What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-16 compared with 2021-03-16 · 325 added, 340 removed, 847 unchanged (44% of the section changed)

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First Guaranty Bancshares is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana.

Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 34 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and Alexandria, Louisiana and Dallas-Fort Worth-Arlington and Waco, Texas.

Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 36 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and Alexandria, Louisiana and Dallas-Fort Worth-Arlington, Waco, Texas and our new Mideast markets in Kentucky and West Virginia.

We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs.

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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, conditions in domestic and foreign financial markets and in 2020 the economic and social effects of the COVID-19 pandemic.

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 and 2021 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 2021 and 2020:

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

• Total assets increased $405.0 million, or 16.4%, to $2.9 billion at December 31, 2021 when compared with December 31, 2020.

Total loans at December 31, 2021 were $2.2 billion, an increase of $315.2 million, or 17.1%, compared with December 31, 2020.

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• Earnings per common share were $2.42 for the year ended December 31, 2021 and $1.90 for the year ended December 31, 2020.

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

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

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

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

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

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

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

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

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

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

These borrowings remained at December 31, 2020.

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

Total weighted average common shares outstanding were 10,716,796 at December 31, 2021 and December 31, 2020.

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

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

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

The SBA 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.

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

The program has been conducted in two phases which First Guaranty classifies as Round 1 loans (originated in 2020) and Round 2 loans (originated in 2021).

As of December 31, 2021, First Guaranty had remaining Round 1 PPP loans of $12.7 million with deferred fees of $0.3 million and Round 2 PPP loans of $22.6 million with deferred fees of $1.1 million remaining.

$2.0 million in PPP fees were recognized during 2021 compared to $2.2 million in PPP fees recognized in 2020.

• The allowance for loan and lease losses was 1.11% of total loans at December 31, 2021 compared to 1.33% at December 31, 2020.

First Guaranty attributes the decrease in the allowance as a percentage of loans to the improvement in factors related to the COVID-19 pandemic offset by growth in the loan portfolio identified risks.

First Guaranty had acquisition related loan discounts that totaled approximately $1.4 million at December 31, 2021.

First Guaranty had $35.4 million at December 31, 2021 of SBA guaranteed PPP loans that have no related allowance due to the 100% government guarantee in accordance with regulatory guidance.

• First Guaranty had approximately $12.4 million of loans on deferral as of December 31, 2021 due to Hurricane Ida that impacted Southeast Louisiana on August 29, 2021.

• The provision for loan losses totaled $2.1 million for 2021 compared to $14.9 million in 2020.

The provision was primarily elevated in 2020 due to COVID-19 related economic conditions and due to growth in the loan portfolio.

• Net interest income for 2021 was $89.6 million compared to $74.7 million for 2020.

• Noninterest income for 2021 was $10.8 million compared to $23.8 million for 2020.

Excluding the impact of securities gains, noninterest income for 2021 improved to $10.0 million from $9.0 million for 2020.

The increase was primarily due to higher ATM and debit card fees.

• The net interest margin was 3.44% for 2021 and 3.35% for 2020.

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.

First Guaranty attributed the increase in the net interest margin to an improved mix of loans compared to securities and cash along with continued reduction in First Guaranty's cost of funds.

Loans as a percentage of average interest earning assets increased to 77.3% at December 31, 2021 compared to 74.7% at December 31, 2020.

• 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.

• Investment securities totaled $364.2 million at December 31, 2021, an increase of $125.6 million when compared to $238.5 million at December 31, 2020.

Gains on the sale of securities were $0.7 million for 2021 as compared $14.8 million for 2020.

At December 31, 2021, available for sale securities, at fair value, totaled $210.6 million, a decrease of $27.9 million when compared to $238.5 million at December 31, 2020.

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.

At December 31, 2021, held to maturity securities, at amortized cost, totaled $153.5 million as compared to $0 at December 31, 2020.

• Total loans net of unearned income were $2.2 billion at December 31, 2021 compared to $1.8 billion at December 31, 2020.

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 loans net of unearned income are reduced by the allowance for loan and lease losses which totaled $24.0 million at December 31, 2021 and $24.5 million at December 31, 2020.

• Total impaired loans decreased $0.9 million to $15.0 million at December 31, 2021 compared to $15.9 million at December 31, 2020.

• Nonaccrual loans increased $1.1 million to $16.7 million at December 31, 2021 compared to $15.6 million at December 31, 2020.

• First Guaranty is a smaller reporting company and has delayed the adoption of ASU 2016-13, "Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments." First Guaranty uses the incurred loss model for the calculation of its allowance.

• Return on average assets was 1.01% and 0.87% for the years ended December 31, 2021 and 2020, respectively.

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Tangible book value per common share was $16.13 as of December 31, 2021 compared to $14.92 as of December 31, 2020.

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

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

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

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

• First Guaranty's Board of Directors declared cash dividends of $0.64 per common share in 2021, which was the equivalent of $0.60 per common share after adjusting for the 10% common stock dividend paid in December 2021.

First Guaranty also declared cash dividends of $0.64 in 2020, which was the equivalent of $0.58 per common share after adjusting for the 10% common stock dividend paid in December 2021.

First Guaranty has paid 114 consecutive quarterly dividends as of December 31, 2021.

• 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.

Application of Critical Accounting Policies

Our accounting and reporting policies conform to generally accepted accounting principles in the United States and to predominant accounting practices within the banking industry.

Certain critical accounting policies require judgment and estimates which are used in the preparation of the financial statements.

Allowance for Loan Losses.

The allowance for loan losses is established through a provision for loan losses charged to expense.

Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

• On April 27, 2021, First Guaranty issued 34,500 shares of 6.75% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $1,000 per share, with a liquidation preference of $1,000 per share through an underwritten public offering of 1,380,000 depositary shares, each representing a 1/40th ownership interest in a share of the Series A Preferred Stock.

Total gross proceeds from the preferred stock offering were $34.5 million.

The shares are listed on NASDAQ under the symbol FGBIP.

The proceeds were used to redeem $13.3 million in senior debt and increase the bank subsidiary capital by $20.0 million effective April 30, 2021.

First Guaranty paid preferred cash dividends of $1.4 million during 2021.

Recent Developments

As disclosed in previous filings by First Guaranty Bancshares, Inc., for approximately 15 years First Guaranty Bank, a subsidiary of First Guaranty Bancshares, Inc.

has utilized an “Employee Stock Grant Program” to incentivize and reward bank employees for performance.

Each quarter, the Board of Directors of First Guaranty Bank allocates a $75,000 payment to an attorney to be used to purchase, on the open market, shares of stock with First Guaranty Bancshares, Inc.

The attorney receives nominations which come from managers throughout the Bank for awards to employees which range from clerical through top Management.

An average of just over 100 employees receive awards, in full ownership with no vesting nor other requirements, each quarter with an average award of approximately 37 shares per employee awarded.

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

In addition, the same process is utilized by First Guaranty Bancshares, Inc.

at the conclusion of each year for the grant of stock bonuses to members of Management of First Guaranty Bank, selected by the Board of Directors of First Guaranty Bancshares, Inc.

Those awards have averaged approximately $275,000 or 12,500 shares per year.

The SEC has requested information concerning this practice.

No process has been instituted;

only, a request for information.

Critical Accounting Estimates

Our consolidated financial statements are prepared to conform to generally accepted accounting principles in the United States and with predominant accounting practices within the banking industry.

Certain critical estimates require judgment and estimates which are used in the preparation of the financial statements and accompanying notes.

We have identified the following critical accounting estimate that is critical to an understanding of our financial condition and results of operations.

Allowance for Loan and Lease Losses.

The allowance for loan and lease losses is established through a provision for loan losses charged to expense.

Loans are charged against the allowance for loan and lease losses when management believes that the collectability of the principal is unlikely.

The allowance, which is based on evaluation of the collectability of loans and prior loan loss experience, is an amount that, in the opinion of management, reflects the risks inherent in the existing loan portfolio and exists at the reporting date.

The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower's ability to pay, adequacy of loan collateral and other relevant factors.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans.

Such agencies may require additional recognition of losses based on their judgments about information available to them at the time of their examination.

The following are general credit risk factors that affect our loan portfolio segments.

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Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral.

Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term.

However, the amount of the change that is reasonably possible cannot be estimated.

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Accordingly, we may ultimately incur losses that vary from management's current estimates.

Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated.

All loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability of the principal is unlikely.

Adjustments to the allowance for loan and lease losses will be reported in the period such adjustments become known or can be reasonably estimated.

All loan losses are charged to the allowance for loan and lease losses when the loss actually occurs or when the collectability of the principal is unlikely.

Recoveries are credited to the allowance at the time of recovery.

Loans acquired in a business combination are recorded at their estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses.

Acquired loans are segregated between those with deteriorated credit quality at acquisition and those deemed as performing.

To make this determination, Management considers such factors as past due status, nonaccrual status, credit risk ratings, interest rates and collateral position.

The fair value of acquired loans deemed performing is determined by discounting cash flows, both principal and interest, for each pool at prevailing market interest rates as well as consideration of inherent potential losses.

The difference between the fair value and principal balances due at acquisition date, the fair value discount, is accreted into income over the estimated life of each loan pool.

The fair value is estimated using an analysis of expected cash flows to be received from the loan and may include the use of third party appraisals to assist in the calculation.

Performing acquired loans are subsequently evaluated for any required allowance at each reporting date.

The allowance consists of specific, general, and unallocated components.

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For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

Also, a specific reserve is allocated for our syndicated loans.

First Guaranty typically receives appraisals from independent third parties to facilitate this calculation.

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.

For example, in 2020 and 2021 economic conditions related to the COVID-19 pandemic resulted in a higher allocation within this component of the allowance to hotel loans.

First Guaranty's commercial lease originations increased in 2021 which resulted in an increased allocation within this component of the allowance primarily related to the trend in increased volume.

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

The allowance for loan losses is reviewed on a monthly basis.

The allowance for loan and lease losses is reviewed on a monthly basis.

The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit.

A reserve is established as needed for estimates of probable losses on such commitments.

Other-Than-Temporary Impairment of Investment Securities .

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses.

In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer.

Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows:

1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

For equity securities, the entire amount of impairment is recognized through earnings.

Valuation of Goodwill, Intangible Assets and Other Purchase Accounting Adjustments.

First Guaranty accounts for acquisitions in accordance with ASC Topic No.

805, Business Combinations, which requires the use of the acquisition method of accounting.

Under this method, First Guaranty is required to record the assets acquired, including identified intangible assets, and liabilities assumed, at their respective fair values, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques.

The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization method for such intangible assets.

In addition, business combinations typically result in recording goodwill.

Intangible assets are comprised of goodwill, core deposit intangibles and loan servicing assets.

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests.

Our goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate impairment may exist.

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

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

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

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

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

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

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

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

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

Further, no events or changes in circumstances between October 1, 2020 and December 31, 2020 indicated that it was more likely than not the fair value of any reporting unit had been reduced below its carrying value.

Goodwill impairment evaluations require management to utilize significant judgments and assumptions including, but not limited to, the general economic environment and banking industry, reporting unit future performance (i.e., forecasts), events or circumstances affecting a respective reporting unit (e.g., interest rate environment), and changes in First Guaranty's stock price, amongst other relevant factors.

Management's judgments and assumptions are based on the best information available at the time.

Results could vary in subsequent reporting periods if conditions differ substantially from the assumptions utilized in completing the evaluations.

Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with related contract, asset or liability.

Our intangible assets primarily relate to core deposits and loan servicing assets related to the SBA loan portfolio.

Management periodically evaluates whether events or circumstances have occurred that would result in impairment of value.

Financial Condition

Our total assets were $2.9 billion at December 31, 2021, an increase of $405.0 million, or 16.4%, from total assets of $2.5 billion at December 31, 2020.

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.

Assets increased primarily due to increases in net loans of $315.7 million and investment securities of $125.6 million, partially offset by a decrease in cash and cash equivalents of $37.7 million at December 31, 2021 compared to December 31, 2020.

Net loans increased $315.7 million, or 17.4%, to $2.1 billion at December 31, 2021 from $1.8 billion at December 31, 2020.

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.

Commercial lease loan balances increased $141.9 million primarily due to new lease originations.

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.

Non-farm non-residential loan balances increased $62.3 million primarily due to new originations.

Commercial and industrial loans increased $45.4 million primarily due to new originations.

SBA PPP loans totaled $35.4 million at December 31, 2021 compared to $92.3 million at December 31, 2020.

These totals are included in commercial and industrial loans.

Round 1 SBA PPP loans decreased from $92.3 million at December 31, 2020 to $12.7 million at December 31, 2021 due to SBA loan forgiveness.

Partially offsetting these payoffs were Round 2 SBA PPP loan originations with total balances net of forgiveness payments of $22.6 million at December 31, 2021.

Construction and land development loans increased $23.5 million principally due to advances on existing construction lines and new originations.

Multifamily loans increased $19.9 million primarily due to the conversion of existing construction loans to permanent financing.

One-to four-family loans increased $17.1 million primarily due to new originations.

Farmland loans increased $4.9 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.

Consumer and other loans increased $3.5 million primarily due to new originations.

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

First Guaranty had approximately 5.2% of funded and 2.4% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations.

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Syndicated loans at December 31, 2021 were $47.4 million, of which $17.6 million were shared national credits.

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

Syndicated loans decreased $27.8 million from $75.2 million at December 31, 2020.

As of December 31, 2021, 66.8% of our loan portfolio was secured by real estate.

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77.3% of the loan portfolio is scheduled to mature within five years from December 31, 2021.

First Guaranty had $53.6 million in loans that were priced off of the LIBOR index rate at December 31, 2021.

As it is anticipated that LIBOR will be discontinued after 2021, First Guaranty is reviewing its loan documents to determine alternative reference rates and does not anticipate there will be a significant financial statement impact with the transition.

Loan Portfolio Composition.

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Commercial and industrial 398,391 18.4 % 353,028 19.1 % 268,256 17.5 % 200,877 16.4 % 230,638 20.0 %

Commercial leases 246,022 11.4 % 104,141 5.6 % 70,125 4.6 % 25,906 2.1 % 26,434 2.3 %

Consumer and other 48,142 2.2 % 44,642 2.4 % 38,743 2.5 % 33,537 2.7 % 28,751 2.5 %

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

Through Five Years After Five Years Total

Through Five Years More Than Five Years Through Fifteen Years After Fifteen Years Total

Construction & land development $ 36,038 $ 134,546 $ 3,370 $ 380 $ 174,334

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Commercial and industrial 120,888 205,725 68,241 3,537 398,391

Commercial leases 30,690 215,332 — — 246,022

Consumer and other 8,552 31,608 3,410 4,572 48,142

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

Through Five Years After Five Years Total

Through Five Years More Than Five Years Through Fifteen Years After Fifteen Years Total

Construction & land development $ 23,276 $ 111,615 $ 13,349 $ 2,601 $ 150,841

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Commercial and industrial 40,484 293,984 14,789 3,771 353,028

Commercial leases 29,503 74,638 — — 104,141

Consumer and other 8,363 28,677 2,406 5,196 44,642

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Commercial and industrial 699 701 327 317 4,826

Commercial leases — — — — —

Consumer and other 803 249 216 61 81

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Commercial and industrial 23 1,856 15 53 798

Commercial leases — — — — —

Consumer and other 19 123 50 66 —

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Commercial and industrial — — — — —

Commercial leases — — — — —

Consumer and other — — — — —

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Non-performing loans to total loans 0.83 % 1.55 % 1.12 % 0.73 % 1.17 %

Nonaccrual loans to total loans 0.77 % 0.84 % 0.94 % 0.71 % 1.09 %

Allowance for loan and lease losses to nonaccrual loans 143.76 % 157.41 % 75.88 % 123.25 % 73.51 %

For the years ended December 31, 2021 and 2020, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $0.8 million and $0.6 million, respectively.

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

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

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

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

The increase in non-performing assets occurred as a result of several factors.

We recognized $0.1 million and $22,000 of interest income on such loans during the years ended December 31, 2021 and 2020, respectively.

For the years ended December 31, 2021 and 2020, gross interest income which would have been recorded had the troubled debt restructured loans been current in accordance with their original terms amounted to $0.2 million and $0.1 million, respectively.

We recognized $0.2 million and $11,000 of interest income on such loans during the years ended December 31, 2021 and 2020, respectively.

Non-performing assets were $20.0 million, or 0.70%, of total assets at December 31, 2021, compared to $30.9 million, or 1.25%, of total assets at December 31, 2020, which represented a decrease in non-performing assets of $10.9 million.

The decrease in non-performing assets occurred primarily due to a reduction in 90 day past due and still accruing loans and other real estate owned offset by an increase in nonaccrual loans.

Nonaccrual loans increased from $15.6 million at December 31, 2020 to $16.7 million at December 31, 2021.

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These are structured as net loss guarantees in which up to 90% of loss exposure is covered.

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

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

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

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

At December 31, 2021 loans 90 days and greater delinquent and still accruing totaled $1.2 million, a decrease of $11.8 million or 90 percent from $13.1 million at December 31, 2020.

The decrease 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, commercial and industrial loans and construction and land development loans.

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

First Guaranty initiated a sustained effort that resulted in satisfactorily renewing the majority of these acquired loans and returning them to performing status.

Other real estate owned at December 31, 2021 totaled $2.1 million, a decrease of $0.2 million from $2.2 million at December 31, 2020.

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.

The largest piece of property in other real estate owned is a retail shopping center that totals $1.7 million.

First Guaranty has a reserve for other real estate owned losses.

This reserve totaled $0.5 million at December 31, 2021 compared to $0.4 million at December 31, 2020.

Total write downs and or reserves related to other real estate owned were $0.6 million in 2021 compared to $1.4 million in 2020.

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(1) a non-farm non-residential loan secured by a hotel that totaled $3.4 million that is classified as a troubled debt restructured loan or TDR;

(2) a non-farm non-residential loan secured by a childcare facility that totaled $1.8 million;

(3) a $1.7 million non-farm non-residential property included in other real estate owned;

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

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

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

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

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

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

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

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

(4) a non-farm non-residential loan secured by a mobile home facility that totaled $1.3 million;

(5) a non-farm non-residential loan secured by a waste treatment facility that totaled $0.9 million;

and (6) an agricultural/farmland loan relationship that totaled $0.9 million.

The agricultural loan is partially guaranteed by the USDA Farm Service Agency.

Troubled Debt Restructuring.

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"Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected.

Assets classified as "doubtful" have all of the weaknesses inherent in those classified as "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted.

Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as "special mention" by our management.

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We also employ a risk grading system for our loans to help assure that we are not taking unnecessary and/or unmanageable risk.

The primary objective of the loan risk grading system is to establish a method of assessing credit risk to further enable management to measure loan portfolio quality and the adequacy of the allowance for loan losses.

Further, we contract with an external loan review firm to complete a credit risk assessment of the loan portfolio on a regular basis to help determine the current level and direction of our credit risk.

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Special Mention $ 138,718 $ 99,201 $ 24,083

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 increase in classified assets at December 31, 2021 as compared to December 31, 2020 was due to a $3.3 million increase in substandard loans.

Substandard loans at December 31, 2021 consisted of $18.8 million in non-farm non-residential, $9.8 million in one- to four-family residential, $8.8 million in commercial and industrial, $7.0 million in multifamily, $4.1 million in farmland, $2.7 million in agricultural, $1.1 million in construction and land development, and the remaining $1.0 million comprised of consumer and other loans.

Special mention loans increased by $39.5 million in 2021 primarily due to the downgrade of loans in the portfolio.

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

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

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

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

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

Allowance for Loan Losses

The allowance for loan losses is maintained to absorb potential losses in the loan portfolio.

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

The increase was concentrated with hotel loans.

First Guaranty anticipates upgrading several loan relationships from special mention to pass status in the upcoming quarters.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is maintained to absorb potential losses in the loan portfolio.

The allowance is increased by the provision for loan losses offset by recoveries of previously charged-off loans and is decreased by loan charge-offs.

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• nature and volume of loans;

• overall portfolio quality and portfolio stress test results;

• overall portfolio quality, loan concentrations and portfolio stress test results;

• adequacy of loan collateral;

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The allowance for losses was $24.0 million at December 31, 2021 compared to $24.5 million at December 31, 2020.

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.

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

Additions to the allowance are charged to the provision for loan losses.

Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected.

The table below reflects the activity in the allowance for loan losses for the years indicated.

The table below reflects the activity in the allowance for loan and lease losses for the years indicated.

At or For the Years Ended December 31,

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Commercial and industrial loans (89) (265) (879) (179) (3,629)

Commercial leases — — — — (802)

Consumer and other (1,494) (1,083) (1,190) (907) (445)

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Commercial and industrial loans 96 128 267 1,642 30

Commercial leases 4 388 — — —

Consumer and other 320 336 246 216 223

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Net loan charge-offs to loans at end of year 0.12 % 0.07 % 0.31 % (0.02) % 0.50 %

Allowance for loan losses to loans at end of year 1.33 % 0.72 % 0.88 % 0.80 % 1.17 %

Net loan charge-offs to allowance for loan losses 5.25 % 43.07 % (1.83) % 61.91 % 18.05 %

Allowance for loan and lease losses to loans at end of year 1.11 % 1.33 % 0.72 % 0.88 % 0.80 %

Net loan charge-offs to allowance for loan and lease losses 10.59 % 5.25 % 43.07 % (1.83) % 61.91 %

Net loan charge-offs to provision charged to expense 123.80 % 8.66 % 96.85 % (14.55) % 149.42 %

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The provisions made in 2021 were taken to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio.

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

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

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

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

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

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

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

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

First Guaranty also experienced strong loan growth.

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

Louisiana reinstituted restrictions that had previously been lifted.

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

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

First Guaranty’s incurred loan loss calculation method incorporates risk factors in the loan portfolio such as historical loss rates along with qualitative and quantitative factors.

The composition of the loan portfolio affects the final allowance calculation.

First Guaranty attributes the primary decrease in the provision was due to economic improvement in 2021 as compared to the COVID-19 uncertainty and economic conditions present in 2020.

First Guaranty's qualitative and quantitative factors accounted for the changes in economic conditions driven by the COVID-19 pandemic in both 2020 and 2021.

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.

industry specific conditions, loan growth, changes in specific concentrations, 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 and 2021.

The loan portfolio factors in 2021 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.

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

First Guaranty adjusted allocations within its qualitative and quantitative factors to account for changes in potential COVID-19 related losses.

Loan portfolio risks associated with COVID-19 declined in 2021 compared to 2020.

• Construction and land development loans increased during 2021 due to advances on existing construction lines of credit and new loan originations.

Several loans previously in this category moved to permanent financing and are now included in the multifamily loan category as of December 31, 2021.

The provision decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

• One-to-four family residential loans increased during 2021.

The provision decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

• Multifamily loans increased during 2021.

The provision related to this portfolio remained in line with the related provision from 2020 as improved economic conditions reduced portfolio risk even as the portfolio increased by $19.9 million during 2021.

• Non-farm non-residential loans increased during 2021.

The provision decrease related to this portfolio was due to changes in the qualitative analysis of the portfolio related to COVID-19 and historical loss rates.

First Guaranty continues to maintain a significant allowance for hotel loans based on qualitative factors primarily related to COVID-19 and related credit ratings for hotel loans.

The associated allowance for hotels did decline in 2021 compared to 2020 due to improved economic conditions.

• Commercial and industrial loans increased during 2021.

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.

The provision decrease related to this portfolio was due to the changes in historical loss rates and changes in the qualitative analysis of the portfolio related to COVID-19 and improving economic conditions.

• Commercial leases increased during 2021.

The increase in the related loan loss allowance balance was due primarily to the increased balances associated with commercial leases.

Commercial leases grew during 2021 from $104.1 million at December 31, 2020 to $246.0 million at December 31, 2021.

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

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Recoveries totaled $0.6 million for the year ended December 31, 2021 and $1.1 million during 2020.

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 charged-off loan balances were concentrated in two loan relationships which totaled $1.0 million or 31.0% of the total charged off amount during the year ended December 31, 2021.

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

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

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

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

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

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

• First Guaranty charged off $0.6 million on a non-farm non-residential loan secured by a waste treatment facility during the fourth quarter of 2021.

This loan had a remaining principal balance of $0.9 million at December 31, 2021.

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

• First Guaranty charged off $0.4 million on a non-farm non-residential loan secured by a mobile home facility during the fourth quarter of 2021.

This loan had a remaining principal balance of $1.3 million at December 31, 2021.

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

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

• Smaller loans and overdrawn deposit accounts comprised the remaining $2.1 million of charge-offs for 2021.

Allocation of Allowance for Loan Losses.

The following tables set forth the allowance for loan losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated.

The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance for losses in other categories.

Allocation of Allowance for Loan and Lease Losses.

The following tables set forth the allowance for loan and lease losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated.

The allowance for loan and lease losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance for losses in other categories.

At December 31,

(dollars in thousands) Allowance for

Loan Losses Percent of Allowance

(dollars in thousands) Allowance for Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan Losses Percent of Loans

for Loan and Lease Losses Percent of Loans

in Each Category

to Total Loans Allowance for

Loan Losses Percent of Allowance

to Total Loans Allowance for Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan Losses Percent of Loans

for Loan and Lease Losses Percent of Loans

in Each Category

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Commercial and industrial 2,363 9.8 % 18.4 % 2,802 11.4 % 19.1 %

Commercial leases 2,486 10.3 % 11.4 % 583 2.4 % 5.6 %

Consumer and other 1,371 5.7 % 2.2 % 907 3.7 % 2.4 %

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At December 31,

(dollars in thousands) Allowance for

Loan Losses Percent of Allowance

(dollars in thousands) Allowance for Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan Losses Percent of Loans

for Loan and Lease Losses Percent of Loans

in Each Category

to Total Loans Allowance for

Loan Losses Percent of Allowance

to Total Loans Allowance for Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan Losses Percent of Loans

for Loan and Lease Losses Percent of Loans

in Each Category

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Commercial and industrial 1,909 17.5 % 17.5 % 1,909 17.7 % 16.4 %

Commercial leases 568 5.1 % 4.6 % 262 2.4 % 2.1 %

Consumer and other 542 5.0 % 2.5 % 629 5.9 % 2.7 %

3 unchanged sentences

(dollars in thousands) Allowance for

Loan Losses Percent of Allowance

Loan and Lease Losses Percent of Allowance

to Total Allowance

for Loan Losses Percent of Loans

for Loan and Lease Losses Percent of Loans

in Each Category

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Commercial and industrial 2,377 25.8 % 20.0 %

Commercial leases 805 8.7 % 2.3 %

Consumer and other 320 3.5 % 2.5 %

1 unchanged sentence

Total Allowance $ 9,225 100.0 % 100.0 %

The following table presents net charge-offs during the period to average loans outstanding:

December 31, 2021 December 31, 2020

(in thousands except for %) Net

Charge-offs Average Loans Outstanding 1

Net Charge-offs During Period to Average Loans Outstanding Net

Charge-offs Average Loans Outstanding 1

Net Charge-offs During Period to Average Loans Outstanding

Construction & land development $ (92) $ 168,269 (0.1) % $ (265) $ 139,516 (0.2) %

Farmland 90 28,596 0.3 % — 25,536 — %

1- 4 Family (222) 281,835 (0.1) % (115) 278,561 — %

Multifamily (12) 95,936 — % — 35,293 — %

Non-farm non-residential (1,013) 845,428 (0.1) % (372) 727,965 (0.1) %

Non-Real Estate:

Agricultural (132) 30,888 (0.4) % (40) 30,791 (0.1) %

Commercial and industrial 7 357,746 — % (137) 349,138 — %

Commercial leases 4 220,747 — % 388 80,268 0.5 %

Consumer and other (1,174) 43,957 (2.7) % (747) 42,288 (1.8) %

1 Average loans outstanding was calculated using the trailing four quarters total for loans.

Investment Securities

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

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

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

Investment securities at December 31, 2021 totaled $364.2 million, an increase of $125.6 million, or 52.7%, compared to $238.5 million at December 31, 2020.

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.

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Our available for sale securities portfolio totaled $210.6 million at December 31, 2021, a decrease of $27.9 million, or 11.7%, compared to $238.5 million at December 31, 2020.

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

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

Government agency securities.

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

First Guaranty had $14.1 million in U.S.

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

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

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

The decrease was primarily due to the sale of securities, called bonds, and the transfer of AFS securities to the HTM portfolio in the first quarter of 2021.

Our held to maturity securities portfolio had an amortized cost of $153.5 million at December 31, 2021, compared to $0 at December 31, 2020.

The held to maturity portfolio was terminated in the first quarter of 2002 due to economic conditions associated with COVID-19.

The following tables set forth the stated maturities and weighted average yields of our investment securities at December 31, 2021 and 2020.

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Municipal bonds 643 3.3 % 3,411 3.2 % 3,513 3.9 % 8,132 3.6 %

Collateralized mortgage obligations — 2.0 % — — % — — % — — %

Mortgage-backed securities — — % 2 0.8 % 6 1.4 % 578 1.4 %

Total available for sale securities $ 643 3.3 % $ 3,761 3.5 % $ 81,396 3.0 % $ 124,820 2.4 %

Held to maturity:

Government Agencies $ — — % $ — — % $ 19,445 1.6 % $ 134,091 2.3 %

Total held to maturity securities $ — — % $ — — % $ 19,445 1.6 % $ 134,091 2.3 %

At December 31, 2020

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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 5,000 1.5 % 7,177 2.0 % 5,998 2.1 % — — %

Municipal bonds 50 1.6 % 150 2.1 % 1,498 2.6 % 3,409 2.7 %

Mortgage-backed securities — — % — — % 11,628 2.0 % 51,669 2.3 %

Total held to maturity securities $ 5,050 1.5 % $ 7,327 2.0 % $ 19,124 2.1 % $ 55,078 2.4 %

At December 31, 2021, $0.6 million, or 0.2%, of the securities portfolio was scheduled to mature in less than one year.

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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 sold mortgage-backed securities and corporate securities in October 2020.

First Guaranty generated $12.2 million in pre-tax gains in the fourth quarter of 2020.

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

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(in thousands) Amortized Cost Fair Value

Federal Home Loan Bank $ 33,333 $ 33,071

Freddie Mac 95,230 93,401

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Noninterest-bearing demand deposits increased $121.2 million, or 29.4% to $532.6 million at December 31, 2021.

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.

The increase in noninterest-bearing demand deposits was due to growth of compensating balances associated with new loan originations, economic conditions associated with the CARES Act, proceeds from the SBA PPP program, and additional stimulus payments made due to pandemic relief to First Guaranty's consumer and business customers.

Interest-bearing demand deposits increased $415.2 million, or 48.3%, to $1,275.5 million at December 31, 2021.

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

The increase in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits.

Included in the increase in interest-bearing demand deposits were public funds time deposits that converted into interest-bearing deposits that were primarily collateralized by reciprocal deposit insurance.

Savings deposits increased $32.8 million, or 19.4%, to $201.7 million at December 31, 2021, primarily related to increases in individual savings deposits.

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

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

Management will continue to evaluate and update our product mix in its efforts to attract additional customers.

Time deposits decreased $139.0 million, or 19.2%, to $586.7 million at December 31, 2021, primarily due to the transition of several public funds customers from time deposits to interest-bearing deposits.

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

Management will continue to evaluate and update our product mix and related technology in its efforts to attract additional customers.

We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits and other lower cost deposits.

In the year 2022, First Guaranty has approximately $236.5 million in non-public funds time deposits that are scheduled to mature and represent an opportunity for repricing to more favorable market terms.

This includes approximately $89.5 million in one year time deposits at an average rate of 0.56%, $41.1 million in two year time deposits at an average rate of 1.22%, and approximately $77.1 million in greater than two year time deposits at an average rate of 2.61% that are scheduled to mature in the year 2022.

First Guaranty has over $200 million in time deposits with average rates in excess of 3.00% that are scheduled to mature during 2022 through 2024 with the majority of the maturities in 2023 and 2024.

First Guaranty expects to renew the majority of these time deposits at lower market rates.

The following table sets forth the distribution of deposit accounts, by account type, for the dates indicated.

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Public funds time deposits totaled $31.4 million at December 31, 2021 compared to $158.9 million at December 31, 2020.

Public funds deposits increased due to seasonal fluctuations.

The decline in public funds time deposits was the result of certain deposits moving into demand or money market deposits from time deposits.

Public funds deposits increased due to new balances from existing customers along with First Guaranty's expansion of its public funds deposits program in the Texas market.

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

7 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 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.

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

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

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

19 unchanged sentences

Total certificates of deposit greater than or equal to $250,000 $ 159,077

The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) were estimated at $667.5 million at December 31, 2021.

The following table sets forth the maturity of certificates of deposits greater than $250,000 at December 31, 2021.

(in thousands) December 31, 2021

Three months or less $ 22,525

Three to six months 16,434

Six months to one year 30,605

One to three years 57,580

More than three years 6,683

Total certificates of deposit greater than $250,000 $ 133,827

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 $6.4 million in short-term borrowings outstanding at December 31, 2021 compared to $56.1 million outstanding at December 31, 2020.

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 short-term borrowings at December 31, 2021 were comprised of repurchase agreements of $6.4 million.

The advances outstanding at December 31, 2020 were comprised of a short-term advance that was originated in response to the COVID-19 pandemic that totaled $50.0 million and a long-term advance that totaled $3.4 million.

First Guaranty paid off the short-term advance acquired in response to the COVID-19 pandemic during the first quarter of 2021.

First Guaranty participated in the Federal Reserve Paycheck Protection Program Liquidity Facility ("PPPLF") in the second quarter of 2021.

These borrowings were paid off during the third quarter of 2021.

First Guaranty has a long term FHLB advance that was acquired from the Union transaction that totaled $3.2 million at December 31, 2021 compared to $3.4 million at December 31, 2020.

First Guaranty had available lines of credit of $26.5 million, with no outstanding balance at December 31, 2021.

At December 31, 2021, we had $250.7 million in FHLB letters of credit outstanding obtained primarily for collateralizing public deposits.

The decline in the usage of FHLB letters of credit is due to First Guaranty utilizing reciprocal deposit insurance programs as an alternative collateralization solution to FHLB letters of credit.

The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the years indicated.

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Average daily outstanding $ 10,458 $ 48,277 $ 3,320

Total Weighted average rate during the year 0.95 % 2.00 % 2.21 %

Weighted average rate during the year 1.40 % 0.95 % 2.00 %

Weighted average rate at the end of the year 2.23 % 0.89 % 2.00 %

First Guaranty had senior long-term debt totaling $25.2 million at December 31, 2021 and $42.4 million at December 31, 2020.

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

First Guaranty paid off $13.3 million in senior long-term debt using proceeds from its preferred stock capital offering during the second quarter of 2021.

First Guaranty also had junior subordinated debentures totaling $14.8 million at December 31, 2021 and December 31, 2020.

Shareholders' Equity

Total shareholders' equity increased to $223.9 million at December 31, 2021 from $178.6 million at December 31, 2020.

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 increase in shareholders' equity was principally the result of an increase of $33.1 million in preferred stock and an increase of $19.5 million in retained earnings, partially offset by a decrease of $7.3 million in accumulated other comprehensive income.

The $33.1 million increase in preferred stock was the result of the issuance of 34,500 shares of non-cumulative perpetual preferred stock on April 27, 2021.

The $19.5 million increase in retained earnings was due to net income of $27.3 million during the year ended December 31, 2021, partially offset by $6.4 million in cash dividends paid on shares of our common stock and $1.4 million in cash dividends paid on shares of our preferred stock.

The decrease in accumulated other comprehensive income was primarily attributed to the increase in unrealized losses on available for sale securities during the year ended December 31, 2021.

Results of Operations

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The increase in net income of $7.0 million for the year ended December 31, 2021 was the result of several factors.

First Guaranty experienced an increase in interest income associated with loans, a decrease in interest expense and a decrease in the provision for loan losses.

This was partially offset by a decrease in interest income associated with securities, a decrease in noninterest income and an increase in noninterest expense.

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

Interest expense declined due to declines in market interest rates and First Guaranty's plan to reduce interest expense by increasing core deposits.

Interest expense declined in 2021 even after factoring in an increase in deposit balances associated with SBA PPP loans and stimulus payments, and additional borrowings associated with our COVID-19 contingency plans.

First Guaranty attributes the primary decrease in the provision to economic improvement in 2021 as compared to the COVID-19 uncertainty and economic conditions present in 2020.

Factors that partially offset the increase in net income included decreased securities interest income due to the decrease in average balance of the investment portfolio.

Noninterest income decreased primarily due to lower securities gains.

Noninterest expense increased primarily due to increased personnel expenses, higher occupancy and equipment expenses, software expense, marketing and public relations expenses, legal fees, ATM fees, taxes and higher regulatory assessments due to increased deposit balances.

Earnings per common share for the years ended December 31, 2021 was $2.42 per common share, an increase of 27.4% or $0.52 per common share from $1.90 per common share for the year ended December 31, 2020 (as adjusted for the 10% stock dividend in December 2021).

Earnings per share was affected by the increase in earnings.

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.

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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 common share for the years ended December 31, 2020 was $1.90 per common share, an increase of 41.8% or $0.56 per common share from $1.34 per common share for the year ended December 31, 2019 (as adjusted for the 10% stock dividend in December 2021).

Earnings per share was affected by the increase in earnings.

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

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

The increase in net income of $28,000 for the year ended December 31, 2019 was the result of several factors.

First Guaranty experienced an increase in interest income associated with loans and increased noninterest income, partially offset by an increase in the provision for loan losses, increased interest expense and increased noninterest expense.

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

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

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

The increase in interest expense was due to the rising interest rate environment, increased competition and due to the acquired deposits from the Union acquisition.

Noninterest expense increased primarily due to expenses associated with the Union acquisition that included approximately $0.3 million in one-time merger related expenses, as well as expenses associated with additional compensation, occupancy and other operating expenses for the branch offices acquired in the Union acquisition.

The provision for loan losses increased to provide for current loan losses and to maintain the allowance 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.

Net Interest Income

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Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income.

First Guaranty’s assets and liabilities are generally most affected by changes in the Federal Funds rate, LIBOR rate, short term Treasury rates such as one month and three month Treasury bills, and longer term Treasury rates such as the U.S.

ten year Treasury rate.

Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities.

There may also be a time lag in the effect of interest rate changes on assets and liabilities.

It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds.

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The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest-bearing liabilities.

The effects of the low interest rate environment in recent years and our interest sensitivity position is discussed below.

The effects of the changing interest rate environment in recent periods and our interest sensitivity position is discussed below.

Year ended December 31, 2021 compared with year ended December 31, 2020 .

Net interest income for the years ended December 31, 2021 and 2020 was $89.6 million and $74.7 million, respectively.

The increase in net interest income for the year ended December 31, 2021 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 an increase in the average balance of our total interest-bearing liabilities.

For the year ended December 31, 2021, the average balance of our total interest-earning assets increased by $379.4 million to $2.6 billion due to increased cash and due average balances, and strong growth in commercial leases and our other loan portfolios.

The average yield of our interest-earning assets decreased by 23 basis points to 4.29% from 4.52% for the year ended December 31, 2020 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, 2021, the average balance of our total interest-bearing liabilities increased by $249.3 million to $2.0 billion due to the growth in low cost deposits and the average rate of our total interest-bearing liabilities decreased by 37 basis points to 1.11% from 1.48% for the year ended December 31, 2020 due to the decrease in market rates.

As a result, our net interest rate spread increased 14 basis points to 3.18% for the year ended December 31, 2021 from 3.04% for the year ended December 31, 2020.

Our net interest margin increased nine basis points to 3.44% for the year ended December 31, 2021 from 3.35% for the year ended December 31, 2020.

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

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

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

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

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

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

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

For the year ended December 31, 2019, the average balance of our total interest-earning assets increased by $136.3 million to $1.8 billion, and the average yield of our interest-earning assets increased by 38 basis points to 5.06% from 4.68% for the year ended December 31, 2018.

For the year ended December 31, 2019, the average balance of our total interest-bearing liabilities increased by $117.0 million to $1.5 billion, and the average rate of our total interest-bearing liabilities increased by 46 basis points to 2.06% from 1.60% for the year ended December 31, 2018.

As a result, our net interest rate spread decreased eight basis points to 3.00% for the year ended December 31, 2019 from 3.08% for the years ended December 31, 2018.

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

Interest Income

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Interest income increased $11.2 million, or 11.2%, to $111.9 million for the year ended December 31, 2021 as compared to the prior year.

First Guaranty's loan portfolio expanded during 2021 due to growth associated with our loan originations, including commercial leases.

These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, primarily associated with loans, increased, 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 $379.4 million to $2.6 billion for the year ended December 31, 2021 as compared to the prior year.

The average yield of interest-earning assets decreased by 23 basis points to 4.29% for the year ended December 31, 2021 compared to 4.52% for the year ended December 31, 2020.

Interest income on securities decreased $1.2 million to $8.2 million for the year ended December 31, 2021 as compared to the prior year primarily as a result of a decrease in the average balance of securities.

The average balance of securities decreased $48.4 million to $332.6 million for the year ended December 31, 2021 from $381.0 million for the year ended December 31, 2020 primarily due to a decrease in the average balance of our mortgage-backed securities and corporate securities portfolios compared to the prior year.

The average yield on securities decreased by one basis point to 2.48% for the year ended December 31, 2021 from 2.49% for the year ended December 31, 2020 due to the decrease in market interest rates.

Interest income on loans increased $12.5 million, or 13.8%, to $103.4 million for the year ended December 31, 2021 as a result of an increase in the average balance of loans.

The average balance of loans (excluding loans held for sale) increased by $351.2 million to $2.0 billion for the year ended December 31, 2021 from $1.7 billion for the year ended December 31, 2020 as a result of new loan originations.

The average yield on loans (excluding loans held for sale) decreased by 33 basis points to 5.13% for the year ended December 31, 2021 from 5.46% for the year ended December 31, 2020 due to the decrease in market interest rates and the impact of SBA PPP loans which have a 1.00% interest rate.

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

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

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

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

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

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

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

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

The average balance of our interest-earning assets increased $136.3 million to $1.8 billion for the year ended December 31, 2019 as compared to the prior year.

The average yield of interest-earning assets increased by 38 basis points to 5.06% for the year ended December 31, 2019 compared to 4.68% for the year ended December 31, 2018.

Interest income on securities decreased $3.1 million to $9.8 million for the year ended December 31, 2019 as compared to the prior year primarily as a result of a decrease in the average balance of securities.

The average balance of securities decreased $116.2 million to $349.2 million for the year ended December 31, 2019 from $465.4 million for the year ended December 31, 2018 due to a decrease in the average balance of our agency, mortgage-backed, corporate and municipal securities as a result of securities sales, calls and maturities.

The average yield on securities increased by three basis points to 2.81% for the year ended December 31, 2019 from 2.78% for the year ended December 31, 2018 due to the rising interest rate environment for the majority of 2019.

Interest income on loans increased $14.1 million, or 21.7%, to $78.9 million for the year ended December 31, 2019 as a result of an increase in the average balance of loans along with an increase in the average yield on loans.

The average balance of loans (excluding loans held for sale) increased by $148.1 million to $1.3 billion for the year ended December 31, 2019 from $1.2 billion for the year ended December 31, 2018 as a result of new loan originations, purchased loans and loans acquired from the Union acquisition.

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

Interest Expense

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The average rate of interest-bearing demand deposits decreased by 17 basis points during the year ended December 31, 2021 to 0.67% as compared to 0.84% for the prior year.

The decrease 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 that declined during the current period.

The average rate of time deposits decreased 23 basis points during the year ended December 31, 2021 to 1.97% as compared to 2.20% for the prior year.

The decrease in the average rate of time deposits was due to a significant decline in market interest rates primarily associated with the economic conditions from the COVID-19 pandemic.

Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, which increased $249.3 million during the year ended December 31, 2021 to $2.0 billion as compared to the prior year as a result of a $360.5 million increase in the average balance of interest-bearing demand deposits, a $28.6 million increase in the average balance of savings deposits, which were partially offset by a $112.1 million decrease in the average balance of time deposits and a $27.7 million decrease in the average balance of borrowings.

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.

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

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

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

The average balance of interest-bearing deposits increased by $115.4 million during the year ended December 31, 2019 to $1.4 billion as a result of a $75.2 million increase in the average balance of time deposits, a $35.6 million increase in the average balance of interest-bearing demand deposits and a $4.5 million increase in the average balance of savings deposits.

The average rate of interest-bearing demand deposits increased by 23 basis points during the year ended December 31, 2019 to 1.76% as compared to the prior year.

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

Federal Funds rate or short term U.S.

Treasury rates.

The average rate of time deposits increased 74 basis points during the year ended December 31, 2019 to 2.44% as compared to the prior year.

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

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

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

Average Balances and Yields.

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A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the years ended December 31, 2021, 2020 and 2019.

(6) Includes loan fees of $7.2 million, $6.3 million and $3.5 million for the years ended December 31, 2021, 2020 and 2019.

PPP loan fee income of $2.0 million and $2.2 million was recognized for the years ended December 31, 2021 and 2020, respectively.

Volume/Rate Analysis .

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Provision for Loan Losses

A provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loan losses.

A provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loan and lease losses.

The provision is based on management's regular evaluation of current economic conditions in our specific markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values securing loans, and other factors which deserve recognition in estimating loan losses.

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The allowance for loan losses at December 31, 2021 was $24.0 million or 1.11% of total loans, compared to $24.5 million or 1.33% of total loans at December 31, 2020.

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.

The decrease in the provision was attributable to economic improvement in 2021 as compared to the COVID-19 uncertainty and economic conditions present in 2020.

Total charge-offs were $3.1 million for year ended December 31, 2021 and $2.4 million for 2020.

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.

We expect economic uncertainty due to the ongoing COVID-19 pandemic to continue which may result in additional increases to the allowance for loan losses in future periods.

For the year ended December 31, 2020, the provision for loan losses was $14.9 million compared to $4.9 million for 2019.

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

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

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

The payment resulted in a recovery of $1.6 million.

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

The increase in the provision was also attributable to the increase in the balance of the loan portfolio and charge-offs not previously provided for.

Substandard loans increased $6.3 million to $53.1 million at December 31, 2019 from $46.8 million at December 31, 2018.

Doubtful loans decreased $0.5 million to $0 at December 31, 2019 from $0.5 million at December 31, 2018.

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

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

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.

Noninterest Income

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Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.

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

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

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

Noninterest income totaled $10.8 million for the year ended December 31, 2021, a decrease of $13.0 million from $23.8 million for the year ended December 31, 2020.

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

Net securities gains were $0.7 million for the year ended December 31, 2021 as compared to net securities gains of $14.8 million for 2020.

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 $2.7 million for the year ended December 31, 2021 as compared to $2.6 million for 2020.

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 $3.6 million for the year ended December 31, 2021 and $3.0 million for 2020.

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.

The increase in these fees can be attributed 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 $0.9 million for the year ended December 31, 2021 and $1.1 million for 2020.

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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.

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.

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

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Salaries and benefits expense totaled $32.2 million for the year ended December 31, 2021 and $29.6 million for the year ended December 31, 2020.

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

Occupancy and equipment expense increased to $8.7 million for the year ended December 31, 2021 from $7.7 million for the year ended December 31, 2020 due to the new facilities put into service during 2021.

Other noninterest expense totaled $23.0 million for the year ended December 31, 2021 and $20.7 million for 2020.

The following are notable changes occurred within noninterest expense.

Marketing and public relations expense increased $0.7 million during 2021 compared to 2020 as these expenses were lower during 2020 primarily due to the impacts of COVID-19.

Tax expense increased primarily due to higher capital taxes in 2021.

Software expense and amortization increased $0.7 million in 2021 compared to 2021 due to the continued development of First Guaranty's loan and deposit platforms.

First Guaranty's regulatory assessment increased by $0.2 million in 2021 compared to 2020 due to the growth in deposits.

Data processing expense declined in 2021 compared to 2020 as First Guaranty did not have data conversion expenses in 2021 related to the Union merger.

Noninterest expense totaled $58.0 million for the year ended December 31, 2020 and $47.2 million for the year ended December 31, 2019.

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

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

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

The following are notable changes that occurred within noninterest expense.

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

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

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

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

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

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

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

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

The following are notable changes within noninterest expense.

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

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

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

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Total other expense $ 23,008 $ 20,724 $ 16,104

Income Taxes.

The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses.

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First Guaranty's cash and cash equivalents totaled $261.9 million at December 31, 2021 compared to $299.6 million at December 31, 2020 .

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.

Loans maturing within one year or less at December 31, 2021 totaled $357.1 million compared to $265.9 million at December 31, 2020.

At December 31, 2021, time deposits maturing within one year or less totaled $267.0 compared to $355.1 million at December 31, 2020.

Time deposits maturing after one year through three years totaled $269.7 million at December 31, 2021 compared to $234.1 million at December 31, 2020.

Time deposits maturing after three years totaled $50.0 million at December 31, 2021 compared to $136.5 million at December 31, 2020.

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 held to maturity ("HTM") investment securities portfolio at December 31, 2021 was $153.5 million or 42.2% of the investment portfolio compared to $0 at December 31, 2020.

First Guaranty's available for sale ("AFS") portfolio was $210.6 million, or 57.8% of the investment portfolio at December 31, 2021 compared to $238.5 million, or 100.0% at December 31, 2020.

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We maintained a net borrowing capacity at the FHLB totaling $456.3 million and $161.2 million at December 31, 2021 and December 31, 2020, respectively with $3.2 million and $53.4 million in FHLB advances outstanding at December 31, 2021 and December 31, 2020, respectively.

First Guaranty paid off the short-term advance acquired in response to the COVID-19 pandemic during the first quarter of 2021.

In the second quarter of 2021, First Guaranty increased liquidity by utilizing a $49.4 million advance under the Federal Reserve PPPLF.

First Guaranty redeemed the PPPLF advance during the third quarter of 2021 as the additional liquidity was not required.

At December 31, 2021, First Guaranty maintained the $3.2 million long-term FHLB advance acquired from the Union acquisition.

The change in borrowing capacity with the Federal Home Loan Bank was due to changes in the value that First Guaranty receives on pledged collateral and due to First Guaranty's usage of the line.

First Guaranty has increasingly transitioned public funds deposits into reciprocal deposit programs for collateralization as an alternative to FHLB letters of credit.

At December 31, 2021, we had outstanding letters of credit from the FHLB in the amount of $250.7 million that were primarily used to collateralize public funds deposits.

We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $100.5 million and two revolving lines of credit totaling $26.5 million secured by a pledge of the Bank's common stock, with no outstanding balance at December 31, 2021.

We also have a discount window line with the Federal Reserve Bank that totaled $14.2 million at December 31, 2021.

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First Guaranty did not have any advances under this facility at December 31, 2021.

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

We have a revolving line of credit for $6.5 million, with no outstanding balance at December 31, 2020 secured by a pledge of the Bank's common stock.

Management believes there is sufficient liquidity to satisfy current operating needs.

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Total shareholders' equity increased to $223.9 million at December 31, 2021 from $178.6 million at December 31, 2020.

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 $33.1 million increase in preferred stock was the result of the issuance of 34,500 shares of non-cumulative perpetual preferred stock on April 27, 2021.

The $19.5 million increase in retained earnings was due to net income of $27.3 million during the year ended December 31, 2021, partially offset by $6.4 million in cash dividends paid on our common stock and $1.4 million in cash dividends paid on shares of our preferred stock.

The decrease in accumulated other comprehensive income was primarily attributed to the increase in unrealized losses on available for sale securities during the year ended December 31, 2021.

Capital Management

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There were no losses incurred on any commitments during the years ended December 31, 2021, 2020 and 2019.

Contractual Obligations

The following table summarizes our fixed and determinable contractual obligations and other funding needs by payment date at December 31, 2020.

The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.

Payments Due by Period:

December 31, 2020

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

Operating leases $ 141 $ 150 $ — $ 291

Software contracts 2,717 4,903 1,165 8,785

Time deposits 355,093 234,058 136,478 725,629

Short-term advances from Federal Home Loan Bank 50,000 — — 50,000

Repurchase agreements 1,406 1,993 2,722 6,121

Long-term advances from Federal Home Loan Bank — — 3,366 3,366

Senior long-term debt 4,531 12,082 25,795 42,408

Junior subordinated debentures — — 15,000 15,000

Total contractual obligations $ 413,888 $ 253,186 $ 184,526 $ 851,600

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