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First Guaranty Bancshares, Inc. - Quarter Report: 2022 March (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2022

or

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

For the transition period from __________ to __________

Commission File Number: 001-37621

fgbi-20220331_g1.jpg

FIRST GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
 
Louisiana26-0513559
(State or other jurisdiction incorporation or organization)(I.R.S. Employer Identification Number)
  
400 East Thomas Street 
Hammond,Louisiana70401
(Address of principal executive offices)(Zip Code)
  
(985)345-7685
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $1 par valueFGBIThe Nasdaq Stock Market LLC
Depository Shares (each representing a 1/40th interest in a share of 6.75% Series A Fixed-Rate Non-Cumulative perpetual preferred stock)FGBIPThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  ☒ No ☐

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




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

As of May 9, 2022 the registrant had 10,716,796 shares of $1 par value common stock outstanding.




Table of Contents
  Page
 4
   
   
 
   
 
   
 
 
   
 
   
 
   
   
   
   
   
   
   
  

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PART I. FINANCIAL INFORMATION
Item 1.     Consolidated Financial Statements
FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited) 
(in thousands, except share data)March 31, 2022December 31, 2021
Assets  
Cash and cash equivalents:  
Cash and due from banks$132,209 $261,749 
Federal funds sold533 183 
Cash and cash equivalents132,742 261,932 
Investment securities:  
Available for sale, at fair value133,233 210,620 
Held to maturity, at cost (estimated fair value of $292,013 and $150,585 respectively)
319,562 153,536 
Investment securities452,795 364,156 
Federal Home Loan Bank stock, at cost1,360 1,359 
Loans held for sale— — 
Loans, net of unearned income2,231,119 2,159,359 
Less: allowance for loan and lease losses24,144 24,029 
Net loans2,206,975 2,135,330 
Premises and equipment, net58,371 58,637 
Goodwill12,900 12,900 
Intangible assets, net5,520 5,922 
Other real estate, net1,854 2,072 
Accrued interest receivable12,579 12,047 
Other assets25,027 23,765 
Total Assets$2,910,123 $2,878,120 
Liabilities and Shareholders' Equity  
Deposits:  
Noninterest-bearing demand$555,966 $532,578 
Interest-bearing demand1,299,366 1,275,544 
Savings205,578 201,699 
Time563,025 586,671 
Total deposits2,623,935 2,596,492 
Short-term borrowings10,000 — 
Repurchase agreements6,103 6,439 
Accrued interest payable3,584 4,480 
Long-term advances from Federal Home Loan Bank— 3,208 
Senior long-term debt24,359 25,170 
Junior subordinated debentures14,830 14,818 
Other liabilities5,560 3,624 
Total Liabilities2,688,371 2,654,231 
Shareholders' Equity  
Preferred stock, Series A - $1,000 par value - 100,000 shares authorized
  
   Non-cumulative perpetual; 34,500 shares issued and outstanding
33,058 33,058 
Common stock, $1 par value - 100,600,000 shares authorized and 10,716,796 shares issued
10,717 10,717 
Surplus130,093 130,093 
Retained earnings61,942 56,654 
Accumulated other comprehensive (loss) income(14,058)(6,633)
Total Shareholders' Equity221,752 223,889 
Total Liabilities and Shareholders' Equity$2,910,123 $2,878,120 
See Notes to Consolidated Financial Statements
-4-


FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 
 Three Months Ended March 31,
(in thousands, except share data)20222021
Interest Income:  
Loans (including fees)$28,038 $23,750 
Deposits with other banks102 66 
Securities (including FHLB stock)2,339 1,525 
Total Interest Income30,479 25,341 
Interest Expense:  
Demand deposits2,276 1,595 
Savings deposits61 52 
Time deposits2,755 3,520 
Borrowings404 572 
Total Interest Expense5,496 5,739 
Net Interest Income24,983 19,602 
Less: Provision for loan losses632 608 
Net Interest Income after Provision for Loan Losses24,351 18,994 
Noninterest Income:  
Service charges, commissions and fees777 721 
ATM and debit card fees823 843 
Net (losses) gains on securities(17)95 
Net (losses) gains on sale of loans(1)34 
Other380 633 
Total Noninterest Income1,962 2,326 
Noninterest Expense:  
Salaries and employee benefits8,980 7,535 
Occupancy and equipment expense2,201 2,321 
Other5,570 5,132 
Total Noninterest Expense16,751 14,988 
Income Before Income Taxes9,562 6,332 
Less: Provision for income taxes1,977 1,309 
Net Income7,585 5,023 
Less: Preferred stock dividends582 — 
Net Income Available to Common Shareholders$7,003 $5,023 
Per Common Share: 1
  
Earnings$0.65 $0.47 
Cash dividends paid$0.16 $0.15 
Weighted Average Common Shares Outstanding10,716,796 10,716,796 
See Notes to Consolidated Financial Statements
1All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021.





-5-


FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

 Three Months Ended March 31,
(in thousands)20222021
Net Income$7,585 $5,023 
Other comprehensive income:  
Unrealized (losses) gains on securities:  
Unrealized holding (losses) gains arising during the period(9,416)(7,196)
Reclassification adjustments for losses (gains) included in net income17 (95)
Change in unrealized (losses) gains on securities(9,399)(7,291)
Tax impact1,974 1,531 
Other comprehensive (loss) income(7,425)(5,760)
Comprehensive Income (Loss)$160 $(737)
See Notes to Consolidated Financial Statements
 
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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) 

 
Preferred Stock $1,000 Par
Common Stock
$1 Par
SurplusRetained
Earnings
Accumulated
Other Comprehensive
Income/(Loss)
Total
(in thousands, except per share data)
     
Balance December 31, 2020$ $10,717 $130,093 $37,134 $647 $178,591 
Net income— — — 5,023 — 5,023 
Other comprehensive income (loss)— — — — (5,760)(5,760)
Cash dividends on common stock ($0.15 per share)1
— — — (1,559)— (1,559)
Balance March 31, 2021 (unaudited)$ $10,717 $130,093 $40,598 $(5,113)$176,295 
Balance December 31, 2021$33,058 $10,717 $130,093 $56,654 $(6,633)$223,889 
Net income— — — 7,585 — 7,585 
Other comprehensive income (loss)— — — — (7,425)(7,425)
Preferred stock dividends— — — (582)— (582)
Cash dividends on common stock ($0.16 per share)
— — — (1,715)— (1,715)
Balance March 31, 2022 (unaudited)$33,058 $10,717 $130,093 $61,942 $(14,058)$221,752 
See Notes to Consolidated Financial Statements
1All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021.



-7-


FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 
 Three Months Ended March 31,
(in thousands)20222021
Cash Flows From Operating Activities  
Net income$7,585 $5,023 
Adjustments to reconcile net income to net cash provided by operating activities:  
Provision for loan losses632 608 
Depreciation and amortization630 1,173 
Amortization/Accretion of investments164 17 
Loss (gain) on sale/call of securities17 (95)
Loss (gain) on sale of assets(42)
Repossessed asset write downs, gains and losses on dispositions54 
FHLB stock dividends(1)(6)
Change in other assets and liabilities, net(711)(1,286)
Net Cash Provided By Operating Activities8,326 5,446 
Cash Flows From Investing Activities  
Proceeds from maturities, calls and sales of AFS securities3,426 210,092 
Funds invested in AFS securities(101,807)(199,375)
Proceeds from sale/redemption of Federal Home Loan Bank stock— 2,160 
Net increase in loans(70,752)(121,416)
Purchase of premises and equipment(533)(1,008)
Proceeds from sales of premises and equipment— 
Proceeds from sales of other real estate owned686 212 
Net Cash Used In Investing Activities(168,980)(109,327)
Cash Flows From Financing Activities  
Net increase in deposits27,443 148,352 
Net increase (decrease) in federal funds purchased and short-term borrowings9,664 (49,916)
Repayment of long-term borrowings(3,346)(1,551)
Dividends paid on preferred stock(582)— 
Dividends paid on common stock(1,715)(1,559)
Net Cash Provided By Financing Activities31,464 95,326 
Net Decrease In Cash and Cash Equivalents(129,190)(8,555)
Cash and Cash Equivalents at the Beginning of the Period261,932 299,605 
Cash and Cash Equivalents at the End of the Period$132,742 $291,050 
Noncash Activities:  
Acquisition of real estate in settlement of loans$477 $— 
Transfer of securities from AFS to HTM$176,181 $160,014 
Cash Paid During The Period:  
Interest on deposits and borrowed funds$6,392 $6,560 
Federal income taxes$— $2,000 
State income taxes$— $— 
 See Notes to the Consolidated Financial Statements.
-8-


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. ("First Guaranty") thereto should be read in conjunction with the audited consolidated financial statements and note disclosures for First Guaranty previously filed with the Securities and Exchange Commission in First Guaranty's Annual Report on Form 10-K for the year ended December 31, 2021.
 
The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc. and its wholly owned subsidiary First Guaranty Bank (the "Bank"). All significant intercompany balances and transactions have been eliminated in consolidation.
 
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations at March 31, 2022 and for the three month periods ended March 31, 2022 and 2021 are not necessarily indicative of the results expected for the full year or any other interim period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan and lease losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of investment securities.
-9-


Note 2. Recent Accounting Pronouncements

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






-10-


Note 3. Securities
 
A summary comparison of securities by type at March 31, 2022 and December 31, 2021 is shown below. 

 March 31, 2022December 31, 2021
(in thousands)Amortized CostGross
Unrealized Gains
Gross
Unrealized Losses
Fair ValueAmortized CostGross Unrealized GainsGross
Unrealized Losses
Fair Value
Available for sale:        
U.S. Treasuries$101,580 $— $(1,586)$99,994 $— $— $— $— 
U.S. Government Agencies— — — — 116,733 — (623)116,110 
Corporate debt securities16,750 286 (71)16,965 79,344 732 (1,851)78,225 
Municipal bonds15,221 641 (95)15,767 15,543 156 — 15,699 
Mortgage-backed securities523 — (16)507 576 10 — 586 
Total available for sale securities$134,074 $927 $(1,768)$133,233 $212,196 $898 $(2,474)$210,620 
Held to maturity:        
U.S. Government Agencies$264,718 $— $(25,474)$239,244 $153,536 $— $(2,951)$150,585 
Corporate debt securities54,844 (2,076)52,769 — — — — 
Total held to maturity securities$319,562 $1 $(27,550)$292,013 $153,536 $ $(2,951)$150,585 
 
First Guaranty designated available for sale U.S. Government Agency securities and corporate debt securities for held to maturity status in the first quarter of 2022. The U.S. Government Agency securities had and an amortized cost of $116.7 million and a corresponding fair value of $111.0 million. The corporate securities had an amortized cost of $59.4 million and a corresponding fair value of $54.8 million. The net unrealized loss net of taxes at the date of transfer was $8.2 million.

The fair value of the held to maturity securities at the date of transfer becomes the securities' new cost basis. The unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the unamortized holding loss reported in accumulated other comprehensive income will directly offset the effect on interest income from the accretion of the reduced amortized cost for the transferred securities. Because of this transfer, the total losses less than 12 months and greater than 12 months reported in the table below will not agree to the unrealized losses reported in the inventory of held to maturity securities. The inventory table reports unrealized gains and losses based upon the transferred securities adjusted cost basis and current fair value. The reporting of losses less than 12 months and greater than 12 months represents that actual period of time that these securities have been in an unrealized loss position and the securities amortized cost basis as if the transfer did not occur.


-11-


The scheduled maturities of securities at March 31, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to calls or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below:
 
 At March 31, 2022
(in thousands)Amortized CostFair Value
Available for sale:  
Due in one year or less$51,257 $50,855 
Due after one year through five years54,287 53,154 
Due after five years through 10 years20,010 20,414 
Over 10 years7,997 8,303 
Subtotal133,551 132,726 
Mortgage-backed securities523 507 
Total available for sale securities$134,074 $133,233 
Held to maturity:  
Due in one year or less$— $— 
Due after one year through five years351 307 
Due after five years through 10 years73,956 70,056 
Over 10 years245,255 221,650 
Total held to maturity securities$319,562 $292,013 
 
At March 31, 2022, $274.2 million of First Guaranty's securities were pledged to secure public funds deposits and borrowings. The pledged securities had a market value of $252.6 million as of March 31, 2022.

-12-



The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at March 31, 2022.

  At March 31, 2022 
 Less Than 12 Months12 Months or MoreTotal
(in thousands)Number
of Securities
Fair ValueGross
Unrealized
Losses
Number
of Securities
Fair ValueGross
Unrealized
Losses
Number
of Securities
Fair ValueGross
Unrealized Losses
Available for sale:         
U.S. Treasuries$99,994 $(1,586)— $— $— $99,994 $(1,586)
Corporate debt securities3,429 (71)— — — 3,429 (71)
Municipal bonds33 2,784 (95)— — — 33 2,784 (95)
Mortgage-backed securities498 (16)— 506 (16)
Total available for sale securities44 $106,705 $(1,768)6 $8 $ 50 $106,713 $(1,768)
Held to maturity:         
U.S. Government Agencies29 $239,244 $(25,474)— $— $— 29 $239,244 $(25,474)
Corporate debt securities58 52,522 (2,076)— — — 58 52,522 (2,076)
Total held to maturity securities87 $291,766 $(27,550) $ $ 87 $291,766 $(27,550)

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, 2021. 

  At December 31, 2021 
 Less Than 12 Months12 Months or MoreTotal
(in thousands)Number
of Securities
Fair ValueGross
Unrealized
Losses
Number
of Securities
Fair ValueGross
Unrealized Losses
Number
of Securities
Fair ValueGross
Unrealized Losses
Available for sale:         
U.S. Treasuries— $— $— — $— $— — $— $— 
U.S. Government Agencies13 116,110 (623)— — — 13 116,110 (623)
Corporate debt securities61 61,551 (1,677)445 (174)63 61,996 (1,851)
Municipal bonds66 — — — — 66 — 
Mortgage-backed securities— — — — — 
Total available for sale securities75 $177,727 $(2,300)8 $454 $(174)83 $178,181 $(2,474)
Held to maturity:
U.S. Government Agencies16 $150,585 $(2,951)— $— $— 16 $150,585 $(2,951)
Total held to maturity securities16 $150,585 $(2,951) $ $ 16 $150,585 $(2,951)

As of March 31, 2022, 137 of First Guaranty's debt securities had unrealized losses totaling 6.9% of the individual securities' amortized cost basis and 6.5% of First Guaranty's total amortized cost basis of the investment securities portfolio. Six of the 137 securities had been in a continuous loss position for over 12 months at such date. The six securities had an aggregate amortized cost basis of $8,000 and an unrealized loss of $200 at March 31, 2022. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery.

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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 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 were no securities with an other-than-temporary impairment loss at March 31, 2022. 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 were no other-than-temporary impairment losses recognized on securities during the three months ended March 31, 2022 and 2021.

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 three months ended March 31, 2022 and 2021:

(in thousands)Three Months Ended
March 31, 2022
Three Months Ended
March 31, 2021
Beginning balance of credit losses at end of prior year$— $100 
Other-than-temporary impairment credit losses on securities not previously OTTI— — 
Increases for additional credit losses on securities previously determined to be OTTI— — 
Reduction for increases in cash flows— — 
Reduction due to credit impaired securities sold or fully settled— (100)
Ending balance of cumulative credit losses recognized in earnings at end of period$ $ 
 
In the first three months of 2022 there were no other-than-temporary impairment credit losses on securities for which we 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 March 31, 2022, First Guaranty's exposure to bond issuers that exceeded 10% of shareholders' equity is below: 

 At March 31, 2022
(in thousands)Amortized CostFair Value
U.S. Government Treasuries (U.S.)$101,580 $99,994 
Federal Home Loan Bank (FHLB)32,021 30,149 
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)95,244 82,147 
Federal Farm Credit Bank (FFCB)137,973 127,452 
Total$366,818 $339,742 

-14-


Note 4. Loans
 
The following table summarizes the components of First Guaranty's loan portfolio as of March 31, 2022 and December 31, 2021: 

 March 31, 2022December 31, 2021
(in thousands except for %)BalanceAs % of CategoryBalanceAs % of Category
Real Estate:    
Construction & land development$200,504 9.0 %$174,334 8.1 %
Farmland31,840 1.4 %31,810 1.5 %
1- 4 Family293,773 13.1 %288,347 13.3 %
Multifamily69,264 3.1 %65,848 3.0 %
Non-farm non-residential894,105 40.0 %886,407 40.9 %
Total Real Estate1,489,486 66.6 %1,446,746 66.8 %
Non-Real Estate:    
Agricultural28,850 1.3 %26,747 1.2 %
Commercial and industrial (1)
412,672 18.4 %398,391 18.4 %
Commercial leases257,323 11.5 %246,022 11.4 %
Consumer and other 48,702 2.2 %48,142 2.2 %
Total Non-Real Estate747,547 33.4 %719,302 33.2 %
Total Loans Before Unearned Income2,237,033 100.0 %2,166,048 100.0 %
Unearned income(5,914) (6,689) 
Total Loans Net of Unearned Income$2,231,119  $2,159,359  

(1) Includes PPP loans fully guaranteed by the SBA of $20.2 million and $35.4 million at March 31, 2022 and December 31, 2021, respectively.

The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of March 31, 2022 and December 31, 2021 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. 

 March 31, 2022December 31, 2021
(in thousands)FixedFloatingTotalFixedFloatingTotal
One year or less$240,982 $158,143 $399,125 $239,423 $117,697 $357,120 
More than one to five years913,130 368,434 1,281,564 926,640 385,509 1,312,149 
More than five to 15 years144,797 112,988 257,785 114,976 106,579 221,555 
Over 15 years195,068 88,360 283,428 179,522 78,987 258,509 
Subtotal$1,493,977 $727,925 2,221,902 $1,460,561 $688,772 2,149,333 
Nonaccrual loans  15,131   16,715 
Total Loans Before Unearned Income  2,237,033   2,166,048 
Unearned income  (5,914)  (6,689)
Total Loans Net of Unearned Income  $2,231,119   $2,159,359 
 
As of March 31, 2022, $242.3 million of floating rate loans were at their interest rate floor. At December 31, 2021, $349.1 million of floating rate loans were at their interest rate floor. Nonaccrual loans have been excluded from these totals.

-15-



The following tables present the age analysis of past due loans at March 31, 2022 and December 31, 2021: 

 As of March 31, 2022
(in thousands)30-89 Days Past Due90 Days or GreaterTotal Past DueCurrentTotal LoansRecorded Investment
90 Days Accruing
Real Estate:      
Construction & land development$1,071 $278 $1,349 $199,155 $200,504 $21 
Farmland— 291 291 31,549 31,840 — 
1- 4 family4,872 3,436 8,308 285,465 293,773 170 
Multifamily557 162 719 68,545 69,264 162 
Non-farm non-residential1,878 8,650 10,528 883,577 894,105 478 
Total Real Estate8,378 12,817 21,195 1,468,291 1,489,486 831 
Non-Real Estate:      
Agricultural285 1,690 1,975 26,875 28,850 — 
Commercial and industrial689 794 1,483 411,189 412,672 123 
Commercial leases153 — 153 257,170 257,323 — 
Consumer and other2,317 784 3,101 45,601 48,702 — 
Total Non-Real Estate3,444 3,268 6,712 740,835 747,547 123 
Total Loans Before Unearned Income$11,822 $16,085 $27,907 $2,209,126 $2,237,033 $954 
Unearned income    (5,914) 
Total Loans Net of Unearned Income    $2,231,119  
 
 As of December 31, 2021
(in thousands)30-89 Days Past Due90 Days or GreaterTotal Past DueCurrentTotal LoansRecorded Investment
90 Days Accruing
Real Estate:      
Construction & land development$956 $776 $1,732 $172,602 $174,334 $246 
Farmland17 787 804 31,006 31,810 — 
1- 4 family3,932 3,375 7,307 281,040 288,347 514 
Multifamily1,669 162 1,831 64,017 65,848 162 
Non-farm non-residential1,352 9,014 10,366 876,041 886,407 281 
Total Real Estate7,926 14,114 22,040 1,424,706 1,446,746 1,203 
Non-Real Estate:      
Agricultural97 2,302 2,399 24,348 26,747 — 
Commercial and industrial1,233 722 1,955 396,436 398,391 23 
Commercial leases— — — 246,022 246,022 — 
Consumer and other920 822 1,742 46,400 48,142 19 
Total Non-Real Estate2,250 3,846 6,096 713,206 719,302 42 
Total Loans Before Unearned Income$10,176 $17,960 $28,136 $2,137,912 $2,166,048 $1,245 
Unearned income    (6,689) 
Total Loans Net of Unearned Income    $2,159,359  
 
The tables above include $15.1 million and $16.7 million of nonaccrual loans at March 31, 2022 and December 31, 2021, respectively. See the tables below for more detail on nonaccrual loans.

-16-


The following is a summary of nonaccrual loans by class at the dates indicated: 

(in thousands)As of March 31, 2022As of December 31, 2021
Real Estate:  
Construction & land development$257 $530 
Farmland291 787 
1- 4 family3,266 2,861 
Multifamily— — 
Non-farm non-residential8,172 8,733 
Total Real Estate11,986 12,911 
Non-Real Estate:  
Agricultural1,690 2,302 
Commercial and industrial671 699 
Commercial leases— — 
Consumer and other784 803 
Total Non-Real Estate3,145 3,804 
Total Nonaccrual Loans$15,131 $16,715 
 
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:
 
 As of March 31, 2022As of December 31, 2021
(in thousands)PassSpecial MentionSubstandardDoubtfulTotalPassSpecial MentionSubstandardDoubtfulTotal
Real Estate:          
Construction & land development$184,904 $14,845 $755 $— $200,504 $151,220 $21,997 $1,117 $— $174,334 
Farmland27,708 40 4,092 — 31,840 27,678 40 4,092 — 31,810 
1- 4 family277,674 6,907 9,192 — 293,773 270,866 7,644 9,837 — 288,347 
Multifamily61,893 458 6,913 — 69,264 56,686 2,212 6,950 — 65,848 
Non-farm
non-residential
809,414 67,369 17,322 — 894,105 795,495 72,103 18,809 — 886,407 
Total Real Estate1,361,593 89,619 38,274  1,489,486 1,301,945 103,996 40,805  1,446,746 
Non-Real Estate:          
Agricultural26,284 177 2,389 — 28,850 23,952 128 2,667 — 26,747 
Commercial
and industrial
401,333 3,483 7,856 — 412,672 355,407 34,220 8,764 — 398,391 
Commercial leases257,170 — 153 — 257,323 245,869 — 153 — 246,022 
Consumer and other46,186 1,561 955 — 48,702 46,804 374 964 — 48,142 
Total Non-Real Estate730,973 5,221 11,353  747,547 672,032 34,722 12,548  719,302 
Total Loans Before Unearned Income$2,092,566 $94,840 $49,627 $ 2,237,033 $1,973,977 $138,718 $53,353 $ 2,166,048 
Unearned income    (5,914)    (6,689)
Total Loans Net of Unearned Income    $2,231,119     $2,159,359 

-17-


Purchased Impaired Loans

As part of the acquisition of Union Bancshares, Incorporated 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 March 31, 2022 and December 31, 2021.

(in thousands)As of March 31, 2022As of December 31, 2021
Real Estate:  
Construction & land development$144 $146 
Farmland— — 
1- 4 family1,704 1,848 
Multifamily— — 
Non-farm non-residential2,221 2,192 
Total Real Estate4,069 4,186 
Non-Real Estate:  
Agricultural— 159 
Commercial and industrial783 798 
Commercial leases— — 
Consumer and other— — 
Total Non-Real Estate783 957 
Total$4,852 $5,143 

For those purchased loans disclosed above, there was an allowance for loan and lease losses of $0.7 million at March 31, 2022 and December 31, 2021.

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 three months ended March 31, 2022 and 2021.

(in thousands)Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Balance, beginning of period$2,378 $2,892 
Acquisition accretable yield— — 
Accretion(94)(142)
Net transfers from nonaccretable difference to accretable yield— — 
Balance, end of period$2,284 $2,750 

-18-


Note 5. Allowance for Loan and Lease Losses
 
A summary of changes in the allowance for loan and lease losses, by portfolio type, for the three months ended March 31, 2022 and 2021 are as follows: 

 For the Three Months Ended March 31,
 20222021
(in thousands)Beginning Allowance (12/31/2021)Charge-offsRecoveriesProvisionEnding Allowance (3/31/2022)Beginning Allowance (12/31/2020)Charge-offsRecoveriesProvisionEnding Allowance (3/31/2021)
Real Estate:          
Construction & land development$769 $(65)$16 $21 $741 $1,029 $— $— $(208)$821 
Farmland478 — — (15)463 462 — (26)437 
1- 4 family1,921 (36)(27)1,866 2,510 (17)10 (256)2,247 
Multifamily940 — 20 961 978 — — 242 1,220 
Non-farm
non-residential
12,730 (73)132 434 13,223 15,064 — — (897)14,167 
Total Real Estate16,838 (174)157 433 17,254 20,043 (17)11 (1,145)18,892 
Non-Real Estate:          
Agricultural183 (119)— 82 146 181 — — (15)166 
Commercial
and industrial
2,363 (132)48 61 2,340 2,802 (60)11 (349)2,404 
Commercial leases2,486 — — (39)2,447 583 — — 1,631 2,214 
Consumer and other1,371 (411)114 332 1,406 907 (362)83 338 966 
Unallocated788 — — (237)551 — — 148 150 
Total Non-Real Estate7,191 (662)162 199 6,890 4,475 (422)94 1,753 5,900 
Total$24,029 $(836)$319 $632 $24,144 $24,518 $(439)$105 $608 $24,792 
 
Negative provisions are caused by changes in the composition and credit quality of the loan portfolio and by recoveries. The result is an allocation of the loan loss reserve from one category to another.

-19-



A summary of the allowance along with loans and leases, including loans acquired with deteriorated credit quality, individually and collectively evaluated for impairment are as follows: 
As of March 31, 2022
(in thousands)Allowance
Individually
Evaluated
for Impairment
Allowance Individually Evaluated for Purchased Credit-ImpairmentAllowance
Collectively Evaluated
for Impairment
Total Allowance
for Credit Losses
Loans
Individually
Evaluated
for Impairment
Loans Individually Evaluated for Purchased Credit-ImpairmentLoans
Collectively
Evaluated
for Impairment
Total Loans
before
Unearned Income
Real Estate:        
Construction & land development$— $— $741 $741 $— $144 $200,360 $200,504 
Farmland— — 463 463 — — 31,840 31,840 
1- 4 family— — 1,866 1,866 — 1,704 292,069 293,773 
Multifamily— — 961 961 — — 69,264 69,264 
Non-farm
non-residential
1,790 512 10,921 13,223 9,797 2,221 882,087 894,105 
Total Real Estate1,790 512 14,952 17,254 9,797 4,069 1,475,620 1,489,486 
Non-Real Estate:        
Agricultural— — 146 146 939 — 27,911 28,850 
Commercial and industrial67 212 2,061 2,340 796 783 411,093 412,672 
Commercial leases— — 2,447 2,447 — — 257,323 257,323 
Consumer and other— — 1,406 1,406 — — 48,702 48,702 
Unallocated— — 551 551 — — — — 
Total Non-Real Estate67 212 6,611 6,890 1,735 783 745,029 747,547 
Total$1,857 $724 $21,563 $24,144 $11,532 $4,852 $2,220,649 2,237,033 
Unearned Income       (5,914)
Total Loans Net of Unearned Income       $2,231,119 
 
 As of December 31, 2021
(in thousands)Allowance
Individually
Evaluated
for Impairment
Allowance Individually Evaluated for Purchased Credit-ImpairmentAllowance
Collectively Evaluated
for Impairment
Total Allowance
for Credit Losses
Loans
Individually
Evaluated
for Impairment
Loans Individually Evaluated for Purchased Credit-ImpairmentLoans
Collectively
Evaluated
for Impairment
Total Loans
before
Unearned Income
Real Estate:        
Construction & land development$— $— $769 $769 $— $146 $174,188 $174,334 
Farmland19 — 459 478 496 — 31,314 31,810 
1- 4 family258 — 1,663 1,921 961 1,848 285,538 288,347 
Multifamily— — 940 940 — — 65,848 65,848 
Non-farm non-residential1,822 509 10,399 12,730 10,899 2,192 873,316 886,407 
Total Real Estate2,099 509 14,230 16,838 12,356 4,186 1,430,204 1,446,746 
Non-Real Estate:        
Agricultural— — 183 183 1,383 159 25,205 26,747 
Commercial and industrial72 216 2,075 2,363 1,286 798 396,307 398,391 
Commercial leases— — 2,486 2,486 — — 246,022 246,022 
Consumer and other— — 1,371 1,371 — — 48,142 48,142 
Unallocated— — 788 788 — — — — 
Total Non-Real Estate72 216 6,903 7,191 2,669 957 715,676 719,302 
Total$2,171 $725 $21,133 $24,029 $15,025 $5,143 $2,145,880 2,166,048 
Unearned Income       (6,689)
Total loans net of unearned income       $2,159,359 
-20-



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. Payment status, collateral value and the probability of collecting scheduled principal and interest payments when due are considered in evaluating loan impairment. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class as of the date indicated: 

 As of March 31, 2022
(in thousands)Recorded
Investment
Unpaid
Principal Balance
Related
Allowance
Average
Recorded Investment
Interest Income
Recognized
Interest Income
Cash Basis
Impaired Loans with no related allowance:      
Real Estate:      
Construction & land development$— $— $— $— $— $— 
Farmland— — — — — — 
1- 4 family— — — — — — 
Multifamily— — — — — — 
Non-farm non-residential6,333 7,035 — 6,370 79 28 
Total Real Estate6,333 7,035  6,370 79 28 
Non-Real Estate:      
Agricultural939 1,093 — 939 — — 
Commercial and industrial— — — — — — 
Commercial leases— — — — — — 
Consumer and other— — — — — — 
Total Non-Real Estate939 1,093  939   
Total Impaired Loans with no related allowance7,272 8,128  7,309 79 28 
Impaired Loans with an allowance recorded:      
Real Estate:      
Construction & land development— — — — — — 
Farmland— — — — — — 
1- 4 family— — — — — — 
Multifamily— — — — — — 
Non-farm non-residential3,464 3,745 1,790 3,474 
Total Real Estate3,464 3,745 1,790 3,474 1 1 
Non-Real Estate:      
Agricultural— — — — — — 
Commercial and industrial796 795 67 799 
Commercial leases— — — — — — 
Consumer and other— — — — — — 
Total Non-Real Estate796 795 67 799 8 9 
Total Impaired Loans with an allowance recorded4,260 4,540 1,857 4,273 9 10 
Total Impaired Loans$11,532 $12,668 $1,857 $11,582 $88 $38 

-21-



 As of December 31, 2021
(in thousands)Recorded
Investment
Unpaid
Principal Balance
Related
Allowance
Average
Recorded Investment
Interest Income
Recognized
Interest Income
Cash Basis
Impaired Loans with no related allowance:      
Real Estate:      
Construction & land development$— $— $— $— $— $— 
Farmland— — — — — — 
1- 4 family— — — — — — 
Multifamily— — — — — — 
Non-farm non-residential5,164 5,818 — 5,935 137 101 
Total Real Estate5,164 5,818  5,935 137 101 
Non-Real Estate:      
Agricultural1,383 1,668 — 1,412 — — 
Commercial and industrial470 470 — 479 30 33 
Commercial leases— — — — — — 
Consumer and other— — — — — — 
Total Non-Real Estate1,853 2,138  1,891 30 33 
Total Impaired Loans with no related allowance7,017 7,956  7,826 167 134 
Impaired Loans with an allowance recorded:      
Real Estate:      
Construction & land development— — — — — — 
Farmland496 626 19 515 — — 
1- 4 family961 961 258 968 56 62 
Multifamily— — — — — — 
Non-farm non-residential5,735 5,996 1,822 5,842 90 95 
Total Real Estate7,192 7,583 2,099 7,325 146 157 
Non-Real Estate:      
Agricultural— — — — — — 
Commercial and industrial816 816 72 875 28 52 
Commercial leases— — — — — — 
Consumer and other— — — — — — 
Total Non-Real Estate816 816 72 875 28 52 
Total Impaired Loans with an allowance recorded8,008 8,399 2,171 8,200 174 209 
Total Impaired Loans$15,025 $16,355 $2,171 $16,026 $341 $343 


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 are generally concessions on either the interest rate charged or the amortization. The effect of the modifications to First Guaranty would be a reduction in interest income. First Guaranty has not restructured any loans that are considered TDRs in the three months ended March 31, 2022. At March 31, 2022 First Guaranty had no outstanding TDRs.

Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020 and as amended by subsequent legislation, financial institutions had 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 allowed 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 could 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.





-22-




The following table identifies the TDRs as of March 31, 2022 and December 31, 2021:

 March 31, 2022December 31, 2021
 Accruing Loans  Accruing Loans  
(in thousands)Current30-89 Days Past DueNonaccrualTotal TDRsCurrent30-89 Days Past DueNonaccrualTotal TDRs
Real Estate:        
Construction & land development$— $— $— $— $— $— $— $— 
Farmland— — — — — — — — 
1- 4 family— — — — — — — — 
Multifamily— — — — — — — — 
Non-farm non-residential— — — — — — 3,382 3,382 
Total Real Estate      3,382 3,382 
Non-Real Estate:        
Agricultural— — — — — — — — 
Commercial and industrial— — — — — — — — 
Commercial leases— — — — — — — — 
Consumer and other— — — — — — — — 
Total Non-Real Estate        
Total$ $ $ $ $ $ $3,382 $3,382 

The following table discloses TDR activity for the three months ended March 31, 2022.

 Troubled Debt Restructured Loans Activity
Three Months Ended March 31, 2022
(in thousands)Beginning balance December 31, 2021New TDRsCharge-offs post-modificationTransferred to OREPaydownsConstruction to permanent financingRestructured to market termsOther adjustmentsEnding balance March 31, 2022
Real Estate:         
Construction & land development$— $— $— $— $— $— $— $— $— 
Farmland— — — — — — — — — 
1- 4 family— — — — — — — — — 
Multifamily— — — — — — — — — 
Non-farm non-residential3,382 — — — (36)— — (3,346)— 
Total Real Estate3,382    (36)  (3,346) 
Non-Real Estate:         
Agricultural— — — — — — — — — 
Commercial and industrial— — — — — — — — — 
Commercial leases— — — — — — — — — 
Consumer and other— — — — — — — — — 
Total Non-Real Estate         
Total$3,382 $ $ $ $(36)$ $ (3,346)$ 

-23-


Note 6. 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. First Guaranty's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007, Premier Bancshares, Inc. in 2017 and Union Bancshares, Incorporated in 2019. Goodwill totaled $12.9 million at March 31, 2022 and December 31, 2021. No impairment charges have been recognized on First Guaranty's intangible assets since acquisition. Loan servicing assets decreased $0.2 million to $0.6 million at March 31, 2022 compared to $0.9 million at December 31, 2021. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The weighted-average amortization period remaining for First Guaranty's core deposit intangibles is 7 years at March 31, 2022. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.
 
Note 7. Other Real Estate (ORE)
 
Other real estate owned consists of the following at the dates indicated: 

(in thousands)March 31, 2022December 31, 2021
Real Estate Owned Acquired by Foreclosure:  
Residential$362 $817 
Construction & land development— — 
Non-farm non-residential2,165 1,776 
Total Other Real Estate Owned and Foreclosed Property2,527 2,593 
Allowance(673)(521)
Net Other Real Estate Owned and Foreclosed Property$1,854 $2,072 

Other real estate owned had a net carrying amount of $1.9 million which is made up of the outstanding balance of $2.5 million net of a valuation allowance of $0.7 million at March 31, 2022.

Loans secured by one-to-four family residential properties in the process of foreclosure totaled $1.6 million as of March 31, 2022.


-24-


Note 8. 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. The same credit policies are used in making commitments and conditional obligations as it does for balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk.
 
Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at March 31, 2022 and December 31, 2021:

Contract Amount
(in thousands)March 31, 2022December 31, 2021
Commitments to Extend Credit$179,323 $198,444 
Unfunded Commitments under lines of credit$239,320 $250,231 
Commercial and Standby letters of credit$13,894 $13,787 
 
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 March 31, 2022 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. First Guaranty settled a case in the third quarter of 2021 for $1.1 million. A receivable for $0.9 million has been recorded for recovery through First Guaranty's insurance coverage.
-25-


Note 9. 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 within Level 3 in First Guaranty's portfolio as of March 31, 2022 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") 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 fair value would be classified within either Level 2 or Level 3 of the hierarchy.
 
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 March 31, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: 
(in thousands)March 31, 2022December 31, 2021
Available for Sale Securities Fair Value Measurements Using:  
Level 1: Quoted Prices in Active Markets For Identical Assets$99,994 $— 
Level 2: Significant Other Observable Inputs21,418 198,315 
Level 3: Significant Unobservable Inputs11,821 12,305 
Securities available for sale measured at fair value$133,233 $210,620 
 
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 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, 2021 to March 31, 2022 was due to a net increase in Treasury bills of $100.0 million. The change in Level 2 securities available for sale from December 31, 2021 to March 31, 2022 was due to the transfer of $111.0 million in U.S. Government agency securities and $54.8 million in corporate debt securities from the available for sale to the held to maturity portfolio. There were no transfers between Level 2 and Level 3 from December 31, 2021 to March 31, 2022. There were no transfers between Level 1 and 2 securities available for sale from December 31, 2021 to March 31, 2022.


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The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs (Level 3):
 Level 3 Changes
(in thousands)March 31, 2022
Balance, beginning of year$12,305 
Total gains or losses (realized/unrealized): 
Included in earnings— 
Included in other comprehensive income(162)
Purchases, sales, issuances and settlements, net(322)
Transfers in and/or out of Level 3— 
Balance as of end of period$11,821 

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held as of March 31, 2022.

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of March 31, 2022 and December 31, 2021, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value: 

(in thousands)At March 31, 2022At December 31, 2021
Impaired Loans - Fair Value Measurements Using:  
Level 1: Quoted Prices in Active Markets For Identical Assets$— $— 
Level 2: Significant Other Observable Inputs— — 
Level 3: Significant Unobservable Inputs8,315 12,836 
Impaired loans measured at fair value$8,315 $12,836 
Other Real Estate Owned - Fair Value Measurements Using:  
Level 1: Quoted Prices in Active Markets For Identical Assets$— $— 
Level 2: Significant Other Observable Inputs362 817 
Level 3: Significant Unobservable Inputs1,492 1,255 
Other real estate owned measured at fair value$1,854 $2,072 

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.
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Note 10. 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.
 
Investment Securities.
 
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.
 

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Deposits.
 
The fair value of customer deposits, excluding certificates of deposit, is the amount payable on demand. Market values of certificates of deposit 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.

 Accrued interest payable.
 
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. 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 March 31, 2022 and December 31, 2021 the fair value of guarantees under commercial and standby letters of credit was not material.
 
The carrying amounts and estimated fair values of financial instruments at March 31, 2022 were as follows:

Fair Value Measurements at March 31, 2022 Using
(in thousands)Carrying AmountLevel 1Level 2Level 3Total
Assets
Cash and due from banks$132,209 $132,209 $— $— $132,209 
Federal funds sold533 533 — — 533 
Securities, available for sale133,233 99,994 21,418 11,821 133,233 
Securities, held for maturity319,562 — 292,013 — 292,013 
Loans held for sale— — — — — 
Loans, net2,206,975 — — 2,212,736 2,212,736 
Cash surrender value of BOLI5,603 — — 5,603 5,603 
Accrued interest receivable12,579 — — 12,579 12,579 
Liabilities
Deposits$2,623,935 $— $— $2,632,019 2,632,019 
Short-term borrowings10,000 — — 10,000 10,000 
Repurchase agreements6,103 — — 6,121 6,121 
Accrued interest payable3,584 — — 3,584 3,584 
Long-term advances from Federal Home Loan Bank— — — — — 
Senior long-term debt24,359 — — 24,375 24,375 
Junior subordinated debentures14,830 — — 14,743 14,743 


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The carrying amounts and estimated fair values of financial instruments at December 31, 2021 were as follows:

Fair Value Measurements at December 31, 2021 Using
(in thousands)Carrying AmountLevel 1Level 2Level 3Total
Assets
Cash and due from banks$261,749 $261,749 $— $— $261,749 
Federal funds sold183 183 — — 183 
Securities, available for sale210,620 — 198,315 12,305 210,620 
Securities, held for maturity153,536 — 150,585 — 150,585 
Loans, net2,135,330 — — 2,152,590 2,152,590 
Cash surrender value of BOLI5,568 — — 5,568 5,568 
Accrued interest receivable12,047 — — 12,047 12,047 
Liabilities
Deposits$2,596,492 $— $— $2,606,635 2,606,635 
Short-term borrowings— — — — — 
Repurchase agreements6,439 — — 6,462 6,462 
Accrued interest payable4,480 — — 4,480 4,480 
Long-term advances from Federal Home Loan Bank3,208 — — 3,208 3,208 
Senior long-term debt25,170 — — 25,187 25,187 
Junior subordinated debentures14,818 — — 15,000 15,000 
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.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.
 
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, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; the ongoing effects of the COVID-19 pandemic on First Guaranty's operations and financial performance; 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; 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; increases in our provision for loan losses 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. We undertake no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.


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First Quarter March 31, 2022 Financial 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 36 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, Waco, Texas and our new Mideast markets in Kentucky and West Virginia. We emphasize personal relationships and localized decision making to 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.
 
Financial highlights for the first quarter 2022 are as follows:

Total assets increased $32.0 million, or 1.1%, to $2.9 billion at March 31, 2022 when compared with December 31, 2021. Total loans at March 31, 2022 were $2.2 billion, an increase of $71.8 million, or 3.3%, compared with December 31, 2021. Total deposits were $2.6 billion at March 31, 2022, an increase of $27.4 million, or 1.1%, compared with December 31, 2021. Retained earnings were $61.9 million at March 31, 2022, an increase of $5.3 million compared to $56.7 million at December 31, 2021. Shareholders' equity was $221.8 million and $223.9 million at March 31, 2022 and December 31, 2021, respectively.

Net income for the first quarter of 2022 and 2021 was $7.6 million and $5.0 million, respectively, an increase of $2.6 million or 51%.

Earnings per common share were $0.65 and $0.47 for the first quarter of 2022 and 2021, respectively. Total weighted average shares outstanding were 10,716,796 for the three months ended March 31, 2022 and 2021.

First Guaranty participated 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 guaranteed 100% of the PPP loans made to eligible borrowers and will forgive such loans. The program has been conducted in two phases which First Guaranty classifies as Round 1 loans (originated in 2020) and Round 2 loans (originated in 2021). As of March 31, 2022, First Guaranty had remaining Round 1 PPP loans of $4.7 million with deferred fees of $0.1 million and Round 2 PPP loans of $15.6 million with deferred fees of $0.7 million remaining. $0.6 million in PPP fees were recognized during the three months ended March 31, 2022.

The allowance for loan and lease losses was 1.08% of total loans at March 31, 2022 compared to 1.11% at December 31, 2021. First Guaranty had acquisition related loan discounts that totaled approximately $1.3 million at March 31, 2022. First Guaranty had $20.2 million at March 31, 2022 of SBA guaranteed PPP loans that have no related allowance due to the government guarantee in accordance with regulatory guidance.

Net interest income for the first quarter of 2022 was $25.0 million compared to $19.6 million for the same period in 2021.

The provision for loan losses was $0.6 million for the first quarter of 2022 and 2021.

First Guaranty had $1.9 million of other real estate owned as of March 31, 2022 compared to $2.1 million at December 31, 2021.

Noninterest income for the first quarter of 2022 was $2.0 million compared to $2.3 million for the same period in 2021. Excluding the impact of securities gains, noninterest income for the first quarter of 2022 was $2.0 million compared to $2.2 million for the first quarter of 2021.

The net interest margin for the three months ended March 31, 2022 was 3.59% which was an increase of 34 basis points from the net interest margin of 3.25% for the same period in 2021. First Guaranty attributed the increase in the net interest margin in the first quarter of 2022 compared to the same period in 2021 to an improved mix of loans compared to securities and cash along with continued reduction in First Guaranty's cost of funds. Loans as a percentage of average interest earning assets decreased to 76.4% at March 31, 2022 compared to 78.2% at March 31, 2021.

Investment securities totaled $452.8 million at March 31, 2022, an increase of $88.6 million when compared to $364.2 million at December 31, 2021. Losses on the sale of securities for the first quarter of 2022 were $17,000 compared to gains of $0.1 million for the same period in 2021. At March 31, 2022, available for sale securities, at fair value, totaled $133.2 million, a decrease of $77.4 million when compared to $210.6 million at December 31, 2021. At March 31, 2022, held to maturity securities, at amortized cost, totaled $319.6 million, an increase of $166.0 million when compared to $153.5 million at December 31, 2021. During the first quarter of 2022, First Guaranty designated $165.8 million of AFS securities for HTM status.

Total loans net of unearned income were $2.2 billion, a net increase of $71.8 million from December 31, 2021. Total loans net of unearned income are reduced by the allowance for loan and lease losses which totaled $24.1 million at March 31, 2022 and $24.0 million at December 31, 2021, respectively.

Total impaired loans decreased $3.5 million to $11.5 million at March 31, 2022 compared to $15.0 million at December 31, 2021.

Nonaccrual loans decreased $1.6 million to $15.1 million at March 31, 2022 compared to $16.7 million at December 31, 2021.

First Guaranty is a smaller reporting company and has delayed the adoption of ASU 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments." First Guaranty uses the incurred loss model for the calculation of its allowance.

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Return on average assets for the three months ended March 31, 2022 and 2021 was 1.05% and 0.80%, respectively. Return on average common equity for the three months ended March 31, 2022 and 2021 was 14.99% and 11.31%, respectively. Return on average assets is calculated by dividing annualized net income by average assets. Return on average common equity is calculated by dividing annualized net income by average common equity.

Book value per common share was $17.61 as of March 31, 2022 compared to $16.45 as of March 31, 2021. Book value per share was $17.81 per share as of December 31, 2021. The year over year increase was due primarily to an increase in retained earnings partially offset by changes in accumulated other comprehensive income ("AOCI"). The year to date change was primarily due to changes in AOCI partially offset by an increase in retained earnings. AOCI is comprised of unrealized gains and losses on available for sale securities, including unrealized losses on available for sale securities at the time of transfer to held to maturity.

First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the first quarter of 2022. First Guaranty also declared $0.16 per common share in the first quarter of 2021, which was the equivalent of $0.15 per share after adjusting for the 10% common stock dividend paid in December 2021. First Guaranty has paid 115 consecutive quarterly dividends as of March 31, 2022.

First Guaranty paid preferred stock dividends of $0.6 million during the first three months of 2022.


Recent Developments

As disclosed in previous filings by First Guaranty Bancshares, Inc., for approximately 15 years First Guaranty Bank, a subsidiary of First Guaranty Bancshares, Inc., utilized an “Employee Stock Grant Program” to incentivize and reward bank employees for performance. Each quarter, the Board of Directors of First Guaranty Bank allocated a $75,000 payment to an attorney to be used to purchase, on the open market, shares of First Guaranty Bancshares, Inc. stock. Nominations came from managers throughout the Bank for awards to employees which ranged from clerical through top Management. An average of just over 100 employees received awards, in full ownership with no vesting nor other requirements, each quarter with an average award of approximately 37 shares per employee awarded.

The total cost of this program per year was approximately $300,000 with total shares awarded of approximately 15,000 shares.

In addition, the same process was utilized by First Guaranty Bancshares, Inc. at the conclusion of each year for the grant of stock bonuses to members of Management of First Guaranty Bank, selected by the Board of Directors of First Guaranty Bancshares, Inc. Those awards averaged approximately $275,000 or 12,500 shares per year.

The SEC has requested information concerning this practice. No process has been instituted; only, a request for information.
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Financial Condition
 
Changes in Financial Condition from December 31, 2021 to March 31, 2022
 
Assets
 
Total assets at March 31, 2022 were $2.9 billion, an increase of $32.0 million, or 1.1%, from December 31, 2021. Assets increased primarily due to increases in investment securities of $88.6 million and net loans of $71.6 million, partially offset by a decrease in cash and cash equivalents of $129.2 million at March 31, 2022 compared to December 31, 2021.
 
Loans
 
Net loans increased $71.6 million, or 3.4%, to $2.2 billion at March 31, 2022 from December 31, 2021. Construction and land development loans increased $26.2 million principally due to advances on existing construction lines and new originations. Commercial and industrial loans increased $14.3 million primarily due to new originations. SBA PPP loans totaled $20.2 million at March 31, 2022 compared to $35.4 million at December 31, 2021. These totals are included in commercial and industrial loans. Round 1 SBA PPP loans decreased from $12.7 million at December 31, 2021 to $4.7 million at March 31, 2022 due to SBA loan forgiveness and payments received. Round 2 SBA PPP loans decreased from $22.6 million at December 31, 2021 to $15.6 million at March 31, 2022 due to SBA loan forgiveness and payments received. Commercial lease loan balances increased $11.3 million primarily due to new lease originations. First Guaranty has continued to expand its commercial lease portfolio which generally has higher yields than commercial real estate loans but shorter average lives. Non-farm non-residential loan balances increased $7.7 million due to new originations. One-to-four family residential loans increased $5.4 million primarily due to new originations. Multifamily loans increased $3.4 million primarily due to the conversion of existing construction loans to permanent financing and the origination of new loans. Agricultural loans increased $2.1 million due to seasonal activity. Consumer and other loans increased $0.6 million primarily due to new originations. Farmland loans increased $30,000 primarily due to increases on agricultural loan commitments. First Guaranty had approximately 5.8% of funded and 1.3% 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 motel portfolio totaled $161.1 million at March 31, 2022. As part of the management of risks in our loan portfolio, First Guaranty had previously established an internal guidance limit of approximately $187.0 million for its hotel and motel portfolio. First Guaranty had $265.3 million in loans related to our Texas markets at March 31, 2022 which was an increase of $7.5 million or 2.9% from $257.8 million at December 31, 2021. 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 March 31, 2022 were $48.9 million, of which $17.9 million were shared national credits. Syndicated loans increased $1.5 million from $47.4 million at December 31, 2021.

As of March 31, 2022, 66.6% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 40.0% as of March 31, 2022, was non-farm non-residential loans secured by real estate. Approximately 32.8% of the loan portfolio was based on a floating rate tied to the prime rate or LIBOR as of March 31, 2022. 75.6% of the loan portfolio is scheduled to mature within five years from March 31, 2022. First Guaranty had $46.4 million in loans that were priced off of the LIBOR index rate at March 31, 2022. As it is anticipated that LIBOR will be discontinued after 2022, First Guaranty is reviewing its loan documents to determine alternative reference rates and does not anticipate there will be a significant financial statement impact with the transition.

Special mention loans decreased $43.9 million to $94.8 million at March 31, 2022 compared to $138.7 million at December 31, 2021. The decrease in special mention loans was primarily the result of the upgrade of several loan relationships from special mention to pass status.

Net loans are reduced by the allowance for loan and lease losses which totaled $24.1 million at March 31, 2022 and $24.0 million at December 31, 2021. Loan charge-offs were $0.8 million during the first three months of 2022 and $0.4 million during the same period in 2021. Recoveries totaled $0.3 million during the first three months of 2022 and $0.1 million during the same period in 2021. The provision for loan losses totaled $0.6 million for the first three months of 2022 and 2021. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for more information on the allowance for loan and lease losses.



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Investment Securities
 
Investment securities at March 31, 2022 totaled $452.8 million, an increase of $88.6 million compared to $364.2 million at December 31, 2021. The portfolio consists of both available for sale (AFS) and held to maturity securities (HTM) at March 31, 2022. The securities designated as held to maturity are agency and corporate debt securities that are part of First Guaranty’s investment strategy and public funds collateralization program. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings.
 
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.

Our available for sale securities portfolio totaled $133.2 million at March 31, 2022, a decrease of $77.4 million, or 36.7%, compared to $210.6 million at December 31, 2021. The decrease was primarily due to the transfer of AFS securities to the HTM portfolio in the first quarter of 2022.
 
Our held to maturity securities portfolio totaled $319.6 million at March 31, 2022, an increase of $166.0 million, or 108.1%, compared to $153.5 million at December 31, 2021. The increase was primarily due to the transfer of AFS securities to the HTM portfolio in the first quarter of 2022.
 
At March 31, 2022, $50.9 million, or 11.2%, of the securities portfolio was scheduled to mature in less than one year. $53.5 million, or 11.8%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between one and five years. $94.4 million, or 20.8%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between five and ten years. Securities, not including collateralized mortgage obligations and mortgage-backed securities, with contractual maturity dates over 10 years totaled $253.6 million, or 56.0%, of the total securities portfolio at March 31, 2022. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of March 31, 2022, management believes that the securities portfolio has a forecasted weighted average life of approximately 10.46 years based on the current interest rate environment. A parallel interest rate shock of 400 basis points is forecasted to increase the weighted average life of the portfolio to approximately 10.59 years. The portfolio had an estimated effective duration of 8.76 years at March 31, 2022.
 
There were no credit related other-than-temporary impairment of securities during the three months ended March 31, 2022 or March 31, 2021.

Nonperforming 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 asset is well secured and in the process of collection. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest and a reasonable payment performance period is observed (generally considered six months or longer). Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.

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The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated. 
(in thousands)March 31, 2022December 31, 2021
Nonaccrual loans:  
Real Estate:  
Construction and land development$257 $530 
Farmland291 787 
1- 4 family3,266 2,861 
Multifamily— — 
Non-farm non-residential8,172 8,733 
Total Real Estate11,986 12,911 
Non-Real Estate:  
Agricultural1,690 2,302 
Commercial and industrial671 699 
Commercial leases— — 
Consumer and other784 803 
Total Non-Real Estate3,145 3,804 
Total nonaccrual loans15,131 16,715 
Loans 90 days and greater delinquent & accruing:  
Real Estate:  
Construction and land development21 246 
Farmland— — 
1- 4 family170 514 
Multifamily162 162 
Non-farm non-residential478 281 
Total Real Estate831 1,203 
Non-Real Estate:  
Agricultural— — 
Commercial and industrial123 23 
Commercial leases— — 
Consumer and other— 19 
Total Non-Real Estate123 42 
Total loans 90 days and greater delinquent & accruing954 1,245 
Total non-performing loans16,085 17,960 
Real Estate Owned:  
Construction and land development— — 
Farmland— — 
1- 4 family362 817 
Multifamily— — 
Non-farm non-residential1,492 1,255 
Total Real Estate Owned1,854 2,072 
Total non-performing assets$17,939 $20,032 
Non-performing assets to total loans0.80 %0.93 %
Non-performing assets to total assets0.62 %0.70 %
Non-performing loans to total loans0.72 %0.83 %
Nonaccrual loans to total loans0.68 %0.77 %
Allowance for loan and lease losses to nonaccrual loans159.57 %143.76 %

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At March 31, 2022, nonperforming assets totaled $17.9 million, or 0.62% of total assets, compared to $20.0 million, or 0.70%, of total assets at December 31, 2021, which represented a decrease of $2.1 million, or 10.4%. The decrease in non-performing assets occurred primarily due to a reduction nonaccrual loans, 90 day past due and still accruing loans and other real estate owned.

Nonaccrual loans decreased from $16.7 million at December 31, 2021 to $15.1 million at March 31, 2022. The decrease in nonaccrual loans was concentrated primarily in agricultural, non-farm non-residential and farmland loans. Nonaccrual loans included $1.3 million in loans with a government guarantee. These are structured as net loss guarantees in which up to 90% of loss exposure is covered.
 
At March 31, 2022, loans 90 days or greater delinquent and still accruing totaled $1.0 million, a decrease of $0.3 million compared to $1.2 million at December 31, 2021. The decrease in loans 90 days or greater delinquent and still accruing was concentrated primarily in one-to four-family, construction and land development and consumer and other loans.

Other real estate owned at March 31, 2022 totaled $1.9 million, a decrease of $0.2 million compared to $2.1 million at December 31, 2021. First Guaranty has a reserve for other real estate owned losses. This reserve totaled $0.7 million at March 31, 2022 compared to $0.5 million at December 31, 2021.

At March 31, 2022, 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 $3.4 million; (2) a non-farm non-residential loan secured by a childcare facility that totaled $1.7 million; (3) a $1.7 million non-farm non-residential property included in other real estate owned; (4) a non-farm non-residential loan secured by a mobile home facility that totaled $1.3 million; (5) a non-farm non-residential loan secured by a waste treatment facility that totaled $0.9 million; and (6) an agricultural/farmland loan relationship that totaled $0.9 million. The agricultural loan is partially guaranteed by the USDA Farm Service Agency. First Guaranty subsequently sold the loan note associated with the $3.4 million non-performing hotel loan after March 31, 2022.
 
Troubled Debt Restructurings
 
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 as subsequently modified by later legislation, financial institutions had 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 allowed 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 could 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 March 31, 2022 and December 31, 2021:

(in thousands)March 31, 2022December 31, 2021
Restructured Loans:
In Compliance with Modified Terms$— $— 
Past Due 30 through 89 days and still accruing— — 
Past Due 90 days and greater and still accruing— — 
Nonaccrual— 3,382 
Restructured Loans that subsequently defaulted— — 
Total Restructured Loans$ $3,382 

At March 31, 2022, we had no outstanding TDRs. The TDR at December 31, 2021 was a $3.4 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. This loan was no longer reportable as a TDR at March 31, 2022.

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Allowance for Loan and Lease Losses
 
The allowance for loan and lease 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;

nature and volume of loans;

overall portfolio quality;

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. 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 balance in the allowance for loan and lease losses is principally influenced by the provision for loan losses, recoveries, 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 allowance for loan and lease losses was $24.1 million, or 1.08% of total loans, and 150.1% of nonperforming loans at March 31, 2022.

Comparing March 31, 2022 to December 31, 2021, there were changes within the specific components of the allowance balance.

A provision for loan losses of $0.6 million was made during the three months ended March 31, 2022 and 2021. The provisions made were taken to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. First Guaranty’s incurred loan loss calculation method incorporates risk factors in the loan portfolio such as historical loss rates along with qualitative and quantitative factors. The composition of the loan portfolio affects the final allowance calculation.


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The loan portfolio factors in the first three months of 2022 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 changes in historical loss rates, adjustments of certain qualitative factors to take into account the current estimated 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 adjusted allocations within its qualitative and quantitative factors to account for changes in potential COVID-19 related losses.

Construction and land development loans increased during the first three months of 2022 due to advances on existing construction lines of credit and new loan originations. Several loans previously in this category moved to permanent financing and are now included in the multifamily loan category as of March 31, 2022. The allowance decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

One-to four-family residential loans increased during the first three months of 2022. The allowance decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

Multifamily loans increased during the first three months of 2022. The allowance related to this portfolio was increased due to the growth in the portfolio which increased by $3.4 million during the first three months of 2022.

Non-farm non-residential loans increased during the first three months of 2022. The allowance increase related to this portfolio was due to growth in the portfolio along with changes in the qualitative analysis of the portfolio related to COVID-19 and historical loss rates. First Guaranty continues to maintain a significant allowance for hotel loans based on qualitative factors primarily related to COVID-19 and related credit ratings for hotel loans.

Commercial and industrial loans increased during the first three months of 2022. The allowance decrease related to this portfolio was due to the changes in historical loss rates and changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

Commercial leases increased during the first three months of 2022. The allowance decrease related to this portfolio was due to the changes in historical loss rates and changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions. Commercial leases grew during the first three months of 2022 from $246.0 million at December 31, 2021 to $257.3 million at March 31, 2022.

Consumer and other loans increased during the first three months of 2022. The increase in the related loan loss allowance balance was due primarily to increased balances.

First Guaranty continues to monitor the acquired loans from the Union acquisition on November 7, 2019. Discounts on the acquired Union loans were approximately $1.3 million at March 31, 2022.

First Guaranty charged off $0.8 million in loan balances during the first three months of 2022. The $0.8 million in charged off loans were comprised of smaller loans and overdrawn deposit accounts.

Other information related to the allowance for loan and lease losses is as follows: 

(in thousands)Three Months Ended
March 31, 2022
Three Months Ended
March 31, 2021
Loans:  
Average outstanding balance$2,154,264 $1,911,914 
Balance at end of period$2,231,119 $1,966,432 
Allowance for Loan and Lease Losses:
Balance at beginning of year$24,029 $24,518 
Charge-offs(836)(439)
Recoveries319 105 
Provision632 608 
Balance at end of period$24,144 $24,792 

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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, 2021 to March 31, 2022, total deposits increased $27.4 million, or 1.1%, to $2.6 billion. Noninterest-bearing demand deposits increased $23.4 million, or 4.4%, to $556.0 million at March 31, 2022. The increase in noninterest-bearing demand deposits was primarily due to growth of compensating balances associated with new loan originations, existing loan customers, and new customers as part of First Guaranty's efforts to increase lower cost deposits. Interest-bearing demand deposits increased $23.8 million, or 1.9%, to $1.3 billion at March 31, 2022. The increase in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits. Included in the increase in interest-bearing demand deposits were public funds time deposits that converted into interest-bearing deposits that were primarily collateralized by reciprocal deposit insurance. Savings deposits increased $3.9 million, or 1.9%, to $205.6 million at March 31, 2022, primarily related to increases in individual savings deposits. Time deposits decreased $23.6 million, or 4.0%, to $563.0 million at March 31, 2022, primarily due to the transition of several public funds customers from time deposits to interest-bearing deposits.

As we seek to strengthen our net interest margin and improve our earnings, attracting non-interest-bearing or lower cost deposits will be a primary emphasis. Management will continue to evaluate and update our product mix and related technology 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. First Guaranty has over $200 million in time deposits with average rates in excess of 3.00% that are scheduled to mature during 2022 through 2024 with the majority of the maturities in 2023 and 2024.

As of March 31, 2022, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $250,000 was approximately $151.4 million. At March 31, 2022, approximately $76.9 million of First Guaranty's certificates of deposit greater than or equal to $250,000 had a remaining term greater than one year.
 

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The following table compares deposit categories for the periods indicated.

Total DepositsFor the Three Months Ended
March 31,
For the Years Ended December 31,
 202220212020
(in thousands except for %)Average BalancePercentWeighted
Average Rate
Average BalancePercentWeighted
Average Rate
Average BalancePercentWeighted
Average Rate
Noninterest-bearing Demand$545,013 20.6 %— %$477,802 19.8 %— %$393,734 19.2 %— %
Interest-bearing Demand1,323,532 50.0 %0.7 %1,082,922 45.0 %0.7 %722,433 35.3 %0.8 %
Savings204,008 7.7 %0.1 %191,967 8.0 %0.1 %163,332 8.0 %0.2 %
Time576,199 21.7 %1.9 %655,025 27.2 %2.0 %767,075 37.5 %2.2 %
Total Deposits$2,648,752 100.0 %0.8 %$2,407,716 100.0 %0.8 %$2,046,574 100.0 %1.1 %
 
Individual and Business DepositsFor the Three Months Ended
March 31,
For the Years Ended December 31,
 202220212020
(in thousands except for %)Average BalancePercentWeighted
Average Rate
Average BalancePercentWeighted
Average Rate
Average BalancePercentWeighted
Average Rate
Noninterest-bearing Demand$538,267 32.6 %— %$471,371 29.7 %— %$382,940 27.5 %— %
Interest-bearing Demand406,721 24.6 %1.1 %390,481 24.6 %1.0 %280,587 20.1 %1.0 %
Savings164,417 9.9 %0.1 %154,560 9.8 %0.1 %127,804 9.2 %0.1 %
Time544,580 32.9 %2.0 %569,924 35.9 %2.2 %600,887 43.2 %2.5 %
Total Individual and Business Deposits$1,653,985 100.0 %0.9 %$1,586,336 100.0 %1.0 %$1,392,218 100.0 %1.3 %
Public Funds DepositsFor the Three Months Ended
March 31,
For the Years Ended December 31,
 202220212020
(in thousands except for %)Average BalancePercentWeighted
Average Rate
Average BalancePercentWeighted
Average Rate
Average BalancePercentWeighted
Average Rate
Noninterest-bearing Demand$6,746 0.7 %— %$6,431 0.8 %— %$10,794 1.7 %— %
Interest-bearing Demand916,811 92.1 %0.5 %692,441 84.3 %0.5 %441,846 67.5 %0.7 %
Savings39,591 4.0 %0.3 %37,407 4.5 %0.2 %35,528 5.4 %0.4 %
Time31,619 3.2 %0.8 %85,101 10.4 %0.8 %166,188 25.4 %1.1 %
Total Public Funds  Deposits
$994,767 100.0 %0.5 %$821,380 100.0 %0.5 %$654,356 100.0 %0.8 %


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The following table sets forth the distribution of our time deposit accounts. 

(in thousands)March 31, 2022
Time deposits of less than $100,000$202,537 
Time deposits of $100,000 through $250,000209,046 
Time deposits of more than $250,000151,442 
Total Time Deposits$563,025 

The following table sets forth the maturity of the time deposits greater than or equal to $250,000 at March 31, 2022.
 
(in thousands)March 31, 2022
Due in one year or less$74,497 
Due after one year through three years69,970 
Due after three years6,975 
Total Time Deposits greater than or equal to $250,000$151,442 

At March 31, 2022, public funds deposits totaled $979.5 million compared to $957.9 million at December 31, 2021. Public funds time deposits totaled $31.8 million at March 31, 2022 compared to $31.4 million at December 31, 2021. Public funds deposits increased due to new balances from existing customers that was primarily attributed to seasonal fluctuations. First Guaranty has developed a program for the retention and management of public funds deposits. Since the end of 2012, First Guaranty has 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 expanded 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 continues to grow 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 $546.6 million at March 31, 2022 compared to $496.4 million at December 31, 2021.

The following table sets forth public funds as a percent of total deposits.

(in thousands except for %)March 31, 2022December 31, 2021December 31, 2020December 31, 2019December 31, 2018
Public Funds:     
Noninterest-bearing Demand$6,162 $5,919 $5,109 $9,944 $6,930 
Interest-bearing Demand901,194 882,156 514,416 424,732 364,692 
Savings40,372 38,432 36,862 29,570 26,903 
Time31,792 31,365 158,925 146,420 247,004 
Total Public Funds$979,520 $957,872 $715,312 $610,666 $645,529 
Total Deposits$2,623,935 $2,596,492 $2,166,318 $1,853,013 $1,629,622 
Total Public Funds as a percent of Total Deposits37.3 %36.9 %33.0 %33.0 %39.6 %

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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 $16.1 million in short-term borrowings outstanding at March 31, 2022 compared to $6.4 million at December 31, 2021. The short-term borrowings at March 31, 2022 were comprised of a line of credit of $20.0 million, with an outstanding balance of $10.0 million and repurchase agreements of $6.1 million. The advances outstanding at December 31, 2021 were comprised of repurchase agreements of $6.4 million. First Guaranty had a long-term FHLB advance that was acquired from the Union transaction that totaled $3.2 million at December 31, 2021. This advance was paid off during the first quarter of 2022. First Guaranty had available lines of credit of $26.5 million, with $10.0 million outstanding at March 31, 2022. A net availability of $16.5 million remained.

First Guaranty had senior long-term debt totaling $24.4 million as of March 31, 2022 and $25.2 million at December 31, 2021.
 
First Guaranty also had junior subordinated debentures totaling $14.8 million at March 31, 2022 and December 31, 2021.

First Guaranty had $260.7 million in Federal Home Loan Bank letters of credit as of March 31, 2022 compared to $250.7 million at December 31, 2021. Federal Home Loan Bank letters of credit are obtained primarily for collateralizing public deposits.

Total Shareholders' Equity
 
Total shareholders' equity decreased to $221.8 million at March 31, 2022 from $223.9 million at December 31, 2021. The decrease in shareholders' equity was principally the result of a decrease of $7.4 million in accumulated other comprehensive income, partially offset by an increase of $5.3 million in retained earnings. The decrease in accumulated other comprehensive income was primarily attributed to the increase in unrealized losses on available for sale securities during the three months ended March 31, 2022. The $5.3 million increase in retained earnings was due to net income of $7.6 million during the three months ended March 31, 2022, partially offset by $1.7 million in cash dividends paid on shares of our common stock and $0.6 million in cash dividends paid on shares of our preferred stock.


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Results of Operations for the First Quarter Ended March 31, 2022 and 2021
 
Performance Summary

Three months ended March 31, 2022 compared to the three months ended March 31, 2021. Net income for the three months ended March 31, 2022 was $7.6 million, an increase of $2.6 million, or 51.0%, from $5.0 million for the three months ended March 31, 2021. The increase in net income for the three months ended March 31, 2022 as compared to the prior year period was the result of several factors. First Guaranty experienced an increase in interest income and a decrease in interest expense. This was partially offset by an increase in the provision for loan losses, a decrease in noninterest income and an increase in noninterest expense. Loan interest income increased due to the growth in First Guaranty's loan portfolio, including loan fees recognized as an adjustment to yield from the origination of the SBA guaranteed PPP loans. Securities interest income increased due to an increase in the average balance of the investment portfolio. Interest expense declined due to declines in market interest rates and First Guaranty's plan to reduce interest expense by increasing lower cost deposits and repricing existing deposits lower. Factors that partially offset the increase in net income included an increase in the provision due to the growth in the loan portfolio. Noninterest income decreased primarily due to higher securities losses and a negative valuation adjustment to the SBA loan servicing asset. Noninterest expense increased primarily due to increased personnel expenses, software expense, legal fees, travel expense and higher regulatory assessments due to increased deposit balances. Earnings per common share for the three months ended March 31, 2022 was $0.65 per common share, an increase of 38.3% or $0.18 per common share from $0.47 per common share for the three months ended March 31, 2021. Earnings per share was affected by the increase in earnings.

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. First Guaranty’s assets and liabilities are generally most affected by changes in the Federal Funds rate, LIBOR rate, short term Treasury rates such as one month and three month Treasury bills, and longer term Treasury rates such as the U.S. ten year Treasury rate. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities. There may also be a time lag in the effect of interest rate changes on assets and 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 changing interest rate environment in recent periods and our interest sensitivity position is discussed below.

Three months ended March 31, 2022 compared to the three months ended March 31, 2021. Net interest income for the three months ended March 31, 2022 and 2021 was $25.0 million and $19.6 million, respectively. The increase in net interest income for the three months ended March 31, 2022 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets, an increase in the average yield of our total interest-earning assets, and a decrease in the average rate of our total interest-bearing liabilities, partially offset by an increase in the average balance of our total interest-bearing liabilities. For the three months ended March 31, 2022, the average balance of our total interest-earning assets increased by $375.0 million to $2.8 billion due to increased cash and due average balances, and strong growth in commercial leases and our other loan portfolios. The average yield of our interest-earning assets increased by 18 basis points to 4.38% for the three months ended March 31, 2022 from 4.20% for the three months ended March 31, 2021 due to an improved mix of higher yielding assets. For the three months ended March 31, 2022, the average balance of our total interest-bearing liabilities increased by $227.9 million to $2.2 billion due to the growth in low cost deposits and the average rate of our total interest-bearing liabilities decreased by 17 basis points to 1.04% for the three months ended March 31, 2022 from 1.21% for the three months ended March 31, 2021. As a result, our net interest rate spread increased 35 basis points to 3.34% for the three months ended March 31, 2022 from 2.99% for the three months ended March 31, 2021. Our net interest margin increased 34 basis points to 3.59% for the three months ended March 31, 2022 from 3.25% for the three months ended March 31, 2021.


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Interest Income

Three months ended March 31, 2022 compared to the three months ended March 31, 2021. Interest income increased $5.1 million, or 20.3%, to $30.5 million for the three months ended March 31, 2022 as compared to the prior year period. First Guaranty's loan portfolio expanded during the first three months of 2022 due to growth associated with our loan originations, including commercial leases. These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, primarily associated with loans increased, and the average yield of interest-earning assets increased. The average balance of our interest-earning assets increased $375.0 million to $2.8 billion for the three months ended March 31, 2022 as compared to the prior year. The average yield of interest-earning assets increased by 18 basis points to 4.38% for the three months ended March 31, 2022 compared to 4.20% for the three months ended March 31, 2021.

Interest income on securities increased $0.8 million to $2.3 million for the three months ended March 31, 2022 as compared to the prior year period primarily as a result of an increase in average balances. The average balance of securities increased $176.7 million to $434.4 million for the three months ended March 31, 2022 from $257.8 million for the three months ended March 31, 2021 primarily due to an increase in the average balance of our U.S. Treasuries securities portfolio compared to the prior year. The average yield on securities decreased 22 basis points to 2.18% for the three months ended March 31, 2022 compared to 2.40% for the three months ended March 31, 2021 due to the increase in lower yielding Treasury securities.

Interest income on loans increased $4.3 million, or 18.1%, to $28.0 million for the three months ended March 31, 2022 as compared to the prior year period as a result of an increase in the average balance and average yield of loans. The average balance of loans (excluding loans held for sale) increased by $242.4 million to $2.2 billion for the three months ended March 31, 2022 from $1.9 billion for the three months ended March 31, 2021 as a result of new loan originations. The average yield on loans (excluding loans held for sale) increased by 24 basis points to 5.28% for the three months ended March 31, 2022 from 5.04% for the three months ended March 31, 2021 due to the improved mix of loans with an increase in higher yielding commercial leases as a percentage of the loan portfolio along with an increase in market interest rates.

Interest Expense

Three months ended March 31, 2022 compared to the three months ended March 31, 2021. Interest expense decreased $0.2 million, or 4.2%, to $5.5 million for the three months ended March 31, 2022 from $5.7 million for the three months ended March 31, 2021 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 was 0.70% for the three months ended March 31, 2022 and 2021. The average rate of time deposits decreased 2 basis points during the three months ended March 31, 2022 to 1.94% as compared to the prior year period. The decrease in the average rate of time deposits was due to First Guaranty's efforts to reprice maturing time deposits to more attractive and lower rates. Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, which increased by $227.9 million during the three months ended March 31, 2022 to $2.2 billion as compared to the prior year period. This increase was a result of a $399.6 million increase in the average balance of interest-bearing demand deposits and a $28.6 million increase in the average balance of savings deposits, which were partially offset by a $151.9 million decrease in the average balance of time deposits and a $48.4 million decrease in the average balance of borrowings.

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The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. 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 shown below in the average balance sheet is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from 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. 
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
(in thousands except for %)Average BalanceInterestYield/Rate (6)Average BalanceInterestYield/Rate (6)
Assets
Interest-earning assets:
Interest-earning deposits with banks(1)$231,556 $102 0.18 %$275,360 $66 0.10 %
Securities (including FHLB stock)434,420 2,339 2.18 %257,763 1,525 2.40 %
Federal funds sold232 — — %448 — — %
Loans held for sale— — — %— — — %
Loans, net of unearned income(7)2,154,264 28,038 5.28 %1,911,914 23,750 5.04 %
Total interest-earning assets2,820,472 $30,479 4.38 %2,445,485 $25,341 4.20 %
Noninterest-earning assets:
Cash and due from banks18,481 11,656 
Premises and equipment, net58,393 60,226 
Other assets28,589 25,141 
Total Assets$2,925,935 $2,542,508 
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits$1,323,532 $2,276 0.70 %$923,925 $1,595 0.70 %
Savings deposits204,008 61 0.12 %175,396 52 0.12 %
Time deposits576,199 2,755 1.94 %728,112 3,520 1.96 %
Borrowings47,886 404 3.42 %96,257 572 2.41 %
Total interest-bearing liabilities2,151,625 $5,496 1.04 %1,923,690 $5,739 1.21 %
Noninterest-bearing liabilities:
Demand deposits545,013 428,310 
Other6,839 10,460 
Total Liabilities2,703,477 2,362,460 
Shareholders' equity222,458 180,048 
Total Liabilities and Shareholders' Equity$2,925,935 $2,542,508 
Net interest income$24,983 $19,602 
Net interest rate spread (2)3.34 %2.99 %
Net interest-earning assets (3)$668,847 $521,795 
Net interest margin (4), (5)3.59 %3.25 %
Average interest-earning assets to interest-bearing liabilities131.09 %127.12 %
(1)Includes Federal Reserve balances reporting 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 represents 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 3.60% and 3.26% for the above periods ended March 31, 2022 and 2021, respectively. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended March 31, 2022 and 2021, respectively.
(6)Annualized.
(7)Includes loan fees of $2.1 million and $1.3 million for the above periods ended March 31, 2022 and 2021, respectively. PPP loan fee income of $0.6 million and $0.2 million was recognized for above periods ended March 31, 2022 and 2021, respectively.
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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 and lease 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 $0.6 million provision for loan losses for the three months ended March 31, 2022 and 2021. Total charge-offs were $0.8 million for the three months ended March 31, 2022 and $0.4 million for the same period in 2021.

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. Economic uncertainty may result in additional increases to the allowance for loan and lease losses in future periods.
Noninterest Income
 
Our primary sources of recurring noninterest income are customer service fees, ATM and debit card fees, loan fees, gains on the sales 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 $2.0 million for the three months ended March 31, 2022, a decrease of $0.4 million from $2.3 million for the three months ended March 31, 2021. The decrease was primarily due to increased losses on securities sales and a negative valuation adjustment to the SBA loan servicing asset. Service charges, commissions and fees totaled $0.8 million for the three months ended March 31, 2022 and $0.7 million for the same period in 2021. ATM and debit card fees totaled $0.8 million for the three months ended March 31, 2022 and 2021. Net securities losses were $17,000 for the three months ended March 31, 2022 compared to gains of $0.1 million for the same period in 2021. The losses on securities sales primarily occurred as First Guaranty sold investment securities in order to fund loan growth and manage interest rate risk. Net losses on the sale of loans were $1,000 for the three months ended March 31, 2022 and compared to gains of $34,000 for the same period in 2021. Other noninterest income totaled $0.4 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively.


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Noninterest Expense
 
Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $16.8 million for the three months ended March 31, 2022 and $15.0 million for the three months ended March 31, 2021. Salaries and benefits expense totaled $9.0 million for the three months ended March 31, 2022 and $7.5 million for the three months ended March 31, 2021. The increase was primarily due to the increase in personnel expense from new hires including those in the Mideast market. Occupancy and equipment expense totaled $2.2 million for the three months ended March 31, 2022 and $2.3 million for the same period in 2021. Other noninterest expense totaled $5.6 million for the three months ended March 31, 2022 and $5.1 million for the same period in 2021.

The following table presents, for the periods indicated, the major categories of other noninterest expense:

 Three Months Ended March 31,
(in thousands)20222021
Other noninterest expense:  
Legal and professional fees$855 $666 
Data processing229 540 
ATM fees412 422 
Marketing and public relations377 433 
Taxes - sales, capital, and franchise362 343 
Operating supplies156 225 
Software expense and amortization926 665 
Travel and lodging245 142 
Telephone114 119 
Amortization of core deposit intangibles174 208 
Donations156 122 
Net costs from other real estate and repossessions94 110 
Regulatory assessment552 465 
Other918 672 
Total other noninterest expense$5,570 $5,132 

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 and the statutory tax rate. The provision for income taxes for the three months ended March 31, 2022 and 2021 was $2.0 million and $1.3 million, respectively. The provision for income taxes increased due to an increase in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the three months ended March 31, 2022 and 2021.







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Liquidity and Capital Resources
 
Liquidity
 
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.

First Guaranty's cash and cash equivalents totaled $132.7 million at March 31, 2022 compared to $261.9 million at December 31, 2021. Loans maturing within one year or less at March 31, 2022 totaled $399.1 million. At March 31, 2022, time deposits maturing within one year or less totaled $257.2 million compared to $267.0 million at December 31, 2021. Time deposits maturing after one year through three years totaled $258.1 million at March 31, 2022 compared to $269.7 million at December 31, 2021. Time deposits maturing after three years totaled $47.7 million at March 31, 2022 compared to $50.0 million at December 31, 2021. First Guaranty's held to maturity ("HTM") securities portfolio at March 31, 2022 was $319.6 million, or 70.6% of the investment portfolio, compared to $153.5 million, or 42.2% at December 31, 2021. First Guaranty's available for sale ("AFS") securities portfolio was $133.2 million, or 29.4% of the investment portfolio as of March 31, 2022 compared to $210.6 million, or 57.8% of the investment portfolio at December 31, 2021. The majority of the AFS portfolio was comprised of U.S. Government Treasuries, municipal bonds and investment grade corporate bonds. Management believes these securities are readily marketable and enhance First Guaranty's liquidity.
 
First Guaranty maintained a net borrowing capacity at the Federal Home Loan Bank totaling $451.2 million and $456.3 million at March 31, 2022 and December 31, 2021, respectively with no FHLB advances outstanding at March 31, 2022 compared to $3.2 million at December 31, 2021, respectively. The advance outstanding at December 31, 2021 was comprised of a long-term advance that totaled $3.2 million. First Guaranty paid off the $3.2 million long-term advance acquired from the Union acquisition in the first quarter of 2022. The change in borrowing capacity with the Federal Home Loan Bank was due to changes in the value that First Guaranty receives on pledged collateral and due to First Guaranty's usage of the line. First Guaranty has increasingly transitioned public funds deposits into reciprocal deposit programs for collateralization as an alternative to FHLB letters of credit. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $100.5 million and two revolving lines of credit totaling $26.5 million secured by a pledge of the Bank's common stock, with an outstanding balance of $10.0 million at March 31, 2022. We also have a discount window line with the Federal Reserve Bank that totaled $16.1 million at March 31, 2022. First Guaranty did not have any advances under this facility at March 31, 2022. Management believes there is sufficient liquidity to satisfy current operating needs.
 
Capital Resources
 
First Guaranty's capital position is reflected in 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 decreased to $221.8 million at March 31, 2022 from $223.9 million at December 31, 2021. The decrease in shareholders' equity was principally the result of a decrease of $7.4 million in accumulated other comprehensive income, partially offset by an increase of $5.3 million in retained earnings. The decrease in accumulated other comprehensive income was primarily attributed to the increase in unrealized losses on available for sale securities during the three months ended March 31, 2022. The $5.3 million increase in retained earnings was due to net income of $7.6 million during the three months ended March 31, 2022, partially offset by $1.7 million in cash dividends paid on shares of our common stock and $0.6 million in cash dividends paid on shares of our preferred stock.

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Regulatory Capital
 
Risk-based capital regulations adopted by the FDIC require banks to achieve and maintain specified ratios of capital to risk-weighted assets. Similar capital regulations apply to bank holding companies over $3.0 billion in assets. The risk-based capital rules are designed to measure "Tier 1" capital (consisting of common equity, retained earnings and a limited amount of qualifying perpetual preferred stock and trust preferred securities, net of goodwill and other intangible assets and accumulated other comprehensive income) and total capital in relation to the credit risk of both on- and off- balance sheet items. Under the guidelines, one of its risk weights is applied to the different on-balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting. Applicable bank holding companies and all banks must maintain a minimum total capital to total risk weighted assets ratio of 8.00%, at least half of which must be in the form of core or Tier 1 capital. These guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels.
 
In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of March 31, 2022, the Bank's capital conservation buffer was 3.38% exceeding the minimum of 2.50%.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the Federal Reserve Board has amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant nonbanking activities, (ii) do not conduct significant off-balance sheet activities, and (3) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization's complexity, are no longer subject to regulatory capital requirements, effective August 30, 2018. 

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 increased to 8.5% for the calendar year. Community banks will have until January 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. As of March 31, 2022, the Bank did not elect to follow the Community Bank Leverage Ratio.

At March 31, 2022, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements. 
 "Well Capitalized Minimums"As of March 31, 2022As of December 31, 2021
Bank:   
Tier 1 Leverage Ratio5.00 %8.80 %8.71 %
Tier 1 Risk-based Capital Ratio8.00 %10.40 %10.22 %
Total Risk-based Capital Ratio10.00 %11.38 %11.22 %
Common Equity Tier One Capital Ratio6.50 %10.40 %10.22 %

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
Asset/Liability Management and Market Risk
 
Our asset/liability management (ALM) process consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of ALM 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 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.

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The following interest sensitivity analysis is one measurement of interest rate risk. This analysis 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 March 31, 2022 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.
 
The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to repricing in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on our various asset and liability categories do not respond uniformly to changing market conditions. Interest rate risk is the degree to which interest rate fluctuations in the marketplace can affect net interest income.
 
March 31, 2022
Interest Sensitivity Within
(in thousands except for %)3 Months Or LessOver 3 Months
thru 12 Months
Total One YearOver One YearTotal
Earning Assets:     
Loans (including loans held for sale)$689,739 $135,346 $825,085 $1,406,034 $2,231,119 
Securities (including FHLB stock)1,427 50,788 52,215 401,940 454,155 
Federal Funds Sold533 — 533 — 533 
Other earning assets114,607 — 114,607 — 114,607 
Total earning assets$806,306 $186,134 $992,440 $1,807,974 $2,800,414 
Source of Funds:     
Interest-bearing accounts:     
Demand deposits$1,299,366 $— $1,299,366 $— $1,299,366 
Savings deposits205,578 — 205,578 — 205,578 
Time deposits95,267 161,947 257,214 305,811 563,025 
Short-term borrowings10,000 — 10,000 5,935 15,935 
Long-term borrowings24,359 — 24,359 — 24,359 
Junior subordinated debt— — — 14,830 14,830 
Noninterest-bearing, net— — — 677,321 677,321 
Total source of funds$1,634,570 $161,947 $1,796,517 $1,003,897 $2,800,414 
Period gap$(828,264)$24,187 $(804,077)$804,077  
Cumulative gap$(828,264)$(804,077)$(804,077)$—  
Cumulative gap as a percent of earning assets(29.6)%(28.7)%(28.7)%  

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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 March 31, 2022. Shifts are measured in 100 basis point increments (+400 through -100 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 shocks are performed against that yield curve. The second table 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 horizon. 
Instantaneous  Changes in Interest Rates (In Basis Points)
Percent Change In Net Interest Income
400(0.04)%
300(0.36)%
2001.17%
1001.71%
Base—%
(25)(0.06)%

Gradual Change in Interest Rates (In Basis Points)Percent Change In Net Interest Income
400(1.41)%
300(0.67)%
2000.03%
1000.28%
Base—%
(25)0.07%

These scenarios above are both instantaneous shocks and gradual interest rate ramps 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.
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Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As defined by the Securities and Exchange Commission in Exchange Act Rules 13a-15(e) and 15d-15(e), a Company's "disclosure controls and procedures" means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within time periods specified in the Commission's rules and forms. First Guaranty maintains such controls designed to ensure this material information is communicated to Management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decision regarding required disclosure.

Management, with the participation of the CEO and CFO, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, the CEO and CFO have concluded that the disclosure controls and procedures as of the end of the period covered by this quarterly report are effective. There were no changes in First Guaranty's internal control over financial reporting during the last fiscal quarter in the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, First Guaranty's internal control over financial reporting.
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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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 March 31, 2022 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. First Guaranty settled a case in the third quarter of 2021 for $1.1 million. A receivable for $0.9 million has been recorded for recovery through First Guaranty's insurance coverage.


Item 1A. Risk Factors

There have been no material changes to our risk factors as disclosed in First Guaranty's Annual Report on Form 10-K.
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Item 6.     Exhibits

 The following exhibits are either filed as part of this report or are incorporated herein by reference.
 
Exhibit NumberExhibit
31.1
31.2
32.1
32.2
101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.INSXBRL Instance Document.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, First Guaranty has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
FIRST GUARANTY BANCSHARES, INC.
 
Date: May 10, 2022 By: /s/ Alton B. Lewis
  Alton B. Lewis
  Principal Executive Officer
   
Date: May 10, 2022 By: /s/ Eric J. Dosch
  Eric J. Dosch
  Principal Financial Officer
  Secretary and Treasurer

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