First Guaranty Bancshares - 10-Q quarterly report FY2019 Q3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2019

Commission File Number: 001-37621

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)



Louisiana		26-0513559
(State or other jurisdiction incorporation or organization)		(I.R.S. Employer Identification Number)

400 East Thomas Street
Hammond, Louisiana		70401
(Address of principal executive offices)		(Zip Code)

(985) 345-7685
(Registrant's telephone number, including area code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value	FGBI	The Nasdaq Stock Market LLC

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

Yes x No o

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

Yes x No o

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

Large accelerated filer ☐ Accelerated filer x Non-accelerated filer ☐

Smaller reporting company x

Emerging growth company x

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

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

Yes oNo x

As of November 11, 2019 the registrant had 8,856,388 shares of $1 par value common stock outstanding.

Table of Contents



		Page
Part I.	Financial Information	3

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	5

	Consolidated Statements of Shareholders' Equity for the nine months ended September 30, 2019 and 2018	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	54

Part II.	Other Information	55

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 6.	Exhibits	56

Signatures		57

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PART I. FINANCIAL INFORMATION


Item 1.	Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)



(in thousands, except share data)	September 30, 2019		December 31, 2018
Assets
Cash and cash equivalents:
Cash and due from banks	$	178,187	$	127,416
Federal funds sold	781		549
Cash and cash equivalents	178,968		127,965

Investment securities:
Available for sale, at fair value	179,291		296,977
Held to maturity, at cost (estimated fair value of $90,061 and $104,840 respectively)	89,976		108,326
Investment securities	269,267		405,303

Federal Home Loan Bank stock, at cost	2,437		2,393
Loans held for sale	—		344

Loans, net of unearned income	1,292,911		1,225,268
Less: allowance for loan losses	12,230		10,776
Net loans	1,280,681		1,214,492

Premises and equipment, net	45,869		39,695
Goodwill	3,472		3,472
Intangible assets, net	3,142		3,528
Other real estate, net	3,370		1,138
Accrued interest receivable	7,238		6,716
Other assets	10,731		12,165
Total Assets	$	1,805,175	$	1,817,211

Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	248,907	$	244,516
Interest-bearing demand	594,968		594,359
Savings	108,826		109,958
Time	647,710		680,789
Total deposits	1,600,411		1,629,622

Short-term borrowings	—		—
Accrued interest payable	5,293		3,952
Senior long-term debt	17,638		19,838
Junior subordinated debentures	14,728		14,700
Other liabilities	5,061		1,815
Total Liabilities	1,643,131		1,669,927

Shareholders' Equity
Common stock:
$1 par value - authorized 100,600,000 shares; issued 8,807,175 shares	8,807		8,807
Surplus	92,268		92,268
Retained earnings	59,312		53,347
Accumulated other comprehensive income (loss)	1,657		(7,138		)
Total Shareholders' Equity	162,044		147,284
Total Liabilities and Shareholders' Equity	$	1,805,175	$	1,817,211

See Notes to Consolidated Financial Statements

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)



	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except share data)	2019		2018			2019			2018
Interest Income:
Loans (including fees)	$	19,263	$	16,867		$	57,665		$	47,650
Deposits with other banks	872		158			2,461			274
Securities (including FHLB stock)	1,959		3,083			7,381			9,766
Federal funds sold	—		—			1			1
Total Interest Income	22,094		20,108			67,508			57,691

Interest Expense:
Demand deposits	2,504		2,155			8,146			6,273
Savings deposits	127		107			407			281
Time deposits	4,358		2,916			12,721			7,291
Borrowings	392		439			1,226			1,316
Total Interest Expense	7,381		5,617			22,500			15,161

Net Interest Income	14,713		14,491			45,008			42,530
Less: Provision for loan losses	1,727		372			4,148			568
Net Interest Income after Provision for Loan Losses	12,986		14,119			40,860			41,962

Noninterest Income:
Service charges, commissions and fees	707		768			1,928			2,262
ATM and debit card fees	579		540			1,686			1,572
Net (losses) gains on securities	29		(696		)	(387		)	(902		)
Net gains on sale of loans	1,307		45			1,371			176
Other	557		542			1,528			1,437
Total Noninterest Income	3,179		1,199			6,126			4,545

Noninterest Expense:
Salaries and employee benefits	6,012		5,764			18,120			16,979
Occupancy and equipment expense	1,423		1,370			4,438			4,108
Other	3,875		4,022			11,582			10,953
Total Noninterest Expense	11,310		11,156			34,140			32,040

Income Before Income Taxes	4,855		4,162			12,846			14,467
Less: Provision for income taxes	1,008		765			2,654			2,872
Net Income	$	3,847	$	3,397		$	10,192		$	11,595

Per Common Share:
Earnings	$	0.44	$	0.39		$	1.16		$	1.32
Cash dividends paid	$	0.16	$	0.16		$	0.48		$	0.48

Weighted Average Common Shares Outstanding	8,807,175		8,807,175			8,807,175			8,807,175

See Notes to Consolidated Financial Statements

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018
Net Income	$	3,847		$	3,397		$	10,192		$	11,595
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	621			(2,150		)	10,746			(12,690		)
Reclassification adjustments for gains (losses) included in net income	(29		)	696			387			902
Change in unrealized gains (losses) on securities	592			(1,454		)	11,133			(11,788		)
Tax impact	(124		)	305			(2,338		)	2,475
Other comprehensive income (loss)	468			(1,149		)	8,795			(9,313		)
Comprehensive Income	$	4,315		$	2,248		$	18,987		$	2,282

See Notes to Consolidated Financial Statements

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)



	Common Stock $1 Par		Surplus		Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total
(in thousands, except per share data)
Balance December 31, 2017	$	8,807	$	92,268	$	44,464		$	(1,556	)	$	143,983
Reclassification of stranded tax effects in accumulated other comprehensive income ⁽¹⁾	—		—		306			—			306
Net income	—		—		11,595			—			11,595
Other comprehensive income (loss)	—		—		—			(9,313		)	(9,313		)
Cash dividends on common stock ($0.48 per share)	—		—		(4,227		)	—			(4,227		)
Balance September 30, 2018 (unaudited)	$	8,807	$	92,268	$	52,138		$	(10,869	)	$	142,344

Balance December 31, 2018	$	8,807	$	92,268	$	53,347		$	(7,138	)	$	147,284
Net income	—		—		10,192			—			10,192
Other comprehensive income	—		—		—			8,795			8,795
Cash dividends on common stock ($0.48 per share)	—		—		(4,227		)	—			(4,227		)
Balance September 30, 2019 (unaudited)	$	8,807	$	92,268	$	59,312		$	1,657		$	162,044

See Notes to Consolidated Financial Statements

(1) See Note 2 - Recent Accounting Pronouncements

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)



	Nine Months Ended September 30,
(in thousands)	2019			2018
Cash Flows From Operating Activities
Net income	$	10,192		$	11,595
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,148			568
Depreciation and amortization	2,218			2,299
Amortization/Accretion of investments	873			1,111
Loss on sale/call of securities	387			902
Gain on sale of assets	(1,305		)	(190		)
Repossessed asset write downs, gains and losses on dispositions	105			(67		)
FHLB stock dividends	(44		)	(30		)
Net decrease in loans held for sale	344			738
Change in other assets and liabilities, net	4,433			3,648
Net Cash Provided By Operating Activities	21,351			20,574

Cash Flows From Investing Activities
Proceeds from maturities and calls of HTM securities	17,946			8,708
Proceeds from maturities, calls and sales of AFS securities	244,411			343,983
Funds Invested in AFS securities	(116,443		)	(302,848		)
Net increase in loans	(73,041		)	(39,885		)
Purchase of premises and equipment	(7,947		)	(2,449		)
Proceeds from sales of premises and equipment	5			38
Proceeds from sales of other real estate owned	365			484
Net Cash Provided By Investing Activities	65,296			8,031

Cash Flows From Financing Activities
Net decrease in deposits	(29,211		)	(4,844		)
Net increase in federal funds purchased and short-term borrowings	—			8,500
Repayment of long-term borrowings	(2,206		)	(2,206		)
Dividends paid	(4,227		)	(4,227		)
Net Cash Used In Financing Activities	(35,644		)	(2,777		)

Net Increase In Cash and Cash Equivalents	51,003			25,828
Cash and Cash Equivalents at the Beginning of the Period	127,965			38,028
Cash and Cash Equivalents at the End of the Period	$	178,968		$	63,856

Noncash Activities:
Acquisition of real estate in settlement of loans	$	2,704		$	297

Cash Paid During The Period:
Interest on deposits and borrowed funds	$	21,159		$	14,354
Federal income taxes	$	2,750		$	2,400
State income taxes	$	23		$	—

See Notes to the Consolidated Financial Statements.

-7-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. ("First Guaranty") thereto should be read in conjunction with the audited consolidated financial statements and note disclosures for First Guaranty previously filed with the Securities and Exchange Commission in First Guaranty's Annual Report on Form 10-K for the year ended December 31, 2018.

The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc. and its wholly owned subsidiary First Guaranty Bank (the "Bank"). All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations at September 30, 2019 and for the three and nine month periods ended September 30, 2019 and 2018 are not necessarily indicative of the results expected for the full year or any other interim period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of investment securities.

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Note 2. Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, "Leases: Conforming Amendments Related to Leases". This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the balance sheet and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. During 2018 and early 2019, the FASB issued ASU No. 2018-11, "Targeted Improvements", ASU No. 2018-20, "Narrow-Scope Improvements for Lessors", and ASU No. 2019-01, "Codification Improvements", which clarified certain implementation issues, provided an additional optional transition method and clarified the disclosure requirements during the period of adopting ASU 2016-02, among others. The ASU is effective for annual and interim periods beginning after December 15, 2018. First Guaranty adopted this ASU in the first quarter of 2019. As a result of adopting this ASU, First Guaranty established a right-to-use asset and a lease liability as of January 1, 2019 of $0.9 million. The right-to-use asset represents First Guaranty's right to use an underlying asset for the lease term and is included in other assets on First Guaranty's consolidated balance sheets. The lease liability represents First Guaranty's obligation to make lease payments and is included in other liabilities on First Guaranty's consolidated balance sheets. First Guaranty does not expect material changes to the recognition of lease expense in future periods as a result of the adopting this ASU.

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. This ASU was originally effective for annual and interim periods beginning after December 15, 2019. On October 16, 2019, the FASB approved its proposal to delay the effective date of this ASU for certain business entities, as discussed below. First Guaranty is currently evaluating the impact of this accounting standard and is implementing a new software application to assist in determining the impact on the Consolidated Financial Statements.

In July 2019, the FASB added a project to its technical agenda to propose staggered effective dates for certain accounting standards, including ASU 2016-13. The FASB has proposed an approach that ASU 2016-13 will be effective for Public Business Entities that are SEC filers, excluding smaller reporting companies such as First Guaranty, for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. For all other entities, including smaller reporting companies like First Guaranty, ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all entities, early adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar-year-end companies). The FASB issued a proposed ASU for this project in August of 2019 and on October 16, 2019 approved the staggered effective dates and directed the staff to draft a final Accounting Standards Update. First Guaranty’s expected adoption date for ASU 2016-13 will change from fiscal years beginning after December 15, 2019 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment". This ASU amends the guidance on impairment testing. The ASU eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective for annual and interim periods beginning after December 15, 2019. First Guaranty is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This ASU removes, modifies, and adds certain disclosure requirements for fair value measurements. For example, public entities will no longer be required to disclose the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. In addition, entities may early adopt the modified or eliminated disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. First Guaranty does not believe the adoption of this ASU will have a material impact on the Consolidated Financial Statements, as the update only revises disclosure requirements.

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In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Financial Instruments - Credit Losses, Derivatives and Hedging, and Financial Instruments". The amendments in this ASU improve the Codification by eliminating inconsistencies and providing clarifications. This ASU clarifies the scope of the credit losses standard and addresses various issues including, accrued interest receivable balances, recoveries, variable interest rates and prepayments. For recognizing and measuring financial instruments, this ASU addresses the scope of the guidance, the requirement for remeasurement when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasure at historical exchange rates. The amended guidance in this ASU related to the credit losses and the recognition and measurement of financial instruments is effective for annual and interim periods beginning after December 15, 2019, with early adoption in any interim period permitted. First Guaranty is currently evaluating the impact of this ASU on the Consolidated Financial Statements.

In May 2019, the FASB issued ASU No. 2019-05, "Financial Instruments - Credit Losses: Targeted Transition Relief". The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. The amended guidance in this ASU are effective for annual and interim periods beginning after December 15, 2019. First Guaranty is currently evaluating the impact of this accounting standard on the Consolidated Financial Statements.

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Note 3. Securities

A summary comparison of securities by type at September 30, 2019 and December 31, 2018 is shown below.



	September 30, 2019									December 31, 2018
(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	$	18,594	$	—	$	(2	)	$	18,592	$	—	$	—	$	—		$	—
U.S. Government Agencies	24,299		14		(6		)	24,307		146,911		—		(5,522		)	141,389
Corporate debt securities	61,103		842		(221		)	61,724		76,310		72		(3,504		)	72,878
Mutual funds or other equity securities	500		—		—			500		483		—		—			483
Municipal bonds	23,483		1,491		(30		)	24,944		32,956		1,120		(175		)	33,901
Collateralized mortgage obligations	1,764		11		—			1,775		918		—		(14		)	904
Mortgage-backed securities	47,450		160		(161		)	47,449		48,434		—		(1,012		)	47,422
Total available for sale securities	$	177,193	$	2,518	$	(420	)	$	179,291	$	306,012	$	1,192	$	(10,227	)	$	296,977

Held to maturity:
U.S. Government Agencies	$	18,174	$	—	$	(60	)	$	18,114	$	28,172	$	—	$	(1,081	)	$	27,091
Municipal bonds	5,125		193		(1		)	5,317		5,227		—		(101		)	5,126
Mortgage-backed securities	66,677		140		(187		)	66,630		74,927		—		(2,304		)	72,623
Total held to maturity securities	$	89,976	$	333	$	(248	)	$	90,061	$	108,326	$	—	$	(3,486	)	$	104,840

The scheduled maturities of securities at September 30, 2019, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to calls or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below.



	At September 30, 2019
(in thousands)	Amortized Cost		Fair Value
Available for sale:
Due in one year or less	$	21,351	$	21,373
Due after one year through five years	34,411		34,927
Due after five years through 10 years	57,158		58,198
Over 10 years	15,059		15,569
Subtotal	127,979		130,067
Collateralized mortgage obligations	1,764		1,775
Mortgage-backed securities	47,450		47,449
Total available for sale securities	$	177,193	$	179,291

Held to maturity:
Due in one year or less	$	5,050	$	5,038
Due after one year through five years	3,331		3,317
Due after five years through 10 years	11,498		11,531
Over 10 years	3,420		3,545
Subtotal	23,299		23,431
Mortgage-backed securities	66,677		66,630
Total held to maturity securities	$	89,976	$	90,061

At September 30, 2019, $166.6 million of First Guaranty's securities were pledged to secure public funds deposits and borrowings. The pledged securities had a market value of $166.7 million as of September 30, 2019.

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The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at September 30, 2019.



							At September 30, 2019
	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	2	$	18,592	$	(2	)	—	$	—	$	—		2	$	18,592	$	(2	)
U.S. Government Agencies	—	—		—			2	4,542		(6		)	2	4,542		(6		)
Corporate debt securities	12	3,927		(9		)	20	5,685		(212		)	32	9,612		(221		)
Mutual funds or other equity securities	—	—		—			—	—		—			—	—		—
Municipal bonds	12	1,570		(30		)	—	—		—			12	1,570		(30		)
Collateralized mortgage obligations	—	—		—			—	—		—			—	—		—
Mortgage-backed securities	13	16,182		(72		)	10	13,980		(89		)	23	30,162		(161		)
Total available for sale securities	39	$	40,271	$	(113	)	32	$	24,207	$	(307	)	71	$	64,478	$	(420	)

Held to maturity:
U.S. Government Agencies	2	$	2,174	$	(4	)	8	$	15,940	$	(56	)	10	$	18,114	$	(60	)
Municipal bonds	1	149		(1		)	1	50		—			2	199		(1		)
Mortgage-backed securities	10	14,508		(43		)	17	21,612		(144		)	27	36,120		(187		)
Total held to maturity securities	13	$	16,831	$	(48	)	26	$	37,602	$	(200	)	39	$	54,433	$	(248	)

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, 2018.



							At December 31, 2018
	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	1	4,227		(273		)	50	137,162		(5,249		)	51	141,389		(5,522		)
Corporate debt securities	37	9,560		(252		)	183	58,877		(3,252		)	220	68,437		(3,504		)
Mutual funds or other equity securities	—	—		—			—	—		—			—	—		—
Municipal bonds	1	115		—			19	8,436		(175		)	20	8,551		(175		)
Collateralized mortgage obligations	—	—		—			5	904		(14		)	5	904		(14		)
Mortgage-backed securities	16	19,453		(73		)	38	27,969		(939		)	54	47,422		(1,012		)
Total available for sale securities	55	$	33,355	$	(598	)	295	$	233,348	$	(9,629	)	350	$	266,703	$	(10,227	)

Held to maturity:
U.S. Government Agencies	—	$	—	$	—		14	$	27,091	$	(1,081	)	14	$	27,091	$	(1,081	)
Municipal bonds	—	—		—			9	5,126		(101		)	9	5,126		(101		)
Mortgage-backed securities	—	—		—			56	72,623		(2,304		)	56	72,623		(2,304		)
Total held to maturity securities	—	$	—	$	—		79	$	104,840	$	(3,486	)	79	$	104,840	$	(3,486	)

As of September 30, 2019, 110 of First Guaranty's debt securities had unrealized losses totaling 0.6% of the individual securities' amortized cost basis and 0.3% of First Guaranty's total amortized cost basis of the investment securities portfolio. 58 of the 110 securities had been in a continuous loss position for over 12 months at such date. The 58 securities had an aggregate amortized cost basis of $62.3 million and an unrealized loss of $0.5 million at September 30, 2019. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery.

-12-

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. No securities with an other-than-temporary impairment loss were held at September 30, 2019. 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 nine months ended September 30, 2019 and 2018.

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 nine months ended September 30, 2019 and 2018:



(in thousands)	Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Beginning balance of credit losses at end of prior year	$	60		$	60
Other-than-temporary impairment credit losses on securities not previously OTTI	—			—
Increases for additional credit losses on securities previously determined to be OTTI	—			—
Reduction for increases in cash flows	—			—
Reduction due to credit impaired securities sold or fully settled	(60		)	—
Ending balance of cumulative credit losses recognized in earnings at end of period	$	—		$	60

In the first nine months of 2019 there were no other-than-temporary impairment credit losses on securities for which we had previously recognized OTTI. For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management's best estimate of future cash flows based on specific assumptions. The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities. Management reviews reports from credit rating agencies and public filings of issuers.

At September 30, 2019, First Guaranty's exposure to bond issuers that exceeded 10% of shareholders' equity is below:



	At September 30, 2019
(in thousands)	Amortized Cost		Fair Value
U.S. Government Treasuries (U.S.)	$	18,594	$	18,592
Federal Home Loan Bank (FHLB)	18,746		18,741
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)	44,982		44,974
Federal National Mortgage Association (Fannie Mae-FNMA)	71,145		71,097
Federal Farm Credit Bank (FFCB)	21,727		21,688
Total	$	175,194	$	175,092

-13-

Note 4. Loans

The following table summarizes the components of First Guaranty's loan portfolio as of September 30, 2019 and December 31, 2018:



	September 30, 2019					December 31, 2018
(in thousands except for %)	Balance			As % of Category		Balance			As % of Category
Real Estate:
Construction & land development	$	157,980		12.2	%	$	124,644		10.1	%
Farmland	16,484			1.3	%	18,401			1.5	%
1- 4 Family	187,772			14.5	%	172,760			14.1	%
Multifamily	22,459			1.7	%	42,918			3.5	%
Non-farm non-residential	585,177			45.1	%	586,263			47.7	%
Total Real Estate	969,872			74.8	%	944,986			76.9	%
Non-Real Estate:
Agricultural	29,193			2.3	%	23,108			1.9	%
Commercial and industrial	213,993			16.5	%	200,877			16.4	%
Consumer and other	83,029			6.4	%	59,443			4.8	%
Total Non-Real Estate	326,215			25.2	%	283,428			23.1	%
Total Loans Before Unearned Income	1,296,087			100.0	%	1,228,414			100.0	%
Unearned income	(3,176		)			(3,146		)
Total Loans Net of Unearned Income	$	1,292,911				$	1,225,268

The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of September 30, 2019 and December 31, 2018 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.



	September 30, 2019							December 31, 2018
(in thousands)	Fixed		Floating		Total			Fixed		Floating		Total
One year or less	$	135,678	$	103,997	$	239,675		$	108,160	$	80,895	$	189,055
More than one to five years	421,066		284,296		705,362			393,344		287,737		681,081
More than five to 15 years	107,657		74,764		182,421			118,715		86,779		205,494
Over 15 years	108,308		49,423		157,731			85,611		58,430		144,041
Subtotal	$	772,709	$	512,480	1,285,189			$	705,830	$	513,841	1,219,671
Nonaccrual loans					10,898							8,743
Total Loans Before Unearned Income					1,296,087							1,228,414
Unearned income					(3,176		)					(3,146		)
Total Loans Net of Unearned Income					$	1,292,911						$	1,225,268

As of September 30, 2019, $100.1 million of floating rate loans were at their interest rate floor. At December 31, 2018, $27.7 million of floating rate loans were at the interest rate floor. Nonaccrual loans have been excluded from these totals.

-14-

The following tables present the age analysis of past due loans at September 30, 2019 and December 31, 2018:



	As of September 30, 2019
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	1,490	$	390	$	1,880	$	156,100	$	157,980		$	—
Farmland	—		1,337		1,337		15,147		16,484			—
1- 4 family	2,554		1,977		4,531		183,241		187,772			2
Multifamily	—		—		—		22,459		22,459			—
Non-farm non-residential	8,777		929		9,706		575,471		585,177			184
Total Real Estate	12,821		4,633		17,454		952,418		969,872			186
Non-Real Estate:
Agricultural	8		4,842		4,850		24,343		29,193			—
Commercial and industrial	1,920		478		2,398		211,595		213,993			24
Consumer and other	300		1,283		1,583		81,446		83,029			128
Total Non-Real Estate	2,228		6,603		8,831		317,384		326,215			152
Total Loans Before Unearned Income	$	15,049	$	11,236	$	26,285	$	1,269,802	$	1,296,087		$	338
Unearned income									(3,176		)
Total Loans Net of Unearned Income									$	1,292,911



	As of December 31, 2018
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	936	$	311	$	1,247	$	123,397	$	124,644		$	—
Farmland	—		1,293		1,293		17,108		18,401			—
1- 4 family	4,333		2,272		6,605		166,155		172,760			26
Multifamily	648		—		648		42,270		42,918			—
Non-farm non-residential	4,897		864		5,761		580,502		586,263			—
Total Real Estate	10,814		4,740		15,554		929,432		944,986			26
Non-Real Estate:
Agricultural	528		3,651		4,179		18,929		23,108			—
Commercial and industrial	742		370		1,112		199,765		200,877			53
Consumer and other	537		127		664		58,779		59,443			66
Total Non-Real Estate	1,807		4,148		5,955		277,473		283,428			119
Total Loans Before Unearned Income	$	12,621	$	8,888	$	21,509	$	1,206,905	$	1,228,414		$	145
Unearned income									(3,146		)
Total Loans Net of Unearned Income									$	1,225,268

The tables above include $10.9 million and $8.7 million of nonaccrual loans at September 30, 2019 and December 31, 2018, respectively. See the tables below for more detail on nonaccrual loans.

-15-

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



(in thousands)	As of September 30, 2019		As of December 31, 2018
Real Estate:
Construction & land development	$	390	$	311
Farmland	1,337		1,293
1- 4 family	1,975		2,246
Multifamily	—		—
Non-farm non-residential	745		864
Total Real Estate	4,447		4,714
Non-Real Estate:
Agricultural	4,842		3,651
Commercial and industrial	454		317
Consumer and other	1,155		61
Total Non-Real Estate	6,451		4,029
Total Nonaccrual Loans	$	10,898	$	8,743

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 September 30, 2019											As of December 31, 2018
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	150,991	$	5,227	$	1,762	$	—	$	157,980		$	116,062	$	5,698	$	2,884	$	—	$	124,644
Farmland	11,903		3,177		1,404		—		16,484			13,151		3,888		1,362		—		18,401
1- 4 family	176,252		4,662		6,858		—		187,772			160,581		2,815		9,364		—		172,760
Multifamily	14,486		807		7,166		—		22,459			35,554		—		7,364		—		42,918
Non-farm non-residential	570,496		225		14,456		—		585,177			564,993		2,888		17,859		523		586,263
Total Real Estate	924,128		14,098		31,646		—		969,872			890,341		15,289		38,833		523		944,986
Non-Real Estate:
Agricultural	23,969		50		5,174		—		29,193			19,050		43		4,015		—		23,108
Commercial and industrial	193,653		16,799		3,541		—		213,993			186,176		10,930		3,771		—		200,877
Consumer and other	81,673		138		1,218		—		83,029			59,119		151		173		—		59,443
Total Non-Real Estate	299,295		16,987		9,933		—		326,215			264,345		11,124		7,959		—		283,428
Total Loans Before Unearned Income	$	1,223,423	$	31,085	$	41,579	$	—	1,296,087			$	1,154,686	$	26,413	$	46,792	$	523	1,228,414
Unearned income									(3,176		)									(3,146		)
Total Loans Net of Unearned Income									$	1,292,911										$	1,225,268

-16-

Purchased Impaired Loans

As part of the acquisition of Premier Bancshares, Inc. ("Premier") 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 September 30, 2019 and December 31, 2018.



(in thousands)	As of September 30, 2019		As of December 31, 2018
Real Estate:
Construction & land development	$	—	$	—
Farmland	—		1
1- 4 family	47		48
Multifamily	—		—
Non-farm non-residential	2,020		2,301
Total Real Estate	2,067		2,350
Non-Real Estate:
Agricultural	—		—
Commercial and industrial	886		909
Consumer and other	—		—
Total Non-Real Estate	886		909
Total	$	2,953	$	3,259

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 nine months ended September 30, 2019 and 2018.



(in thousands)	Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Balance, beginning of period	$	613		$	1,031
Acquisition accretable yield	—			—
Accretion	(746		)	(368		)
Net transfers from nonaccretable difference to accretable yield	498			—
Balance, end of period	$	365		$	663

-17-

Note 5. Allowance for Loan Losses

A summary of changes in the allowance for loan losses, by portfolio type, for the nine months ended September 30, 2019 and 2018 are as follows:



	For the Nine Months Ended September 30,
	2019												2018
(in thousands)	Beginning Allowance (12/31/2018)		Charge-offs			Recoveries		Provision			Ending Allowance (9/30/2019)		Beginning Allowance (12/31/2017)		Charge-offs			Recoveries		Provision			Ending Allowance (9/30/2018)
Real Estate:
Construction & land development	$	581	$	—		$	—	$	(58	)	$	523	$	628	$	—		$	3	$	(22	)	$	609
Farmland	41		—			—		5			46		5		—			—		7			12
1- 4 family	911		(522		)	35		408			832		1,078		(99		)	87		(275		)	791
Multifamily	1,318		—			—		(323		)	995		994		—			20		232			1,246
Non-farm non-residential	4,771		(845		)	5		1,715			5,646		2,811		(404		)	88		2,033			4,528
Total Real Estate	7,622		(1,367		)	40		1,747			8,042		5,516		(503		)	198		1,975			7,186
Non-Real Estate:
Agricultural	339		(40		)	—		(177		)	122		187		(60		)	12		276			415
Commercial and industrial	1,909		(598		)	21		671			2,003		2,377		(179		)	1,629		(2,167		)	1,660
Consumer and other	891		(931		)	181		1,922			2,063		1,125		(468		)	155		469			1,281
Unallocated	15		—			—		(15		)	—		20		—			—		15			35
Total Non-Real Estate	3,154		(1,569		)	202		2,401			4,188		3,709		(707		)	1,796		(1,407		)	3,391
Total	$	10,776	$	(2,936	)	$	242	$	4,148		$	12,230	$	9,225	$	(1,210	)	$	1,994	$	568		$	10,577

Negative provisions are caused by changes in the composition and credit quality of the loan portfolio and by recoveries. The result is an allocation of the loan loss reserve from one category to another.

-18-

A summary of the allowance and loans, including loans acquired with deteriorated credit quality, individually and collectively evaluated for impairment are as follows:



	As of September 30, 2019
(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	$	—	$	—	$	523	$	523	$	—	$	—	$	157,980	$	157,980
Farmland	—		—		46		46		552		—		15,932		16,484
1- 4 family	34		—		798		832		1,265		47		186,460		187,772
Multifamily	—		—		995		995		—		—		22,459		22,459
Non-farm non-residential	3,045		—		2,601		5,646		7,105		2,020		576,052		585,177
Total Real Estate	3,079		—		4,963		8,042		8,922		2,067		958,883		969,872
Non-Real Estate:
Agricultural	—		—		122		122		4,030		—		25,163		29,193
Commercial and industrial	113		—		1,890		2,003		1,025		886		212,082		213,993
Consumer and other	1,135		—		928		2,063		1,135		—		81,894		83,029
Total Non-Real Estate	1,248		—		2,940		4,188		6,190		886		319,139		326,215
Total	$	4,327	$	—	$	7,903	$	12,230	$	15,112	$	2,953	$	1,278,022	1,296,087
Unearned Income															(3,176		)
Total Loans Net of Unearned Income															$	1,292,911



	As of December 31, 2018
(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	$	38	$	—	$	543	$	581	$	304	$	—	$	124,340	$	124,644
Farmland	—		—		41		41		552		1		17,848		18,401
1- 4 family	—		—		911		911		631		48		172,081		172,760
Multifamily	—		—		1,318		1,318		—		—		42,918		42,918
Non-farm non-residential	1,152		—		3,619		4,771		4,881		2,301		579,081		586,263
Total Real Estate	1,190		—		6,432		7,622		6,368		2,350		936,268		944,986
Non-Real Estate:
Agricultural	—		—		339		339		2,983		—		20,125		23,108
Commercial and industrial	110		—		1,799		1,909		1,088		909		198,880		200,877
Consumer and other	—		—		891		891		—		—		59,443		59,443
Unallocated	—		—		15		15		—		—		—		—
Total Non-Real Estate	110		—		3,044		3,154		4,071		909		278,448		283,428
Total	$	1,300	$	—	$	9,476	$	10,776	$	10,439	$	3,259	$	1,214,716	1,228,414
Unearned Income															(3,146		)
Total loans net of unearned income															$	1,225,268

-19-

A loan is considered impaired when, based on current information and events, it is probable that First Guaranty will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Payment status, collateral value and the probability of collecting scheduled principal and interest payments when due are considered in evaluating loan impairment. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

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



	As of September 30, 2019
(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	552		552		—		552		—		—
1- 4 family	749		749		—		740		38		45
Multifamily	—		—		—		—		—		—
Non-farm non-residential	—		—		—		—		—		—
Total Real Estate	1,301		1,301		—		1,292		38		45
Non-Real Estate:
Agricultural	4,030		4,109		—		4,031		11		—
Commercial and industrial	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	4,030		4,109		—		4,031		11		—
Total Impaired Loans with no related allowance	5,331		5,410		—		5,323		49		45

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development	—		—		—		—		—		—
Farmland	—		—		—		—		—		—
1- 4 family	516		516		34		524		—		—
Multifamily	—		—		—		—		—		—
Non-farm non-residential	7,105		7,105		3,045		7,124		277		301
Total Real Estate	7,621		7,621		3,079		7,648		277		301
Non-Real Estate:
Agricultural	—		—		—		—		—		—
Commercial and industrial	1,025		1,025		113		1,044		52		48
Consumer and other	1,135		1,135		1,135		3,075		119		80
Total Non-Real Estate	2,160		2,160		1,248		4,119		171		128
Total Impaired Loans with an allowance recorded	9,781		9,781		4,327		11,767		448		429

Total Impaired Loans	$	15,112	$	15,191	$	4,327	$	17,090	$	497	$	474

-20-

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



	As of December 31, 2018
(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	631		631		—		626		13		—
Multifamily	—		—		—		—		—		—
Non-farm non-residential	523		523		—		536		33		34
Total Real Estate	1,154		1,154		—		1,162		46		34
Non-Real Estate:
Agricultural	3,535		3,613		—		3,583		173		272
Commercial and industrial	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	3,535		3,613		—		3,583		173		272
Total Impaired Loans with no related allowance	4,689		4,767		—		4,745		219		306

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development	—		—		—		—		—		—
Farmland	—		—		—		—		—		—
1- 4 family	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
Non-farm non-residential	3,070		3,070		1,150		3,104		139		139
Total Real Estate	3,070		3,070		1,150		3,104		139		139
Non-Real Estate:
Agricultural	—		—		—		—		—		—
Commercial and industrial	1,088		1,088		110		1,115		55		64
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	1,088		1,088		110		1,115		55		64
Total Impaired Loans with an allowance recorded	4,158		4,158		1,260		4,219		194		203

Total Impaired Loans	$	8,847	$	8,925	$	1,260	$	8,964	$	413	$	509

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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 losses. First Guaranty has not restructured any loans that are considered TDRs in the nine months ended September 30, 2019. At September 30, 2019, First Guaranty had no outstanding TDRs.

The following table identifies the TDRs as of September 30, 2019 and December 31, 2018:



	September 30, 2019								December 31, 2018
	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	$	—	$	—	$	—	$	—	$	—	$	—	$	304	$	304
Farmland	—		—		—		—		—		—		—		—
1- 4 Family	—		—		—		—		—		—		—		—
Multifamily	—		—		—		—		—		—		—		—
Non-farm non residential	—		—		—		—		1,288		—		—		1,288
Total Real Estate	—		—		—		—		1,288		—		304		1,592
Non-Real Estate:
Agricultural	—		—		—		—		—		—		—		—
Commercial and industrial	—		—		—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—		—		—
Total Non-Real Estate	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,288	$	—	$	304	$	1,592

The following table discloses TDR activity for the nine months ended September 30, 2019.



	Troubled Debt Restructured Loans Activity Nine Months Ended September 30, 2019
(in thousands)	Beginning balance December 31, 2018		New TDRs		Charge-offs post-modification		Transferred to ORE		Paydowns		Construction to permanent financing		Restructured to market terms			Other adjustments		Ending balance September 30, 2019
Real Estate:
Construction & land development	$	304	$	—	$	—	$	—	$	—	$	—	$	(304	)	$	—	$	—
Farmland	—		—		—		—		—		—		—			—		—
1 - 4 family	—		—		—		—		—		—		—			—		—
Multifamily	—		—		—		—		—		—		—			—		—
Non-farm non-residential	1,288		—		—		—		—		—		(1,288		)	—		—
Total Real Estate	1,592		—		—		—		—		—		(1,592		)	—		—
Non-Real Estate:
Agricultural	—		—		—		—		—		—		—			—		—
Commercial and industrial	—		—		—		—		—		—		—			—		—
Consumer and other	—		—		—		—		—		—		—			—		—
Total Non-Real Estate	—		—		—		—		—		—		—			—		—
Total	$	1,592	$	—	$	—	$	—	$	—	$	—	$	(1,592	)	—		$	—

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Note 6. Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. First Guaranty's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007 and Premier in 2017. Goodwill totaled $3.5 million at September 30, 2019 and December 31, 2018. No impairment charges have been recognized on First Guaranty's intangible assets. Loan servicing assets decreased $0.1 million to $0.7 million at September 30, 2019 compared to December 31, 2018. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The weighted-average amortization period remaining for First Guaranty's core deposit intangibles is 9.0 years at September 30, 2019. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.

Note 7. Other Real Estate (ORE)

Other real estate owned consists of the following at the dates indicated:



(in thousands)	September 30, 2019		December 31, 2018
Real Estate Owned Acquired by Foreclosure:
Residential	$	117	$	120
Construction & land development	213		241
Non-farm non-residential	3,040		777
Total Other Real Estate Owned and Foreclosed Property	$	3,370	$	1,138

Loans secured by one-to-four family residential properties in the process of foreclosure totaled $0.5 million as of September 30, 2019.

Note 8. Commitments and Contingencies

Off-balance sheet commitments

First Guaranty is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments.

The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk.

Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at September 30, 2019 and December 31, 2018:

Contract Amount



(in thousands)	September 30, 2019		December 31, 2018
Commitments to Extend Credit	$	98,520	$	108,348
Unfunded Commitments under lines of credit	$	164,179	$	122,212
Commercial and Standby letters of credit	$	10,978	$	6,912

Litigation

The nature of First Guaranty's business ordinarily results in a certain amount of claims, litigation and legal and administrative cases, all of which are considered incidental to the normal conduct of business. When First Guaranty determines it has defenses to the claims asserted, it defends itself. First Guaranty will consider settlement of cases when it is in the best interests of both First Guaranty and its shareholders.

While the final outcome of legal proceedings is inherently uncertain, based on information currently available as of September 30, 2019, any incremental liability arising from First Guaranty's legal proceedings will not have a material adverse effect on First Guaranty's financial position or results of operations.

-23-

Note 9. Fair Value Measurements

The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy.

Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified within Level 3 in First Guaranty's portfolio as of September 30, 2019 includes corporate debt and municipal securities.

Impaired loans. Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation.

Other real estate owned. Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values or recent sales activity for similar assets in the property's market; thus OREO measured at fair value would be classified within either Level 2 or Level 3 of the hierarchy.

Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

The following table summarizes financial assets measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



(in thousands)	September 30, 2019		December 31, 2018
Available for Sale Securities Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	19,092	$	483
Level 2: Significant Other Observable Inputs	151,837		291,733
Level 3: Significant Unobservable Inputs	8,362		4,761
Securities available for sale measured at fair value	$	179,291	$	296,977

First Guaranty's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.

The change in Level 1 securities available for sale from December 31, 2018 to September 30, 2019 was due principally to a net increase in Treasury bills of $18.6 million. The change in Level 2 securities available for sale from December 31, 2018 to September 30, 2019 was due principally to a reduction in agency, municipal and corporate bonds related to sales and maturities. There were no transfers between Level 1 and 2 securities available for sale from December 31, 2018 to September 30, 2019.

-24-

The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs (Level 3):



	Level 3 Changes
(in thousands)	September 30, 2019
Balance, beginning of year	$	4,761
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income	110
Purchases, sales, issuances and settlements, net	3,491
Transfers in and/or out of Level 3	—
Balance as of end of period	$	8,362

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held as of September 30, 2019.

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of September 30, 2019 and December 31, 2018, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:



(in thousands)	At September 30, 2019		At December 31, 2018
Impaired Loans - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	—	$	—
Level 2: Significant Other Observable Inputs	—		—
Level 3: Significant Unobservable Inputs	6,177		3,620
Impaired loans measured at fair value	$	6,177	$	3,620

Other Real Estate Owned - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	—	$	—
Level 2: Significant Other Observable Inputs	2,370		1,012
Level 3: Significant Unobservable Inputs	883		126
Other real estate owned measured at fair value	$	3,253	$	1,138

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.

-25-

Note 10. Financial Instruments

Fair value estimates are generally subjective in nature and are dependent upon a number of significant assumptions associated with each instrument or group of similar instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows and relevant available market information. Fair value information is intended to represent an estimate of an amount at which a financial instrument could be exchanged in a current transaction between a willing buyer and seller engaging in an exchange transaction. However, since there are no established trading markets for a significant portion of First Guaranty's financial instruments, First Guaranty may not be able to immediately settle financial instruments; as such, the fair values are not necessarily indicative of the amounts that could be realized through immediate settlement. In addition, the majority of the financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer.

Quoted market prices are used to estimate fair values when available. However, due to the nature of the financial instruments, in many instances quoted market prices are not available. Accordingly, estimated fair values have been estimated based on other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. Fair values are estimated without regard to any premium or discount that may result from concentrations of ownership of financial instruments, possible income tax ramifications or estimated transaction costs. The fair value estimates are subjective in nature and involve matters of significant judgment and, therefore, cannot be determined with precision. Fair values are also estimated at a specific point in time and are based on interest rates and other assumptions at that date. As events change the assumptions underlying these estimates, the fair values of financial instruments will change.

Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations of pension and other postretirement benefits, premises and equipment, other real estate, prepaid expenses, the value of long-term relationships with depositors (core deposit intangibles) and other customer relationships, other intangible assets and income tax assets and liabilities. Fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses have not been considered in the estimates. Accordingly, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of First Guaranty.

Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the fair values, reasonable comparison of the fair value information with other financial institutions' fair value information cannot necessarily be made. The methods and assumptions used to estimate the fair values of financial instruments are as follows:

Cash and due from banks, interest-bearing deposits with banks, federal funds sold and federal funds purchased.

These items are generally short-term and the carrying amounts reported in the consolidated balance sheets are a reasonable estimation of the fair values.

Investment Securities.

Fair values are principally based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or the use of discounted cash flow analyses.

Loans Held for Sale.

Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. These loans are classified within level 3 of the fair value hierarchy.

Loans, net.

Market values are computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. These loans are classified within level 3 of the fair value hierarchy.

Impaired loans.

Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation.

Accrued interest receivable.

The carrying amount of accrued interest receivable approximates its fair value.

Deposits.

The fair value of demand deposits, savings and interest-bearing demand deposits is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Deposits are classified within level 3 of the fair value hierarchy.

-26-

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. Noninterest-bearing deposits are held at cost. 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 September 30, 2019 and December 31, 2018 the fair value of guarantees under commercial and standby letters of credit was not material.

The estimated fair values and carrying values of the financial instruments at September 30, 2019 and December 31, 2018 are presented in the following table:



	September 30, 2019				December 31, 2018
(in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets
Cash and cash equivalents	$	178,968	$	178,968	$	127,965	$	127,965
Securities, available for sale	179,291		179,291		296,977		296,977
Securities, held to maturity	89,976		90,061		108,326		104,840
Federal Home Loan Bank stock	2,437		2,437		2,393		2,393
Loans held for sale	—		—		344		379
Loans, net	1,280,681		1,279,878		1,214,492		1,193,886
Accrued interest receivable	7,238		7,238		6,716		6,716

Liabilities
Deposits	$	1,600,411	$	1,607,678	$	1,629,622	$	1,625,827
Borrowings	17,638		17,647		19,838		19,853
Junior subordinated debentures	14,728		14,853		14,700		14,537
Accrued interest payable	5,293		5,293		3,952		3,952

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.

-27-

Note 11. Subsequent Events

On November 7, 2019, First Guaranty completed the acquisition of Union Bancshares, Incorporated, a Louisiana corporation ("Union"). On the November 7, 2019 acquisition date, Union was merged with and into First Guaranty with First Guaranty as the surviving corporation followed by the merger of Union's wholly-owned subsidiary, The Union Bank ("Union Bank") with and into the Bank, with the Bank continuing as the surviving entity. Shareholders of Union received $1,061.20 per share in cash, yielding an aggregate deal value of $43.4 million. The cash consideration was partially financed by a $32.5 million term loan from First Horizon Bank. Union Bancshares, Inc. had total consolidated assets of approximately $258.5 million, loans of $183.8 million and total deposits of $205.2 million as of November 7, 2019. First Guaranty incurred $0.2 million in pre-tax merger-related expenses during the first nine months of 2019. The acquisition of Union is being accounted for under the purchase method of accounting.

On November 7, 2019, First Guaranty closed a private placement offering of 49,213 shares of its common stock (the “Offering”) to one accredited investor as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933 (the “Act”). The Offering price was $20.32 per share, which was the closing price for the Company’s common stock on the Nasdaq Global Market for the previous five business days. The Offering resulted in gross proceeds of $1.0 million to the Company. There were no underwriting discounts or commissions. The Company relied on the exemption from registration provided under Rule 506 of Regulation D promulgated under the Act.

-28-

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Special Note Regarding Forward-Looking Statements

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from management expectations. This discussion and analysis contains forward-looking statements and reflects management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements. We undertake no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.

-29-

Third Quarter and Nine Months Ended September 30, 2019 Financial Overview

First Guaranty Bancshares, Inc. is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana. First Guaranty Bank, the wholly-owned subsidiary of First Guaranty Bancshares, Inc., is a Louisiana chartered commercial bank that provides personalized commercial banking services primarily to Louisiana and Texas customers through 26 banking facilities primary located throughout Southeast, Southwest and North Louisiana and in North Central Texas. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. First Guaranty competes for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees.

Financial highlights for the third quarter and nine months ended September 30, 2019 are as follows:

•

Total assets decreased $12.0 million, or 0.7%, to $1.8 billion at September 30, 2019 when compared with December 31, 2018. Total loans at September 30, 2019 were $1.3 billion, an increase of $67.6 million, or 5.5%, compared with December 31, 2018. Total deposits were $1.6 billion at September 30, 2019, a decrease of $29.2 million, or 1.8%, compared with December 31, 2018. Retained earnings were $59.3 million at September 30, 2019, an increase of $6.0 million compared to $53.3 million at December 31, 2018. Shareholders' equity was $162.0 million and $147.3 million at September 30, 2019 and December 31, 2018, respectively.

•

Net income for the third quarter of 2019 and 2018 was $3.8 million and $3.4 million, respectively. Net income for the nine months ended September 30, 2019 was $10.2 million compared to $11.6 million for the nine months ended September 30, 2018. Net income for the nine months ended September 30, 2018 was partially affected by the $1.6 million recovery mentioned in the provision for loan losses discussion below.


•	Earnings per common share were $0.44 and $0.39 for the third quarter of 2019 and 2018, respectively, and $1.16 and $1.32 for the nine months ended September 30, 2019 and 2018, respectively. Total weighted average shares outstanding were 8,807,175 for the third quarter of 2019 and 2018, respectively, and 8,807,175 for the nine months ended September 30, 2019 and 2018, respectively.


•	Net interest income for the third quarter of 2019 was $14.7 million compared to $14.5 million for the same period in 2018. Net interest income for the nine months ended September 30, 2019 was $45.0 million compared to $42.5 million for the nine months ended September 30, 2018.

•

The provision for loan losses for the third quarter of 2019 was $1.7 million compared to $0.4 million for the same period in 2018. The provision for loan losses for the nine months ended September 30, 2019 was $4.1 million compared to $0.6 million for the nine months ended September 30, 2018. First Guaranty received a $3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan on May 9, 2018. The payment resulted in a recovery of $1.6 million. The recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018.

•

Noninterest income for the third quarter of 2019 was $3.2 million compared to $1.2 million for the same period in 2018. Noninterest income for the nine months ended September 30, 2019 was $6.1 million compared to $4.5 million for the nine months ended September 30, 2018. During the third quarter of 2019, First Guaranty sold the guaranteed portion of SBA USDA loans which generated a gain on the sale of loans of $1.4 million.

•

The net interest margin for the three months ended September 30, 2019 was 3.35% which was a decrease of 10 basis points from the net interest margin of 3.45% for the same period in 2018. The net interest margin for the nine months ended September 30, 2019 was 3.37% which was a decrease of three basis points from the net interest margin of 3.40% for the same period in 2018. First Guaranty attributed the decrease in the net interest margin in the third quarter of 2019 to a rise in interest expense associated with interest-bearing deposits, partially offset by the change in balance sheet composition to higher yielding loans from lower yielding securities. Loans as a percentage of average interest earning assets increased to 72.0% at September 30, 2019 compared to 69.3% at September 30, 2018.

•

Investment securities totaled $269.3 million at September 30, 2019, a decrease of $136.0 million when compared to $405.3 million at December 31, 2018. First Guaranty sold investment securities in order to fund loan growth and reduce interest rate risk. During the third quarter of 2019, First Guaranty had $84.8 million in investment securities called due to the fall in interest rates. First Guaranty recognized a gain on sale of securities of $29,000 in the third quarter of 2019 as compared to a loss on sale of securities of $696,000 for the same period in 2018. Losses on the sale of securities for the nine months ended September 30, 2019 were $0.4 million compared to $0.9 million for the nine months ended September 30, 2018. At September 30, 2019, available for sale securities, at fair value, totaled $179.3 million, a decrease of $117.7 million when compared to $297.0 million at December 31, 2018. At September 30, 2019, held to maturity securities, at amortized cost, totaled $90.0 million, a decrease of $18.4 million when compared to $108.3 million at December 31, 2018.


•	The net loan portfolio at September 30, 2019 totaled $1.3 billion, a net increase of $66.2 million from the December 31, 2018 net loan portfolio balance of $1.2 billion. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $12.2 million at September 30, 2019 and $10.8 million at December 31, 2018, respectively.


•	Total impaired loans increased $6.3 million to $15.1 million at September 30, 2019 compared to $8.8 million at December 31, 2018.


•	Nonaccrual loans increased $2.2 million to $10.9 million at September 30, 2019 compared to $8.7 million at December 31, 2018.


•	The allowance for loan losses was 0.95% of loans at September 30, 2019 compared to 0.88% at December 31, 2018. The allowance for loan losses as a percentage of total loans was 0.99% prior to the inclusion of the acquired loans from Premier.

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•

Return on average assets for the three months ended September 30, 2019 and 2018 was 0.84% and 0.78%, respectively. Return on average assets for the nine months ended September 30, 2019 and 2018 was 0.74% and 0.89%, respectively. Return on average common equity for the three months ended September 30, 2019 and 2018 was 9.43% and 9.40%, respectively. Return on average common equity for the nine months ended September 30, 2019 and 2018 was 8.71% and 10.92%, respectively. Return on average assets is calculated by dividing annualized net income by average assets. Return on average common equity is calculated by dividing annualized net income by average common equity.


•	Book value per common share was $18.40 as of September 30, 2019 compared to $16.16 as of September 30, 2018. The increase in book value was due primarily to an increase in accumulated other comprehensive income ("AOCI") and retained earnings. AOCI is comprised of unrealized gains and losses on available for sale securities.


•	First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the third quarter of 2019 and 2018. First Guaranty has paid 105 consecutive quarterly dividends as of September 30, 2019.

•

In November 2017, First Guaranty announced the launch of an At-The-Market Equity Offering program ("ATM Offering"). First Guaranty may sell up to $25.0 million of common stock under the ATM Offering. First Guaranty expects to use the net proceeds of the ATM Offering for general corporate purposes, including support for organic growth and financing possible acquisitions of other financial institutions. First Guaranty has not sold any shares of common stock under the ATM Offering since its inception.


•	First Guaranty currently has two new facilities under construction in order to facilitate future expansion. These construction commitments total $12.9 million at September 30, 2019. Total costs incurred for these two facilities as of September 30, 2019 was $7.6 million.

•

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Financial Condition

Changes in Financial Condition from December 31, 2018 to September 30, 2019

Assets

Total assets at September 30, 2019 were $1.8 billion, a decrease of $12.0 million, or 0.7%, from December 31, 2018. Assets decreased primarily due to decreases in investment securities of $136.0 million, partially offset by an increase in net loans of $66.2 million and cash and cash equivalents of $51.0 million at September 30, 2019 compared to December 31, 2018.

Loans

Net loans increased $66.2 million, or 5.4%, to $1.3 billion at September 30, 2019 from $1.2 billion at December 31, 2018. Construction and land development loans increased $33.3 million principally due to the funding of unfunded commitments on various construction projects. Consumer and other loans increased $23.6 million primarily due to the origination of lease commitments. One-to four-family residential loans increased $15.0 million primarily due to the continued growth in local loan originations. Commercial and industrial loans increased $13.1 million primarily due to new originations. Agricultural loans increased $6.1 million due to seasonal activity. Multifamily loans decreased $20.5 million primarily due to paydowns, primarily associated with one large credit that totaled $26.6 million. Farmland loans decreased $1.9 million primarily due to paydowns on agricultural loan commitments. Non-farm non-residential loan balances decreased $1.1 million primarily due to paydowns on existing commitments. First Guaranty had approximately 4.2% of funded and 1.5% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. First Guaranty had $176.8 million in loans related to our Texas markets at September 30, 2019. Syndicated loans at September 30, 2019 were $59.8 million, of which $23.6 million were shared national credits. Syndicated loans decreased $7.2 million during the first nine months of 2019 from $67.0 million at December 31, 2018 primarily due to payoffs of existing relationships.

As of September 30, 2019, 74.8% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 45.1% as of September 30, 2019, was non-farm non-residential loans secured by real estate. Approximately 39.9% of the loan portfolio was based on a floating rate tied to the prime rate or LIBOR as of September 30, 2019. 73.5% of the loan portfolio is scheduled to mature within five years from September 30, 2019.

First Guaranty acquired in the Premier acquisition a portfolio of loans comprised of loans guaranteed principally by the U.S. Small Business Administration ("SBA") or by the U.S. Department of Agriculture ("USDA") and the unguaranteed portion of SBA and USDA loans for which the guaranteed portion had been sold into the secondary market. First Guaranty has continued to originate SBA and USDA loans and has sold the guaranteed portion of the loans. At September 30, 2019, First Guaranty's balance of SBA and USDA loans was $32.4 million of which $10.4 million retained the government guarantee and $22.0 million was the unguaranteed residual balance. At September 30, 2019, First Guaranty also serviced 51 SBA and USDA loans that totaled $53.3 million. First Guaranty receives servicing fee income on this portfolio.

Net loans are reduced by the allowance for loan losses which totaled $12.2 million at September 30, 2019 and $10.8 million at December 31, 2018. Loan charge-offs were $2.9 million during the first nine months of 2019 and $1.2 million during the same period in 2018. Recoveries totaled $242,000 during the first nine months of 2019 and $2.0 million during the same period in 2018. The provision for loan losses totaled $4.1 million for the first nine months of 2019 and $0.6 million for the same period in 2018. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for more information on the allowance for loan losses.

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Investment Securities

Investment securities at September 30, 2019 totaled $269.3 million, a decrease of $136.0 million compared to $405.3 million at December 31, 2018. The investment portfolio consisted of available for sale securities at fair market value for a total of $179.3 million at September 30, 2019 and held to maturity securities at amortized cost of $90.0 million at September 30, 2019.

Our investment securities portfolio is comprised of both available for sale securities and securities that we intend to hold to maturity. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings. In particular, our held to maturity securities portfolio is used as collateral for our public funds deposits.

The securities portfolio consisted principally of U.S. Government and Government agency securities, agency mortgage-backed securities, corporate debt securities and municipal bonds. U.S. government agencies consist of FHLB, Federal Farm Credit Bank ("FFCB"), Freddie Mac and Fannie Mae obligations. Mortgage backed securities that we purchase are issued by Freddie Mac and Fannie Mae. Management monitors the securities portfolio for both credit and interest rate risk. We generally limit the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. U.S. Government securities consist of U.S. Treasury bills that have maturities of less than 30 days. Government agency securities generally have maturities of 15 years or less. Agency mortgage backed securities have stated final maturities of 15 to 20 years.

Our available for sale securities portfolio totaled $179.3 million at September 30, 2019, a decrease of $117.7 million, or 39.6%, compared to $297.0 million at December 31, 2018. The decrease was primarily due to called bonds and the sale of securities. First Guaranty had $74.7 million in U.S. Government agency securities and $0.1 million of corporate securities called during the third quarter of 2019 due to the fall in interest rates. First Guaranty had security sales of $46.7 million in U.S. Government agency securities, $13.1 million in mortgage-backed securities, $23.1 million in corporate securities and $8.2 million in municipal securities for which the proceeds were used to fund loan growth during the nine months ended September 30, 2019.

Our held to maturity securities portfolio had an amortized cost of $90.0 million at September 30, 2019, a decrease of $18.4 million, or 16.9%, compared to $108.3 million at December 31, 2018. The decrease was primarily due to the call of $10.0 million in U.S. Government agency securities and the continued amortization of our mortgage-backed securities.

At September 30, 2019, $26.4 million, or 9.8%, of the securities portfolio was scheduled to mature in less than one year. $38.3 million, or 14.2%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between one and five years. $69.7 million, or 25.9%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between five and ten years. Securities, not including collateralized mortgage obligations and mortgage-backed securities, with contractual maturity dates over 10 years totaled $19.0 million, or 7.1%, of the total securities portfolio at September 30, 2019. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of September 30, 2019, management believes that the securities portfolio has a forecasted weighted average life of approximately 4.1 years based on the current interest rate environment. A parallel interest rate shock of 400 basis points is forecasted to increase the weighted average life of the portfolio to approximately 5.6 years. The portfolio had an estimated effective duration of 3.1 years at September 30, 2019.

There was no credit related other-than-temporary impairment of securities losses recognized during the nine months ended September 30, 2019 or September 30, 2018.

Nonperforming Assets

Non-performing assets consist of non-performing loans and other real-estate owned. Non-performing loans (including nonaccruing troubled debt restructurings described below) are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the asset is well secured and in the process of collection. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest and a reasonable payment performance period is observed (generally considered six months or longer). Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.

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The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.



(in thousands)	September 30, 2019			December 31, 2018
Nonaccrual loans:
Real Estate:
Construction and land development	$	390		$	311
Farmland	1,337			1,293
1- 4 family	1,975			2,246
Multifamily	—			—
Non-farm non-residential	745			864
Total Real Estate	4,447			4,714
Non-Real Estate:
Agricultural	4,842			3,651
Commercial and industrial	454			317
Consumer and other	1,155			61
Total Non-Real Estate	6,451			4,029
Total nonaccrual loans	10,898			8,743

Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development	—			—
Farmland	—			—
1- 4 family	2			26
Multifamily	—			—
Non-farm non-residential	184			—
Total Real Estate	186			26
Non-Real Estate:
Agricultural	—			—
Commercial and industrial	24			53
Consumer and other	128			66
Total Non-Real Estate	152			119
Total loans 90 days and greater delinquent & accruing	338			145

Total non-performing loans	11,236			8,888

Real Estate Owned:
Real Estate Loans:
Construction and land development	213			241
Farmland	—			—
1- 4 family	117			120
Multifamily	—			—
Non-farm non-residential	3,040			777
Total Real Estate	3,370			1,138
Non-Real Estate Loans:
Agricultural	—			—
Commercial and industrial	—			—
Consumer and other	—			—
Total Non-Real Estate	—			—
Total Real Estate Owned	3,370			1,138

Total non-performing assets	$	14,606		$	10,026

Non-performing assets to total loans	1.13		%	0.82		%
Non-performing assets to total assets	0.81		%	0.55		%
Non-performing loans to total loans	0.87		%	0.73		%

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At September 30, 2019, non-performing assets totaled $14.6 million, or 0.81% of total assets, compared to $10.0 million, or 0.55%, of total assets at December 31, 2018, which represented an increase of $4.6 million, or 45.7%. The increase in non-performing assets occurred primarily as a result of an increase in other real estate owned and nonaccrual loans. Other real estate owned increased from $1.1 million at December 31, 2018 to $3.4 million at September 30, 2019. The increase in other real estate owned was primarily related to a $2.2 million non-farm non-residential property that was charged down to its estimated fair value and transfered to other real estate owned during the second quarter of 2019. This loan was on nonaccrual status as of March 31, 2019 with a balance of $3.1 million and a specific reserve of $0.6 million.

Nonaccrual loans increased from $8.7 million at December 31, 2018 to $10.9 million at September 30, 2019. The increase in nonaccrual loans was concentrated primarily in agricultural loans and consumer and other loans. Nonaccrual loans were concentrated in ten loan relationships that totaled $7.4 million, or 68.2%, of nonaccrual loans at September 30, 2019. Non-performing assets included $5.4 million in loans with a government guarantee, or 37.1% of non-performing assets. These are structured as net loss guarantees in which up to 90% of loss exposure is covered.

At September 30, 2019, loans 90 days or greater delinquent and still accruing totaled $0.3 million, an increase of $0.2 million compared to $0.1 million at December 31, 2018. These loans were comprised of $0.2 million in non-farm non-residential loans, $0.1 million in consumer and other loans, $24,000 in commercial and industrial loans and $2,000 in one- to-four family residential loans at September 30, 2019.

At September 30, 2019, our largest non-performing assets were comprised of the following nonaccrual loans and other real estate owned: (1) a $2.2 million non-farm non-residential property included in other real estate owned; (2) an agricultural/ farmland loan relationship that totaled $1.1 million; (3) a commercial lease relationship that totaled $1.1 million; (4) an agricultural loan relationship that totaled $1.0 million; (5) an agricultural loan relationship that totaled $1.0 million; (6) an agricultural loan relationship that totaled $0.7 million, this loan relationship has been charged down to its estimated fair value; (7) an agricultural loan relationship that totaled $0.7 million; and (8) a $0.6 million non-farm non-residential property included in other real estate owned. The agricultural loans are partially guaranteed by the USDA Farm Service Agency.

Troubled Debt Restructurings

Another category of assets which contribute to our credit risk is troubled debt restructurings ("TDRs"). A TDR is a loan for which a concession has been granted to the borrower due to a deterioration of the borrower's financial condition. Such concessions may include reduction in interest rates, deferral of interest or principal payments, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. We strive to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before such loan reaches nonaccrual status. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. TDRs that are not performing in accordance with their restructured terms and are either contractually 90 days past due or placed on nonaccrual status are reported as non-performing loans. Our policy provides that nonaccrual TDRs are returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six consecutive months of timely payments and demonstrated ability to continue to repay.

The following is a summary of loans restructured as TDRs at September 30, 2019 and December 31, 2018:



(in thousands)	September 30, 2019		December 31, 2018
Restructured Loans:
In Compliance with Modified Terms	$	—	$	1,288
Past Due 30 through 89 days and still accruing	—		—
Past Due 90 days and greater and still accruing	—		—
Nonaccrual	—		304
Restructured Loans that subsequently defaulted	—		—
Total Restructured Loans	$	—	$	1,592

At September 30, 2019, we had no outstanding TDRs. The decline in TDRs occurred due to two credit relationships in the aggregate amount of $1.6 million that had returned to market terms and been in compliance with their modified terms for 12 months.

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Allowance for Loan Losses

The allowance for loan losses is maintained to absorb potential losses in the loan portfolio. The allowance is increased by the provision for loan losses, offset by recoveries of previously charged-off loans and is decreased by loan charge-offs. The provision is a charge to current expense to provide for current loan losses and to maintain the allowance commensurate with management's evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:


•	past due and non-performing assets;


•	specific internal analysis of loans requiring special attention;


•	the current level of regulatory classified and criticized assets and the associated risk factors with each;


•	changes in underwriting standards or lending procedures and policies;


•	charge-off and recovery practices;


•	national and local economic and business conditions;


•	nature and volume of loans;


•	overall portfolio quality;


•	adequacy of loan collateral;


•	quality of loan review system and degree of oversight by our board of directors;


•	competition and legal and regulatory requirements on borrowers;


•	examinations of the loan portfolio by federal and state regulatory agencies and examinations; and


•	review by our internal loan review department and independent accountants.

The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for our syndicated loans, including shared national credits. The general component covers non-classified loans and special mention loans and is based on historical loss experience for the past three years adjusted for qualitative factors described above. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses.

The balance in the allowance for loan losses is principally influenced by the provision for loan losses, recoveries, and by net loan loss experience. Additions to the allowance are charged to the provision for loan losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected.

The allowance for loan losses was $12.2 million, or 0.95% of total loans, and 108.8% of nonperforming loans at September 30, 2019.

Comparing September 30, 2019 to December 31, 2018, there were changes within the specific components of the allowance balance. The increase in the allowance was attributable to an increase in the provision related to impaired loans. The primary changes were an increase in the balance associated with consumer and other loans, non-farm non-residential loans, commercial and industrial loans and farmland loans. In the third quarter of 2019, a $4.1 million loan secured by a hotel was determined to be impaired. An allocation of $1.9 million was made against it during the third quarter of 2019. In the third quarter of 2019, a $1.1 million commercial lease was determined to be impaired. An allocation of $1.1 was made against it during the third quarter of 2019. This increase was partially offset by a decrease in the allowance for multifamily loans, agricultural loans, one-to four-family loans and construction and land development loans. Special mention loans increased by $4.7 million during the first nine months of 2019 primarily due to the downgrade of syndicated loans and the upgrade of one-to four-family loans from substandard status. Substandard loans decreased by $5.2 million during the first nine months of 2019 primarily due to a $3.1 million non-farm non-residential loan that was charged off and transferred to other real estate owned and the upgrade of one-to four-family loans to special mention status. Doubtful loans decreased $0.5 million during the first nine months of 2019, due to the upgrade of a non-farm non-residential loan to substandard status.

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First Guaranty charged off $2.9 million in loan balances during the first nine months of 2019. The charged-off loan balances were concentrated in four loan relationships which totaled $2.0 million or 69.0% of the total charged off amount during the nine months ended September 30, 2019. The details of the $2.9 million in charged off loans were as follows:


1.	First Guaranty charged off $0.2 million on a commercial and industrial loan in the first quarter of 2019. This loan had no remaining principal balance at September 30, 2019.


2.	First Guaranty charged off $0.6 million on a purchased consumer loan pool during the first nine months of 2019. This loan pool had a remaining principal balance of $3.6 million at September 30, 2019.


3.	First Guaranty charged off $0.8 million on a non-farm non-residential loan in the second quarter of 2019. This loan had no remaining principal balance at September 30, 2019. The collateral balance of $2.2 million was transferred to other real estate owned during the second quarter of 2019.


4.	First Guaranty charged off $0.4 million on a one-to four-family residential loan in the second quarter of 2019. This loan had no remaining principal balance at September 30, 2019.


5.	Smaller loans and overdrawn deposit accounts comprised the remaining $0.9 million of charge-offs for the first nine months of 2019.

The provision for loan losses increased to $4.1 million in the first nine months of 2019 from $0.6 million for the same period in 2018. The provision in the first nine months of 2019 was taken to provide for current loan and deposit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $2.9 million for the first nine months of 2019 and $1.2 million for the same period in 2018. Recoveries totaled $0.2 million during the first nine months of 2019 and $2.0 million during the first nine months of 2018 due to one large recovery of $1.6 million. For more information, see Note 5 to Consolidated Financial Statements.

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



(in thousands)	Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Loans:
Average outstanding balance	$	1,286,859		$	1,158,246
Balance at end of period	$	1,292,911		$	1,189,386

Allowance for Loan Losses:
Balance at beginning of year	$	10,776		$	9,225
Charge-offs	(2,936		)	(1,210		)
Recoveries	242			1,994
Provision	4,148			568
Balance at end of period	$	12,230		$	10,577

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Deposits

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December 31, 2018 to September 30, 2019, total deposits decreased $29.2 million, or 1.8%, to $1.6 billion. Noninterest-bearing demand deposits increased $4.4 million, or 1.8% to $248.9 million at September 30, 2019. The increase in noninterest-bearing demand deposits was due to fluctuations in existing customer balances. Interest-bearing demand deposits increased $0.6 million, or 0.1%, to $595.0 million at September 30, 2019. The increase in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits. Savings deposits decreased $1.1 million, or 1.0%, to $108.8 million at September 30, 2019, primarily related to decreases in individual savings deposits. Time deposits decreased $33.1 million, or 4.9%, to $647.7 million at September 30, 2019, primarily due to decreases in public funds deposits.

As we seek to strengthen our net interest margin and improve our earnings, attracting noninterest-bearing or lower cost deposits will be a primary emphasis. Management will continue to evaluate and update our product mix in its efforts to attract additional customers. We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits and other lower cost deposits.

As of September 30, 2019, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $455.8 million. At September 30, 2019, approximately $333.2 million of First Guaranty's certificates of deposit had a remaining term greater than one year.

The following table compares deposit categories for the periods indicated.



Total Deposits	For the Nine Months Ended September 30,						For the Years Ended December 31,
	2019						2018						2017
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	250,523	15.2	%	—	%	$	252,531	16.3	%	—	%	$	244,949	16.7	%	—
Interest-bearing Demand	586,914		35.5	%	1.9	%	556,528		35.9	%	1.5	%	539,399		36.9	%	1.0	%
Savings	111,211		6.7	%	0.5	%	111,134		7.2	%	0.4	%	102,779		7.0	%	0.2	%
Time	704,927		42.6	%	2.4	%	628,457		40.6	%	1.7	%	575,666		39.4	%	1.2	%
Total Deposits	$	1,653,575	100.0	%	1.7	%	$	1,548,650	100.0	%	1.3	%	$	1,462,793	100.0	%	0.9	%



Individual and Business Deposits	For the Nine Months Ended September 30,						For the Years Ended December 31,
	2019						2018						2017
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	244,784	23.9	%	—	%	$	246,550	26.7	%	—		$	240,337	28.0	%	—
Interest-bearing Demand	216,379		21.1	%	1.5	%	204,405		22.1	%	1.1	%	187,439		21.8	%	0.6	%
Savings	82,732		8.1	%	0.1	%	84,844		9.2	%	0.1	%	82,442		9.6	%	0.1	%
Time	480,782		46.9	%	2.6	%	388,623		42.0	%	1.7	%	348,656		40.6	%	1.3	%
Total Individual and Business Deposits	$	1,024,677	100.0	%	1.5	%	$	924,422	100.0	%	1.0	%	$	858,874	100.0	%	0.7	%



Public Funds Deposits	For the Nine Months Ended September 30,						For the Years Ended December 31,
	2019						2018						2017
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	5,739	0.9	%	—	%	$	5,981	1.0	%	—		$	4,612	0.8	%	—
Interest-bearing Demand	370,535		58.9	%	2.1	%	352,123		56.4	%	1.8	%	351,960		58.3	%	1.2	%
Savings	28,479		4.5	%	1.7	%	26,290		4.2	%	1.4	%	20,337		3.4	%	0.8	%
Time	224,145		35.7	%	2.1	%	239,834		38.4	%	1.7	%	227,010		37.5	%	1.1	%
Total Public Funds Deposits	$	628,898	100.0	%	2.0	%	$	624,228	100.0	%	1.7	%	$	603,919	100.0	%	1.2	%

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



(in thousands)	September 30, 2019
Time deposits of less than $100,000	$	191,896
Time deposits of $100,000 through $250,000	203,185
Time deposits of more than $250,000	252,629
Total Time Deposits	$	647,710

The following table sets forth the maturity of the time deposits at September 30, 2019.



(in thousands)	September 30, 2019
Due in one year or less	$	314,556
Due after one year through three years	157,902
Due after three years	175,252
Total Time Deposits	$	647,710

At September 30, 2019, public funds deposits totaled $556.4 million compared to $645.5 million at December 31, 2018. Public funds time deposits totaled $148.4 million at September 30, 2019 compared to $247.0 million at December 31, 2018. Public funds deposits decreased due to seasonal fluctuations and a reduction in the balances associated with one customer. We have developed a program for the retention and management of public funds deposits. Since the end of 2012, we have maintained public funds deposits in excess of $400.0 million. These deposits are from public entities such as school districts, hospital districts, sheriff departments and municipalities. $521.5 million, or 94%, of these accounts at September 30, 2019, are under fiscal agency agreements with terms of three years or less. Deposits under fiscal agency agreements are generally stable but public entities may maintain the ability to negotiate term deposits on a specific basis including with other financial institutions. Three of these relationships account for 40% of public funds deposits that are under fiscal agency agreements. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds will increase at the end of the year and during the first quarter. In addition to seasonal fluctuations, there are monthly fluctuations associated with internal payroll and short-term tax collection accounts for our public funds deposit accounts. Public funds deposit accounts are collateralized by FHLB letters of credit, by expanded reciprocal deposit insurance programs, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac.

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



(in thousands except for %)	September 30, 2019			December 31, 2018			December 31, 2017			December 31, 2016			December 31, 2015
Public Funds:
Noninterest-bearing Demand	$	6,278		$	6,930		$	4,828		$	4,114		$	4,906
Interest-bearing Demand	372,697			364,692			389,788			324,356			296,416
Savings	28,985			26,903			20,539			20,116			14,667
Time	148,406			247,004			225,591			208,330			252,688
Total Public Funds	$	556,366		$	645,529		$	640,746		$	556,916		$	568,677
Total Deposits	$	1,600,411		$	1,629,622		$	1,549,286		$	1,326,181		$	1,295,870
Total Public Funds as a percent of Total Deposits	34.8		%	39.6		%	41.4		%	42.0		%	43.9		%

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Borrowings

First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs. First Guaranty had no short-term borrowings outstanding at September 30, 2019 and at December 31, 2018.

First Guaranty had senior long-term debt totaling $17.6 million as of September 30, 2019 and $19.8 million at December 31, 2018.

First Guaranty also had junior subordinated debentures totaling $14.7 million at September 30, 2019 and at December 31, 2018.

First Guaranty had $358.5 million in Federal Home Loan Bank letters of credit as of September 30, 2019 compared to $344.3 million at December 31, 2018. Federal Home Loan Bank letters of credit are obtained primarily for collateralizing public deposits.

Total Shareholders' Equity

Total shareholders' equity increased to $162.0 million at September 30, 2019 from $147.3 million at December 31, 2018. The increase in shareholders' equity was principally the result of an increase of $8.8 million in accumulated other comprehensive income along with an increase of $6.0 million in retained earnings. The increase in accumulated other comprehensive income was primarily attributed to the decrease in unrealized losses on available for sale securities during the nine months ended September 30, 2019. The $6.0 million increase in retained earnings was due to net income of $10.2 million during the nine months ended September 30, 2019, partially offset by $4.2 million in cash dividends paid on shares of our common stock during the nine months ended September 30, 2019.

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Results of Operations for the Third Quarter and Nine Months Ended September 30, 2019 and 2018

Performance Summary

Three months ended September 30, 2019 compared to the three months ended September 30, 2018. Net income for the three months ended September 30, 2019 was $3.8 million, an increase of $0.5 million, or 13.2%, from $3.4 million for the three months ended September 30, 2018. The increase in net income for the three months ended September 30, 2019 as compared to the prior year period was the result of several factors. First Guaranty experienced an increase in interest income associated with loans and increased noninterest income, partially offset by an increase in the provision for loan losses, increased interest expense and increased noninterest expense. Loan interest income increased due to the continued growth in First Guaranty's loan portfolio and an increase in the average yield on loans. Noninterest income increased primarily as a result of gains on the sale of the guaranteed portion of SBA and USDA loans and an increase in securities gains. Factors that partially offset this income include increased interest expense and noninterest expense. The increase in interest expense was due to the rising interest rate environment and increased competition. Noninterest expense increased primarily due to an increase in salaries and employee benefits. Earnings per common share for the three months ended September 30, 2019 was $0.44 per common share, an increase of 12.8% or $0.05 per common share from $0.39 per common share for the three months ended September 30, 2018. Earnings per share was affected by the increase in earnings.

Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Net income for the nine months ended September 30, 2019 was $10.2 million, a decrease of $1.4 million, or 12.1%, from $11.6 million for the nine months ended September 30, 2018. The decrease in net income for the nine months ended September 30, 2019 as compared to the prior year period was the result of several factors. First Guaranty experienced increased interest expense, an increase in the provision for loan losses and increased noninterest expense, partially offset by increased interest income associated with loans and increased noninterest income. The increase in interest expense was due to the rising interest rate environment and increased competition. Noninterest expense increased primarily due to an increase in salaries and employee benefits. Factors that partially offset these expenses include increased loan interest income and increased noninterest income. Loan interest income increased due to the continued growth in First Guaranty's loan portfolio and an increase in the average yield on loans. Noninterest income increased as a result of gains on the sale of the guaranteed portion of SBA and USDA loans and a decrease in securities losses. First Guaranty implemented a plan in the third quarter of 2018 to shrink the securities portfolio and transition the proceeds of securities sales into the loan portfolio and reduce interest rate risk. First Guaranty has generated securities losses as a result of this plan. Losses on the sale of securities were $0.4 million for the nine months ended September 30, 2019 compared to $0.9 million for the same period in 2018. Earnings per common share for the nine months ended September 30, 2019 was $1.16 per common share, a decrease of 12.1% or $0.16 per common share from $1.32 per common share for the nine months ended September 30, 2018. Earnings per share was affected by the decrease in earnings.

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Net Interest Income

Our operating results depend primarily on our net interest income, which is the difference between interest income earned on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income. First Guaranty’s assets and liabilities are generally most affected by changes in the Federal Funds rate, Libor rate, short term Treasury rates such as one month and three month Treasury bills, and longer term Treasury rates such as the U.S. ten year Treasury rate. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities. There may also be a time lag in the effect of interest rate changes on assets and liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds.

A financial institution's asset and liability structure is substantially different from that of a non-financial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a financial institution's performance. The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest-bearing liabilities. The effects of the rising interest rate environment in recent periods and our interest sensitivity position is discussed below.

Three months ended September 30, 2019 compared to the three months ended September 30, 2018. Net interest income for the three months ended September 30, 2019 and 2018 was $14.7 million and $14.5 million, respectively. The increase in net interest income for the three months ended September 30, 2019 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. Interest rates generally declined during the three months ended September 30, 2019 as compared to a general increase in interest rates during the same period in 2018. For the three months ended September 30, 2019, the average balance of our total interest-earning assets increased by $75.8 million to $1.7 billion, and the average yield of our interest-earning assets increased by 24 basis points to 5.03% from 4.79% for the three months ended September 30, 2018. For the three months ended September 30, 2019, the average balance of our total interest-bearing liabilities increased by $63.8 million to $1.4 billion, and the average rate of our total interest-bearing liabilities increased by 43 basis points to 2.11% from 1.68% for the three months ended September 30, 2018. As a result, our net interest rate spread decreased 19 basis points to 2.92% for the three months ended September 30, 2019 from 3.11% for the three months ended September 30, 2018. Our net interest margin decreased ten basis points to 3.35% for the three months ended September 30, 2019 from 3.45% for the three months ended September 30, 2018.

Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Net interest income for the nine months ended September 30, 2019 and 2018 was $45.0 million and $42.5 million, respectively. The increase in net interest income for the nine months ended September 30, 2019 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets, an increase in the average yield of our total interest-earning assets and $0.6 million in interest income from the settlement of a purchased credit-impaired loan, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. Interest rates generally declined during the nine months ended September 30, 2019 as compared to a general increase in interest rates during the same period in 2018. For the nine months ended September 30, 2019, the average balance of our total interest-earning assets increased by $115.7 million to $1.8 billion, and the average yield of our interest-earning assets increased by 43 basis points to 5.05% from 4.62% for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, the average balance of our total interest-bearing liabilities increased by $104.2 million to $1.4 billion, and the average rate of our total interest-bearing liabilities increased by 57 basis points to 2.09% from 1.52% for the nine months ended September 30, 2018. As a result, our net interest rate spread decreased 14 basis points to 2.96% for the nine months ended September 30, 2019 from 3.10% for the nine months ended September 30, 2018. Our net interest margin decreased three basis points to 3.37% for the nine months ended September 30, 2019 from 3.40% for the nine months ended September 30, 2018.

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Interest Income

Three months ended September 30, 2019 compared to the three months ended September 30, 2018. Interest income increased $2.0 million, or 9.9%, to $22.1 million for the three months ended September 30, 2019 as compared to the prior year period. First Guaranty continues to transition assets from lower yielding securities and interest-bearing bank balances to higher yielding loans in order to increase interest income. The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets along with an increase in the average yield of interest-earning assets. The average balance of our interest-earning assets increased $75.8 million to $1.7 billion for the three months ended September 30, 2019 as compared to the prior year period. The average yield of interest-earning assets increased by 24 basis points to 5.03% for the three months ended September 30, 2019 compared to 4.79% for the three months ended September 30, 2018.

Interest income on securities decreased $1.1 million to $2.0 million for the three months ended September 30, 2019 as compared to the prior year period primarily as a result of a decrease in the average balance of securities. The average balance of securities decreased $162.8 million to $284.6 million for the three months ended September 30, 2019 from $447.3 million for the three months ended September 30, 2018 due to a decrease in the average balance of our agency, mortgage-backed, corporate and municipal securities as a result of securities sales, calls and maturities. The average yield on securities remained stable at 2.73% for the three months ended September 30, 2019 and 2018, respectively.

Interest income on loans increased $2.4 million, or 14.2%, to $19.3 million for the three months ended September 30, 2019 as compared to the prior year period as a result of an increase in the average balance of loans along with an increase in the average yield on loans. The average balance of loans (excluding loans held for sale) increased by $113.2 million to $1.3 billion for the three months ended September 30, 2019 from $1.2 billion for the three months ended September 30, 2018 as a result of new loan originations and acquired loans. The average yield on loans (excluding loans held for sale) increased by 25 basis points to 5.93% for the three months ended September 30, 2019 from 5.68% for the three months ended September 30, 2018 as a result of the rising interest rate environment.

Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Interest income increased $9.8 million, or 17.0%, to $67.5 million for the nine months ended September 30, 2019 as compared to the prior year period. First Guaranty continues to transition assets from lower yielding securities and interest-bearing bank balances to higher yielding loans in order to increase interest income. The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets along with an increase in the average yield of interest-earning assets. The average balance of our interest-earning assets increased $115.7 million to $1.8 billion for the nine months ended September 30, 2019 as compared to the prior year period. The average yield of interest-earning assets increased by 43 basis points to 5.05% for the nine months ended September 30, 2019 compared to 4.62% for the nine months ended September 30, 2018.

Interest income on securities decreased $2.4 million to $7.4 million for the nine months ended September 30, 2019 as compared to the prior year period primarily as a result of a decrease in the average balance of securities. The average balance of securities decreased $131.9 million to $349.0 million for the nine months ended September 30, 2019 from $480.9 million for the nine months ended September 30, 2018 due to a decrease in the average balance of our agency, mortgage-backed, corporate and municipal securities as a result of securities sales, calls and maturities. The average yield on securities increased by 11 basis points to 2.83% for the nine months ended September 30, 2019 from 2.72% for the nine months ended September 30, 2018 due to the sale of lower yielding securities.

Interest income on loans increased $10.0 million, or 21.0%, to $57.7 million for the nine months ended September 30, 2019 as compared to the prior year period as a result of an increase in the average balance of loans along with an increase in the average yield on loans. Included in interest income on loans was a $0.6 million settlement on a purchased credit-impaired loan that was received during the second quarter of 2019. The average balance of loans (excluding loans held for sale) increased by $128.6 million to $1.3 billion for the nine months ended September 30, 2019 from $1.2 billion for the nine months ended September 30, 2018 as a result of new loan originations and acquired loans. The average yield on loans (excluding loans held for sale) increased by 50 basis points to 5.99% for the nine months ended September 30, 2019 from 5.49% for the nine months ended September 30, 2018 as a result of the rising interest rate environment.

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Interest Expense

Three months ended September 30, 2019 compared to the three months ended September 30, 2018. Interest expense increased $1.8 million, or 31.4%, to $7.4 million for the three months ended September 30, 2019 from $5.6 million for the three months ended September 30, 2018 due primarily to an increase in the average rate paid on interest-bearing deposits along with an increase in the average balance of interest-bearing deposits. The average balance of interest-bearing deposits increased by $68.7 million during the three months ended September 30, 2019 to $1.4 billion as compared to the prior year period as a result of a $43.3 million increase in the average balance of time deposits and a $26.6 million increase in the average balance of interest-bearing demand deposits, offset by a $1.2 million decrease in the average balance of savings deposits. The average rate of interest-bearing demand deposits increased by 17 basis points during the three months ended September 30, 2019 to 1.77% as compared to the prior year period. The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates which have increased over the last year. The average rate of time deposits increased 72 basis points during the three months ended September 30, 2019 to 2.53% as compared to the prior year period. The increase in the average rate and average balance of time deposits was due to changes in market rates and the initiation of a deposit campaign by First Guaranty in order to fund future loan growth and diversify the deposit portfolio. First Guaranty initiated a deposit campaign in 2018 to grow time deposits generally with terms greater than two years. This strategy is designed to fund loan growth and increase long term funding for the Bank.

Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Interest expense increased $7.3 million, or 48.4%, to $22.5 million for the nine months ended September 30, 2019 from $15.2 million for the nine months ended September 30, 2018 due primarily to an increase in the average rate paid on interest-bearing deposits along with an increase in the average balance of interest-bearing deposits. The average balance of interest-bearing deposits increased by $110.7 million during the nine months ended September 30, 2019 to $1.4 billion as compared to the prior year period as a result of a $93.1 million increase in the average balance of time deposits, a $17.3 million increase in the average balance of interest-bearing demand deposits and a $0.3 million increase in the average balance of savings deposits. The average rate of interest-bearing demand deposits increased by 39 basis points during the nine months ended September 30, 2019 to 1.86% as compared to the prior year period. The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates which have increased over the last year. The average rate of time deposits increased 82 basis points during the nine months ended September 30, 2019 to 2.41% as compared to the prior year period. The increase in the average rate and average balance of time deposits was due to changes in market rates and the initiation of a deposit campaign by First Guaranty in order to fund future loan growth and diversify the deposit portfolio. First Guaranty initiated a deposit campaign in 2018 to grow time deposits generally with terms greater than two years. This strategy is designed to fund loan growth and increase long term funding for the Bank.

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The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

The net interest income yield shown below in the average balance sheet is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities.



	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
(in thousands except for %)	Average Balance		Interest		Yield/Rate (6)		Average Balance		Interest		Yield/Rate (6)
Assets
Interest-earning assets:
Interest-earning deposits with banks(1)	$	167,568	$	872	2.06	%	$	41,749	$	158	1.50	%
Securities (including FHLB stock)	284,575		1,959		2.73	%	447,348		3,083		2.73	%
Federal funds sold	480		—		—	%	134		—		—	%
Loans held for sale	8		—		—	%	826		12		5.77	%
Loans, net of unearned income	1,289,851		19,263		5.93	%	1,176,670		16,855		5.68	%
Total interest-earning assets	1,742,482		$	22,094	5.03	%	1,666,727		$	20,108	4.79	%

Noninterest-earning assets:
Cash and due from banks	8,439						9,968
Premises and equipment, net	44,598						38,294
Other assets	14,585						13,751
Total Assets	$	1,810,104					$	1,728,740

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	561,720	$	2,504	1.77	%	$	535,123	$	2,155	1.60	%
Savings deposits	110,927		127		0.45	%	112,113		107		0.38	%
Time deposits	682,872		4,358		2.53	%	639,613		2,916		1.81	%
Borrowings	33,413		392		4.65	%	38,268		439		4.55	%
Total interest-bearing liabilities	1,388,932		$	7,381	2.11	%	1,325,117		$	5,617	1.68	%

Noninterest-bearing liabilities:
Demand deposits	250,382						254,405
Other	8,942						5,875
Total Liabilities	1,648,256						1,585,397

Shareholders' equity	161,848						143,343
Total Liabilities and Shareholders' Equity	$	1,810,104					$	1,728,740
Net interest income			$	14,713					$	14,491

Net interest rate spread (2)					2.92	%					3.11	%
Net interest-earning assets (3)	$	353,550					$	341,610
Net interest margin (4), (5)					3.35	%					3.45	%

Average interest-earning assets to interest-bearing liabilities					125.45	%					125.78	%


(1)	Includes Federal Reserve balances reporting in cash and due from banks on the consolidated balance sheets.


(2)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.


(3)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.


(4)	Net interest margin represents net interest income divided by average total interest-earning assets.


(5)	The tax adjusted net interest margin was 3.36% and 3.46% for the above periods ended September 30, 2019 and 2018, respectively. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended September 30, 2019 and 2018, respectively.


(6)	Annualized.

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	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
(in thousands except for %)	Average Balance		Interest		Yield/Rate (6)		Average Balance		Interest		Yield/Rate (6)
Assets
Interest-earning assets:
Interest-earning deposits with banks(1)	$	150,174	$	2,461	2.19	%	$	30,004	$	274	1.22	%
Securities (including FHLB stock)	349,039		7,381		2.83	%	480,899		9,766		2.72	%
Federal funds sold	468		1		0.25	%	586		1		0.23	%
Loans held for sale	416		24		7.71	%	1,510		69		6.11	%
Loans, net of unearned income	1,286,859		57,641		5.99	%	1,158,246		47,581		5.49	%
Total interest-earning assets	1,786,956		$	67,508	5.05	%	1,671,245		$	57,691	4.62	%

Noninterest-earning assets:
Cash and due from banks	8,818						10,185
Premises and equipment, net	42,743						38,221
Other assets	13,664						13,795
Total Assets	$	1,852,181					$	1,733,446

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	586,914	$	8,146	1.86	%	$	569,605	$	6,273	1.47	%
Savings deposits	111,211		407		0.49	%	110,933		281		0.34	%
Time deposits	704,927		12,721		2.41	%	611,792		7,291		1.59	%
Borrowings	33,902		1,226		4.83	%	40,377		1,316		4.36	%
Total interest-bearing liabilities	1,436,954		$	22,500	2.09	%	1,332,707		$	15,161	1.52	%

Noninterest-bearing liabilities:
Demand deposits	250,523						253,372
Other	8,237						5,366
Total Liabilities	1,695,714						1,591,445

Shareholders' equity	156,467						142,001
Total Liabilities and Shareholders' Equity	$	1,852,181					$	1,733,446
Net interest income			$	45,008					$	42,530

Net interest rate spread (2)					2.96	%					3.10	%
Net interest-earning assets (3)	$	350,002					$	338,538
Net interest margin (4), (5)					3.37	%					3.40	%

Average interest-earning assets to interest-bearing liabilities					124.36	%					125.40	%


(1)	Includes Federal Reserve balances reporting in cash and due from banks on the consolidated balance sheets.


(2)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.


(3)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.


(4)	Net interest margin represents net interest income divided by average total interest-earning assets.


(5)	The tax adjusted net interest margin was 3.38% and 3.42%for the above periods ended September 30, 2019 and 2018, respectively. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended September 30, 2019 and 2018, respectively.


(6)	Annualized.

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Provision for Loan Losses

A provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loan losses. The provision is based on management's regular evaluation of current economic conditions in our specific markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values securing loans, and other factors which deserve recognition in estimating loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.

For the three months ended September 30, 2019, the provision for loan losses was $1.7 million compared to $0.4 million for the same period in 2018. The allowance for loan losses at September 30, 2019 was $12.2 million and was 0.95% of total loans. The increase in the provision was partially attributed to additional provisions on loans evaluated individually for impairment. The provision was also attributable to the increase in the loan portfolio and charge-offs not previously provided for. Total charge-offs were $0.5 million for the three months ended September 30, 2019 and $0.7 million for the same period in 2018. The allowance for loan losses as a percentage of total loans was 0.99% prior to the inclusion of the acquired loans from Premier.

We recorded a $4.1 million provision for loan losses for the nine months ended September 30, 2019 compared to $0.6 million for the same period in 2018. The increase in the provision was partially attributed to additional provisions on loans evaluated individually for impairment. First Guaranty also received a $3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan on May 9, 2018. The payment resulted in a recovery of $1.6 million. The recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018. The provision was also attributable to the increase in the loan portfolio and charge-offs not previously provided for. Total charge-offs were $2.9 million for the first nine months of 2019 and $1.2 million for the same period in 2018.

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

Noninterest Income

Our primary sources of recurring noninterest income are customer service fees, ATM and debit card fees, loan fees, gains on the sales of loans and available for sale securities and other service fees. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.

Noninterest income totaled $3.2 million for the three months ended September 30, 2019, an increase of $2.0 million from $1.2 million for the three months ended September 30, 2018. The increase was primarily due to increased gains on the sale of the guaranteed portion of SBA and USDA loans along with increased gains on the sale of securities. Service charges, commissions and fees totaled $0.7 million for the three months ended September 30, 2019 and $0.8 million for the same period in 2018. ATM and debit card fees totaled $0.6 million for the three months ended September 30, 2019 and $0.5 million for the same period in 2018. Net securities gains were $29,000 for the three months ended September 30, 2019 as compared to losses of $0.7 million for the same period in 2018. The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth. Net gains on the sale of loans were $1.3 million for the three months ended September 30, 2019 and $45,000 for the same period in 2018. Other noninterest income totaled $0.6 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively.

Noninterest income totaled $6.1 million for the nine months ended September 30, 2019, an increase of $1.6 million from $4.5 million for the nine months ended September 30, 2018. The increase was primarily due to increased gains on the sale of the guaranteed portion of SBA and USDA loans along with lower losses on the sale of securities. Service charges, commissions and fees totaled $1.9 million for the nine months ended September 30, 2019 and $2.3 million for the same period in 2018. ATM and debit card fees totaled $1.7 million for the nine months ended September 30, 2019 and $1.6 million for the same period in 2018. Net securities losses were $0.4 million for the nine months ended September 30, 2019 as compared to $0.9 million for the same period in 2018. The losses on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth. Net gains on the sale of loans were $1.4 million for the nine months ended September 30, 2019 and $176,000 for the same period in 2018. Other noninterest income totaled $1.5 million and $1.4 million for the nine months ended September 30, 2019 and 2018, respectively.

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Noninterest Expense

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $11.3 million for the three months ended September 30, 2019 and $11.2 million for the three months ended September 30, 2018. Salaries and benefits expense totaled $6.0 million for the three months ended September 30, 2019 and $5.8 million for the three months ended September 30, 2018. The increase was primarily due to new hires. Occupancy and equipment expense totaled $1.4 million for the three months ended September 30, 2019 and 2018, respectively. Other noninterest expense totaled $3.9 million for the three months ended September 30, 2019 and $4.0 million for the three months ended September 30, 2018. The decrease in other noninterest expense was primarily associated with the decrease in regulatory assessments. During the third quarter of 2019, First Guaranty received an adjustment in FDIC assessments due an adjustment to the FDIC deposit insurance balances.

Noninterest expense totaled $34.1 million for the nine months ended September 30, 2019 and $32.0 million for the nine months ended September 30, 2018. Salaries and benefits expense totaled $18.1 million for the nine months ended September 30, 2019 and $17.0 million for the nine months ended September 30, 2018. The increase was primarily due to new hires. Occupancy and equipment expense totaled $4.4 million for the nine months ended September 30, 2019 and $4.1 million for the same period of 2018. Other noninterest expense totaled $11.6 million for the nine months ended September 30, 2019 and $11.0 million for the nine months ended September 30, 2018.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Other noninterest expense:
Legal and professional fees	$	745	$	724	$	1,779	$	1,767
Data processing	409		457		1,218		1,250
ATM fees	300		314		908		919
Marketing and public relations	364		295		1,096		968
Taxes - sales, capital, and franchise	314		247		891		734
Operating supplies	154		115		455		404
Software expense and amortization	321		270		920		811
Travel and lodging	223		261		661		755
Telephone	49		61		141		163
Amortization of core deposit intangibles	90		136		270		409
Donations	136		166		497		356
Net costs from other real estate and repossessions	103		85		303		123
Regulatory assessment	38		266		574		666
Other	629		625		1,869		1,628
Total other noninterest expense	$	3,875	$	4,022	$	11,582	$	10,953

Income Taxes

The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses and the statutory tax rate. The provision for income taxes for the three months ended September 30, 2019 and 2018 was $1.0 million and $0.8 million, respectively. The provision for income taxes increased due to an increase in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the three months ended September 30, 2019 and 2018, respectively.

The provision for income taxes for the nine months ended September 30, 2019 and 2018 was $2.7 million and $2.9 million, respectively. The provision for income taxes decreased due to a decrease in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the nine months ended September 30, 2019 and 2018, respectively.

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Liquidity and Capital Resources

Liquidity

Liquidity refers to the ability or flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available to meet customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Liquid assets include cash and due from banks, interest-earning demand deposits with banks, federal funds sold and available for sale investment securities.

First Guaranty's cash and cash equivalents totaled $179.0 million at September 30, 2019 compared to $128.0 million at December 31, 2018. Loans maturing within one year or less at September 30, 2019 totaled $239.7 million. At September 30, 2019, time deposits maturing within one year or less totaled $314.6 million compared to $417.0 million at December 31, 2018. Time deposits maturing after one year through three years totaled $157.9 million at September 30, 2019 compared to $134.9 million at December 31, 2018. Time deposits maturing after three years totaled $175.3 million at September 30, 2019 compared to $128.9 million at December 31, 2018. First Guaranty's held to maturity ("HTM") portfolio at September 30, 2019 was $90.0 million or 33.4% of the investment portfolio compared to $108.3 million or 26.7% at December 31, 2018. The securities in the HTM portfolio are used to collateralize public funds deposits and may also be used to secure borrowings with the Federal Home Loan Bank or Federal Reserve Bank. The agency securities in the HTM portfolio have maturities of 10 years or less. The mortgage-backed securities have stated final maturities of 15 to 20 years at September 30, 2019. The municipal securities in the HTM portfolio have maturities of 20 years or less. The HTM portfolio had a forecasted weighted average life of approximately 4.28 years based on current interest rates. Management regularly monitors the size and composition of the HTM portfolio to evaluate its effect on First Guaranty's liquidity. First Guaranty's available for sale ("AFS") portfolio was $179.3 million or 66.6% of the investment portfolio as of September 30, 2019. The majority of the AFS portfolio was comprised of U.S. Government Agencies, municipal bonds and investment grade corporate bonds. Management believes these securities are readily marketable and enhance First Guaranty's liquidity.

First Guaranty maintained a net borrowing capacity at the Federal Home Loan Bank totaling $134.4 million and $108.6 million at September 30, 2019 and December 31, 2018, respectively with no FHLB advances outstanding at September 30, 2019 and December 31, 2018, respectively. The change in borrowing capacity with the Federal Home Loan Bank was due to changes in the value that First Guaranty receives on pledged collateral and due to First Guaranty's usage of the line. First Guaranty also has a discount window line with the Federal Reserve Bank. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $100.5 million and a revolving line of credit for $6.5 million secured by a pledge of the Bank's common stock, with no outstanding balance at September 30, 2019. Management believes there is sufficient liquidity to satisfy current operating needs.

Capital Resources

First Guaranty's capital position is reflected in shareholders' equity, subject to certain adjustments for regulatory purposes. Further, our capital base allows us to take advantage of business opportunities while maintaining the level of resources we deem appropriate to address business risks inherent in daily operations.

Total shareholders' equity increased to $162.0 million at September 30, 2019 from $147.3 million at December 31, 2018. The increase in shareholders' equity was principally the result of an increase of $8.8 million in accumulated other comprehensive income along with an increase of $6.0 million in retained earnings. The increase in accumulated other comprehensive income was primarily attributed to the decrease in unrealized losses on available for sale securities during the nine months ended September 30, 2019. The $6.0 million increase in retained earnings was due to net income of $10.2 million during the nine month period ended September 30, 2019, partially offset by $4.2 million in cash dividends paid on our common stock during the nine months ended September 30, 2019.

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Regulatory Capital

Risk-based capital regulations adopted by the FDIC require banks to achieve and maintain specified ratios of capital to risk-weighted assets. Similar capital regulations apply to bank holding companies over $3.0 billion in assets. The risk-based capital rules are designed to measure "Tier 1" capital (consisting of common equity, retained earnings and a limited amount of qualifying perpetual preferred stock and trust preferred securities, net of goodwill and other intangible assets and accumulated other comprehensive income) and total capital in relation to the credit risk of both on- and off- balance sheet items. Under the guidelines, one of its risk weights is applied to the different on-balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting. Applicable bank holding companies and all banks must maintain a minimum total capital to total risk weighted assets ratio of 8.00%, at least half of which must be in the form of core or Tier 1 capital. These guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels.

In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of September 30, 2019, the Bank's capital conservation buffer was 4.75% exceeding the minimum of 2.50% for 2019.

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

In addition, as a result of the legislation, the federal banking agencies have developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the new Community Bank Leverage Ratio at 9%. A financial institution can elect to be subject to this new definition. The new rule takes effect on January 1, 2020.

At September 30, 2019, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.



	"Well Capitalized Minimums"		As of September 30, 2019		As of December 31, 2018
Bank:
Tier 1 Leverage Ratio	5.00	%	9.66	%	9.79	%
Tier 1 Risk-based Capital Ratio	8.00	%	11.91	%	12.20	%
Total Risk-based Capital Ratio	10.00	%	12.75	%	12.97	%
Common Equity Tier One Capital Ratio	6.50	%	11.91	%	12.20	%

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management and Market Risk

Our asset/liability management (ALM) process consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of ALM is to maximize net interest income while operating within acceptable limits established for interest rate risk and to maintain adequate levels of liquidity.

The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk, which is inherent in our lending and deposit-taking activities. Our assets, consisting primarily of loans secured by real estate and fixed rate securities in our investment portfolio, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. The board of directors of First Guaranty Bank has established two committees, the management asset liability committee and the board investment committee, to oversee the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The management asset liability committee is comprised of senior officers of the Bank and meets as needed to review our asset liability policies and interest rate risk position. The board ALCO investment committee is comprised of certain members of the board of directors of the Bank and meets monthly. The management asset liability committee provides a monthly report to the board ALCO investment committee.

The need for interest sensitivity gap management is most critical in times of rapid changes in overall interest rates. We generally seek to limit our exposure to interest rate fluctuations by maintaining a relatively balanced mix of rate sensitive assets and liabilities on a one-year time horizon and greater than one-year time horizon. Because of the significant impact on net interest margin from mismatches in repricing opportunities, we monitor the asset-liability mix periodically depending upon the management asset liability committee's assessment of current business conditions and the interest rate outlook. We maintain exposure to interest rate fluctuations within prudent levels using varying investment strategies. These strategies include, but are not limited to, frequent internal modeling of asset and liability values and behavior due to changes in interest rates. We monitor cash flow forecasts closely and evaluate the impact of both prepayments and extension risk.

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The following interest sensitivity analysis is one measurement of interest rate risk. This analysis reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments or interest rate floors on loans which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at September 30, 2019 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to repricing in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on our various asset and liability categories do not respond uniformly to changing market conditions. Interest rate risk is the degree to which interest rate fluctuations in the marketplace can affect net interest income.



	September 30, 2019
	Interest Sensitivity Within
(in thousands except for %)	3 Months Or Less			Over 3 Months thru 12 Months			Total One Year			Over One Year		Total
Earning Assets:
Loans (including loans held for sale)	$	447,490		$	120,950		$	568,440		$	724,471	$	1,292,911
Securities (including FHLB stock)	21,192			7,668			28,860			242,844		271,704
Federal Funds Sold	781			—			781			—		781
Other earning assets	169,112			—			169,112			—		169,112
Total earning assets	$	638,575		$	128,618		$	767,193		$	967,315	$	1,734,508

Source of Funds:
Interest-bearing accounts:
Demand deposits	$	594,968		$	—		$	594,968		$	—	$	594,968
Savings deposits	108,826			—			108,826			—		108,826
Time deposits	153,498			161,058			314,556			333,154		647,710
Short-term borrowings	—			—			—			—		—
Senior long-term debt	17,638			—			17,638			—		17,638
Junior subordinated debt	—			—			—			14,728		14,728
Noninterest-bearing, net	—			—			—			350,638		350,638
Total source of funds	$	874,930		$	161,058		$	1,035,988		$	698,520	$	1,734,508

Period gap	$	(236,355	)	$	(32,440	)	$	(268,795	)	$	268,795
Cumulative gap	$	(236,355	)	$	(268,795	)	$	(268,795	)	$	—

Cumulative gap as a percent of earning assets	(13.6		)%	(15.5		)%	(15.5		)%

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Net interest income at risk measures the risk of a decline in earnings due to changes in interest rates. The first table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in the yield curve over a 12-month horizon at September 30, 2019. Shifts are measured in 100 basis point increments (+400 through -100 basis points) from base case. We do not present shifts less than 100 basis points because of the current low interest rate environment. The base case scenario encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous shocks are performed against that yield curve. The second table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from a gradual shift in the yield curve over a 12 month horizon.



Instantaneous Changes in Interest Rates (In Basis Points)		Percent Change In Net Interest Income
400		6.02%
300		4.55%
200		3.07%
100		1.67%
Base		—%
(100)		(3.19)%



Gradual Change in Interest Rates (In Basis Points)		Percent Change In Net Interest Income
400		1.91%
300		1.51%
200		1.02%
100		0.65%
Base		—%
(100)		(1.69)%

These scenarios above are both instantaneous shocks and gradual interest rate ramps that assume balance sheet management will mirror the base case. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring exposure to interest rate risk.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

At September 30, 2019, First Guaranty is subject to various legal proceedings in the normal course of business and otherwise. It is our belief that the ultimate resolution of such claims will not have a material adverse effect on First Guaranty's financial position or results of operations.

Item 1A. Risk Factors

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

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Item 6. Exhibits

The following exhibits are either filed as part of this report or are incorporated herein by reference.



Exhibit Number	Exhibit
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.
101.LAB	XBRL Taxonomy Extension Label Linkbase.
101.INS	XBRL Instance Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, First Guaranty has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST GUARANTY BANCSHARES, INC.



Date: November 12, 2019		By: /s/ Alton B. Lewis
		Alton B. Lewis
		Principal Executive Officer

Date: November 12, 2019		By: /s/ Eric J. Dosch
		Eric J. Dosch
		Principal Financial Officer
		Secretary and Treasurer

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First Guaranty Bancshares - 10-Q quarterly report FY2019 Q3

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