fgbi-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from __________ to __________

Commission File Number: 001-37621

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


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

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

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

FGBI

The Nasdaq Stock Market LLC

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

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

Smaller reporting company ☒

Emerging growth company ☒

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

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

Yes ☐ No ☒

As of November 6, 2020 the registrant had 9,741,253 shares of $1 par value common stock outstanding.

Table of Contents


		Page
Part I.	Financial Information	4

Item 1.	Financial Statements (unaudited)	4

	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	4

	Consolidated Statements of Income for the three and nine months ended Sep t ember 30, 2020 and 2019	5

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Shareholders' Equity for the nine months ended September 30, 2020 and 2019	7

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	56

Part II.	Other Information	57

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 6.	Exhibits	58

Signatures		59

-3-

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)


(in thousands, except share data)	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents:
Cash and due from banks	$	191,533	$	66,511
Federal funds sold	773		914
Cash and cash equivalents	192,306		67,425

Investment securities:
Available for sale, at fair value	416,319		339,937
Held to maturity, at cost (estimated fair value of $0 and $86,817 respectively)	—		86,579
Investment securities	416,319		426,516

Federal Home Loan Bank stock, at cost	3,336		3,308
Loans held for sale	235		—

Loans, net of unearned income	1,788,716		1,525,490
Less: allowance for loan losses	14,588		10,929
Net loans	1,774,128		1,514,561

Premises and equipment, net	58,611		56,464
Goodwill	12,901		12,942
Intangible assets, net	6,819		7,166
Other real estate, net	3,341		4,879
Accrued interest receivable	16,287		8,412
Other assets	28,225		15,543
Total Assets	$	2,512,508	$	2,117,216

Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	467,615	$	325,888
Interest-bearing demand	807,946		635,942
Savings	176,525		135,156
Time	741,158		756,027
Total deposits	2,193,244		1,853,013

Short-term advances from Federal Home Loan Bank	50,000		13,079
Repurchase agreements	6,895		6,840
Accrued interest payable	5,358		6,047
Long-term advances from Federal Home Loan Bank	3,404		3,533
Senior long-term debt	43,926		48,558
Junior subordinated debentures	14,767		14,737
Other liabilities	10,103		5,374
Total Liabilities	2,327,697		1,951,181

Shareholders' Equity
Common stock:
$1 par value - authorized 100,600,000 shares; issued 9,741,253 shares	9,741		9,741
Surplus	110,836		110,836
Retained earnings	52,798		43,283
Accumulated other comprehensive income	11,436		2,175
Total Shareholders' Equity	184,811		166,035
Total Liabilities and Shareholders' Equity	$	2,512,508	$	2,117,216

See Notes to Consolidated Financial Statements

-4-

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)	2020		2019		2020		2019
Interest Income:
Loans (including fees)	$	22,519	$	19,263	$	67,420	$	57,665
Deposits with other banks	51		872		348		2,461
Securities (including FHLB stock)	2,605		1,959		8,162		7,381
Federal funds sold	—		—		—		1
Total Interest Income	25,175		22,094		75,930		67,508

Interest Expense:
Demand deposits	1,291		2,504		4,645		8,146
Savings deposits	62		127		210		407
Time deposits	4,139		4,358		13,137		12,721
Borrowings	644		392		2,136		1,226
Total Interest Expense	6,136		7,381		20,128		22,500

Net Interest Income	19,039		14,713		55,802		45,008
Less: Provision for loan losses	1,545		1,727		4,626		4,148
Net Interest Income after Provision for Loan Losses	17,494		12,986		51,176		40,860

Noninterest Income:
Service charges, commissions and fees	652		707		1,852		1,928
ATM and debit card fees	818		579		2,233		1,686
Net gains (losses) on securities	789		29		2,631		(387)
Net gains on sale of loans	679		1,307		974		1,371
Other	612		557		1,612		1,528
Total Noninterest Income	3,550		3,179		9,302		6,126

Noninterest Expense:
Salaries and employee benefits	7,254		6,012		22,189		18,120
Occupancy and equipment expense	1,922		1,423		5,616		4,438
Other	5,342		3,875		14,806		11,582
Total Noninterest Expense	14,518		11,310		42,611		34,140

Income Before Income Taxes	6,526		4,855		17,867		12,846
Less: Provision for income taxes	1,344		1,008		3,676		2,654
Net Income	$	5,182	$	3,847	$	14,191	$	10,192

Per Common Share: (1)
Earnings	$	0.53	$	0.40	$	1.46	$	1.05
Cash dividends paid	$	0.16	$	0.15	$	0.48	$	0.44

Weighted Average Common Shares Outstanding	9,741,253		9,687,123		9,741,253		9,687,123

See Notes to Consolidated Financial Statements

(1) All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 16, 2019 to shareholders of record as of December 9, 2019.

-5-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Net Income	$	5,182	$	3,847	$	14,191	$	10,192
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during the period	2,336		621		14,254		10,746
Reclassification adjustments for (gains) losses included in net income	(789)		(29)		(2,631)		387
Reclassification of OTTI losses included in net income	50		—		100		—
Change in unrealized gains on securities	1,597		592		11,723		11,133
Tax impact	(335)		(124)		(2,462)		(2,338)
Other comprehensive income	1,262		468		9,261		8,795
Comprehensive Income	$	6,444	$	4,315	$	23,452	$	18,987

See Notes to Consolidated Financial Statements

-6-

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, 2018 (1)	$	9,687	$	109,788	$	34,947	$	(7,138)	$	147,284
Net income	—		—		10,192		—		10,192
Other comprehensive income	—		—		—		8,795		8,795
Cash dividends on common stock ($0.44 per share)(1)	—		—		(4,227)		—		(4,227)
Balance September 30, 2019 (unaudited)	$	9,687	$	109,788	$	40,912	$	1,657	$	162,044

Balance December 31, 2019	$	9,741	$	110,836	$	43,283	$	2,175	$	166,035
Net income	—		—		14,191		—		14,191
Other comprehensive income	—		—		—		9,261		9,261
Cash dividends on common stock ($0.48 per share)	—		—		(4,676)		—		(4,676)
Balance September 30, 2020 (unaudited)	$	9,741	$	110,836	$	52,798	$	11,436	$	184,811

See Notes to Consolidated Financial Statements

(1) All share and per share amounts have been restated to reflect the ten percent stock dividend paid December 16, 2019 to shareholders of record as of December 9, 2019.

-7-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended September 30,
(in thousands)	2020		2019
Cash Flows From Operating Activities
Net income	$	14,191	$	10,192
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,626		4,148
Depreciation and amortization	2,512		2,218
Amortization/Accretion of investments	2,245		873
(Gain) loss on sale/call of securities	(2,631)		387
Other Than Temporary Impairment Charge on Securities	100		—
(Gain) loss on sale of assets	(966)		(1,305)
Repossessed asset write downs, gains and losses on dispositions	869		105
FHLB stock dividends	(28)		(44)
Net (increase) decrease in loans held for sale	(235)		344
Change in other assets and liabilities, net	(6,365)		4,433
Net Cash Provided By Operating Activities	14,318		21,351

Cash Flows From Investing Activities
Proceeds from maturities, calls and sales of HTM securities	34,022		17,946
Proceeds from maturities, calls and sales of AFS securities	577,801		244,411
Funds Invested in AFS securities	(589,619)		(116,443)
Net increase in loans	(276,143)		(73,041)
Purchase of premises and equipment	(4,272)		(7,947)
Proceeds from sales of premises and equipment	80		5
Proceeds from sales of other real estate owned	988		365
Net Cash (Used In) Provided By Investing Activities	(257,143)		65,296

Cash Flows From Financing Activities
Net increase (decrease) in deposits	340,136		(29,211)
Net increase in federal funds purchased and short-term borrowings	36,976		—
Repayment of long-term borrowings	(4,730)		(2,206)
Dividends paid	(4,676)		(4,227)
Net Cash Provided By (Used In) Financing Activities	367,706		(35,644)

Net Increase In Cash and Cash Equivalents	124,881		51,003
Cash and Cash Equivalents at the Beginning of the Period	67,425		127,965
Cash and Cash Equivalents at the End of the Period	$	192,306	$	178,968

Noncash Activities:
Acquisition of real estate in settlement of loans	$	319	$	2,704
Transfer of securities from HTM to AFS	$	52,553	$	—

Cash Paid During The Period:
Interest on deposits and borrowed funds	$	20,817	$	21,159
Federal income taxes	$	4,808	$	2,750
State income taxes	$	25	$	23

See Notes to the Consolidated Financial Statements.

-8-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. ("First Guaranty") thereto should be read in conjunction with the audited consolidated financial statements and note disclosures for First Guaranty previously filed with the Securities and Exchange Commission in First Guaranty's Annual Report on Form 10-K for the year ended December 31, 2019.

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, 2020 and for the three and nine month periods ended September 30, 2020 and 2019 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.

-9-

Note 2. Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments- Credit Losses: Measurement of Credit Losses on Financial Instruments". This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The ASU amendments require the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires assets held at cost basis to reflect the company's current estimate of all expected credit losses. For available for sale debt securities, credit losses should be presented as an allowance rather than as a write-down. In addition, this ASU amends the accounting for purchased financial assets with credit deterioration. On October 16, 2019, the FASB approved an effective date delay applicable to smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. First Guaranty is a smaller reporting company and has delayed the adoption of ASU 2016-13.

-10-

Note 3. Merger Transaction

Effective at the close of business on November 7, 2019, First Guaranty completed its acquisition of 100% of the outstanding shares of Union Bancshares, Incorporated, a Louisiana corporation ("Union"), a single bank holding company headquartered in Marksville, Louisiana and its wholly owned subsidiary, Union Bank for $43.4 million in cash. This acquisition allowed First Guaranty to expand its presence into the Central Louisiana market area. The purchase price resulted in approximately $9.4 million in goodwill and $4.2 million in core deposit intangible, none of which is deductible for tax purposes.

First Guaranty accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, for each transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition. In conjunction with the adoption of ASU 2015-16, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition date, First Guaranty records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. First Guaranty is continuing to finalize the purchase price allocations related to the Union acquisition. Based on management's preliminary valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Union acquisition is allocated in the table below. These allocations are subject to change.


(in thousands)	Union Bancshares, Incorporated

Cash and due from banks	$	20,063
Securities available for sale	38,813
Loans	184,344
Premises and equipment	7,223
Goodwill	9,428
Intangible assets	4,213
Other real estate	1,595
Other assets	9,480
Total assets acquired	$	275,159

Deposits	205,078
FHLB borrowings	16,617
Repurchase agreements	6,863
Other liabilities	3,218
Total liabilities assumed	$	231,776
Net assets acquired	$	43,383

-11-

Note 4. Securities

A summary comparison of securities by type at September 30, 2020 and December 31, 2019 is shown below.


	September 30, 2020								December 31, 2019
(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	$	43,700	$	—	$	—	$	43,700	$	—	$	—	$	—	$	—
U.S. Government Agencies	—		—		—		—		16,380		15		(2)		16,393
Corporate debt securities	186,515		9,458		(723)		195,250		94,561		1,110		(302)		95,369
Municipal bonds	30,863		1,651		(3)		32,511		30,297		1,870		(14)		32,153
Collateralized mortgage obligations	5,428		136		(4)		5,560		16,400		40		(43)		16,397
Mortgage-backed securities	135,338		3,963		(3)		139,298		179,546		317		(238)		179,625
Total available for sale securities	$	401,844	$	15,208	$	(733)	$	416,319	$	337,184	$	3,352	$	(599)	$	339,937

Held to maturity:
U.S. Government Agencies	$	—	$	—	$	—	$	—	$	18,175	$	—	$	(32)	$	18,143
Municipal bonds	—		—		—		—		5,107		182		—		5,289
Mortgage-backed securities	—		—		—		—		63,297		200		(112)		63,385
Total held to maturity securities	$	—	$	—	$	—	$	—	$	86,579	$	382	$	(144)	$	86,817

First Guaranty sold securities in the held to maturity portfolio in the first quarter of 2020 in order to manage its interest rate and liquidity risk due to changes in economic conditions. First Guaranty sold $18.2 million in U.S. Government agency securities, $13.5 million in mortgage-backed securities and $0.2 million in municipal securities. The total gain on the sale of these securities was $0.1 million. First Guaranty terminated its held to maturity portfolio after these sales.

The scheduled maturities of securities at September 30, 2020, 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, 2020
(in thousands)	Amortized Cost		Fair Value
Available for sale:
Due in one year or less	$	61,441	$	61,631
Due after one year through five years	78,391		82,244
Due after five years through 10 years	106,088		111,699
Over 10 years	15,158		15,887
Subtotal	261,078		271,461
Collateralized mortgage obligations	5,428		5,560
Mortgage-backed securities	135,338		139,298
Total available for sale securities	$	401,844	$	416,319

Held to maturity:
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through 10 years	—		—
Over 10 years	—		—
Subtotal	—		—
Mortgage-backed securities	—		—
Total held to maturity securities	$	—	$	—

At September 30, 2020, $206.7 million of First Guaranty's securities were pledged to secure public funds deposits and borrowings. The pledged securities had a market value of $206.7 million as of September 30, 2020.

-12-

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at September 30, 2020.


						At September 30, 2020
	Less Than 12 Months					12 Months or More					Total
(in thousands)	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries	3	$	43,700	$	—	—	$	—	$	—	3	$	43,700	$	—
U.S. Government Agencies	—	—		—		—	—		—		—	—		—
Corporate debt securities	28	13,741		(514)		7	1,693		(209)		35	15,434		(723)
Municipal bonds	3	198		(3)		—	—		—		3	198		(3)
Collateralized mortgage obligations	3	741		(4)		—	—		—		3	741		(4)
Mortgage-backed securities	9	185		(3)		—	—		—		9	185		(3)
Total available for sale securities	46	$	58,565	$	(524)	7	$	1,693	$	(209)	53	$	60,258	$	(733)

Held to maturity:
U.S. Government Agencies	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Municipal bonds	—	—		—		—	—		—		—	—		—
Mortgage-backed securities	—	—		—		—	—		—		—	—		—
Total held to maturity securities	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—

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, 2019.


						At December 31, 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	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
U.S. Government Agencies	1	4,398		(1)		1	149		(1)		2	4,547		(2)
Corporate debt securities	42	21,269		(174)		12	3,184		(128)		54	24,453		(302)
Municipal bonds	9	4,285		(14)		—	—		—		9	4,285		(14)
Collateralized mortgage obligations	12	10,022		(43)		—	—		—		12	10,022		(43)
Mortgage-backed securities	57	91,753		(186)		9	12,121		(52)		66	103,874		(238)
Total available for sale securities	121	$	131,727	$	(418)	22	$	15,454	$	(181)	143	$	147,181	$	(599)

Held to maturity:
U.S. Government Agencies	2	$	2,177	$	(2)	8	$	15,965	$	(30)	10	$	18,142	$	(32)
Municipal bonds	—	—		—		1	50		—		1	50		—
Mortgage-backed securities	7	8,880		(58)		10	11,343		(54)		17	20,223		(112)
Total held to maturity securities	9	$	11,057	$	(60)	19	$	27,358	$	(84)	28	$	38,415	$	(144)

As of September 30, 2020, 53 of First Guaranty's debt securities had unrealized losses totaling 1.2% of the individual securities' amortized cost basis and 0.2% of First Guaranty's total amortized cost basis of the investment securities portfolio. Seven of the 53 securities had been in a continuous loss position for over 12 months at such date. The seven securities had an aggregate amortized cost basis of $1.9 million and an unrealized loss of $0.2 million at September 30, 2020. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery.

-13-

Securities are evaluated for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of First Guaranty to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Investment securities issued by the U.S. Government and Government sponsored enterprises with unrealized losses and the amount of unrealized losses on those investment securities that are the result of changes in market interest rates will not be other-than-temporarily impaired. First Guaranty has the ability and intent to hold these securities until recovery, which may not be until maturity.

Corporate debt securities in a loss position consist primarily of corporate bonds issued by businesses in the financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas industries. There was one security with an other-than-temporary impairment loss at September 30, 2020. 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 was one other-than-temporary impairment loss of $100,000 recognized on securities during the nine months ended September 30, 2020. The security had an original book balance of $0.1 million and was in default. First Guaranty's analysis of the company and the current market value of the security resulted in the determination that a write down was warranted.

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, 2020 and 2019:


(in thousands)	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Beginning balance of credit losses at end of prior year	$	—	$	60
Other-than-temporary impairment credit losses on securities not previously OTTI	100		—
Increases for additional credit losses on securities previously determined to be OTTI	—		—
Reduction for increases in cash flows	—		—
Reduction due to credit impaired securities sold or fully settled	—		(60)
Ending balance of cumulative credit losses recognized in earnings at end of period	$	100	$	—

In the first nine months of 2020 there was 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, 2020, First Guaranty's exposure to bond issuers that exceeded 10% of shareholders' equity is below:


	At September 30, 2020
(in thousands)	Amortized Cost		Fair Value
U.S. Government Treasuries (U.S.)	$	43,700	$	43,700
Federal Home Loan Bank (FHLB)	—		—
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)	58,043		59,741
Federal National Mortgage Association (Fannie Mae-FNMA)	75,198		77,407
Federal Farm Credit Bank (FFCB)	—		—
Total	$	176,941	$	180,848

-14-

Note 5. Loans

The following table summarizes the components of First Guaranty's loan portfolio as of September 30, 2020 and December 31, 2019:


	September 30, 2020				December 31, 2019
(in thousands except for %)	Balance		As % of Category		Balance		As % of Category
Real Estate:
Construction & land development	$	153,969	8.6	%	$	172,247	11.3	%
Farmland	27,732		1.5	%	22,741		1.5	%
1- 4 Family	273,687		15.3	%	289,635		18.9	%
Multifamily	41,295		2.3	%	23,973		1.6	%
Non-farm non-residential	761,674		42.4	%	616,536		40.3	%
Total Real Estate	1,258,357		70.1	%	1,125,132		73.6	%
Non-Real Estate:
Agricultural	35,625		2.0	%	26,710		1.8	%
Commercial and industrial	378,926		21.1	%	268,256		17.5	%
Consumer and other	121,226		6.8	%	108,868		7.1	%
Total Non-Real Estate	535,777		29.9	%	403,834		26.4	%
Total Loans Before Unearned Income	1,794,134		100.0	%	1,528,966		100.0	%
Unearned income	(5,418)				(3,476)
Total Loans Net of Unearned Income	$	1,788,716			$	1,525,490

The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of September 30, 2020 and December 31, 2019 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, 2020						December 31, 2019
(in thousands)	Fixed		Floating		Total		Fixed		Floating		Total
One year or less	$	178,559	$	73,993	$	252,552	$	205,596	$	104,859	$	310,455
More than one to five years	677,486		365,968		1,043,454		509,455		286,131		795,586
More than five to 15 years	157,746		84,513		242,259		147,502		65,713		213,215
Over 15 years	144,770		85,809		230,579		143,695		51,612		195,307
Subtotal	$	1,158,561	$	610,283	1,768,844		$	1,006,248	$	508,315	1,514,563
Nonaccrual loans					25,290						14,403
Total Loans Before Unearned Income					1,794,134						1,528,966
Unearned income					(5,418)						(3,476)
Total Loans Net of Unearned Income					$	1,788,716					$	1,525,490

As of September 30, 2020, $275.8 million of floating rate loans were at their interest rate floor. At December 31, 2019, $153.3 million of floating rate loans were at their interest rate floor. Nonaccrual loans have been excluded from these totals.

-15-

The following tables present the age analysis of past due loans at September 30, 2020 and December 31, 2019:


	As of September 30, 2020
(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	$	903	$	1,183	$	2,086	$	151,883	$	153,969	$	520
Farmland	4,178		1,286		5,464		22,268		27,732		429
1- 4 family	7,543		7,837		15,380		258,307		273,687		2,677
Multifamily	801		370		1,171		40,124		41,295		370
Non-farm non-residential	5,094		14,414		19,508		742,166		761,674		843
Total Real Estate	18,519		25,090		43,609		1,214,748		1,258,357		4,839
Non-Real Estate:
Agricultural	109		4,078		4,187		31,438		35,625		144
Commercial and industrial	2,713		1,391		4,104		374,822		378,926		599
Consumer and other	900		459		1,359		119,867		121,226		146
Total Non-Real Estate	3,722		5,928		9,650		526,127		535,777		889
Total Loans Before Unearned Income	$	22,241	$	31,018	$	53,259	$	1,740,875	$	1,794,134	$	5,728
Unearned income									(5,418)
Total Loans Net of Unearned Income									$	1,788,716


	As of December 31, 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	$	760	$	429	$	1,189	$	171,058	$	172,247	$	48
Farmland	6		1,274		1,280		21,461		22,741		—
1- 4 family	8,521		3,682		12,203		277,432		289,635		923
Multifamily	—		—		—		23,973		23,973		—
Non-farm non-residential	11,279		6,249		17,528		599,008		616,536		1,603
Total Real Estate	20,566		11,634		32,200		1,092,932		1,125,132		2,574
Non-Real Estate:
Agricultural	310		4,800		5,110		21,600		26,710		—
Commercial and industrial	2,801		342		3,143		265,113		268,256		15
Consumer and other	794		266		1,060		107,808		108,868		50
Total Non-Real Estate	3,905		5,408		9,313		394,521		403,834		65
Total Loans Before Unearned Income	$	24,471	$	17,042	$	41,513	$	1,487,453	$	1,528,966	$	2,639
Unearned income									(3,476)
Total Loans Net of Unearned Income									$	1,525,490

The tables above include $25.3 million and $14.4 million of nonaccrual loans at September 30, 2020 and December 31, 2019, respectively. See the tables below for more detail on nonaccrual loans.

-16-

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


(in thousands)	As of September 30, 2020		As of December 31, 2019
Real Estate:
Construction & land development	$	663	$	381
Farmland	857		1,274
1- 4 family	5,160		2,759
Multifamily	—		—
Non-farm non-residential	13,571		4,646
Total Real Estate	20,251		9,060
Non-Real Estate:
Agricultural	3,934		4,800
Commercial and industrial	792		327
Consumer and other	313		216
Total Non-Real Estate	5,039		5,343
Total Nonaccrual Loans	$	25,290	$	14,403

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, 2020										As of December 31, 2019
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	147,144	$	5,794	$	1,031	$	—	$	153,969	$	163,808	$	6,180	$	2,259	$	—	$	172,247
Farmland	23,151		564		4,017		—		27,732		18,223		3,177		1,341		—		22,741
1- 4 family	254,816		5,524		13,347		—		273,687		271,392		4,751		13,492		—		289,635
Multifamily	31,427		1,881		7,987		—		41,295		16,025		805		7,143		—		23,973
Non-farm non-residential	713,565		25,990		21,025		1,094		761,674		589,800		7,743		18,993		—		616,536
Total Real Estate	1,170,103		39,753		47,407		1,094		1,258,357		1,059,248		22,656		43,228		—		1,125,132
Non-Real Estate:
Agricultural	30,419		947		4,259		—		35,625		21,529		48		5,133		—		26,710
Commercial and industrial	349,417		25,761		3,748		—		378,926		262,416		1,199		4,641		—		268,256
Consumer and other	120,068		359		799		—		121,226		108,618		180		70		—		108,868
Total Non-Real Estate	499,904		27,067		8,806		—		535,777		392,563		1,427		9,844		—		403,834
Total Loans Before Unearned Income	$	1,670,007	$	66,820	$	56,213	$	1,094	1,794,134		$	1,451,811	$	24,083	$	53,072	$	—	1,528,966
Unearned income									(5,418)										(3,476)
Total Loans Net of Unearned Income									$	1,788,716									$	1,525,490

-17-

Purchased Impaired Loans

As part of the acquisition of Union Bancshares, Incorporated on November 7, 2019 and Premier Bancshares, Inc. on June 16, 2017, First Guaranty purchased credit impaired loans for which there was, at acquisition, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at September 30, 2020 and December 31, 2019.


(in thousands)	As of September 30, 2020		As of December 31, 2019
Real Estate:
Construction & land development	$	394	$	526
Farmland	—		—
1- 4 family	4,140		6,402
Multifamily	920		—
Non-farm non-residential	2,404		2,294
Total Real Estate	7,858		9,222
Non-Real Estate:
Agricultural	—		—
Commercial and industrial	1,048		1,198
Consumer and other	—		—
Total Non-Real Estate	1,048		1,198
Total	$	8,906	$	10,420

For those purchased loans disclosed above, there was no allowance for loan losses at September 30, 2020 or December 31, 2019.

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, 2020 and 2019.


(in thousands)	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Balance, beginning of period	$	3,647	$	613
Acquisition accretable yield	30		—
Accretion	(537)		(746)
Net transfers from nonaccretable difference to accretable yield	—		498
Balance, end of period	$	3,140	$	365

-18-

Note 6. Allowance for Loan Losses

A summary of changes in the allowance for loan losses, by portfolio type, for the nine months ended September 30, 2020 and 2019 are as follows:


	For the Nine Months Ended September 30,
	2020										2019
(in thousands)	Beginning Allowance (12/31/2019)		Charge-offs		Recoveries		Provision		Ending Allowance (9/30/2020)		Beginning Allowance (12/31/2018)		Charge-offs		Recoveries		Provision		Ending Allowance (9/30/2019)
Real Estate:
Construction & land development	$	423	$	(265)	$	—	$	300	$	458	$	581	$	—	$	—	$	(58)	$	523
Farmland	50		—		—		330		380		41		—		—		5		46
1- 4 family	1,027		(108)		38		291		1,248		911		(522)		35		408		832
Multifamily	1,038		—		—		(245)		793		1,318		—		—		(323)		995
Non-farm non-residential	5,277		(517)		19		2,866		7,645		4,771		(845)		5		1,715		5,646
Total Real Estate	7,815		(890)		57		3,542		10,524		7,622		(1,367)		40		1,747		8,042
Non-Real Estate:
Agricultural	95		(60)		25		97		157		339		(40)		—		(177)		122
Commercial and industrial	1,909		(240)		66		1,219		2,954		1,909		(598)		21		671		2,003
Consumer and other	1,110		(573)		648		(290)		895		891		(931)		181		1,922		2,063
Unallocated	—		—		—		58		58		15		—		—		(15)		—
Total Non-Real Estate	3,114		(873)		739		1,084		4,064		3,154		(1,569)		202		2,401		4,188
Total	$	10,929	$	(1,763)	$	796	$	4,626	$	14,588	$	10,776	$	(2,936)	$	242	$	4,148	$	12,230

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

-19-

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


	As of September 30, 2020
(in thousands)	Allowance Individually Evaluated for Impairment		Allowance Individually Evaluated for Purchased Credit-Impairment		Allowance Collectively Evaluated for Impairment		Total Allowance for Credit Losses		Loans Individually Evaluated for Impairment		Loans Individually Evaluated for Purchased Credit-Impairment		Loans Collectively Evaluated for Impairment		Total Loans before Unearned Income
Real Estate:
Construction & land development	$	—	$	—	$	458	$	458	$	—	$	394	$	153,575	$	153,969
Farmland	—		—		380		380		543		—		27,189		27,732
1- 4 family	—		—		1,248		1,248		520		4,140		269,027		273,687
Multifamily	—		—		793		793		—		920		40,375		41,295
Non-farm non-residential	2,372		—		5,273		7,645		15,741		2,404		743,529		761,674
Total Real Estate	2,372		—		8,152		10,524		16,804		7,858		1,233,695		1,258,357
Non-Real Estate:
Agricultural	—		—		157		157		2,607		—		33,018		35,625
Commercial and industrial	613		—		2,341		2,954		2,218		1,048		375,660		378,926
Consumer and other	—		—		895		895		—		—		121,226		121,226
Unallocated	—		—		58		58		—		—		—		—
Total Non-Real Estate	613		—		3,451		4,064		4,825		1,048		529,904		535,777
Total	$	2,985	$	—	$	11,603	$	14,588	$	21,629	$	8,906	$	1,763,599	1,794,134
Unearned Income															(5,418)
Total Loans Net of Unearned Income															$	1,788,716


	As of December 31, 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	$	—	$	—	$	423	$	423	$	—	$	526	$	171,721	$	172,247
Farmland	—		—		50		50		543		—		22,198		22,741
1- 4 family	34		—		993		1,027		1,058		6,402		282,175		289,635
Multifamily	—		—		1,038		1,038		—		—		23,973		23,973
Non-farm non-residential	1,879		—		3,398		5,277		12,120		2,294		602,122		616,536
Total Real Estate	1,913		—		5,902		7,815		13,721		9,222		1,102,189		1,125,132
Non-Real Estate:
Agricultural	—		—		95		95		4,030		—		22,680		26,710
Commercial and industrial	111		—		1,798		1,909		2,981		1,198		264,077		268,256
Consumer and other	—		—		1,110		1,110		—		—		108,868		108,868
Unallocated	—		—		—		—		—		—		—		—
Total Non-Real Estate	111		—		3,003		3,114		7,011		1,198		395,625		403,834
Total	$	2,024	$	—	$	8,905	$	10,929	$	20,732	$	10,420	$	1,497,814	1,528,966
Unearned Income															(3,476)
Total loans net of unearned income															$	1,525,490

-20-

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

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


	As of September 30, 2020
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	—	$	—	$	—	$	—	$	—	$	—
Farmland	543		552		—		543		—		—
1- 4 family	520		536		—		531		—		—
Multifamily	—		—		—		—		—		—
Non-farm non-residential	6,197		6,197		—		6,143		90		75
Total Real Estate	7,260		7,285		—		7,217		90		75
Non-Real Estate:
Agricultural	2,607		2,687		—		2,608		—		—
Commercial and industrial	735		734		—		889		38		34
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	3,342		3,421		—		3,497		38		34
Total Impaired Loans with no related allowance	10,602		10,706		—		10,714		128		109

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development	—		—		—		—		—		—
Farmland	—		—		—		—		—		—
1- 4 family	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
Non-farm non-residential	9,544		9,843		2,372		10,454		325		279
Total Real Estate	9,544		9,843		2,372		10,454		325		279
Non-Real Estate:
Agricultural	—		—		—		—		—		—
Commercial and industrial	1,483		1,483		613		1,500		70		43
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	1,483		1,483		613		1,500		70		43
Total Impaired Loans with an allowance recorded	11,027		11,326		2,985		11,954		395		322

Total Impaired Loans	$	21,629	$	22,032	$	2,985	$	22,668	$	523	$	431

-21-


	As of December 31, 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	543		552		—		550		—		—
1- 4 family	541		541		—		544		27		22
Multifamily	—		—		—		—		—		—
Non-farm non-residential	8,307		8,307		—		9,940		673		688
Total Real Estate	9,391		9,400		—		11,034		700		710
Non-Real Estate:
Agricultural	4,030		4,186		—		4,031		12		—
Commercial and industrial	1,962		1,962		—		1,788		81		67
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	5,992		6,148		—		5,819		93		67
Total Impaired Loans with no related allowance	15,383		15,548		—		16,853		793		777

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development	—		—		—		—		—		—
Farmland	—		—		—		—		—		—
1- 4 family	517		517		34		522		—		—
Multifamily	—		—		—		—		—		—
Non-farm non-residential	3,813		4,162		1,879		4,134		194		212
Total Real Estate	4,330		4,679		1,913		4,656		194		212
Non-Real Estate:
Agricultural	—		—		—		—		—		—
Commercial and industrial	1,019		1,019		111		1,039		81		77
Consumer and other	—		—		—		—		—		—
Total Non-Real Estate	1,019		1,019		111		1,039		81		77
Total Impaired Loans with an allowance recorded	5,349		5,698		2,024		5,695		275		289

Total Impaired Loans	$	20,732	$	21,246	$	2,024	$	22,548	$	1,068	$	1,066

Troubled Debt Restructurings

A troubled debt restructuring ("TDR") is considered such if the lender for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to First Guaranty's TDRs are generally concessions on either the interest rate charged or the amortization. The effect of the modifications to First Guaranty would be a reduction in interest income. First Guaranty restructured one loan that is considered a TDR in the nine months ended September 30, 2020. At September 30, 2020 First Guaranty had one outstanding TDR.

Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020, financial institutions have the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. This provision allows a financial institution the option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. First Guaranty elected to adopt these provisions of the CARES Act.

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The following table identifies the TDRs as of September 30, 2020 and December 31, 2019:


	September 30, 2020								December 31, 2019
	Accruing Loans								Accruing Loans
(in thousands)	Current		30-89 Days Past Due		Nonaccrual		Total TDRs		Current		30-89 Days Past Due		Nonaccrual		Total TDRs
Real Estate:
Construction & land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland	—		—		—		—		—		—		—		—
1- 4 family	—		—		—		—		—		—		—		—
Multifamily	—		—		—		—		—		—		—		—
Non-farm non-residential	—		—		3,613		3,613		—		—		—		—
Total Real Estate	—		—		3,613		3,613		—		—		—		—
Non-Real Estate:
Agricultural	—		—		—		—		—		—		—		—
Commercial and industrial	—		—		—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—		—		—
Total Non-Real Estate	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	3,613	$	3,613	$	—	$	—	$	—	$	—

The following table discloses TDR activity for the nine months ended September 30, 2020.


	Troubled Debt Restructured Loans Activity
	Nine Months Ended September 30, 2020
(in thousands)	Beginning balance December 31, 2019		New TDRs		Charge-offs post-modification		Transferred to ORE		Paydowns		Construction to permanent financing		Restructured to market terms		Other adjustments		Ending balance September 30, 2020
Real Estate:
Construction & land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland	—		—		—		—		—		—		—		—		—
1- 4 family	—		—		—		—		—		—		—		—		—
Multifamily	—		—		—		—		—		—		—		—		—
Non-farm non-residential	—		3,613		—		—		—		—		—		—		3,613
Total Real Estate	—		3,613		—		—		—		—		—		—		3,613
Non-Real Estate:
Agricultural	—		—		—		—		—		—		—		—		—
Commercial and industrial	—		—		—		—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—		—		—		—
Total Non-Real Estate	—		—		—		—		—		—		—		—		—
Total	$	—	$	3,613	$	—	$	—	$	—	$	—	$	—	—		$	3,613

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Note 7. Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. First Guaranty's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007, Premier Bancshares, Inc. in 2017 and Union Bancshares, Incorporated in 2019. Goodwill totaled $12.9 million at September 30, 2020, a decrease of $41,000, or 0.3%, compared to December 31, 2019. No impairment charges have been recognized on First Guaranty's intangible assets since acquisition. Loan servicing assets increased $0.2 million to $0.8 million at September 30, 2020 compared to December 31, 2019. 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 10.2 years at September 30, 2020. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.

In accordance with ASC Topic 350, Intangibles - Goodwill and Other, during the third quarter of 2020, we evaluated recent potential triggering events that might be indicators that our goodwill was impaired. The events include, among others, the economic disruption and uncertainty surrounding the COVID-19 pandemic and the significant decline in our stock price. Based on our evaluation, we concluded that our goodwill was not impaired as of September 30, 2020.

Note 8. Other Real Estate (ORE)

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


(in thousands)	September 30, 2020		December 31, 2019
Real Estate Owned Acquired by Foreclosure:
Residential	$	147	$	559
Construction & land development	486		669
Non-farm non-residential	3,180		3,651
Total Other Real Estate Owned and Foreclosed Property	3,813		4,879
Allowance	(472)		—
Net Other Real Estate Owned and Foreclosed Property	$	3,341	$	4,879

Other real estate owned had a net carrying amount of $3.3 million which is made up of the outstanding balance of $3.8 million net of a valuation allowance of $0.5 million at September 30, 2020.

Loans secured by one-to-four family residential properties in the process of foreclosure totaled $1.3 million as of September 30, 2020.

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Note 9. 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, 2020 and December 31, 2019:

Contract Amount


(in thousands)	September 30, 2020		December 31, 2019
Commitments to Extend Credit	$	161,170	$	117,826
Unfunded Commitments under lines of credit	$	155,830	$	148,127
Commercial and Standby letters of credit	$	11,758	$	11,258

First Guaranty currently has one new facility under construction with a total construction commitment of $11.4 million of which $9.6 million has been incurred as of September 30, 2020.

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, 2020, any incremental liability arising from First Guaranty's legal proceedings in excess of any liability accrued will not have a material adverse effect on First Guaranty's financial position or results of operations.

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Note 10. 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, 2020 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, 2020 and December 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


(in thousands)	September 30, 2020		December 31, 2019
Available for Sale Securities Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	43,700	$	—
Level 2: Significant Other Observable Inputs	367,962		330,539
Level 3: Significant Unobservable Inputs	4,657		9,398
Securities available for sale measured at fair value	$	416,319	$	339,937

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, 2019 to September 30, 2020 was due to a net increase in Treasury bills of $43.7 million. The change in Level 2 securities available for sale from December 31, 2019 to September 30, 2020 was due principally to transfer of mortgage-backed and municipal securities from the held for sale to available for sale portfolio and the transfer of securities between Level 2 and 3. $6.8 million in corporate securities and $1.4 million in municipal securities were transferred from Level 3 to Level 2 from December 31, 2019 to September 30, 2020. There were no transfers between Level 1 and 2 securities available for sale from December 31, 2019 to September 30, 2020.

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


	Level 3 Changes
(in thousands)	September 30, 2020
Balance, beginning of year	$	9,398
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income	(168)
Purchases, sales, issuances and settlements, net	3,627
Transfers in and/or out of Level 3	(8,200)
Balance as of end of period	$	4,657

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, 2020.

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of September 30, 2020 and December 31, 2019, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:


(in thousands)	At September 30, 2020		At December 31, 2019
Impaired Loans - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	—	$	—
Level 2: Significant Other Observable Inputs	—		—
Level 3: Significant Unobservable Inputs	8,043		4,046
Impaired loans measured at fair value	$	8,043	$	4,046

Other Real Estate Owned - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	—	$	—
Level 2: Significant Other Observable Inputs	2,740		4,158
Level 3: Significant Unobservable Inputs	601		721
Other real estate owned measured at fair value	$	3,341	$	4,879

ASC 825-10 provides First Guaranty with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits First Guaranty to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation.

First Guaranty has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States.

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Note 11. 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.

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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, 2020 and December 31, 2019 the fair value of guarantees under commercial and standby letters of credit was not material.

The carrying amounts and estimated fair values of financial instruments at September 30, 2020 were as follows:


			Fair Value Measurements at September 30, 2020 Using
(in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets
Cash and due from banks	$	191,533	$	191,533	$	—	$	—	$	191,533
Federal funds sold	773		773		—		—		773
Securities, available for sale	416,319		43,700		367,962		4,657		416,319
Loans held for sale	235		—		—		235		235
Loans, net	1,774,128		—		—		1,808,607		1,808,607
Cash surrender value of BOLI	5,392		—		—		5,392		5,392
Accrued interest receivable	16,287		—		—		16,287		16,287

Liabilities
Deposits	$	2,193,244	$	—	$	—	$	2,207,412	2,207,412
Short-term advances from Federal Home Loan Bank	50,000		—		—		50,000		50,000
Repurchase agreements	6,895		—		—		6,895		6,895
Accrued interest payable	5,358		—		—		5,358		5,358
Long-term advances from Federal Home Loan Bank	3,404		—		—		3,404		3,404
Senior long-term debt	43,926		—		—		43,956		43,956
Junior subordinated debentures	14,767		—		—		15,088		15,088

-29-

The carrying amounts and estimated fair values of financial instruments at December 31, 2019 were as follows:


			Fair Value Measurements at December 31, 2019 Using
(in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets
Cash and due from banks	$	66,511	$	66,511	$	—	$	—	$	66,511
Federal funds sold	914		914		—		—		914
Securities, available for sale	339,937		—		330,539		9,398		339,937
Securities, held for maturity	86,579		—		86,817		—		86,817
Loans, net	1,514,561		—		—		1,515,277		1,515,277
Cash surrender value of BOLI	5,288		—		—		5,288		5,288
Accrued interest receivable	8,412		—		—		8,412		8,412

Liabilities
Deposits	$	1,853,013	$	—	$	—	$	1,863,179	1,863,179
Short-term advances from Federal Home Loan Bank	13,079		—		—		13,079		13,079
Repurchase agreements	6,840		—		—		6,840		6,840
Accrued interest payable	6,047		—		—		6,047		6,047
Long-term advances from Federal Home Loan Bank	3,533		—		—		3,533		3,533
Senior long-term debt	48,558		—		—		48,599		48,599
Junior subordinated debentures	14,737		—		—		14,762		14,762

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.

Note 12. COVID-19

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments, including in Louisiana and Texas, have ordered businesses and individuals to modify their normal practices. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 pandemic began, millions of people have filed claims for unemployment, and the stock market has been volatile and in particular bank stocks have significantly declined in value. Certain industries have been particularly adversely affected, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

As of October 31, 2020, both Louisiana and Texas are in a Phase 3 process for managing the pandemic which continues many limitations on how businesses must operate. First Guaranty continues to keep the majority of its locations open with certain modifications to our business practices. First Guaranty places a high priority on ensuring the safety and health of its customers and employees and has instituted social distancing protocols and enhanced cleaning measures as part of its operations. First Guaranty provided its employees with COVID-19 related financial bonuses and continues to provide support for employees working additional hours or relocated to alternative locations.

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

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Special Note Regarding Forward-Looking Statements

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from management expectations. This discussion and analysis contains forward-looking statements and reflects management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; the ongoing effects of the COVID-19 pandemic on First Guaranty's operations and financial performance; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; increases in our provision for loan losses and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements. We undertake no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.

-31-

Third Quarter and Nine Months Ended September 30, 2020 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 34 banking facilities primary located throughout Southeast, Southwest, Central 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, 2020 are as follows:

•Total assets increased $395.3 million, or 18.7%, to $2.5 billion at September 30, 2020 when compared with December 31, 2019. Total loans at September 30, 2020 were $1.8 billion, an increase of $263.2 million, or 17.3%, compared with December 31, 2019. Total deposits were $2.2 billion at September 30, 2020, an increase of $340.2 million, or 18.4%, compared with December 31, 2019. Retained earnings were $52.8 million at September 30, 2020, an increase of $9.5 million compared to $43.3 million at December 31, 2019. Shareholders' equity was $184.8 million and $166.0 million at September 30, 2020 and December 31, 2019, respectively.

•Net income for the third quarter of 2020 and 2019 was $5.2 million and $3.8 million, respectively. Net income for the nine months ended September 30, 2020 was $14.2 million compared to $10.2 million for the nine months ended September 30, 2019.

•Earnings per common share were $0.53 and $0.40 for the third quarter of 2020 and 2019, respectively, and $1.46 and $1.05 for the nine months ended September 30, 2020 and 2019, respectively. Total weighted average shares outstanding were 9,741,253 and 9,687,123 for the nine months ended September 30, 2020 and 2019, respectively.

•The allowance for loan losses was 0.82% of total loans at September 30, 2020 compared to 0.72% at December 31, 2019. First Guaranty had acquisition related loan discounts that totaled approximately $2.4 million at September 30, 2020. First Guaranty also had $111.1 million of SBA guaranteed PPP loans that have no related allowance due to the consideration of the government guarantee in accordance with regulatory guidance. The allowance for loan losses would be approximately 1.0% of total loans if the calculation removed the SBA guaranteed PPP loans and included the acquisition loan discounts in the allowance total.

•First Guaranty undertook several COVID-19 related actions that began in the first quarter of 2020 and have continued to impact the third quarter of 2020. First Guaranty increased on-balance sheet liquidity by approximately $100 million prior to March 31, 2020 through borrowings with the FHLB and brokered deposits. These borrowings remain at September 30, 2020. First Guaranty is participating in the SBA Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act authorized the SBA to guarantee loans under a new 7(a) loan program known as the PPP. As a qualified SBA lender, we were automatically authorized to originate PPP loans. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. As of September 30, 2020, First Guaranty has funded over 900 loans under the SBA PPP program that total approximately $111.1 million. Fees generated by the SBA PPP program were over $3.4 million. $0.6 million in fees were recognized in the third quarter of 2020. $1.8 million in fees are deferred as of September 30, 2020. First Guaranty also waived service related charges and other fees for several weeks following the onset of the COVID-19 crisis.

•First Guaranty originally granted loan deferments to over 1,000 loans that totaled approximately $590 million as part of its COVID-19 related actions at the end of the first quarter and during the second quarter of 2020. These deferments were typically for 90 days. As of October 31, 2020, approximately $31.0 million of these loans remain on deferral status.

•Net interest income for the third quarter of 2020 was $19.0 million compared to $14.7 million for the same period in 2019. Net interest income for the nine months ended September 30, 2020 was $55.8 million compared to $45.0 million for the nine months ended September 30, 2019.

•The provision for loan losses for the third quarter of 2020 was $1.5 million compared to $1.7 million for the same period in 2019. The provision for loan losses for the nine months ended September 30, 2020 was $4.6 million compared to $4.1 million for the nine months ended September 30, 2019. First Guaranty's loan loss allowance balance has increased 33.5% since December 31, 2019.

•First Guaranty charged down and increased the reserve for other real estate owned totaling $0.8 million in the third quarter of 2020. First Guaranty had a total valuation allowance of $0.5 million at September 30, 2020.

•Noninterest income for the third quarter of 2020 was $3.6 million compared to $3.2 million for the same period in 2019. Noninterest income for the nine months ended September 30, 2020 was $9.3 million compared to $6.1 million for the nine months ended September 30, 2019.

•The net interest margin for the three months ended September 30, 2020 was 3.24% which was a decrease of 11 basis points from the net interest margin of 3.35% for the same period in 2019. The net interest margin for the nine months ended September 30, 2020 was 3.39% which was an increase of two basis points from the net interest margin of 3.37% for the same period in 2019. First Guaranty attributed the decrease in the net interest margin in the third quarter of 2020 due to the significant actions related to COVID-19 that impacted balance sheet composition for both assets and liabilities along with decreased rates on assets and liabilities. First Guaranty attributed the increase in the net interest margin for the nine months ended September 30, 2020 compared to the same period in 2019 was due to an improved mix of loans compared to securities, lower cost deposits acquired from the Union acquisition which was partially offset by the significant COVID-19 actions noted above. Loans as a percentage of average interest earning assets increased to 73.3% at September 30, 2020 compared to 72.0% at September 30, 2019.

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•Investment securities totaled $416.3 million at September 30, 2020, a decrease of $10.2 million when compared to $426.5 million at December 31, 2019. First Guaranty expanded its corporate securities portfolio by approximately $100 million as part of a plan to improve earnings and provide interest income protection from a decline in interest rates. The fair value of the corporate securities portfolio improved during the third quarter of 2020 and had a net unrealized gain of approximately $8.7 million at September 30, 2020. Gains on the sale of securities for the third quarter of 2020 were $0.8 million compared to $29,000 for the same period in 2019. Gains on the sale of securities for the nine months ended September 30, 2020 were $2.6 million compared to losses of $0.4 million for the nine months ended September 30, 2019. At September 30, 2020, available for sale securities, at fair value, totaled $416.3 million, an increase of $76.4 million when compared to $339.9 million at December 31, 2019. At September 30, 2020, held to maturity securities, at amortized cost, totaled $0 as compared to $86.6 million at December 31, 2019. First Guaranty terminated its held to maturity securities portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity.

•Total loans net of unearned income were $1.8 billion, a net increase of $263.2 million from December 31, 2019. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $14.6 million at September 30, 2020 and $10.9 million at December 31, 2019, respectively.

•Total impaired loans increased $0.9 million to $21.6 million at September 30, 2020 compared to $20.7 million at December 31, 2019.

•Nonaccrual loans increased $10.9 million to $25.3 million at September 30, 2020 compared to $14.4 million at December 31, 2019.

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

•Return on average assets for the three months ended September 30, 2020 and 2019 was 0.84%. Return on average assets for the nine months ended September 30, 2020 and 2019 was 0.82% and 0.74%, respectively. Return on average common equity for the three months ended September 30, 2020 and 2019 was 11.14% and 9.43%, respectively. Return on average common equity for the nine months ended September 30, 2020 and 2019 was 10.71% and 8.71%, 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 $18.97 as of September 30, 2020 compared to $16.73 as of September 30, 2019 adjusted for the stock dividend. The increase in book value was due primarily to an increase in retained earnings and accumulated other comprehensive income ("AOCI"). AOCI is comprised of unrealized gains and losses on available for sale securities.

•First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the third quarter of 2020 and $0.16 in the third quarter of 2019, which was the equivalent of $0.15 per common share after adjusting for the 10% common stock dividend paid in December 2019. First Guaranty has paid 109 consecutive quarterly dividends as of September 30, 2020.

•First Guaranty has terminated its At-The-Market Equity Offering program ("ATM Offering"). First Guaranty has not sold any shares of common stock under the ATM Offering during the nine months ended September 30, 2020 and 2019. First Guaranty renewed its shelf registration in the Fourth Quarter of 2020.

•First Guaranty completed the data conversion associated with the Union Bancshares, Incorporated acquisition. Total one-time merger related costs were $0.7 million for the nine months ended September 30, 2020. The data conversion was completed on March 27, 2020.

•First Guaranty currently has one new facility under construction in order to facilitate future expansion. This construction commitment totals $11.4 million with $9.6 million incurred as of September 30, 2020.

•Subsequent event to September 30, 2020. First Guaranty, in furtherance of the strategy adopted in March 2020, initiated a plan to manage for economic uncertainty by converting unrealized gains in the securities portfolio to realized gains in the Fourth Quarter of 2020. First Guaranty sold approximately $140 million in mortgage backed securities and $150 million in corporate securities. The settlement of these securities is ongoing in the Fourth Quarter. First Guaranty estimates that pre-tax realized gains were generated between $11.0 million to $12.0 million. First Guaranty plans to reinvest the proceeds in securities, loans and to reduce borrowings.

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Financial Condition

Changes in Financial Condition from December 31, 2019 to September 30, 2020

Assets

Total assets at September 30, 2020 were $2.5 billion, an increase of $395.3 million, or 18.7%, from December 31, 2019. Assets increased primarily due to increases in cash and cash equivalents of $124.9 million and net loans of $259.6 million, partially offset by a decrease in investment securities of $10.2 million at September 30, 2020 compared to December 31, 2019.

Loans

Net loans increased $259.6 million, or 17.1%, to $1.8 billion at September 30, 2020 from December 31, 2019. Non-farm non-residential loan balances increased $145.1 million primarily due to new originations and the transition of construction and land development loans to permanent financing in the first quarter of 2020. Commercial and industrial loans increased $110.7 million primarily due to new originations associated with the SBA PPP lending program that occurred in the second quarter of 2020. Multifamily loans increased $17.3 million primarily due to the conversion of existing construction loans to permanent financing. Consumer and other loans increased $12.4 million primarily due to new originations including First Guaranty's COVID-19 relief loan program. Commercial and equipment leases totaling $76.1 million at September 30, 2020 are included in consumer and other loans. Agricultural loans increased $8.9 million due to seasonal activity. Farmland loans increased $5.0 million primarily due to increases on agricultural loan commitments. Construction and land development loans decreased $18.3 million principally due to paydowns and the conversion of interim construction loans to permanent financing that occurred in the first quarter of 2020. One-to four-family residential loans decreased $15.9 million primarily due to paydowns. First Guaranty had approximately 5.8% of funded and 2.3% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. First Guaranty had $241.8 million in loans related to our Texas markets at September 30, 2020. Syndicated loans at September 30, 2020 were $63.1 million, of which $32.8 million were shared national credits. Syndicated loans increased $23.2 million during the first nine months of 2020 from $39.9 million at December 31, 2019.

As of September 30, 2020, 70.1% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 42.4% as of September 30, 2020, was non-farm non-residential loans secured by real estate. Approximately 34.5% of the loan portfolio was based on a floating rate tied to the prime rate or LIBOR as of September 30, 2020. 73.3% of the loan portfolio is scheduled to mature within five years from September 30, 2020.

Net loans are reduced by the allowance for loan losses which totaled $14.6 million at September 30, 2020 and $10.9 million at December 31, 2019. Loan charge-offs were $1.8 million during the first nine months of 2020 and $2.9 million during the same period in 2019. Recoveries totaled $0.8 million during the first nine months of 2020 and $0.2 million during the same period in 2019. The provision for loan losses totaled $4.6 million for the first nine months of 2020 and $4.1 million for the same period in 2019. See Note 5 of the Notes to Consolidated Financial Statements for more information on loans and Note 6 for more information on the allowance for loan losses.

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Investment Securities

Investment securities at September 30, 2020 totaled $416.3 million, a decrease of $10.2 million compared to $426.5 million at December 31, 2019. The entire investment portfolio consisted of securities designated as available for sale at September 30, 2020. First Guaranty terminated its held to maturity portfolio in the first quarter of 2020 following the sale of certain securities previously designated as held to maturity. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings.

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 $416.3 million at September 30, 2020, an increase of $76.4 million, or 22.5%, compared to $339.9 million at December 31, 2019. The increase was primarily due to the purchase of corporate securities and U.S. Treasury securities and the transfer of securities from the held to maturity portfolio, offset by called bonds and the sale of securities. First Guaranty expanded its corporate securities portfolio at the end of the first quarter and into the second quarter of 2020 in order to provide earnings and liquidity during the COVID-19 pandemic. Corporate securities have increased $99.9 million since December 31, 2019.

We had no held to maturity securities portfolio at September 30, 2020 as compared to $86.6 million at December 31, 2019. The decrease was primarily due to the transfer of $52.6 million in securities to the available for sale portfolio, along with the sale of $18.2 million in U.S. Government agency securities, $13.5 million in mortgage-backed securities and the continued amortization of our mortgage-backed securities.

At September 30, 2020, $61.6 million, or 14.8%, of the securities portfolio was scheduled to mature in less than one year. $82.2 million, or 19.8%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between one and five years. $111.7 million, or 26.8%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between five and ten years. Securities, not including collateralized mortgage obligations and mortgage-backed securities, with contractual maturity dates over 10 years totaled $15.9 million, or 3.8%, of the total securities portfolio at September 30, 2020. 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, 2020, management believes that the securities portfolio has a forecasted weighted average life of approximately 3.5 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 5.1 years. The portfolio had an estimated effective duration of 2.6 years at September 30, 2020.

There was one credit related other-than-temporary impairment of securities losses in the amount of $100,000 recognized during the nine months ended September 30, 2020 and none recognized during the nine months ended September 30, 2019.

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, 2020			December 31, 2019
Nonaccrual loans:
Real Estate:
Construction and land development	$	663		$	381
Farmland	857			1,274
1- 4 family	5,160			2,759
Multifamily	—			—
Non-farm non-residential	13,571			4,646
Total Real Estate	20,251			9,060
Non-Real Estate:
Agricultural	3,934			4,800
Commercial and industrial	792			327
Consumer and other	313			216
Total Non-Real Estate	5,039			5,343
Total nonaccrual loans	25,290			14,403

Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development	520			48
Farmland	429			—
1- 4 family	2,677			923
Multifamily	370			—
Non-farm non-residential	843			1,603
Total Real Estate	4,839			2,574
Non-Real Estate:
Agricultural	144			—
Commercial and industrial	599			15
Consumer and other	146			50
Total Non-Real Estate	889			65
Total loans 90 days and greater delinquent & accruing	5,728			2,639

Total non-performing loans	31,018			17,042

Real Estate Owned:
Construction and land development	486			669
Farmland	—			—
1- 4 family	147			559
Multifamily	—			—
Non-farm non-residential	2,708			3,651
Total Real Estate Owned	3,341			4,879

Total non-performing assets	$	34,359		$	21,921

Non-performing assets to total loans	1.92		%	1.44		%
Non-performing assets to total assets	1.37		%	1.04		%
Non-performing loans to total loans	1.73		%	1.12		%

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At September 30, 2020, nonperforming assets totaled $34.4 million, or 1.37% of total assets, compared to $21.9 million, or 1.04%, of total assets at December 31, 2019, which represented an increase of $12.4 million, or 56.7%. The increase in non-performing assets occurred as a result of several factors.

Nonaccrual loans increased from $14.4 million at December 31, 2019 to $25.3 million at September 30, 2020. The increase in nonaccrual loans was concentrated primarily in non-farm non-residential and one-to four-family loans. Nonperforming assets included $3.9 million in loans with a government guarantee. These are structured as net loss guarantees in which up to 90% of loss exposure is covered.

At September 30, 2020, loans 90 days or greater delinquent and still accruing totaled $5.7 million, an increase of $3.1 million compared to $2.6 million at December 31, 2019. The increase in loans 90 days or greater delinquent and still accruing was concentrated primarily in one-to four-family residential loans. One-to-four family loans in the 90 day category included loans acquired from the Union acquisition that have contractually matured but have not been renewed due to operations issues following the acquisition. First Guaranty expects to satisfactorily renew the majority of these acquired loans and return them to performing status.

Other real estate owned decreased from $4.9 million at December 31, 2019 to $3.3 million at September 30, 2020. First Guaranty established a reserve for other real estate owned losses in the third quarter. This reserve totaled $0.5 million at September 30, 2020.

At September 30, 2020, our largest non-performing assets were comprised of the following nonaccrual loans and other real estate owned: (1) a non-farm non-residential loan relationship secured by commercial real estate that totaled $5.9 million; (2) a non-farm non-residential loan secured by a hotel that totaled $3.6 million; (3) a $2.2 million non-farm non-residential property included in other real estate owned; (4) a non-farm non-residential loan secured by commercial real estate that totaled $1.9 million; (5) a non-farm non-residential loan secured by a sports facility that totaled $1.3 million which has a partial government guarantee; (6) an agricultural/ farmland loan relationship that totaled $1.1 million; (7) an agricultural loan relationship that totaled $1.0 million; and (8) an agricultural/ farmland loan relationship that totaled $1.0 million. 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, 2020 and December 31, 2019:


(in thousands)	September 30, 2020		December 31, 2019
Restructured Loans:
In Compliance with Modified Terms	$	—	$	—
Past Due 30 through 89 days and still accruing	—		—
Past Due 90 days and greater and still accruing	—		—
Nonaccrual	3,613		—
Restructured Loans that subsequently defaulted	—		—
Total Restructured Loans	$	3,613	$	—

At September 30, 2020, we had one outstanding TDR which was a $3.6 million non-farm non-residential loan secured by commercial real estate that is on nonaccrual. The restructuring of this loan was related to interest rate and amortization concessions. The loan is secured by a hotel facility. This loan was not eligible for a CARES act modification.

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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 $14.6 million, or 0.82% of total loans, and 47.0% of nonperforming loans at September 30, 2020.

Comparing September 30, 2020 to December 31, 2019, there were changes within the specific components of the allowance balance.

A provision for loan losses of $4.6 million was made during the nine months ended September 30, 2020 as compared to $4.1 million for the same period in 2019. The provisions made were taken to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. First Guaranty’s loan loss calculation method incorporates risk factors in the loan portfolio and the composition of the loan portfolio affects the final allowance calculation.

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The loan portfolio composition shifts in the first nine months of 2020 that primarily affected the allocation of the allowance included the following:

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

•Commercial and industrial loans increased during the second quarter of 2020. The majority of the increase was associated with SBA guaranteed PPP loans which do not have an allowance balance associated with them.

•First Guaranty continues to monitor the acquired loans from the Union acquisition on November 7, 2019. Discounts on the acquired Union loans were approximately $2.4 million at September 30, 2020.

•Construction and land development loans declined during the first quarter of 2020 as several loans transitioned to permanent financing. The majority of these loans are now included in the non-farm non-residential category as of September 30, 2020.

•Non-farm non-residential loans increased during the first nine months of 2020 primarily due to the transition of several loans to permanent financing.

First Guaranty charged off $1.8 million in loan balances during the first nine months of 2020. The charged-off loan balances were concentrated in five loan relationships which totaled $1.0 million or 55.0% of the total charged off amount during the nine months ended September 30, 2020. The details of the $1.0 million in charged off loans were as follows:

1.First Guaranty charged off $0.1 million on a purchased consumer loan pool during the first nine months of 2020. This pool had a remaining principal balance of $1.0 million at September 30, 2020.

2.First Guaranty charged off $0.3 million on a non-farm non-residential loan relationship during the third quarter of 2020. This relationship had a remaining principal balance of $5.9 million at September 30, 2020.

3.First Guaranty charged off $0.3 million on a construction and land development loan during the third quarter of 2020. This loan had a remaining principal balance of $0.3 million at September 30, 2020.

4.First Guaranty charged off $0.2 million on a non-farm non-residential loan during the third quarter of 2020. This loan had a remaining principal balance of $0.1 million at September 30, 2020.

5.First Guaranty charged off $0.1 million on a one-to four-family residential loan during the third quarter of 2020. This loan had a remaining principal balance of $0.5 million at September 30, 2020.

6.Smaller loans and overdrawn deposit accounts comprised the remaining $0.8 million of charge-offs for the first nine months of 2020.

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


(in thousands)	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Loans:
Average outstanding balance	$	1,613,847	$	1,286,859
Balance at end of period	$	1,788,716	$	1,292,911

Allowance for Loan Losses:
Balance at beginning of year	$	10,929	$	10,776
Charge-offs	(1,763)		(2,936)
Recoveries	796		242
Provision	4,626		4,148
Balance at end of period	$	14,588	$	12,230

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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, 2019 to September 30, 2020, total deposits increased $340.2 million, or 18.4%, to $2.2 billion. Noninterest-bearing demand deposits increased $141.7 million, or 43.5%, to $467.6 million at September 30, 2020. The increase in noninterest-bearing demand deposits was due to economic conditions associated with the CARES Act and the SBA PPP program. First Guaranty consumer and business customers have increased their deposits due to the receipt of stimulus funds and proceeds from SBA PPP program loans. Interest-bearing demand deposits increased $172.0 million, or 27.0%, to $807.9 million at September 30, 2020. The increase in interest-bearing demand deposits was primarily concentrated in individual and business interest-bearing demand deposits. Savings deposits increased $41.4 million, or 30.6%, to $176.5 million at September 30, 2020, primarily related to increases in individual savings deposits. Time deposits decreased $14.9 million, or 2.0%, to $741.2 million at September 30, 2020, primarily due to decreases in business deposits.

As we seek to strengthen our net interest margin and improve our earnings, attracting non-interest-bearing or lower cost deposits will be a primary emphasis. Management will continue to evaluate and update our product mix 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, 2020, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $517.5 million. At September 30, 2020, approximately $368.3 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,
	2020						2019						2018
(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	$	381,967	19.0	%	—	%	$	262,379	15.7	%	—	%	$	252,531	16.3	%	—
Interest-bearing Demand	692,760		34.4	%	0.9	%	592,113		35.4	%	1.8	%	556,528		35.9	%	1.5	%
Savings	159,433		7.9	%	0.2	%	115,682		6.9	%	0.4	%	111,134		7.2	%	0.4	%
Time	778,325		38.7	%	2.3	%	703,685		42.0	%	2.4	%	628,457		40.6	%	1.7	%
Total Deposits	$	2,012,485	100.0	%	1.2	%	$	1,673,859	100.0	%	1.7	%	$	1,548,650	100.0	%	1.3	%


Individual and Business Deposits	For the Nine Months Ended September 30,						For the Years Ended December 31,
	2020						2019						2018
(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	$	371,054	27.2	%	—	%	$	256,099	23.7	%	—		$	246,550	26.7	%	—
Interest-bearing Demand	256,125		18.8	%	1.0	%	241,290		22.3	%	1.4	%	204,405		22.1	%	1.1	%
Savings	124,612		9.2	%	0.1	%	86,972		8.0	%	0.1	%	84,844		9.2	%	0.1	%
Time	610,997		44.8	%	2.5	%	498,521		46.0	%	2.6	%	388,623		42.0	%	1.7	%
Total Individual and Business Deposits	$	1,362,788	100.0	%	1.3	%	$	1,082,882	100.0	%	1.5	%	$	924,422	100.0	%	1.0	%


Public Funds Deposits	For the Nine Months Ended September 30,						For the Years Ended December 31,
	2020						2019						2018
(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	$	10,913	1.7	%	—	%	$	6,280	1.1	%	—		$	5,981	1.0	%	—
Interest-bearing Demand	436,635		67.2	%	0.8	%	350,823		59.3	%	2.0	%	352,123		56.4	%	1.8	%
Savings	34,821		5.4	%	0.5	%	28,710		4.9	%	1.6	%	26,290		4.2	%	1.4	%
Time	167,328		25.7	%	1.3	%	205,164		34.7	%	2.1	%	239,834		38.4	%	1.7	%
Total Public Funds Deposits	$	649,697	100.0	%	0.9	%	$	590,977	100.0	%	1.9	%	$	624,228	100.0	%	1.7	%

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


(in thousands)	September 30, 2020
Time deposits of less than $100,000	$	223,670
Time deposits of $100,000 through $250,000	254,747
Time deposits of more than $250,000	262,741
Total Time Deposits	$	741,158

The following table sets forth the maturity of the time deposits at September 30, 2020.


(in thousands)	September 30, 2020
Due in one year or less	$	372,864
Due after one year through three years	199,891
Due after three years	168,403
Total Time Deposits	$	741,158

At September 30, 2020, public funds deposits totaled $675.1 million compared to $610.7 million at December 31, 2019. Public funds time deposits totaled $168.5 million at September 30, 2020 compared to $146.4 million at December 31, 2019. Public funds deposits increased due to seasonal fluctuations. We have developed a program for the retention and management of public funds deposits. 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. The majority of these funds are under fiscal agency agreements with terms of three years or less. Deposits under fiscal agency agreements are generally stable but public entities may maintain the ability to negotiate term deposits on a specific basis including with other financial institutions. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds will increase at the end of the year and during the first quarter. In addition to seasonal fluctuations, there are monthly fluctuations associated with internal payroll and short-term tax collection accounts for our public funds deposit accounts. Public funds deposit accounts are collateralized by FHLB letters of credit, by expanded reciprocal deposit insurance programs, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac.

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


(in thousands except for %)	September 30, 2020			December 31, 2019			December 31, 2018			December 31, 2017			December 31, 2016
Public Funds:
Noninterest-bearing Demand	$	10,600		$	9,944		$	6,930		$	4,828		$	4,114
Interest-bearing Demand	458,382			424,732			364,692			389,788			324,356
Savings	37,570			29,570			26,903			20,539			20,116
Time	168,546			146,420			247,004			225,591			208,330
Total Public Funds	$	675,098		$	610,666		$	645,529		$	640,746		$	556,916
Total Deposits	$	2,193,244		$	1,853,013		$	1,629,622		$	1,549,286		$	1,326,181
Total Public Funds as a percent of Total Deposits	30.8		%	33.0		%	39.6		%	41.4		%	42.0		%

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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 $56.9 million in short-term borrowings outstanding at September 30, 2020 compared to $19.9 million at December 31, 2019. The short-term borrowings at September 30, 2020 were comprised of Federal Home Loan Bank advances of $50.0 million and repurchase agreements of $6.9 million. The rate on the $50.0 million FHLB short-term advance was 0.72% fixed for 11 months. The Federal Home Loan Bank short term advance matures in February 2021 and was acquired in connection with our COVID-19 contingency plans. First Guaranty has a long term FHLB advance that was acquired from the Union transaction that totaled $3.4 million at September 30, 2020. First Guaranty has a line of credit for $6.5 million with another financial institution, with no outstanding balance at September 30, 2020.

First Guaranty had senior long-term debt totaling $43.9 million as of September 30, 2020 and $48.6 million at December 31, 2019.

First Guaranty also had junior subordinated debentures totaling $14.8 million at September 30, 2020 and $14.7 million at December 31, 2019.

First Guaranty had $384.0 million in Federal Home Loan Bank letters of credit as of September 30, 2020 compared to $355.2 million at December 31, 2019. Federal Home Loan Bank letters of credit are obtained primarily for collateralizing public deposits.

Total Shareholders' Equity

Total shareholders' equity increased to $184.8 million at September 30, 2020 from $166.0 million at December 31, 2019. The increase in shareholders' equity was principally the result of an increase of $9.5 million in retained earnings along with an increase of $9.3 million in accumulated other comprehensive income. The $9.5 million increase in retained earnings was due to net income of $14.2 million during the nine months ended September 30, 2020, partially offset by $4.7 million in cash dividends paid on shares of our common stock. The increase in accumulated other comprehensive income was primarily attributed to the increase in unrealized gains on available for sale securities during the nine months ended September 30, 2020.

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Results of Operations for the Third Quarter and Nine Months Ended September 30, 2020 and 2019

Performance Summary

Three months ended September 30, 2020 compared to the three months ended September 30, 2019. Net income for the three months ended September 30, 2020 was $5.2 million, an increase of $1.3 million, or 34.7%, from $3.8 million for the three months ended September 30, 2019. The increase in net income for the three months ended September 30, 2020 as compared to the prior year period was the result of several factors. First Guaranty experienced an increase in interest income primarily associated with loans, increased noninterest income, a decrease in the provision for loan losses and lower interest expense. This was partially offset by an increase in noninterest expense. Loan interest income increased due to the growth in First Guaranty's loan portfolio, including the loans acquired in the fourth quarter of 2019 in the Union acquisition and loan fees recognized as an adjustment to yield from the origination of the SBA guaranteed PPP loans. Noninterest income increased primarily as a result of an increase in securities gains. Interest expense declined due to declines in market interest rates and First Guaranty's plan to reduce interest expense. Interest expense declined in 2020 even after factoring in the additional deposit balances acquired from the Union acquisition, an increase in deposit balances associated with SBA PPP loans and stimulus payments, and additional borrowings associated with our COVID-19 contingency plans. Factors that partially offset income include increased noninterest expense primarily associated with the Union acquisition. Earnings per common share for the three months ended September 30, 2020 was $0.53 per common share, an increase of 32.5% or $0.13 per common share from $0.40 per common share for the three months ended September 30, 2019 (as adjusted for the 10% common stock dividend in December 2019). Earnings per share was affected by the increase in earnings.

Nine months ended September 30, 2020 compared to the Nine months ended September 30, 2019. Net income for the nine months ended September 30, 2020 was $14.2 million, an increase of $4.0 million, or 39.2%, from $10.2 million for the nine months ended September 30, 2019. The increase in net income for the nine months ended September 30, 2020 as compared to the prior year period was the result of several factors. First Guaranty experienced an increase in interest income primarily associated with loans, increased noninterest income, and lower interest expense. This was partially offset by an increase in the provision for loan losses and increased noninterest expense. Loan interest income increased due to the growth in First Guaranty's loan portfolio, including the loans acquired in the fourth quarter of 2019 in the Union acquisition and loan fees recognized as an adjustment to yield from the origination of the SBA guaranteed PPP loans. Noninterest income increased due to larger securities gains during the nine months ended September 30, 2020 compared to losses on securities sales in the same time period in 2019. Interest expense declined due to declines in market interest rates and First Guaranty's plan to reduce interest expense. Interest expense declined in the first nine months of 2020 even after factoring in the additional deposit balances acquired from the Union acquisition, an increase in deposit balances associated with SBA PPP loans and stimulus payments, and additional borrowings associated with our COVID-19 contingency plans. Factors that partially offset income include increased noninterest expense primarily associated with the Union acquisition including one-time merger related expenses of $0.7 million paid in the first quarter of 2020 for the data conversion. The provision for loan losses increased to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio, including risks emerging from the COVID-19 pandemic. Earnings per common share for the nine months ended September 30, 2020 was $1.46 per common share, an increase of 39.0% or $0.41 per common share from $1.05 per common share for the nine months ended September 30, 2019 (as adjusted for the 10% common stock dividend in December 2019). Earnings per share was affected by the increase 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 changing interest rate environment in recent periods and our interest sensitivity position is discussed below.

Three months ended September 30, 2020 compared to the three months ended September 30, 2019. Net interest income for the three months ended September 30, 2020 and 2019 was $19.0 million and $14.7 million, respectively. The increase in net interest income for the three months ended September 30, 2020 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets, and a decrease in the average rate of our total interest-bearing liabilities, partially offset by a decrease in the average yield of our total interest-earning assets and an increase in the average balance of our total interest-bearing liabilities. For the three months ended September 30, 2020, the average balance of our total interest-earning assets increased by $593.9 million to $2.3 billion due to the assets acquired from the Union acquisition and COVID-19 related lending activities, including SBA PPP loans. The average yield of our interest-earning assets decreased by 74 basis points to 4.29% from 5.03% for the three months ended September 30, 2019 due to the general decline in market interest rates. For the three months ended September 30, 2020, the average balance of our total interest-bearing liabilities increased by $429.9 million to $1.8 billion, and the average rate of our total interest-bearing liabilities decreased by 77 basis points to 1.34% from 2.11% for the three months ended September 30, 2019. As a result, our net interest rate spread increased three basis points to 2.95% for the three months ended September 30, 2020 from 2.92% for the three months ended September 30, 2019. Our net interest margin decreased 11 basis points to 3.24% for the three months ended September 30, 2020 from 3.35% for the three months ended September 30, 2019.

Nine months ended September 30, 2020 compared to the Nine months ended September 30, 2019. Net interest income for the nine months ended September 30, 2020 and 2019 was $55.8 million and $45.0 million, respectively. The increase in net interest income for the nine months ended September 30, 2020 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets, and a decrease in the average rate of our total interest-bearing liabilities partially offset by a decrease in the average yield of our total interest-earning assets and by an increase in the average balance of our total interest-bearing liabilities. For the nine months ended September 30, 2020, the average balance of our total interest-earning assets increased by $414.5 million to $2.2 billion due to the assets acquired from the Union acquisition and COVID-19 related lending activities, including SBA PPP loans. The average yield of our interest-earning assets decreased by 44 basis points to 4.61% from 5.05% for the nine months ended September 30, 2019 due to the general decline in market interest rates. For the nine months ended September 30, 2020, the average balance of our total interest-bearing liabilities increased by $301.1 million to $1.7 billion, and the average rate of our total interest-bearing liabilities decreased by 54 basis points to 1.55% from 2.09% for the nine months ended September 30, 2019. As a result, our net interest rate spread increased ten basis points to 3.06% for the nine months ended September 30, 2020 from 2.96% for the nine months ended September 30, 2019. Our net interest margin increased two basis points to 3.39% for the nine months ended September 30, 2020 from 3.37% for the nine months ended September 30, 2019.

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Interest Income

Three months ended September 30, 2020 compared to the three months ended September 30, 2019. Interest income increased $3.1 million, or 13.9%, to $25.2 million for the three months ended September 30, 2020 as compared to the prior year period. First Guaranty increased its securities portfolio at the end of the first quarter of 2020 and into the second quarter of 2020 in order to improve interest income. First Guaranty's loan portfolio expanded in the second and third quarters of 2020 due to growth associated with the SBA PPP lending program which totaled $111.1 million in new funded balances. These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, both loans and securities, including assets from the Union acquisition increased, partially offset by a decrease in the average yield of interest-earning assets due to the decline in market interest rates. The average balance of our interest-earning assets increased $593.9 million to $2.3 billion for the three months ended September 30, 2020 as compared to the prior year period. The average yield of interest-earning assets decreased by 74 basis points to 4.29% for the three months ended September 30, 2020 compared to 5.03% for the three months ended September 30, 2019.

Interest income on securities increased $0.6 million to $2.6 million for the three months ended September 30, 2020 as compared to the prior year period primarily as a result of an increase in balances as part of First Guaranty's plan initiated at the end of the first quarter in 2020 to provide earnings and liquidity during the COVID-19 pandemic. First Guaranty purchased approximately $70.0 million in corporate debt securities as part of this plan in the first quarter of 2020. The average balance of securities increased $134.7 million to $419.3 million for the three months ended September 30, 2020 from $284.6 million for the three months ended September 30, 2019 due to an increase in the average balance of our corporate securities. The average yield on securities decreased 26 basis points to 2.47% for the three months ended September 30, 2020 compared to 2.73% for the three months ended September 30, 2019 due to the decrease in market interest rates.

Interest income on loans increased $3.3 million, or 16.9%, to $22.5 million for the three months ended September 30, 2020 as compared to the prior year period as a result of an increase in the average balance of loans. The average balance of loans (excluding loans held for sale) increased by $418.2 million to $1.7 billion for the three months ended September 30, 2020 from $1.3 billion for the three months ended September 30, 2019 as a result of new loan originations, primarily SBA PPP loans, and acquired loans from the Union acquisition. The average yield on loans (excluding loans held for sale) decreased by 69 basis points to 5.24% for the three months ended September 30, 2020 from 5.93% for the three months ended September 30, 2019 due to the decrease in market interest rates and the impact of SBA PPP loans.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Interest income increased $8.4 million, or 12.5%, to $75.9 million for the nine months ended September 30, 2020 as compared to the prior year period. First Guaranty increased its securities portfolio at the end of the first quarter of 2020 and into the second quarter of 2020 in order to improve interest income. First Guaranty's loan portfolio expanded in the second and third quarters of 2020 due to growth associated with the SBA PPP lending program which totaled $111.1 million in new funded balances. These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, both loans and securities, including assets from the Union acquisition increased, partially offset by a decrease in the average yield of interest-earning assets due to the decline in market interest rates. The average balance of our interest-earning assets increased $414.5 million to $2.2 billion for the nine months ended September 30, 2020 as compared to the prior year period. The average yield of interest-earning assets decreased by 44 basis points to 4.61% for the nine months ended September 30, 2020 compared to 5.05% for the nine months ended September 30, 2019.

Interest income on securities increased $0.8 million to $8.2 million for the nine months ended September 30, 2020 as compared to the prior year period primarily as a result of an increase in balances as part of First Guaranty's plan initiated at the end of the first quarter in 2020 to provide earnings and liquidity during the COVID-19 pandemic. The average balance of securities increased $71.5 million to $420.6 million for the nine months ended September 30, 2020 from $349.0 million for the nine months ended September 30, 2019 due to an increase in the average balance of our corporate securities. The average yield on securities decreased 24 basis points to 2.59% for the nine months ended September 30, 2020 compared to 2.83% for the nine months ended September 30, 2019 due to the decrease in market interest rates.

Interest income on loans increased $9.8 million, or 16.9%, to $67.4 million for the nine months ended September 30, 2020 as compared to the prior year period as a result of an increase in the average balance of loans. The average balance of loans (excluding loans held for sale) increased by $327.0 million to $1.6 billion for the nine months ended September 30, 2020 from $1.3 billion for the nine months ended September 30, 2019 as a result of new loan originations, primarily SBA PPP loans, and acquired loans from the Union acquisition. The average yield on loans (excluding loans held for sale) decreased by 41 basis points to 5.58% for the nine months ended September 30, 2020 from 5.99% for the nine months ended September 30, 2019 due to the decrease in market interest rates the impact of SBA PPP loans.

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Interest Expense

Three months ended September 30, 2020 compared to the three months ended September 30, 2019. Interest expense decreased $1.2 million, or 16.9%, to $6.1 million for the three months ended September 30, 2020 from $7.4 million for the three months ended September 30, 2019 due primarily to a decrease in market interest rates partially offset by an increase in the average balance of interest-bearing liabilities. The average rate of interest-bearing demand deposits decreased by 108 basis points during the three months ended September 30, 2020 to 0.69% as compared to the prior year period. The decrease 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 declining sharply beginning in the first quarter of 2020. The average rate of time deposits decreased 42 basis points during the three months ended September 30, 2020 to 2.11% as compared to the prior year period. The decrease in the average rate of time deposits was due to First Guaranty's plan to reduce deposit costs by expanding non-interest bearing and lower cost interest-bearing deposits that has provided an alternative to higher cost time deposits and has helped First Guaranty maintain liquidity while lowering rates on time deposits. Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, including the interest-bearing liabilities acquired in the Union acquisition, which increased by $429.9 million during the three months ended September 30, 2020 to $1.8 billion as compared to the prior year period as a result of a $180.6 million increase in the average balance of interest-bearing demand deposits, a $99.0 million increase in the average balance of time deposits, a $87.1 million increase in the average balance of borrowings and a $63.2 million increase in the average balance of savings deposits.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Interest expense decreased $2.4 million, or 10.5%, to $20.1 million for the nine months ended September 30, 2020 from $22.5 million for the nine months ended September 30, 2019 due primarily to a decrease in market interest rates partially offset by an increase in the average balance of interest-bearing liabilities. The average rate of interest-bearing demand deposits decreased by 96 basis points during the nine months ended September 30, 2020 to 0.90% as compared to the prior year period. The decrease 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 declining sharply beginning in the first quarter of 2020. The average rate of time deposits decreased 16 basis points during the nine months ended September 30, 2020 to 2.25% as compared to the prior year period. The decrease in the average rate of time deposits was due to First Guaranty's plan to reduce deposit costs by expanding non-interest bearing and lower cost interest bearing deposits that has provided an alternative to higher cost time deposits and has helped First Guaranty maintain liquidity while lowering rates on time deposits. Partially offsetting the decrease in interest expense was an increase in the average balance of interest-bearing liabilities, including the interest-bearing liabilities acquired in the Union acquisition, which increased by $301.1 million during the nine months ended September 30, 2020 to $1.7 billion as compared to the prior year period as a result of a $105.8 million increase in the average balance of interest-bearing demand deposits, a $73.6 million increase in the average balance of borrowings, a $73.4 million increase in the average balance of time deposits and a $48.2 million increase in the average balance of savings deposits.

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

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


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
(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)	$	208,108	$	51	0.10	%	$	167,568	$	872	2.06	%
Securities (including FHLB stock)	419,276		2,605		2.47	%	284,575		1,959		2.73	%
Federal funds sold	920		—		—	%	480		—		—	%
Loans held for sale	102		1		3.54	%	8		—		—	%
Loans, net of unearned income	1,708,015		22,518		5.24	%	1,289,851		19,263		5.93	%
Total interest-earning assets	2,336,421		$	25,175	4.29	%	1,742,482		$	22,094	5.03	%

Noninterest-earning assets:
Cash and due from banks	12,922						8,439
Premises and equipment, net	58,905						44,598
Other assets	39,199						14,585
Total Assets	$	2,447,447					$	1,810,104

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	742,325	$	1,291	0.69	%	$	561,720	$	2,504	1.77	%
Savings deposits	174,128		62		0.14	%	110,927		127		0.45	%
Time deposits	781,874		4,139		2.11	%	682,872		4,358		2.53	%
Borrowings	120,524		644		2.13	%	33,413		392		4.65	%
Total interest-bearing liabilities	1,818,851		$	6,136	1.34	%	1,388,932		$	7,381	2.11	%

Noninterest-bearing liabilities:
Demand deposits	429,594						250,382
Other	14,039						8,942
Total Liabilities	2,262,484						1,648,256

Shareholders' equity	184,963						161,848
Total Liabilities and Shareholders' Equity	$	2,447,447					$	1,810,104
Net interest income			$	19,039					$	14,713

Net interest rate spread (2)					2.95	%					2.92	%
Net interest-earning assets (3)	$	517,570					$	353,550
Net interest margin (4), (5)					3.24	%					3.35	%

Average interest-earning assets to interest-bearing liabilities					128.46	%					125.45	%

(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 3.25% and 3.36% for the above periods ended September 30, 2020 and 2019, 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, 2020 and 2019, respectively.

(6)Annualized.

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	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
(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)	$	165,898	$	348	0.28	%	$	150,174	$	2,461	2.19	%
Securities (including FHLB stock)	420,554		8,162		2.59	%	349,039		7,381		2.83	%
Federal funds sold	680		—		—	%	468		1		0.25	%
Loans held for sale	452		20		5.87	%	416		24		7.71	%
Loans, net of unearned income	1,613,847		67,400		5.58	%	1,286,859		57,641		5.99	%
Total interest-earning assets	2,201,431		$	75,930	4.61	%	1,786,956		$	67,508	5.05	%

Noninterest-earning assets:
Cash and due from banks	12,898						8,818
Premises and equipment, net	58,190						42,743
Other assets	36,957						13,664
Total Assets	$	2,309,476					$	1,852,181

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	692,760	$	4,645	0.90	%	$	586,914	$	8,146	1.86	%
Savings deposits	159,433		210		0.18	%	111,211		407		0.49	%
Time deposits	778,325		13,137		2.25	%	704,927		12,721		2.41	%
Borrowings	107,508		2,136		2.65	%	33,902		1,226		4.83	%
Total interest-bearing liabilities	1,738,026		$	20,128	1.55	%	1,436,954		$	22,500	2.09	%

Noninterest-bearing liabilities:
Demand deposits	381,967						250,523
Other	12,524						8,237
Total Liabilities	2,132,517						1,695,714

Shareholders' equity	176,959						156,467
Total Liabilities and Shareholders' Equity	$	2,309,476					$	1,852,181
Net interest income			$	55,802					$	45,008

Net interest rate spread (2)					3.06	%					2.96	%
Net interest-earning assets (3)	$	463,405					$	350,002
Net interest margin (4), (5)					3.39	%					3.37	%

Average interest-earning assets to interest-bearing liabilities					126.66	%					124.36	%

(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 3.39% and 3.38%for the above periods ended September 30, 2020 and 2019, 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, 2020 and 2019, 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, 2020, the provision for loan losses was $1.5 million compared to $1.7 million for the same period in 2019. The allowance for loan losses at September 30, 2020 was $14.6 million and was 0.82% of total loans. Total charge-offs were $1.1 million for the three months ended September 30, 2020 and $0.5 million for the same period in 2019.

We recorded a $4.6 million provision for loan losses for the nine months ended September 30, 2020 compared to $4.1 million for the same period in 2019. The increase in the provision was attributable to the increase in the loan portfolio, the effects of the COVID-19 pandemic and charge-offs not previously provided for. Total charge-offs were $1.8 million for the nine months ended September 30, 2020 and $2.9 million for the same period in 2019.

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

Noninterest Income

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

Noninterest income totaled $3.6 million for the three months ended September 30, 2020, an increase of $0.4 million from $3.2 million for the three months ended September 30, 2019. The increase was primarily due to increased gains on the sale of securities and increased income associated from the Union acquisition. Service charges, commissions and fees totaled $0.7 million for the three months ended September 30, 2020 and for the same period in 2019. ATM and debit card fees totaled $0.8 million for the three months ended September 30, 2020 and $0.6 million for the same period in 2019. Net securities gains were $0.8 million for the three months ended September 30, 2020 and $29,000 for the same period in 2019. The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth and convert unrealized gains into realized earnings. Net gains on the sale of loans were $0.7 million for the three months ended September 30, 2020 and $1.3 million for the same period in 2019. Other noninterest income totaled $0.6 million for the three months ended September 30, 2020 and 2019, respectively.

Noninterest income totaled $9.3 million for the nine months ended September 30, 2020, an increase of $3.2 million from $6.1 million for the nine months ended September 30, 2019. The increase was primarily due to increased gains on sale of securities and increased income associated from the Union acquisition. Service charges, commissions and fees totaled $1.9 million for the nine months ended September 30, 2020 and for the same period in 2019. ATM and debit card fees totaled $2.2 million for the nine months ended September 30, 2020 and $1.7 million for the same period in 2019. Net securities gains were $2.6 million for the nine months ended September 30, 2020 as compared to losses of $0.4 million for the same period in 2019. The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth and convert unrealized gains into earnings. Net gains on the sales of loans were $1.0 million for the nine months ended September 30, 2020 and $1.4 million for the same period in 2019. Other noninterest income totaled $1.6 million for the nine months ended September 30, 2020 and $1.5 million for the same period in 2019.

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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 $14.5 million for the three months ended September 30, 2020 and $11.3 million for the three months ended September 30, 2019. Salaries and benefits expense totaled $7.3 million for the three months ended September 30, 2020 and $6.0 million for the three months ended September 30, 2019. The increase was primarily due to the increase in personnel expense from the Union acquisition and new hires. Occupancy and equipment expense totaled $1.9 million for the three months ended September 30, 2020 and $1.4 million for the same period in 2019. The increase was primarily due to the new branches acquired in the Union acquisition. Other noninterest expense totaled $5.3 million for the three months ended September 30, 2020 and $3.9 million for the three months ended September 30, 2019.

Noninterest expense totaled $42.6 million for the nine months ended September 30, 2020 and $34.1 million for the nine months ended September 30, 2019. Salaries and benefits expense totaled $22.2 million for the nine months ended September 30, 2020 and $18.1 million for the nine months ended September 30, 2019. The increase was primarily due to the increase in personnel expense from the Union acquisition and new hires. Occupancy and equipment expense totaled $5.6 million for the nine months ended September 30, 2020 and $4.4 million for the same period in 2019. The increase was primarily due to the new branches acquired in the Union acquisition. Other noninterest expense totaled $14.8 million for the nine months ended September 30, 2020 and $11.6 million for the nine months ended September 30, 2019.

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)	2020		2019		2020		2019
Other noninterest expense:
Legal and professional fees	$	787	$	745	$	2,022	$	1,779
Data processing	473		409		2,198		1,218
ATM fees	318		300		970		908
Marketing and public relations	208		364		639		1,096
Taxes - sales, capital, and franchise	343		314		1,024		891
Operating supplies	177		154		626		455
Software expense and amortization	622		321		1,611		920
Travel and lodging	175		223		540		661
Telephone	43		49		149		141
Amortization of core deposit intangibles	178		90		534		270
Donations	106		136		306		497
Net costs from other real estate and repossessions	822		103		1,079		303
Regulatory assessment	420		38		1,072		574
Other	670		629		2,036		1,869
Total other noninterest expense	$	5,342	$	3,875	$	14,806	$	11,582

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, 2020 and 2019 was $1.3 million and $1.0 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, 2020 and 2019, respectively.

The provision for income taxes for the nine months ended September 30, 2020 and 2019 was $3.7 million and $2.7 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 nine months ended September 30, 2020 and 2019, 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 $192.3 million at September 30, 2020 compared to $67.4 million at December 31, 2019. Loans maturing within one year or less at September 30, 2020 totaled $252.6 million. At September 30, 2020, time deposits maturing within one year or less totaled $372.9 million compared to $300.6 million at December 31, 2019. Time deposits maturing after one year through three years totaled $199.9 million at September 30, 2020 compared to $204.9 million at December 31, 2019. Time deposits maturing after three years totaled $168.4 million at September 30, 2020 compared to $250.6 million at December 31, 2019. First Guaranty increased interest-bearing deposits associated with brokered money market funds in order to increase on-balance sheet liquidity. Approximately $50.0 million of additional brokered money market funds were acquired in order to manage uncertainty associated with the COVID-19 crisis. First Guaranty's held to maturity ("HTM") portfolio at September 30, 2020 was $0 compared to $86.6 million or 20.3% of the investment portfolio at December 31, 2019. First Guaranty's available for sale ("AFS") portfolio was $416.3 million as of September 30, 2020. 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 $113.1 million and $170.3 million at September 30, 2020 and December 31, 2019, respectively with $53.4 million in FHLB advances outstanding at September 30, 2020 compared to $16.6 million at December 31, 2019, respectively. The two advances outstanding at December 31, 2019 were comprised of a short-term advance acquired from the Union acquisition that totaled $14.0 million and a long-term advance that totaled $3.5 million. First Guaranty paid off the acquired short-term advance acquired from the Union acquisition in the first quarter of 2020. At September 30, 2020, First Guaranty maintained the $3.4 million long-term FHLB advance acquired from the Union acquisition and initiated a new $50.0 million short-term advance that was originated in response to the COVID-19 pandemic at the end of the first quarter of 2020. The rate on the $50.0 million FHLB short-term advance was 0.72% fixed for 11 months. The advance was done to increase on balance sheet liquidity in order to deal with uncertainty surrounding the COVID-19 pandemic. 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, 2020. 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 $184.8 million at September 30, 2020 from $166.0 million at December 31, 2019. The increase in shareholders' equity was principally the result of an increase of $9.5 million in retained earnings along with an increase of $9.3 million in accumulated other comprehensive income. The $9.5 million increase in retained earnings was due to net income of $14.2 million during the nine month period ended September 30, 2020, partially offset by $4.7 million in cash dividends paid on our common stock. The increase in accumulated other comprehensive income was primarily attributed to the increase in unrealized gains on available for sale securities during the nine months ended September 30, 2020.

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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, 2020, the Bank's capital conservation buffer was 3.09% exceeding the minimum of 2.50%.

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

In addition, as a result of the legislation, the federal banking agencies have developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the new Community Bank Leverage Ratio at 9%. Pursuant to the CARES Act, the federal banking agencies set the Community Bank Leverage Ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the Community Bank Leverage Ratio will increase to 8.5% for the calendar year. Community banks will have until Jan. 1, 2022, before the Community Bank Leverage Ratio requirement will return to 9%. A financial institution can elect to be subject to this new definition. The new rule took effect on January 1, 2020. The Bank did not elect to follow the Community Bank Leverage Ratio.

At September 30, 2020, 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, 2020		As of December 31, 2019
Bank:
Tier 1 Leverage Ratio	5.00	%	8.59	%	10.44	%
Tier 1 Risk-based Capital Ratio	8.00	%	10.36	%	11.96	%
Total Risk-based Capital Ratio	10.00	%	11.09	%	12.61	%
Common Equity Tier One Capital Ratio	6.50	%	10.36	%	11.96	%

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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, 2020 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, 2020
	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)	$	496,314		$	135,056		$	631,370		$	1,157,581	$	1,788,951
Securities (including FHLB stock)	49,296			15,672			64,968			354,687		419,655
Federal Funds Sold	773			—			773			—		773
Other earning assets	177,917			—			177,917			—		177,917
Total earning assets	$	724,300		$	150,728		$	875,028		$	1,512,268	$	2,387,296

Source of Funds:
Interest-bearing accounts:
Demand deposits	$	807,946		$	—		$	807,946		$	—	$	807,946
Savings deposits	176,525			—			176,525			—		176,525
Time deposits	202,746			170,118			372,864			368,294		741,158
Short-term borrowings	—			50,000			50,000			6,293		56,293
Senior long-term debt	43,926			—			43,926			3,404		47,330
Junior subordinated debt	—			—			—			14,767		14,767
Noninterest-bearing, net	—			—			—			543,277		543,277
Total source of funds	$	1,231,143		$	220,118		$	1,451,261		$	936,035	$	2,387,296

Period gap	$	(506,843)		$	(69,390)		$	(576,233)		$	576,233
Cumulative gap	$	(506,843)		$	(576,233)		$	(576,233)		$	—

Cumulative gap as a percent of earning assets	(21.2)		%	(24.1)		%	(24.1)		%

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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, 2020. Shifts are measured in 100 basis point increments (+400 through -100 basis points) from base case. We do not present shifts less than 25 basis points because of the current low interest rate environment. The base case scenario encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous shocks are performed against that yield curve. The second table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from a gradual shift in the yield curve over a 12 month horizon.


Instantaneous Changes in Interest Rates (In Basis Points)						Percent Change In Net Interest Income
400						(0.46)%
300						(0.80)%
200						(0.89)%
100						(0.73)%
Base						—%
(25)						3.12%


Gradual Change in Interest Rates (In Basis Points)						Percent Change In Net Interest Income
400						(4.02)%
300						(3.16)%
200						(2.13)%
100						(1.01)%
Base						—%
(25)						2.54%

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

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

First Guaranty is subject to various legal proceedings in the normal course of its business. First Guaranty assesses its liabilities and contingencies in connection with outstanding legal proceedings. Where it is probable that First Guaranty will incur a loss and the amount of the loss can be reasonably estimated, First Guaranty records a liability in its consolidated financial statements. First Guaranty does not record a loss if the loss is not probable or the amount of the loss is not estimable. First Guaranty is a defendant in a lawsuit alleging overpayment of interest on a loan with a possible loss range of $0.0 million to $0.5 million. Judgment has been rendered against First Guaranty for the full amount, but First Guaranty is exercising its appeal rights. First Guaranty had an accrued liability of $0.1 million at September 30, 2020 related to this lawsuit. First Guaranty is also a defendant in a lawsuit alleging fault for a loss of funds by a customer with a possible loss range of $0.0 million to $1.5 million. No accrued liability has been recorded related to this lawsuit.

Item 1A. Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SEC. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.

In December 2019, a coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020 the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, millions of people have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. States and certain federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly adversely affected, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may recover. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

•demand for our products and services may decline, making it difficult to grow assets and income;

•if the economy is slow to recover, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

•our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

•as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

•a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

•our cyber security risks are increased as the result of an increase in the number of employees working remotely;

•we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

•Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Additionally, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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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 9, 2020						By: /s/ Alton B. Lewis
						Alton B. Lewis
						Principal Executive Officer

Date: November 9, 2020						By: /s/ Eric J. Dosch
						Eric J. Dosch
						Principal Financial Officer
						Secretary and Treasurer

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