First Guaranty Bancshares, Inc. 10-K

Item 8 - Financial Statements and Supplementary Data Castaing, Hussey & Lolan, LLC Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors First Guaranty Bancshares, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying balance sheets of First Guaranty Bancshares, Inc. and Subsidiary (First Guaranty) as of December 31, 2021 and 2020, and the related statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes collectively referred to as the financial statements. We also have audited First Guaranty's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Guaranty as of December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, First Guaranty maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. Basis for Opinion First Guaranty’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on First Guaranty’s financial statements and an opinion on First Guaranty’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to First Guaranty in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. -77- Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Loan and Lease Losses As described in Notes 1, 5 and 6 to the financial statements, at December 31, 2021 First Guaranty’s total loans were $2.1 billion and the associated allowance for loan and lease losses balance was $24.0 million. The allowance for loan and lease losses is management’s best estimate of probable incurred losses inherent in its loan portfolio and is based on historical loss experience by loan segment and class with adjustments for current events and conditions. These factors include, among others, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, specific credit risks, industry concentrations, and unidentified losses inherent in the current loan portfolio. We identified management’s asset quality ratings of loans and determination of qualitative factors, which is based on general economic conditions and other qualitative risk factors both internal and external to First Guaranty, both of which are used in the allowance for loan and lease losses calculation, as a critical audit matter. First Guaranty uses asset quality risk ratings to monitor portfolio performance and trends and to adjust historical loss percentages for classified loans. First Guaranty stratifies loans into pools based on collateral and type of loan, based on regulatory guidelines, and estimates inherent loss rates for each of the loan pools, which are used in the calculation of the allowance for loan and lease losses. The general valuation allowance portion of the allowance for loan and lease losses is used to estimate losses and is based on management’s evaluation of various factors that are not captured in the historical credit loss factors or on the specific impairment component. Auditing management’s judgments regarding the determination of the quantitative and qualitative portion of the allowance for loan and lease losses involved a high degree of subjectivity. The primary procedures we performed to address the critical audit matters included: • Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for loan and lease losses, including controls over the accuracy of asset quality ratings of loans, the loan pools based on collateral type, and the determination of the qualitative and quantitative factors of the allowance for loan and lease losses. • Testing a risk-based targeted selection of loans to gain substantive evidence that First Guaranty is appropriately rating these loans in accordance with its policies, and that the asset quality ratings for the loans are reasonable. • Obtaining management’s analysis and supporting documentation related to the qualitative factors and testing whether the qualitative risk factors both internal and external to First Guaranty used in the calculation of the allowance for loan and lease losses are supported by the analysis provided by management. • Testing the appropriateness of the methodology and assumptions used in the calculation of the allowance for loan and lease losses, and testing the calculation itself, including completeness and accuracy of the data used in the calculation, application of the qualitative factors determined by management and used in the calculation, and recalculation of the allowance for loan and lease losses balance. We have served as First Guaranty's auditor since 2001. Castaing, Hussey & Lolan, LLC New Iberia, Louisiana March 16, 2022 -78- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, 2021 December 31, 2020 Assets Cash and cash equivalents: Cash and due from banks $ 261,749 $ 298,903 Federal funds sold 183 702 Cash and cash equivalents 261,932 299,605 Investment securities: Available for sale, at fair value 210,620 238,548 Held to maturity, at cost (estimated fair value of $ 150,585 and $ 0 , respectively) 153,536 — Investment securities 364,156 238,548 Federal Home Loan Bank stock, at cost 1,359 3,351 Loans held for sale — — Loans, net of unearned income 2,159,359 1,844,135 Less: allowance for loan and lease losses 24,029 24,518 Net loans 2,135,330 1,819,617 Premises and equipment, net 58,637 59,892 Goodwill 12,900 12,900 Intangible assets, net 5,922 6,587 Other real estate, net 2,072 2,240 Accrued interest receivable 12,047 11,933 Other assets 23,765 18,405 Total Assets $ 2,878,120 $ 2,473,078 Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand $ 532,578 $ 411,416 Interest-bearing demand 1,275,544 860,394 Savings 201,699 168,879 Time 586,671 725,629 Total deposits 2,596,492 2,166,318 Short-term advances from Federal Home Loan Bank — 50,000 Repurchase agreements 6,439 6,121 Accrued interest payable 4,480 5,292 Long-term advances from Federal Home Loan Bank 3,208 3,366 Senior long-term debt 25,170 42,366 Junior subordinated debentures 14,818 14,777 Other liabilities 3,624 6,247 Total Liabilities 2,654,231 2,294,487 Shareholders' Equity Preferred stock, Series A - $ 1,000 par value - 100,000 shares authorized Non-cumulative perpetual; 34,500 and 0 shares issued and outstanding, respectively $ 33,058 $ — Common stock, $ 1 par value - 100,600,000 shares authorized and 10,716,796 shares issued 1 10,717 10,717 Surplus 130,093 130,093 Retained earnings 56,654 37,134 Accumulated other comprehensive (loss) income ( 6,633 ) 647 Total Shareholders' Equity 223,889 178,591 Total Liabilities and Shareholders' Equity $ 2,878,120 $ 2,473,078 See Notes to Consolidated Financial Statements. 1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021. -79- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (in thousands, except share data) 2021 2020 2019 Interest Income: Loans (including fees) $ 103,353 $ 90,808 $ 78,886 Deposits with other banks 316 404 2,956 Securities (including FHLB stock) 8,248 9,471 9,800 Federal funds sold — 1 1 Total Interest Income 111,917 100,684 91,643 Interest Expense: Demand deposits 7,237 6,089 10,447 Savings deposits 204 268 527 Time deposits 12,893 16,908 17,141 Borrowings 1,965 2,752 1,851 Total Interest Expense 22,299 26,017 29,966 Net Interest Income 89,618 74,667 61,677 Less: Provision for loan losses 2,055 14,877 4,860 Net Interest Income after Provision for Loan Losses 87,563 59,790 56,817 Noninterest Income: Service charges, commissions and fees 2,699 2,571 2,808 ATM and debit card fees 3,562 3,022 2,254 Net gains (losses) on securities 714 14,791 ( 157 ) Net gains on sale of loans 942 1,054 1,376 Other 2,843 2,342 2,018 Total Noninterest Income 10,760 23,780 8,299 Noninterest Expense: Salaries and employee benefits 32,179 29,600 25,019 Occupancy and equipment expense 8,681 7,709 6,096 Other 23,008 20,724 16,104 Total Noninterest Expense 63,868 58,033 47,219 Income Before Income Taxes 34,455 25,537 17,897 Less: Provision for income taxes 7,158 5,219 3,656 Net Income 27,297 20,318 14,241 Less: Preferred stock dividends 1,384 — — Net Income Available to Common Shareholders $ 25,913 $ 20,318 $ 14,241 Per Common Share: 1 Earnings $ 2.42 $ 1.90 $ 1.34 Cash dividends paid $ 0.60 $ 0.58 $ 0.54 Weighted Average Common Shares Outstanding 10,716,796 10,716,796 10,666,055 See Notes to Consolidated Financial Statements 1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021. -80- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31, (in thousands) 2021 2020 2019 Net Income $ 27,297 $ 20,318 $ 14,241 Other comprehensive income: Unrealized (losses) gains on securities: Unrealized holding (losses) gains arising during the period ( 8,501 ) 12,757 11,435 Reclassification adjustments for (gains) losses included in net income ( 714 ) ( 14,791 ) 353 Reclassification of OTTI losses included in net income — 100 — Change in unrealized (losses) gains on securities ( 9,215 ) ( 1,934 ) 11,788 Tax impact 1,935 406 ( 2,475 ) Other comprehensive (loss) income ( 7,280 ) ( 1,528 ) 9,313 Comprehensive Income $ 20,017 $ 18,790 $ 23,554 See Notes to Consolidated Financial Statements -81- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Preferred Stock $ 1,000 Par Common Stock $ 1 Par Surplus Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total Balance December 31, 2018 $ — $ 10,657 $ 128,938 $ 14,827 $ ( 7,138 ) $ 147,284 Net income — — — 14,241 — 14,241 Common stock issued in private placement, 59,551 shares 1 — 60 1,155 ( 215 ) — 1,000 Other comprehensive income — — — — 9,313 9,313 Cash dividends on common stock ($ 0.54 per share) 1 — — — ( 5,803 ) — ( 5,803 ) Balance December 31, 2019 $ — $ 10,717 $ 130,093 $ 23,050 $ 2,175 $ 166,035 Net income — — — 20,318 — 20,318 Other comprehensive income (loss) — — — — ( 1,528 ) ( 1,528 ) Cash dividends on common stock ($ 0.58 per share) 1 — — — ( 6,234 ) — ( 6,234 ) Balance December 31, 2020 $ — $ 10,717 $ 130,093 $ 37,134 $ 647 $ 178,591 Net income — — — 27,297 — 27,297 Preferred stock issued, 34,500 shares, net of costs 33,058 — — — — 33,058 Other comprehensive income (loss) — — — — ( 7,280 ) ( 7,280 ) Preferred stock dividends — ( 1,384 ) ( 1,384 ) Cash dividends on common stock ($ 0.60 per share) 1 — — — ( 6,393 ) — ( 6,393 ) Balance December 31, 2021 $ 33,058 $ 10,717 $ 130,093 $ 56,654 $ ( 6,633 ) $ 223,889 See Notes to Consolidated Financial Statements 1 All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2021 to shareholders of record as of December 15, 2021. -82- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in thousands) 2021 2020 2019 Cash Flows From Operating Activities: Net income $ 27,297 $ 20,318 $ 14,241 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,055 14,877 4,860 Depreciation and amortization 4,775 3,781 3,057 Amortization/Accretion of investments ( 104 ) 2,594 1,347 (Gain) loss on sale/call of securities ( 714 ) ( 14,791 ) 157 Other Than Temporary Impairment Charge on Securities — 100 — Gain on sale of assets ( 965 ) ( 1,054 ) ( 1,304 ) Repossessed asset write downs, gains and losses on dispositions 536 1,245 90 FHLB stock dividends ( 13 ) ( 43 ) ( 63 ) Net decrease in loans held for sale — — 344 Change in other assets and liabilities, net ( 6,347 ) ( 3,268 ) 6,349 Net Cash Provided by Operating Activities 26,520 23,759 29,078 Cash Flows From Investing Activities: Proceeds from maturities, calls and sales of HTM securities — 34,022 21,190 Proceeds from maturities, calls and sales of AFS securities 417,557 1,242,559 279,590 Funds invested in AFS securities ( 551,563 ) ( 1,078,450 ) ( 274,437 ) Funds invested in preferred securities ( 1,000 ) — — Proceeds from redemption of preferred securities 1,500 — — Proceeds from sale/redemption of Federal Home Loan Bank stock 2,160 — — Funds invested in Federal Home Loan Bank stock ( 155 ) — — Net increase in loans ( 320,347 ) ( 322,745 ) ( 123,553 ) Purchases of premises and equipment ( 2,204 ) ( 6,313 ) ( 11,933 ) Proceeds from sales of premises and equipment 77 127 12 Proceeds from sales of other real estate owned 1,330 2,345 550 Cash paid in excess of cash received in acquisition — — ( 23,325 ) Net Cash Used In Investing Activities ( 452,645 ) ( 128,455 ) ( 131,906 ) Cash Flows From Financing Activities: Net increase in deposits 430,174 313,210 18,408 Net (decrease) increase in federal funds purchased and short-term borrowings ( 49,682 ) 36,202 ( 28 ) Proceeds from long-term borrowings, net of costs — — 32,465 Repayment of long-term borrowings ( 17,321 ) ( 6,302 ) ( 3,754 ) Net proceeds from issuance of preferred stock 33,058 — — Common stock issued in private placement — — 1,000 Dividends paid on preferred stock ( 1,384 ) — — Dividends paid on common stock ( 6,393 ) ( 6,234 ) ( 5,803 ) Net Cash Provided By Financing Activities 388,452 336,876 42,288 Net (Decrease)Increase In Cash and Cash Equivalents ( 37,673 ) 232,180 ( 60,540 ) Cash and Cash Equivalents at the Beginning of the Period 299,605 67,425 127,965 Cash and Cash Equivalents at the End of the Period $ 261,932 $ 299,605 $ 67,425 Noncash Activities: Acquisition of real estate in settlement of loans $ 1,782 $ 951 $ 2,789 Transfer of securities from HTM to AFS $ — $ 52,553 $ — Transfer of securities from AFS to HTM $ 160,014 $ — $ — Cash Paid During the Period: Interest on deposits and borrowed funds $ 23,111 $ 26,772 $ 27,871 Federal income taxes $ 11,400 $ 4,800 $ 3,250 State income taxes $ 36 $ 25 $ 23 See Notes to Consolidated Financial Statements. -83- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business and Summary of Significant Accounting Policies Business First Guaranty Bancshares, Inc. ("First Guaranty") is a Louisiana corporation and a financial holding company headquartered in Hammond, LA. First Guaranty owns all of the outstanding shares of common stock of First Guaranty Bank. First Guaranty Bank (the "Bank") is a Louisiana state-chartered commercial bank that offers a wide range of financial services and focuses on building client relationships and providing exceptional customer service. These services include consumer and commercial lending, mortgage loan origination, the issuance of credit cards and retail banking services. The Bank also maintains an investment portfolio comprised of government, government agency, corporate, and municipal securities. The Bank has thirty-six banking facilities and forty-nine automated teller machines (ATMs) in Southeast, Southwest, Central and North Louisiana, North Central Texas, Kentucky and West Virginia. Summary of significant accounting policies The accounting and reporting policies of First Guaranty conform to generally accepted accounting principles and to predominant accounting practices within the banking industry. The more significant accounting and reporting policies are as follows: Consolidation The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc., and its wholly owned subsidiary, First Guaranty Bank. All significant intercompany balances and transactions have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan and lease losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of investment securities. In connection with the determination of the allowance for loan and lease losses and real estate owned, First Guaranty obtains independent appraisals for significant properties. Cash and cash equivalents For purposes of reporting cash flows, cash and cash equivalents are defined as cash, due from banks, interest-bearing demand deposits with banks and federal funds sold with maturities of three months or less. Securities First Guaranty reviews its financial position, liquidity and future plans in evaluating the criteria for classifying investment securities. Debt securities that Management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Securities available for sale are stated at fair value. The unrealized difference, if any, between amortized cost and fair value of these AFS securities is excluded from income and is reported, net of deferred taxes, in accumulated other comprehensive income as a part of shareholders' equity. Details of other comprehensive income are reported in the consolidated statements of comprehensive income. Realized gains and losses on securities are computed based on the specific identification method and are reported as a separate component of other income. Amortization of premiums and discounts is included in interest income. Discounts and premiums related to debt securities are amortized using the effective interest rate method. Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. -84- Loans held for sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty days . Buyers generally have recourse to return a purchased loan under limited circumstances. Recourse conditions may include early payment default, breach of representations or warranties and documentation deficiencies. Mortgage loans held for sale are generally sold with the mortgage servicing rights released. Gains or losses on sales of mortgage loans are recognized based on the differences between the selling price and the carrying value of the related mortgage loans sold. Loans Loans are stated at the principal amounts outstanding, net of unearned income and deferred loan fees. In addition to loans issued in the normal course of business, overdrafts on customer deposit accounts are considered to be loans and reclassified as such. Interest income on all classifications of loans is calculated using the simple interest method on daily balances of the principal amount outstanding. Accrual of interest is discontinued on a loan when Management believes, after considering economic and business conditions and collection efforts, the borrower's financial condition is such that reasonable doubt exists as to the full and timely collection of principal and interest. This evaluation is made for all loans that are 90 days or more contractually past due. When a loan is placed in nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of interest and principal is probable. Loans are returned to accrual status when, in the judgment of Management, all principal and interest amounts contractually due are reasonably assured to be collected within a reasonable time frame and when the borrower has demonstrated payment performance of cash or cash equivalents; generally for a period of 6 months. All loans, except mortgage loans, are considered past due if they are past due 30 days. Mortgage loans are considered past due when two consecutive payments have been missed. Loans that are past due 90 - 120 days and deemed uncollectible are charged-off. The loan charge off is a reduction of the allowance for loan and lease losses. Troubled Debt Restructurings (TDRs) TDRs are loans in which the borrower is experiencing financial difficulty at the time of restructuring, and the Bank has granted a concession to the borrower. TDRs are undertaken in order to improve the likelihood of recovery on the loan and may take the form of modifications made with the stated interest rate lower than the current market rate for new debt with similar risk, other modifications to the structure of the loan that fall outside of normal underwriting policies and procedures, or in limited circumstances forgiveness of principal and / or interest. TDRs can involve loans remaining on non-accrual, moving to non-accrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. TDRs are subject to policies governing accrual and non-accrual evaluation consistent with all other loans as discussed in the "Loans" section above. All loans with the TDR designation are considered to be impaired, even if they are accruing. First Guaranty's policy is to evaluate TDRs that have subsequently been restructured and returned to market terms after 6 months of performance. The evaluation includes a review of the loan file and analysis of the credit to assess the loan terms, including interest rate to insure such terms are consistent with market terms. The loan terms are compared to a sampling of loans with similar terms and risk characteristics, including loans originated by First Guaranty and loans lost to a competitor. The sample provides a guide to determine market terms pursuant to ASC 310-40-50-2. The loan is also evaluated at that time for impairment. A loan determined to be restructured to market terms and not considered impaired will no longer be disclosed as a TDR in the years following the restructuring. These loans will continue to be individually evaluated for impairment. A loan determined to either be restructured to below market terms or to be impaired will remain a TDR. Credit Quality First Guaranty's credit quality indicators are pass, special mention, substandard, and doubtful. Loans included in the pass category are performing loans with satisfactory debt coverage ratios, collateral, payment history, and documentation requirements. Special mention loans have potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. -85- A substandard loan is inadequately protected by the paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness. They are characterized by the distinct possibility that First Guaranty will sustain some loss if the deficiencies are not corrected. These loans require more intensive supervision. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigates. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and interest is no longer accrued. Consumer loans that are 90 days or more past due or that are nonaccrual are considered substandard. Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. A loan is considered impaired when, based on current information and events, it is probable that First Guaranty will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by Management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price or the fair value of the collateral if the loan is collateral dependent. This process is only applied to impaired loans or relationships in excess of $ 500,000 . Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement. Loans that have been restructured in a troubled debt restructuring will continue to be evaluated individually for impairment, including those no longer requiring disclosure. Acquired Loans Loans are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan 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. 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. Performing acquired loans are subsequently evaluated for any required allowance at each reporting date. An allowance for loan and lease losses is calculated using a similar methodology for originated loans. Loan fees and costs Nonrefundable loan origination and commitment fees and direct costs associated with originating loans are deferred and recognized over the lives of the related loans as an adjustment to the loans' yield using the level yield method. Allowance for loan 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, historical losses, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower's ability to pay including the impact of the COVID-19 pandemic, adequacy of loan collateral and other relevant factors. The following are general credit risk factors that affect First Guaranty's loan portfolio segments. These factors do not encompass all risks associated with each loan category. Construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property. Farmland and agricultural loans have risks such as weather, government agricultural policies, fuel and fertilizer costs, and market price volatility. 1-4 family, multi-family, and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy. Non-farm non-residential loans include both owner occupied real estate and non-owner occupied real estate. Common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses. Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral. Although Management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan and lease losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. -86- Accordingly, First Guaranty may ultimately incur losses that vary from Management's current estimates. 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. The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for syndicated loans. The general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors include analysis of levels and trends in delinquencies, non-accrual loans, charge-offs and recoveries, loan risk ratings, trends in volume and terms of loans, changes in lending policy, credit concentrations, portfolio stress test results, national and local economic trends including the impact of COVID-19, industry conditions, and other relevant factors. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for loan 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. Goodwill and intangible assets Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in an acquisition. First Guaranty's goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment in accordance with ASC Topic 350. Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with the related contract, asset or liability. First Guaranty's intangible assets primarily relate to core deposits and loan servicing assets related to the SBA portfolio. These core deposit intangibles are amortized on a straight-line basis over terms ranging from seven to fifteen years . Management periodically evaluates whether events or circumstances have occurred that impair this deposit intangible. Premises and equipment Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the respective assets as follows: Buildings and improvements 10 - 40 years Equipment, fixtures and automobiles 3 - 10 years Expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Repairs, maintenance and minor improvements are charged to operating expense as incurred. Gains or losses on disposition, if any, are recorded as a separate line item in noninterest income on the Statements of Income. Other real estate Other real estate includes properties acquired through foreclosure or acceptance of deeds in lieu of foreclosure. These properties are recorded at the lower of the recorded investment in the property or its fair value less the estimated cost of disposition. Any valuation adjustments required prior to foreclosure are charged to the allowance for loan and lease losses. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged to current period earnings as other real estate expense or to the allowance for other real estate. Costs of operating and maintaining the properties are charged to other real estate expense as incurred. Any subsequent gains or losses on dispositions are credited or charged to income in the period of disposition . Off-balance sheet financial instruments In the ordinary course of business, First Guaranty has entered into commitments to extend credit, including commitments under credit card arrangements, commitments to fund commercial real estate, construction and land development loans secured by real estate, and performance standby letters of credit. Such financial instruments are recorded when they are funded. -87- Income taxes First Guaranty and its subsidiary file a consolidated federal income tax return on a calendar year basis. In lieu of Louisiana state income tax, the Bank is subject to the Louisiana bank shares tax, which is included in noninterest expense in First Guaranty's consolidated financial statements. With few exceptions, First Guaranty is no longer subject to U.S. federal, state or local income tax examinations for years before 2018. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the deferred tax assets or liabilities are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be utilized. Comprehensive income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects are presented in the Statements of Comprehensive Income. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. See Note 19 for a detailed description of fair value measurements. Transfers of Financial Assets Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from First Guaranty, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) First Guaranty does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Earnings per common share Earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. In December of 2021, First Guaranty issued a pro rata, 10 % common stock dividend. The shares issued for the stock dividend have been retrospectively factored into the calculation of earnings per share as well as cash dividends paid on common stock and represented on the face of the financial statements. No convertible shares of First Guaranty's stock are outstanding. Operating Segments All of First Guaranty's operations are considered by management to be aggregated into one reportable operating segment. While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material. Operations are managed and financial performance is evaluated on a Company-wide basis. Reclassifications Certain reclassifications have been made to prior year end financial statements in order to conform to the classification adopted for reporting in 2021. -88- Note 2. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, "Financial Instruments- Credit Losses: Measurement of Credit Losses on Financial Instruments". This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The ASU amendments require the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires assets held at cost basis to reflect the company's current estimate of all expected credit losses. For available for sale debt securities, credit losses should be presented as an allowance rather than as a write-down. In addition, this ASU amends the accounting for purchased financial assets with credit deterioration. On October 16, 2019, the FASB approved an effective date delay applicable to smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. First Guaranty is a smaller reporting company and has delayed the adoption of ASU 2016-13. Note 3. Cash and Due from Banks Certain reserves are required to be maintained at the Federal Reserve Bank. There was no reserve requirement as of December 31, 2021 and 2020. At December 31, 2021 First Guaranty had three accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000. These accounts were over the insurable limit by $ 2.0 million. At December 31, 2020 First Guaranty had no accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000. -89- Note 4. Securities A summary comparison of securities by type at December 31, 2021 and 2020 is shown below. December 31, 2021 December 31, 2020 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale: U.S. Treasuries $ — $ — $ — $ — $ 3,000 $ — $ — $ 3,000 U.S. Government Agencies 116,733 — ( 623 ) 116,110 169,986 77 ( 405 ) 169,658 Corporate debt securities 79,344 732 ( 1,851 ) 78,225 36,153 604 ( 268 ) 36,489 Municipal bonds 15,543 156 — 15,699 27,381 781 — 28,162 Mortgage-backed securities 576 10 — 586 1,208 31 — 1,239 Total available for sale securities $ 212,196 $ 898 $ ( 2,474 ) $ 210,620 $ 237,728 $ 1,493 $ ( 673 ) $ 238,548 Held to maturity: U.S. Government Agencies $ 153,536 $ — $ ( 2,951 ) $ 150,585 $ — $ — $ — $ — Total held to maturity securities $ 153,536 $ — $ ( 2,951 ) $ 150,585 $ — $ — $ — $ — First Guaranty designated available for sale U.S. Government Agency securities with an amortized cost of $ 160.0 million and a corresponding fair value of $ 152.9 million for held to maturity status in the first quarter of 2021. The net unrealized loss net of taxes at the date of transfer was $ 5.7 million. This was done following the review of guidance for held to maturity portfolios in light of the COVID-19 pandemic. First Guaranty had terminated its held to maturity portfolio in the first quarter of 2020 due to the economic conditions associated with COVID-19. ASC 320-10-25 provides an exemption for events that are isolated, nonrecurring, and unusual for the reporting entity. The termination of the held to maturity portfolio in the first quarter of 2020 did not taint the portfolio under this guidance. The securities designated as held to maturity are agency securities that are part of First Guaranty’s investment strategy and public funds collateralization program. The fair value of the held to maturity securities at the date of transfer becomes the securities' new cost basis. The unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the unamortized holding loss reported in accumulated other comprehensive income will directly offset the effect on interest income from the accretion of the reduced amortized cost for the transferred securities. Because of this transfer, the total losses less than 12 months and greater than 12 months reported in the table below will not agree to the unrealized losses reported in the inventory of held to maturity securities. The inventory table reports unrealized gains and losses based upon the transferred securities adjusted cost basis and current fair value. The reporting of losses less than 12 months and greater than 12 months represents that actual period of time that these securities have been in an unrealized loss position and the securities amortized cost basis as if the transfer did not occur. -90- The scheduled maturities of securities at December 31, 2021, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to call or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below. December 31, 2021 (in thousands) Amortized Cost Fair Value Available for sale: Due in one year or less $ 641 $ 643 Due after one year through five years 3,885 3,759 Due after five years through 10 years 82,320 81,390 Over 10 years 124,774 124,242 Subtotal 211,620 210,034 Mortgage-backed Securities 576 586 Total available for sale securities $ 212,196 $ 210,620 Held to maturity: Due in one year or less $ — $ — Due after one year through five years — — Due after five years through 10 years 19,445 19,122 Over 10 years 134,091 131,463 Total held to maturity securities $ 153,536 $ 150,585 -91- The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2021. December 31, 2021 Less Than 12 Months 12 Months or More Total (in thousands) Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Available for sale: U.S. Treasuries — $ — $ — — $ — $ — — $ — $ — U.S. Government Agencies 13 116,110 ( 623 ) — — — 13 116,110 ( 623 ) Corporate debt securities 61 61,551 ( 1,677 ) 2 445 ( 174 ) 63 61,996 ( 1,851 ) Municipal bonds 1 66 — — — — 1 66 — Mortgage-backed securities — — — 6 9 — 6 9 — Total available for sale securities 75 $ 177,727 $ ( 2,300 ) 8 $ 454 $ ( 174 ) 83 $ 178,181 $ ( 2,474 ) Held to maturity: U.S. Government Agencies 16 $ 150,585 ( 2,951 ) — $ — $ — 16 $ 150,585 $ ( 2,951 ) Total held to maturity securities 16 $ 150,585 $ ( 2,951 ) — $ — $ — 16 $ 150,585 $ ( 2,951 ) The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2020. December 31, 2020 Less Than 12 Months 12 Months or More Total (in thousands) Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Available for sale: U.S. Treasuries — $ — $ — — $ — $ — — $ — $ — U.S. Government Agencies 12 131,455 ( 405 ) — — — 12 131,455 ( 405 ) Corporate debt securities 17 10,286 ( 144 ) 4 1,254 ( 124 ) 21 11,540 ( 268 ) Municipal bonds 1 66 — — — — 1 66 — Mortgage-backed securities — — — 6 11 — 6 11 — Total available for sale securities 30 $ 141,807 $ ( 549 ) 10 $ 1,265 $ ( 124 ) 40 $ 143,072 $ ( 673 ) As of December 31, 2021, 99 of First Guaranty's debt securities had unrealized losses totaling 1.6 % of the individual securities' amortized cost basis and 1.5 % of First Guaranty's total amortized cost basis of the investment securities portfolio. Eight of the 99 securities had been in a continuous loss position for over 12 months at such date. The 8 securities had an aggregate amortized cost basis of $ 0.6 million and an unrealized loss of $ 0.2 million at December 31, 2021. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery. -92- Securities are evaluated for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of First Guaranty to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Investment securities issued by the U.S. Government and Government sponsored enterprises with unrealized losses and the amount of unrealized losses on those investment securities that are the result of changes in market interest rates will not be other-than-temporarily impaired. First Guaranty has the ability and intent to hold these securities until recovery, which may not be until maturity. Corporate debt securities in a loss position consist primarily of corporate bonds issued by businesses in the financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas industries. There were no securities with an other-than-temporary impairment loss at December 31, 2021. First Guaranty believes that the remaining issuers will be able to fulfill the obligations of these securities based on evaluations described above. First Guaranty has the ability and intent to hold these securities until they recover, which could be at their maturity dates. There were no other-than-temporary impairment losses recognized on securities during the year ended December 31, 2021. There was one other-than-temporary impairment loss of $ 100,000 recognized on securities during the year ended December 31, 2020. The security had an original book value of $ 0.1 million and was in default. First Guaranty's analysis of the company and the current market value of the security resulted in the determination that a write down was warranted. There were no other-than-temporary impairment losses recognized on securities during the year December 31, 2019. The following table presents a roll-forward of the amount of credit losses on debt securities held by First Guaranty for which a portion of OTTI was recognized in other comprehensive income for the year ended December 31, 2021, 2020, and 2019: (in thousands) Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 Beginning balance of credit losses at beginning of year $ 100 $ — $ 60 Other-than-temporary impairment credit losses on securities not previously OTTI 100 — Increases for additional credit losses on securities previously determined to be OTTI — — — Reduction for increases in cash flows — — — Reduction due to credit impaired securities sold or fully settled ( 100 ) — ( 60 ) Ending balance of cumulative credit losses recognized in earnings at end of year $ — $ 100 $ — In 2021, 2020 and 2019 there were no other-than-temporary impairment credit losses on securities for which First Guaranty had previously recognized OTTI. For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management's best estimate of future cash flows based on specific assumptions. The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities. Management reviews reports from credit rating agencies and public filings of issuers. At December 31, 2021 and 2020 the carrying value of pledged securities totaled $ 234.9 million and $ 184.0 million, respectively. Gross realized gains on sales of securities were $ 1.0 million, $ 14.7 million and $ 0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Gross realized losses were $ 0.4 million, $ 0.1 million and $ 1.1 million for the years ended December 31, 2021, 2020 and 2019. The tax applicable to these transactions amounted to $ 0.1 million, $ 3.1 million, and $( 79,000 ) for 2021, 2020 and 2019, respectively. Proceeds from sales of securities classified as available for sale amounted to $ 49.7 million, $ 394.9 million and $ 90.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Net unrealized losses on available for sale securities included in accumulated other comprehensive income (loss) ("AOCI"), net of applicable income taxes, totaled $ 6.6 million at December 31, 2021. At December 31, 2020 net unrealized gains included in AOCI, net of applicable income taxes, totaled $ 0.6 million. During 2021 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 0.6 million. During 2020 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 11.7 million. At December 31, 2021, First Guaranty's exposure to investment securities issuers that exceeded 10% of shareholders' equity was as follows: December 31, 2021 (in thousands) Amortized Cost Fair Value Federal Home Loan Bank (FHLB) $ 33,333 $ 33,071 Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) 95,230 93,401 Federal Farm Credit Bank (FFCB) 142,279 140,807 Total $ 270,842 $ 267,279 -93- Note 5. Loans The following table summarizes the components of First Guaranty's loan portfolio as of December 31, 2021 and December 31, 2020: December 31, 2021 December 31, 2020 (in thousands except for %) Balance As % of Category Balance As % of Category Real Estate: Construction & land development $ 174,334 8.1 % $ 150,841 8.2 % Farmland 31,810 1.5 % 26,880 1.4 % 1- 4 Family 288,347 13.3 % 271,236 14.7 % Multifamily 65,848 3.0 % 45,932 2.5 % Non-farm non-residential 886,407 40.9 % 824,137 44.6 % Total Real Estate 1,446,746 66.8 % 1,319,026 71.4 % Non-Real Estate: Agricultural 26,747 1.2 % 28,335 1.5 % Commercial and industrial 398,391 18.4 % 353,028 19.1 % Commercial leases 246,022 11.4 % 104,141 5.6 % Consumer and other (1) 48,142 2.2 % 44,642 2.4 % Total Non-Real Estate 719,302 33.2 % 530,146 28.6 % Total Loans Before Unearned Income 2,166,048 100.0 % 1,849,172 100.0 % Unearned income ( 6,689 ) ( 5,037 ) Total Loans Net of Unearned Income $ 2,159,359 $ 1,844,135 (1) Includes PPP loans fully guaranteed by the SBA of $ 35.4 million and $ 92.3 million at December 31, 2021 and December 31, 2020, respectively. The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of December 31, 2021 and December 31, 2020 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered. December 31, 2021 December 31, 2020 (in thousands) Fixed Floating Total Fixed Floating Total One year or less $ 239,423 $ 117,697 $ 357,120 $ 186,252 $ 79,680 $ 265,932 One to five years 926,640 385,509 1,312,149 740,358 368,259 1,108,617 Five to 15 years 114,976 106,579 221,555 128,860 91,032 219,892 Over 15 years 179,522 78,987 258,509 146,830 92,325 239,155 Subtotal $ 1,460,561 $ 688,772 2,149,333 $ 1,202,300 $ 631,296 1,833,596 Nonaccrual loans 16,715 15,576 Total Loans Before Unearned Income 2,166,048 1,849,172 Unearned income ( 6,689 ) ( 5,037 ) Total Loans Net of Unearned Income $ 2,159,359 $ 1,844,135 As of December 31, 2021, $ 349.1 million of floating rate loans were at their interest rate floor. At December 31, 2020, $ 305.0 million of floating rate loans were at their interest rate floor. Nonaccrual loans have been excluded from these totals. -94- The following tables present the age analysis of past due loans at December 31, 2021 and December 31, 2020: As of December 31, 2021 (in thousands) 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans Recorded Investment 90 Days Accruing Real Estate: Construction & land development $ 956 $ 776 $ 1,732 $ 172,602 $ 174,334 $ 246 Farmland 17 787 804 31,006 31,810 — 1- 4 family 3,932 3,375 7,307 281,040 288,347 514 Multifamily 1,669 162 1,831 64,017 65,848 162 Non-farm non-residential 1,352 9,014 10,366 876,041 886,407 281 Total Real Estate 7,926 14,114 22,040 1,424,706 1,446,746 1,203 Non-Real Estate: Agricultural 97 2,302 2,399 24,348 26,747 — Commercial and industrial 1,233 722 1,955 396,436 398,391 23 Commercial leases — — — 246,022 246,022 — Consumer and other 920 822 1,742 46,400 48,142 19 Total Non-Real Estate 2,250 3,846 6,096 713,206 719,302 42 Total Loans Before Unearned Income $ 10,176 $ 17,960 $ 28,136 $ 2,137,912 2,166,048 $ 1,245 Unearned income ( 6,689 ) Total Loans Net of Unearned Income $ 2,159,359 As of December 31, 2020 (in thousands) 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans Recorded Investment 90 Days Accruing Real Estate: Construction & land development $ 8,088 $ 1,621 $ 9,709 $ 141,132 $ 150,841 $ 1,000 Farmland 227 857 1,084 25,796 26,880 — 1- 4 family 6,050 7,207 13,257 257,979 271,236 4,980 Multifamily 190 366 556 45,376 45,932 366 Non-farm non-residential 15,792 12,148 27,940 796,197 824,137 4,699 Total Real Estate 30,347 22,199 52,546 1,266,480 1,319,026 11,045 Non-Real Estate: Agricultural 143 3,539 3,682 24,653 28,335 67 Commercial and industrial 663 2,557 3,220 349,808 353,028 1,856 Commercial leases 180 — 180 103,961 104,141 — Consumer and other 996 372 1,368 43,274 44,642 123 Total Non-Real Estate 1,982 6,468 8,450 521,696 530,146 2,046 Total Loans Before Unearned Income $ 32,329 $ 28,667 $ 60,996 $ 1,788,176 1,849,172 $ 13,091 Unearned income ( 5,037 ) Total Loans Net of Unearned Income $ 1,844,135 The tables above include $ 16.7 million and $ 15.6 million of nonaccrual loans for December 31, 2021 and 2020, respectively. See the tables below for more detail on nonaccrual loans. -95- The following is a summary of nonaccrual loans by class at the dates indicated: As of December 31, (in thousands) 2021 2020 Real Estate: Construction & land development $ 530 $ 621 Farmland 787 857 1- 4 family 2,861 2,227 Multifamily — — Non-farm non-residential 8,733 7,449 Total Real Estate 12,911 11,154 Non-Real Estate: Agricultural 2,302 3,472 Commercial and industrial 699 701 Commercial leases — — Consumer and other 803 249 Total Non-Real Estate 3,804 4,422 Total Nonaccrual Loans $ 16,715 $ 15,576 The following table identifies the credit exposure of the loan portfolio, including loans acquired with deteriorated credit quality, by specific credit ratings as of the dates indicated: As of December 31, 2021 As of December 31, 2020 (in thousands) Pass Special Mention Substandard Doubtful Total Pass Special Mention Substandard Doubtful Total Real Estate: Construction & land development $ 151,220 $ 21,997 $ 1,117 $ — $ 174,334 $ 139,032 $ 10,785 $ 1,024 $ — $ 150,841 Farmland 27,678 40 4,092 — 31,810 22,822 46 4,012 — 26,880 1- 4 family 270,866 7,644 9,837 — 288,347 251,315 7,252 12,669 — 271,236 Multifamily 56,686 2,212 6,950 — 65,848 36,146 1,841 7,945 — 45,932 Non-farm non-residential 795,495 72,103 18,809 — 886,407 756,760 51,355 16,022 — 824,137 Total Real Estate 1,301,945 103,996 40,805 — 1,446,746 1,206,075 71,279 41,672 — 1,319,026 Non-Real Estate: Agricultural 23,952 128 2,667 — 26,747 24,180 92 4,063 — 28,335 Commercial and industrial 355,407 34,220 8,764 — 398,391 321,957 27,388 3,683 — 353,028 Commercial leases 245,869 — 153 — 246,022 103,961 — 180 — 104,141 Consumer and other 46,804 374 964 — 48,142 43,736 442 464 — 44,642 Total Non-Real Estate 672,032 34,722 12,548 — 719,302 493,834 27,922 8,390 — 530,146 Total Loans Before Unearned Income $ 1,973,977 $ 138,718 $ 53,353 $ — 2,166,048 $ 1,699,909 $ 99,201 $ 50,062 $ — 1,849,172 Unearned income ( 6,689 ) ( 5,037 ) Total Loans Net of Unearned Income $ 2,159,359 $ 1,844,135 -96- Purchased Impaired Loans As part of the acquisition of Union Bancshares, Inc. on November 7, 2019 and Premier Bancshares, Inc. on June 16, 2017, First Guaranty purchased credit impaired loans for which there was, at acquisition, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at December 31, 2021 and 2020. (in thousands) As of December 31, 2021 As of December 31, 2020 Real Estate: Construction & land development $ 146 $ 397 Farmland — — 1- 4 family 1,848 4,102 Multifamily — 900 Non-farm non-residential 2,192 2,396 Total Real Estate 4,186 7,795 Non-Real Estate: Agricultural 159 343 Commercial and industrial 798 1,017 Commercial leases — — Consumer and other — — Total Non-Real Estate 957 1,360 Total $ 5,143 $ 9,155 For those purchased loans disclosed above, there was an allowance for loan and lease losses of $ 0.7 million at December 31, 2021 and $ 0.5 million at December 31, 2020. Where First Guaranty can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion is being recognized as interest income over the remaining life of the loan. Where First Guaranty cannot reasonably estimate the cash flows expected to be collected on the loans, it has decided to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. The accretable yield, or income expected to be collected, on the purchased loans above is as follows for the years ended December 31, 2021 and 2020. (in thousands) Year Ended December 31, 2021 Year Ended December 31, 2020 Balance, beginning of period $ 2,892 $ 3,647 Acquisition accretable yield — 30 Accretion ( 514 ) ( 785 ) Net transfers from nonaccretable difference to accretable yield — — Balance, end of period $ 2,378 $ 2,892 -97- Note 6. Allowance for Loan and Lease Losses A summary of changes in the allowance for loan and lease losses, by loan type, for the years ended December 31, 2021, 2020 and 2019 are as follows: As of December 31, 2021 2020 (in thousands) Beginning Allowance (12/31/20) Charge-offs Recoveries Provision Ending Allowance (12/31/21) Beginning Allowance (12/31/19) Charge-offs Recoveries Provision Ending Allowance (12/31/20) Real Estate: Construction & land development $ 1,029 $ ( 92 ) $ — $ ( 168 ) $ 769 $ 423 $ ( 265 ) $ — $ 871 $ 1,029 Farmland 462 — 90 ( 74 ) 478 50 — — 412 462 1- 4 family 2,510 ( 266 ) 44 ( 367 ) 1,921 1,027 ( 154 ) 39 1,598 2,510 Multifamily 978 ( 12 ) — ( 26 ) 940 1,038 — — ( 60 ) 978 Non-farm non-residential 15,064 ( 1,020 ) 7 ( 1,321 ) 12,730 5,277 ( 550 ) 178 10,159 15,064 Total Real Estate 20,043 ( 1,390 ) 141 ( 1,956 ) 16,838 7,815 ( 969 ) 217 12,980 20,043 Non-Real Estate: Agricultural 181 ( 149 ) 17 134 183 95 ( 110 ) 70 126 181 Commercial and industrial 2,802 ( 89 ) 96 ( 446 ) 2,363 1,909 ( 265 ) 128 1,030 2,802 Commercial leases 583 — 4 1,899 2,486 568 — 388 ( 373 ) 583 Consumer and other 907 ( 1,494 ) 320 1,638 1,371 542 ( 1,083 ) 336 1,112 907 Unallocated 2 — — 786 788 — — — 2 2 Total Non-Real Estate 4,475 ( 1,732 ) 437 4,011 7,191 3,114 ( 1,458 ) 922 1,897 4,475 Total $ 24,518 $ ( 3,122 ) $ 578 $ 2,055 $ 24,029 $ 10,929 $ ( 2,427 ) $ 1,139 $ 14,877 $ 24,518 As of December 31, 2019 (in thousands) Beginning Allowance (12/31/18) Charge-offs Recoveries Provision Ending Allowance (12/31/19) Real Estate: Construction & land development $ 581 $ — $ — $ ( 158 ) $ 423 Farmland 41 — — 9 50 1- 4 family 911 ( 552 ) 39 629 1,027 Multifamily 1,318 — — ( 280 ) 1,038 Non-farm non-residential 4,771 ( 2,603 ) 5 3,104 5,277 Total Real Estate 7,622 ( 3,155 ) 44 3,304 7,815 Non-Real Estate: Agricultural 339 ( 40 ) — ( 204 ) 95 Commercial and industrial 1,909 ( 879 ) 267 612 1,909 Commercial leases 262 — — 306 568 Consumer and other 629 ( 1,190 ) 246 857 542 Unallocated 15 — — ( 15 ) — Total Non-Real Estate 3,154 ( 2,109 ) 513 1,556 3,114 Total $ 10,776 $ ( 5,264 ) $ 557 $ 4,860 $ 10,929 Negative provisions are caused by changes in the composition and credit quality of the loan portfolio. The result is an allocation of the loan loss reserve from one category to another. -98- A summary of the allowance along with loans and leases, including loans acquired with deteriorated credit quality, individually and collectively evaluated for impairment are as follows: As of December 31, 2021 (in thousands) Allowance Individually Evaluated for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance Collectively Evaluated for Impairment Total Allowance for Credit Losses Loans Individually Evaluated for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans Collectively Evaluated for Impairment Total Loans before Unearned Income Real Estate: Construction & land development $ — $ — $ 769 $ 769 $ — $ 146 $ 174,188 $ 174,334 Farmland 19 — 459 478 496 — 31,314 31,810 1- 4 family 258 — 1,663 1,921 961 1,848 285,538 288,347 Multifamily — — 940 940 — — 65,848 65,848 Non-farm non-residential 1,822 509 10,399 12,730 10,899 2,192 873,316 886,407 Total Real Estate 2,099 509 14,230 16,838 12,356 4,186 1,430,204 1,446,746 Non-Real Estate: Agricultural — — 183 183 1,383 159 25,205 26,747 Commercial and industrial 72 216 2,075 2,363 1,286 798 396,307 398,391 Commercial leases — — 2,486 2,486 — — 246,022 246,022 Consumer and other — — 1,371 1,371 — — 48,142 48,142 Unallocated — — 788 788 — — — — Total Non-Real Estate 72 216 6,903 7,191 2,669 957 715,676 719,302 Total $ 2,171 $ 725 $ 21,133 $ 24,029 $ 15,025 $ 5,143 $ 2,145,880 $ 2,166,048 Unearned Income ( 6,689 ) Total Loans Net of Unearned Income $ 2,159,359 -99- As of December 31, 2020 (in thousands) Allowance Individually Evaluated for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance Collectively Evaluated for Impairment Total Allowance for Credit Losses Loans Individually Evaluated for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans Collectively Evaluated for Impairment Total Loans before Unearned Income Real Estate: Construction & land development $ — $ — $ 1,029 $ 1,029 $ — $ 397 $ 150,444 $ 150,841 Farmland — — 462 462 543 — 26,337 26,880 1- 4 family 266 — 2,244 2,510 1,480 4,102 265,654 271,236 Multifamily — — 978 978 — 900 45,032 45,932 Non-farm non-residential 2,280 334 12,450 15,064 9,800 2,396 811,941 824,137 Total Real Estate 2,546 334 17,163 20,043 11,823 7,795 1,299,408 1,319,026 Non-Real Estate: Agricultural — — 181 181 2,531 343 25,461 28,335 Commercial and industrial 97 142 2,563 2,802 1,544 1,017 350,467 353,028 Commercial leases — — 583 583 — — 104,141 104,141 Consumer and other — — 907 907 — — 44,642 44,642 Unallocated — — 2 2 — — — — Total Non-Real Estate 97 142 4,236 4,475 4,075 1,360 524,711 530,146 Total $ 2,643 $ 476 $ 21,399 $ 24,518 $ 15,898 $ 9,155 $ 1,824,119 $ 1,849,172 Unearned Income ( 5,037 ) Total Loans Net of Unearned Income $ 1,844,135 As of December 31, 2021, 2020 and 2019, First Guaranty had loans totaling $ 16.7 million, $ 15.6 million and $ 14.4 million, respectively, not accruing interest. As of December 31, 2021, 2020 and 2019, First Guaranty had loans past due 90 days or more and still accruing interest totaling $ 1.2 million, $ 13.1 million and $ 2.6 million, respectively. The average outstanding balance of nonaccrual loans in 2021 was $ 17.1 million compared to $ 19.8 million in 2020 and $ 12.0 million in 2019. As of December 31, 2021, First Guaranty has no outstanding commitments to advance additional funds in connection with impaired loans. -100- The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class at December 31, 2021: As of December 31, 2021 (in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Interest Income Cash Basis Impaired Loans with no related allowance: Real Estate: Construction & land development $ — $ — $ — $ — $ — $ — Farmland — — — — — — 1- 4 family — — — — — — Multifamily — — — — — — Non-farm non-residential 5,164 5,818 — 5,935 137 101 Total Real Estate 5,164 5,818 — 5,935 137 101 Non-Real Estate: Agricultural 1,383 1,668 — 1,412 — — Commercial and industrial 470 470 — 479 30 33 Commercial leases — — — — — — Consumer and other — — — — — — Total Non-Real Estate 1,853 2,138 — 1,891 30 33 Total Impaired Loans with no related allowance 7,017 7,956 — 7,826 167 134 Impaired Loans with an allowance recorded: Real estate: Construction & land development — — — — — — Farmland 496 626 19 515 — — 1- 4 family 961 961 258 968 56 62 Multifamily — — — — — — Non-farm non-residential 5,735 5,996 1,822 5,842 90 95 Total Real Estate 7,192 7,583 2,099 7,325 146 157 Non-Real Estate: Agricultural — — — — — — Commercial and industrial 816 816 72 875 28 52 Commercial leases — — — — — — Consumer and other — — — — — — Total Non-Real Estate 816 816 72 875 28 52 Total Impaired Loans with an allowance recorded 8,008 8,399 2,171 8,200 174 209 Total Impaired Loans $ 15,025 $ 16,355 $ 2,171 $ 16,026 $ 341 $ 343 -101- The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class at December 31, 2020: As of December 31, 2020 (in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Interest Income Cash Basis Impaired Loans with no related allowance: Real Estate: Construction & land development $ — $ — $ — $ — $ — $ — Farmland 543 552 — 543 — — 1- 4 family 511 534 — 527 — — Multifamily — — — — — — Non-farm non-residential 1,227 1,227 — 1,218 80 72 Total Real Estate 2,281 2,313 — 2,288 80 72 Non-Real Estate: Agricultural 2,531 2,661 — 2,594 — — Commercial and industrial 601 601 — 821 48 47 Commercial leases — — — — — — Consumer and other — — — — — — Total Non-Real Estate 3,132 3,262 — 3,415 48 47 Total Impaired Loans with no related allowance 5,413 5,575 — 5,703 128 119 Impaired Loans with an allowance recorded: Real estate: Construction & land development — — — — — — Farmland — — — — — — 1- 4 family 969 969 266 969 5 5 Multifamily — — — — — — Non-farm non-residential 8,573 8,619 2,280 7,550 60 80 Total Real Estate 9,542 9,588 2,546 8,519 65 85 Non-Real Estate: Agricultural — — — — — — Commercial and industrial 943 943 97 981 79 57 Commercial leases — — — — — — Consumer and other — — — — — — Total Non-Real Estate 943 943 97 981 79 57 Total Impaired Loans with an allowance recorded 10,485 10,531 2,643 9,500 144 142 Total Impaired Loans $ 15,898 $ 16,106 $ 2,643 $ 15,203 $ 272 $ 261 -102- Troubled Debt Restructurings A Troubled Debt Restructuring ("TDR") is considered such if the lender for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to First Guaranty's TDRs were concessions on either the interest rate charged or the amortization. The effect of the modifications to First Guaranty was a reduction in interest income. These loans have an allocated reserve in First Guaranty's allowance for loan and lease losses. First Guaranty has not restructured any loans that are considered TDRs in the year ended December 31, 2021. First Guaranty restructured one loan that is considered TDR in the year ended December 31, 2020. At December 31, 2021, First Guaranty had one outstanding TDR. Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020, financial institutions have the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. First Guaranty elected to adopt these provisions of the CARES Act. The following table is an age analysis of TDRs as of December 31, 2021 and December 31, 2020: December 31, 2021 December 31, 2020 Accruing Loans Accruing Loans (in thousands) Current 30-89 Days Past Due Nonaccrual Total TDRs Current 30-89 Days Past Due Nonaccrual Total TDRs Real Estate: Construction & land development $ — $ — $ — $ — $ — $ — $ — $ — Farmland — — — — — — — — 1- 4 family — — — — — — — — Multifamily — — — — — — — — Non-farm non-residential — — 3,382 3,382 — — 3,591 3,591 Total Real Estate — — 3,382 3,382 — — 3,591 3,591 Non-Real Estate: Agricultural — — — — — — — — Commercial and industrial — — — — — — — — Commercial leases — — — — — — — — Consumer and other — — — — — — — — Total Non-Real Estate — — — — — — — — Total $ — $ — $ 3,382 $ 3,382 $ — $ — $ 3,591 $ 3,591 -103- The following table discloses TDR activity for the year ended December 31, 2021. Troubled Debt Restructured Loans Activity Year Ended December 31, 2021 (in thousands) Beginning balance (December 31, 2020) New TDRs Charge-offs post-modification Transferred to ORE Paydowns Construction to permanent financing Restructured to market terms Other adjustments Ending balance (December 31, 2021) Real Estate: Construction & land development $ — $ — $ — $ — $ — $ — $ — $ — $ — Farmland — — — — — — — — — 1- 4 family — — — — — — — — — Multifamily — — — — — — — — — Non-farm non-residential 3,591 — — — ( 250 ) — — 41 3,382 Total Real Estate 3,591 — — — ( 250 ) — — 41 3,382 Non-Real Estate: Agricultural — — — — — — — — — Commercial and industrial — — — — — — — — — Commercial leases — — — — — — — — — Consumer and other — — — — — — — — — Total Non-Real Estate — — — — — — — — — Total Impaired Loans with no related allowance $ 3,591 $ — $ — $ — $ ( 250 ) $ — $ — $ 41 $ 3,382 There were no commitments to lend additional funds to debtors whose terms have been modified in a troubled debt restructuring at December 31, 2021. -104- Note 7. Premises and Equipment The components of premises and equipment at December 31, 2021 and 2020 are as follows: (in thousands) December 31, 2021 December 31, 2020 Land $ 15,284 $ 15,180 Bank premises 53,899 40,906 Furniture and equipment 30,481 28,511 Construction in progress 536 13,562 Acquired value 100,200 98,159 Less: accumulated depreciation 41,563 38,267 Net book value $ 58,637 $ 59,892 Depreciation expense amounted to $ 3.4 million, $ 2.8 million and $ 2.3 million for 2021, 2020 and 2019, respectively. Interest cost capitalized as a construction cost was $ 61,000 , $ 55,000 , and $ 91,000 for 2021, 2020, and 2019, respectively. Note 8. Goodwill and Other Intangible Assets Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. Goodwill represents the purchase price over the fair value of net assets acquired from the Homestead Bancorp in 2007, Premier Bancshares, Inc. in 2017 and Union Bancshares, Incorporated in 2019. No impairment charges have been recognized since acquisition. Goodwill totaled $ 12.9 million at December 31, 2021 and 2020, respectively. The following table summarizes intangible assets subject to amortization. December 31, 2021 December 31, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Core deposit intangibles $ 16,266 $ 11,215 $ 5,051 $ 16,266 $ 10,451 $ 5,815 Loan servicing assets 2,133 1,262 871 1,826 1,054 772 Total $ 18,399 $ 12,477 $ 5,922 $ 18,092 $ 11,505 $ 6,587 The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions. The weighted-average amortization period remaining for the core deposit intangibles is 7.3 years. Amortization expense relating to purchase accounting intangibles totaled $ 0.8 million, $ 0.7 million, and $ 0.4 million for the years ended December 31, 2021, 2020, and 2019, respectively. Amortization expense of the core deposit intangible assets for the next five years is as follows: For the Years Ended Estimated Amortization Expense (in thousands) December 31, 2022 $ 696 December 31, 2023 $ 696 December 31, 2024 $ 696 December 31, 2025 $ 696 December 31, 2026 $ 696 -105- Note 9. Other Real Estate Other real estate owned consists of the following at the dates indicated: (in thousands) December 31, 2021 December 31, 2020 Real Estate Owned Acquired by Foreclosure: Residential $ 817 $ 131 Construction & land development — 311 Non-farm non-residential 1,776 2,203 Total Other Real Estate Owned and Foreclosed Property 2,593 2,645 Allowance for Other Real Estate Owned losses ( 521 ) ( 405 ) Net Other Real Estate Owned and Foreclosed Property $ 2,072 $ 2,240 Note 10. Deposits A schedule of maturities of all time deposits are as follows: (in thousands) December 31, 2021 2022 $ 267,016 2023 152,920 2024 116,771 2025 19,482 2026 and thereafter 30,482 Total $ 586,671 The table above includes $ 3.4 million in brokered deposits for December 31, 2021. The aggregate amount of jumbo time deposits, each with a minimum denomination of $250,000 totaled $ 159.1 million and $ 248.8 million at December 31, 2021 and 2020, respectively. Note 11. Borrowings Short-term borrowings are summarized as follows: (in thousands) December 31, 2021 December 31, 2020 Federal Home Loan Bank advances $ — $ 50,000 Repurchase agreements 6,439 6,121 Total short-term borrowings $ 6,439 $ 56,121 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. First Guaranty has available lines of credit of $ 26.5 million, with no outstanding balance at December 31, 2021. Available lines of credit totaled $ 597.6 million at December 31, 2021 and $ 297.2 million at December 31, 2020. The following schedule provides certain information about First Guaranty's short-term borrowings for the periods indicated: December 31, (in thousands except for %) 2021 2020 2019 Outstanding at year end $ 6,439 $ 56,121 $ 19,919 Maximum month-end outstanding $ 56,369 $ 57,048 $ 19,919 Average daily outstanding $ 10,458 $ 48,277 $ 3,320 Weighted average rate during the year 1.40 % 0.95 % 2.00 % Weighted average rate at year end 2.23 % 0.89 % 2.00 % -106- Long-term debt is summarized as follows: Long-term Federal Home Loan Bank advance, fixed at 2.12 %, totaled $ 3.2 million at December 31, 2021 and $ 3.4 million at December 31, 2020. This advance was acquired in the Union acquisition and has a contractual maturity date of September 1, 2037. Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 25 basis points ( 3.00 %), totaled $ 0 at December 31, 2021 and $ 14.0 million at December 31, 2020. First Guaranty paid off this loan using proceeds from its preferred stock capital offering during the second quarter of 2021. This long-term debt was secured by a pledge of 85 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary). Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 70 basis points ( 3.00 %), totaled $ 25.2 million at December 31, 2021 and $ 28.4 million at December 31, 2020. First Guaranty pays $ 812,500 principal plus interest quarterly. This loan was renewed in November 2019 and has a contractual maturity date of November 7, 2024. This long-term debt is secured by a pledge of 85 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary). Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points ( 4.00 %), totaled $ 14.8 million at December 31, 2021 and 2020. First Guaranty pays interest semi-annually for the Fixed Interest Rate Period and quarterly for the Floating Interest Rate Period. The Note is unsecured and ranks junior in right of payment to any senior indebtedness and obligations to general and secured creditors. The Note was originated in December 2015 and is scheduled to mature on December 21, 2025. The Note qualifies for treatment as Tier 2 capital for regulatory capital purposes. First Guaranty maintains two revolving lines of credit. A $ 6.5 million line of credit with an availability of $ 6.5 million at December 31, 2021. This line of credit is secured by a pledge of 13.2 % ( 735,745 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary) and is priced at 4.25 %. A $ 20.0 million line of credit with an availability of $ 20.0 million at December 31, 2021. This line of credit is secured by a pledge of 85 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary) and is priced at 3.00 %. At December 31, 2021, letters of credit issued by the FHLB totaling $ 250.7 million were outstanding and carried as off-balance sheet items, all of which expire by 2024. At December 31, 2020, letters of credit issued by the FHLB totaling $ 365.8 million were outstanding and carried as off-balance sheet items, all of which expire by 2024. The letters of credit are solely used for pledging towards public fund deposits. The FHLB has a blanket lien on substantially all of the loans in First Guaranty's portfolio which is used to secure borrowing availability from the FHLB. First Guaranty has obtained a subordination agreement from the FHLB on First Guaranty's farmland, agricultural, and commercial and industrial loans. These loans are available to be pledged for additional reserve liquidity. As of December 31, 2021 obligations on long-term advances from FHLB, senior long-term debt and junior subordinated debentures totaled $ 43.2 million. The scheduled payments are as follows: (in thousands) Long-term Advances from FHLB Senior Long-term Debt Junior Subordinated Debentures 2022 $ — $ 3,250 $ — 2023 — 3,250 — 2024 — 18,687 — 2025 — — 15,000 2026 — — — 2026 and thereafter 3,208 — — Subtotal $ 3,208 $ 25,187 $ 15,000 Debt issuance costs — ( 17 ) ( 182 ) Total $ 3,208 $ 25,170 $ 14,818 -107- Note 12. Capital Requirements First Guaranty Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on First Guaranty's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of December 31, 2021 and 2020, that the Bank met all capital adequacy requirements. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5 % of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. First Guaranty Bank's capital conservation buffer was 3.22 % at December 31, 2021. In addition, as a result of the legislation, the federal banking agencies have developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $ 10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the new Community Bank Leverage Ratio at 9 %. Pursuant to the CARES Act, the federal banking agencies set the Community Bank Leverage Ratio at 8 % beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the Community Bank Leverage Ratio increased to 8.5 % for the calendar year. Community banks will have until Jan. 1, 2022, before the Community Bank Leverage Ratio requirement will return to 9 %. A financial institution can elect to be subject to this new definition. The new rule took effect on January 1, 2020. The Bank did not elect to follow the Community Bank Leverage Ratio. As of December 31, 2021, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that Management believes have changed the Bank's category. First Guaranty Bank's actual capital amounts and ratios as of December 31, 2021 and 2020 are presented in the following table. Actual Minimum Capital Requirements Minimum to be Well Capitalized Under Action Provisions (in thousands except for %) Amount Ratio Amount Ratio Amount Ratio December 31, 2021 Total Risk-based Capital: $ 268,002 11.22 % $ 191,069 8.00 % $ 238,837 10.00 % Tier 1 Capital: $ 243,973 10.22 % $ 143,302 6.00 % $ 191,069 8.00 % Tier 1 Leverage Capital: $ 243,973 8.71 % $ 112,018 4.00 % $ 140,023 5.00 % Common Equity Tier One Capital: $ 243,973 10.22 % $ 107,476 4.50 % $ 155,244 6.50 % December 31, 2020 Total Risk-based Capital: $ 233,391 12.22 % $ 152,805 8.00 % $ 191,006 10.00 % Tier 1 Capital: $ 209,507 10.97 % $ 114,604 6.00 % $ 152,805 8.00 % Tier 1 Leverage Capital: $ 209,507 8.58 % $ 97,683 4.00 % $ 122,104 5.00 % Common Equity Tier One Capital: $ 209,507 10.97 % $ 85,953 4.50 % $ 124,154 6.50 % -108- Note 13. Dividend Restrictions The Federal Reserve Bank ("FRB") has stated that, generally, a bank holding company should not maintain a rate of distributions to shareholders unless its available net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. As a Louisiana corporation, First Guaranty is restricted under the Louisiana corporate law from paying dividends under certain conditions. First Guaranty Bank may not pay dividends or distribute capital assets if it is in default on any assessment due to the FDIC. First Guaranty Bank is also subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution. In addition, under the Louisiana Banking Law, dividends may not be paid if it would reduce the unimpaired surplus below 50 % of outstanding capital stock in any year. The Bank is restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions for the State of Louisiana. Dividends payable by the Bank in 2022 without permission will be limited to 2022 earnings plus the undistributed earnings of $ 8.7 million from 2021. Accordingly, at January 1, 2022, $ 246.6 million of First Guaranty's equity in the net assets of the Bank was restricted. In addition, dividends paid by the Bank to First Guaranty would be prohibited if the effect thereof would cause the Bank's capital to be reduced below applicable minimum capital requirements. Note 14. Related Party Transactions In the normal course of business, First Guaranty and its subsidiary, First Guaranty Bank, have loans, deposits and other transactions with its executive officers, directors, affiliates and certain business organizations and individuals with which such persons are associated. These transactions are completed with terms no less favorable than current market rates. An analysis of the activity of loans made to such borrowers during the year ended December 31, 2021 and 2020 follows: December 31, (in thousands) 2021 2020 Balance, beginning of year $ 79,399 $ 61,820 Net (Decrease) Increase 13,871 17,579 Balance, end of year $ 93,270 $ 79,399 Unfunded commitments to First Guaranty and Bank directors and executive officers totaled $ 45.4 million and $ 40.8 million at December 31, 2021 and 2020, respectively. At December 31, 2021 First Guaranty and the Bank had deposits from directors and executives totaling $ 64.0 million. There were no participations in loans purchased from affiliated financial institutions included in First Guaranty's loan portfolio in 2021 or 2020. During the years ended 2021, 2020 and 2019, First Guaranty paid approximately $ 0.3 million, $ 0.5 million and $ 0.5 million, respectively, for printing services and supplies and office furniture and equipment to Champion Industries, Inc., of which Mr. Marshall T. Reynolds, the Chairman of First Guaranty's Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors and a major shareholder of Champion. On December 21, 2015, First Guaranty issued a $ 15.0 million subordinated note (the "Note") to Edgar Ray Smith III, a director of First Guaranty. The Note is for a ten-year term (non-callable for first five years ) and will bear interest at a fixed annual rate of 4.0 % for the first five years of the term and then adjust to a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points for the period of time after the fifth year until redemption or maturity. During the years ended 2021, 2020 and 2019, First Guaranty paid interest of $ 0.8 million, $ 0.6 million and $ 0.6 million, respectively, for this note. During the years ended 2021, 2020 and 2019, First Guaranty paid approximately $ 0.1 million, $ 27,000 and $ 0.1 million, respectively, for the purchase and maintenance of First Guaranty's automobiles to subsidiaries of Hood Automotive Group, of which William K. Hood, a director of First Guaranty, is President. During the years ended 2021, 2020 and 2019, First Guaranty paid approximately $ 0 , $ 0.1 million and $ 69,000 , respectively, for architectural services in relation to bank branches to Gasaway Gasaway Bankston Architects, of which bank subsidiary board member Andrew B. Gasaway is part owner. During the years ended 2021, 2020 and 2019, First Guaranty paid approximately $ 0.6 million, $ 0.5 million and $ 0.3 million, respectively, to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance. First Guaranty owns a 50 % interest in Centurion and accounts for this investment under the equity method. -109- Note 15. Employee Benefit Plans First Guaranty has an employee savings plan to which employees, who meet certain service requirements, may defer 1 % up to the IRS legal limit of their base salaries, 6 % of which may be matched up to 100 %, at its sole discretion. Contributions to the savings plan were $ 396,000 , $ 173,000 and $ 149,000 in 2021, 2020 and 2019, respectively. First Guaranty has an Employee Stock Ownership Plan ("ESOP") which was frozen in 2010. No contributions were made to the ESOP for the years 2021, 2020 or 2019. As of December 31, 2021, the ESOP held 3,047 shares. First Guaranty is in the process of terminating the plan. Note 16. Other Expenses The following is a summary of the significant components of other noninterest expense: December 31, (in thousands) 2021 2020 2019 Other noninterest expense: Legal and professional fees $ 3,375 $ 2,919 $ 2,648 Data processing 1,794 2,465 1,972 ATM Fees 1,760 1,332 1,217 Marketing and public relations 1,711 1,046 1,456 Taxes - sales, capital and franchise 1,755 1,251 1,094 Operating supplies 853 921 674 Software expense and amortization 3,071 2,354 1,308 Travel and lodging 826 726 908 Telephone 398 256 193 Amortization of core deposits 764 712 390 Donations 564 393 603 Net costs from other real estate and repossessions 801 1,653 422 Regulatory assessment 1,945 1,716 683 Other 3,391 2,980 2,536 Total other noninterest expense $ 23,008 $ 20,724 $ 16,104 First Guaranty does not capitalize advertising costs. They are expensed as incurred and are included in other noninterest expense on the Consolidated Statements of Income. Advertising expense was $ 1.0 million, $ 0.4 million and $ 0.8 million for 2021, 2020 and 2019, respectively. -110- Note 17. Income Taxes The following is a summary of the provision for income taxes included in the Consolidated Statements of Income: December 31, (in thousands) 2021 2020 2019 Current $ 7,970 $ 8,964 $ 3,770 Deferred ( 812 ) ( 3,745 ) ( 114 ) Total $ 7,158 $ 5,219 $ 3,656 The difference between income taxes computed by applying the statutory federal income tax rate and the provision for income taxes in the financial statements is reconciled as follows: December 31, (in thousands except for %) 2021 2020 2019 Statutory tax rate 21.0 % 21.0 % 21.0 % Federal income taxes at statutory rate $ 7,236 $ 5,363 $ 3,758 Tax exempt municipal income ( 81 ) ( 124 ) ( 140 ) Other 3 ( 20 ) 38 Total $ 7,158 $ 5,219 $ 3,656 Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities, and available tax credit carry forwards. Temporary differences between the financial statement and tax values of assets and liabilities give rise to deferred taxes. The significant components of deferred taxes classified in First Guaranty's Consolidated Balance Sheets at December 31, 2021 and 2020 are as follows: December 31, (in thousands) 2021 2020 Deferred tax assets: Allowance for loan and lease losses $ 4,817 $ 4,748 Other real estate owned 219 239 Unrealized losses on available for sale securities 331 — Net operating loss 1,098 1,190 Other 781 581 Gross deferred tax assets 7,246 6,758 Deferred tax liabilities: Depreciation and amortization ( 1,917 ) ( 1,952 ) Core deposit intangibles ( 1,059 ) ( 1,214 ) Unrealized gains on available for sale securities — ( 172 ) Discount on purchased loans ( 164 ) ( 161 ) Other ( 687 ) ( 625 ) Gross deferred tax liabilities ( 3,827 ) ( 4,124 ) Net deferred tax assets (liabilities) $ 3,419 $ 2,634 First Guaranty determined that the net deferred tax asset at December 31, 2021 and 2020 was more likely than not to be realized based on an assessment of all available positive and negative evidence, and therefore no valuation allowance was recorded. Net operating loss carryforwards for income tax purposes were $ 5.2 million as of December 31, 2021 and $ 5.7 million in 2020. The carryforwards were acquired in 2017 in the Premier acquisition and expire from 2027 to 2034, and will be utilized subject to annual Internal Revenue Code Section 382 limitations. -111- ASC 740-10, Income Taxes, clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. First Guaranty does not believe it has any unrecognized tax benefits included in its consolidated financial statements. First Guaranty has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. First Guaranty recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in noninterest expense. During the years ended December 31, 2021, 2020 and 2019, First Guaranty did no t recognize any interest or penalties in its consolidated financial statements, no r has it recorded an accrued liability for interest or penalty payments. Note 18. Commitments and Contingencies Off-balance sheet commitments First Guaranty is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk. Set forth below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at December 31, 2021 and December 31, 2020. Contract Amount December 31, 2021 December 31, 2020 (in thousands) Commitments to Extend Credit $ 198,444 $ 154,047 Unfunded Commitments under lines of credit $ 250,231 $ 169,151 Commercial and Standby letters of credit $ 13,787 $ 11,728 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Management's credit evaluation of the counterpart. Collateral requirements vary but may include accounts receivable, inventory, property, plant and equipment, residential real estate and commercial properties. Standby and commercial letters of credit are conditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The majority of these guarantees are short-term, one year or less; however, some guarantees extend for up to three years . The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. Collateral requirements are the same as on-balance sheet instruments and commitments to extend credit. There were no losses incurred on off-balance sheet commitments in 2021, 2020 or 2019. -112- Note 19. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy. Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified Level 3 as of December 31, 2021 includes corporate debt and municipal securities. Impaired loans . Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Other real estate owned. Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") at December 31, 2021 and 2020 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values or recent sales activity for similar assets in the property's market; thus OREO measured at fair value would be classified within either Level 2 or Level 3 of the hierarchy. Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. The following table summarizes financial assets measured at fair value on a recurring basis as of December 31, 2021 and 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: (in thousands) December 31, 2021 December 31, 2020 Available for Sale Securities Fair Value Measurements Using: Level 1: Quoted Prices in Active Markets For Identical Assets $ — $ 3,000 Level 2: Significant Other Observable Inputs 198,315 209,359 Level 3: Significant Unobservable Inputs 12,305 26,189 Securities available for sale measured at fair value $ 210,620 $ 238,548 First Guaranty's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While Management believes the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. The change in Level 1 securities available for sale from December 31, 2020 was due to a net decrease in Treasury bills of $ 3.0 million. The change in Level 2 securities available for sale from December 31, 2020 was due to the increase in corporate securities offset by the transfer of $ 152.9 million in U.S. Government agency securities from the available for sale to the held to maturity portfolio. $ 1.8 million in corporate securities and $ 3.1 million in municipal securities were transferred from Level 3 to Level 2 from December 31, 2020 to December 31, 2021. There were no transfers between Level 1 and 2 securities available for sale from December 31, 2020 to December 31, 2021. -113- The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs ( Level 3 ): Level 3 Changes (in thousands) December 31, 2021 December 31, 2020 Balance, beginning of year $ 26,189 $ 9,398 Total gains or losses (realized/unrealized): Included in earnings — — Included in other comprehensive income ( 195 ) 256 Purchases, sales, issuances and settlements, net ( 8,845 ) 5,361 Transfers in and/or out of Level 3 ( 4,844 ) 11,174 Balance as of end of year $ 12,305 $ 26,189 There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2021. The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of December 31, 2021 and December 31, 2020, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value: (in thousands) At December 31, 2021 At December 31, 2020 Fair Value Measurements Using: Impaired Loans Level 1: Quoted Prices in Active Markets For Identical Assets $ — $ — Level 2: Significant Other Observable Inputs — — Level 3: Significant Unobservable Inputs 12,836 7,842 Impaired loans measured at fair value $ 12,836 $ 7,842 Fair Value Measurements Using: Other Real Estate Owned Level 1: Quoted Prices in Active Markets For Identical Assets $ — $ — Level 2: Significant Other Observable Inputs 817 363 Level 3: Significant Unobservable Inputs 1,255 1,877 Other real estate owned measured at fair value $ 2,072 $ 2,240 ASC 825-10 provides First Guaranty with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits First Guaranty to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation. First Guaranty has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States. -114- Note 20. Financial Instruments Fair value estimates are generally subjective in nature and are dependent upon a number of significant assumptions associated with each instrument or group of similar instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows and relevant available market information. Fair value information is intended to represent an estimate of an amount at which a financial instrument could be exchanged in a current transaction between a willing buyer and seller engaging in an exchange transaction. However, since there are no established trading markets for a significant portion of First Guaranty's financial instruments, First Guaranty may not be able to immediately settle financial instruments; as such, the fair values are not necessarily indicative of the amounts that could be realized through immediate settlement. In addition, the majority of the financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer. Quoted market prices are used to estimate fair values when available. However, due to the nature of the financial instruments, in many instances quoted market prices are not available. Accordingly, estimated fair values have been estimated based on other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. Fair values are estimated without regard to any premium or discount that may result from concentrations of ownership of financial instruments, possible income tax ramifications or estimated transaction costs. The fair value estimates are subjective in nature and involve matters of significant judgment and, therefore, cannot be determined with precision. Fair values are also estimated at a specific point in time and are based on interest rates and other assumptions at that date. As events change the assumptions underlying these estimates, the fair values of financial instruments will change. Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations of pension and other postretirement benefits, premises and equipment, other real estate, prepaid expenses, the value of long-term relationships with depositors (core deposit intangibles) and other customer relationships, other intangible assets and income tax assets and liabilities. Fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses have not been considered in the estimates. Accordingly, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of First Guaranty. Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the fair values, reasonable comparison of the fair value information with other financial institutions' fair value information cannot necessarily be made. The methods and assumptions used to estimate the fair values of financial instruments are as follows: Cash and due from banks, interest-bearing deposits with banks, federal funds sold and federal funds purchased . These items are generally short-term and the carrying amounts reported in the consolidated balance sheets are a reasonable estimation of the fair values. Investment Securities. Fair values are principally based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or the use of discounted cash flow analyses. Loans Held for Sale. Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. These loans are classified within level 3 of the fair value hierarchy. Loans, net . Market values are computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. These loans are classified within level 3 of the fair value hierarchy. Impaired loans. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Cash Surrender of BOLI. The cash surrender value of BOLI approximates fair value. Accrued interest receivable. The carrying amount of accrued interest receivable approximates its fair value. -115- Deposits. The fair value of customer deposits, excluding certificates of deposit, is the amount payable on demand. Market values of certificates of deposit are actually computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Deposits are classified within level 3 of the fair value hierarchy. Accrued interest payable. The carrying amount of accrued interest payable approximates its fair value. Borrowings . The carrying amount of federal funds purchased and other short-term borrowings approximate their fair values. The fair value of First Guaranty's long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy. Other Unrecognized Financial Instruments. The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit are based on fees charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At December 31, 2021 and 2020 the fair value of guarantees under commercial and standby letters of credit was not material. The carrying amounts and estimated fair values of financial instruments at December 31, 2021 were as follows: Fair Value Measurements at December 31, 2021 Using (in thousands) Carrying Amount Level 1 Level 2 Level 3 Total Assets Cash and due from banks $ 261,749 $ 261,749 $ — $ — $ 261,749 Federal funds sold 183 183 — — 183 Securities, available for sale 210,620 — 198,315 12,305 210,620 Securities, held for maturity 153,536 — 150,585 — 150,585 Loans, net 2,135,330 — — 2,152,590 2,152,590 Cash surrender value of BOLI 5,568 — — 5,568 5,568 Accrued interest receivable 12,047 — — 12,047 12,047 Liabilities Deposits $ 2,596,492 $ — $ — $ 2,606,635 2,606,635 Short-term advances from Federal Home Loan Bank — — — — — Repurchase agreements 6,439 — — 6,462 6,462 Accrued interest payable 4,480 — — 4,480 4,480 Long-term advances from Federal Home Loan Bank 3,208 — — 3,208 3,208 Senior long-term debt 25,170 — — 25,187 25,187 Junior subordinated debentures 14,818 — — 15,000 15,000 -116- The carrying amounts and estimated fair values of financial instruments at December 31, 2020 were as follows: Fair Value Measurements at December 31, 2020 Using (in thousands) Carrying Amount Level 1 Level 2 Level 3 Total Assets Cash and due from banks $ 298,903 $ 298,903 $ — $ — $ 298,903 Federal funds sold 702 702 — — 702 Securities, available for sale 238,548 3,000 209,359 26,189 238,548 Securities, held for maturity — — — — — Loans, net 1,819,617 — — 1,846,738 1,846,738 Cash surrender value of BOLI 5,427 — — 5,427 5,427 Accrued interest receivable 11,933 — — 11,933 11,933 Liabilities Deposits $ 2,166,318 $ — $ — $ 2,179,004 2,179,004 Short-term advances from Federal Home Loan Bank 50,000 — — 50,000 50,000 Repurchase agreements 6,121 — — 6,154 6,154 Accrued interest payable 5,292 — — 5,292 5,292 Long-term advances from Federal Home Loan Bank 3,366 — — 3,366 3,366 Senior long-term debt 42,366 — — 42,408 42,408 Junior subordinated debentures 14,777 — — 14,452 14,452 There is no material difference between the contract amount and the estimated fair value of off-balance sheet items that are primarily comprised of short-term unfunded loan commitments that are generally at market prices. -117- Note 21. Concentrations of Credit and Other Risks First Guaranty monitors loan portfolio concentrations by region, collateral type, loan type, and industry on a monthly basis and has established maximum thresholds as a percentage of its capital to ensure that the desired mix and diversification of its loan portfolio is achieved. First Guaranty is compliant with the established thresholds as of December 31, 2021. Personal, commercial and residential loans are granted to customers, most of who reside in northern and southern areas of Louisiana. Although First Guaranty has a diversified loan portfolio, significant portions of the loans are collateralized by real estate located in Tangipahoa Parish and surrounding parishes in Southeast Louisiana. Declines in the Louisiana economy could result in lower real estate values which could, under certain circumstances, result in losses to First Guaranty. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. Approximately 36.9 % of First Guaranty's deposits are derived from local governmental agencies at December 31, 2021. These governmental depositing authorities are generally long-term customers. A number of the depositing authorities are under contractual obligation to maintain their operating funds exclusively with First Guaranty. In most cases, First Guaranty is required to pledge securities or letters of credit issued by the Federal Home Loan Bank to the depositing authorities to collateralize their deposits. Under certain circumstances, the withdrawal of all of, or a significant portion of, the deposits of one or more of the depositing authorities may result in a temporary reduction in liquidity, depending primarily on the maturities and/or classifications of the securities pledged against such deposits and the ability to replace such deposits with either new deposits or other borrowings. Public fund deposits totaled $ 957.9 million at December 31, 2021. Note 22. Litigation First Guaranty is subject to various legal proceedings in the normal course of its business. First Guaranty assesses its liabilities and contingencies in connection with outstanding legal proceedings. Where it is probable that First Guaranty will incur a loss and the amount of the loss can be reasonably estimated, First Guaranty records a liability in its consolidated financial statements. First Guaranty does not record a loss if the loss is not probable or the amount of the loss is not estimable. First Guaranty is a defendant in a lawsuit alleging overpayment of interest on a loan with a possible loss range of $ 0.0 million to $ 0.5 million. Judgment has been rendered against First Guaranty for the full amount, but First Guaranty is exercising its appeal rights. First Guaranty had an accrued liability of $ 0.1 million at December 31, 2021 related to this lawsuit. First Guaranty is also a defendant in a lawsuit alleging fault for a loss of funds by a customer with a possible loss range of $ 0.0 million to $ 1.5 million. No accrued liability has been recorded related to this lawsuit. First Guaranty settled a case in the third quarter of 2021 for $ 1.1 million. A receivable for $ 0.9 million has been recorded for recovery through First Guaranty's insurance coverage. -118- Note 23. Condensed Parent Company Information The following condensed financial information reflects the accounts and transactions of First Guaranty Bancshares, Inc. for the dates indicated: First Guaranty Bancshares, Inc. Condensed Balance Sheets December 31, (in thousands) 2021 2020 Assets Cash $ 5,143 $ 1,796 Investment in bank subsidiary 255,291 228,869 Other assets 3,893 5,665 Total Assets $ 264,327 $ 236,330 Liabilities and Shareholders' Equity Senior long-term debt 25,170 42,366 Junior subordinated debentures 14,818 14,777 Other liabilities 450 596 Total Liabilities 40,438 57,739 Shareholders' Equity 223,889 178,591 Total Liabilities and Shareholders' Equity $ 264,327 $ 236,330 First Guaranty Bancshares, Inc. Condensed Statements of Income December 31, (in thousands) 2021 2020 2019 Operating Income Dividends received from bank subsidiary $ 20,733 $ 17,100 $ 13,982 Net gains on sale of equity securities — — 196 Other income 414 332 424 Total operating income 21,147 17,432 14,602 Operating Expenses Interest expense 1,624 2,197 1,795 Salaries & Benefits 198 132 208 Other expenses 1,298 1,225 953 Total operating expenses 3,120 3,554 2,956 Income before income tax benefit and increase in equity in undistributed earnings of subsidiary 18,027 13,878 11,646 Income tax benefit 568 720 494 Income before increase in equity in undistributed earnings of subsidiary 18,595 14,598 12,140 Increase in equity in undistributed earnings of subsidiary 8,702 5,720 2,101 Net Income $ 27,297 $ 20,318 $ 14,241 -119- First Guaranty Bancshares, Inc. Condensed Statements of Cash Flows December 31, (in thousands) 2021 2020 2019 Cash flows from operating activities: Net income $ 27,297 $ 20,318 $ 14,241 Adjustments to reconcile net income to net cash provided by operating activities: Increase in equity in undistributed earnings of subsidiary ( 8,702 ) ( 5,720 ) ( 2,101 ) Depreciation and amortization 102 92 80 Gain on sale of securities — — ( 196 ) Net change in other liabilities ( 145 ) 189 ( 444 ) Net change in other assets 1,235 ( 1,301 ) ( 601 ) Net cash provided by operating activities 19,787 13,578 10,979 Cash flows from investing activities: Proceeds from sales of equity securities 1,500 10 1,196 Funds invested in equity securities ( 1,000 ) — — Funds invested in bank subsidiary ( 25,000 ) — — Purchases of premises and equipment — — ( 136 ) Cash paid in acquisition — — ( 43,383 ) Net cash (used in) provided by investing activities ( 24,500 ) 10 ( 42,323 ) Cash flows from financing activities: Proceeds from long-term debt, net of costs — — 32,465 Repayment of long-term debt ( 17,221 ) ( 6,191 ) ( 3,754 ) Net proceeds from issuance of preferred stock 33,058 — — Common stock issued in private placement — — 1,000 Dividends paid ( 7,777 ) ( 6,234 ) ( 5,803 ) Net cash provided by (used in) financing activities 8,060 ( 12,425 ) 23,908 Net increase (decrease) in cash and cash equivalents 3,347 1,163 ( 7,436 ) Cash and cash equivalents at the beginning of the period 1,796 633 8,069 Cash and cash equivalents at the end of the period $ 5,143 $ 1,796 $ 633 -120- Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosures for the year ended December 31, 2021.