal amount outstanding. Accrual of interest is discontinued on a loan when Management believes, after considering economic and business conditions and collection efforts, the borrower's financial condition is such that reasonable doubt exists as to the full and timely collection of principal and interest. This evaluation is made for all loans that are 90 days or more contractually past due. When a loan is placed in nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of interest and principal is probable. Loans are returned to accrual status when, in the judgment of Management, all principal and interest amounts contractually due are reasonably assured to be collected within a reasonable time frame and when the borrower has demonstrated payment performance of cash or cash equivalents; generally for a period of 6 months. All loans, except mortgage loans, are considered past due if they are past due 30 days. Mortgage loans are considered past due when two consecutive payments have been missed. Loans that are past due 90-120 days and deemed uncollectible are charged-off. The loan charge off is a reduction of the allowance for loan losses. Troubled Debt Restructurings (TDRs) TDRs are loans in which the borrower is experiencing financial difficulty at the time of restructuring, and the Bank has granted a concession to the borrower. TDRs are undertaken in order to improve the likelihood of recovery on the loan and may take the form of modifications made with the stated interest rate lower than the current market rate for new debt with similar risk, other modifications to the structure of the loan that fall outside of normal underwriting policies and procedures, or in limited circumstances forgiveness of principal and / or interest. TDRs can involve loans remaining on non-accrual, moving to non-accrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. TDRs are subject to policies governing accrual and non-accrual evaluation consistent with all other loans as discussed in the "Loans" section above. All loans with the TDR designation are considered to be impaired, even if they are accruing. First Guaranty's policy is to evaluate TDRs that have subsequently been restructured and returned to market terms after 6 months of performance. The evaluation includes a review of the loan file and analysis of the credit to assess the loan terms, including interest rate to insure such terms are consistent with market terms. The loan terms are compared to a sampling of loans with similar terms and risk characteristics, including loans originated by First Guaranty and loans lost to a competitor. The sample provides a guide to determine market terms pursuant to ASC 310-40-50-2. The loan is also evaluated at that time for impairment. A loan determined to be restructured to market terms and not considered impaired will no longer be disclosed as a TDR in the years following the restructuring. These loans will continue to be individually evaluated for impairment. A loan determined to either be restructured to below market terms or to be impaired will remain a TDR. Credit Quality First Guaranty's credit quality indicators are pass, special mention, substandard, and doubtful. Loans included in the pass category are performing loans with satisfactory debt coverage ratios, collateral, payment history, and documentation requirements. Special mention loans have potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. include management problems, pending A substandard loan is inadequately protected by the paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness. They are characterized by the distinct possibility that First Guaranty will sustain some loss if the deficiencies are not corrected. These loans require more intensive supervision. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigates. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and interest is no longer accrued. Consumer loans that are 90 days or more past due or that are nonaccrual are considered substandard. Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. A loan is considered impaired when, based on current information and events, it is probable that First Guaranty will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by Management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price or the fair value of the collateral if the loan is collateral dependent. This process is only applied to impaired loans or relationships in excess of $500,000. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement. Loans that have been restructured in a troubled debt restructuring will continue to be evaluated individually for impairment, including those no longer requiring disclosure. Acquired Loans Loans are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Acquired loans are segregated between those with deteriorated credit quality at acquisition and those deemed as performing. To make this determination, Management considers such factors as past due status, nonaccrual 12 1 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT status, credit risk ratings, interest rates and collateral position. The fair value of acquired loans deemed performing is determined by discounting cash flows, both principal and interest, for each pool at prevailing market interest rates as well as consideration of inherent potential losses. The difference between the fair value and principal balances due at acquisition date, the fair value discount, is accreted into income over the estimated life of each loan pool. Accordingly, First Guaranty may ultimately incur losses that vary from Management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. Loans acquired in a business combination are recorded at their estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Performing acquired loans are subsequently evaluated for any required allowance at each reporting date. An allowance for loan losses is calculated using a similar methodology for originated loans. Loan fees and costs Nonrefundable loan origination and commitment fees and direct costs associated with originating loans are deferred and recognized over the lives of the related loans as an adjustment to the loans' yield using the level yield method. Allowance for loan losses The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when Management believes that the collectability of the principal is unlikely. The allowance, which is based on evaluation of the collectability of loans and prior loan loss experience, is an amount that, in the opinion of Management, reflects the risks inherent in the existing loan portfolio and exists at the reporting date. The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, historical losses, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower's ability to pay including the impact of the COVID-19 pandemic, adequacy of loan collateral and other relevant factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require additional recognition of losses based on their judgments about information available to them at the time of their examination. The following are general credit risk factors that affect First Guaranty's loan portfolio segments. These factors do not encompass all risks associated with each loan category. Construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property. Farmland and agricultural loans have risks such as weather, government agricultural policies, fuel and fertilizer costs, and market price volatility. 1-4 family, multi-family, and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy. Non-farm non-residential loans include both owner occupied real estate and non-owner occupied real estate. Common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses. Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral. Although Management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. 122 The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for syndicated loans. The general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors include analysis of levels and trends in delinquencies,non-accrual loans, charge-offs and recoveries, loan risk ratings, trends in volume and terms of loans, changes in lending policy, credit concentrations, portfolio stress test results, national and local economic trends including the impact of COVID-19, industry conditions, and other relevant factors. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for loan losses is reviewed on a monthly basis. The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit. A reserve is established as needed for estimates of probable losses on such commitments. Goodwill and intangible assets Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in an acquisition. First Guaranty's goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment in accordance with ASC Topic 350. Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with the related contract, asset or liability. First Guaranty's intangible assets primarily relate to core deposits and loan servicing assets related to the SBA portfolio. These core deposit intangibles are amortized on a straight- line basis over terms ranging from seven to fifteen years. Management periodically evaluates whether events or circumstances have occurred that impair this deposit intangible. Premises and equipment Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the respective assets as follows: Buildings and improvements 10-40 years Equipment, fixtures and automobiles 3-10 years Expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Repairs, maintenance and minor improvements are charged to operating expense as incurred. Gains or losses on disposition, if any, are recorded as a separate line item in noninterest income on the Statements of Income. Other real estate Transfers of Financial Assets Other real estate includes properties acquired through foreclosure or acceptance of deeds in lieu of foreclosure. These properties are recorded at the lower of the recorded investment in the property or its fair value less the estimated cost of disposition. Any valuation adjustments required prior to foreclosure are charged to the allowance for loan losses. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged to current period earnings as other real estate expense or to the allowance for other real estate. Costs of operating and maintaining the properties are charged to other real estate expense as incurred. Any subsequent gains or losses on dispositions are credited or charged to income in the period of disposition. Off-balance sheet financial instrument In the ordinary course of business, First Guaranty has entered into commitments to extend credit, including commitments under credit card arrangements, commitments to fund commercial real estate, construction and land development loans secured by real estate, and performance standby letters of credit. Such financial instruments are recorded when they are funded. Income taxes First Guaranty and its subsidiary file a consolidated federal income tax return on a calendar year basis. In lieu of Louisiana state income tax, the Bank is subject to the Louisiana bank shares tax, which is included in noninterest expense in First Guaranty's consolidated financial statements. With few exceptions, First Guaranty is no longer subject to U.S. federal, state or local income tax examinations for years before 2017. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the deferred tax assets or liabilities are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be utilized. Comprehensive income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects are presented in the Statements of Comprehensive Income. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. See Note 20 for a detailed description of fair value measurements. Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from First Guaranty, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) First Guaranty does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Earnings per common share income available Earnings per share represents to common shareholders divided by the weighted average number of common shares outstanding during the period. In December of 2019, First Guaranty issued a pro rata, 10% common stock dividend. The shares issued for the stock dividend have been retrospectively factored into the calculation of earnings per share as well as cash dividends paid on common stock and represented on the face of the financial statements. No convertible shares of First Guaranty's stock are outstanding. Operating Segments All of First Guaranty's operations are considered by management to be aggregated into one reportable operating segment. While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material. Operations are managed and financial performance is evaluated on a Company- wide basis. Reclassifications Certain reclassifications have been made to prior year end financial statements in order to conform to the classification adopted for reporting in 2020. 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. In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)." The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in the Topic 740. The amendments also improve the consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in the ASU are effective for fiscal years and interim periods beginning after December 15, 2020. First Guaranty is currently assessing the impact of adoption of this guidance. 12 3 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Note 4. Cash and Due from Banks Certain reserves are required to be maintained at the Federal Reserve Bank. There was no reserve requirement as of December 31, 2020 and 2019. At December 31, 2020 First Guaranty had no accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000. At December 31, 2019 First Guaranty had only two account at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000. This account was over the insurable limit by $5.7 million. 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 dates, First Guaranty records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. First Guaranty finalized the purchase price allocations related to the Union acquisition during the fourth quarter of 2020. Based on management's valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Union acquisition is allocated in the table below. Cash and due from banks Securities available for sale Loans Premises and equipment Goodwill Intangible assets Other real estate Other assets Union Bancshares, Incorporated (in thousands) $ 20,063 38,813 184,344 7,223 9,428 4,213 1,595 9,480 Total assets acquired $ 275,159 Deposits FHLB borrowings Repurchase agreements Other liabilities Total liabilities assumed Net assets acquired 205,078 16,617 6,863 3,218 $ 231,776 $ 43,383 Note 5. Securities A summary comparison of securities by type at December 31, 2020 and 2019 is shown below. December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses December 31, 2019 Gross Unrealized Gains Gross Unrealized Losses Fair Value Fair Value Amortized Cost (in thousands) Available for sale: U.S. Treasuries U.S. Government Agencies Corporate debt securities Municipal bonds Collateralized mortgage obligations Mortgage-backed securities $ 3,000 $ - $ - $ 3,000 $ - $ - $ - $ - 169,986 36,153 27,381 - 1,208 77 604 781 - 31 (405) (268) - - 169,658 36,489 28,162 - 16,380 94,561 30,297 16,400 - 1,239 179,546 15 1,110 1,870 40 317 (2) (302) (14) (43) 16,393 95,369 32,153 16,397 (238) 179,625 Total available for sale securities $ 237,728 $ 1,493 $ (673) $ 238,548 $ 337,184 $ 3,352 $ (599) $ 339,937 Held to maturity: U.S. Government Agencies Municipal bonds Mortgage-backed securities . $ - $ - $ - $ - $ 18,175 $ - $ (32) $ 18,143 - - - - - - - - 5,107 63,297 182 200 - (112) 5,289 63,385 Total held to maturity securities $ - $ - $ - $ - $ 86,579 $ 382 $ (144) $ 86,817 The scheduled maturities of securities at December 31, 2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to call 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. Available for sale: 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 available for sale securities December 31, 2020 Amortized Cost Fair Value (in thousands ) $ 9,635 $ 9,670 6,994 67,675 152,216 236,520 1,208 6,995 68,412 152,232 237,309 1,239 $ 237,728 $ 238,548 124 12 5 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2020. Less Than 12 Months 12 Months or More At December 31, 2020 Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Total Fair Value Gross Unrealized Losses (in thousands) Available for sale: U.S. Treasuries U.S. Government Agencies Corporate debt securities Municipal bonds Mortgage-backed securities Total available for sale securities - 12 17 1 - 30 $ - $ - - $ - $ - 131,455 10,286 66 - (405) (144) - - - 4 - 6 - - 1,254 (124) - 11 - - $141,807 $ (549) 10 $ 1,265 $ (124) - 12 21 1 6 40 $ - $ - 131,455 11,540 66 11 (405) (268) - - $143,072 $ (673) The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2019. Guaranty to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Investment securities issued by the U.S. Government and Government sponsored enterprises with unrealized losses and the amount of unrealized losses on those investment securities that are the result of changes in market interest rates will not be other-than-temporarily impaired. First Guaranty has the ability and intent to hold these securities until recovery, which may not be until maturity. Corporate debt securities in a loss position consist primarily of corporate bonds issued by businesses in the financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas industries. There was one security with an other-than-temporary impairment loss at December 31, 2020. First Guaranty believes that the remaining issuers will be able to fulfill the obligations of these securities based on evaluations described above. First Guaranty has the ability and intent to hold these securities until they recover, which could be at their maturity dates. There was one other-than-temporary impairment loss of $100,000 recognized on securities during the years ended December 31, 2020. The security had an original book value of $0.1 million and was in default. First Guaranty's analysis of the company and the current market value of the security resulted in the determination that a write down was warranted. There were no other-than-temporary impairment losses recognized on securities during the years ended December 31, 2019, and 2018. The following table presents a roll-forward of the amount of credit losses on debt securities held by First Guaranty for which a portion of OTTI was recognized in other comprehensive income for the year ended December 31, 2020, 2019, and 2018: Year Ended December 31, 2020 Year Ended December 31, 2019 (in thousands) Year Ended December 31, 2018 At December 31, 2019 Less Than 12 Months 12 Months or More Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (in thousands) Beginning balance of credit losses at beginning of year $ - $ 60 $ 60 Other-than-temporary impairment credit losses on securities not previously OTTI Increases for additional credit losses on securities previously determined to be OTTI Reduction for increases in cash flows Reduction due to credit impaired securities sold or fully settled 100 - - - Ending balance of cumulative credit losses recognized in earnings at end of year $ 100 $ - - - (60) - - - - - $ 60 Available for sale: U.S. Treasuries U.S. Government Agencies Corporate debt securities Municipal bonds Collateralized mortgage obligations Mortgage-backed securities Total available for sale securities - 1 42 9 12 57 $ - $ - 4,398 21,269 4,285 10,022 91,753 - 1 (1) (174) 12 (14) (43) (186) - - 9 $ - $ - 149 3,184 - - (1) (128) - - 12,121 (52) - 2 54 9 12 66 $ - $ - 4,547 24,453 4,285 10,022 103,874 (2) (302) (14) (43) (238) 121 $ 131,727 $ (418) 22 $15,454 $ (181) 143 $147,181 $ (599) Held to maturity: U.S. Government Agencies Municipal bonds Mortgage-backed securities Total held to maturity securities 2 - 7 9 $ 2,177 $ (2) - 8,880 - (58) 8 1 10 $15,965 $ (30) 50 11,343 - (54) 10 1 17 $ 18,142 $ (32) 50 - 20,223 (112) $ 11,057 $ (60) 19 $27,358 $ (84) 28 $ 38,415 $ (144) As of December 31, 2020, 40 of First Guaranty's debt securities had unrealized losses totaling 0.5% of the individual securities' amortized cost basis and 0.3% of First Guaranty's total amortized cost basis of the investment securities portfolio. 10 of the 40 securities had been in a continuous loss position for over 12 months at such date. The 10 securities had an aggregate amortized cost basis of $1.4 million and an unrealized loss of $0.1 million at December 31, 2020. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery. Securities are evaluated for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of First gains, net of tax, reclassified out of AOCI into earnings totaled $11.7 million. During 2019 net losses, net of tax, reclassified out of AOCI into earnings totaled $0.3 million. At December 31, 2020, First Guaranty's exposure to investment securities issuers that exceeded 10% of shareholders' equity was as follows: December 31, 2020 Amortized Cost Fair Value (in thousands) 110,177 54,263 109,856 54,279 $ 164,440 $ 164,135 Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) Federal Farm Credit Bank (FFCB) Total In 2020, 2019 and 2018 there were no other-than-temporary impairment credit losses on securities for which First Guaranty had previously recognized OTTI. For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management's best estimate of future cash flows based on specific assumptions. The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities. Management reviews reports from credit rating agencies and public filings of issuers. At December 31, 2020 and 2019 the carrying value of pledged securities totaled $184.0 million and $212.8 million, respectively. Gross realized gains on sales of securities were $14.7 million, $0.8 million and $0.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Gross realized losses were $0.1 million, $1.1 million and $1.9 million for the years ended December 31, 2020, 2019 and 2018. The tax applicable to these transactions amounted to $3.1 million, $(79,000), and $(0.4) million for 2020, 2019 and 2018, respectively. Proceeds from sales of securities classified as available for sale amounted to $394.9 million, $90.5 million and $114.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. Net unrealized gains on available for sale securities included in accumulated other comprehensive income (loss) ("AOCI"), net of applicable income taxes, totaled $0.6 million at December 31, 2020. At December 31, 2019 net unrealized gains included in AOCI, net of applicable income taxes, totaled $2.2 million. During 2020 net 126 12 7 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Note 6. Loans The following table summarizes the components of First Guaranty's loan portfolio as of December 31, 2020 and December 31, 2019: The following tables present the age analysis of past due loans at December 31, 2020 and December 31, 2019: December 31, 2020 2019 Balance As % of Category Balance As % of Category (in thousands, except for %) Real Estate: As of December 31, 2020 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans Recorded Investment 90 Days Accruing (in thousands) Real Estate: Construction & land development $ 150,841 Farmland 1- 4 Family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Loans Before Unearned Income Unearned income 26,880 271,236 45,932 824,137 1,319,026 28,335 353,028 148,783 530,146 1,849,172 (5,037) 8.2% 1.4 % 14.7% 2.5% 44.6% 71.4% 1.5% 19.1% 8.0% 28.6% 100.0% $ 172,247 22,741 289,635 23,973 616,536 1,125,132 26,710 268,256 108,868 403,834 1,528,966 (3,476) 11.3% 1.5% 18.9% 1.6% 40.3% 73.6% 1.8% 17.5% 7.1% 26.4% 100.0% Total Loans Net of Unearned Income $ 1,844,135 $ 1,525,490 The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of December 31, 2020 and December 31, 2019 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered. 2020 December 31, (in thousands) 2019 Fixed Floating Total Fixed Floating Total $ 186,252 $ 79,680 $ 265,932 $ 205,596 $ 104,859 $ 310,455 740,358 128,860 146,830 368,259 1,108,617 91,032 92,325 219,892 239,155 509,455 147,502 143,695 286,131 65,713 51,612 795,586 213,215 195,307 $ 1,202,300 $ 631,296 1,833,596 $1,006,248 $ 508,315 1,514,563 15,576 1,849,172 (5,037) $ 1,844,135 14,403 1,528,966 (3,476) $ 1,525,490 One year or less One to five years Five to 15 years Over 15 years Subtotal Nonaccrual loans Total Loans Before Unearned Income Unearned income Total Loans Net of Unearned Income Construction & land development $ 8,088 $ 1,621 $ 9,709 $ 141,132 $ 150,841 $ 1,000 Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 227 6,050 190 15,792 30,347 143 663 1,176 1,982 857 1,084 25,796 26,880 7,207 13,257 257,979 271,236 366 556 45,376 45,932 12,148 27,940 796,197 824,137 — 4,980 366 4,699 22,199 52,546 1,266,480 1,319,026 11,045 3,539 2,557 372 6,468 3,682 3,220 1,548 8,450 24,653 349,808 147,235 28,335 353,028 148,783 521,696 530,146 67 1,856 123 2,046 Total Loans Before Unearned Income $ 32,329 $28,667 $60,996 $1,788,176 1,849,172 $13,091 Unearned income Total Loans Net of Unearned Income (5,037) $ 1,844,135 As of December 31, 2019 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans Recorded Investment 90 Days Accruing (in thousands) Real Estate: Construction & land development $ 760 $ 429 $ 1,189 $ 171,058 $ 172,247 $ 48 Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 6 8,521 - 11,279 20,566 310 2,801 794 3,905 1,274 3,682 - 1,280 12,203 — 6,249 17,528 21,461 277,432 23,973 599,008 22,741 289,635 23,973 616,536 11,634 32,200 1,092,932 1,125,132 4,800 342 266 5,408 5,110 3,143 1,060 9,313 21,600 265,113 107,808 394,521 26,710 268,256 108,868 403,834 - 923 - 1,603 2,574 - 15 50 65 Total Loans Before Unearned Income $ 24,471 $17,042 $41,513 $1,487,453 1,528,966 $ 2,639 Unearned income Total Loans Net of Unearned Income (3,476) $ 1,525,490 As of December 31, 2020, $305.0 million of floating rate loans were at their interest rate floor. At December 31, 2019, $153.3 million of floating rate loans were at their interest rate floor. Nonaccrual loans have been excluded from these totals. The tables above include $15.6 million and $14.4 million of nonaccrual loans for December 31, 2020 and 2019, respectively. See the tables below for more detail on nonaccrual loans. 128 12 9 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT The following is a summary of nonaccrual loans by class at the dates indicated: Purchased Impaired Loans As of December 31, 2020 2019 (in thousands) Real Estate: Construction & land development $ 621 $ 381 Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Nonaccrual Loans 857 2,227 - 7,449 11,154 3,472 701 249 4,422 1,274 2,759 - 4,646 9,060 4,800 327 216 5,343 $ 15,576 $ 14,403 The following table identifies the credit exposure of the loan portfolio, including loans acquired with deteriorated credit quality, by specific credit ratings as of the dates indicated: Non-farm non-residential 756,760 51,355 16,022 As of December 31, 2020 As of December 31, 2019 Pass Special Mention Sub- standard Doubtful Total Pass Special Mention Sub- standard Doubtful Total (in thousands) $ 139,032 $ 10,785 $ 1,024 $ - $ 150,841 $ 163,808 $ 6,180 $ 2,259 $ - $ 172,247 22,822 46 4,012 251,315 7,252 12,669 36,146 1,841 7,945 1,206,075 71,279 41,672 24,180 92 321,957 27,388 147,697 442 4,063 3,683 644 493,834 27,922 8,390 - - - - - - - - - 26,880 18,223 3,177 1,341 271,236 271,392 4,751 13,492 45,932 16,025 805 7,143 824,137 589,800 7,743 18,993 1,319,026 1,059,248 22,656 43,228 28,335 21,529 353,028 262,416 148,783 108,618 48 1,199 180 5,133 4,641 70 530,146 392,563 1,427 9,844 - - - - - - - - - 22,741 289,635 23,973 616,536 1,125,132 26,710 268,256 108,868 403,834 $ 1,699,909 $ 99,201 $ 50,062 $ - $ 1,849,172 $1,451,811 $ 24,083 $53,072 $ - 1,528,966 (5,037) $ 1,844,135 (3,476) $1,525,490 Real Estate: Construction & land development Farmland 1- 4 family Multifamily Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Loans Before Unearned Income Unearned income Total Loans Net of Unearned Income 130 As part of the acquisition of Union Bancshares, Inc. on November 7, 2019 and Premier Bancshares, Inc. on June 16, 2017, First Guaranty purchased credit impaired loans for which there was, at acquisition, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at December 31, 2020 and 2019. As of December 31, 2020 As of December 31, 2019 (in thousands) Real Estate: Construction & land development $ 397 $ 526 Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total - 4,102 900 2,396 7,795 343 1,017 - 1,360 - 6,402 - 2,294 9,222 - 1,198 - 1,198 $ 9,155 $ 10,420 For those purchased loans disclosed above, there was no allowance for loan losses at December 31, 2020 or December 31, 2019. Where First Guaranty can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion is being recognized as interest income over the remaining life of the loan. Where First Guaranty cannot reasonably estimate the cash flows expected to be collected on the loans, it has decided to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. The accretable yield, or income expected to be collected, on the purchased loans above is as follows for the years ended December 31, 2020 and 2019. Year Ended December 31, 2020 Year Ended December 31, 2019 Balance, beginning of period Acquisition accretable yield Accretion Net transfers from nonaccretable difference to accretable yield (in thousands) $ 3,647 $ 30 (785) - Balance, end of period $ 2,892 $ 613 3,367 (831) 498 3,647 13 1 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Note 7. Allowance for Loan Losses A summary of changes in the allowance for loan losses, by loan type, for the years ended December 31, 2020, 2019 and 2018 are as follows: Negative provisions are caused by changes in the composition and credit quality of the loan portfolio. The result is an allocation of the loan loss reserve from one category to another. Real Estate: Construction & land development Farmland 1- 4 family Multifamily Non-farm non- residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Non-Real Estate Total As of December 31, 2020 2019 Beginning Allowance (12/31/19) Charge- Offs Recoveries Provision Ending Allowance (12/31/20) Beginning Allowance (12/31/18) Charge- Offs (in thousands) Recoveries Provision Ending Allowance (12/31/19) $ 423 $ (265 ) $ - $ 871 $ 1,029 $ 581 $ - $ - $ (158) $ 423 50 1,027 1,038 5,277 7,815 - (154) - (550) (969) - 39 - 412 1,598 (60) 462 2,510 978 178 217 10,159 12,980 15,064 20,043 41 911 1,318 4,771 7,622 - (552) - (2,603) (3,155) - 39 - 5 44 9 629 (280) 3,104 3,304 50 1,027 1,038 5,277 7,815 95 (110) 70 126 181 339 (40) - (204) 95 1,909 (265) 128 1,030 2,802 1,909 (879) 1,110 (1,083) - - 724 - 739 2 1,490 2 891 15 (1,190) - 267 246 - 612 1,909 1,163 1,110 (15) - 3,114 (1,458) 922 1,897 4,475 3,154 (2,109) 513 1,556 3,114 $10,929 $ (2,427) $1,139 $14,877 $24,518 $ 10,776 $ (5,264) $ 557 $ 4,860 $10,929 As of December 31, 2018 Beginning Allowance (12/31/17) Charge-Offs Recoveries Provision Ending Allowance (12/31/18) (in thousands) Real Estate: Construction & land development $ 628 $ - $ 3 $ (50) $ Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Non-Real Estate Total 132 5 1,078 994 2,811 5,516 187 2,377 1,125 20 3,709 - (99) - (404) (503) (300) (179) (907) - - 90 20 89 202 26 1,642 216 - 36 (158) 304 2,275 2,407 426 (1,931) 457 (5) (1,386) 1,884 (1,053) 581 41 911 1,318 4,771 7,622 339 1,909 891 15 3,154 $ 9,225 $ (1,889) $ 2,086 $ 1,354 $ 10,776 A summary of the allowance and loans, including loans acquired with deteriorated credit quality, individually and collectively evaluated for impairment are as follows: Real Estate: Construction & land development Farmland 1- 4 family Multifamily Non-farm non- residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Non-Real Estate Total Unearned Income Total Loans Net of Unearned Income As of December 31, 2020 Allowance Individually Evaluated for Purchased Credit- Impairment Allowance Individually Evaluated for Impairment Allowance Collectively Evaluated for Impairment Total Allowance for Credit Losses Loans Individually Evaluated for Purchased Credit- Impairment Loans Individually Evaluated for Impairment Loans Collectively Evaluated for Impairment Total Loans before Unearned Income (in thousands) $ - $ - $ 1,029 $ 1,029 $ - $ 397 $ 150,444 $ 150,841 - 266 - 2,280 2,546 - 97 - - 97 - - - - - - - - - - 462 2,244 978 12,784 17,497 462 2,510 978 15,064 20,043 543 1,480 - 9,800 11,823 - 26,337 26,880 4,102 900 2,396 7,795 265,654 271,236 45,032 45,932 811,941 824,137 1,299,408 1,319,026 181 181 2,531 343 25,461 28,335 2,705 1,490 2 4,378 2,802 1,490 2 4,475 1,544 1,017 - - - - 350,467 148,783 - 353,028 148,783 - 4,075 1,360 524,711 530,146 $ 2,643 $ - $ 21,875 $ 24,518 $ 15,898 $ 9,155 $ 1,824,119 $ 1,849,172 (5,037) $ 1,844,135 13 3 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT As of December 31, 2019 Allowance Individually Evaluated for Purchased Credit- Impairment Allowance Individually Evaluated for Impairment Allowance Collectively Evaluated for Impairment Total Allowance for Credit Losses Loans Individually Evaluated for Purchased Credit- Impairment Loans Individually Evaluated for Impairment Loans Collectively Evaluated for Impairment Total Loans before Unearned Income (in thousands) The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class at December 31, 2020: As of December 31, 2020 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Interest Income Cash Basis (in thousands) Impaired Loans with no related allowance: Real Estate: $ - $ - $ 423 $ 423 $ - $ 526 $ 171,721 $ 172,247 Construction & land development $ - $ - $ - $ - $ - $ - Real Estate: Construction & land development Farmland 1- 4 family Multifamily Non-farm non- residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Non-Real Estate Total Unearned Income Total Loans Net of Unearned Income - 34 - 1,879 1,913 - 111 - - 111 - - - - - - - - - - 50 993 1,038 3,398 5,902 50 1,027 1,038 5,277 7,815 543 1,058 - 12,120 13,721 - 6,402 - 2,294 9,222 22,198 282,175 23,973 22,741 289,635 23,973 602,122 616,536 1,102,189 1,125,132 95 95 4,030 - 22,680 26,710 1,798 1,110 - 3,003 1,909 1,110 - 3,114 2,981 1,198 - - - - 264,077 108,868 - 268,256 108,868 - 7,011 1,198 395,625 403,834 $ 2,024 $ - $ 8,905 $ 10,929 $ 20,732 $ 10,420 $ 1,497,814 $ 1,528,966 (3,476) $ 1,525,490 As of December 31, 2020, 2019 and 2018, First Guaranty had loans totaling $15.6 million, $14.4 million and $8.7 million, respectively, not accruing interest. As of December 31, 2020, 2019 and 2018, First Guaranty had loans past due 90 days or more and still accruing interest totaling $13.1 million, $2.6 million and $0.1 million, respectively. The average outstanding balance of nonaccrual loans in 2020 was $19.8 million compared to $12.0 million in 2019 and $8.9 million in 2018. As of December 31, 2020, First Guaranty has no outstanding commitments to advance additional funds in connection with impaired loans. Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Impaired Loans with no related allowance Impaired Loans with an allowance recorded: Real estate: Construction & land development Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 543 511 - 1,227 2,281 552 534 - 1,227 2,313 2,531 2,661 601 - 3,132 5,413 601 - 3,262 5,575 - - 969 - 8,573 9,542 - 943 - 943 - - 969 - 8,619 9,588 - 943 - 943 - - - - - - - - - - - - 266 - 2,280 2,546 - 97 - 97 543 527 - 1,218 2,288 2,594 821 - 3,415 5,703 - - 969 - 7,550 8,519 - 981 - 981 - - - 80 80 - 48 - 48 - - - 72 72 - 47 - 47 128 119 - - 5 - 60 65 - 79 - 79 - - 5 - 80 85 - 57 - 57 Total Impaired Loans with an allowance recorded 10,485 10,531 2,643 9,500 144 142 Total Impaired Loans $15,898 $16,106 $ 2,643 $15,203 $ 272 $ 261 134 13 5 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class at December 31, 2019: As of December 31, 2019 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Interest Income Cash Basis (in thousands) Impaired Loans with no related allowance: Real Estate: Construction & land development $ - $ - $ - $ - $ - $ - Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Impaired Loans with no related allowance Impaired Loans with an allowance recorded: Real estate: Construction & land development Farmland 1- 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Impaired Loans with an allowance recorded 543 541 - 8,307 9,391 4,030 1,962 552 541 - 8,307 9,400 4,186 1,962 5,992 15,383 6,148 15,548 - - 517 - 3,813 4,330 - - 517 - 4,162 4,679 - - 1,019 1,019 - 1,019 5,349 - 1,019 5,698 - - - - - - - - - - - - 34 - 1,879 1,913 - 111 - 111 2,024 550 544 - 9,940 11,034 4,031 1,788 5,819 16,853 - - 522 - 4,134 4,656 - 1,039 - 1,039 5,695 - 27 - 673 700 12 81 93 793 - - - - 194 194 - 81 - 81 275 - 22 - 688 710 - 67 67 777 - - - - 212 212 - 77 - 77 289 Total Impaired Loans $ 20,732 $ 21,246 $ 2,024 $ 22,548 $ 1,068 $ 1,066 Troubled Debt Restructurings A Troubled Debt Restructuring ("TDR") is considered such if the lender for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to First Guaranty's TDRs were concessions on either the interest rate charged or the amortization. The effect of the modifications to First Guaranty was a reduction in interest income. These loans have an allocated reserve in First Guaranty's allowance for loan losses. First Guaranty restructured one loan that is considered TDR in the years ended December 31, 2020 and 2019. At December 31, 2020, First Guaranty had one outstanding TDR. Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020, financial institutions have the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. First Guaranty elected to adopt these provisions of the CARES Act. The following table is an age analysis of TDRs as of December 31, 2020 and December 31, 2019: December 31, 2020 December 31, 2019 Accruing Loans 30-89 Days Past Due Current Nonaccrual Total TDRs Accruing Loans 30-89 Days Current Past Due Nonaccrual $ (in thousands) $ - - - - $ - - - - 3,591 3,591 3,591 3,591 - - - - - - - - $ 3,591 $ 3,591 - - - - - - - - - - - $ $ - - - - - - - - - - - $ $ - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - $ - $ Total TDRs $ - - - - - - - - - - - Real Estate: Construction & land development $ Farmland 1- 4 Family Multifamily Non-farm non residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total The following table discloses TDR activity for the twelve months ended December 31, 2020. Trouble Debt Restructured Loans Activity Twelve Months Ended December 31, 2020 Beginning balance (December 31, 2019) Charge-Offs post- modification Transferred to ORE New TDRs Paydowns Construction to permanent financing Restructured to market terms Other adjustments Ending balance (December 31, 2020) (in thousands) Real Estate: Construction & land development Farmland 1- 4 family Multifamily Non-farm non- residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Impaired Loans with no related allowance $ - $ - $ - $ - $ - $ - $ - $ - $ - - - - - - - - - - - - - 3,613 3,613 - - - - - - - - - - - - - - - - - - - - - - - - - (22) (22) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,591 3,591 - - - - $ - $ 3,613 $ - $ - $ (22) $ - $ - $ - $ $3,591 There were no commitments to lend additional funds to debtors whose terms have been modified in a troubled debt restructuring at December 31, 2020. 136 13 7 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Note 8. Premises and Equipment The components of premises and equipment at December 31, 2020 and 2019 are as follows: Note 11. Deposits A schedule of maturities of all time deposits are as follows: Land Bank premises Furniture and equipment Construction in progress Acquired value Less: accumulated depreciation December 31, 2020 2019 (in thousands) $ 15,180 $ 15,180 40,906 28,511 13,562 98,159 38,267 40,536 27,255 9,534 92,505 36,041 Net book value $ 59,892 $ 56,464 Depreciation expense amounted to $2.8 million, $2.3 million and $2.1 million for 2020, 2019 and 2018, respectively. Interest cost capitalized as a construction cost was $55,000, $91,000 and $54,000 for 2020, 2019 and 2018. Note 9. Goodwill and Other Intangible Assets Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. Goodwill represents the purchase price over the fair value of net assets acquired from the Homestead Bancorp in 2007, Premier Bancshares, Inc. in 2017 and Union Bancshares, Incorporated in 2019. No impairment charges have been recognized since acquisition. Goodwill totaled $12.9 million at December 31, 2020 and 2019, respectively. The following table summarizes intangible assets subject to amortization. December 31, 2020 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in thousands) Core deposit intangibles $ 16,266 $ 10,451 Loan servicing assets Total 1,826 1,054 $ 18,092 $ 11,505 $ 5,815 772 $ 6,587 $ 16,266 $ 9,739 1,558 $ 17,824 919 $ 10,658 $ 6,527 639 $ 7,166 The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions. The weighted-average amortization period remaining for the core deposit intangibles is 10.0 years. Amortization expense relating to purchase accounting intangibles totaled $0.7 million, $0.4 million, and $0.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. Amortization expense of the core deposit intangible assets for the next five years is as follows: For the Years Ended Estimated Amortization Expense December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 138 (in thousands) $644 $576 $576 $576 $576 Note 10. Other Real Estate Other real estate owned consists of the following at the dates indicated: Real Estate Owned Acquired by Foreclosure: Residential Construction & land development Non-farm non-residential Total Other Real Estate Owned and Foreclosed Property Allowance for Other Real Estate Owned losses Net Other Real Estate Owned and Foreclosed Property December 31, 2020 2019 (in thousands) $ 131 $ 559 311 2,203 669 3,651 2,645 4,879 (405) - $ 2,240 $ 4,879 2021 2022 2023 2024 2025 and thereafter December 31, 2020 (in thousands) $ 355,093 125,678 108,380 113,745 22,733 Total $ 725,629 The table above includes $3.4 million in brokered deposits for December 31, 2020. The aggregate amount of jumbo time deposits, each with a minimum denomination of $250,000 totaled $248.8 million and $290.3 million at December 31, 2020 and 2019, respectively. Note 12. Borrowings Short-term borrowings are summarized as follows: December 31, 2020 December 31, 2019 (in thousands) Federal Home Loan Bank advances $ 50,000 $ 13,079 Repurchase agreements 6,121 6,840 Line of credit - - Total short-term borrowings $ 56,121 $ 19,919 First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long- term basis to meet liquidity needs. First Guaranty had $56.1 million in short-term borrowings outstanding at December 31, 2020 compared to $19.9 million outstanding at December 31, 2019. First Guaranty has an available line of credit of $6.5 million, with no outstanding balance at December 31, 2020. Available lines of credit totaled $297.2 million at December 31, 2020 and $278.8 million at December 31, 2019. The following schedule provides certain information about First Guaranty's short-term borrowings for the periods indicated: December 31, 2020 2019 2018 (in thousands, except for %) Outstanding at year end $56,121 $ 19,919 $ - Maximum month-end outstanding $57,048 $19,919 Average daily outstanding $48,277 $ 3,320 $37,000 $ 7,119 Weighted average rate during the year Weighted average rate at year end 0.95 % 2.00% 2.21% 0.89 % 2.00% -% Long-term debt is summarized as follows: Long-term Federal Home Loan Bank advance, fixed at 2.12%, totaled $3.4 million at December 31, 2020 and $3.5 million at December 31, 2019. This advance was acquired in the Union acquisition and has a contractual maturity date of September 1, 2037. Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 25 basis points (3.00%), totaled $14.0 million at December 31, 2020. First Guaranty pays $697,715 principal plus interest quarterly. This loan was renewed in December 2020 and has a contractual maturity date of December 22, 2025. This long-term debt is secured by a pledge of 85% (4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary). This senior long-term debt was priced at floating 3-month LIBOR plus 250 basis points (4.61%), totaled $16.9 million at December 31, 2019. This loan was originated in December 2015. Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 70 basis points (3.00%), totaled $28.4 million at December 31, 2020 and $31.7 million at December 31, 2019. First Guaranty pays $812,500 principal plus interest quarterly. This loan was renewed in November 2019 and has a contractual maturity date of November 7, 2024. This long-term debt is secured by a pledge of 85% (4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary). Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points (4.00%), totaled $14.8 million at December 31, 2020 and $14.7 million at December 31, 2019. First Guaranty pays interest semi-annually for the Fixed Interest Rate Period and quarterly for the Floating Interest Rate Period. The Note is unsecured and ranks junior in right of payment to any senior indebtedness and obligations to general and secured creditors. The Note was originated in December 2015 and is scheduled to mature on December 21, 2025. Subject to limited exceptions, First Guaranty cannot repay the Note until after December 21, 2020. The Note qualifies for treatment as Tier 2 capital for regulatory capital purposes. First Guaranty maintains a revolving line of credit for $6.5 million with an availability of $6.5 million at December 31, 2020. This line of credit is secured by a pledge of 13.2% (735,745 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary) and is priced at 4.25%. At December 31, 2020, letters of credit issued by the FHLB totaling $365.8 million were outstanding and carried as off-balance sheet items, all of which expire by 2024. At December 31, 2019, letters of credit issued by the FHLB totaling $355.2 million were outstanding and carried as off-balance sheet items, all of which expire by 2024. The letters of credit are solely used for pledging towards public fund deposits. The FHLB has a blanket lien on substantially all of the loans in First Guaranty's portfolio which is used to secure borrowing availability from the FHLB. First Guaranty has obtained a subordination agreement from the FHLB on First Guaranty's farmland, agricultural, and commercial and industrial loans. These loans are available to be pledged for additional reserve liquidity. 13 9 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT As of December 31, 2020 obligations on long-term advances from FHLB, senior long-term debt and junior subordinated debentures totaled $60.5 million. The scheduled payments are as follows: First Guaranty Bank's actual capital amounts and ratios as of December 31, 2020 and 2019 are presented in the following table. 2021 2022 2023 2024 2025 2026 and thereafter Subtotal Debt issuance costs Total Long-term Advances from FHLB Senior Long-term Debts (in thousands) Junior Subordinated Debentures $ - $ 4,531 $ - - - - - 3,366 6,041 6,041 22,291 3,504 - - - - 15,000 - $ 3,366 $ 42,408 $ 15,000 - (42) (223) $ 3,366 $ 42,366 $ 14,777 Note 13. Capital Requirements First Guaranty Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on First Guaranty's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of December 31, 2020 and 2019, that the Bank met all capital adequacy requirements. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. First Guaranty Bank's capital conservation buffer was 4.22% at December 31, 2020. In addition, as a result of the legislation, the federal banking agencies have developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the new Community Bank Leverage Ratio at 9%. Pursuant to the CARES Act, the federal banking agencies set the Community Bank Leverage Ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the Community Bank Leverage Ratio will increase to 8.5% for the calendar year. Community banks will have until Jan. 1, 2022, before the Community Bank Leverage Ratio requirement will return to 9%. A financial institution can elect to be subject to this new definition. The new rule took effect on January 1, 2020. The Bank did not elect to follow the Community Bank Leverage Ratio. As of December 31, 2020, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that Management believes have changed the Bank's category. 140 Actual Minimum Capital Requirements Minimum to be Well Capitalized Under Action Provisions Amount Ratio Amount Ratio Amount Ratio (in thousands, except for %) December 31, 2020 Total Risk-Based Capital: Tier 1 Capital: Tier 1 Leverage Capital: $ 233,391 12.22 % $ 152,805 $ 209,507 10.97 % $ 114,604 $ 209,507 8.58 % $ 97,683 Common Equity Tier One Capital: $ 209,507 10.97 % $ 85,953 December 31, 2019 Total Risk-Based Capital: Tier 1 Capital: Tier 1 Leverage Capital: $ 213,962 12.61% $ 135,697 $ 203,034 11.96% $ 101,773 $ 203,034 10.44% $ 77,771 Common Equity Tier One Capital: $ 203,034 11.96% $ 76,329 8.00 % 6.00 % 4.00 % 4.50 % 8.00% 6.00% 4.00% 4.50% $ 191,006 10.00 % $ 152,805 $ 122,104 $ 124,154 8.00 % 5.00 % 6.50 % $ 169,621 10.00% $ 135,697 $ 97,214 $ 110,254 8.00% 5.00% 6.50% Note 14. Dividend Restrictions The Federal Reserve Bank ("FRB") has stated that, generally, a bank holding company should not maintain a rate of distributions to shareholders unless its available net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. As a Louisiana corporation, First Guaranty is restricted under the Louisiana corporate law from paying dividends under certain conditions. First Guaranty Bank may not pay dividends or distribute capital assets if it is in default on any assessment due to the FDIC. First Guaranty Bank is also subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution. In addition, under the Louisiana Banking Law, dividends may not be paid if it would reduce the unimpaired surplus below 50% of outstanding capital stock in any year. The Bank is restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions for the State of Louisiana. Dividends payable by the Bank in 2021 without permission will be limited to 2021 earnings plus the undistributed earnings of $5.7 million from 2020. Accordingly, at January 1, 2021, $223.1 million of First Guaranty's equity in the net assets of the Bank was restricted. In addition, dividends paid by the Bank to First Guaranty would be prohibited if the effect thereof would cause the Bank's capital to be reduced below applicable minimum capital requirements. Note 15. Related Party Transactions In the normal course of business, First Guaranty and its subsidiary, First Guaranty Bank, have loans, deposits and other transactions with its executive officers, directors, affiliates and certain business organizations and individuals with which such persons are associated. These transactions are completed with terms no less favorable than current market rates. An analysis of the activity of loans made to such borrowers during the year ended December 31, 2020 and 2019 follows: December 31, 2020 2019 (in thousands) Balance, beginning of year $ 61,820 $ 63,907 Net Increase (Decrease) Balance, end of year 17,579 (2,087) $ 79,399 $ 61,820 Unfunded commitments to First Guaranty and Bank directors and executive officers totaled $40.8 million and $21.6 million at December 31, 2020 and 2019, respectively. At December 31, 2020 First Guaranty and the Bank had deposits from directors and executives totaling $50.3 million. There were no participations in loans purchased from affiliated financial institutions included in First Guaranty's loan portfolio in 2020 or 2019. During the years ended 2020, 2019 and 2018, First Guaranty paid approximately $0.5 million, $0.5 million and $0.3 million, respectively, for printing services and supplies and office furniture and equipment to Champion Industries, Inc., of which Mr. Marshall T. Reynolds, the Chairman of First Guaranty's Board of Directors is Chairman of the Board of Directors and a major shareholder of Champion. On December 21, 2015, First Guaranty issued a $15.0 million subordinated note (the "Note") to Edgar Ray Smith III, a director of First Guaranty. The Note is for a ten-year term (non-callable for first five years) and will bear interest at a fixed annual rate of 4.0% for the first five years of the term and then adjust to a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points for the period of time after the fifth year until redemption or maturity. First Guaranty paid interest of $0.6 million in 2020, 2019 and 2018 for this note. During the years ended 2020, 2019 and 2018, First Guaranty paid approximately $27,000, $0.1 million and $0.2 million, respectively, for the purchase and maintenance of First Guaranty's automobiles to 14 1 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty does not capitalize advertising costs. They are expensed as incurred and are included in other noninterest expense on the Consolidated Statements of Income. Advertising expense was $0.4 million, $0.8 million and $0.9 million for 2020, 2019 and 2018, respectively. Note 18. Income Taxes The Tax Cuts and Jobs Act ("TCJA") signed into law on December 22, 2017, makes broad and complex changes to the U.S. tax code that affected income tax expense in 2017. The TCJA reduced the U.S. federal corporate income tax rate from 35% to 21% beginning January 1, 2018 and also established new tax laws that affect 2018. The following is a summary of the provision for income taxes included in the Consolidated Statements of Income: December 31, 2020 2019 2018 (in thousands, except for %) $ 8,964 $ 3,770 $ 3,929 (3,745) (114) (467) $ 5,219 $ 3,656 $ 3,462 Current Deferred Total The difference between income taxes computed by applying the statutory federal income tax rate and the provision for income taxes in the financial statements is reconciled as follows: December 31, 2020 2019 2018 (in thousands, except for %) 21.0% 21.0% 21.0% $ 5,363 $ 3,758 $ 3,712 (124) (20) (140) 38 (166) (84) $ 5,219 $ 3,656 $ 3,462 Statutory tax rate Federal income taxes at statutory rate Tax exempt municipal income Other Total subsidiaries of Hood Automotive Group, of which William K. Hood, a director of First Guaranty, is President. During the years ended 2020, 2019 and 2018, First Guaranty paid approximately $0.1 million, $69,000 and $0.7 million, respectively, for architectural services in relation to bank branches to Gasaway Gasaway Bankston Architects, of which bank subsidiary board member Andrew B. Gasaway is part owner. During the years ended 2020, 2019 and 2018, First Guaranty paid approximately $0.5 million, $0.3 million and $0.2 million to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance. First Guaranty owns a 40% interest in Centurion and accounts for this investment under the equity method. Note 16. Employee Benefit Plans First Guaranty has an employee savings plan to which employees, who meet certain service requirements, may defer 1% to 20% of their base salaries, 6% of which may be matched up to 100%, at its sole discretion. Contributions to the savings plan were $173,000, $149,000 and $292,000 in 2020, 2019 and 2018, respectively. First Guaranty has an Employee Stock Ownership Plan ("ESOP") which was frozen in 2010. No contributions were made to the ESOP for the years 2020, 2019 or 2018. As of December 31, 2020, the ESOP held 2,770 shares. First Guaranty is in the process of terminating the plan. Note 17. Other Expenses The following is a summary of the significant components of other noninterest expense: December 31, 2020 2019 2018 (in thousands) Other noninterest expense: Legal and professional fees $ 2,919 $ 2,648 $ 2,362 Data processing ATM Fees Marketing and public relations Taxes - sales, capital and franchise Operating supplies Software expense and amortization Travel and lodging Telephone Amortization of core deposits Donations Net costs from other real estate and repossessions Regulatory assessment Other 2,465 1,332 1,046 1,972 1,217 1,456 1,251 1,094 921 674 1,692 1,214 1,329 1,066 562 2,354 1,308 1,119 726 256 712 393 1,653 1,716 2,980 908 193 390 603 422 683 978 208 545 380 186 941 2,536 2,204 Total other noninterest expense $20,724 $16,104 $14,786 142 Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities, and available tax credit carry forwards. Temporary differences between the financial statement and tax values of assets and liabilities give rise to deferred taxes. The significant components of deferred taxes classified in First Guaranty's Consolidated Balance Sheets at December 31, 2020 and 2019 are as follows: Deferred tax assets: Allowance for loan losses Other real estate owned Unrealized losses on available for sale securities Net operating loss Other Gross deferred tax assets Deferred tax liabilities: Depreciation and amortization Core deposit intangibles Unrealized gains on available for sale securities Discount on purchased loans Other December 31, 2020 2019 (in thousands) $ 4,748 $ 1,720 239 257 - 1,190 581 6,758 - 1,282 508 3,767 (1,952) (2,010) (1,214) (1,359) (172) (161) (625) (578) (267) (670) Gross deferred tax liabilities (4,124) (4,884) Net deferred tax assets (liabilities) $ 2,634 $ (1,117) First Guaranty determined that the net deferred tax asset at December 31, 2020 was more likely than not to be realized based on an assessment of all available positive and negative evidence, and therefore no valuation allowance was recorded. Net operating loss carryforwards for income tax purposes were $5.7 million as of December 31, 2020 and $6.1 million in 2019. The carryforwards were acquired in 2017 in the Premier acquisition and expire from 2027 to 2034, and will be utilized subject to annual Internal Revenue Code Section 382 limitations. ASC 740-10, Income Taxes, clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. First Guaranty does not believe it has any unrecognized tax benefits included in its consolidated financial statements. First Guaranty has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. First Guaranty recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in noninterest expense. During the years ended December 31, 2020, 2019 and 2018, First Guaranty did not recognize any interest or penalties in its consolidated financial statements, nor has it recorded an accrued liability for interest or penalty payments. Note 19.  Commitments and Contingencies Off-balance sheet commitments. First Guaranty is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk. Set forth below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at December 31, 2020 and December 31, 2019. December 31, 2020 2019 (in thousands) Contract Amount Commitments to Extend Credit $ 154,047 $ 117,826 Unfunded Commitments under lines of credit 169,151 $ 148,127 Commercial and Standby letters of credit $ 11,728 $ 11,258 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Management's credit evaluation of the counterpart. Collateral requirements vary but may include accounts receivable, inventory, property, plant and equipment, residential real estate and commercial properties. Standby and commercial letters of credit are conditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The majority of these guarantees are short-term, one year or less; however, some guarantees extend for up to three years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. Collateral requirements are the same as on-balance sheet instruments and commitments to extend credit. There were no losses incurred on off-balance sheet commitments in 2020, 2019 or 2018. First Guaranty currently has one new facility under construction with total construction commitment of $11.4 million of which $11.1 million has been incurred as of December 31, 2020. 14 3 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Note 20. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy. Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified Level 3 as of December 31, 2020 includes corporate debt and municipal securities. Impaired loans. Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Other real estate owned. Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") at December 31, 2020 and 2019 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values or recent sales activity for similar assets in the property's market; thus OREO measured at 144 fair value would be classified within either Level 2 or Level 3 of the hierarchy. The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs (Level 3): Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long- lived assets measured at fair value for impairment assessment. The following table summarizes financial assets measured at fair value on a recurring basis as of December 31, 2020 and 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: December 31, 2020 2019 (in thousands) Available for Sale Securities Fair Value Measurements Using: Level 1: Quoted Prices in Active Markets For Identical Assets Level 2: Significant Other Observable Inputs $ 3,000 $ - 209,359 330,539 Level 3: Significant Unobservable Inputs 26,189 9,398 Securities available for sale measured at fair value $ 238,548 $ 339,937 First Guaranty's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While Management believes the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. The change in Level 1 securities available for sale from December 31, 2019 was due principally to a net increase in Treasury bills of $3.0 million. The change in Level 2 securities available for sale from December 31, 2019 was due principally to the transfer of mortgage- backed and municipal securities from the held for sale to available for sale portfolio and the transfer of securities between Level 2 and 3. $6.8 million in corporate securities and $1.4 million in municipal securities were transferred from Level 3 to Level 2 from December 31, 2019 to December 31, 2020. There were no transfers between Level 1 and 2 securities available for sale from December 31, 2019 to December 31, 2020. Level 3 Changes December 31, 2020 2019 (in thousands) Balance, beginning of year $ 9,398 $ 4,761 Total gains or losses (realized/unrealized): Included in earnings Included in other comprehensive income - 256 - 146 Purchases, sales, issuances and settlements, net Transfers in and/or out of Level 3 Balance as of end of year 5,361 4,491 11,174 - $ 26,189 $ 9,398 There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2020. The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of December 31, 2020 and December 31, 2019, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value: December 31, 2020 2019 (in thousands) Fair Value Measurements Using: Impaired Loans Level 1: Quoted Prices in Active Markets For Identical Assets $ Level 2: Significant Other Observable Inputs $ - - - - Level 3: Significant Unobservable Inputs 7,842 4,046 Impaired loans measured at fair value $ 7,842 $ 4,046 Fair Value Measurements Using: Other Real Estate Owned Level 1: Quoted Prices in Active Markets For Identical Assets Level 2: Significant Other Observable Inputs Level 3: Significant Unobservable Inputs Other real estate owned measured at fair value $ - $ - 363 1,877 4,158 721 $ 2,240 $ 4,879 ASC 825-10 provides First Guaranty with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits First Guaranty to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation. First Guaranty has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States. Note 21. Financial Instruments Fair value estimates are generally subjective in nature and are dependent upon a number of significant assumptions associated with each instrument or group of similar instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows and relevant available market information. Fair value information is intended to represent an estimate of an amount at which a financial instrument could be exchanged in a current transaction between a willing buyer and seller engaging in an exchange transaction. However, since there are no established trading markets for a significant portion of First Guaranty's financial instruments, First Guaranty may not be able to immediately settle financial instruments; as such, the fair values are not necessarily indicative of the amounts that could be realized through immediate settlement. In addition, the majority of the financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer. Quoted market prices are used to estimate fair values when available. However, due to the nature of the financial instruments, in many instances quoted market prices are not available. Accordingly, estimated fair values have been estimated based on other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. Fair values are estimated without regard to any premium or discount that may result from concentrations of ownership of financial instruments, possible income tax ramifications or estimated transaction costs. The fair value estimates are subjective in nature and involve matters of significant judgment and, therefore, cannot be determined with precision. Fair values are also estimated at a specific point in time and are based on interest rates and other assumptions at that date. As events change the assumptions underlying these estimates, the fair values of financial instruments will change. Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations of pension and other postretirement benefits, premises and equipment, other real estate, prepaid expenses, the value of long-term relationships with depositors (core deposit intangibles) and other customer relationships, other intangible assets and income tax assets and liabilities. Fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses have not been considered in the estimates. Accordingly, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of First Guaranty. Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the fair values, reasonable comparison of the fair value information with other financial institutions' fair value information cannot necessarily be made. The methods and assumptions used to estimate the fair values of financial instruments are as follows: Cash and due from banks, interest-bearing deposits with banks, federal funds sold and federal funds purchased. These items are generally short-term and the carrying amounts reported in the consolidated balance sheets are a reasonable estimation of the fair values. 14 5 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT Investment Securities. Accrued interest payable. The carrying amounts and estimated fair values of financial instruments at December 31, 2020 were as follows: The carrying amount of accrued interest payable approximates its fair value. Borrowings. The carrying amount of federal funds purchased and other short- term borrowings approximate their fair values. The fair value of First Guaranty's long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy. Other Unrecognized Financial Instruments. The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. Noninterest-bearing deposits are held at cost. The fair values of letters of credit are based on fees charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At December 31, 2020 and 2019 the fair value of guarantees under commercial and standby letters of credit was not material. Fair values are principally based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or the use of discounted cash flow analyses. Loans Held for Sale. Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. These loans are classified within level 3 of the fair value hierarchy. Loans, net. Market values are computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. These loans are classified within level 3 of the fair value hierarchy. Impaired loans. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Cash Surrender of BOLI. The cash surrender value of BOLI approximates fair value. Accrued interest receivable. The carrying amount of accrued interest receivable approximates its fair value. Deposits. Market values are actually computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Deposits are classified within level 3 of the fair value hierarchy. Assets Cash and due from banks Federal funds sold Securities, available for sale Loans held for sale Loans, net Cash surrender value of BOLI Accrued interest receivable Liabilities Deposits Short-term advances from Federal Home Loan Bank Repurchase agreements Accrued interest payable Long-Term advances from Federal Loan Bank Senior long-term debt Junior subordinated debentures 50,000 6,121 5,292 3,366 42,366 14,777 Fair Value Measurements at December 31, 2020 Using Carrying Value Level 1 Level 2 Level 3 Total (in thousands) $ 298,903 $ 298,903 $ 702 238,548 - 1,819,617 5,427 11,933 $ 2,166,318 $ $ - - - - $ 298,903 702 209,359 26,189 238,548 - - - - - - - - - - - - - 1,846,738 1,846,738 5,427 11,933 5,427 11,933 $ 2,179,004 $ 2,179,004 50,000 50,000 6,154 5,292 3,366 42,408 14,452 6,154 5,292 3,366 42,408 14,452 702 3,000 - - - - - - - - - - - $ 146 14 7 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT The carrying amounts and estimated fair values of financial instruments at December 31, 2019 were as follows: Note 24.  Condensed Parent Company Information The following condensed financial information reflects the accounts and transactions of First Guaranty Bancshares, Inc. for the dates indicated: Assets Cash and due from banks Federal funds sold Securities, available for sale Loans held for sale Loans, net Cash surrender value of BOLI Accrued interest receivable Liabilities Deposits Short-term advances from Federal Home Loan Bank Repurchase agreements Accrued interest payable Long-Term advances from Federal Loan Bank Senior long-term debt Junior subordinated debentures 13,079 6,840 6,047 3,533 48,558 14,737 Fair Value Measurements at December 31, 2019 Using Carrying Value Level 1 Level 2 Level 3 Total (in thousands) $ 66,511 $ 66,511 $ 914 914 $ - - - - $ 66,511 914 339,937 86,579 1,514,561 5,288 8,412 $ 1,853,013 $ - - - - - - - - - - - - $ 330,539 86,817 9,398 339,937 - 86,817 - - - - - - - - - - 1,515,277 1,515,277 5,288 8,412 5,288 8,412 $ 1,863,179 $ 1,863,179 13,079 13,079 6,840 6,047 3,533 48,599 14,762 6,840 6,047 3,533 48,599 14,762 First Guaranty Bancshares, Inc. Condensed Balance Sheets Assets Cash Investment in bank subsidiary Other assets Total Assets Liabilities and Shareholders' Equity Senior long-term debt Junior subordinated debentures Other liabilities Total Liabilities Shareholders' Equity December 31, 2020 2019 (in thousands) $ 1,796 $ 633 228,869 5,665 224,677 4,427 $236,330 $229,737 $ 42,366 $ 48,558 14,777 596 57,739 178,591 14,738 406 63,702 166,035 Total Liabilities and Shareholders' Equity $236,330 $229,737 There is no material difference between the contract amount and the estimated fair value of off-balance sheet items that are primarily comprised of short-term unfunded loan commitments that are generally at market prices. First Guaranty Bancshares, Inc. Condensed Statements of Income Note 22.  Concentrations of Credit and Other Risks First Guaranty monitors loan portfolio concentrations by region, collateral type, loan type, and industry on a monthly basis and has established maximum thresholds as a percentage of its capital to ensure that the desired mix and diversification of its loan portfolio is achieved. First Guaranty is compliant with the established thresholds as of December 31, 2020. Personal, commercial and residential loans are granted to customers, most of who reside in northern and southern areas of Louisiana. Although First Guaranty has a diversified loan portfolio, significant portions of the loans are collateralized by real estate located in Tangipahoa Parish and surrounding parishes in Southeast Louisiana. Declines in the Louisiana economy could result in lower real estate values which could, under certain circumstances, result in losses to First Guaranty. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. Approximately 33.0% of First Guaranty's deposits are derived from local governmental agencies at December 31, 2020. These governmental depositing authorities are generally long-term customers. A number of the depositing authorities are under contractual obligation to maintain their operating funds exclusively with First Guaranty. In most cases, First Guaranty is required to pledge securities or letters of credit issued by the Federal Home Loan Bank to the depositing authorities to collateralize their deposits. Under certain circumstances, the 148 withdrawal of all of, or a significant portion of, the deposits of one or more of the depositing authorities may result in a temporary reduction in liquidity, depending primarily on the maturities and/or classifications of the securities pledged against such deposits and the ability to replace such deposits with either new deposits or other borrowings. Public fund deposits totaled $715.3 million at December 31, 2020. Note 23.  Litigation First Guaranty is subject to various legal proceedings in the normal course of its business. First Guaranty assesses its liabilities and contingencies in connection with outstanding legal proceedings. Where it is probable that First Guaranty will incur a loss and the amount of the loss can be reasonably estimated, First Guaranty records a liability in its consolidated financial statements. First Guaranty does not record a loss if the loss is not probable or the amount of the loss is not estimable. First Guaranty is a defendant in a lawsuit alleging overpayment of interest on a loan with a possible loss range of $0.0 million to $0.5 million. Judgment has been rendered against First Guaranty for the full amount, but First Guaranty is exercising its appeal rights. First Guaranty had an accrued liability of $0.1 million at December 31, 2020 related to this lawsuit. First Guaranty is also a defendant in a lawsuit alleging fault for a loss of funds by a customer with a possible loss range of $0.0 million to $1.5 million. No accrued liability has been recorded related to this lawsuit. Operating Income Dividends received from bank subsidiary Net gains on sale of equity securities Other income Total operating income Operating Expenses Interest expense Salaries & Benefits Other expenses Total operating expenses Income before income tax benefit and increase in equity in undistributed earnings of subsidiary 13,878 11,646 Income tax benefit Income before increase in equity in undistributed earnings of subsidiary Increase in equity in undistributed earnings of subsidiary 720 14,598 5,720 494 12,140 2,101 Net Income $ 20,318 $ 14,241 $14,213 14 9 December 31, 2020 2019 2018 (in thousands) $ 17,100 $ 13,982 $11,788 - 332 196 424 - 289 17,432 14,602 12,077 2,197 132 1,225 3,554 1,795 208 953 2,956 1,675 133 916 2,724 9,353 540 9,893 4,320 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bancshares, Inc. Condensed Statements of Cash Flows Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Increase in equity in undistributed earnings of subsidiary Depreciation and amortization Gain on sale of securities Net change in other liabilities Net change in other assets Net cash provided by operating activities Cash flows from investing activities: Proceeds from sales of equity securities Purchases of premises and equipment Cash paid in acquisition Net cash used in investing activities Cash flows from financing activities: Proceeds from long-term debt, net of costs Repayment of long-term debt Common stock issued in private placement Dividends paid Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period December 31, 2020 2019 2018 (in thousands) $ 20,318 $ 14,241 $ 14,213 (5,720) (2,101) (4,320) 92 - 189 (1,301) 80 (196) (444) (601) 43 - 136 1,360 13,578 10,979 11,432 10 1,196 - - (136) (43,383) 10 (42,323) - 32,465 - - - - - (6,191) (3,754) (2,941) — 1,000 (6,234) (5,803) (12,425) 23,908 - (5,636) (8,577) 1,163 633 (7,436) 8,069 2,855 5,214 $ 1,796 $ 633 $ 8,069 Item 9B - Other Information None Item 5 - Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Shares of our common stock are traded on the NASDAQ Global Market under the symbol "FGBI". As of December 31, 2020, there were approximately 1,600 holders of record of our common stock. Our shareholders are entitled to receive dividends when, and if, declared by the Board of Directors, out of funds legally available for dividends. We have paid consecutive quarterly cash dividends on our common stock for each of the last 110 quarters dating back to the third quarter of 1993. The Board of Directors intends to continue to pay regular quarterly cash dividends. The ability to pay dividends in the future will depend on our earnings and financial condition, liquidity and capital requirements, regulatory restrictions, the general economic and regulatory climate and ability to service any equity or debt obligations senior to common stock. There are legal restrictions on the ability of First Guaranty Bank to pay cash dividends to First Guaranty Bancshares, Inc. Under federal and state law, we are required to maintain certain surplus and capital levels and may not distribute dividends in cash or in kind, if after such distribution we would fall below such levels. Specifically, an insured depository institution is prohibited from making any capital distribution to its shareholders, including by way of dividend, if after making such distribution, the depository institution fails to meet the required minimum level for any relevant capital measure including the risk-based capital adequacy and leverage standards. Additionally, under the Louisiana Business Corporation Act, First Guaranty Bancshares, Inc. is prohibited from paying any cash dividends to shareholders if, after the payment of such dividend First Guaranty Bancshares would not be able to pay its debts as they became due in the usual course of business or its total assets would be less than its total liabilities or where net assets are less than the liquidation value of shares that have a preferential right to participate in First Guaranty Bancshares, Inc.'s assets in the event First Guaranty Bancshares, Inc. were to be liquidated. First Guaranty Bancshares, Inc. did not repurchase any of its shares of common stock during 2020. Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosures for the year ended December 31, 2020. Item 9A - Contracts and Procedures Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of First Guaranty's management, including its Chief Executive Officer (Principal Executive Officer) and its Chief Financial Officer (Principal Financial Officer), of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. For further information, see "Management's annual report on internal control over financial reporting" below. There was no change in First Guaranty's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, First Guaranty's internal control over financial reporting. Management's Annual Report on Internal Control over Financial Reporting The Management of First Guaranty Bancshares, Inc. has prepared the consolidated financial statements and other information in our Annual Report in accordance with accounting principles generally accepted in the United States of America and is responsible for its accuracy. The financial statements necessarily include amounts that are based on Management's best estimates and judgments. In meeting its responsibility, Management relies on internal accounting and related control systems. The internal control systems are designed to ensure that transactions are properly authorized and recorded in our financial records and to safeguard our assets from material loss or misuse. Such assurance cannot be absolute because of inherent limitations in any internal control system. Management is responsible for establishing and maintaining the adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13 – 15(f). Under the supervision and with the participation of Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This section relates to Management's evaluation of internal control over financial reporting including controls over the preparation of the schedules equivalent to the basic financial statements and compliance with laws and regulations. Our evaluation included a review of the documentation of controls, evaluations of the design of the internal control system and tests of the effectiveness of internal controls. Based on our evaluation under the framework in Internal Control – Integrated Framework, Management concluded that internal control over financial reporting was effective as of December 31, 2020. First Guaranty's independent registered public accounting firm has also issued an attestation report, which expresses an unqualified opinion on the effectiveness of First Guaranty's internal control over financial reporting as of December 31, 2020. 150 15 1 #1 Best Small Bank in the U.S.FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT First Guaranty Bank CORPORATE INFORMATION ANNUAL MEETING The Annual Meeting of Shareholders will convene at 2:00 PM Central Daylight Saving Time (CDT) on Thursday, May 20, 2021 in the FGB Center, 206 S. Orange Street, Hammond, LA 70403 CORPORATE HEADQUARTERS First Guaranty Square 400 East Thomas Street Hammond, Louisiana 70401-3320 Telephone: (888) 375-3093 SHAREHOLDER SERVICES First Guaranty Bank Post Office Box 2009 Hammond, Louisiana 70404-2009 Contact: Vanessa R. Drew Telephone: (985) 375-0343 Email: investorrelations@fgb.net CERTIFIED PUBLIC ACCOUNTANTS Castaing, Hussey & Lolan, LLC New Iberia, Louisiana FINANCIAL AND GENERAL INFORMATION Persons seeking financial or other information about the Company are invited to contact: Eric J. Dosch Chief Financial Officer, Treasurer and Secretary First Guaranty Bancshares, Inc. Post Office Box 2009 Hammond, Louisiana 70404-2009 Telephone: (985) 375-0308 NOTICE TO SHAREHOLDERS A copy of the First Guaranty Bancshares, Inc. Annual Report filed on Form 10-K with the U.S. Securities and Exchange Commission can be accessed through the Company’s website at www.fgb.net or is available without charge by writing. 152 FIRST GUARANTY BANCSHARES, INC. 2020 ANNUAL REPORT 

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