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Item 7. Management’s Discussion and Analysis

2021-03-16 compared with 2020-03-16 · 416 added, 347 removed, 771 unchanged (50% of the section changed)

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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;

These forward-looking statements are subject to a number of factors and uncertainties, including, but not limited to, changes in general economic conditions, either nationally or in our market areas, that are worse than expected;

the impact of the COVID-19 pandemic;

competition among depository and other financial institutions;

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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.

First Guaranty continued to expand in the Louisiana markets in 2019 with the acquisition of Union Bancshares, Incorporated and its wholly owned subsidiary, The Union Bank on November 7, 2019.

Total assets were $2.5 billion at December 31, 2020 and $2.1 billion at December 31, 2019.

Total deposits were $2.2 billion at December 31, 2020 and $1.9 billion at December 31, 2019.

Total loans were $1.5 billion at December 31, 2019 , an increase of $300.2 million , or 24.5% , compared with December 31, 2018 .

Total loans were $1.8 billion at December 31, 2020, an increase of $318.6 million, or 20.9%, compared with $1.5 billion at December 31, 2019.

Total shareholders' equity was $178.6 million and $166.0 million at December 31, 2020 and December 31, 2019, respectively.

Net income was $20.3 million, $14.2 million and $14.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We generate most of our revenues from interest income on loans, interest income on securities, sales of securities and service charges, commissions and fees.

We generate most of our revenues from interest income on loans, interest income on securities, sales of securities, ATM and debit card fees and service charges, commissions and fees.

We incur interest expense on deposits and other borrowed funds and noninterest expense such as salaries and employee benefits and occupancy and equipment expenses.

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Changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets.

Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions, conditions in domestic and foreign financial markets and in 2020 the economic and social effects of the COVID-19 pandemic.

Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Louisiana, Texas and our other out-of-state market areas.

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Financial highlights for 2020 and 2019:

First Guaranty completed its merger with Union Bancshares, Incorporated.

("Union") and its wholly owned subsidiary, The Union Bank, on November 7, 2019.

First Guaranty acquired a total of $274.8 million in assets and assumed $231.5 million in liabilities.

Shareholders of Union received $1,061.20 per share in cash, yielding an aggregate deal value of $43.4 million.

The cash consideration was partially financed by a $32.5 million term loan from First Horizon Bank.

First Guaranty acquired a total of $184.2 million in loans, securities of $38.8 million , cash and due from banks of $20.1 million , premises of $7.2 million , other real estate owned of $1.6 million and other assets that totaled $9.3 million .

Intangibles recorded from the transaction were a total of $13.7 million , including goodwill of $9.5 million .

Total assumed liabilities included deposits of $205.0 million , FHLB advances of $16.6 million , repurchase agreements of $6.9 million and other liabilities of $3.0 million .

Expenses related to the merger totaled approximately $0.3 million in 2019.

• Total assets at December 31, 2020 increased $355.9 million, or 16.8%, to $2.5 billion when compared with December 31, 2019.

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Shareholders' equity was $178.6 million and $166.0 million at December 31, 2020 and December 31, 2019, respectively.

Net income for each of the years ended December 31, 2019 and 2018 was $14.2 million .

Earnings per common share were $1.47 for each of the years ended December 31, 2019 and 2018 .

• Net income for each of the years ended December 31, 2020 and 2019 was $20.3 million and $14.2 million, respectively.

• Earnings per common share were $2.09 for the year ended December 31, 2020 and $1.47 for the year ended December 31, 2019.

Total weighted average shares outstanding were 9,741,253 at December 31, 2020 compared to 9,695,131 at December 31, 2019.

The change in shares was due to issuance of 54,130 shares of stock in a private placement in November of 2019.

Net interest income for 2019 was $61.7 million compared to $57.0 million for 2018 .

The increase in shares was due to the issuance of 54,130 shares of stock in a private placement in November 2019.

• The allowance for loan losses was 1.33% of loans at December 31, 2020 compared to 0.72% at December 31, 2019.

First Guaranty attributes the increase in the allowance to provisions made for the COVID-19 pandemic, for growth in the loan portfolio and other identified risks.

Loan discounts related to acquisition accounting from the Union transaction was approximately $1.8 million at December 31, 2020.

First Guaranty had $92.3 million at December 31, 2020 of SBA guaranteed PPP loans (as defined below) that have no related allowance due to the 100% government guarantee in accordance with regulatory guidance.

• The provision for loan losses totaled $14.9 million for 2020 compared to $4.9 million in 2019.

First Guaranty received a $3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan on May 9, 2018.

The payment resulted in a recovery of $1.6 million.

The recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018.

The impact of the COVID-19 pandemic, growth in the loan portfolio and other identified risks were the main factors that resulted in an increased provision for 2020 compared to 2019.

• First Guaranty undertook several COVID-19 related actions during 2020 that began in the first quarter of 2020.

First Guaranty increased on-balance sheet liquidity by approximately $100 million prior to March 31, 2020 through borrowings with the FHLB and brokered deposits.

These borrowings remained at December 31, 2020.

First Guaranty is participating in the SBA Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

The CARES Act authorized the SBA to guarantee loans under a new 7(a) loan program known as the PPP.

As a qualified SBA lender, we were automatically authorized to originate PPP loans.

The SBA will guarantee 100% of the PPP loans made to eligible borrowers.

First Guaranty funded over 900 loans under the SBA PPP program that totaled approximately $111.1 million at the peak of the program.

Fees generated by the SBA PPP program were $3.4 million.

$2.2 million in fees were recognized in 2020.

$1.2 million in fees were deferred as of December 31, 2020.

First Guaranty has processed forgiveness applications for PPP loans with payoffs of $19.0 million in the fourth quarter of 2020.

First Guaranty also waived service related charges and other fees for several weeks following the onset of the COVID-19 crisis.

• First Guaranty originally granted loan deferments to over 1,000 loans that totaled approximately $590 million as part of its COVID-19 related actions during 2020.

These deferments were typically for 90 days.

As of December 31, 2020, approximately $18.3 million of these loans remain on deferral status.

• First Guaranty, in furtherance of the strategy adopted in March 2020, initiated a plan to manage for economic uncertainty by converting unrealized gains in the securities portfolio to realized gains in the fourth quarter of 2020.

First Guaranty sold approximately $140 million in mortgage-backed securities and $150 million in corporate securities in October 2020.

First Guaranty generated $12.1 million in pre-tax gains from the sales.

First Guaranty has proceeded to reinvest the proceeds in securities and loans and subsequently reduced FHLB borrowings by $50.0 million in February 2021.

• Net interest income for 2020 was $74.7 million compared to $61.7 million for 2019.

• Noninterest income for 2020 was $23.8 million compared to $8.3 million for 2019.

During the third quarter of 2019, First Guaranty sold the guaranteed portion of SBA and USDA loans which generated a gain on the sale of loans of $1.4 million.

The net interest margin was 3.41% for 2019 and 2018 .

First Guaranty attributed the stable net interest margin to a rise in interest income associated with loans and the change in balance sheet composition to higher yielding loans from lower yielding securities, partially offset by a rise in interest expense associated with interest-bearing deposits.

• The net interest margin was 3.35% for 2020 and 3.41% for 2019.

First Guaranty attributed the decrease in the net interest margin to the significant actions related to COVID-19 that impacted balance sheet composition for both assets and liabilities along with decreased rates on assets and liabilities.

Loans as a percentage of average interest earning assets increased to 74.7% at December 31, 2020 compared to 72.7% at December 31, 2019.

Investment securities totaled $427.0 million at December 31, 2019 , an increase of $21.7 million when compared to $405.3 million at December 31, 2018 .

First Guaranty acquired $38.8 million in securities from the Union acquisition and sold securities in order to fund loan growth and reduce interest rate risk.

Losses on the sale of securities were $0.2 million for 2019 as compared to losses of $1.8 million for 2018.

At December 31, 2019 , available for sale securities, at fair value, totaled $340.4 million , an increase of $43.5 million when compared to $297.0 million at December 31, 2018 .

At December 31, 2019 , held to maturity securities, at amortized cost, totaled $86.6 million , a decrease of $21.7 million when compared to $108.3 million at December 31, 2018 .

• Investment securities totaled $238.5 million at December 31, 2020, a decrease of $188.0 million when compared to $426.5 million at December 31, 2019.

Gains on the sale of securities were $14.8 million for 2020 as compared to losses of $0.2 million for 2019.

At December 31, 2020, available for sale securities, at fair value, totaled $238.5 million, a decrease of $101.4 million when compared to $339.9 million at December 31, 2019.

At December 31, 2020, held to maturity securities, at amortized cost, totaled $0, a decrease of $86.6 million when compared December 31, 2019.

First Guaranty terminated its held to maturity securities portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity.

• Total loans net of unearned income were $1.8 billion at December 31, 2020 compared to $1.5 billion at December 31, 2019.

Total loans net of unearned income are reduced by the allowance for loan losses which totaled $24.5 million at December 31, 2020 and $10.9 million at December 31, 2019.

Total impaired loans increased $11.9 million to $20.7 million at December 31, 2019 compared to $8.8 million at December 31, 2018 .

• Total impaired loans decreased $4.8 million to $15.9 million at December 31, 2020 compared to $20.7 million at December 31, 2019.

• Nonaccrual loans increased $1.2 million to $15.6 million at December 31, 2020 compared to $14.4 million at December 31, 2019.

The allowance for loan losses was 0.72% of loans at December 31, 2019 .

Loan discounts related to acquisition accounting from the Union transaction was approximately $2.4 million at December 31, 2019 .

• Return on average assets was 0.87% and 0.76% for the years ended December 31, 2020 and 2019, respectively.

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Return on average assets is calculated by dividing net income by average assets.

Return on average common equity is calculated by dividing net income to common shareholders by average common equity.

Return on average common equity is calculated by dividing net income by average common equity.

• Book value per common share was $18.33 as of December 31, 2020 compared to $17.04 as of December 31, 2019.

Tangible book value per common share was $16.41 as of December 31, 2020 compared to $15.05 as of December 31, 2019.

The increase in book value was due primarily to an increase in accumulated other comprehensive income ("AOCI") and retained earnings.

The increase in book value was due primarily to an increase in retained earnings, offset by a decrease in accumulated other comprehensive income ("AOCI").

AOCI is comprised of unrealized gains and losses on available for sale securities.

First Guaranty's Board of Directors declared cash dividends of $0.64 per common share in 2019 , which was the equivalent of $0.60 per common share after adjusting for the 10% common stock dividend paid in December 2019.

• First Guaranty's Board of Directors declared cash dividends of $0.64 per common share in 2020.

First Guaranty also declared cash dividends of $0.64 in 2019, which was the equivalent of $0.60 per common share after adjusting for the 10% common stock dividend paid in December 2019.

First Guaranty has paid 110 consecutive quarterly dividends as of December 31, 2020.

In November 2017, First Guaranty announced the launch of an At-The-Market Equity Offering program ("ATM Offering").

First Guaranty may sell up to $25.0 million of common stock under the ATM Offering.

First Guaranty expects to use the net proceeds of the ATM Offering for general corporate purposes, including support for organic growth and financing possible acquisitions of other financial institutions.

First Guaranty has not sold any shares of common stock under the ATM Offering during the years ended December 31, 2019 and 2018 .

• First Guaranty terminated its At-The-Market Equity Offering program ("ATM Offering").

First Guaranty did not sell any shares of common stock under the ATM Offering during 2020 or 2019.

First Guaranty renewed its shelf registration in the fourth quarter of 2020.

• First Guaranty completed the data conversion with the Union Bancshares, Incorporated acquisition.

Total one-time merger related costs were $0.5 million for 2020.

The data conversion was completed on March 27, 2020.

• First Guaranty currently has one new facility under construction in order to facilitate future expansion.

This construction commitment totals $11.4 million with $11.1 million incurred as of December 31, 2020.

First Guaranty also completed construction on a new branch facility in Amite, Louisiana during the fourth quarter of 2019.

Application of Critical Accounting Policies

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The general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors.

Qualitative factors include analysis of levels and trends in delinquencies, nonaccrual loans, charge-offs and recoveries, loan risk ratings, trends in volume and terms of loans, changes in lending policy, credit concentrations, portfolio stress test results, national and local economic trends including the impact of COVID-19, industry conditions, and other relevant factors.

An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses.

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Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill.

If the implied fair value is less than the carrying amount, a loss would be recognized in other noninterest expense to reduce the carrying amount to implied fair value of goodwill.

Our goodwill impairment test includes two steps that are preceded by a "step zero" qualitative test.

If the reporting unit fair value is less than the carrying amount, a loss would be recognized in other noninterest expense to reduce the carrying amount.

The qualitative test allows management to assess whether qualitative factors indicate that it is more likely than not that impairment exists.

If it is not more likely than not that impairment exists, then the two step quantitative test would not be necessary.

These qualitative indicators include factors such as earnings, share price, market conditions, etc.

If the qualitative factors indicate that it is more likely than not that impairment exists, then the two step quantitative test would be necessary.

Step one is used to identify potential impairment and compares the estimated fair value of a reporting unit with its carrying amount, including goodwill.

If the qualitative factors indicate that it is more likely than not that impairment exists, then the quantitative assessment would be necessary.

The step one test compares the estimated fair value of a reporting unit with its carrying amount, including goodwill.

If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired.

If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

Step two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill.

If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit's goodwill, an impairment loss is recognized in an amount equal to the excess.

If the carrying amount of goodwill for that reporting unit exceeds the estimated fair value of that unit's goodwill, an impairment loss is recognized in an amount equal to the excess.

First Guaranty concluded goodwill was not impaired as of October 1, 2020.

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Financial Condition

First Guaranty completed the acquisition of Union and its wholly owned subsidiary The Union Bank on November 7, 2019.

This acquisition added seven branches, $205.0 million in deposits, and $184.2 million in loans to First Guaranty's balance sheet.

The results of operations since the date of acquisition reflect the impact of the transaction.

Our total assets were $2.1 billion at December 31, 2019 , an increase of $300.0 million , or 16.5% , from total assets at December 31, 2018 .

Assets increased primarily due to increases in net loans of $300.1 million and investment securities of $21.7 million , partially offset by a decrease in cash and cash equivalents of $60.5 million .

Our total assets were $2.5 billion at December 31, 2020, an increase of $355.9 million, or 16.8%, from total assets of $2.1 billion at December 31, 2019.

Assets increased primarily due to increases in cash and cash equivalents of $232.2 million and net loans of $305.1 million, partially offset by a decrease in investment securities of $188.0 million at December 31, 2020 compared to December 31, 2019.

Net loans increased $305.1 million, or 20.1%, to $1.8 billion at December 31, 2020 from $1.5 billion at December 31, 2019.

One-to four-family loans increased $116.9 million primarily due to the continued growth in local loan originations and the acquisition of loans from Union.

Commercial and industrial loans increased $67.4 million primarily due to new originations and the acquisition of loans from Union.

Consumer and other loans increased $49.4 million primarily due to origination of lease commitments and the acquisition of loans from Union.

Construction and land development loans increased $47.6 million principally due to the funding of unfunded commitments on various construction projects and the acquisition of loans from Union.

Non-farm non-residential loan balances increased $30.3 million primarily due to the acquisition of loans from Union.

Non-farm non-residential loans would have declined without the acquisition of the Union loan portfolio.

Farmland loans increased $4.3 million due to fundings on agricultural loan commitments and the acquisition of loans from Union.

Agricultural loans increased $3.6 million primarily due to seasonal activity and the acquisition of loans from Union.

Multifamily loans decreased $18.9 million primarily due to paydowns, primarily associated with one large credit that totaled $26.6 million .

Non-farm non-residential loan balances increased $207.6 million primarily due to new originations and the transition of construction and land development loans to permanent financing in the first quarter of 2020.

Included in the new loan originations were the purchase of approximately $95.0 million in performing commercial real estate secured loans the majority of which were located outside of First Guaranty's Louisiana and Texas markets.

The average size of these loans was $0.7 million with the largest credit totaling $4.9 million.

These loans provide additional diversification to First Guaranty's portfolio.

Commercial and industrial loans increased $84.8 million primarily due to new originations associated with the SBA PPP lending program that occurred in the second and third quarters of 2020.

SBA PPP loans totaled $111.1 million at the end of the third quarter in 2020 which decreased to $92.3 million at December 31, 2020 as loans were subsequently processed for forgiveness and paid off by the SBA.

Consumer and other loans increased $39.9 million primarily due to new originations in First Guaranty's commercial lease program.

First Guaranty has continued to expand its commercial lease portfolio which generally have higher yields than commercial real estate loans but shorter average lives.

First Guaranty's lease portfolio totaled $104.1 million at December 31, 2020 compared to $70.1 million at December 31, 2019.

Multifamily loans increased $22.0 million primarily due to the conversion of existing construction loans to permanent financing.

Farmland loans increased $4.1 million due to increases on agricultural loan commitments.

Agricultural loans increased $1.6 million primarily due to seasonal activity.

Construction and land development loans decreased $21.4 million principally due to paydowns and the conversion of interim construction loans to permanent financing that occurred in the first quarter of 2020.

One-to four-family loans decreased $18.4 million primarily due to paydowns.

First Guaranty had approximately 5.7% of funded and 2.5% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations.

First Guaranty had $204.5 million in loans related to our Texas markets at December 31, 2019 .

First Guaranty's hotel and hospitality portfolio totaled $120.1 million at December 31, 2020.

As part of the management of risks in our loan portfolio, First Guaranty had previously established an internal guidance limit of approximately $160.0 million for its hotel and hospitality portfolio.

First Guaranty had $244.9 million in loans related to our Texas markets at December 31, 2020 which was an increase of $40.4 million or 19.8% from $204.5 million at December 31, 2019.

First Guaranty continues to have significant loan growth associated with its Texas branches.

We anticipate additional growth opportunities in Texas as it contains four major cities in Austin, Dallas, Houston, and San Antonio, plus the continued growth and development of these areas is exceeding that of other areas of the country.

Syndicated loans at December 31, 2020 were $75.2 million, of which $29.3 million were shared national credits.

Syndicated loans decreased $27.1 million from $67.0 million at December 31, 2018 primarily due to payoffs of existing relationships.

Syndicated loans increased $35.3 million from $39.9 million at December 31, 2019.

As of December 31, 2020, 71.4% of our loan portfolio was secured by real estate.

There are no significant concentrations of credit to any individual borrower.

The largest portion of our loan portfolio, at 44.6% as of December 31, 2020, was non-farm non-residential loans secured by real estate.

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74.5% of the loan portfolio is scheduled to mature within five years from December 31, 2020.

First Guaranty acquired in the Premier acquisition a portfolio of loans comprised of loans guaranteed principally by the U.S.

Small Business Administration ("SBA") or by the U.S.

Department of Agriculture ("USDA") and the unguaranteed portion of SBA and USDA loans for which the guaranteed portion had been sold into the secondary market.

First Guaranty has continued to originate SBA and USDA loans and sell the guaranteed portion.

At December 31, 2019 , First Guaranty's balance of SBA and USDA loans was $32.3 million of which $11.1 million retained the government guarantee and $21.2 million was the unguaranteed residual balance.

At December 31, 2019 , First Guaranty also serviced 49 SBA and USDA loans that totaled $51.3 million .

First Guaranty receives servicing fee income on this portfolio.

Loan Portfolio Composition.

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At December 31,

(in thousands except for %)

2020 2019 2018 2017 2016

(in thousands except for %) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

Construction & land development $ 150,841 8.2 % $ 172,247 11.3 % $ 124,644 10.1 % $ 112,603 9.8 % $ 84,239 8.9 %

Farmland 26,880 1.4 % 22,741 1.5 % 18,401 1.5 % 25,691 2.2 % 21,138 2.2 %

1- 4 Family 271,236 14.7 % 289,635 18.9 % 172,760 14.1 % 158,733 13.8 % 135,211 14.2 %

Multifamily 45,932 2.5 % 23,973 1.6 % 42,918 3.5 % 16,840 1.4 % 12,450 1.3 %

Non-farm non-residential 824,137 44.6 % 616,536 40.3 % 586,263 47.7 % 530,293 46.1 % 417,014 43.9 %

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Non-Real Estate:

Agricultural 28,335 1.5 % 26,710 1.8 % 23,108 1.9 % 21,514 1.9 % 23,783 2.5 %

Commercial and industrial 353,028 19.1 % 268,256 17.5 % 200,877 16.4 % 230,638 20.0 % 193,969 20.4 %

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December 31, 2020

(in thousands)

One Year or Less

More Than One Year

Through Five Years

After Five Years

(in thousands) One Year or Less More Than One Year

Through Five Years After Five Years Total

Construction & land development $ 23,276 $ 111,615 $ 15,950 $ 150,841

Farmland 6,078 12,147 8,655 26,880

1- 4 family 37,604 65,011 168,621 271,236

Multifamily 5,030 29,127 11,775 45,932

Non-farm non-residential 105,623 494,690 223,824 824,137

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Non-Real Estate:

Agricultural 12,356 5,795 10,184 28,335

Commercial and industrial 40,484 293,984 18,560 353,028

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December 31, 2019

(in thousands)

One Year or Less

More Than One Year

Through Five Years

After Five Years

(in thousands) One Year or Less More Than One Year

Through Five Years After Five Years Total

Construction & land development $ 35,393 $ 124,715 $ 12,139 $ 172,247

Farmland 8,348 10,283 4,110 22,741

1- 4 family 43,155 93,457 153,023 289,635

Multifamily 1,385 12,028 10,560 23,973

Non-farm non-residential 124,905 316,767 174,864 616,536

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Non-Real Estate:

Agricultural 13,290 5,087 8,333 26,710

Commercial and industrial 71,508 149,667 47,081 268,256

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Due After December 31, 2021

(in thousands)

(in thousands) Fixed Floating Total

One to five years 740,358 368,259 1,108,617

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Over 15 years 146,830 92,325 239,155

Subtotal $ 1,016,048 $ 551,616 $ 1,567,664

Nonaccrual loans 15,576

Total $ 1,583,240

As of December 31, 2020, $305.0 million of floating rate loans were at their interest rate floor.

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Construction and land development $ 621 $ 381 $ 311 $ 371 $ 551

Farmland 857 1,274 1,293 65 105

1- 4 family 2,227 2,759 2,246 1,953 2,242

Multifamily — — — — 5,014

Non-farm non-residential 7,449 4,646 864 3,758 2,753

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Non-Real Estate:

Agricultural 3,472 4,800 3,651 1,496 1,958

Commercial and industrial 701 327 317 4,826 8,070

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Construction and land development 1,000 48 — — 34

Farmland — — — — —

1- 4 family 4,980 923 26 — 145

Multifamily 366 — — — —

Non-farm non-residential 4,699 1,603 — — —

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Non-Real Estate:

Agricultural 67 — — 41 —

Commercial and industrial 1,856 15 53 798 —

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Construction and land development 311 669 241 304 —

Farmland — — — — —

1- 4 family 131 559 120 23 71

Multifamily — — — — —

Non-farm non-residential 1,798 3,651 777 954 288

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Non-Real Estate:

Agricultural — — — — —

Commercial and industrial — — — — —

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We recognized $22,000 and $69,000 of interest income on such loans during the years ended December 31, 2020 and 2019, respectively.

For the years ended December 31, 2019 and 2018 , gross interest income which would have been recorded had the troubled debt restructured loans been current in accordance with their original terms amounted to $0 and $0.1 million, respectively.

We recognized $0 and $0.1 million of interest income on such loans during the years ended December 31, 2019 and 2018 , respectively.

For the years ended December 31, 2020 and 2019, gross interest income which would have been recorded had the troubled debt restructured loans been current in accordance with their original terms amounted to $0.1 million and $0, respectively.

We recognized $11,000 and $0 of interest income on such loans during the years ended December 31, 2020 and 2019, respectively.

Non-performing assets were $30.9 million, or 1.25%, of total assets at December 31, 2020, compared to $21.9 million, or 1.04%, of total assets at December 31, 2019, which represented an increase in non-performing assets of $9.0 million.

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Nonaccrual loans increased from $14.4 million at December 31, 2019 to $15.6 million at December 31, 2020.

The increase in nonaccrual loans was concentrated primarily in non-farm non-residential loans and agricultural loans.

Nonaccrual loans were concentrated in seven loan relationships that totaled $8.8 million, or 61.3%, of nonaccrual loans at December 31, 2019 .

The increase in nonaccrual loans was concentrated primarily in non-farm non-residential loans.

Non-performing assets included $3.6 million in loans with a government guarantee, or 11.8% of non-performing assets.

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At December 31, 2020 loans 90 days and greater delinquent and still accruing totaled $13.1 million, an increase of $10.5 million from $2.6 million at December 31, 2019.

The increase in loans 90 days and greater delinquent and still accruing was concentrated in non-farm non-residential loans.

Other real estate owned at December 31, 2019 totaled $4.9 million , an increase of $3.7 million from $1.1 million at December 31, 2018 .

The increase was primarily due to acquired real estate from Union.

At December 31, 2019 , our largest non-performing assets were comprised of the following nonaccrual loans and other real estate owned:

(1) a non-farm non-residential loan secured by a hotel that totaled $3.7 million;

The increase in loans 90 days or greater delinquent and still accruing was concentrated primarily in one-to four-family residential loans, non-farm non-residential loans and commercial and industrial loans.

One-to-four family loans in the 90 day category included loans acquired from the Union acquisition that have contractually matured but have not been renewed due to operations issues following the acquisition.

First Guaranty expects to satisfactorily renew the majority of these acquired loans and return them to performing status.

Other real estate owned at December 31, 2020 totaled $2.2 million, a decrease of $2.6 million from $4.9 million at December 31, 2019.

The largest piece of property in other real estate owned is a former retail shopping center that totals $2.0 million.

First Guaranty established a reserve for other real estate owned losses in the third quarter of 2020.

This reserve totaled $0.4 million at December 31, 2020.

Total write downs and or reserves related to other real estate owned were $1.4 million in 2020 compared to $0.2 million in 2019.

These expenses were included in other non-interest expense.

At December 31, 2020, our largest non-performing assets were comprised of the following nonaccrual loans, 90 day plus and still accruing loans and other real estate owned:

(1) a non-farm non-residential loan secured by a hotel that totaled $3.6 million that is classified as a troubled debt restructured loan or TDR;

(2) a $2.0 million non-farm non-residential property included in other real estate owned;

(3) a non-farm non-residential loan for $2.4 million secured by commercial real estate that has contractually matured and was 90 days past due and still accruing;

(4) a non-farm non-residential loan secured by a hotel that totaled $1.8 million;

(5) a non-farm non-residential loan secured by a sports facility that totaled $1.3 million which has a partial government guarantee;

(6) a non-farm non-residential loan for $1.1 million secured by commercial real estate that has contractually matured and was 90 days past due and still accruing;

(7) an agricultural/ farmland loan relationship that totaled $1.1 million;

(8) an agricultural loan relationship that totaled $1.0 million;

(5) an agricultural loan relationship that totaled $1.0 million;

(6) an agricultural loan relationship that totaled $0.7 million;

(7) an agricultural loan relationship that totaled $0.7 million;

(8) a $0.6 million non-farm non-residential property included in other real estate owned;

and (9) a one-to four-family loan that totaled $0.5 million.

and (9) an agricultural loan relationship that totaled $1.0 million.

The agricultural loans are partially guaranteed by the USDA Farm Service Agency.

8 unchanged sentences

Satisfactory payment performance is generally no less than six consecutive months of timely payments and demonstrated ability to continue to repay.

Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020 and subsequently modified by later legislation, financial institutions have the option to temporarily suspend certain requirements under U.S.

generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19.

This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency.

The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019.

First Guaranty elected to adopt these provisions of the CARES Act.

The following is a summary of loans restructured as TDRs at December 31, 2020, 2019 and 2018:

4 unchanged sentences

Past Due 90 days and greater and still accruing — — —

Nonaccrual 3,591 — 304

Restructured Loans that subsequently defaulted — — —

At December 31, 2019 , First Guaranty had no outstanding TDRs.

The decline in TDRs occured due to two credit relationships in the aggregate amount of $1.6 million that had returned to market terms and been in compliance with their modified terms for more than six consecutive months.

Total TDR $ 3,591 $ — $ 1,592

At December 31, 2020, First Guaranty had one outstanding TDR which was a $3.6 million non-farm non-residential loan secured by commercial real estate that is on nonaccrual.

The restructuring of this loan was related to interest rate and amortization concessions.

The loan is secured by a hotel facility.

This loan was not eligible for a CARES act modification.

Classified Assets .

23 unchanged sentences

Classification of Loans:

Substandard $ 50,062 $ 53,072 $ 46,792

Doubtful — — 523

Total Classified Assets $ 50,062 $ 53,072 $ 47,315

Special Mention $ 99,201 $ 24,083 $ 26,413

The increase in classified assets at December 31, 2019 as compared to December 31, 2018 was due to a $6.3 million increase in substandard loans partially offset by a $0.5 million decrease in doubtful loans.

The increase in substandard loans during 2019 was primarily due to the addition of $8.7 million of purchase impaired loans from Union.

The decrease in classified assets at December 31, 2020 as compared to December 31, 2019 was due to a $3.0 million decrease in substandard loans.

The decrease in substandard loans during 2020 was primarily due to paydowns of impaired loans.

Substandard loans at December 31, 2020 consisted of $16.0 million in non-farm non-residential, $12.7 million in one- to four-family residential, $7.9 million in multifamily, $4.1 million in agricultural, $3.7 million in commercial and industrial, $1.0 million in construction and land development, $4.0 million in farmland, and the remaining $0.6 million comprised of consumer and other loans.

The decrease in doubtful loans was due to the upgrade of a non-farm non-residential loan to substandard status.

Special mention loans decreased by $2.3 million in 2019 primarily due to the downgrade of syndicated loans offset by the upgrade of one-to four-family loans from substandard status.

Special mention loans increased by $75.1 million in 2020 primarily due to the downgrade of loans in the portfolio.

The increase in special mention loans was primarily the result of loan relationships that were downgraded due to the COVID-19 pandemic or relationship specific issues.

Special mention loans at December 31, 2020 were concentrated in the following at risk industries affected by the COVID-19 pandemic.

Approximately $27.6 million in loans were associated with oil and gas related industries;

$29.3 million were associated with hotels or hospitality industries, and $5.8 million were loans associated with childcare related services.

These loan relationships accounted for $62.7 million or 63% of special mention loans at December 31, 2020.

Allowance for Loan Losses

9 unchanged sentences

• charge-off and recovery practices;

national and local economic and business conditions;

• national and local economic and business conditions including the COVID-19 pandemic;

• nature and volume of loans;

overall portfolio quality;

• overall portfolio quality and portfolio stress test results;

• adequacy of loan collateral;

13 unchanged sentences

The allowance for losses was $24.5 million at December 31, 2020 compared to $10.9 million at December 31, 2019.

Our allowance level was significantly impacted by the continuing effects of the COVID-19 pandemic.

The balance in the allowance for loan losses is principally influenced by the provision for loan losses and by net loan loss experience.

6 unchanged sentences

Construction and land development (265) — — — —

Farmland — — — — —

1- 4 family (154) (552) (99) (33) (244)

Multifamily — — — — —

Non-farm non-residential (550) (2,603) (404) (1,291) (1,373)

1 unchanged sentence

Non-Real Estate:

Agricultural (110) (40) (300) (162) (83)

Commercial and industrial loans (265) (879) (179) (3,629) (579)

3 unchanged sentences

Construction and land development — — 3 43 4

Farmland — — — — —

1- 4 family 39 39 90 92 45

Multifamily — — 20 40 401

Non-farm non-residential 178 5 89 85 16

1 unchanged sentence

Non-Real Estate:

Agricultural 70 — 26 138 113

Commercial and industrial loans 128 267 1,642 30 146

13 unchanged sentences

First Guaranty’s loan loss calculation method incorporates risk factors in the loan portfolio and the composition of the loan portfolio affects the final allowance calculation.

The loan portfolio composition shifts in 2019 that primarily affected the allocation of the allowance were the following:

First Guaranty acquired $184.1 million in loans from the Union acquisition on November 7, 2019.

These loans were subject to purchase accounting and are not included in the allowance calculation but are included in the overall allowance to total loan ratio calculation.

The primary reason for the increase in the provison in 2020 compared to 2019 was due to the impact of the COVID-19 pandemic and due to growth in First Guaranty's loan portfolio and other identified risks.

First Guaranty made provisions to the allowance during the year of $14.9 million with $4.6 million incurred during the first three quarters of the year and $10.3 million incurred in the final quarter of 2020.

First Guaranty made adjustments to its allowance provisions as facts and circumstances evolved due to COVID-19.

The actions taken at the onset of the pandemic such as loan payment deferrals under the CARES Act along with SBA PPP relief loans were considered to improve the financial capacity of First Guaranty loan customers.

There was, however, significant uncertainty as to the duration of the relief.

Economic conditions began to improve by the middle part of the third quarter as loan customers ended their payment deferral periods and resumed normal payments.

Both Louisiana and Texas lifted or reduced several COVID-19 restrictions.

First Guaranty also experienced strong loan growth.

During the latter part of 2020, First Guaranty continued to experience strong loan growth but COVID-19 cases significantly increased that resulted in new economic uncertainty.

Louisiana reinstituted restrictions that had previously been lifted.

The qualitative and quantitative analysis of the loan portfolio resulted in an increased provision to the allowance as of a result of the new COVID-19 related economic uncertainty along with the increased loan growth.

First Guaranty's qualitative and quantitative factors accounted for the changes in economic conditions driven by the COVID-19 pandemic.

The key factors included the following:

industry specific conditions, changes in loan risk ratings, lending policy, and national and local economic trends.

First Guaranty continued to update its analysis of these factors throughout 2020.

The loan portfolio factors in 2020 that primarily affected the allocation of the allowance included the following:

• The loan portfolio risks that changed and affected the allocation of the allowance were due to the adjustments of certain qualitative factors to take into account the possible impact of COVID-19 and related economic conditions on borrowers' ability to repay loans and for allocations to impaired loans within their respective categories.

First Guaranty increased allocations within its qualitative and quantitative factors to account for possible COVID-19 related losses.

The largest provision allocation was associated with non-farm non-residential loans primarily those associated with the hospitality and hotel industries.

• Construction and land development loans declined during 2020 as several loans transitioned to permanent financing.

The majority of these loans are now included in the non-farm non-residential category as of December 31, 2020.

The increase in the provision related to this portfolio in 2020 compared to 2019 was primarily related to changes in the qualitative analysis of the portfolio related to COVID-19.

• One- to four-family residential loans decreased moderately in 2020.

The provision increase related to this portfolio in 2020 compared to 2019 was related to changes in the qualitative analysis of the portfolio related to COVID-19.

• Non-farm non-residential loans increased during 2020 with the largest increases during the third and fourth quarters.

The growth in this portfolio contributed to the increased provision associated with this category along with the provisions previously noted for hospitality and hotel related loans.

• Commercial and industrial loans increased during 2020.

The majority of the increase was associated with SBA guaranteed PPP loans which do not have an allowance balance associated with them.

The provision increase related to this portfolio in 2020 compared to 2019 was related to changes in the qualitative analysis of the portfolio related to COVID-19.

• Consumer and other loans increased during 2020.

The increase in the balance was concentrated in commercial leases.

The provision made in 2020 was primarily related to qualitative analysis of the consumer portfolio related to COVID-19.

• First Guaranty continues to monitor the acquired loans from the Union acquisition on November 7, 2019.

Discounts on the acquired Union loans were approximately $1.8 million at December 31, 2020.

First Guaranty’s commercial lease portfolio increased by $44.2 million which increased allocations for this portfolio.

First Guaranty originated a $25.0 million cash secured loan in the fourth quarter of 2019.

The cash secured loan did not require a related allowance.

First Guaranty’s syndicated loan portfolio declined in 2019 which lowered risk in the portfolio and required less of an allocation in the commercial and industrial portfolio.

First Guaranty’s non-farm non-residential loan portfolio declined by approximately $33.8 million when acquired loans are removed from total loans.

First Guaranty’s multifamily loan portfolio declined by $18.9 million which required less of an allocation in the multifamily portfolio.

First Guaranty charged-off $1.4 million on a previously allocated impaired loan that had a specific reserve of $1.0 million at December 31, 2018 and September 30, 2019.

First Guaranty continued its growth of one-to four-family loans along with construction and land development loans.

These loan categories generally require less of a risk allocation as compared to commercial real estate loans.

Total charge-offs were $5.3 million during the year ended December 31, 2019 as compared to $1.9 million for 2018 .

First Guaranty charged off $2.4 million in loan balances during the year ended December 31, 2020 as compared to $5.3 million for 2019.

Recoveries totaled $1.1 million for the year ended December 31, 2020 and $0.6 million during 2019.

Comparing the year ended December 31, 2019 to the year ended December 31, 2018 , the increase in the allowance was primarily attributed to an increase in the provision related to impaired loans.

The primary changes were an increase in the balance associated with non-farm non-residential loans, consumer and other loans, one-to four-family loans and farmland loans.

In the third quarter of 2019, a $4.1 million loan secured by a hotel was determined to be impaired.

An allocation of $1.9 million was made against it during the third quarter of 2019.

This increase was partially offset by a decrease in the allowance for multifamily loans, agricultural loans and construction and land development loans.

The charged-off loan balances for the year ended December 31, 2019 were concentrated in seven loan relationships which totaled $4.1 million, or 78.3%, of the total charged-off amount.

The charged-off loan balances were concentrated in five loan relationships which totaled $1.0 million or 40.7% of the total charged off amount during the year ended December 31, 2020.

The details of the $1.0 million in charged off loans were as follows:

First Guaranty charged off $0.2 million on a commercial and industrial loan in the first quarter of 2019.

This loan had no remaining principal balance at December 31, 2019 .

• First Guaranty charged off $0.1 million on a purchased consumer loan pool during 2020.

This pool had a remaining principal balance of $0.7 million at December 31, 2020.

First Guaranty charged off $0.8 million on a non-farm non-residential loan in the second quarter of 2019.

This loan had no remaining principal balance at December 31, 2019 .

The collateral balance of $2.2 million was transferred to other real estate owned during the second quarter of 2019.

First Guaranty charged off $0.4 million on a one-to four-family residential loan in the second quarter of 2019.

This loan had no remaining principal balance at December 31, 2019 .

First Guaranty charged off $1.4 million on a non-farm non-residential loan secured by a hotel in the fourth quarter of 2019.

This loan had no remaining principal balance at December 31, 2019 .

This loan had been previously allocated for with a specific reserve of $1.0 million at September 30, 2019 and December 31, 2018.

First Guaranty charged off $0.3 million on a non-farm non-residential loan secured by a hotel in the fourth quarter of 2019.

This loan had a remaining principal balance of $3.7 million at December 31, 2019 with a specific reserve of $1.8 million allocated against it.

First Guaranty charged off $0.2 million on a commercial and industrial loan in the fourth quarter of 2019.

• First Guaranty charged off $0.3 million on a non-farm non-residential loan relationship during the third quarter of 2020.

This relationship had no remaining principal balance at December 31, 2020.

• First Guaranty charged off $0.3 million on a construction and land development loan during the third quarter of 2020.

This loan had a remaining principal balance of $0.3 million at December 31, 2020.

• First Guaranty charged off $0.2 million on a non-farm non-residential loan during the third quarter of 2020.

This loan had a remaining principal balance of $0.1 million at December 31, 2020.

• First Guaranty charged off $0.1 million on a one- to four-family residential loan during the third quarter of 2020.

This loan had no remaining principal balance at December 31, 2020.

4 unchanged sentences

At December 31,

(dollars in thousands)

Allowance for

Percent of Allowance

(dollars in thousands) Allowance for

Loan Losses Percent of Allowance

to Total Allowance

for Loan Losses

Percent of Loans

for Loan Losses Percent of Loans

in Each Category

to Total Loans

Allowance for

Percent of Allowance

to Total Loans Allowance for

Loan Losses Percent of Allowance

to Total Allowance

for Loan Losses

Percent of Loans

for Loan Losses Percent of Loans

in Each Category

1 unchanged sentence

Construction and land development $ 1,029 4.2 % 8.2 % $ 423 3.9 % 11.3 %

Farmland 462 1.9 % 1.4 % 50 0.4 % 1.5 %

1- 4 family 2,510 10.2 % 14.7 % 1,027 9.4 % 18.9 %

Multifamily 978 4.0 % 2.5 % 1,038 9.5 % 1.6 %

Non-farm non-residential 15,064 61.5 % 44.6 % 5,277 48.3 % 40.3 %

Non-Real Estate:

Agricultural 181 0.7 % 1.5 % 95 0.9 % 1.8 %

Commercial and industrial 2,802 11.4 % 19.1 % 1,909 17.5 % 17.5 %

Consumer and other 1,490 6.1 % 8.0 % 1,110 10.1 % 7.1 %

Unallocated 2 — % — — — % —

Total Allowance $ 24,518 100.0 % 100.0 % $ 10,929 100.0 % 100.0 %

At December 31,

(dollars in thousands)

Allowance for

Percent of Allowance

(dollars in thousands) Allowance for

Loan Losses Percent of Allowance

to Total Allowance

for Loan Losses

Percent of Loans

for Loan Losses Percent of Loans

in Each Category

to Total Loans

Allowance for

Percent of Allowance

to Total Loans Allowance for

Loan Losses Percent of Allowance

to Total Allowance

for Loan Losses

Percent of Loans

for Loan Losses Percent of Loans

in Each Category

1 unchanged sentence

Construction and land development $ 581 5.4 % 10.1 % $ 628 6.8 % 9.8 %

Farmland 41 0.4 % 1.5 % 5 0.1 % 2.2 %

1- 4 family 911 8.5 % 14.1 % 1,078 11.7 % 13.8 %

Multifamily 1,318 12.2 % 3.5 % 994 10.8 % 1.4 %

Non-farm non-residential 4,771 44.3 % 47.7 % 2,811 30.4 % 46.1 %

Non-Real Estate:

Agricultural 339 3.1 % 1.9 % 187 2.0 % 1.9 %

Commercial and industrial 1,909 17.7 % 16.4 % 2,377 25.8 % 20.0 %

Consumer and other 891 8.3 % 4.8 % 1,125 12.2 % 4.8 %

Unallocated 15 0.1 % — 20 0.2 % —

Total Allowance $ 10,776 100.0 % 100.0 % $ 9,225 100.0 % 100.0 %

At December 31,

(dollars in thousands)

Allowance for

Percent of Allowance

(dollars in thousands) Allowance for

Loan Losses Percent of Allowance

to Total Allowance

for Loan Losses

Percent of Loans

for Loan Losses Percent of Loans

in Each Category

1 unchanged sentence

Construction and land development $ 1,232 11.1 % 8.9 %

Farmland 19 0.2 % 2.2 %

1- 4 family 1,204 10.8 % 14.2 %

Multifamily 591 5.3 % 1.3 %

Non-farm non-residential 3,451 31.0 % 43.9 %

Non-Real Estate:

Agricultural 74 0.7 % 2.5 %

Commercial and industrial 3,543 31.9 % 20.4 %

Consumer and other 972 8.7 % 6.6 %

Unallocated 28 0.3 % —

Total Allowance $ 11,114 100.0 % 100.0 %

Investment Securities.

Investment securities at December 31, 2019 totaled $427.0 million , an increase of $21.7 million , or 5.4% , compared to $405.3 million at December 31, 2018 .

Our investment securities portfolio is comprised of both available for sale securities and securities that we intend to hold to maturity.

Investment securities at December 31, 2020 totaled $238.5 million, a decrease of $188.0 million, or 44.1%, compared to $426.5 million at December 31, 2019.

The entire investment portfolio consisted of available for sale securities at December 31, 2020.

First Guaranty terminated its held to maturity portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity.

We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings.

In particular, our held to maturity securities portfolio is used as collateral for our public funds deposits.

The securities portfolio consisted principally of U.S.

9 unchanged sentences

Agency mortgage backed securities have stated final maturities of 15 to 20 years.

At December 31, 2019 , the U.S Government and Government agency securities and municipal bonds qualified as securities available to collateralize public funds.

At December 31, 2020, the U.S.

Government and Government agency securities and municipal bonds qualified as securities available to collateralize public funds.

Securities pledged as collateral totaled $184.0 million at December 31, 2020 and $212.8 million at December 31, 2019.

4 unchanged sentences

At December 31,

(in thousands)

Amortized Cost

2020 2019 2018

(in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value

Available for sale:

Treasuries $ 3,000 $ 3,000 $ — $ — $ — $ —

Government Agencies 169,986 169,658 16,380 16,393 146,911 141,389

Corporate debt securities 36,153 36,489 94,561 95,369 76,310 72,878

Other securities

Municipal bonds 27,381 28,162 30,297 32,153 32,956 33,901

7 unchanged sentences

Total held to maturity securities $ — $ — $ 86,579 $ 86,817 $ 108,326 $ 104,840

Our available for sale securities portfolio totaled $340.4 million at December 31, 2019 , an increase of $43.5 million , or 14.6% , compared to $297.0 million at December 31, 2018 .

The increase was primarily due to the acquired securities from Union of $14.7 million in collateralized mortgage obligations, $12.6 million in mortgage-backed securities, $6.9 million in municipal bonds and $2.3 million in U.S.

Our available for sale securities portfolio totaled $238.5 million at December 31, 2020, a decrease of $101.4 million, or 29.8%, compared to $339.9 million at December 31, 2019.

The decrease was primarily due to the sale of securities and called bonds.

First Guaranty had securities sales of $187.9 million in mortgage-backed securities, $168.9 million in corporate securities, $4.2 million in municipal securities and $2.2 million in U.S.

Government agency securities.

The acquisition of securities was partially offset by called bonds and the sale of securities.

First Guaranty plans to reinvest the proceeds in securities and loans and reduce borrowings.

First Guaranty had $14.1 million in U.S.

Government agency securities and $15.4 million of corporate securities called during 2020 due to the decrease in interest rates.

First Guaranty had securities sales of $46.7 million in U.S.

Government agency securities, $13.0 million in mortgage-backed securities, $23.3 million in corporate securities and $8.2 million in municipal securities for which the proceeds were used to fund loan growth during 2019.

Our held to maturity securities portfolio had an amortized cost of $86.6 million at December 31, 2019 , a decrease of $21.7 million , or 20.1% , compared to $108.3 million at December 31, 2018 .

The decrease was primarily due to the call of $10.0 million in U.S.

Government agency securities and the continued amortization of our mortgage-backed securities.

Our held to maturity securities portfolio had an amortized cost of $0 at December 31, 2020, a decrease of $86.6 million, or 100.0%, compared to December 31, 2019.

First Guaranty terminated its held to maturity portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity.

The following tables set forth the stated maturities and weighted average yields of our investment securities at December 31, 2020 and 2019.

At December 31, 2020

One Year or Less

More than One Year

through Five Years

More than Five Years

through Ten Years

More than Ten Years

(in thousands except for %)

Carrying Value

Average Yield

Carrying Value

Average Yield

Carrying Value

Average Yield

Carrying Value

One Year or Less More than One Year

through Five Years More than Five Years

through Ten Years More than Ten Years

(in thousands except for %) Carrying Value Weighted

Average Yield Carrying Value Weighted

Average Yield

Available for sale:

Treasuries $ 3,000 — % $ — — % $ — — % $ — — %

Government Agencies — — % — — % 29,958 1.2 % 139,700 2.0 %

Corporate and other debt securities 5,633 3.5 % 2,038 4.3 % 27,762 4.9 % 1,056 5.5 %

Other securities

Municipal bonds 1,037 4.1 % 4,956 3.9 % 10,692 3.9 % 11,477 3.2 %

2 unchanged sentences

Total available for sale securities $ 9,670 2.5 % $ 6,997 4.0 % $ 68,415 3.1 % $ 153,466 2.1 %

Held to maturity:

Government Agencies

Municipal bonds

Mortgage-backed securities

Total held to maturity securities

At December 31, 2019

One Year or Less

More than One Year

through Five Years

More than Five Years

through Ten Years

More than Ten Years

(in thousands except for %)

Average Yield

One Year or Less More than One Year

through Five Years More than Five Years

through Ten Years More than Ten Years

(in thousands except for %) Carrying

Value Weighted

Average Yield Carrying

Value Weighted

Average Yield Carrying

Value Weighted

Average Yield Carrying

Value Weighted

Average Yield

Available for sale:

Treasuries $ — — % $ — — % $ — — % $ — — %

Government Agencies 2,096 1.8 % 4,647 2.2 % 149 2.0 % 9,501 2.9 %

Corporate and other debt securities 640 3.4 % 24,860 3.1 % 68,129 3.6 % 1,740 4.7 %

Other securities

Municipal bonds 1,785 4.1 % 9,221 3.8 % 9,665 3.8 % 11,482 3.5 %

12 unchanged sentences

Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio.

First Guaranty, in furtherance of the strategy adopted in March 2020, initiated a plan to manage for economic uncertainty caused by the COVID-19 pandemic by converting unrealized gains in the securities portfolio to realized gains in the fourth quarter of 2020.

First Guaranty sold approximately $140 million in mortgage-backed securities and $150 million in corporate securities in October 2020.

First Guaranty generated $12.1 million in pre-tax gains from the sales.

First Guaranty has proceeded to reinvest the proceeds in securities and loans and subsequently reduced FHLB borrowings by $50.0 million in February 2021.

At December 31, 2020, the following table identifies the issuers, and the aggregate amortized cost and aggregate fair value of the securities of such issuers that exceeded 10% of our total shareholders' equity:

At December 31, 2020

(in thousands)

Amortized Cost

(in thousands) Amortized Cost Fair Value

Freddie Mac 110,177 109,856

Federal Farm Credit Bank 54,263 54,279

Total $ 164,440 $ 164,135

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin.

3 unchanged sentences

Noninterest-bearing demand deposits increased $85.5 million, or 26.2% to $411.4 million at December 31, 2020.

The increase in noninterest-bearing demand deposits was due to acquired deposits from Union and fluctuations in existing customer balances.

The increase in noninterest-bearing demand deposits was primarily due to economic conditions associated with the CARES Act and the SBA PPP program.

First Guaranty consumer and business customers have increased their deposits due to the receipt of stimulus funds and proceeds from SBA PPP program loans.

Interest-bearing demand deposits increased $224.5 million, or 35.3%, to $860.4 million at December 31, 2020.

The increase in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits that seasonally increase during the end of the year tax collection period.

Time deposits increased $75.2 million , or 11.1% , to $756.0 million at December 31, 2019 , primarily due to our local deposit campaign.

Savings deposits increased $25.2 million , or 22.9% , to $135.2 million at December 31, 2019 , primarily due to acquired deposits from Union.

The increase in interest-bearing demand deposits was primarily concentrated in individual, business, and public funds interest-bearing demand deposits.

Savings deposits increased $33.7 million, or 25.0%, to $168.9 million at December 31, 2020, primarily related to increases in individual savings deposits.

Time deposits decreased $30.4 million, or 4.0%, to $725.6 million at December 31, 2020, primarily due to decreases in business deposits.

As we seek to strengthen our net interest margin and improve our earnings, attracting noninterest-bearing or lower cost deposits will be a primary emphasis.

4 unchanged sentences

Total Deposits 2020 2019 2018

(in thousands except for %)

Average Balance

(in thousands except for %) Average Balance Percent Weighted

Average Rate Average Balance Percent Weighted

Noninterest-bearing Demand $ 393,734 19.2 % — % $ 262,379 15.7 % — % $ 252,531 16.3 % — %

Interest-bearing Demand 722,433 35.3 % 0.8 % 592,113 35.4 % 1.8 % 556,528 35.9 % 1.5 %

Savings 163,332 8.0 % 0.2 % 115,682 6.9 % 0.4 % 111,134 7.2 % 0.4 %

Time 767,075 37.5 % 2.2 % 703,685 42.0 % 2.4 % 628,457 40.6 % 1.7 %

Total Deposits $ 2,046,574 100.0 % 1.1 % $ 1,673,859 100.0 % 1.7 % $ 1,548,650 100.0 % 1.3 %

1 unchanged sentence

Individual and Business Deposits 2020 2019 2018

(in thousands except for %)

Average Balance

(in thousands except for %) Average Balance Percent Weighted

Average Rate Average Balance Percent Weighted

Noninterest-bearing Demand $ 382,940 27.5 % — % $ 256,099 23.7 % — % $ 246,550 26.7 % — %

Interest-bearing Demand 280,587 20.1 % 1.0 % 241,290 22.3 % 1.4 % 204,405 22.1 % 1.1 %

Savings 127,804 9.2 % 0.1 % 86,972 8.0 % 0.1 % 84,844 9.2 % 0.1 %

Time 600,887 43.2 % 2.5 % 498,521 46.0 % 2.6 % 388,623 42.0 % 1.7 %

Total Individual and Business Deposits $ 1,392,218 100.0 % 1.3 % $ 1,082,882 100.0 % 1.5 % $ 924,422 100.0 % 1.0 %

1 unchanged sentence

Public Fund Deposits 2020 2019 2018

(in thousands except for %)

Average Balance

(in thousands except for %) Average Balance Percent Weighted

Average Rate Average Balance Percent Weighted

Noninterest-bearing Demand $ 10,794 1.7 % — % $ 6,280 1.1 % — % $ 5,981 1.0 % — %

Interest-bearing Demand 441,846 67.5 % 0.7 % 350,823 59.3 % 2.0 % 352,123 56.4 % 1.8 %

Savings 35,528 5.4 % 0.4 % 28,710 4.9 % 1.6 % 26,290 4.2 % 1.4 %

Time 166,188 25.4 % 1.1 % 205,164 34.7 % 2.1 % 239,834 38.4 % 1.7 %

Total Public Fund Deposits $ 654,356 100.0 % 0.8 % $ 590,977 100.0 % 1.9 % $ 624,228 100.0 % 1.7 %

1 unchanged sentence

Public funds time deposits totaled $158.9 million at December 31, 2020 compared to $146.4 million at December 31, 2019.

Public funds deposits increased due to seasonal fluctuations.

We have developed a program for the retention and management of public funds deposits.

1 unchanged sentence

These deposits are from public entities such as school districts, hospital districts, sheriff departments and municipalities.

$463.7 million , or 76% , of these accounts at December 31, 2019 , are under fiscal agency agreements with terms of three years or less.

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.

Three of these relationships account for 33% of public funds deposits that are under fiscal agency agreements.

These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities.

2 unchanged sentences

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.

Public funds deposit accounts are collateralized by FHLB letters of credit, by reciprocal deposit insurance programs, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac.

First Guaranty has been growing the proportion of its public funds portfolio that is collateralized by reciprocal deposit insurance as an alternative to pledging securities or utilizing FHLB letters of credit.

First Guaranty initiated this strategy to more efficiently invest these deposits in higher yielding loans to improve the net interest margin and earnings.

Total public funds collateralized by reciprocal deposit insurance programs increased to $217.7 million at December 31, 2020 compared to $86.1 million at December 31, 2019.

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

4 unchanged sentences

Interest-bearing Demand 514,416 424,732 364,692

Savings 36,862 29,570 26,903

Time 158,925 146,420 247,004

Total Public Funds $ 715,312 $ 610,666 $ 645,529

4 unchanged sentences

The following table sets forth the maturity of the total certificates of deposit greater than or equal to $100,000 at December 31, 2020.

(in thousands)

December 31, 2019

(in thousands) December 31, 2020

Due in one year or less $ 270,939

3 unchanged sentences

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 $19.9 million in short-term borrowings outstanding at December 31, 2019 compared to none outstanding at December 31, 2018 .

First Guaranty had $56.1 million in short-term borrowings outstanding at December 31, 2020 compared to $19.9 million outstanding at December 31, 2019.

The short-term borrowings at December 31, 2020 were comprised of Federal Home Loan Bank advances of $50.0 million and repurchase agreements of $6.1 million.

The $50.0 million short term Federal Home Loan Bank advance was the result of First Guaranty's COVID-19 related liquidity actions taken in the first quarter of 2020.

Subsequent to December 31, 2020, First Guaranty redeemed this $50.0 million short term advance in February 2021.

The long term Federal Home Loan Bank advance of $3.4 million and the repurchase agreements were assumed as a result of the Union acquisition in November 2019.

First Guaranty has a line of credit for $6.5 million, with no outstanding balance at December 31, 2020.

The Federal Home Loan Bank advances and repurchase agreements were assumed as a result of the Union acquisition in November 2019.

At December 31, 2020, we had $365.8 million in FHLB letters of credit outstanding obtained primarily for collateralizing public deposits.

7 unchanged sentences

Weighted average rate at the end of the year 0.89 % 2.00 % — %

First Guaranty Bancshares had senior long-term debt totaling $48.6 million at December 31, 2019 and $19.8 million at December 31, 2018 .

The increase in long-term debt was due to a new $32.5 million term loan obtained in November 2019 to partially finance the Union acquisition.

First Guaranty also had junior subordinated debentures totaling $14.7 million at December 31, 2019 and December 31, 2018 .

First Guaranty had senior long-term debt totaling $42.4 million at December 31, 2020 and $48.6 million at December 31, 2019.

First Guaranty also had junior subordinated debentures totaling $14.8 million at December 31, 2020 and $14.7 million at December 31, 2019.

Shareholders' Equity

Total shareholders' equity increased to $178.6 million at December 31, 2020 from $166.0 million at December 31, 2019.

The increase in shareholders' equity was principally the result of an increase of $9.3 million in accumulated other comprehensive income, an increase of $8.3 million in retained earnings and an increase of $1.0 million in surplus.

The increase in accumulated other comprehensive income was primarily attributed to the decrease in unrealized losses on available for sale securities during the year ended December 31, 2019 .

The increase in shareholders' equity was principally the result of an increase of $14.1 million in retained earnings offset by a decrease of $1.5 million in accumulated other comprehensive income.

The decrease in accumulated other comprehensive income was primarily attributed to the decrease in unrealized gains on available for sale securities during the year ended December 31, 2020.

The $14.1 million increase in retained earnings was due to net income of $20.3 million during the year ended December 31, 2020, partially offset by $6.2 million in cash dividends paid on shares of our common stock.

The $1.0 million increase in surplus was due to common stock issued in a private placement.

Results of Operations

1 unchanged sentence

Year ended December 31, 2020 compared with year ended December 31, 2019.

Net income for the year ended December 31, 2020 was $20.3 million, an increase of $6.1 million, or 42.7%, as compared to $14.2 million for the year ended December 31, 2019.

The increase in net income of $6.1 million for the year ended December 31, 2020 was the result of several factors.

First Guaranty experienced an increase in interest income associated with loans, increased noninterest income due to increased securities sales and lower interest expense.

This was partially offset by an increase in the provision for loan losses and increased noninterest expense.

Loan interest income increased due to the growth in First Guaranty's loan portfolio, including the loans acquired in the fourth quarter of 2019 in the Union acquisition and loan fees recognized as an adjustment to yield from the origination of the SBA guaranteed PPP loans.

Noninterest income increased due to larger securities gains on sales for the year ended December 31, 2020 compared to losses on securities sales for the year ended December 31, 2019.

Interest expense declined due to declines in market interest rates and First Guaranty's strategy to reduce interest expense.

Interest expense declined during 2020 even after factoring in the additional deposit balances acquired from the Union acquisition, an increase in deposit balances associated with SBA PPP loans and stimulus payments, and additional borrowings associated with our COVID-19 contingency plans.

Factors that partially offset income include increased noninterest expense primarily associated with the Union acquisition including one-time merger related expenses of $0.5 million paid in 2020 for the data conversion.

The provision for loan losses increased to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio, including risks emerging from the COVID-19 pandemic and portfolio growth.

Earnings per common share for the years ended December 31, 2020 was $2.09 per common share, an increase of 42.2% or $0.62 per common share from $1.47 per common share for the year ended ended December 31, 2019.

Earnings per share was affected by the increase in earnings.

Year ended December 31, 2019 compared with year ended December 31, 2018.

Net income for the year ended December 31, 2019 was $14.2 million, an increase of $28,000, or 0.2%, as compared to the year ended December 31, 2018.

2 unchanged sentences

Loan interest income increased due to the continued growth in First Guaranty's loan portfolio, an increase in the average yield on loans and due to the acquired loans from the Union acquisition.

Noninterest income increased primarily as a result of gains on the sale of the guaranteed portion of SBA and USDA loans and an increase in securities gains.

Noninterest income increased primarily as a result of gains on the sale of the guaranteed portion of SBA and USDA loans.

Factors that partially offset this increase in income include increased interest expense and noninterest expense.

2 unchanged sentences

The provision for loan losses increased to provide for current loan losses and to maintain the allowance proprtionate to risks inherent in the loan portfolio.

Earnings per common share for the years ended December 31, 2019 and December 31, 2018 was $1.47 per common share (as adjusted for the 10% stock dividend in December 2019).

Year ended December 31, 2018 compared with year ended December 31, 2017.

Net income for the year ended December 31, 2018 was $14.2 million, an increase of $2.5 million, or 21.0%, from $11.8 million for the year ended December 31, 2017.

The increase in net income of $2.5 million for the year ended December 31, 2018 was the result of several factors.

First Guaranty experienced increased interest income associated with loans along with a decrease in the provision for loan losses, partially offset by increased loan interest and noninterest expense and decreased noninterest income.

The decrease in the provision for loan losses for the year ended December 31, 2018 was attributed to the aforementioned recovery associated with the payoff of the nonaccrual oil and gas credit along with improvement of overall credit quality of the loan portfolio.

The increase in interest expense was due to the rising interest rate environment and increased competition.

The decrease in noninterest income was primarily the result of an increase in securities losses.

Losses on the sale of securities were $1.8 million for the year ended December 31, 2018 compared to gains of $1.4 million for 2017.

First Guaranty also had a decrease in income tax expense of $3.9 million resulting from the decrease in the federal corporate tax rate as a result of the Tax Cuts and Jobs Act.

Earnings per common share for the year ended December 31, 2018 was $1.47 per common share, an increase of 21.5% or $0.26 per common share from $1.21 per common share for the year ended December 31, 2017 (as adjusted for the 10% stock dividend in December 2019).

The increase in earnings per share was caused by the increase in net income.

Earnings per common share for the years ended December 31, 2019 and December 31, 2018 was $1.47 per common share.

Net Interest Income

9 unchanged sentences

Net interest income for the years ended December 31, 2020 and 2019 was $74.7 million and $61.7 million, respectively.

The increase in net interest income for the year ended December 31, 2020 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and a decrease in the average rate of our total interest-bearing liabilities, partially offset by a decrease in the average yield of our total interest-earning assets and by an increase in the average balance of our total interest-bearing liabilities.

For the year ended December 31, 2020, the average balance of our total interest-earning assets increased by $417.3 million to $2.2 billion due to the assets acquired from the Union acquisition, COVID-19 related lending activities, including SBA PPP loans and loan growth.

The average yield of our interest-earning assets decreased by 54 basis points to 4.52% from 5.06% for the year ended December 31, 2019 due to the general decline in market interest rates that affect the pricing of our assets and due to the increased lower yielding average cash balances on the balance sheet.

For the year ended December 31, 2020, the average balance of our total interest-bearing liabilities increased by $310.9 million to $1.8 billion as our average deposits and average borrowings increased due to COVID-19 related contingency planning and government relief programs, and the average rate of our total interest-bearing liabilities decreased by 58 basis points to 1.48% from 2.06% for the year ended December 31, 2019 due to the decrease in market rates.

As a result, our net interest rate spread increased four basis points to 3.04% for the year ended December 31, 2020 from 3.00% for the year ended December 31, 2019.

Our net interest margin decreased six basis points to 3.35% for the year ended December 31, 2020 from 3.41% for the year ended December 31, 2019.

Year ended December 31, 2019 compared with year ended December 31, 2018.

Net interest income for the years ended December 31, 2019 and 2018 was $61.7 million and $57.0 million, respectively.

The increase in net interest income for the year ended December 31, 2019 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities.

3 unchanged sentences

Our net interest margin remained stable at 3.41% for the year ended December 31, 2019 and 2018.

Year ended December 31, 2018 compared with year ended December 31, 2017.

Net interest income for the year ended December 31, 2018 and 2017 was $57.0 million and $53.2 million, respectively.

The increase in net interest income for the year ended December 31, 2018 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities.

For the year ended December 31, 2018, the average balance of our total interest-earning assets increased by $79.4 million to $1.7 billion, and the average yield of our interest-earning assets increased by 45 basis points to 4.68% from 4.23% for the year ended December 31, 2017.

For the year ended December 31, 2018, the average balance of our total interest-bearing liabilities increased by $76.2 million to $1.3 billion, and the average rate of our total interest-bearing liabilities increased by 46 basis points to 1.60% from 1.14% for the year ended December 31, 2017.

As a result, our net interest rate spread decreased one basis point to 3.08% for the year ended December 31, 2018 from 3.09% for the year ended December 31, 2017.

Our net interest margin increased eight basis points to 3.41% for the year ended December 31, 2018 from 3.33% for the year ended December 31, 2017.

Interest Income

1 unchanged sentence

Interest income increased $9.0 million, or 9.9%, to $100.7 million for the year ended December 31, 2020 as compared to the prior year.

First Guaranty's loan portfolio expanded during 2020 due to growth associated with the SBA PPP lending program and our other loan originations such as commercial leases and non-farm non-residential loans.

These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, both loans and securities, including assets from the Union acquisition increased, partially offset by a decrease in the average yield of interest-earning assets due to the decline in market interest rates.

The average balance of our interest-earning assets increased $417.3 million to $2.2 billion for the year ended December 31, 2020 as compared to the prior year.

The average yield of interest-earning assets decreased by 54 basis points to 4.52% for the year ended December 31, 2020 compared to 5.06% for the year ended December 31, 2019.

Interest income on securities decreased $0.3 million to $9.5 million for the year ended December 31, 2020 as compared to the prior year primarily as a result of a decrease in the average yield on securities.

The average balance of securities increased $31.7 million to $381.0 million for the year ended December 31, 2020 from $349.2 million for the year ended December 31, 2019 due to an increase in balances, particularly corporate securities, as part of First Guaranty's strategy initiated at the end of the first quarter in 2020 to provide earnings and liquidity during the COVID-19 pandemic.

The average yield on securities decreased by 32 basis points to 2.49% for the year ended December 31, 2020 from 2.81% for the year ended December 31, 2019 due to the decrease in market interest rates.

Interest income on loans increased $11.9 million, or 15.1%, to $90.8 million for the year ended December 31, 2020 as a result of an increase in the average balance of loans.

The average balance of loans (excluding loans held for sale) increased by $347.4 million to $1.7 billion for the year ended December 31, 2020 from $1.3 billion for the year ended December 31, 2019 as a result of new loan originations, primarily SBA PPP loans, commercial leases, non-farm non-residential loans, and acquired loans from the Union acquisition.

The average yield on loans (excluding loans held for sale) decreased by 53 basis points to 5.46% for the year ended December 31, 2020 from 5.99% for the year ended December 31, 2019 due to the decrease in market interest rates and the impact of SBA PPP loans which have a 1.0% interest rate.

Year ended December 31, 2019 compared with year ended December 31, 2018.

Interest income increased $13.3 million, or 16.9%, to $91.6 million for the year ended December 31, 2019 as compared to the prior year.

First Guaranty continues to transition assets from lower yielding securities and interest-earning bank balances to higher yielding loans in order to increase interest income.

8 unchanged sentences

The average yield on loans (excluding loans held for sale) increased by 44 basis points to 5.99% for the year ended December 31, 2019 from 5.55% for the year ended December 31, 2018 as a result of the rising interest rate environment for the majority of 2019.

Year ended December 31, 2018 compared with year ended December 31, 2017.

Interest income increased $10.8 million, or 16.1%, to $78.4 million for the year ended December 31, 2018 as compared to the prior year.

First Guaranty continues to transition assets from lower yielding securities to higher yielding loans in order to increase interest income.

The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets principally as a result of the Premier acquisition along with an increase in the average yield of interest-earning assets.

The average balance of our interest-earning assets increased $79.4 million to $1.7 billion for the year ended December 31, 2018 as compared to the prior year.

The average yield of interest-earning assets increased by 45 basis points to 4.68% for the year ended December 31, 2018 compared to 4.23% for the year ended December 31, 2017.

Interest income on securities decreased $0.4 million to $12.9 million for the year ended December 31, 2018 primarily as a result of a decrease in the average balance of securities.

The average balance of securities decreased $46.3 million to $465.4 million for the year ended December 31, 2018 from $511.7 million for the year ended December 31, 2017 due to a decrease in the average balance of our agency and corporate securities as a result of securities sales.

The average yield on securities increased by 18 basis points to 2.78% for the year ended December 31, 2018 from 2.60% for the year ended December 31, 2017 due to the rising interest rate environment.

Interest income on loans increased $10.8 million, or 20.0%, to $64.8 million for the year ended December 31, 2018 as a result of an increase in the average balance of loans along with an increase in the average yield on loans.

The average balance of loans (excluding loans held for sale) increased by $110.9 million to $1.2 billion for the year ended December 31, 2018 from $1.1 billion for the year ended December 31, 2017 as a result of new loan originations, purchased loans and loans acquired from the Premier acquisition, the majority of which were one- to four-family residential loans, commercial leases, commercial real estate loans and commercial and industrial loans.

The average yield on loans (excluding loans held for sale) increased by 44 basis points to 5.55% for the year ended December 31, 2018 from 5.11% for the year ended December 31, 2017 as a result of the rising interest rate environment.

Interest Expense

Year ended December 31, 2020 compared with year ended December 31, 2019 .

Interest expense decreased $3.9 million, or 13.2%, to $26.0 million for the year ended December 31, 2020 from $30.0 million for the year ended December 31, 2019 due primarily to a decrease in market interest rates partially offset by an increase in the average balance of interest-bearing liabilities.

The average rate of interest-bearing demand deposits decreased by 92 basis points during the year ended December 31, 2020 to 0.84% as compared to 1.76% for the prior year.

The decrease in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW and DDA accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S.

Federal Funds rate or short-term U.S.

Treasury rates that declined sharply beginning in the first quarter of 2020.

The average rate of time deposits decreased 24 basis points during the year ended December 31, 2020 to 2.20% as compared to 2.44% for the prior year.

The decrease in the average rate of time deposits was due to First Guaranty's strategy to reduce deposit costs by expanding non-interest bearing and lower cost interest bearing deposits that has provided an alternative to higher cost time deposits and has helped First Guaranty maintain liquidity while lowering rates on time deposits.

Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, which increased $310.9 million during the year ended December 31, 2020 to $1.8 billion as compared to the prior year as a result of a $130.3 million increase in the average balance of interest-bearing demand deposits, a $69.5 million increase in the average balance of borrowings, a $63.4 million increase in the average balance of time deposits and a $47.7 million increase in the average balance of savings deposits.

Year ended December 31, 2019 compared with year ended December 31, 2018.

Interest expense increased $8.6 million, or 40.3%, to $30.0 million for the year ended December 31, 2019 from $21.4 million for the year ended December 31, 2018 due primarily to an increase in the average balance of interest-bearing deposits along with an increase in the average rate paid on interest-bearing deposits.

7 unchanged sentences

First Guaranty initiated a deposit campaign in 2018 to grow time deposits generally with terms greater than two years.

This strategy is designed to fund loan growth and increase long term funding for the Bank.

Year ended December 31, 2018 compared with year ended December 31, 2017.

Interest expense increased $7.0 million, or 48.4%, to $21.4 million for the year ended December 31, 2018 from $14.4 million for the year ended December 31, 2017 due primarily to an increase in the average balance of interest-bearing deposits principally as a result of the Premier acquisition along with an increase in the average rate paid on interest-bearing deposits.

The average balance of interest-bearing deposits increased by $78.3 million during the year ended December 31, 2018 to $1.3 billion as a result of a $52.8 million increase in the average balance of time deposits, a $17.1 million increase in the average balance of interest-bearing demand deposits and a $8.4 million increase in the average balance of savings deposits.

The average rate of interest-bearing demand deposits increased by 51 basis points during the year ended December 31, 2018 to 1.53% as compared to the prior year.

The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S.

Federal Funds rate or short term U.S.

Treasury rates which have increased over the last year.

The increase in the average rate on time deposits was due to changes in market rates and the initiation of a deposit campaign by First Guaranty in order to fund future loan growth and diversify the deposit portfolio.

This strategy was designed to fund loan growth and increase long term funding for the Bank.

Average Balances and Yields.

7 unchanged sentences

It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities.

December 31, 2019

December 31, 2018

December 31, 2017

(in thousands except for %)

Average Balance

December 31, 2020 December 31, 2019 December 31, 2018

(in thousands except for %) Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate

Interest-earning assets:

8 unchanged sentences

Premises and equipment, net 58,411 45,037 38,502

Other assets 49,859 15,256 13,805

Total Assets $ 2,348,485 $ 1,882,229 $ 1,736,043

Liabilities and Shareholders' Equity

3 unchanged sentences

Time deposits 767,075 16,908 2.20 % 703,685 17,141 2.44 % 628,457 10,690 1.70 %

Borrowings 110,292 2,752 2.50 % 40,766 1,851 4.54 % 39,150 1,738 4.44 %

Total interest-bearing liabilities 1,763,132 26,017 1.48 % 1,452,246 29,966 2.06 % 1,335,269 21,366 1.60 %

1 unchanged sentence

Demand deposits 393,734 262,379 252,531

Other 12,714 9,204 5,870

Total Liabilities 2,169,580 1,723,829 1,593,670

12 unchanged sentences

A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the years ended December 31, 2020, 2019 and 2018.

A 35% tax rate was used to calculate the effect on securities income from tax exempt securities for year ended December 31, 2017 , respectively.

Volume/Rate Analysis .

5 unchanged sentences

For the Years Ended December 31, 2020 vs.

Increase (Decrease) Due To

For the Years Ended December 31, 2018 vs.

Increase (Decrease) Due To For the Years Ended December 31, 2019 vs.

Increase (Decrease) Due To

(in thousands except for %)

(in thousands except for %) Volume Rate Increase/

Decrease Volume Rate Increase/

Interest earned on:

9 unchanged sentences

Time deposits 1,473 (1,706) (233) 1,400 5,051 6,451

Borrowings 2,032 (1,131) 901 73 40 113

Total interest expense 5,611 (9,560) (3,949) 2,061 6,539 8,600

6 unchanged sentences

The allowance for loan losses at December 31, 2020 was $24.5 million or 1.33% of total loans, compared to $10.9 million or 0.72% of total loans at December 31, 2019.

The increase in the provision was attributable to the increase in the loan portfolio, the effects of the COVID-19 pandemic and charge-offs not previously provided for.

Total charge-offs were $2.4 million for year ended December 31, 2020 and $5.3 million for 2019.

We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions that are significantly influenced by the COVID-19 pandemic, and current expected net charge-offs and non-performing asset levels.

We expect economic uncertainty to continue which may result in additional increases to the allowance for loan losses in future periods.

For the year ended December 31, 2019, the provision for loan losses was $4.9 million compared to $1.4 million for 2018.

The allowance for loan losses at December 31, 2019 was $10.9 million or 0.72% of total loans, compared to $10.8 million or 0.88% of total loans at December 31, 2018.

The increase in the provision was attributed to additional provisions on loans evaluated individually for impairment.

7 unchanged sentences

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.

For the year ended December 31, 2018, the provision for loan losses was $1.4 million compared to $3.8 million for 2017.

The allowance for loan losses at December 31, 2018 was $10.8 million or 0.88% of total loans, compared to $9.2 million or 0.80% of total loans at December 31, 2017.

The decrease in the provision was attributed to improvement in credit quality of the loan portfolio.

First Guaranty also received a $3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan on May 9, 2018.

The payment resulted in a recovery of $1.6 million.

The recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018.

Substandard loans decreased $1.6 million to $46.8 million at December 31, 2018 from $48.4 million at December 31, 2017.

Doubtful loans decreased $4.0 million to $0.5 million at December 31, 2018 from $4.6 million at December 31, 2017.

The allowance for loan losses as a percentage of total loans was 0.95% prior to the inclusion of the acquired loans from Premier.

The impaired loan portfolio did not suffer additional declines in estimated fair value requiring further provisions.

Noninterest Income.

2 unchanged sentences

Noninterest income totaled $23.8 million for the year ended December 31, 2020, an increase of $15.5 million from $8.3 million for the year ended December 31, 2019.

The increase was primarily due to increased gains on the sale of the guaranteed portion of SBA and USDA loans along with lower losses on the sale of securities.

Net securities losses were $0.2 million for the year ended December 31, 2019 as compared to net securities losses of $1.8 million for 2018 .

The losses on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth.

The increase was primarily due to gains on the sale of securities.

Net securities gains were $14.8 million for the year ended December 31, 2020 as compared to net securities losses of $0.2 million for 2019.

The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth and convert unrealized gains into realized earnings as previously noted as part of First Guaranty's plan to manage for economic uncertainty.

Service charges, commissions and fees totaled $2.6 million for the year ended December 31, 2020 as compared to $2.8 million for 2019.

The decline in these fees for 2020 compared to 2019 was the result of waivers initially provided for during the beginning of the COVID-19 pandemic.

ATM and debit card fees totaled $3.0 million for the year ended December 31, 2020 and $2.3 million for 2019.

The increase in these fees can be attributed to growth from the Union acquisition and to changes in customer behavior associated with the COVID-19 pandemic as customers used their debit cards as an alternative to cash.

Net gains on the sale of loans were $1.1 million for the year ended December 31, 2020 and $1.4 million for 2019.

Other noninterest income totaled $2.3 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively.

Noninterest income totaled $5.3 million for the year ended December 31, 2018, a decrease of $3.1 million from $8.3 million for the year ended December 31, 2017.

The decrease was primarily due to lower gains on securities sales.

Net securities losses were $1.8 million for the year ended December 31, 2018 as compared to net securities gains of $1.4 million for 2017.

The gains and losses on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth.

Noninterest income totaled $8.3 million for the year ended December 31, 2019, an increase of $3.0 million from $5.3 million for the year ended December 31, 2018.

The increase was primarily due to increased gains on the sale of the guaranteed portion of SBA and USDA loans along with lower losses on the sale of securities.

Net securities losses were $0.2 million for the year ended December 31, 2019 as compared to net securities losses of $1.8 million for 2018.

The losses on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth.

Service charges, commissions and fees totaled $2.8 million for the year ended December 31, 2019 as compared to $3.0 million for 2018.

6 unchanged sentences

Salaries and benefits expense totaled $29.6 million for the year ended December 31, 2020 and $25.0 million for the year ended December 31, 2019.

The increase in salaries and benefits expense was primarily due to the increase in personnel expense from the Union acquisition and new hires.

The increase in salaries and benefits expense was primarily due to the increase in personnel expense from the Union acquisition, new hires and expenses associated with COVID-19.

Occupancy and equipment expense increased to $7.7 million for the year ended December 31, 2020 from $6.1 million for the year ended December 31, 2019 due to the new offices acquired in the Union acquistion.

Other noninterest expense totaled $20.7 million for the year ended December 31, 2020 and $16.1 million for 2019.

The following are notable changes occured within noninterest expense.

Marketing and public relations expense declined $0.4 million during 2020 primarily due to the impacts of COVID-19.

Software expense and amortization increased $1.0 million in 2020 compared to 2019 due to the Union acquisition and the continued development of First Guaranty's loan and deposit platforms.

The amortization of core deposits increased $0.3 million due to the Union acquisition.

Net costs from other real estate owned and repossessions increased by $1.2 million as First Guaranty established a reserve for other real estate expense and wrote down other real estate properties.

First Guaranty's regulatory assessment increased by $1.0 million in 2020 compared to 2019 due to the Union acquisition and the substantial growth in deposits associated with COVID-19.

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses.

Noninterest expense totaled $47.2 million for the year ended December 31, 2019 and $43.3 million for the year ended December 31, 2018.

Salaries and benefits expense totaled $25.0 million for the year ended December 31, 2019 and $22.9 million for the year ended December 31, 2018.

The increase in salaries and benefits was primarily due to the increase in personnel expense from the Premier acquisition and new hires.

Occupancy and equipment expense totaled $5.6 million for the year ended December 31, 2018 and $4.5 million for the year ended December 31, 2017.

The increase in salaries and benefits expense was primarily due to the increase in personnel expense from the Union acquisition and new hires.

Occupancy and equipment expense increased to $6.1 million for the year ended December 31, 2019 from $5.6 million for the year ended December 31, 2018 due to the new offices acquired in the Union acquistion.

Other noninterest expense totaled $16.1 million for the year ended December 31, 2019 and $14.8 million for 2018.

Legal and professional fees totaled $2.4 million for the year ended December 31, 2018, a decrease of $0.7 million from $3.0 million for the year ended December 31, 2017.

The reduction was due to the non-recurring expenses included in the year ended December 31, 2017 related to the acquisition of Premier.

The following are notable changes within noninterest expense.

Legal and professional fees increased approximately $0.3 million in 2019 compared to 2018 principally due to the Union acquisition.

Data processing increased approximately $0.3 million principally due to the Union acquisition.

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

(in thousands)

December 31, 2019

December 31, 2018

December 31, 2017

(in thousands) December 31, 2020 December 31, 2019 December 31, 2018

Other noninterest expense:

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Data processing 2,465 1,972 1,692

ATM fees 1,332 1,217 1,214

Marketing and public relations 1,046 1,456 1,329

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Travel and lodging 726 908 978

Telephone 256 193 208

Amortization of core deposits 712 390 545

Donations 393 603 380

Net costs from other real estate and repossessions 1,653 422 186

Regulatory assessment 1,716 683 941

Other 2,980 2,536 2,204

Total other expense $ 20,724 $ 16,104 $ 14,786

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The provision for income taxes in 2020 increased as compared to 2019 due to the increase in income before income taxes.

First Guaranty recorded a one-time income tax expense of $0.9 million as a result of a remeasurement of its net deferred tax asset due to the enactment of the Tax Cuts and Jobs Act ("the "Tax Act") in December 2017 which reduced the corporate federal income tax rate from 35% to 21% beginning January 1, 2018.

GAAP required that the impact of the Tax Act must be accounted for in the period of enactment of the new law.

First Guaranty's statutory tax rate was 21.0% for the years ended December 31, 2019 and 2018 , which was a decrease of 14 basis points from the year ended December 31, 2017 rate of 35.0%.

First Guaranty's statutory tax rate was 21.0% for the years ended December 31, 2020, 2019 and 2018.

Impact of Inflation

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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 $299.6 million at December 31, 2020 compared to $67.4 million at December 31, 2019 .

Loans maturing within one year or less at December 31, 2020 totaled $265.9 million.

At December 31, 2020, time deposits maturing within one year or less totaled $355.1 million.

First Guaranty's held to maturity ("HTM") investment securities portfolio at December 31, 2019 was $86.6 million or 20.3% of the investment portfolio compared to $108.3 million or 26.7% at December 31, 2018 .

The securities in the HTM portfolio are used to collateralize public funds deposits and may also be used to secure borrowings with the Federal Home Loan Bank or Federal Reserve Bank.

The agency securities in the HTM portfolio have maturities of 10 years or less.

The mortgage backed securities have stated final maturities of 15 to 20 years at December 31, 2019 .

The municipal securities in the HTM portfolio have maturities of 20 years or less.

The HTM portfolio had a forecasted weighted average life of approximately 4.2 years based on current interest rates at December 31, 2019 .

Management regularly monitors the size and composition of the HTM portfolio to evaluate its effect on our liquidity.

Time deposits maturing after one year through three years totaled $234.1 million at December 31, 2020 compared to $167.9 million at December 31, 2019.

Time deposits maturing after three years totaled $136.5 million at December 31, 2020 compared to $243.4 million at December 31, 2019.

First Guaranty increased interest-bearing deposits associated with brokered money market funds in order to increase on-balance sheet liquidity.

Approximately $50.0 million of additional brokered money market funds were acquired in order to manage uncertainty associated with the COVID-19 crisis.

First Guaranty's held to maturity ("HTM") investment securities portfolio at December 31, 2020 was $0 compared to $86.6 million or 20.3% of the investment portfolio at December 31, 2019.

First Guaranty's available for sale ("AFS") portfolio was $238.5 million, or 100.0% of the investment portfolio at December 31, 2020 compared to $339.9 million, or 79.7% at December 31, 2019.

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We believe these securities are readily marketable and enhance our liquidity.

We maintained a net borrowing capacity at the FHLB totaling $170.3 million and $108.6 million at December 31, 2019 and December 31, 2018 , respectively with $15.8 million and $0 in FHLB advances outstanding at December 31, 2019 and December 31, 2018 , respectively.

We maintained a net borrowing capacity at the FHLB totaling $161.2 million and $170.3 million at December 31, 2020 and December 31, 2019, respectively with $53.4 million and $16.6 million in FHLB advances outstanding at December 31, 2020 and December 31, 2019, respectively.

At December 31, 2020, we had outstanding letters of credit from the FHLB in the amount of $365.8 million that were primarily used to collateralize public funds deposits.

We also have a discount window line with the Federal Reserve Bank.

We also have a discount window line with the Federal Reserve Bank that totaled $29.0 million at December 31, 2020.

First Guaranty had loans eligible to be pledged under the Federal Reserve's PPP lending facility that totaled $92.3 million at December 31, 2020.

First Guaranty did not have any advances under this facility at December 31, 2020.

We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $100.5 million at December 31, 2020.

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Total shareholders' equity increased to $178.6 million at December 31, 2020 from $166.0 million at December 31, 2019.

The increase in accumulated other comprehensive income was primarily attributed to the decrease in unrealized losses on available for sale securities during the year ended December 31, 2019 .

The increase in shareholders' equity was principally the result of an increase of $14.1 million in retained earnings offset by a decrease of $1.5 million in accumulated other comprehensive income.

The $1.0 million increase in surplus was due to the issuance of common stock in a private placement.

The decrease in accumulated other comprehensive income was primarily attributed to the decrease in unrealized gains on available for sale securities during the year ended December 31, 2020.

Capital Management

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The following table presents First Guaranty Bank's capital ratios as of the indicated dates.

"Well Capitalized Minimums"

At December 31, 2019

"Well Capitalized Minimums"

At December 31, 2018

"Well Capitalized Minimums" At December 31, 2020 "Well Capitalized Minimums" At December 31, 2019

Tier 1 Leverage Ratio 5.00 % 8.58 % 5.00 % 10.44 %

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Contract Amount

(in thousands)

December 31, 2019

December 31, 2018

December 31, 2017

(in thousands) December 31, 2020 December 31, 2019 December 31, 2018

Commitments to Extend Credit $ 154,047 $ 117,826 $ 108,348

23 unchanged sentences

December 31, 2020

(in thousands)

Less Than One Year

One to Three Years

Over Three Years

(in thousands) Less Than One Year One to Three Years Over Three Years Total

Operating leases $ 141 $ 150 $ — $ 291

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis