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

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Louisiana		26-0513559
(State or other jurisdiction incorporation or organization)		(I.R.S. Employer Identification Number)
400 East Thomas Street
Hammond,	Louisiana	70401
(Address of principal executive offices)		(Zip Code)
(985)		345-7685
(Registrant's telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value	FGBI	The Nasdaq Stock Market LLC
Depository Shares (each representing a 1/40th interest in a share of 6.75% Series A Fixed-Rate Non-Cumulative perpetual preferred stock)	FGBIP	The Nasdaq Stock Market LLC

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

Yes  ☒ No ☐

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

Yes  ☒ No ☐

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

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

Smaller reporting company ☒

Emerging growth company ☐

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

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

Yes ☐ No ☒

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

Table of Contents

		Page
Part I.	Financial Information	4
Item 1.	Financial Statements (unaudited)	4
	Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	4
	Consolidated Statements of Income for the three months ended March 31, 2022 and 2021	5
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021	6
	Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2022 and 2021	7
	Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	54
Part II.	Other Information	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 6.	Exhibits	56
Signatures		57

-3-

PART I. FINANCIAL INFORMATION

Item 1.     Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited) 

(in thousands, except share data)	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents:
Cash and due from banks	$	132,209	$	261,749
Federal funds sold	533		183
Cash and cash equivalents	132,742		261,932
Investment securities:
Available for sale, at fair value	133,233		210,620
Held to maturity, at cost (estimated fair value of $292,013 and $150,585 respectively)	319,562		153,536
Investment securities	452,795		364,156
Federal Home Loan Bank stock, at cost	1,360		1,359
Loans held for sale	—		—
Loans, net of unearned income	2,231,119		2,159,359
Less: allowance for loan and lease losses	24,144		24,029
Net loans	2,206,975		2,135,330
Premises and equipment, net	58,371		58,637
Goodwill	12,900		12,900
Intangible assets, net	5,520		5,922
Other real estate, net	1,854		2,072
Accrued interest receivable	12,579		12,047
Other assets	25,027		23,765
Total Assets	$	2,910,123	$	2,878,120
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	555,966	$	532,578
Interest-bearing demand	1,299,366		1,275,544
Savings	205,578		201,699
Time	563,025		586,671
Total deposits	2,623,935		2,596,492
Short-term borrowings	10,000		—
Repurchase agreements	6,103		6,439
Accrued interest payable	3,584		4,480
Long-term advances from Federal Home Loan Bank	—		3,208
Senior long-term debt	24,359		25,170
Junior subordinated debentures	14,830		14,818
Other liabilities	5,560		3,624
Total Liabilities	2,688,371		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
Surplus	130,093		130,093
Retained earnings	61,942		56,654
Accumulated other comprehensive (loss) income	(14,058)		(6,633)
Total Shareholders' Equity	221,752		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)	2022		2021
Interest Income:
Loans (including fees)	$	28,038	$	23,750
Deposits with other banks	102		66
Securities (including FHLB stock)	2,339		1,525
Total Interest Income	30,479		25,341
Interest Expense:
Demand deposits	2,276		1,595
Savings deposits	61		52
Time deposits	2,755		3,520
Borrowings	404		572
Total Interest Expense	5,496		5,739
Net Interest Income	24,983		19,602
Less: Provision for loan losses	632		608
Net Interest Income after Provision for Loan Losses	24,351		18,994
Noninterest Income:
Service charges, commissions and fees	777		721
ATM and debit card fees	823		843
Net (losses) gains on securities	(17)		95
Net (losses) gains on sale of loans	(1)		34
Other	380		633
Total Noninterest Income	1,962		2,326
Noninterest Expense:
Salaries and employee benefits	8,980		7,535
Occupancy and equipment expense	2,201		2,321
Other	5,570		5,132
Total Noninterest Expense	16,751		14,988
Income Before Income Taxes	9,562		6,332
Less: Provision for income taxes	1,977		1,309
Net Income	7,585		5,023
Less: Preferred stock dividends	582		—
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 Outstanding	10,716,796		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)	2022		2021
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 income	17		(95)
Change in unrealized (losses) gains on securities	(9,399)		(7,291)
Tax impact	1,974		1,531
Other comprehensive (loss) income	(7,425)		(5,760)
Comprehensive Income (Loss)	$	160	$	(737)
See Notes to Consolidated Financial Statements

-6-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) 

	Preferred Stock $1,000 Par		Common Stock $1 Par		Surplus		Retained 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)	2022		2021
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 losses	632		608
Depreciation and amortization	630		1,173
Amortization/Accretion of investments	164		17
Loss (gain) on sale/call of securities	17		(95)
Loss (gain) on sale of assets	1		(42)
Repossessed asset write downs, gains and losses on dispositions	9		54
FHLB stock dividends	(1)		(6)
Change in other assets and liabilities, net	(711)		(1,286)
Net Cash Provided By Operating Activities	8,326		5,446
Cash Flows From Investing Activities
Proceeds from maturities, calls and sales of AFS securities	3,426		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	—		8
Proceeds from sales of other real estate owned	686		212
Net Cash Used In Investing Activities	(168,980)		(109,327)
Cash Flows From Financing Activities
Net increase in deposits	27,443		148,352
Net increase (decrease) in federal funds purchased and short-term borrowings	9,664		(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 Activities	31,464		95,326
Net Decrease In Cash and Cash Equivalents	(129,190)		(8,555)
Cash and Cash Equivalents at the Beginning of the Period	261,932		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, 2022								December 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale:
U.S. Treasuries	$	101,580	$	—	$	(1,586)	$	99,994	$	—	$	—	$	—	$	—
U.S. Government Agencies	—		—		—		—		116,733		—		(623)		116,110
Corporate debt securities	16,750		286		(71)		16,965		79,344		732		(1,851)		78,225
Municipal bonds	15,221		641		(95)		15,767		15,543		156		—		15,699
Mortgage-backed securities	523		—		(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 securities	54,844		1		(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 Cost		Fair Value
Available for sale:
Due in one year or less	$	51,257	$	50,855
Due after one year through five years	54,287		53,154
Due after five years through 10 years	20,010		20,414
Over 10 years	7,997		8,303
Subtotal	133,551		132,726
Mortgage-backed securities	523		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 years	351		307
Due after five years through 10 years	73,956		70,056
Over 10 years	245,255		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 Months					12 Months or More					Total
(in thousands)	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries	6	$	99,994	$	(1,586)	—	$	—	$	—	6	$	99,994	$	(1,586)
Corporate debt securities	4	3,429		(71)		—	—		—		4	3,429		(71)
Municipal bonds	33	2,784		(95)		—	—		—		33	2,784		(95)
Mortgage-backed securities	1	498		(16)		6	8		—		7	506		(16)
Total available for sale securities	44	$	106,705	$	(1,768)	6	$	8	$	—	50	$	106,713	$	(1,768)
Held to maturity:
U.S. Government Agencies	29	$	239,244	$	(25,474)	—	$	—	$	—	29	$	239,244	$	(25,474)
Corporate debt securities	58	52,522		(2,076)		—	—		—		58	52,522		(2,076)
Total held to maturity securities	87	$	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 Months					12 Months or More					Total
(in thousands)	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
U.S. Government Agencies	13	116,110		(623)		—	—		—		13	116,110		(623)
Corporate debt securities	61	61,551		(1,677)		2	445		(174)		63	61,996		(1,851)
Municipal bonds	1	66		—		—	—		—		1	66		—
Mortgage-backed securities	—	—		—		6	9		—		6	9		—
Total available for sale securities	75	$	177,727	$	(2,300)	8	$	454	$	(174)	83	$	178,181	$	(2,474)
Held to maturity:
U.S. Government Agencies	16	$	150,585	$	(2,951)	—	$	—	$	—	16	$	150,585	$	(2,951)
Total held to maturity securities	16	$	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.

-13-

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 Cost		Fair 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, 2022				December 31, 2021
(in thousands except for %)	Balance		As % of Category		Balance		As % of Category
Real Estate:
Construction & land development	$	200,504	9.0	%	$	174,334	8.1	%
Farmland	31,840		1.4	%	31,810		1.5	%
1- 4 Family	293,773		13.1	%	288,347		13.3	%
Multifamily	69,264		3.1	%	65,848		3.0	%
Non-farm non-residential	894,105		40.0	%	886,407		40.9	%
Total Real Estate	1,489,486		66.6	%	1,446,746		66.8	%
Non-Real Estate:
Agricultural	28,850		1.3	%	26,747		1.2	%
Commercial and industrial (1)	412,672		18.4	%	398,391		18.4	%
Commercial leases	257,323		11.5	%	246,022		11.4	%
Consumer and other	48,702		2.2	%	48,142		2.2	%
Total Non-Real Estate	747,547		33.4	%	719,302		33.2	%
Total Loans Before Unearned Income	2,237,033		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, 2022						December 31, 2021
(in thousands)	Fixed		Floating		Total		Fixed		Floating		Total
One year or less	$	240,982	$	158,143	$	399,125	$	239,423	$	117,697	$	357,120
More than one to five years	913,130		368,434		1,281,564		926,640		385,509		1,312,149
More than five to 15 years	144,797		112,988		257,785		114,976		106,579		221,555
Over 15 years	195,068		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 Due		90 Days or Greater		Total Past Due		Current		Total Loans		Recorded 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 family	4,872		3,436		8,308		285,465		293,773		170
Multifamily	557		162		719		68,545		69,264		162
Non-farm non-residential	1,878		8,650		10,528		883,577		894,105		478
Total Real Estate	8,378		12,817		21,195		1,468,291		1,489,486		831
Non-Real Estate:
Agricultural	285		1,690		1,975		26,875		28,850		—
Commercial and industrial	689		794		1,483		411,189		412,672		123
Commercial leases	153		—		153		257,170		257,323		—
Consumer and other	2,317		784		3,101		45,601		48,702		—
Total Non-Real Estate	3,444		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 Due		90 Days or Greater		Total Past Due		Current		Total Loans		Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	956	$	776	$	1,732	$	172,602	$	174,334	$	246
Farmland	17		787		804		31,006		31,810		—
1- 4 family	3,932		3,375		7,307		281,040		288,347		514
Multifamily	1,669		162		1,831		64,017		65,848		162
Non-farm non-residential	1,352		9,014		10,366		876,041		886,407		281
Total Real Estate	7,926		14,114		22,040		1,424,706		1,446,746		1,203
Non-Real Estate:
Agricultural	97		2,302		2,399		24,348		26,747		—
Commercial and industrial	1,233		722		1,955		396,436		398,391		23
Commercial leases	—		—		—		246,022		246,022		—
Consumer and other	920		822		1,742		46,400		48,142		19
Total Non-Real Estate	2,250		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, 2022		As of December 31, 2021
Real Estate:
Construction & land development	$	257	$	530
Farmland	291		787
1- 4 family	3,266		2,861
Multifamily	—		—
Non-farm non-residential	8,172		8,733
Total Real Estate	11,986		12,911
Non-Real Estate:
Agricultural	1,690		2,302
Commercial and industrial	671		699
Commercial leases	—		—
Consumer and other	784		803
Total Non-Real Estate	3,145		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, 2022										As of December 31, 2021
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	184,904	$	14,845	$	755	$	—	$	200,504	$	151,220	$	21,997	$	1,117	$	—	$	174,334
Farmland	27,708		40		4,092		—		31,840		27,678		40		4,092		—		31,810
1- 4 family	277,674		6,907		9,192		—		293,773		270,866		7,644		9,837		—		288,347
Multifamily	61,893		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 Estate	1,361,593		89,619		38,274		—		1,489,486		1,301,945		103,996		40,805		—		1,446,746
Non-Real Estate:
Agricultural	26,284		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 leases	257,170		—		153		—		257,323		245,869		—		153		—		246,022
Consumer and other	46,186		1,561		955		—		48,702		46,804		374		964		—		48,142
Total Non-Real Estate	730,973		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, 2022		As of December 31, 2021
Real Estate:
Construction & land development	$	144	$	146
Farmland	—		—
1- 4 family	1,704		1,848
Multifamily	—		—
Non-farm non-residential	2,221		2,192
Total Real Estate	4,069		4,186
Non-Real Estate:
Agricultural	—		159
Commercial and industrial	783		798
Commercial leases	—		—
Consumer and other	—		—
Total Non-Real Estate	783		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, 2022		Three 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,
	2022										2021
(in thousands)	Beginning Allowance (12/31/2021)		Charge-offs		Recoveries		Provision		Ending Allowance (3/31/2022)		Beginning Allowance (12/31/2020)		Charge-offs		Recoveries		Provision		Ending Allowance (3/31/2021)
Real Estate:
Construction & land development	$	769	$	(65)	$	16	$	21	$	741	$	1,029	$	—	$	—	$	(208)	$	821
Farmland	478		—		—		(15)		463		462		—		1		(26)		437
1- 4 family	1,921		(36)		8		(27)		1,866		2,510		(17)		10		(256)		2,247
Multifamily	940		—		1		20		961		978		—		—		242		1,220
Non-farm non-residential	12,730		(73)		132		434		13,223		15,064		—		—		(897)		14,167
Total Real Estate	16,838		(174)		157		433		17,254		20,043		(17)		11		(1,145)		18,892
Non-Real Estate:
Agricultural	183		(119)		—		82		146		181		—		—		(15)		166
Commercial and industrial	2,363		(132)		48		61		2,340		2,802		(60)		11		(349)		2,404
Commercial leases	2,486		—		—		(39)		2,447		583		—		—		1,631		2,214
Consumer and other	1,371		(411)		114		332		1,406		907		(362)		83		338		966
Unallocated	788		—		—		(237)		551		2		—		—		148		150
Total Non-Real Estate	7,191		(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-Impairment		Allowance Collectively Evaluated for Impairment		Total Allowance for Credit Losses		Loans Individually Evaluated for Impairment		Loans Individually Evaluated for Purchased Credit-Impairment		Loans 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 Estate	1,790		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 industrial	67		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 Estate	67		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-Impairment		Allowance Collectively Evaluated for Impairment		Total Allowance for Credit Losses		Loans Individually Evaluated for Impairment		Loans Individually Evaluated for Purchased Credit-Impairment		Loans Collectively Evaluated for Impairment		Total Loans before Unearned Income
Real Estate:
Construction & land development	$	—	$	—	$	769	$	769	$	—	$	146	$	174,188	$	174,334
Farmland	19		—		459		478		496		—		31,314		31,810
1- 4 family	258		—		1,663		1,921		961		1,848		285,538		288,347
Multifamily	—		—		940		940		—		—		65,848		65,848
Non-farm non-residential	1,822		509		10,399		12,730		10,899		2,192		873,316		886,407
Total Real Estate	2,099		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 industrial	72		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 Estate	72		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-residential	6,333		7,035		—		6,370		79		28
Total Real Estate	6,333		7,035		—		6,370		79		28
Non-Real Estate:
Agricultural	939		1,093		—		939		—		—
Commercial and industrial	—		—		—		—		—		—
Commercial leases	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	939		1,093		—		939		—		—
Total Impaired Loans with no related allowance	7,272		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-residential	3,464		3,745		1,790		3,474		1		1
Total Real Estate	3,464		3,745		1,790		3,474		1		1
Non-Real Estate:
Agricultural	—		—		—		—		—		—
Commercial and industrial	796		795		67		799		8		9
Commercial leases	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	796		795		67		799		8		9
Total Impaired Loans with an allowance recorded	4,260		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-residential	5,164		5,818		—		5,935		137		101
Total Real Estate	5,164		5,818		—		5,935		137		101
Non-Real Estate:
Agricultural	1,383		1,668		—		1,412		—		—
Commercial and industrial	470		470		—		479		30		33
Commercial leases	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	1,853		2,138		—		1,891		30		33
Total Impaired Loans with no related allowance	7,017		7,956		—		7,826		167		134
Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development	—		—		—		—		—		—
Farmland	496		626		19		515		—		—
1- 4 family	961		961		258		968		56		62
Multifamily	—		—		—		—		—		—
Non-farm non-residential	5,735		5,996		1,822		5,842		90		95
Total Real Estate	7,192		7,583		2,099		7,325		146		157
Non-Real Estate:
Agricultural	—		—		—		—		—		—
Commercial and industrial	816		816		72		875		28		52
Commercial leases	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	816		816		72		875		28		52
Total Impaired Loans with an allowance recorded	8,008		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, 2022								December 31, 2021
	Accruing Loans								Accruing Loans
(in thousands)	Current		30-89 Days Past Due		Nonaccrual		Total TDRs		Current		30-89 Days Past Due		Nonaccrual		Total 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, 2021		New TDRs		Charge-offs post-modification		Transferred to ORE		Paydowns		Construction to permanent financing		Restructured to market terms		Other adjustments		Ending balance March 31, 2022
Real Estate:
Construction & land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland	—		—		—		—		—		—		—		—		—
1- 4 family	—		—		—		—		—		—		—		—		—
Multifamily	—		—		—		—		—		—		—		—		—
Non-farm non-residential	3,382		—		—		—		(36)		—		—		(3,346)		—
Total Real Estate	3,382		—		—		—		(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)		$	—

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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, 2022		December 31, 2021
Real Estate Owned Acquired by Foreclosure:
Residential	$	362	$	817
Construction & land development	—		—
Non-farm non-residential	2,165		1,776
Total Other Real Estate Owned and Foreclosed Property	2,527		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.

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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, 2022		December 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.

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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, 2022		December 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 Inputs	21,418		198,315
Level 3: Significant Unobservable Inputs	11,821		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, 2022		At 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 Inputs	8,315		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 Inputs	362		817
Level 3: Significant Unobservable Inputs	1,492		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 Amount		Level 1		Level 2		Level 3		Total
Assets
Cash and due from banks	$	132,209	$	132,209	$	—	$	—	$	132,209
Federal funds sold	533		533		—		—		533
Securities, available for sale	133,233		99,994		21,418		11,821		133,233
Securities, held for maturity	319,562		—		292,013		—		292,013
Loans held for sale	—		—		—		—		—
Loans, net	2,206,975		—		—		2,212,736		2,212,736
Cash surrender value of BOLI	5,603		—		—		5,603		5,603
Accrued interest receivable	12,579		—		—		12,579		12,579
Liabilities
Deposits	$	2,623,935	$	—	$	—	$	2,632,019	2,632,019
Short-term borrowings	10,000		—		—		10,000		10,000
Repurchase agreements	6,103		—		—		6,121		6,121
Accrued interest payable	3,584		—		—		3,584		3,584
Long-term advances from Federal Home Loan Bank	—		—		—		—		—
Senior long-term debt	24,359		—		—		24,375		24,375
Junior subordinated debentures	14,830		—		—		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 Amount		Level 1		Level 2		Level 3		Total
Assets
Cash and due from banks	$	261,749	$	261,749	$	—	$	—	$	261,749
Federal funds sold	183		183		—		—		183
Securities, available for sale	210,620		—		198,315		12,305		210,620
Securities, held for maturity	153,536		—		150,585		—		150,585
Loans, net	2,135,330		—		—		2,152,590		2,152,590
Cash surrender value of BOLI	5,568		—		—		5,568		5,568
Accrued interest receivable	12,047		—		—		12,047		12,047
Liabilities
Deposits	$	2,596,492	$	—	$	—	$	2,606,635	2,606,635
Short-term borrowings	—		—		—		—		—
Repurchase agreements	6,439		—		—		6,462		6,462
Accrued interest payable	4,480		—		—		4,480		4,480
Long-term advances from Federal Home Loan Bank	3,208		—		—		3,208		3,208
Senior long-term debt	25,170		—		—		25,187		25,187
Junior subordinated debentures	14,818		—		—		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.

-31-

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, 2022			December 31, 2021
Nonaccrual loans:
Real Estate:
Construction and land development	$	257		$	530
Farmland	291			787
1- 4 family	3,266			2,861
Multifamily	—			—
Non-farm non-residential	8,172			8,733
Total Real Estate	11,986			12,911
Non-Real Estate:
Agricultural	1,690			2,302
Commercial and industrial	671			699
Commercial leases	—			—
Consumer and other	784			803
Total Non-Real Estate	3,145			3,804
Total nonaccrual loans	15,131			16,715
Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development	21			246
Farmland	—			—
1- 4 family	170			514
Multifamily	162			162
Non-farm non-residential	478			281
Total Real Estate	831			1,203
Non-Real Estate:
Agricultural	—			—
Commercial and industrial	123			23
Commercial leases	—			—
Consumer and other	—			19
Total Non-Real Estate	123			42
Total loans 90 days and greater delinquent & accruing	954			1,245
Total non-performing loans	16,085			17,960
Real Estate Owned:
Construction and land development	—			—
Farmland	—			—
1- 4 family	362			817
Multifamily	—			—
Non-farm non-residential	1,492			1,255
Total Real Estate Owned	1,854			2,072
Total non-performing assets	$	17,939		$	20,032
Non-performing assets to total loans	0.80		%	0.93		%
Non-performing assets to total assets	0.62		%	0.70		%
Non-performing loans to total loans	0.72		%	0.83		%
Nonaccrual loans to total loans	0.68		%	0.77		%
Allowance for loan and lease losses to nonaccrual loans	159.57		%	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, 2022		December 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)
Recoveries	319		105
Provision	632		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 Deposits	For the Three Months Ended March 31,						For the Years Ended December 31,
	2022						2021						2020
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	545,013	20.6	%	—	%	$	477,802	19.8	%	—	%	$	393,734	19.2	%	—	%
Interest-bearing Demand	1,323,532		50.0	%	0.7	%	1,082,922		45.0	%	0.7	%	722,433		35.3	%	0.8	%
Savings	204,008		7.7	%	0.1	%	191,967		8.0	%	0.1	%	163,332		8.0	%	0.2	%
Time	576,199		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 Deposits	For the Three Months Ended March 31,						For the Years Ended December 31,
	2022						2021						2020
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	538,267	32.6	%	—	%	$	471,371	29.7	%	—	%	$	382,940	27.5	%	—	%
Interest-bearing Demand	406,721		24.6	%	1.1	%	390,481		24.6	%	1.0	%	280,587		20.1	%	1.0	%
Savings	164,417		9.9	%	0.1	%	154,560		9.8	%	0.1	%	127,804		9.2	%	0.1	%
Time	544,580		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 Deposits	For the Three Months Ended March 31,						For the Years Ended December 31,
	2022						2021						2020
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	6,746	0.7	%	—	%	$	6,431	0.8	%	—	%	$	10,794	1.7	%	—	%
Interest-bearing Demand	916,811		92.1	%	0.5	%	692,441		84.3	%	0.5	%	441,846		67.5	%	0.7	%
Savings	39,591		4.0	%	0.3	%	37,407		4.5	%	0.2	%	35,528		5.4	%	0.4	%
Time	31,619		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 $250,000	209,046
Time deposits of more than $250,000	151,442
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 years	69,970
Due after three years	6,975
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, 2022			December 31, 2021			December 31, 2020			December 31, 2019			December 31, 2018
Public Funds:
Noninterest-bearing Demand	$	6,162		$	5,919		$	5,109		$	9,944		$	6,930
Interest-bearing Demand	901,194			882,156			514,416			424,732			364,692
Savings	40,372			38,432			36,862			29,570			26,903
Time	31,792			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 Deposits	37.3		%	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, 2022						Three Months Ended March 31, 2021
(in thousands except for %)	Average Balance		Interest		Yield/Rate (6)		Average Balance		Interest		Yield/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 sold	232		—		—	%	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 assets	2,820,472		$	30,479	4.38	%	2,445,485		$	25,341	4.20	%
Noninterest-earning assets:
Cash and due from banks	18,481						11,656
Premises and equipment, net	58,393						60,226
Other assets	28,589						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 deposits	204,008		61		0.12	%	175,396		52		0.12	%
Time deposits	576,199		2,755		1.94	%	728,112		3,520		1.96	%
Borrowings	47,886		404		3.42	%	96,257		572		2.41	%
Total interest-bearing liabilities	2,151,625		$	5,496	1.04	%	1,923,690		$	5,739	1.21	%
Noninterest-bearing liabilities:
Demand deposits	545,013						428,310
Other	6,839						10,460
Total Liabilities	2,703,477						2,362,460
Shareholders' equity	222,458						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 liabilities					131.09	%					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)	2022		2021
Other noninterest expense:
Legal and professional fees	$	855	$	666
Data processing	229		540
ATM fees	412		422
Marketing and public relations	377		433
Taxes - sales, capital, and franchise	362		343
Operating supplies	156		225
Software expense and amortization	926		665
Travel and lodging	245		142
Telephone	114		119
Amortization of core deposit intangibles	174		208
Donations	156		122
Net costs from other real estate and repossessions	94		110
Regulatory assessment	552		465
Other	918		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, 2022		As of December 31, 2021
Bank:
Tier 1 Leverage Ratio	5.00	%	8.80	%	8.71	%
Tier 1 Risk-based Capital Ratio	8.00	%	10.40	%	10.22	%
Total Risk-based Capital Ratio	10.00	%	11.38	%	11.22	%
Common Equity Tier One Capital Ratio	6.50	%	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 Less			Over 3 Months thru 12 Months			Total One Year			Over One Year		Total
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 Sold	533			—			533			—		533
Other earning assets	114,607			—			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 deposits	205,578			—			205,578			—		205,578
Time deposits	95,267			161,947			257,214			305,811		563,025
Short-term borrowings	10,000			—			10,000			5,935		15,935
Long-term borrowings	24,359			—			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)%
200	1.17%
100	1.71%
Base	—%
(25)	(0.06)%

Gradual Change in Interest Rates (In Basis Points)	Percent Change In Net Interest Income
400	(1.41)%
300	(0.67)%
200	0.03%
100	0.28%
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 Number	Exhibit
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.
101.LAB	XBRL Taxonomy Extension Label Linkbase.
101.INS	XBRL 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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