FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
(in thousands) | | 2023 | | 2022 |
Cash Flows From Operating Activities | | | | |
Net income | | $ | 6,144 | | | $ | 15,709 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Provision for credit losses | | 862 | | | 1,389 | |
Depreciation and amortization | | 2,020 | | | 1,896 | |
Amortization/Accretion of investments | | 484 | | | 810 | |
(Gain) loss on sale/call of securities | | — | | | 17 | |
(Gain) loss on sale of assets | | (30) | | | (150) | |
Repossessed asset write downs, gains and losses on dispositions | | 53 | | | 128 | |
FHLB stock dividends | | (142) | | | (2) | |
Change in other assets and liabilities, net | | 2,322 | | | 601 | |
Net Cash Provided By Operating Activities | | 11,713 | | | 20,398 | |
| | | | |
Cash Flows From Investing Activities | | | | |
Proceeds from maturities, calls and sales of AFS securities | | 50,684 | | | 3,595 | |
Funds invested in AFS securities | | — | | | (101,807) | |
| | | | |
| | | | |
Funds invested in Federal Home Loan Bank stock | | (3,656) | | | (115) | |
Proceeds from sale/redemption of Federal Home Loan Bank stock | | 2,425 | | | — | |
Net increase in loans | | (72,392) | | | (137,850) | |
Purchase of premises and equipment | | (4,362) | | | (1,328) | |
Proceeds from sales of premises and equipment | | 276 | | | 47 | |
Proceeds from sales of other real estate owned | | 60 | | | 787 | |
Net Cash Used In Investing Activities | | (26,965) | | | (236,671) | |
| | | | |
Cash Flows From Financing Activities | | | | |
Net increase in deposits | | 43,627 | | | 63,569 | |
Net (decrease) increase in federal funds purchased and short-term borrowings | | (89,033) | | | 19,922 | |
Proceeds from long-term borrowings | | 120,000 | | | — | |
Repayment of long-term borrowings | | (1,625) | | | (4,158) | |
Proceeds from issuance of common stock | | 10,000 | | | — | |
Dividends paid on preferred stock | | (1,164) | | | (1,164) | |
Dividends paid on common stock | | (3,544) | | | (3,430) | |
Net Cash Provided By Financing Activities | | 78,261 | | | 74,739 | |
| | | | |
Net Increase (Decrease) In Cash and Cash Equivalents | | 63,009 | | | (141,534) | |
Cash and Cash Equivalents at the Beginning of the Period | | 83,219 | | | 261,932 | |
Cash and Cash Equivalents at the End of the Period | | $ | 146,228 | | | $ | 120,398 | |
| | | | |
Noncash Activities: | | | | |
Acquisition of real estate in settlement of loans | | $ | 1,273 | | | $ | 477 | |
Transfer of securities from AFS to HTM | | $ | — | | | $ | 176,181 | |
| | | | |
Cash Paid During The Period: | | | | |
Interest on deposits and borrowed funds | | $ | 39,147 | | | $ | 13,068 | |
Federal income taxes | | $ | 2,500 | | | $ | 4,500 | |
State income taxes | | $ | 330 | | | $ | — | |
| | Nine Months Ended September 30, | |
(in thousands) | | 2017 | | | 2016 | |
Cash Flows From Operating Activities | | | | | | |
Net income | | $ | 9,245 | | | $ | 10,931 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Provision for loan losses | | | 3,064 | | | | 2,978 | |
Depreciation and amortization | | | 1,757 | | | | 1,625 | |
Amortization/Accretion of investments | | | 1,345 | | | | 1,665 | |
Gain on sale/call of securities | | | (996 | ) | | | (3,756 | ) |
Gain on sale of assets | | | (198 | ) | | | (72 | ) |
Repossessed asset write downs, gains and losses on dispositions | | | 88 | | | | 163 | |
FHLB stock dividends | | | (15 | ) | | | (3 | ) |
Net increase in loans held for sale | | | (959 | ) | | | - | |
Change in other assets and liabilities, net | | | (4,425 | ) | | | 3,648 | |
Net Cash Provided By Operating Activities | | | 8,906 | | | | 17,179 | |
| | | | | | | | |
Cash Flows From Investing Activities | | | | | | | | |
Proceeds from maturities, calls and sales of certificates of deposit | | | - | | | | 1,001 | |
Proceeds from maturities and calls of HTM securities | | | 8,890 | | | | 76,946 | |
Proceeds from maturities, calls and sales of AFS securities | | | 503,585 | | | | 892,005 | |
Funds Invested in HTM securities | | | (15,345 | ) | | | - | |
Funds Invested in AFS securities | | | (483,705 | ) | | | (890,330 | ) |
Funds invested in Federal Home Loan Bank stock | | | - | | | | (671 | ) |
Net increase in loans | | | (42,081 | ) | | | (71,385 | ) |
Purchase of premises and equipment | | | (4,755 | ) | | | (2,724 | ) |
Proceeds from sales of premises and equipment | | | 72 | | | | 983 | |
Proceeds from sales of other real estate owned | | | 493 | | | | 714 | |
Cash paid in excess of cash received in acquisition | | | (2,907 | ) | | | - | |
Net Cash (Used In) Provided By Investing Activities | | | (35,753 | ) | | | 6,539 | |
| | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | |
Net increase (decrease) in deposits | | | 43,673 | | | | (38,899 | ) |
Net (decrease) increase in federal funds purchased and short-term borrowings | | | (8,700 | ) | | | 7,700 | |
Proceeds from long-term borrowings | | | 3,750 | | | | - | |
Repayment of long-term borrowings | | | (2,346 | ) | | | (2,325 | ) |
Dividends paid | | | (3,780 | ) | | | (3,653 | ) |
Net Cash Provided By (Used In) Financing Activities | | | 32,597 | | | | (37,177 | ) |
| | | | | | | | |
Net Increase (Decrease) In Cash and Cash Equivalents | | | 5,750 | | | | (13,459 | ) |
Cash and Cash Equivalents at the Beginning of the Period | | | 18,111 | | | | 37,272 | |
Cash and Cash Equivalents at the End of the Period | | $ | 23,861 | | | $ | 23,813 | |
| | | | | | | | |
Noncash Activities: | | | | | | | | |
Loans transferred to foreclosed assets | | $ | 1,259 | | | $ | 81 | |
Common stock issued in acquisition | | $ | 10,650 | | | $ | - | |
| | | | | | | | |
Cash Paid During The Period: | | | | | | | | |
Interest on deposits and borrowed funds | | $ | 9,839 | | | $ | 7,227 | |
Income taxes | | $ | 9,900 | | | $ | 3,000 | |
See Notes to the Consolidated Financial Statements.
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 810 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, 2016.2022.
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 SeptemberJune 30, 20172023 and for the three and ninesix month periods ended SeptemberJune 30, 20172023 and 20162022 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 loancredit losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of investment securities.
Note 2. Recent Accounting Pronouncements
In February 2016, the Accounting Standards Adopted in 2023
First Guaranty adopted FASB issued ASU 2016-02, "Conforming Amendments Related to Leases". This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The ASU is effective for annual and interim periods beginning after December 15, 2018. The adoption of this ASU is not expected to have a material effect on First Guaranty's Consolidated ASC Topic326 “Financial Statements.
In June 2016, the FASB issued ASU 2016-13, "MeasurementInstruments – Credit Losses: Measurement of Credit Losses on Financial Instruments". This Instruments” UpdateNo.2016-13 (“ASU amends guidance2016-13”). ASU 2016-13 on reporting credit losses forJanuary 1, 2023. ASU 2016-13, referred to as the Current Expected Credit Loss (“CECL”) standard, requires financial assets held atmeasured on an amortized cost basis, including loans and availableheld-to-maturity debt securities, to be presented at an amount net of an allowance for sale debt securities. The ASU amendments requirecredit losses, which reflects expected losses for the full life of the financial asset. Unfunded lending commitments are also within the scope of this topic. Under prior GAAP losses were not recognized until the occurrence of the loss was probable.
CECL requires 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 and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. The CECL methodology requires that lifetime expected credit losses be recorded at the time the financial asset is originated or acquired, and be adjusted each period as a provision for credit losses for changes in expected lifetime credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the lifetime credit loss estimate. First Guaranty developed a CECL model methodology that calculates expected credit losses over the life of the portfolio by analyzing the composition, characteristics and quality of the loan and securities portfolios, as well as prevailing economic conditions and forecasts. TheFirst Guaranty’s CECL calculation estimates loan losses using a combination of discounted cash flow and remaining life analyses.
First Guaranty adopted ASU requires2016-13 using the modified retrospective approach for all loans and off-balance sheet credit exposures measured at amortized cost, other than purchased credit deteriorated (“PCD”) financial assets. Results for reporting periods beginning after December 31, 2022 are presented in accordance with ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
ASU 2016-13 also amended the accounting model for purchased financial assets held atand replaced the guidance for purchased credit impaired (“PCI”) financial assets with the concept of PCDs. For PCD assets, the CECL estimate is recognized through the allowance for credit losses with an offset to the amortized cost basis to reflectof the company's current estimatePCD asset at the date of all expectedacquisition. Subsequent changes in the allowance for credit losses. Forlosses for PCD assets are recognized through a provision for credit losses on loans. First Guaranty used the prospective transition approach for PCD loans that were previously classified as PCI and accounted for under ASC 310-30,“Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). First Guaranty determined that certain PCI assets no longer met meet the criteria of PCD assets as of the date of adoption.
First Guaranty adopted ASU 2016-13 on January 1, 2023, and recorded a one-time, cumulative effect adjustment as shown in the table below (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | Impact of ASU 2016-13 Adoption | | January 1, 2023 |
Assets: | | | | | | |
Allowance for credit losses | | $ | (23,518) | | | $ | (8,220) | | | $ | (31,738) | |
Deferred tax asset | | 6,420 | | | 2,100 | | | 8,520 | |
Remaining purchase discount on loans | | (1,120) | | | 1,120 | | | — | |
Liabilities: | | | | | | |
Reserve for unfunded loan commitments | | — | | | (2,900) | | | (2,900) | |
Shareholders' Equity: | | | | | | |
Retained earnings | | 76,351 | | | (7,900) | | | 68,451 | |
In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt(“AFS”) securities, requiring expected credit losses shouldon AFS securities to be presented asrecorded in an allowance for credit losses rather than as a write-down. In addition, this ASU amends the accounting for purchased financial assets with credit deterioration. This ASU is effective for annual and interim periods beginning after December 15, 2019. We are currently evaluating the impactwrite-down of the adoption of this guidance on the Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment". This ASU amends the guidance on impairment testing. The ASU eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparingsecurities’ amortized cost. Declines in the fair value of a reporting unit with its carrying amount. An impairment charge should beAFS securities that are not considered credit related are recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.in accumulated other comprehensive income. In addition, income tax effects from any tax deductible goodwillexpected credit losses on the carrying amountheld to maturity (“HTM”) securities are required to be recorded in an allowance for credit losses rather than as a write-down of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective for annual and interim periods beginning after December 15, 2019. We are currently evaluating the impact ofsecurities’ amortized cost basis. First Guaranty’s AFS securities portfolio was not materially impacted by the adoption of this guidance on the Consolidated Financial Statements.
In March 2017, the FASB issued ASU 2017-08, "Receivables- Nonrefundable Fees and Other Costs, Premium Amortization on Purchased Callable Debt Securities". This ASU shortens the amortization periodASC 326. A $100,000 allowance for certain callable debtHTM securities heldwas recorded at a premium. Specifically, this ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount, the discount continues to be amortized to maturity. This ASU is effective for annual and interim periods beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidanceASC 326.
The allowance for credit losses is measured on the Consolidated Financial Statements.
Note 3. Merger Transaction
Effectivea pool basis when similar risk characteristics exist and is maintained at the close of business on June 16, 2017, First Guaranty completed its acquisition of 100%an amount which management believes is a current estimate of the outstanding sharesexpected credit losses for the full life of Premier Bancshares, Inc., a Texas corporation ("Premier"), a single bank holding company headquartered in McKinney, Texasthe relevant pool of loans and its wholly owned subsidiary, Synergy Bank. This acquisition allows First Guarantyrelated unfunded lending commitments. For modeling purposes, loan pools include: Real Estate based pools for construction and land development, farmland, 1-4 family residential, multifamily, and non-farm non-residential and non-real-estate pools for agricultural, commercial and industrial, commercial leases and consumer and other. Management periodically reassesses each pool to expand its presence intoconfirm the North Central Texas market area. Under terms of an agreementloans within the pool continue to share similar characteristics and plan of merger dated January 30, 2017, First Guaranty issued 0.119 of a share of its common stockrisk profiles and to determine whether further segmentation is necessary. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded lending commitments to calculate an allowance for credit losses.
Loans that do not share of Premier for a total of 397,988 shares at a price of $25.86 and paid $10.3 million in cash for an acquisition value of approximately $21.0 million. Based on the initial preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price resulted in approximately $2.1 million in goodwill and $2.7 million in core deposit intangible, none of which is deductible for tax purposes.
The valuations ofsimilar risk characteristics with other loans premises and equipment and core deposit intangible and other assets acquired and liabilities assumed are still preliminary and subject to change. United States generally accepted accounting principles ("U.S. GAAP") provides up to twelve months following the date of acquisition in which management can finalize the fair values of acquired assets and assumed liabilities. Material events that occur during the measurement period will be analyzed to determine if the new information reflected facts and circumstances that existed on the acquisition date. The measurement period ends as soon as First Guaranty receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns more information is unobtainable. The measurement period is limited to one year from the acquisition date. Once management has finalized the fair values of acquired assets and assumed liabilities within this twelve month period, management considers such values to be the "Day One Fair Values." Based on management's preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Premier acquisition is allocated in the table below.
(in thousands) | | Premier Bancshares, Inc. | |
| | | |
Cash and due from banks | | $ | 4,542 | |
Federal funds sold | | | 2,855 | |
Securities available for sale | | | 5,892 | |
Loans | | | 127,568 | |
Premises and equipment | | | 9,493 | |
Goodwill | | | 2,058 | |
Intangible assets | | | 3,809 | |
Other real estate | | | 221 | |
Other assets | | | 1,875 | |
Total assets acquired | | $ | 158,313 | |
| | | | |
Deposits | | | 127,228 | |
FHLB borrowings | | | 9,700 | |
Other liabilities | | | 431 | |
Total liabilities assumed | | $ | 137,359 | |
Net assets acquired | | $ | 20,954 | |
The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The non-impaired loans excluded from the purchase credit impairment guidance were recorded at an estimated fair valueloan pools and individually evaluated for impairment. Individually evaluated loans are loans for which it is probable that all the amounts due under the contractual terms of $123.7 millionthe loan will not be collected.
FASB ASC Topic 326 “Financial Instruments – Credit Losses, Troubled Debt Restructurings and had gross contractual amounts receivable of $122.9 millionVintage Disclosures” Update No. 2022-02 (“ASU 2022-02”). ASU 2022-02 became effective for First Guaranty on the date of acquisition. Contractual cash flows not expected to be collected are estimated at $0.5 million.
The following pro forma information for the nine months ended September 30, 2017 and September 30, 2016 reflects First Guaranty's estimated consolidated results of operations as if the acquisition of Premier occurred at January 1, 2016, unadjusted2023 and is applied prospectively. ASU 2022-02 amends Topic 326 to eliminate the accounting guidance for potential cost savings.troubled debt restructurings (“TDRs”) by creditors that have adopted ASU 2016-13 and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendment also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases. The adoption of ASU 2022-02 did not have a material impact on First Guaranty’s consolidated financial statements.
(in thousands, except share data) | | 2017 | | | 2016 | |
| | | | | | |
Net Interest Income | | $ | 41,854 | | | $ | 39,727 | |
Noninterest Income | | | 6,156 | | | | 9,427 | |
Noninterest Expense | | | 32,073 | | | | 29,202 | |
Net Income | | | 8,379 | | | | 11,114 | |
| | | | | | | | |
Earnings per common share | | $ | 1.05 | | | $ | 1.39 | |
Accounting Pronouncements Not Yet Adopted
None.
Note 4.3. Securities
A summary comparison of securities by type at SeptemberJune 30, 20172023 and December 31, 20162022 is shown below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
(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 | | $ | 50,319 | | | $ | — | | | $ | (1,302) | | | $ | 49,017 | | | $ | 100,642 | | | $ | — | | | $ | (2,142) | | | $ | 98,500 | |
U.S. Government Agencies | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Corporate debt securities | | 16,750 | | | — | | | (1,711) | | | 15,039 | | | 16,750 | | | — | | | (752) | | | 15,998 | |
Municipal bonds | | 14,097 | | | 11 | | | (523) | | | 13,585 | | | 14,742 | | | 31 | | | (426) | | | 14,347 | |
Mortgage-backed securities | | 2,667 | | | — | | | (155) | | | 2,512 | | | 2,711 | | | — | | | (98) | | | 2,613 | |
Total available for sale securities | | $ | 83,833 | | | $ | 11 | | | $ | (3,691) | | | $ | 80,153 | | | $ | 134,845 | | | $ | 31 | | | $ | (3,418) | | | $ | 131,458 | |
| | | | | | | | | | | | | | | | |
Held to maturity: | | | | | | | | | | | | | | | | |
U.S. Government Agencies | | $ | 265,464 | | | $ | — | | | $ | (63,178) | | | $ | 202,286 | | | $ | 265,032 | | | $ | — | | | $ | (69,503) | | | $ | 195,529 | |
Corporate debt securities | | 55,159 | | | — | | | (7,437) | | | 47,722 | | | 55,036 | | | — | | | (8,005) | | | 47,031 | |
Total held to maturity securities | | $ | 320,623 | | | $ | — | | | $ | (70,615) | | | $ | 250,008 | | | $ | 320,068 | | | $ | — | | | $ | (77,508) | | | $ | 242,560 | |
| | September 30, 2017 | | | December 31, 2016 | |
(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 | | $ | 10,599 | | | $ | - | | | $ | - | | | $ | 10,599 | | | $ | 29,994 | | | $ | - | | | $ | - | | | $ | 29,994 | |
U.S. Government Agencies | | | 200,048 | | | | 7 | | | | (3,026 | ) | | | 197,029 | | | | 183,152 | | | | - | | | | (4,820 | ) | | | 178,332 | |
Corporate debt securities | | | 104,674 | | | | 1,315 | | | | (741 | ) | | | 105,248 | | | | 132,448 | | | | 1,624 | | | | (2,100 | ) | | | 131,972 | |
Mutual funds or other equity securities | | | 500 | | | | - | | | | (3 | ) | | | 497 | | | | 580 | | | | - | | | | (7 | ) | | | 573 | |
Municipal bonds | | | 37,382 | | | | 174 | | | | (62 | ) | | | 37,494 | | | | 28,177 | | | | 100 | | | | (320 | ) | | | 27,957 | |
Collateralized mortgage obligations | | | 1,289 | | | | 6 | | | | - | | | | 1,295 | | | | - | | | | - | | | | - | | | | - | |
Mortgage-backed securities | | | 35,121 | | | | 21 | | | | (258 | ) | | | 34,884 | | | | 29,181 | | | | - | | | | (536 | ) | | | 28,645 | |
Total available-for-sale securities | | $ | 389,613 | | | $ | 1,523 | | | $ | (4,090 | ) | | $ | 387,046 | | | $ | 403,532 | | | $ | 1,724 | | | $ | (7,783 | ) | | $ | 397,473 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held-to-maturity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government Agencies | | $ | 28,168 | | | $ | - | | | $ | (531 | ) | | $ | 27,637 | | | $ | 18,167 | | | $ | - | | | $ | (655 | ) | | $ | 17,512 | |
Municipal bonds | | | 5,340 | | | | - | | | | (59 | ) | | | 5,281 | | | | - | | | | - | | | | - | | | | - | |
Mortgage-backed securities | | | 74,391 | | | | 21 | | | | (509 | ) | | | 73,903 | | | | 83,696 | | | | - | | | | (1,302 | ) | | | 82,394 | |
Total held-to-maturity securities | | $ | 107,899 | | | $ | 21 | | | $ | (1,099 | ) | | $ | 106,821 | | | $ | 101,863 | | | $ | - | | | $ | (1,957 | ) | | $ | 99,906 | |
The scheduled maturities of securities at SeptemberJune 30, 2017,2023, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to callcalls 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.below: | | | | | | | | | | | | | | |
| | At June 30, 2023 |
(in thousands) | | Amortized Cost | | Fair Value |
Available for sale: | | | | |
Due in one year or less | | $ | 51,208 | | | $ | 49,899 | |
Due after one year through five years | | 2,796 | | | 2,747 | |
Due after five years through 10 years | | 20,024 | | | 18,275 | |
Over 10 years | | 7,138 | | | 6,720 | |
Subtotal | | 81,166 | | | 77,641 | |
Mortgage-backed securities | | 2,667 | | | 2,512 | |
Total available for sale securities | | $ | 83,833 | | | $ | 80,153 | |
| | | | |
Held to maturity: | | | | |
Due in one year or less | | $ | — | | | $ | — | |
Due after one year through five years | | 1,481 | | | 1,270 | |
Due after five years through 10 years | | 116,303 | | | 98,465 | |
Over 10 years | | 202,839 | | | 150,273 | |
Total held to maturity securities | | $ | 320,623 | | | $ | 250,008 | |
| | September 30, 2017 | |
(in thousands) | | Amortized Cost | | | Fair Value | |
Available For Sale: | | | | | | |
Due in one year or less | | $ | 19,214 | | | $ | 19,280 | |
Due after one year through five years | | | 72,262 | | | | 72,456 | |
Due after five years through 10 years | | | 236,077 | | | | 233,700 | |
Over 10 years | | | 25,650 | | | | 25,431 | |
Subtotal | | | 353,203 | | | | 350,867 | |
Collateralized mortgage obligations | | | 1,289 | | | | 1,295 | |
Mortgage-backed Securities | | | 35,121 | | | | 34,884 | |
Total available-for-sale securities | | $ | 389,613 | | | $ | 387,046 | |
| | | | | | | | |
Held to Maturity: | | | | | | | | |
Due in one year or less | | $ | - | | | $ | - | |
Due after one year through five years | | | 5,124 | | | | 5,091 | |
Due after five years through 10 years | | | 18,485 | | | | 17,994 | |
Over 10 years | | | 9,899 | | | | 9,833 | |
Subtotal | | | 33,508 | | | | 32,918 | |
Mortgage-backed Securities | | | 74,391 | | | | 73,903 | |
Total held to maturity securities | | $ | 107,899 | | | $ | 106,821 | |
At SeptemberJune 30, 2017, $368.72023, $158.6 million of First Guaranty's securities were pledged to secure public fundfunds deposits and borrowings. The pledged securities had a market value of $367.6$121.0 million as of SeptemberJune 30, 2017.2023.
Accrued interest receivable on First Guaranty's investment securities was $1.6 million and $2.0 million at June 30, 2023 and December 31, 2022, respectively, and was included in accrued interest receivable on the consolidated balance sheet. First Guaranty had a $0.1 million allowance for credit losses related to the held to maturity portfolio.
The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at SeptemberJune 30, 2017.2023.
| | | | | | At September 30, 2017 | | | | | | | | At June 30, 2023 | | |
| | Less Than 12 Months | | | 12 Months or More | | | Total | | | 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 | | (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: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available for sale: | | | | | | | | | | | | | | | | | |
U.S. Treasuries | | | - | | | $ | - | | | $ | - | | | | - | | | $ | - | | | $ | - | | | | - | | | $ | - | | | $ | - | | U.S. Treasuries | — | | | $ | — | | | $ | — | | | 3 | | | $ | 49,017 | | | $ | (1,302) | | | 3 | | | $ | 49,017 | | | $ | (1,302) | |
U.S. Government agencies | | | 40 | | | | 102,165 | | | | (777 | ) | | | 20 | | | | 84,309 | | | | (2,249 | ) | | | 60 | | | | 186,474 | | | | (3,026 | ) | |
Corporate debt securities | | | 54 | | | | 16,538 | | | | (222 | ) | | | 54 | | | | 18,161 | | | | (519 | ) | | | 108 | | | | 34,699 | | | | (741 | ) | Corporate debt securities | 8 | | | 6,111 | | | (806) | | | 8 | | | 8,095 | | | (905) | | | 16 | | | 14,206 | | | (1,711) | |
Mutual funds or other equity securities | | | 1 | | | | 497 | | | | (3 | ) | | | - | | | | - | | | | - | | | | 1 | | | | 497 | | | | (3 | ) | |
Municipal bonds | | | 8 | | | | 6,422 | | | | (40 | ) | | | 1 | | | | 1,101 | | | | (22 | ) | | | 9 | | | | 7,523 | | | | (62 | ) | Municipal bonds | 35 | | | 9,331 | | | (262) | | | 29 | | | 2,566 | | | (261) | | | 64 | | | 11,897 | | | (523) | |
Collateralized mortgage obligations | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | |
Mortgage-backed securities | | | 17 | | | | 24,192 | | | | (218 | ) | | | 1 | | | | 2,371 | | | | (40 | ) | | | 18 | | | | 26,563 | | | | (258 | ) | Mortgage-backed securities | 2 | | | 2,124 | | | (110) | | | 4 | | | 388 | | | (45) | | | 6 | | | 2,512 | | | (155) | |
Total available-for-sale | | | 120 | | | $ | 149,814 | | | $ | (1,260 | ) | | | 76 | | | $ | 105,942 | | | $ | (2,830 | ) | | | 196 | | | $ | 255,756 | | | $ | (4,090 | ) | |
Total available for sale securities | | Total available for sale securities | 45 | | | $ | 17,566 | | | $ | (1,178) | | | 44 | | | $ | 60,066 | | | $ | (2,513) | | | 89 | | | $ | 77,632 | | | $ | (3,691) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held to maturity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held to maturity: | | | | | | | | | | | | | | | | | |
U.S. Government agencies | | | 5 | | | | 14,934 | | | | (65 | ) | | | 9 | | | | 12,704 | | | | (466 | ) | | | 14 | | | | 27,638 | | | | (531 | ) | |
Municipal bonds | | | 9 | | | | 5,281 | | | | (59 | ) | | | - | | | | - | | | | - | | | | 9 | | | | 5,281 | | | | (59 | ) | |
Mortgage-backed securities | | | 40 | | | | 64,002 | | | | (402 | ) | | | 4 | | | | 5,003 | | | | (107 | ) | | | 44 | | | | 69,005 | | | | (509 | ) | |
Total held to maturity | | | 54 | | | $ | 84,217 | | | $ | (526 | ) | | | 13 | | | $ | 17,707 | | | $ | (573 | ) | | | 67 | | | $ | 101,924 | | | $ | (1,099 | ) | |
U.S. Government Agencies | | U.S. Government Agencies | — | | | $ | — | | | $ | — | | | 29 | | | $ | 202,286 | | | $ | (63,178) | | | 29 | | | $ | 202,286 | | | $ | (63,178) | |
Corporate debt securities | | Corporate debt securities | 1 | | | 72 | | | (110) | | | 58 | | | 47,650 | | | (7,327) | | | 59 | | | 47,722 | | | (7,437) | |
Total held to maturity securities | | Total held to maturity securities | 1 | | | $ | 72 | | | $ | (110) | | | 87 | | | $ | 249,936 | | | $ | (70,505) | | | 88 | | | $ | 250,008 | | | $ | (70,615) | |
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, 2016.2022.
| | | | | | At December 31, 2016 | | | | | | | | At December 31, 2022 | | |
| | Less Than 12 Months | | | 12 Months or More | | | Total | | | 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 | | (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: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available for sale: | | | | | | | | | | | | | | | | | |
U.S. Treasuries | | | 3 | | | $ | 10,997 | | | $ | - | | | | - | | | $ | - | | | $ | - | | | | 3 | | | $ | 10,997 | | | $ | - | | U.S. Treasuries | — | | | $ | — | | | $ | — | | | 6 | | | $ | 98,500 | | | $ | (2,142) | | | 6 | | | $ | 98,500 | | | $ | (2,142) | |
U.S. Government agencies | | | 54 | | | | 178,331 | | | | (4,820 | ) | | | - | | | | - | | | | - | | | | 54 | | | | 178,331 | | | | (4,820 | ) | |
U.S. Government Agencies | | U.S. Government Agencies | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Corporate debt securities | | | 185 | | | | 61,669 | | | | (1,613 | ) | | | 26 | | | | 6,440 | | | | (487 | ) | | | 211 | | | | 68,109 | | | | (2,100 | ) | Corporate debt securities | 14 | | | 14,628 | | | (622) | | | 2 | | | 1,370 | | | (130) | | | 16 | | | 15,998 | | | (752) | |
Mutual funds or other equity securities | | | 1 | | | | 493 | | | | (7 | ) | | | - | | | | - | | | | - | | | | 1 | | | | 493 | | | | (7 | ) | |
Municipal bonds | | | 14 | | | | 10,210 | | | | (320 | ) | | | - | | | | - | | | | - | | | | 14 | | | | 10,210 | | | | (320 | ) | Municipal bonds | 46 | | | 5,854 | | | (394) | | | 6 | | | 673 | | | (32) | | | 52 | | | 6,527 | | | (426) | |
Mortgage-backed securities | | | 16 | | | | 28,645 | | | | (536 | ) | | | - | | | | - | | | | - | | | | 16 | | | | 28,645 | | | | (536 | ) | Mortgage-backed securities | 3 | | | 2,608 | | | (98) | | | 4 | | | 5 | | | — | | | 7 | | | 2,613 | | | (98) | |
Total available for sale | | | 273 | | | $ | 290,345 | | | $ | (7,296 | ) | | | 26 | | | $ | 6,440 | | | $ | (487 | ) | | | 299 | | | $ | 296,785 | | | $ | (7,783 | ) | |
Total available for sale securities | | Total available for sale securities | 63 | | | $ | 23,090 | | | $ | (1,114) | | | 18 | | | $ | 100,548 | | | $ | (2,304) | | | 81 | | | $ | 123,638 | | | $ | (3,418) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held to maturity: | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Held to maturity: | |
U.S. Government agencies | | | 10 | | | $ | 17,512 | | | $ | (655 | ) | | | - | | | $ | - | | | $ | - | | | | 10 | | | $ | 17,512 | | | $ | (655 | ) | |
Mortgage-backed securities | | | 48 | | | | 82,394 | | | | (1,302 | ) | | | - | | | | - | | | | - | | | | 48 | | | | 82,394 | | | | (1,302 | ) | |
Total held to maturity | | | 58 | | | $ | 99,906 | | | $ | (1,957 | ) | | | - | | | $ | - | | | $ | - | | | | 58 | | | $ | 99,906 | | | $ | (1,957 | ) | |
U.S. Government Agencies | | U.S. Government Agencies | 13 | | | $ | 89,695 | | | $ | (21,724) | | | 16 | | | $ | 105,834 | | | $ | (47,779) | | | 29 | | | $ | 195,529 | | | $ | (69,503) | |
Corporate debt securities | | Corporate debt securities | 59 | | | 47,031 | | | (8,005) | | | — | | | — | | | — | | | 59 | | | 47,031 | | | (8,005) | |
Total held to maturity securities | | Total held to maturity securities | 72 | | | $ | 136,726 | | | $ | (29,729) | | | 16 | | | $ | 105,834 | | | $ | (47,779) | | | 88 | | | $ | 242,560 | | | $ | (77,508) | |
As of SeptemberJune 30, 2017, 2632023, 177 of First Guaranty's debt securities had unrealized losses totaling 1.4%18.5% of the individual securities' amortized cost basis and 1.0%18.4% of First Guaranty's total amortized cost basis of the investment securities portfolio. 89131 of the 263177 securities had been in a continuous loss position for over 12 months at such date. The 89131 securities had an aggregate amortized cost basis of $127.1$383.0 million and an unrealized loss of $3.4$73.0 million at SeptemberJune 30, 2017.2023. Management has determined that the intentdeclines in the fair value of these securities was not attributed to credit losses, and ability to hold these debtno allowance for credit losses was recorded for available for sale securities until maturity or until anticipated recovery.at June 30, 2023.
Securities are evaluated for other-than-temporary impairment from credit losses 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-temporarilycredit 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. TwoThere were no securities with an other-than-temporarya credit related impairment loss were held at SeptemberJune 30, 2017.2023. 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 werewas no other-than-temporary impairmentallowance for credit losses recognized on securities during the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.
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, 2017 and 2016:
(in thousands) | | Nine Months Ended September 30, 2017 | | | Nine Months Ended September 30, 2016 | |
Beginning balance of credit losses at end of prior year | | $ | 60 | | | $ | 175 | |
Other-than-temporary impairment credit losses on securities not previously OTTI | | | - | | | | - | |
Increases for additional credit losses on securities previously determined to be OTTI | | | - | | | | - | |
Reduction for increases in cash flows | | | - | | | | - | |
Reduction due to credit impaired securities sold or fully settled | | | - | | | | (175 | ) |
Ending balance of cumulative credit losses recognized in earnings at end of period | | $ | 60 | | | $ | - | |
In the first nine months of 2017 there were no other-than-temporary impairment credit losses on securities for which we had previously recognized OTTI. For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management's best estimate of future cash flows based on specific assumptions. The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities. Management reviews reports from credit rating agencies and public filings of issuers.
At SeptemberJune 30, 2017,2023, First Guaranty's exposure to bond issuers that exceeded 10% of shareholders' equity is below:
| | | At September 30, 2017 | | | | At June 30, 2023 |
(in thousands) | | Amortized Cost | | | Fair Value | | (in thousands) | | Amortized Cost | | Fair Value |
| U.S. Government Treasuries (U.S.) | | U.S. Government Treasuries (U.S.) | | $ | 50,319 | | | $ | 49,017 | |
Federal Home Loan Bank (FHLB) | | $ | 50,393 | | | $ | 49,655 | | Federal Home Loan Bank (FHLB) | | 32,143 | | | 25,701 | |
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) | | | 51,268 | | | | 50,979 | | Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) | | 97,504 | | | 69,834 | |
Federal National Mortgage Association (Fannie Mae-FNMA) | | | 99,145 | | | | 97,661 | | |
| Federal Farm Credit Bank (FFCB) | | | 136,922 | | | | 135,158 | | Federal Farm Credit Bank (FFCB) | | 138,483 | | | 109,262 | |
Total | | $ | 337,728 | | | $ | 333,453 | | Total | | $ | 318,449 | | | $ | 253,814 | |
Note 5.4. Loans
The following table summarizes the components of First Guaranty's loan portfolio as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | September 30, 2017 | | | December 31, 2016 | | | | June 30, 2023 | | December 31, 2022 |
(in thousands except for %) | | Balance | | | As % of Category | | | Balance | | | As % of Category | | (in thousands except for %) | | Balance | | As % of Category | | Balance | | As % of Category |
Real Estate: | | | | | | | | | | | | | Real Estate: | | | | | | | | |
Construction & land development | | $ | 108,610 | | | | 9.8 | % | | $ | 84,239 | | | | 8.9 | % | Construction & land development | | $ | 301,259 | | | 11.6 | % | | $ | 233,091 | | | 9.2 | % |
Farmland | | | 29,345 | | | | 2.6 | % | | | 21,138 | | | | 2.2 | % | Farmland | | 29,398 | | | 1.1 | % | | 24,823 | | | 1.0 | % |
1- 4 Family | | | 158,564 | | | | 14.3 | % | | | 135,211 | | | | 14.2 | % | 1- 4 Family | | 406,148 | | | 15.6 | % | | 366,330 | | | 14.5 | % |
Multifamily | | | 17,089 | | | | 1.5 | % | | | 12,450 | | | | 1.3 | % | Multifamily | | 121,342 | | | 4.7 | % | | 119,785 | | | 4.7 | % |
Non-farm non-residential | | | 508,210 | | | | 45.6 | % | | | 417,014 | | | | 43.9 | % | Non-farm non-residential | | 1,025,073 | | | 39.5 | % | | 992,929 | | | 39.3 | % |
Total Real Estate | | | 821,818 | | | | 73.8 | % | | | 670,052 | | | | 70.5 | % | Total Real Estate | | 1,883,220 | | | 72.5 | % | | 1,736,958 | | | 68.7 | % |
Non-Real Estate: | | | | | | | | | | | | | | | | | Non-Real Estate: | | | | | | | | |
Agricultural | | | 29,109 | | | | 2.6 | % | | | 23,783 | | | | 2.5 | % | Agricultural | | 47,924 | | | 1.8 | % | | 39,045 | | | 1.5 | % |
Commercial and industrial | | | 209,386 | | | | 18.8 | % | | | 193,969 | | | | 20.4 | % | |
Commercial and industrial (1) | | Commercial and industrial (1) | | 338,023 | | | 13.0 | % | | 385,279 | | | 15.3 | % |
Commercial leases | | Commercial leases | | 282,161 | | | 10.9 | % | | 317,574 | | | 12.6 | % |
Consumer and other | | | 53,606 | | | | 4.8 | % | | | 63,011 | | | | 6.6 | % | Consumer and other | | 47,771 | | | 1.8 | % | | 47,864 | | | 1.9 | % |
Total Non-Real Estate | | | 292,101 | | | | 26.2 | % | | | 280,763 | | | | 29.5 | % | Total Non-Real Estate | | 715,879 | | | 27.5 | % | | 789,762 | | | 31.3 | % |
Total loans before unearned income | | | 1,113,919 | | | | 100.0 | % | | | 950,815 | | | | 100.0 | % | |
Total Loans Before Unearned Income | | Total Loans Before Unearned Income | | 2,599,099 | | | 100.0 | % | | 2,526,720 | | | 100.0 | % |
Unearned income | | | (2,128 | ) | | | | | | | (1,894 | ) | | | | | Unearned income | | (8,433) | | | | | (7,643) | | | |
Total loans net of unearned income | | $ | 1,111,791 | | | | | | | $ | 948,921 | | | | | | |
Total Loans Net of Unearned Income | | Total Loans Net of Unearned Income | | $ | 2,590,666 | | | | | $ | 2,519,077 | | | |
(1) Includes PPP loans fully guaranteed by the SBA of $5.4 million and $5.9 million at June 30, 2023 and December 31, 2022, respectively.
Accrued interest receivable on First Guaranty's loans totaled $13.5 million and $11.0 million at June 30, 2023 and December 31, 2022, respectively, and is included in accrued interest receivable on the consolidated balance sheet. Accrued interest receivable is excluded from First Guaranty's estimate of the allowance for credit losses.
The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of SeptemberJune 30, 20172023 and December 31, 20162022 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
(in thousands) | | Fixed | | Floating | | Total | | Fixed | | Floating | | Total |
One year or less | | $ | 242,207 | | | $ | 110,833 | | | $ | 353,040 | | | $ | 234,921 | | | $ | 137,203 | | | $ | 372,124 | |
More than one to five years | | 848,710 | | | 319,823 | | | 1,168,533 | | | 900,960 | | | 339,894 | | | 1,240,854 | |
More than five to 15 years | | 89,499 | | | 214,015 | | | 303,514 | | | 114,425 | | | 216,251 | | | 330,676 | |
Over 15 years | | 293,820 | | | 456,289 | | | 750,109 | | | 261,209 | | | 308,291 | | | 569,500 | |
Subtotal | | $ | 1,474,236 | | | $ | 1,100,960 | | | 2,575,196 | | | $ | 1,511,515 | | | $ | 1,001,639 | | | 2,513,154 | |
Nonaccrual loans | | | | | | 23,903 | | | | | | | 13,566 | |
Total Loans Before Unearned Income | | | | | | 2,599,099 | | | | | | | 2,526,720 | |
Unearned income | | | | | | (8,433) | | | | | | | (7,643) | |
Total Loans Net of Unearned Income | | | | | | $ | 2,590,666 | | | | | | | $ | 2,519,077 | |
| | September 30, 2017 | | | December 31, 2016 | |
(in thousands) | | Fixed | | | Floating | | | Total | | | Fixed | | | Floating | | | Total | |
One year or less | | $ | 102,315 | | | $ | 64,857 | | | $ | 167,172 | | | $ | 97,713 | | | $ | 51,965 | | | $ | 149,678 | |
More Than One to five years | | | 398,112 | | | | 224,644 | | | | 622,756 | | | | 352,000 | | | | 206,676 | | | | 558,676 | |
More Than Five to 15 years | | | 131,206 | | | | 43,175 | | | | 174,381 | | | | 115,691 | | | | 46,116 | | | | 161,807 | |
Over 15 years | | | 83,606 | | | | 55,704 | | | | 139,310 | | | | 53,150 | | | | 5,830 | | | | 58,980 | |
Subtotal | | $ | 715,239 | | | $ | 388,380 | | | | 1,103,619 | | | $ | 618,554 | | | $ | 310,587 | | | | 929,141 | |
Nonaccrual loans | | | | | | | | | | | 10,300 | | | | | | | | | | | | 21,674 | |
Total loans before unearned income | | | | | | | | | | | 1,113,919 | | | | | | | | | | | | 950,815 | |
Unearned income | | | | | | | | | | | (2,128 | ) | | | | | | | | | | | (1,894 | ) |
Total loans net of unearned income | | | | | | | | | | $ | 1,111,791 | | | | | | | | | | | $ | 948,921 | |
As of September 30, 2017, $121.8 million ofIncluded in floating rate loans were at their interest rate floor. At December 31, 2016, $127.7 million ofare loans that adjust to a floating rate loans were at the floor rate. Nonaccrual loans have been excluded from these totals.
following an initial fixed rate period. The initial fixed rate periods are typically one, three, or five years.
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 datesdate indicated:
Negative provisions are caused by changes in the composition and credit quality of the loan portfolio.portfolio and by recoveries. The result is an allocation of the loancredit loss reserve from one category to another.
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:
The following is a summary of impaired loans by class as of the date indicated:
| | As of December 31, 2016 | |
(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 | | $ | 361 | | | $ | 823 | | | $ | - | | | $ | 363 | | | $ | - | | | $ | - | |
Farmland | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
1 - 4 family | | | 863 | | | | 1,196 | | | | - | | | | 1,044 | | | | 49 | | | | 48 | |
Multifamily | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Non-farm non-residential | | | 8,501 | | | | 9,430 | | | | - | | | | 8,949 | | | | 196 | | | | 175 | |
Total Real Estate | | | 9,725 | | | | 11,449 | | | | - | | | | 10,356 | | | | 245 | | | | 223 | |
Non-Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Agricultural | | | 1,603 | | | | 1,742 | | | | - | | | | 1,377 | | | | 30 | | | | - | |
Commercial and industrial | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Consumer and other | | | 686 | | | | 685 | | | | - | | | | 724 | | | | 18 | | | | 12 | |
Total Non-Real Estate | | | 2,289 | | | | 2,427 | | | | - | | | | 2,101 | | | | 48 | | | | 12 | |
Total Impaired Loans with no related allowance | | | 12,014 | | | | 13,876 | | | | - | | | | 12,457 | | | | 293 | | | | 235 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Impaired Loans with an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | |
Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Construction & land development | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Farmland | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
1 - 4 family | | | 267 | | | | 303 | | | | 8 | | | | 279 | | | | - | | | | - | |
Multifamily | | | 5,014 | | | | 5,305 | | | | 164 | | | | 5,169 | | | | - | | | | - | |
Non-farm non-residential | | | 2,302 | | | | 2,296 | | | | 247 | | | | 2,334 | | | | 119 | | | | 113 | |
Total Real Estate | | | 7,583 | | | | 7,904 | | | | 419 | | | | 7,782 | | | | 119 | | | | 113 | |
Non-Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Agricultural | | | 11 | | | | 11 | | | | 11 | | | | 11 | | | | - | | | | - | |
Commercial and industrial | | | 8,965 | | | | 9,117 | | | | 2,375 | | | | 9,379 | | | | 72 | | | | 72 | |
Consumer and other | | | 238 | | | | 244 | | | | 193 | | | | 289 | | | | 8 | | | | 7 | |
Total Non-Real Estate | | | 9,214 | | | | 9,372 | | | | 2,579 | | | | 9,679 | | | | 80 | | | | 79 | |
Total Impaired Loans with an allowance recorded | | | 16,797 | | | | 17,276 | | | | 2,998 | | | | 17,461 | | | | 199 | | | | 192 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Impaired Loans | | $ | 28,811 | | | $ | 31,152 | | | $ | 2,998 | | | $ | 29,918 | | | $ | 492 | | | $ | 427 | |
Troubled Debt Restructurings
A troubled debt restructuring ("TDR") is considered such if the lender for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to First Guaranty's TDRs were concessions on either the interest rate charged or the amortization. The effect of the modifications to First Guaranty was a reduction in interest income. These loans have an allocated reserve in First Guaranty's allowance for loan losses. First Guaranty has not restructured any loans that are considered TDRs in the nine months ended September 30, 2017.
The following table identifies the TDRs as of September 30, 2017 and December 31, 2016:
| | September 30, 2017 | | | December 31, 2016 | |
| | 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 | | $ | - | | | $ | - | | | $ | 343 | | | $ | 343 | | | $ | - | | | $ | - | | | $ | 361 | | | $ | 361 | |
Farmland | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
1-4 Family | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Multifamily | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Non-farm non residential | | | 2,138 | | | | - | | | | - | | | | 2,138 | | | | 2,987 | | | | - | | | | 100 | | | | 3,087 | |
Total Real Estate | | | 2,138 | | | | - | | | | 343 | | | | 2,481 | | | | 2,987 | | | | - | | | | 461 | | | | 3,448 | |
Non-Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agricultural | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Commercial and industrial | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Consumer and other | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total Non-Real Estate | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total | | $ | 2,138 | | | $ | - | | | $ | 343 | | | $ | 2,481 | | | $ | 2,987 | | | $ | - | | | $ | 461 | | | $ | 3,448 | |
The following table discloses TDR activity for the nine months ended September 30, 2017.
| | Troubled Debt Restructured Loans Activity Nine Months Ended September 30, 2017 | |
(in thousands) | | Beginning balance December 31, 2016 | | | New TDRs | | | Charge-offs post-modification | | | Transferred to ORE | | | Paydowns | | | Construction to permanent financing | | | Restructured to market terms | | | Other adjustments | | | Ending balance September 30, 2017 | |
Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction & land development | | $ | 361 | | | $ | - | | | $ | - | | | $ | - | | | $ | (18 | ) | | $ | - | | | $ | - | | | $ | - | | | $ | 343 | |
Farmland | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
1 - 4 family | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Multifamily | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Non-farm non-residential | | | 3,087 | | | | - | | | | (102 | ) | | | - | | | | (849 | ) | | | - | | | | - | | | | 2 | | | | 2,138 | |
Total Real Estate | | | 3,448 | | | | - | | | | (102 | ) | | | - | | | | (867 | ) | | | - | | | | - | | | | 2 | | | | 2,481 | |
Non-Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agricultural | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Commercial and industrial | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Consumer and other | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total Non-Real Estate | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total | | $ | 3,448 | | | $ | - | | | $ | (102 | ) | | $ | - | | | $ | (867 | ) | | $ | - | | | $ | - | | | | 2 | | | $ | 2,481 | |
There were no commitments to lend additional funds to debtors whose terms have been modified in a TDR at September 30, 2017.
Note 7.6. Goodwill and Other Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. First Guaranty's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007, and Premier Bancshares, Inc. in 2017.2017 and Union Bancshares, Incorporated in 2019. Goodwill totaled $4.1$12.9 million at SeptemberJune 30, 20172023 and $2.0 million at December 31, 2016.2022. No impairment charges have been recognized on First Guaranty's intangible assets.assets since acquisition. Loan servicing assets increased $1.1 million to $1.2totaled $0.6 million at SeptemberJune 30, 2017 compared to2023 and December 31, 2016.2022. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The weighted-average amortization period remaining for First Guaranty's core deposit intangibles is 9.85.8 years at SeptemberJune 30, 2017.2023. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions. The goodwill and other intangibles arising from the Premier acquisition are estimates and are subject to change.
Note 8.7. Other Real Estate (ORE)
Other real estate owned consists of the following at the dates indicated:
| (in thousands) | | September 30, 2017 | | | December 31, 2016 | | (in thousands) | | June 30, 2023 | | December 31, 2022 |
Real Estate Owned Acquired by Foreclosure: | | | | | | | Real Estate Owned Acquired by Foreclosure: | | | | |
Residential | | $ | 23 | | | $ | 71 | | Residential | | $ | 248 | | | $ | 113 | |
Construction & land development | | | 319 | | | | - | | Construction & land development | | 251 | | | — | |
Non-farm non-residential | | | 954 | | | | 288 | | Non-farm non-residential | | 774 | | | — | |
Total Other Real Estate Owned and Foreclosed Property | | $ | 1,296 | | | $ | 359 | | Total Other Real Estate Owned and Foreclosed Property | | 1,273 | | | 113 | |
Allowance | | Allowance | | — | | | — | |
Net Other Real Estate Owned and Foreclosed Property | | Net Other Real Estate Owned and Foreclosed Property | | $ | 1,273 | | | $ | 113 | |
Loans secured by one-to-four family residential properties in the process of foreclosure totaled $0.2$1.4 million as of SeptemberJune 30, 2017.2023.
Note 9.8. Commitments and Contingencies
Off-balance sheet commitments
First Guaranty is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk.
Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at SeptemberJune 30, 20172023 and December 31, 2016:2022:
Contract Amount
| | | | | | | | | | | | | | |
(in thousands) | | June 30, 2023 | | December 31, 2022 |
Commitments to Extend Credit | | $ | 339,966 | | | $ | 246,968 | |
Unfunded Commitments under lines of credit | | $ | 238,013 | | | $ | 253,906 | |
Commercial and Standby letters of credit | | $ | 14,219 | | | $ | 14,222 | |
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
Commitments to Extend Credit | | $ | 59,485 | | | $ | 56,910 | |
Unfunded Commitments under lines of credit | | $ | 106,571 | | | $ | 128,428 | |
Commercial and Standby letters of credit | | $ | 8,613 | | | $ | 6,602 | |
Allowance For Credit Losses - Off- Balance-Sheet Credit Exposures
The provision for credit losses on unfunded commitments was $0.1 million for the six months ended June 30, 2023. The ACL on off-balance-sheet credit exposures total $2.9 million at January 1, 2023 upon the adoption of ASC 326, and $3.0 million at June 30, 2023 and is included in other liabilities on the accompanying consolidated balance sheets.
Litigation
The nature of First Guaranty's business ordinarily resultsGuaranty is subject to various legal proceedings in a certain amount of claims, litigation and legal and administrative cases, all of which are considered incidental to the normal conductcourse of its business. When First Guaranty determinesassesses its liabilities and contingencies in connection with outstanding legal proceedings. Where it has defenses to the claims asserted, it defends itself.is probable that First Guaranty will consider settlementincur a loss and the amount of cases when itthe 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 Bank is a defendant in a lawsuit alleging fault for a loss of funds by a customer related to fraud by a third party with a possible loss range of $0.0 million to $1.5 million. The Bank denies the allegations and intends to vigorously defend against this lawsuit, which is in the best interests of bothearly stages and no trial date has been set. No accrued liability has been recorded related to this lawsuit. First Guaranty and its shareholders.
Whilesettled a case in the final outcomethird quarter of 2021 for $1.1 million. A receivable for $0.9 million has been recorded for recovery by a claim against First Guaranty's insurer. In the opinion of management, neither First Guaranty nor First Guaranty Bank is currently involved in such legal proceedings, either individually or in the aggregate, that the resolution is inherently uncertain, based on information currently available as of September 30, 2017, any incremental liability arising from First Guaranty's legal proceedings will notexpected to have a material adverse effect on First Guaranty's financial position orGuaranty’s consolidated results of operations.
operations, financial condition, or cash flows. However, one or more unfavorable outcomes in these ordinary claims or litigation against First Guaranty or First Guaranty Bank could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or ultimate outcomes, such matters are costly, divert management’s attention, and may materially and adversely affect the reputation of First Guaranty and First Guaranty Bank, even if resolved favorably.
Note 10.9. Fair Value Measurements
The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy.
Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified within Level 3 in First Guaranty's portfolio as of SeptemberJune 30, 2017 include2023 includes corporate debt and municipal bonds and an equity security.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 SeptemberJune 30, 20172023 and December 31, 2016,2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| | | | | | | | | | | | | | |
(in thousands) | | June 30, 2023 | | December 31, 2022 |
Available for Sale Securities Fair Value Measurements Using: | | | | |
Level 1: Quoted Prices in Active Markets For Identical Assets | | $ | 49,017 | | | $ | 98,466 | |
Level 2: Significant Other Observable Inputs | | 20,736 | | | 21,890 | |
Level 3: Significant Unobservable Inputs | | 10,400 | | | 11,102 | |
Securities available for sale measured at fair value | | $ | 80,153 | | | $ | 131,458 | |
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
Available for Sale Securities Fair Value Measurements Using: | | | | | | |
Level 1: Quoted Prices in Active Markets For Identical Assets | | $ | 11,096 | | | $ | 30,487 | |
Level 2: Significant Other Observable Inputs | | | 348,079 | | | | 347,586 | |
Level 3: Significant Unobservable Inputs | | | 27,871 | | | | 19,400 | |
Securities available for sale measured at fair value | | $ | 387,046 | | | $ | 397,473 | |
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, 20162022 to SeptemberJune 30, 20172023 was due principally to a net decrease in Treasury bills of $19.4$49.4 million. The change inThere were no transfers between Level 2 and Level 3 from December 31, 2022 to June 30, 2023. There were no transfers between Level 1 and 2 securities available for sale from December 31, 20162022 to SeptemberJune 30, 2017 was due principally2023.
The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs (Level 3):
| | | | | | | | |
| | Level 3 Changes |
(in thousands) | | June 30, 2023 |
Balance, beginning of year | | $ | 11,102 | |
Total gains or losses (realized/unrealized): | | |
Included in earnings | | — | |
Included in other comprehensive income | | (259) | |
Purchases, sales, issuances and settlements, net | | (443) | |
Transfers in and/or out of Level 3 | | — | |
Balance as of end of period | | $ | 10,400 | |
There were no gains or losses for the period included in earnings attributable to the purchase of government agency securities partially offset by the sale of corporate bond securities. The change in Level 3 securities available for sale from December 31, 2016unrealized gains or losses related to Septemberassets still held as of June 30, 2017 was due principally to the purchase of $11.8 million in municipal securities partially offset by the paydown of $3.2 million in municipal securities.2023.
The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of SeptemberJune 30, 20172023 and December 31, 2016,2022, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:
| (in thousands) | | At September 30, 2017 | | | At December 31, 2016 | | (in thousands) | | At June 30, 2023 | | At December 31, 2022 |
Impaired Loans - Fair Value Measurements Using: | | | | | | | Impaired Loans - Fair Value Measurements Using: | | | | |
Level 1: Quoted Prices in Active Markets For Identical Assets | | $ | - | | | $ | - | | Level 1: Quoted Prices in Active Markets For Identical Assets | | $ | — | | | $ | — | |
Level 2: Significant Other Observable Inputs | | | - | | | | 259 | | Level 2: Significant Other Observable Inputs | | — | | | — | |
Level 3: Significant Unobservable Inputs | | | 12,293 | | | | 18,559 | | Level 3: Significant Unobservable Inputs | | 3,954 | | | 2,251 | |
Impaired loans measured at fair value | | $ | 12,293 | | | $ | 18,818 | | Impaired loans measured at fair value | | $ | 3,954 | | | $ | 2,251 | |
| | | | | | | | | | | | |
Other Real Estate Owned - Fair Value Measurements Using: | | | | | | | | | Other Real Estate Owned - Fair Value Measurements Using: | | | | |
Level 1: Quoted Prices in Active Markets For Identical Assets | | $ | - | | | $ | - | | Level 1: Quoted Prices in Active Markets For Identical Assets | | $ | — | | | $ | — | |
Level 2: Significant Other Observable Inputs | | | 1,296 | | | | 226 | | Level 2: Significant Other Observable Inputs | | 1,273 | | | — | |
Level 3: Significant Unobservable Inputs | | | - | | | | 133 | | Level 3: Significant Unobservable Inputs | | — | | | 113 | |
Other real estate owned measured at fair value | | $ | 1,296 | | | $ | 359 | | Other real estate owned measured at fair value | | $ | 1,273 | | | $ | 113 | |
ASC 825-10 provides First Guaranty with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits First Guaranty to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation.
First Guaranty has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States.
-25-
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.
-26-Cash Surrender of BOLI.
The cash surrender value of BOLI approximates fair value.
Accrued interest receivable.
The carrying amount of accrued interest receivable approximates its fair value.
Deposits.
The fair value of demandcustomer deposits, savings and interest-bearing demand depositsexcluding certificates of deposit, is the amount payable on demand. The fair valueMarket values of fixed-maturity certificates of deposit are actually computed present values using net present value formulas. The present value is estimated by discounting the futuresum of the present value of all projected cash flows using the rates currently offered for deposits of similar remaining maturities.on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Deposits are classified within level 3 of the fair value hierarchy.
Accrued interest payable.
The carrying amount of accrued interest payable approximates its fair value.
Borrowings.
The carrying amount of federal funds purchased and other short-term borrowings approximate their fair values. The fair value of First Guaranty's long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy.
Other Unrecognized Financial Instruments.
The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. 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 SeptemberJune 30, 20172023 and December 31, 20162022, the fair value of guarantees under commercial and standby letters of credit was not material.
The carrying amounts and estimated fair values and carrying values of the financial instruments at SeptemberJune 30, 20172023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at June 30, 2023 Using |
(in thousands) | | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | |
Cash and due from banks | | $ | 145,773 | | | $ | 145,773 | | | $ | — | | | $ | — | | | $ | 145,773 | |
Federal funds sold | | 455 | | | 455 | | | — | | | — | | | 455 | |
Securities, available for sale | | 80,153 | | | 49,017 | | | 20,736 | | | 10,400 | | | 80,153 | |
Securities, held for maturity | | 320,523 | | | — | | | 250,008 | | | — | | | 250,008 | |
Loans held for sale | | — | | | — | | | — | | | — | | | — | |
Loans, net | | 2,558,805 | | | — | | | — | | | 2,434,327 | | | 2,434,327 | |
Cash surrender value of BOLI | | 5,785 | | | — | | | — | | | 5,785 | | | 5,785 | |
Accrued interest receivable | | 15,099 | | | — | | | — | | | 15,099 | | | 15,099 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Deposits | | $ | 2,767,419 | | | $ | — | | | $ | — | | | $ | 2,761,200 | | | 2,761,200 | |
Short-term advances from Federal Home Loan Bank | | 30,000 | | | | | | | 30,000 | | | 30,000 | |
Short-term borrowings | | 20,000 | | | — | | | — | | | 20,000 | | | 20,000 | |
Repurchase agreements | | 7,409 | | | — | | | — | | | 7,345 | | | 7,345 | |
Accrued interest payable | | 6,996 | | | — | | | — | | | 6,996 | | | 6,996 | |
Long-term advances from Federal Home Loan Bank | | 120,000 | | | — | | | — | | | 120,000 | | | 120,000 | |
Senior long-term debt | | 20,305 | | | — | | | — | | | 20,313 | | | 20,313 | |
Junior subordinated debentures | | 15,000 | | | — | | | — | | | 15,000 | | | 15,000 | |
The carrying amounts and estimated fair values of financial instruments at December 31, 2016 are presented in the following table:2022 were as follows:
| | | September 30, 2017 | | | December 31, 2016 | | | Fair Value Measurements at December 31, 2022 Using |
(in thousands) | | Carrying Value | | | Estimated Fair Value | | | Carrying Value | | | Estimated Fair Value | | (in thousands) | | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | Assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 23,861 | | | $ | 23,861 | | | $ | 18,111 | | | $ | 18,111 | | |
Cash and due from banks | | Cash and due from banks | | $ | 82,796 | | | $ | 82,796 | | | $ | — | | | $ | — | | | $ | 82,796 | |
Federal funds sold | | Federal funds sold | | 423 | | | 423 | | | — | | | — | | | 423 | |
Securities, available for sale | | | 387,046 | | | | 387,046 | | | | 397,473 | | | | 397,473 | | Securities, available for sale | | 131,458 | | | 98,466 | | | 21,890 | | | 11,102 | | | 131,458 | |
Securities, held to maturity | | | 107,899 | | | | 106,821 | | | | 101,863 | | | | 99,906 | | |
Federal Home Loan Bank stock | | | 2,343 | | | | 2,343 | | | | 1,816 | | | | 1,816 | | |
Securities, held for maturity | | Securities, held for maturity | | 320,068 | | | — | | | 242,560 | | | — | | | 242,560 | |
Loans, net | | | 1,104,092 | | | | 1,097,777 | | | | 937,807 | | | | 937,495 | | Loans, net | | 2,495,559 | | | — | | | — | | | 2,404,402 | | | 2,404,402 | |
Cash surrender value of BOLI | | Cash surrender value of BOLI | | 5,712 | | | — | | | — | | | 5,712 | | | 5,712 | |
Accrued interest receivable | | | 7,508 | | | | 7,508 | | | | 7,039 | | | | 7,039 | | Accrued interest receivable | | 13,002 | | | — | | | — | | | 13,002 | | | 13,002 | |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | Liabilities | |
Deposits | | $ | 1,497,080 | | | $ | 1,498,807 | | | $ | 1,326,181 | | | $ | 1,325,972 | | Deposits | | $ | 2,723,792 | | | $ | — | | | $ | — | | | $ | 2,717,471 | | | 2,717,471 | |
Borrowings | | | 31,008 | | | | 31,029 | | | | 28,600 | | | | 28,625 | | |
Short-term advances from Federal Home Loan Bank | | Short-term advances from Federal Home Loan Bank | | 120,000 | | | — | | | — | | | 120,000 | | | 120,000 | |
Short-term borrowings | | Short-term borrowings | | 20,000 | | | — | | | — | | | 20,000 | | | 20,000 | |
Repurchase agreements | | Repurchase agreements | | 6,442 | | | — | | | — | | | 6,509 | | | 6,509 | |
Accrued interest payable | | Accrued interest payable | | 4,289 | | | — | | | — | | | 4,289 | | | 4,289 | |
Long-term advances from Federal Home Loan Bank | | Long-term advances from Federal Home Loan Bank | | — | | | — | | | — | | | — | | | — | |
Senior long-term debt | | Senior long-term debt | | 21,927�� | | | — | | | — | | | 21,938 | | | 21,938 | |
Junior subordinated debentures | | | 14,655 | | | | 14,243 | | | | 14,630 | | | | 13,909 | | Junior subordinated debentures | | 15,000 | | | — | | | — | | | 15,000 | | | 15,000 | |
Accrued interest payable | | | 2,363 | | | | 2,363 | | | | 1,931 | | | | 1,931 | | |
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.
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 SeptemberJune 30, 20172023 and for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.
Special Note Regarding Forward-Looking Statements
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from management expectations. This discussion and analysis contains forward-looking statements and reflects management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; 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.
ThirdSecond Quarter and NineSix Months Ended SeptemberJune 30, 20172023 Financial Overview
First Guaranty Bancshares Inc. is a Louisiana corporation and a bankfinancial holding company headquartered in Hammond, Louisiana. Our wholly-owned subsidiary, First Guaranty Bank, the wholly-owned subsidiary of First Guaranty Bancshares, Inc., is a Louisiana charteredLouisiana-chartered commercial bank, that provides personalized commercial banking services primarily to Louisiana and Texas customers through 2736 banking facilities primaryprimarily located throughout Southeast, Southwestin the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and NorthAlexandria, Louisiana and Dallas-Fort Worth-Arlington, Waco, Texas. First Guaranty expanded into Kentucky and West Virginia, our Mideast markets, in North Central Texas.2021 with loan and deposit production offices in Vanceburg, Kentucky and Bridgeport, West Virginia. The Vanceburg location is now a branch of the bank. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. First Guaranty competesWe compete 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 thirdsecond quarter and ninesix months ended SeptemberJune 30, 2017 and 20162023 are as follows:
● | During the fourth quarter of 2017, First Guaranty elected to become a financial holding company as part of its strategy to engage in activities that are financial in nature or incidental to financial activity in the future. The Federal Reserve Bank of Atlanta did not object to such election. |
•Total assets increased $84.7 million to $3.2 billion, or 2.7% at June 30, 2023 when compared with December 31, 2022. Total loans at June 30, 2023 were $2.6 billion, an increase of $71.6 million, or 2.8%, compared with December 31, 2022. Total deposits were $2.8 billion at June 30, 2023, an increase of $43.6 million, or 1.6%, compared with December 31, 2022. Retained earnings were $69.9 million at June 30, 2023, a decrease of $6.5 million compared to $76.4 million at December 31, 2022. Shareholders' equity was $238.9 million and $235.0 million at June 30, 2023 and December 31, 2022, respectively.
● | First Guaranty completed its merger with Premier and its wholly owned subsidiary, Synergy Bank, on June 16, 2017. First Guaranty acquired an estimated total of $158.3 million in assets and assumed an estimated $137.4 million in liabilities. First Guaranty issued 397,988 shares of its common stock at a price of $25.86 and paid $10.3 million in cash to Premier shareholders. Total consideration was $21.0 million. First Guaranty acquired an estimated total of $127.6 million in loans, securities of $5.9 million, cash and due from banks of $4.5 million, Fed funds sold of $2.9 million, premises of $9.5 million, other real estate owned of $0.2 million and other assets that totaled $1.9 million. Intangibles recorded from the transaction were an estimated total of $4.8 million, including estimated goodwill of $2.1 million. Total assumed liabilities included estimated deposits of $127.2 million, an estimated FHLB advance of $9.7 million and other liabilities of $0.4 million. |
•Net income for the second quarter of 2023 and 2022 was $2.7 million and $8.1 million, respectively, a decrease of $5.4 million or 67.1%. Net income for the six months ended June 30, 2023 and 2022 was $6.1 million and $15.7 million, respectively, a decrease of $9.6 million or 60.9%.
● | Total assets were $1.7 billion at September 30, 2017 and $1.5 billion at December 31, 2016. Total loans were $1.1 billion at September 30, 2017, an increase of $162.9 million, or 17.2%, compared with December 31, 2016, with most of the total loan growth attributed to the Premier acquisition. Total deposits were $1.5 billion at September 30, 2017, an increase of $170.9 million compared to $1.3 billion at December 31, 2016. Shareholders' equity was $142.8 million and $124.3 million at September 30, 2017 and December 31, 2016, respectively. |
•Earnings per common share were $0.19 and $0.70 for the second quarter of 2023 and 2022, respectively, and $0.46 and $1.36 for the six months ended June 30, 2023 and June 30, 2022, respectively. Total weighted average shares outstanding were 10,913,029 and 10,716,796 for the second quarter of 2023 and 2022, respectively, and 10,815,454 and 10,716,796 for the six months ended June 30, 2023 and 2022, respectively. The change in shares was due to the issuance of 714,287 shares of stock in a private placement in May of 2023.
● | Net income for the third quarter of 2017 and 2016 was $3.1 million and $3.4 million, respectively. Net income for the nine months ended September 30, 2017 was $9.2 million compared to $10.9 million for the nine months ended September 30, 2016. A decrease in gains on securities sales of $1.1 million and $2.8 million for the three and nine months ended September 30, 2017 from the prior year periods was a major factor in the decreases. |
•First Guaranty participated in the SBA Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act authorized the SBA to guarantee loans under a new 7(a) loan program known as the PPP. As a qualified SBA lender, we were automatically authorized to originate PPP loans. The SBA guaranteed 100% of the PPP loans made to eligible borrowers and will forgive such loans. The program has been conducted in two phases which First Guaranty classifies as Round 1 loans (originated in 2020) and Round 2 loans (originated in 2021). As of June 30, 2023, First Guaranty had remaining Round 1 PPP loans of $2.0 million and Round 2 PPP loans of $3.3 million. $11,000 in PPP fees were recognized in the second quarter of 2023 compared to $0.5 million in the second quarter of 2022. $16,000 in PPP fees were recognized during the six months ended June 30, 2023 compared to $1.1 million for the six months ended June 30, 2022.
● | Earnings per common share were $0.38 and $0.44 for the third quarter of 2017 and 2016, respectively, and $1.19 and $1.44 for the nine months ended September 30, 2017 and 2016, respectively. Total shares outstanding were 8,007,182 at September 30, 2017 compared to 7,609,194 at September 30, 2016. The change in shares was due to First Guaranty's acquisition of Premier in June 2017. |
•The allowance for credit losses was 1.23% of total loans at June 30, 2023 compared to 0.93% at December 31, 2022. First Guaranty had $5.4 million at June 30, 2023 of SBA guaranteed PPP loans that have no related allowance due to the 100% government guarantee in accordance with regulatory guidance.
● | Net interest income for the third quarter of 2017 was $13.9 million compared to $12.1 million for the same period in 2016. Net interest income for the nine months ended September 30, 2017 was $39.3 million compared to $36.2 million for the same period in 2016. |
•Net interest income for the second quarter of 2023 was $20.9 million compared to $26.3 million for the same period in 2022. Net interest income for the six months ended June 30, 2023 was $43.2 million compared to $51.3 million for the six months ended June 30, 2022.
● | The provision for loan losses for the third quarter of 2017 was $1.1 million compared to $1.2 million for the same period in 2016. The provision for loan losses for the nine months ended September 30, 2017 was $3.1 million compared to $3.0 million for the same period in 2016. |
•The provision for credit losses for the second quarter of 2023 was $0.5 million compared to $0.8 million for the same period in 2022. The provision for credit losses for the six months ended June 30, 2023 was $0.9 million compared to $1.4 million for the six months ended June 30, 2022.
● | Noninterest expense for the third quarter of 2017 and 2016 was $10.1 million and $8.3 million, respectively. Noninterest expense for the nine months ended September 30, 2017 was $28.2 million compared to $24.7 million for the same period in 2016. The increase in the third quarter of 2017 as compared to the prior year period included non-recurring expenses consisting of $329,000 in pre-tax expenses related to the acquisition/merger with Premier. Expenses related to the aforementioned merger for the nine months ended September 30, 2017 totaled $877,000 pre-tax.
|
•First Guaranty had $1.3 million of other real estate owned as of June 30, 2023 compared to $0.1 million at December 31, 2022.
● | The net interest margin for the three months ended September 30, 2017 was 3.37% which was a decrease of four basis points from the net interest margin of 3.41% for the same period in 2016. The net interest margin for the first nine months of 2017 was 3.35% which was a decrease of three basis points from the net interest margin of 3.38% for the first nine months of 2016. First Guaranty attributed the decrease in the net interest margin to a rise in interest expense associated with deposits. Loans as a percentage of average interest earning assets increased to 65.4% at September 30, 2017 compared to 60.8% at September 30, 2016. |
•Noninterest income for the second quarter of 2023 was $2.8 million compared to $2.5 million for the same period in 2022. Noninterest income for the six months ended June 30, 2023 was $5.5 million compared to $4.5 million for the six months ended June 30, 2022.
● | Investment securities totaled $494.9 million at September 30, 2017, a decrease of $4.4 million when compared to $499.3 million at December 31, 2016. At September 30, 2017, available for sale securities, at fair value, totaled $387.0 million, a decrease of $10.4 million when compared to $397.5 million at December 31, 2016. At September 30, 2017, held to maturity securities, at amortized cost, totaled $107.9 million, an increase of $6.0 million when compared to $101.9 million at December 31, 2016. |
•The net interest margin for the three months ended June 30, 2023 was 2.74% which was a decrease of 98 basis points from the net interest margin of 3.72% for the same period in 2022. The net interest margin for the six months ended June 30, 2023 was 2.86% which was a decrease of 80 basis points from the net interest margin of 3.66% for the same period in 2022. First Guaranty attributed the decrease in the net interest margin to the increase in market interest rates that began in 2022 and continued through the second quarter of 2023 that increased the cost of liabilities. Loans as a percentage of average interest earning assets increased to 83.6% at June 30, 2023 compared to 77.8% at June 30, 2022.
•Investment securities totaled $400.7 million at June 30, 2023, a decrease of $50.9 million when compared to $451.5 million at December 31, 2022. At June 30, 2023, available for sale securities, at fair value, totaled $80.2 million, a decrease of $51.3 million when compared to $131.5 million at December 31, 2022. At June 30, 2023, held to maturity securities, at amortized cost and net of the allowance for credit losses totaled $320.5 million, an increase of $0.5 million when compared to $320.1 million at December 31, 2022. The allowance for credit losses for HTM securities was $0.1 million at June 30, 2023.
•Total loans net of unearned income were $2.6 billion at June 30, 2023, a net increase of $71.6 million from December 31, 2022. Total loans net of unearned income are reduced by the allowance for credit losses which totaled $31.9 million at June 30, 2023 and $23.5 million at December 31, 2022, respectively. First Guaranty adopted ASC 326 effective January 1, 2023 and recorded a cumulative adoption adjustment to the allowance of $8.1 million.
● | Total loans net of unearned income were $1.1 billion at September 30, 2017 compared to $948.9 million at December 31, 2016. The net loan portfolio at September 30, 2017 totaled $1.1 billion, a net increase of $163.7 million from the December 31, 2016 net loan portfolio balance of $937.8 million. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $10.3 million at September 30, 2017 and $11.1 million at December 31, 2016. |
•Nonaccrual loans increased $10.3 million to $23.9 million at June 30, 2023 compared to $13.6 million at December 31, 2022.
● | Total impaired loans decreased $11.0 million to $17.8 million at September 30, 2017 compared to $28.8 million at December 31, 2016. Impaired loans decreased $8.9 million during the third quarter of 2017 from $26.6 million at June 30, 2017. |
•First Guaranty adopted ASU 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments." (CECL) effective January 1, 2023. The total adjustment for CECL was $10.0 million which includes $7.0 million for the ACL, $0.1 million for HTM securities, and $2.9 million for unfunded loan commitments. The $2.9 million for unfunded loan commitments is recorded in other liabilities.
● | Nonaccrual loans decreased $11.4 million to $10.3 million at September 30, 2017 compared to $21.7 million at December 31, 2016. Nonaccrual loans decreased $8.8 million during the third quarter of 2017 from $19.1 million at June 30, 2017. |
•Return on average assets for the three months ended June 30, 2023 and 2022 was 0.34% and 1.11%, respectively. Return on average assets for the six months ended June 30, 2023 and 2022 was 0.39% and 1.08%, respectively. Return on average common equity for the three months ended June 30, 2023 and 2022 was 4.19% and 15.73%, respectively. Return on average common equity for the six months ended June 30, 2023 and 2022 was 4.99% and 15.37%, 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.
● | Return on average assets for the three months ended September 30, 2017 and 2016 was 0.72% and 0.93%, respectively. Return on average assets for the nine months ended September 30, 2017 and 2016 was 0.76% and 1.00%, respectively. Return on average common equity for the three months ended September 30, 2017 and 2016 was 8.51% and 10.39%, respectively. Return on average common equity for the nine months ended September 30, 2017 and 2016 was 9.27% and 11.66%, respectively. Return on average assets is calculated by dividing annualized net income before preferred dividends by average assets. Return on average common equity is calculated by dividing annualized net income available to common shareholders by average common equity. |
•Book value per common share was $18.00 as of June 30, 2023 compared to $18.84 as of December 31, 2022. The decrease was due primarily to a decrease in retained earnings associated with the adoption of CECL, the recent issuances of new shares, and changes in accumulated other comprehensive income ("AOCI"). AOCI is comprised of unrealized gains and losses on available for sale securities, including unrealized losses on available for sale securities at the time of transfer to held to maturity.
● | Book value per common share was $17.83 as of September 30, 2017 compared to $16.97 as of September 30, 2016. The increase in book value was due primarily to the issuance of 397,988 shares related to the acquisition of Premier, the changes in accumulated other comprehensive income/loss ("AOCI") and an increase in retained earnings. AOCI is comprised of unrealized gains and losses on available for sale securities. |
•First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the second quarter of 2023 and 2022. First Guaranty has paid 120 consecutive quarterly dividends as of June 30, 2023.
● | First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the third quarter of 2017 and 2016, respectively. First Guaranty has paid 97 consecutive quarterly dividends as of September 30, 2017. |
•First Guaranty paid preferred stock dividends of $1.2 million during the first six months of 2023 and 2022.
•First Guaranty was a defendant in a lawsuit alleging overpayment on a loan related to a disputed interest rate. First Guaranty settled this lawsuit in February of 2023 for $0.6 million.
Recent Developments
Lone Star Acquisition - Termination of Agreement
On January 6, 2023, we entered into a definitive agreement to acquire Lone Star Bank, a Texas state-chartered bank with its main office in Houston, Texas.
On July 10, 2023, First Guaranty, First Guaranty Bank, and Lone Star entered into a Mutual Termination Agreement and Release pursuant to which the parties mutually agreed to terminate the Merger Agreement. First Guaranty estimates that total costs associated with the Lone Star acquisition was approximately $0.4 million through June 30, 2023.
Financial Condition
Changes in Financial Condition from December 31, 20162022 to SeptemberJune 30, 2017
First Guaranty completed the acquisition of Premier Bancshares, Inc. and its wholly owned subsidiary Synergy Bank, S.S.B. on June 16, 2017. This acquisition added five branches, an estimated $127.2 million in deposits, and an estimated $127.6 million in loans to First Guaranty's balance sheet. The results of operations since the date of acquisition reflect the impact of the transaction.2023
GeneralAssets
Total assets at SeptemberJune 30, 20172023 were $1.7$3.2 billion, an increase of $190.5$84.7 million, or 12.7%2.7%, from December 31, 2016.2022. Assets increased primarily due to increases in net loans of $163.7 million, net premises and equipment of $12.9$63.2 million and cash and cash equivalents of $5.8$63.0 million, during the nine months ended Septemberpartially offset by a decrease in investment securities of $50.9 million at June 30, 2017, a substantial portion of which was due2023 compared to the Premier acquisition.December 31, 2022.
Loans
Net loans increased $163.7$63.2 million, or 17.5%2.5%, to $1.1$2.6 billion at SeptemberJune 30, 20172023 from $937.8 million at December 31, 2016. The acquisition of Premier contributed $114.6 million in new loans while First Guaranty's legacy portfolio grew by $49.1 million. Acquired loans from Premier included $61.5 million in non-farm non-residential loans, $17.3 million in one-to four-family residential loans, $17.2 million in construction and land development loans, $13.1 million in commercial and industrial loans, $3.5 million in multifamily loans, $1.0 million in farmland loans and $0.9 million in consumer and other loans at September 30, 2017.
Total net loans increased during the first nine months of 2017 primarily due to a $91.2 million increase in non-farm non-residential loans, a $24.4 million increase in construction and land development loans, a $23.4 million increase in one-to-four family residential loans, a $15.4 million increase in commercial and industrial loans, a $8.2 million increase in farmland loans, a $5.3 million increase in agricultural loans and a $4.6 million increase in multifamily loans, partially offset by a decrease of $9.4 million in consumer and other loans. Non-farm non-residential loan balances increased primarily due to local originations and the acquisition of loans from Premier.2022. Construction and land development loans increased $68.2 million principally due to advances on existing construction lines and new originations that was partially offset by the fundingconversion of unfunded commitments on various construction projects. One-to four-familyloans to permanent financing. One-to-four family residential loans increased $39.8 million primarily due to the continued growth in localnew originations. Non-farm non-residential loan originations and acquired loans. Commercial and industrialbalances increased $32.1 million due to new originations. Agricultural loans increased primarily$8.9 million due to acquired loans from Premier and due to growth in First Guaranty's legacy portfolio and syndicated loan portfolio.seasonal activity. Farmland loans increased due to seasonal fundings on agricultural loan commitments. Agricultural loans increased$4.6 million primarily due to seasonal activity. Multifamily loans increased $1.6 million primarily due to acquiredthe conversion of existing construction loans from Premier.to permanent financing and the origination of new loans. Consumer and other loans decreased $0.1 million primarily due to the sale of the government guaranteed studentpaydowns. Commercial lease loan balances decreased $35.4 million primarily due to paydowns. First Guaranty's commercial lease portfolio generally has higher yields than commercial real estate loans acquiredbut shorter average lives. Commercial and industrial loans decreased $47.3 million primarily due to paydowns. SBA PPP loans totaled $5.4 million at June 30, 2023 compared to $5.9 million at December 31, 2022. These totals are included in commercial and industrial loans. Round 1 SBA PPP loans totaled $2.0 million at June 30, 2023 and December 31, 2022. Round 2 SBA PPP loans decreased from Premier$3.9 million at December 31, 2022 to $3.3 million at June 30, 2023 due to SBA loan forgiveness and paydowns on commercial leases.payments received. First Guaranty had approximately 2.4%3.3% of funded and 0.5%1.9% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. The balancesFirst Guaranty's hotel and hospitality portfolio totaled $182.9 million at June 30, 2023. As part of the management of risks in thisour loan portfolio, were not materially changed by the Premier acquisition.First Guaranty had previously established an internal guidance limit of approximately $200.0 million for its hotel and hospitality portfolio. First Guaranty's office space portfolio totaled approximately $105.6 million at June 30, 2023. First Guaranty had $339.4 million in loans related to our Texas markets at June 30, 2023 which was an increase of $5.6 million or 1.7% from $333.8 million at December 31, 2022. First Guaranty anticipates additional growth opportunities in Texas. First Guaranty had $266.1 million in loans related to our new Mideast markets in Kentucky and West Virginia at June 30, 2023 which was an increase of $55.1 million or 26.1% from $210.9 million at December 31, 2022. Syndicated loans at SeptemberJune 30, 20172023 were $84.3$76.1 million, all of which $23.8 million were shared national credits. Syndicated loans increased $1.5decreased $12.2 million from $82.8$88.3 million at December 31, 2016.2022.
As of SeptemberJune 30, 2017, 73.8%2023, 72.5% of our loan portfolio was secured by real estate. There are no significant concentrations of credit to any individual borrower. The largest portion of our loan portfolio, at 45.6%39.5% as of SeptemberJune 30, 2017,2023, was non-farm non-residential loans secured by real estate. Approximately 35.2%42.8% of the loan portfolio was based on a floating rate tied to the prime rate, Secured Overnight Financing Rate ("SOFR") or LIBOR as of SeptemberJune 30, 2017. 71.6%2023. 59.1% of the loan portfolio is scheduled to mature within five years from SeptemberJune 30, 2017.
2023. First Guaranty acquiredinitiated a process to transfer any LIBOR indexed loans to alternative reference rates such as the prime rate or SOFR as LIBOR was discontinued for repricings after June 30, 2023.
Special mention loans increased $16.5 million to $46.8 million at June 30, 2023 compared to $30.3 million at December 31, 2022. The increase in special mention loans was primarily the result of the downgrade of one commercial lease loan relationship from pass status to special mention totaling $14.4 million.
Substandard loans increased $45.2 million to $87.9 million at June 30, 2023 compared to $42.7 million at December 31, 2022. The increase in substandard loans was primarily the result of the downgrade of one real estate secured loan relationship in the Premier acquisition a portfoliosecond quarter of loans comprised of loans guaranteed principally by the U.S. Small Business Administration ("SBA") or by the U.S. Department of Agriculture ("USDA") and the unguaranteed portion of SBA and USDA loans for which the guaranteed portion had been sold into the secondary market. At September 30, 2017, First Guaranty's2023 with an aggregate principal balance of SBA and USDA$35.1 million as of June 30, 2023. The loans was $36.0are secured by shopping centers. While the loans are over collateralized based upon recent appraisals totaling $47.4 million, of which $10.7 million retainedthere is no certainty that the government guarantee and $25.3 million was the unguaranteed residual balance. At September 30, 2017, First Guaranty also serviced 59 SBA and USDA loansBank will receive full repayment upon liquidation should that totaled $51.7 million. First Guaranty receives servicing fee income on this portfolio.become necessary.
Net loans are reduced by the allowance for loancredit losses which totaled $10.3$31.9 million at SeptemberJune 30, 20172023 and $11.1$23.5 million at December 31, 2016.2022. First Guaranty adopted ASC 326 effective January 1, 2023 and recorded a cumulative adjustment to the allowance of $7.0 million. Loan charge-offs were $4.3$1.5 million during the first ninesix months of 20172023 and $2.7$3.3 million during the same period in 2016.2022. Recoveries totaled $0.5$1.0 million during the first ninesix months of 20172023 and $0.6$1.4 million during the same period in 2016.2022. The provision for credit losses totaled $0.9 million for the first six months of 2023 and $1.4 million for the same period in 2022. See Note 54 of the Notes to Consolidated Financial Statements for more information on loans and Note 65 for more information on the allowance for loancredit losses.
Investment Securities
Investment securities at SeptemberJune 30, 20172023 totaled $494.9$400.7 million, a decrease of $4.4$50.9 million compared to $499.3$451.5 million at December 31, 2016.2022. The decrease was primarily attributed to First Guaranty's strategy to transition assets from securities to the loan portfolio. The investment portfolio consisted of available-for-sale securities at fair market value for a total of $387.0 million at September 30, 2017 and held-to-maturity securities at amortized cost of $107.9 million at September 30, 2017.
Our investment securities portfolio is comprisedconsists of both available-for-saleavailable for sale (AFS) and held to maturity securities (HTM). The securities designated as held to maturity are agency and corporate debt securities that we intend to hold to maturity.are part of First Guaranty’s investment strategy and public funds collateralization program. 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 to meet pledging requirements for public funds and borrowings.
The securities portfolio consistsconsisted 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, FFCB,Federal Farm Credit Bank ("FFCB"), Freddie Mac and Fannie Mae obligations. The mortgage-backedMortgage-backed securities that we purchased werepurchase are issued by Freddie Mac and Fannie Mae. The securities portfolio provides First Guaranty with a balance to credit risk when compared to other categories of assets. Management monitors the securities portfolio for both credit and interest rate risk. First GuarantyWe generally limitslimit 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 billssecurities that have maturities of less than 30 days. Municipal securities usually have maturities of 15 years or less.two years. Government agency securities generally have maturities of 15 years or less. Agency mortgage backedmortgage-backed securities have stated final maturities of 15 to 20 years.
Our available-for-saleavailable for sale securities portfolio totaled $387.0$80.2 million at SeptemberJune 30, 2017,2023, a decrease of $10.4$51.3 million, or 2.6%39.0%, compared to $397.5$131.5 million at December 31, 2016.2022. The decrease was primarily due to the salematurity of $112.5 million in U.S. Government agency and U.S. Treasury securities and $26.2 million in corporate securities in the first nine months of 2017 for which the proceeds were used to fund loan growth. Partially offsetting this decrease was the purchase of U.S. government agency securities used to collateralize public funds deposits. Acquired securities from Premier totaled $5.9 million and included $4.5 million in mortgage-backed securities and $1.4 million in collateralized mortgage obligations.securities.
Our held-to-maturityheld to maturity securities portfolio had an amortized cost of $107.9totaled $320.5 million at SeptemberJune 30, 2017,2023, an increase of $6.0$0.5 million, or 5.9%0.1%, compared to $101.9$320.1 million at December 31, 2016. The increase was primarily due to the purchase of $10.0 million in U.S. Government agency securities and $5.3 million in municipal securities used to collateralize public funds deposits. Partially offsetting this increase were early payoffs of existing securities and the continued amortization of our mortgage-backed securities.2022.
At SeptemberJune 30, 2017, $19.32023, $49.9 million, or 3.9%12.5%, of the securities portfolio was scheduled to mature in less than one year. $77.6The majority of these securities were U.S. Treasury securities. $4.2 million, or 15.7%1.1%, of the securities portfolio, wasnot including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between one and five years. The majority of these securities were corporate bonds. $134.6 million, or 33.6%, 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 $35.3$209.6 million, or 7.1%52.3%, of the total securities portfolio at SeptemberJune 30, 2017.2023. 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 SeptemberJune 30, 2017,2023, management believes that the securities portfolio has a forecasted weighted average life of approximately 6.210.70 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 6.6 years. The portfolio had an estimated effective duration of 4.08.49 years at SeptemberJune 30, 2017.2023.
There waswere no credit related other-than-temporary impairment of available for sale securities losses recognized during the ninesix months ended SeptemberJune 30, 2017 or September 30, 2016.2023. An allowance for credit losses of $0.1 million for held to maturity securities was recorded upon the adoption of ASC 326.
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.
The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.
| | | | | | | | | | | | | | |
(in thousands) | | June 30, 2023 | | December 31, 2022 |
Nonaccrual loans: | | | | |
Real Estate: | | | | |
Construction and land development | | $ | 518 | | | $ | 225 | |
Farmland | | 867 | | | 290 | |
1- 4 family | | 6,320 | | | 3,826 | |
Multifamily | | 537 | | | — | |
Non-farm non-residential | | 8,285 | | | 3,746 | |
Total Real Estate | | 16,527 | | | 8,087 | |
Non-Real Estate: | | | | |
Agricultural | | 1,375 | | | 1,622 | |
Commercial and industrial | | 2,167 | | | 819 | |
Commercial leases | | 1,818 | | | 1,799 | |
Consumer and other | | 2,016 | | | 1,239 | |
Total Non-Real Estate | | 7,376 | | | 5,479 | |
Total nonaccrual loans | | 23,903 | | | 13,566 | |
| | | | |
Loans 90 days and greater delinquent & accruing: | | | | |
Real Estate: | | | | |
Construction and land development | | 182 | | | 427 | |
Farmland | | — | | | — | |
1- 4 family | | 295 | | | 332 | |
Multifamily | | — | | | 157 | |
Non-farm non-residential | | — | | | 103 | |
Total Real Estate | | 477 | | | 1,019 | |
Non-Real Estate: | | | | |
Agricultural | | 61 | | | — | |
Commercial and industrial | | — | | | 123 | |
Commercial leases | | — | | | — | |
Consumer and other | | — | | | — | |
Total Non-Real Estate | | 61 | | | 123 | |
Total loans 90 days and greater delinquent & accruing | | 538 | | | 1,142 | |
| | | | |
Total non-performing loans | | 24,441 | | | 14,708 | |
| | | | |
Real Estate Owned: | | | | |
Construction and land development | | 251 | | | — | |
Farmland | | — | | | — | |
1- 4 family | | 248 | | | 113 | |
Multifamily | | — | | | — | |
Non-farm non-residential | | 774 | | | — | |
Total Real Estate Owned | | 1,273 | | | 113 | |
| | | | |
Total non-performing assets | | $ | 25,714 | | | $ | 14,821 | |
| | | | |
Non-performing assets to total loans | | 0.99 | % | | 0.59 | % |
Non-performing assets to total assets | | 0.79 | % | | 0.47 | % |
Non-performing loans to total loans | | 0.94 | % | | 0.58 | % |
Nonaccrual loans to total loans | | 0.92 | % | | 0.54 | % |
Allowance for credit losses to nonaccrual loans | | 133.29 | % | | 173.36 | % |
Net loan charge-offs to average loans | | 0.04 | % | | 0.18 | % |
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
Nonaccrual loans: | | | | | | |
Real Estate: | | | | | | |
Construction and land development | | $ | 376 | | | $ | 551 | |
Farmland | | | 107 | | | | 105 | |
1 - 4 family residential | | | 2,296 | | | | 2,242 | |
Multifamily | | | - | | | | 5,014 | |
Non-farm non-residential | | | 773 | | | | 2,753 | |
Total Real Estate | | | 3,552 | | | | 10,665 | |
Non-Real Estate: | | | | | | | | |
Agricultural | | | 617 | | | | 1,958 | |
Commercial and industrial | | | 6,081 | | | | 8,070 | |
Consumer and other | | | 50 | | | | 981 | |
Total Non-Real Estate | | | 6,748 | | | | 11,009 | |
Total nonaccrual loans | | | 10,300 | | | | 21,674 | |
| | | | | | | | |
Loans 90 days and greater delinquent & accruing: | | | | | | | | |
Real Estate: | | | | | | | | |
Construction and land development | | | - | | | | 34 | |
Farmland | | | - | | | | - | |
1 - 4 family residential | | | 47 | | | | 145 | |
Multifamily | | | - | | | | - | |
Non-farm non-residential | | | - | | | | - | |
Total Real Estate | | | 47 | | | | 179 | |
Non-Real Estate: | | | | | | | | |
Agricultural | | | 362 | | | | - | |
Commercial and industrial | | | - | | | | - | |
Consumer and other | | | - | | | | - | |
Total Non-Real Estate | | | 362 | | | | - | |
Total loans 90 days and greater delinquent & accruing | | | 409 | | | | 179 | |
| | | | | | | | |
Total non-performing loans | | | 10,709 | | | | 21,853 | |
| | | | | | | | |
Real Estate Owned: | | | | | | | | |
Real Estate Loans: | | | | | | | | |
Construction and land development | | | 319 | | | | - | |
Farmland | | | - | | | | - | |
1 - 4 family residential | | | 23 | | | | 71 | |
Multifamily | | | - | | | | - | |
Non-farm non-residential | | | 954 | | | | 288 | |
Total Real Estate | | | 1,296 | | | | 359 | |
Non-Real Estate Loans: | | | | | | | | |
Agricultural | | | - | | | | - | |
Commercial and industrial | | | - | | | | - | |
Consumer and other | | | - | | | | - | |
Total Non-Real Estate | | | - | | | | - | |
Total Real Estate Owned | | | 1,296 | | | | 359 | |
| | | | | | | | |
Total non-performing assets | | $ | 12,005 | | | $ | 22,212 | |
| | | | | | | | |
Non-performing assets to total loans | | | 1.08 | % | | | 2.34 | % |
Non-performing assets to total assets | | | 0.71 | % | | | 1.48 | % |
Non-performing loans to total loans | | | 0.96 | % | | | 2.30 | % |
At SeptemberJune 30, 2017,2023, nonperforming assets totaled $12.0$25.7 million, or 0.71%0.79% of total assets, compared to $22.2$14.8 million, or 1.48%0.47%, of total assets at December 31, 2016,2022, which represented a decreasean increase of $10.2$10.9 million, or 46.0%73.5%. The decreaseincrease in non-performing assets occurred primarily as a result of a decreasedue to an increase in non-accrual loans from $21.7 million at December 31, 2016 to $10.3 million at September 30, 2017. The decrease in non-accrual loans was concentrated primarily in multifamily loans, commercial and industrial loans, non-farm non-residential loans, agriculturalnonaccrual loans and consumer and other loans. The decrease in multifamily loans included a $4.9 million loan that was returned to accrual status after observing reasonable payment performance over the last 24 months and a $2.2 million partial charge off of a non-performing commercial and industrial loan. The decrease in non-accrual loans was partiallyreal estate owned offset by an increasea decrease in loans 90 days and greater still accruing of $0.2 million. First Guaranty acquired $0.1 million in non-accrual loans from Premier and $1.0 million in government guaranteed student loans that were 90 day plusdelinquent and still accruing. TheseNon-performing loans were sold duringincluded loans previously classified as purchase credit deteriorated following the third quarteradoption of 2017. First Guaranty acquired $0.2 million in other real estate ownedCECL.
Nonaccrual loans increased from Premier.
At September 30, 2017, nonaccrual loans totaled $10.3 million, a decrease of $11.4 million, or 52.5%, compared to nonaccrual loans of $21.7$13.6 million at December 31, 2016.2022 to $23.9 million at June 30, 2023. The primary reductionincrease in non-accrualnonaccrual loans occurred due to charge offs on existing loans, a $4.9 million multifamily loan that was returned to accrual statusconcentrated primarily in non-farm non-residential, one-to four family, and principal reductions on government guaranteed agriculturalcommercial and industrial loans. Nonaccrual loans were concentratedincluded $2.5 million in three loan relationships that totaled $6.2 million, or 60.2%,loans with a government guarantee. These are structured as net loss guarantees in which up to 90% of nonaccrual loans at September 30, 2017.loss exposure is covered.
At SeptemberJune 30, 2017,2023, loans 90 days or greater delinquent and still accruing totaled $0.4$0.5 million, an increasea decrease of $0.2$0.6 million compared to $0.2$1.1 million at December 31, 2016. These2022. The decrease in loans were comprised of a $0.4 million agricultural loan90 days or greater delinquent and a $47,000 one-to four-family loan at September 30, 2017.still accruing was concentrated primarily in construction and land development, multifamily, non-farm non-residential, and commercial and industrial loans.
Other real estate owned at SeptemberJune 30, 20172023 totaled $1.3 million, an increase of $0.9$1.2 million from $0.4compared to $0.1 million at December 31, 2016.2022. The increase in other real estate owned was primarily due to the addition of a $0.8 million non-farm non-residential property.property during the first quarter of 2023. This property was related to a loan that was on nonaccrual status at December 31, 2022.
At SeptemberJune 30, 2017,2023, our largest non-performing assets were comprised of the following non-accrualnonaccrual loans and other real estate owned:90 days or greater delinquent and still accruing loans: (1) a commercial and industrialnon-farm non-residential loan that totaled $5.6 million that is a shared national credit involved in oil and gas support and service activity with a specific reserve of $1.5$5.0 million; (2) a construction and land development$2.2 million loan relationship that is classified as purchased credit deteriorated (3) a commercial lease loan that totaled $0.3 million; (3) an agricultural loan that totaled $0.3$1.8 million; and (4) a $0.8 million non-farm non-residential property. The commercial and industrial and agricultural loans have been charged down to their estimated fair value.
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, 2017 and December 31, 2016:
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
Restructured Loans: | | | | | | |
In Compliance with Modified Terms | | $ | 2,138 | | | $ | 2,987 | |
Past Due 30 through 89 days and still accruing | | | - | | | | - | |
Past Due 90 days and greater and still accruing | | | - | | | | - | |
Nonaccrual | | | 343 | | | | 361 | |
Restructured Loans that subsequently defaulted | | | - | | | | 100 | |
Total Restructured Loans | | $ | 2,481 | | | $ | 3,448 | |
At September 30, 2017, we had two outstanding TDRs: (1) a $2.1 million non-farm non-residential loan secured by commercial real estate, which is performing in accordance with its modified terms; and (2) a $0.3 million construction and land development loan secured by raw landmobile home facility that is on non-accrual. The restructuring of these loans was related to interest rate or amortization concessions. The decline in TDRs over the first nine months of 2017 occurred primarily due to paydowns on the $2.1 million TDR that is in compliance with its modified terms and the charge off of a $0.1 million TDR that subsequently defaulted and was placed on non-accrual.
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totaled $1.3 million.
Allowance for LoanCredit Losses
First Guaranty adopted FASB ASC Topic326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” UpdateNo.2016-13 (“ASU 2016-13”). ASU 2016-13 on January 1, 2023. ASU 2016-13, referred to as the Current Expected Credit Loss (“CECL”) standard, requires financial assets measured on an amortized cost basis, including loans and held-to-maturity debt securities, to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset. Unfunded lending commitments are also within the scope of this topic. Under prior GAAP losses were not recognized until the occurrence of the loss was probable. See Recent Accounting Pronouncements for more information on the adoption of ASC 326.
The allowance for loancredit losses on loans 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 expected 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; |
•past due and non-performing assets;
| ● | specific internal analysis of loans requiring special attention; |
•specific internal analysis of loans requiring special attention;
| ● | the current level of regulatory classified and criticized assets and the associated risk factors with each; |
•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; |
•changes in underwriting standards or lending procedures and policies;
| ● | charge-off and recovery practices; |
•charge-off and recovery practices;
| ● | national and local economic and business conditions; |
•national and local economic and business conditions;
| ● | nature and volume of loans; |
•nature and volume of loans;
| ● | overall portfolio quality; |
•overall portfolio quality;
| ● | adequacy of loan collateral; |
•adequacy of loan collateral;
| ● | quality of loan review system and degree of oversight by our board of directors; |
•quality of loan review system and degree of oversight by our board of directors;
| ● | competition and legal and regulatory requirements on borrowers; |
•competition and legal and regulatory requirements on borrowers;
| ● | examinations of the loan portfolio by federal and state regulatory agencies and examinations; and |
•examinations of the loan portfolio by federal and state regulatory agencies and examinations; and
| ● | review by our internal loan review department and independent accountants. |
•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.or collateral dependent. For such loans that are also classified as impaired,collateral dependent, 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 loancredit 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 loancredit 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 loancredit losses on loans was $10.3$31.9 million, or 0.93%1.23% of total loans, and 96.3%130.4% of nonperforming loans at SeptemberJune 30, 2017. The allowance for loan losses as a percentage of total loans was 1.03% prior to the inclusion of the acquired loans from Premier.2023.
Comparing SeptemberJune 30, 20172023 to December 31, 2016, the decrease in the allowance was primarily attributed to the decrease in the specific reserve associated with a nonperforming commercial and industrial loan. The decrease in the specific reserve was due to a $2.2 million partial charge off related to the credit. There2022, there were changes within the specific components of the allowance balance. The primary change
A provision for credit losses of $0.9 million was a decrease in the balance associated with commercial and industrial, construction and land development and consumer and other loans. This decrease was partially offset by an increase in multifamily loans and non-farm non-residential loans. Special mention loans decreased by $2.0 millionmade during the first ninesix months of 2017. Substandard loans increased by $1.9 million during the first nine months of 2017, due primarily to the addition of loans acquired in the Premier acquisition with deteriorated credit quality. Doubtful loans decreased $2.2 million during the first nine months of 2017, due to the partial charge off on a nonperforming commercialended June 30, 2023 and industrial loan.
First Guaranty charged off $4.3 million in loan balances during the first nine months of 2017. The charged-off loan balances were concentrated in seven loan relationships which totaled $3.8 million or 87.7% of the total charged off amount. The details of the $4.3 million in charged off loans were as follows:
1. | First Guaranty charged off $0.1 million on a non-real estate commercial lease in the first quarter of 2017. This loan had no remaining principal balance at September 30, 2017. |
2. | First Guaranty charged off $0.7 million on a non-real estate commercial lease in the second quarter of 2017. This loan had no remaining principal balance at September 30, 2017. |
3. | First Guaranty charged off $0.5 million on a non-farm non-residential real estate loan in the second quarter of 2017. This loan had no remaining principal balance at September 30, 2017. |
4. | First Guaranty charged off $0.1 million on a non-farm non-residential real estate loan in the second quarter of 2017. This loan had a $37,000 remaining principal balance at September 30, 2017. |
5. | First Guaranty charged off $2.2 million on a commercial and industrial loan relationship in the third quarter of 2017. This relationship had a remaining principal balance of $5.6 million at September 30, 2017. |
6. | First Guaranty charged off $0.1 million on a non-farm non-residential loan in the third quarter of 2017. This loan had no remaining principal balance at September 30, 2017. |
7. | First Guaranty charged off $0.1 million on a non-farm non-residential loan in the third quarter of 2017. This loan had no remaining principal balance at September 30, 2017. |
8. | Smaller loans and overdrawn deposit accounts comprised the remaining $0.5 million of charge-offs for the first nine months of 2017. |
The provision for loan losses increased to $3.1 million in the first nine months of 2017 from $3.0$1.4 million for the same period in 2016.2022. The $0.9 million provision in the first nine months of 2017 wasincluded a $0.1 million provision for credit losses related to unfunded commitments. The provisions made were taken to provide for current loan and depositcredit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $4.3 million for
The loan portfolio factors in the first ninesix months of 20172023 that primarily affected the allocation of the allowance included the following:
•The adoption of the CECL methodology under ASU 2016-13 was the largest contributor to changes in both the size and $2.7 millionallocation of the allowance for credit losses. First Guaranty also made adjustments of certain qualitative factors to take into account the same periodcurrent estimated impact of COVID-19, changes in 2016. Recoveries totaled $0.5other market conditions, loan concentrations including those related to commercial real estate and loan relationships and related economic conditions on borrowers' ability to repay loans and for allocations to impaired loans within their respective categories.
•Construction and land development loans increased during the first six months of 2023 due to advances on existing construction lines of credit and new loan originations. The allowance increase related to this portfolio was due to growth in the portfolio along with changes in the qualitative analysis of the portfolio related to economic conditions.
•One-to four-family residential loans increased $39.8 million during the first ninesix months of 20172023. The allowance increase related to this portfolio was due to changes in the qualitative analysis of the portfolio, portfolio growth, and $0.6also the adoption of CECL.
•Multifamily loans increased slightly during the first six months of 2023. The allowance related to this portfolio was increased due to the adoption of the CECL methodology and due to the growth in the portfolio which increased by $1.6 million during the first ninesix months of 2016. For more information, see Note 62023.
•Non-farm non-residential loans increased by $32.1 million during the first six months of 2023. The allowance increase related to Consolidated Financial Statements.this portfolio was due primarily to growth in the portfolio and also to the adoption of CECL.
•Commercial and industrial loans decreased during the first six months of 2023. The allowance increase related to this portfolio was due to the adoption of the CECL methodology.
•Commercial leases decreased during the first six months of 2023 from $317.6 million at December 31, 2022 to $282.2 million at June 30, 2023. The allowance decrease related to this portfolio was due to the reduction in this portfolio and due to changes in the qualitative analysis of the portfolio related.
•Consumer and other loans decreased slightly during the first six months of 2023. The decrease in the related loan loss allowance balance was due primarily to qualitative analysis and the adoption of the CECL methodology.
First Guaranty charged off $1.5 million in loan balances during the first six months of 2023. The details of the $1.5 million in charged-off loans were as follows:
1.First Guaranty charged off $0.3 million in consumer loans related to Hurricane Ida relief loans during the first six months of 2023. These loans were originated in the fall of 2021 following Hurricane Ida that impacted Louisiana in August 2021.
2.First Guaranty charged off $0.1 million on a non-farm non-residential loan during the first quarter of 2023. This loan had no remaining principal balance at June 30, 2023. The $0.7 million property related to this loan was moved to other real estate owned during the first quarter of 2023.
3.Smaller loans and overdrawn deposit accounts comprised the remaining $1.1 million of charge-offs for the first six months of 2023.
Other information related to the allowance for loancredit losses is as follows:
| (in thousands) | | Nine Months Ended September 30, 2017 | | | Nine Months Ended September 30, 2016 | | (in thousands) | | Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
Loans: | | | | | | | Loans: | | | | |
Average outstanding balance | | $ | 1,027,382 | | | $ | 869,325 | | Average outstanding balance | | $ | 2,548,446 | | | $ | 2,199,435 | |
Balance at end of period | | $ | 1,111,791 | | | $ | 910,745 | | Balance at end of period | | $ | 2,590,666 | | | $ | 2,295,738 | |
| | | | | | | | | |
Allowance for Loan Losses: | | | | | | | | | |
Allowance for Credit Losses: | | Allowance for Credit Losses: | |
Balance at beginning of year | | $ | 11,114 | | | $ | 9,415 | | Balance at beginning of year | | $ | 23,518 | | | $ | 24,029 | |
Adoption of ASC 326 | | Adoption of ASC 326 | | 8,120 | | | — | |
Charge-offs | | | (4,326 | ) | | | (2,737 | ) | Charge-offs | | (1,548) | | | (3,270) | |
Recoveries | | | 461 | | | | 595 | | Recoveries | | 999 | | | 1,435 | |
Provision | | | 3,064 | | | | 2,978 | | Provision | | 772 | | | 1,389 | |
Balance at end of period | | $ | 10,313 | | | $ | 10,251 | | Balance at end of period | | $ | 31,861 | | | $ | 23,583 | |
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, 20162022 to SeptemberJune 30, 2017,2023, total deposits increased $170.9$43.6 million, or 12.9%1.6%, to $1.5$2.8 billion. AcquiredNoninterest-bearing demand deposits from the Premier acquisition totaled $127.1decreased $58.2 million, which included $27.6or 11.1%, to $466.2 million at June 30, 2023. The decrease in noninterest-bearing demand deposits $31.3 millionwas primarily concentrated in interest bearingindividual and business noninterest-bearing demand deposits, $4.8 million in savings deposits, and $63.3 million in time deposits at September 30, 2017. Noninterest-bearing demand deposits increased $25.5 million during the first nine months of 2017 to $256.6 million at September 30, 2017.deposits. Interest-bearing demand deposits increased $32.5decreased $11.8 million, or 6.8%0.8%, during the first nine months of 2017 to $512.3$1.4 billion at June 30, 2023. The decrease in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits that was partially offset by an increase in brokered interest-bearing demand deposits. Savings deposits increased $16.5 million, or 8.0%, to $222.3 million at SeptemberJune 30, 2017.2023, primarily related to increases in business and individual savings deposits. Time deposits increased $104.1$97.1 million, or 20.1%18.2%, to $622.1$630.5 million at SeptemberJune 30, 2017 compared2023, primarily due to $518.0 million at December 31, 2016. At September 30, 2017, we had $90.5 millionincreases in consumer and public fund time deposits along with increased brokered deposits. As we seek to strengthen our net interest margin and improve our earnings, attracting noninterest-bearingtime deposits will be a primary emphasis. of approximately $20.0 million.
Management will continue to evaluate and update our product mix and related technology in its efforts to attract additional customers. We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits and other lower cost deposits.
As of SeptemberJune 30, 2017,2023, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000$250,000 was approximately $444.7$159.2 million. At SeptemberJune 30, 2017,2023, approximately $241.7$23.1 million of First Guaranty's certificates of deposit greater than $250,000 had a remaining term greater than one year.
The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $285.9 million at June 30, 2023. This total excludes public funds deposits that are collateralized by securities or FHLB letters of credit. The amount of uninsured deposits including collateralized public funds deposits was estimated at $818.1 million at June 30, 2023.
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, | | Total Deposits | | For the Six Months Ended June 30, | | For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 | | | | 2023 | | 2022 | | 2021 |
(in thousands except for %) | Average Balance | | Percent | | Weighted Average Rate | | Average Balance | | Percent | | Weighted Average Rate | | Average Balance | | Percent | | Weighted Average Rate | | (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 | | $ | 240,923 | | | | 16.7 | % | | | 0.0 | % | | $ | 221,634 | | | | 17.2 | % | | | 0.0 | % | | $ | 211,584 | | | | 15.9 | % | | | 0.0 | % | Noninterest-bearing Demand | | $ | 503,216 | | | 18.1 | % | | — | % | | $ | 552,786 | | | 20.7 | % | | — | % | | $ | 477,802 | | | 19.8 | % | | — | % |
Interest-bearing Demand | | | 534,898 | | | | 37.1 | % | | | 1.0 | % | | | 415,410 | | | | 32.3 | % | | | 0.6 | % | | | 401,617 | | | | 30.2 | % | | | 0.4 | % | Interest-bearing Demand | | 1,473,147 | | | 53.0 | % | | 3.8 | % | | 1,362,396 | | | 50.9 | % | | 1.6 | % | | 1,082,922 | | | 45.0 | % | | 0.7 | % |
Savings | | | 101,581 | | | | 7.1 | % | | | 0.2 | % | | | 89,279 | | | | 7.0 | % | | | 0.1 | % | | | 77,726 | | | | 5.8 | % | | | 0.0 | % | Savings | | 209,190 | | | 7.5 | % | | 1.4 | % | | 212,329 | | | 7.9 | % | | 0.4 | % | | 191,967 | | | 8.0 | % | | 0.1 | % |
Time | | | 563,076 | | | | 39.1 | % | | | 1.2 | % | | | 558,982 | | | | 43.5 | % | | | 1.1 | % | | | 640,134 | | | | 48.1 | % | | | 1.1 | % | Time | | 596,575 | | | 21.4 | % | | 3.0 | % | | 546,776 | | | 20.5 | % | | 2.0 | % | | 655,025 | | | 27.2 | % | | 2.0 | % |
Total Deposits | | $ | 1,440,478 | | | | 100.0 | % | | | 0.8 | % | | $ | 1,285,305 | | | | 100.0 | % | | | 0.7 | % | | $ | 1,331,061 | | | | 100.0 | % | | | 0.6 | % | Total Deposits | | $ | 2,782,128 | | | 100.0 | % | | 2.8 | % | | $ | 2,674,287 | | | 100.0 | % | | 1.2 | % | | $ | 2,407,716 | | | 100.0 | % | | 0.8 | % |
Individual and Business Deposits | For the Nine Months Ended September 30, | | For the Years Ended December 31, | |
| 2017 | | 2016 | | 2015 | |
(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 | | $ | 236,484 | | | | 28.4 | % | | | 0.0 | % | | $ | 217,245 | | | | 30.1 | % | | | 0.0 | % | | $ | 207,334 | | | | 27.6 | % | | | 0.0 | % |
Interest-bearing Demand | | | 175,694 | | | | 21.1 | % | | | 0.6 | % | | | 117,221 | | | | 16.2 | % | | | 0.3 | % | | | 112,864 | | | | 15.0 | % | | | 0.2 | % |
Savings | | | 81,341 | | | | 9.8 | % | | | 0.1 | % | | | 72,647 | | | | 10.0 | % | | | 0.1 | % | | | 65,775 | | | | 8.7 | % | | | 0.1 | % |
Time | | | 339,029 | | | | 40.7 | % | | | 1.3 | % | | | 316,191 | | | | 43.7 | % | | | 1.3 | % | | | 366,244 | | | | 48.7 | % | | | 1.4 | % |
Total Individual and Business Deposits | | $ | 832,548 | | | | 100.0 | % | | | 0.7 | % | | $ | 723,304 | | | | 100.0 | % | | | 0.6 | % | | $ | 752,217 | | | | 100.0 | % | | | 0.7 | % |
Public Fund Deposits | For the Nine Months Ended September 30, | | For the Years Ended December 31, | |
| 2017 | | 2016 | | 2015 | |
(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 | | $ | 4,439 | | | | 0.7 | % | | | 0.0 | % | | $ | 4,389 | | | | 0.8 | % | | | 0.0 | % | | $ | 4,250 | | | | 0.7 | % | | | 0.0 | % |
Interest-bearing Demand | | | 359,204 | | | | 59.1 | % | | | 1.2 | % | | | 298,189 | | | | 53.0 | % | | | 0.8 | % | | | 288,753 | | | | 49.9 | % | | | 0.4 | % |
Savings | | | 20,240 | | | | 3.3 | % | | | 0.8 | % | | | 16,632 | | | | 3.0 | % | | | 0.3 | % | | | 11,951 | | | | 2.1 | % | | | 0.0 | % |
Time | | | 224,047 | | | | 36.9 | % | | | 1.0 | % | | | 242,791 | | | | 43.2 | % | | | 0.8 | % | | | 273,890 | | | | 47.3 | % | | | 0.7 | % |
Total Public Fund Deposits | | $ | 607,930 | | | | 100.0 | % | | | 1.1 | % | | $ | 562,001 | | | | 100.0 | % | | | 0.8 | % | | $ | 578,844 | | | | 100.0 | % | | | 0.5 | % |
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Individual and Business Deposits | | For the Six Months Ended June 30, | | For the Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
(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 | | $ | 493,313 | | | 29.8 | % | | — | % | | $ | 544,948 | | | 32.9 | % | | — | % | | $ | 471,371 | | | 29.7 | % | | — | % |
Interest-bearing Demand | | 449,022 | | | 27.2 | % | | 4.5 | % | | 424,257 | | | 25.7 | % | | 2.1 | % | | 390,481 | | | 24.6 | % | | 1.0 | % |
Savings | | 161,170 | | | 9.8 | % | | 0.3 | % | | 170,571 | | | 10.3 | % | | 0.1 | % | | 154,560 | | | 9.8 | % | | 0.1 | % |
Time | | 549,548 | | | 33.2 | % | | 3.0 | % | | 514,167 | | | 31.1 | % | | 2.0 | % | | 569,924 | | | 35.9 | % | | 2.2 | % |
Total Individual and Business Deposits | | $ | 1,653,053 | | | 100.0 | % | | 2.2 | % | | $ | 1,653,943 | | | 100.0 | % | | 1.2 | % | | $ | 1,586,336 | | | 100.0 | % | | 1.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Public Funds Deposits | | For the Six Months Ended June 30, | | For the Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
(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 | | $ | 9,903 | | | 0.9 | % | | — | % | | $ | 7,838 | | | 0.8 | % | | — | % | | $ | 6,431 | | | 0.8 | % | | — | % |
Interest-bearing Demand | | 1,024,125 | | | 90.7 | % | | 3.6 | % | | 938,139 | | | 91.9 | % | | 1.3 | % | | 692,441 | | | 84.3 | % | | 0.5 | % |
Savings | | 48,020 | | | 4.2 | % | | 5.0 | % | | 41,758 | | | 4.1 | % | | 1.9 | % | | 37,407 | | | 4.5 | % | | 0.2 | % |
Time | | 47,027 | | | 4.2 | % | | 3.1 | % | | 32,609 | | | 3.2 | % | | 1.4 | % | | 85,101 | | | 10.4 | % | | 0.8 | % |
Total Public Funds Deposits | | $ | 1,129,075 | | | 100.0 | % | | 3.6 | % | | $ | 1,020,344 | | | 100.0 | % | | 1.4 | % | | $ | 821,380 | | | 100.0 | % | | 0.5 | % |
The following table sets forth the distribution of our time deposit accounts.
(in thousands) | | September 30, 2017 | |
Time deposits of less than $100,000 | | $ | 177,409 | |
Time deposits of $100,000 through $250,000 | | | 151,349 | |
Time deposits of more than $250,000 | | | 293,304 | |
Total Time Deposits | | $ | 622,062 | |
At September | | | | | | | | |
(in thousands) | | June 30, 2023 |
Time deposits of less than $100,000 | | $ | 193,440 | |
Time deposits of $100,000 through $250,000 | | 277,822 | |
Time deposits of more than $250,000 | | 159,197 | |
Total Time Deposits | | $ | 630,459 | |
The following table sets forth the maturity of the time deposits greater than $250,000 at June 30, 2017, public2023.
| | | | | | | | |
(in thousands) | | June 30, 2023 |
Three months or less | | $ | 24,785 | |
Three to six months | | 37,176 | |
Six months to one year | | 74,120 | |
One to three years | | 20,474 | |
More than three years | | 2,642 | |
Total Time Deposits greater than $250,000 | | $ | 159,197 | |
Public funds deposits totaled $593.5$1.1 billion at June 30, 2023 and December 31, 2022. Public funds time deposits totaled $52.2 million at June 30, 2023 compared to $556.9$32.4 million at December 31, 2016.2022. Public fund timefunds deposits totaled $253.7 million at September 30, 2017 compareddecreased due to $208.3 million at December 31, 2016. We havedecreased demand deposits that were primarily attributed to seasonal fluctuations. First Guaranty has developed a program for the retention and management of public funds deposits. Since the end of 2012, we haveFirst Guaranty has 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. $541.9 million, or 91%,municipalities. The majority of these accounts at September 30, 2017,funds are under fiscal agency agreements with terms of three years or less. Deposits under fiscal agency agreements are generally stable but public entities may maintain the ability to negotiate term deposits on a specific basis including with other financial institutions. Three of these relationships account for approximately 40% of public fund deposits that are under fiscal agency agreements.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. WeFirst Guaranty continues to grow the proportion of its public funds portfolio that is collateralized by reciprocal deposit insurance as an alternative to pledging securities or utilizing FHLB letters of credit. First Guaranty initiated this strategy to more efficiently invest the majority of these public deposits in our investment portfolio, but have increasingly invested morehigher yielding loans to improve the net interest margin and earnings. Total public funds into loans during the last three years.collateralized by reciprocal deposit insurance programs decreased to $531.3 million at June 30, 2023 compared to $576.3 million at December 31, 2022.
The following table sets forth public funds as a percent of total deposits.
| (in thousands except for %) | | September 30, 2017 | | | December 31, 2016 | | | December 31, 2015 | | | December 31, 2014 | | | December 31, 2013 | | (in thousands except for %) | | June 30, 2023 | | December 31, 2022 |
Public Funds: | | | | | | | | | | | | | | | | Public Funds: | | | | |
Noninterest-bearing Demand | | $ | 4,764 | | | $ | 4,114 | | | $ | 4,906 | | | $ | 3,241 | | | $ | 3,016 | | Noninterest-bearing Demand | | $ | 10,878 | | | $ | 11,730 | |
Interest-bearing Demand | | | 314,468 | | | | 324,356 | | | | 296,416 | | | | 321,382 | | | | 296,739 | | Interest-bearing Demand | | 988,691 | | | 1,022,760 | |
Savings | | | 20,581 | | | | 20,116 | | | | 14,667 | | | | 10,142 | | | | 7,209 | | Savings | | 49,623 | | | 46,354 | |
Time | | | 253,730 | | | | 208,330 | | | | 252,688 | | | | 266,743 | | | | 208,614 | | Time | | 52,231 | | | 32,427 | |
Total Public Funds | | $ | 593,543 | | | $ | 556,916 | | | $ | 568,677 | | | $ | 601,508 | | | $ | 515,578 | | Total Public Funds | | $ | 1,101,423 | | | $ | 1,113,271 | |
Total Deposits | | $ | 1,497,080 | | | $ | 1,326,181 | | | $ | 1,295,870 | | | $ | 1,371,839 | | | $ | 1,303,099 | | Total Deposits | | $ | 2,767,419 | | | $ | 2,723,792 | |
Total Public Funds as a percent of Total Deposits | | | 39.6 | % | | | 42.0 | % | | | 43.9 | % | | | 43.9 | % | | | 39.6 | % | Total Public Funds as a percent of Total Deposits | | 39.8 | % | | 40.9 | % |
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 $7.5$57.4 million in short-term borrowings outstanding at SeptemberJune 30, 20172023 compared to $6.5$146.4 million at December 31, 2016. First Guaranty has an available2022. The short-term borrowings at June 30, 2023 were comprised of short-term Federal Home Loan Bank advances of $30.0 million, a line of credit of $2.5$20.0 million, with noan outstanding balance of $20.0 million and repurchase agreements of $7.4 million. The short-term borrowings outstanding at SeptemberDecember 31, 2022 were comprised of short-term Federal Home Loan Bank advances of $120.0 million, a line of credit of $20.0 million with an outstanding balance of $20.0 million and repurchase agreements of $6.4 million. First Guaranty had available lines of credit of $26.5 million, with $20.0 million outstanding at June 30, 2017. 2023. A net availability of $6.5 million remained.
First Guaranty had long-term borrowings from the FHLB that totaled $120.0 million at June 30, 2023. First Guaranty converted previous short-term floating rate borrowings from the FHLB into long-term lower fixed rate borrowings in order to reduce interest expense. First Guaranty has a $100.0 million FHLB advance that matures in the second quarter of 2027 and $20.0 million FHLB advance that matures in the first quarter of 2025.
First Guaranty had senior long-term debt totaling $23.5$20.3 million as of SeptemberJune 30, 20172023 and $22.1$21.9 million at December 31, 2016. First Guaranty modified its existing senior long-term debt in the second quarter of 2017. The modification increased the principal balance to $25.0 million with new net proceeds of $3.8 million. The existing amortization terms and rates remained the same. The $3.8 million in additional proceeds were contributed to First Guaranty Bank for future growth.2022.
First Guaranty also had junior subordinated debenturesdebt totaling $14.7$15.0 million at SeptemberJune 30, 20172023 and $14.6 million at December 31, 2016.2022.
First Guaranty had $280.9$492.1 million in Federal Home Loan Bank letters of credit as of SeptemberJune 30, 2017.2023 compared to $388.6 million at December 31, 2022. Federal Home Loan Bank letters of credit totaled $226.1 million and $195.0 million as of December 31, 2016 and December 31, 2015, respectively. Federal Home Loan Bank letters of credit outstanding are obtained primarily for collateralizing public deposits. The increase in Federal Home Loan Bank letters of credit reflects First Guaranty's ability to transition public funds deposits into loans.
Total Shareholders' Equity
Total shareholders' equity increased to $142.8$238.9 million at SeptemberJune 30, 20172023 from $124.3$235.0 million at December 31, 2016.2022. The increase in shareholders' equity was principally the result of a $10.3an increase of $9.3 million increase in surplus a $5.5 million increase in retained earnings and a decrease of $2.3$0.3 million in accumulated other comprehensive loss.loss, partially offset by a decrease of $6.5 million in retained earnings. The $9.3 million increase in surplus was due to common stock issued in a private placement in May 2023. The decrease in accumulated other comprehensive loss was primarily attributed to the decrease in unrealized losses on available-for-saleavailable for sale securities during the period.six months ended June 30, 2023. The $10.3$6.5 million increase in surplus was due to the issuance of 397,988 shares of common stock resulting from the Premier acquisition. The $5.5 million increasedecrease in retained earnings was primarily due to net incomethe adoption of $9.2CECL which had a $7.9 million during the nine month period ended September 30, 2017, partially offset by $3.8after tax reduction to retained earnings, $3.5 million in cash dividends paid on shares of our common stock.stock and $0.6 million in cash dividends paid on shares of our preferred stock, partially offset by net income of $6.1 million during the six months ended June 30, 2023.
Results of Operations for the ThirdSecond Quarter Ended June 30, 2023 and Nine Months Ended September 30, 2017 and 20162022
Performance Summary
Three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 2016.2022. Net income for the three months ended SeptemberJune 30, 20172023 was $3.1$2.7 million, a decrease of $0.3$5.4 million, or 9.4%67.1%, from $3.4$8.1 million for the three months ended SeptemberJune 30, 2016.2022. The decrease in net income for the three months ended SeptemberJune 30, 20172023 as compared to the prior year period was primarily the result of decreased noninterestseveral factors. First Guaranty experienced an increase in interest income, associated with gains on securities sales duringa decrease in the three months ended September 30, 2016provision for loan losses, and an increase in noninterest expense, partiallyincome. This increased income was offset by an increase in interest expense and an increase in noninterest expense. Loan interest income increased due to the growth in First Guaranty's loan portfolio, repricing of existing loans to higher market rates, including loan fees recognized as an adjustment to yield. Securities interest income increased due to an increase in the average yield of the investment portfolio. The decrease in the provision was related to changes within the portfolio. Noninterest income increased primarily due to salary tax credits related to the COVID-19 pandemic. Factors that offset the increase in net income included an increase in interest income.expense due to increases in volume and market interest rates. Noninterest expense increased primarily due to increased regulatory assessment, legal and professional fees, and software expense. Earnings per common share for the three months ended SeptemberJune 30, 20172023 was $0.38$0.19 per common share, a decrease of 13.6%72.9% or $0.06$0.51 per common share from $0.44$0.70 per common share for the three months ended SeptemberJune 30, 2016. The decrease in earnings per share was caused by lower earnings and by the increased number of shares outstanding following First Guaranty's acquisition of Premier in June 2017.2022.
NineSix months ended SeptemberJune 30, 20172023 compared to the ninesix months ended SeptemberJune 30, 2016. 2022.Net income for the ninesix months ended SeptemberJune 30, 20172023 was $9.2$6.1 million, a decrease of $1.7$9.6 million, or 15.4%60.9%, from $10.9$15.7 million for the ninesix months ended SeptemberJune 30, 2016.2022. The decrease in net income for the ninesix months ended SeptemberJune 30, 20172023 as compared to the nine months ended September 30, 2016prior year period was primarily the result of several factors. First Guaranty experienced an increase in interest income, a decrease in the provision for loan losses, and an increase in noninterest income. This increased noninterestincome was offset by an increase in interest expense and decreasedan increase in noninterest expense. Loan interest income associated with gains on securities sales duringincreased due to the nine months ended September 30, 2016, partiallygrowth in First Guaranty's loan portfolio and repricing of existing loans to higher market rates, including loan fees recognized as an adjustment to yield. Securities interest income increased due to an increase in the average yield of the investment portfolio. The decrease in the provision was related to changes within the portfolio. Noninterest income increased primarily due to salary tax credits related to the COVID-19 pandemic, valuation changes related to the loan servicing assets and recoveries of prior legal fees. Factors that offset bythe increase in net income included an increase in interest expense due to increases in volume and market interest rates. Noninterest expense increased net interest income.primarily due to increased personnel expenses, legal and professional fees, software expense, regulatory assessment, and data processing expenses. Earnings per common share for the ninesix months ended SeptemberJune 30, 20172023 was $1.19$0.46 per common share, a decrease of 17.4%66.2% or $0.25$0.90 per common share from $1.44$1.36 per common share for the ninesix months ended SeptemberJune 30, 2016. The decrease in earnings per share was caused by lower earnings and by the increased number of shares outstanding following First Guaranty's acquisition of Premier in June 2017. 2022.
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, SOFR 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 lowchanging interest rate environment in recent yearsperiods and our interest sensitivity position is discussed below.
Three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 2016. 2022.Net interest income for the three months ended SeptemberJune 30, 20172023 and 20162022 was $13.9$20.9 million and $12.1$26.3 million, respectively. The increasedecrease in net interest income for the three months ended SeptemberJune 30, 20172023 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities, partially offset by an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets. For the three months ended June 30, 2023, the average balance of our total interest-bearing liabilities increased by $283.2 million to $2.4 billion primarily due to growth in interest-bearing deposits and borrowings. The average rate of our total interest-bearing liabilities increased by 261 basis points to 3.78% for the three months ended June 30, 2023 from 1.17% for the three months ended June 30, 2022. The rise in market interest rates, particularly associated with Treasury rates, contributed to the increase in our liabilities cost. The primary source of the increase in liabilities cost was associated with interest bearing demand deposits for public funds that are primarily indexed to Treasury rates. For the three months ended June 30, 2023, the average balance of our total interest-earning assets partially offsetincreased by $232.0 million to $3.1 billion due to strong growth in our loan portfolio. The average yield of our interest-earning assets increased by 113 basis points to 5.73% for the three months ended June 30, 2023 from 4.60% for the three months ended June 30, 2022 due to an improved mix of higher yielding assets. As a result, our net interest rate spread decreased 148 basis points to 1.95% for the three months ended June 30, 2023 from 3.43% for the three months ended June 30, 2022. Our net interest margin decreased 98 basis points to 2.74% for the three months ended June 30, 2023 from 3.72% for the three months ended June 30, 2022.
Six months ended June 30, 2023 compared to the six months ended June 30, 2022. Net interest income for the six months ended June 30, 2023 and 2022 was $43.2 million and $51.3 million, respectively. The decrease in net interest income for the six months ended June 30, 2023 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. For the three months ended September 30, 2017, the average balance of our total interest-earning assets increasedliabilities, partially offset by $219.3 million to $1.6 billion, and the average yield of interest-earning assets increased by 21 basis points to 4.33% from 4.12% for the three months ended September 30, 2016. For the three months ended September 30, 2017, the average balance of our total interest-bearing liabilities increased by $198.4 million to $1.3 billion, and the average rate of our total interest-bearing liabilities increased by 30 basis points to 1.22% from 0.92% for the three months ended September 30, 2016. Our net interest rate spread decreased nine basis points to 3.11% for the three months ended September 30, 2017 from 3.20% for the three months ended September 30, 2016. Our net interest margin also decreased four basis points to 3.37% for the three months ended September 30, 2017 from 3.41% for the three months ended September 30, 2016.
Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Net interest income for the nine months ended September 30, 2017 and 2016 was $39.3 million and $36.2 million, respectively. The increase in net interest income for the nine months ended September 30, 2017 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset byassets. For the increase insix months ended June 30, 2023, the average balance of our total interest-bearing liabilities increased by $253.1 million to $2.4 billion due to growth in interest-bearing deposits and an increase in theborrowings. The average rate of our total interest-bearing liabilities.liabilities increased by 242 basis points to 3.52% for the six months ended June 30, 2023 from 1.10% for the six months ended June 30, 2022. The rise in market interest rates, particularly associated with Treasury rates, contributed to the increase in our liabilities cost. The primary source of the increase in liabilities cost was associated with interest bearing demand deposits for public funds that are primarily indexed to Treasury rates. For the ninesix months ended SeptemberJune 30, 2017,2023, the average balance of our total interest-earning assets increased by $142.7$219.9 million to $1.6$3.0 billion and thedue to strong growth in our loan portfolio. The average yield of our interest-earning assets increased by 12114 basis points to 4.22% from 4.10%5.63% for the ninesix months ended SeptemberJune 30, 2016. For2023 from 4.49% for the ninesix months ended SeptemberJune 30, 2017, the average balance2022 due to an improved mix of our total interest-bearing liabilities increased by $123.6 million to $1.2 billion, and the average rate of our total interest-bearing liabilities increased by 20 basis points to 1.11% from 0.91% for the nine months ended September 30, 2016.higher yielding assets. As a result, our net interest rate spread decreased eight128 basis points to 3.11%2.11% for the ninesix months ended SeptemberJune 30, 20172023 from 3.19%3.39% for the ninesix months ended SeptemberJune 30, 2016.2022. Our net interest margin also decreased three80 basis points to 3.35%2.86% for the ninesix months ended SeptemberJune 30, 20172023 from 3.38%3.66% for the ninesix months ended SeptemberJune 30, 2016. 2022.
Interest Income
Three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 2016.2022. Interest income increased $3.2$11.2 million, or 21.7%34.5%, to $17.8$43.8 million for the three months ended SeptemberJune 30, 20172023 as compared to the prior year period. First Guaranty continuesGuaranty's loan portfolio expanded during the second quarter of 2023 due to transition assets from lower yielding securitiesgrowth associated with our loan originations and existing loans repriced to higher yielding loans in ordermarket rates. These factors contributed to increase interest income. Thethe increase in interest income resulted primarily from an increase inas the average balance of our total interest-earning assets, alongprimarily associated with an increase inloans, increased, and the average yield of interest-earning assets.assets increased. The average balance of our interest-earning assets increased $219.3$232.0 million to $1.6$3.1 billion for the three months ended SeptemberJune 30, 20172023 as compared to the prior year period.year. The average yield of interest-earning assets increased by 21113 basis points to 4.33%5.73% for the three months ended SeptemberJune 30, 20172023 compared to 4.12%4.60% for the three months ended SeptemberJune 30, 2016. 2022.
Interest income on securities increased $0.3$0.1 million or 10.6%, to $3.3$2.4 million for the three months ended SeptemberJune 30, 20172023 as compared to the prior year period primarily as a result of an increase in average yield of securities. The average yield on securities increased 37 basis points to 2.38% for the three months ended June 30, 2023 compared to 2.01% for the six months ended June 30, 2022 due to the decrease in lower yielding Treasury securities that matured in the second quarter of 2023. The average balance of securities decreased $47.5 million to $407.7 million for the three months ended June 30, 2023 from $455.2 million for the three months ended June 30, 2022 primarily due to a decrease in the average balance of our U.S. Treasuries securities portfolio compared to the prior year.
Interest income on loans increased $10.3 million or 34.3%, to $40.3 million for the three months ended June 30, 2023 as compared to the prior year period as a result of an increase in the average balance of securities. Theand average balance of securities increased $14.7 million to $503.5 million for the three months ended September 30, 2017 from $488.8 million for the three months ended September 30, 2016 due to an increase in the average balance of our agency and municipal securities. The average yield on securities increased by 17 basis points to 2.61% for the three months ended September 30, 2017 from 2.44% for the three months ended September 30, 2016.
Interest income on loans increased $2.8 million, or 23.9%, to $14.4 million for the three months ended September 30, 2017 as a result of an increase in the average balance of loans. The average balance of loans (excluding loans held for sale) increased by $185.2$323.9 million to $1.1$2.6 billion for the three months ended SeptemberJune 30, 20172023 from $910.3 million$2.2 billion for the three months ended SeptemberJune 30, 20162022 as a result of new loan originations, acquired loans and loans assumed from the Premier acquisition, the majority of which were one-to-four family residential loans, the origination of commercial leases, commercial real estate loans and commercial and industrial loans.originations. The average yield on loans (excluding loans held for sale) increased by 1293 basis points to 5.21%6.29% for the three months ended SeptemberJune 30, 20172023 from 5.09%5.36% for the three months ended SeptemberJune 30, 2016.2022 due to the improved mix of loans along with an increase in market interest rates.
NineSix months ended SeptemberJune 30, 20172023 compared to the ninesix months ended SeptemberJune 30, 2016.2022. Interest income increased $5.8$22.0 million, or 13.2%35.0%, to $49.6$85.1 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to the prior year period. First Guaranty continuesGuaranty's loan portfolio expanded during the first six months of 2023 due to transition assets from lower yielding securitiesgrowth associated with our loan originations and existing loans repricing to higher yielding loans in ordermarket rates. These factors contributed to increase interest income. Thethe increase in interest income resulted primarily from an increase inas the average balance of our total interest-earning assets, alongprimarily associated with an increase inloans, increased, and the average yield of interest-earning assets.assets increased. The average balance of our interest-earning assets increased $142.7$219.9 million to $1.6$3.0 billion for the ninesix months ended SeptemberJune 30, 20172023 as compared to the prior year period.year. The average yield of interest-earning assets increased by 12114 basis points to 4.22%5.63% for the ninesix months ended SeptemberJune 30, 20172023 compared to 4.10%4.49% for the ninesix months ended SeptemberJune 30, 2016. 2022.
Interest income on securities increased $5,000$0.2 million to $10.0$4.8 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to the prior year period primarily as a result of an increase in the average yield onof securities. The average yield on securities increased by 1123 basis points to 2.59%2.32% for the ninesix months ended SeptemberJune 30, 2017 from 2.48%2023 compared to 2.09% for the ninesix months ended SeptemberJune 30, 2016.2022 due to the decrease in lower yielding Treasury securities that matured in the first six months of 2023. The average balance of securities decreased $20.8$27.8 million to $517.9$417.1 million for the ninesix months ended SeptemberJune 30, 20172023 from $538.7$444.9 million for the ninesix months ended SeptemberJune 30, 20162022 primarily due to a decrease in the average balance of our agency securities. U.S. Treasuries securities portfolio compared to the prior year.
Interest income on loans increased $5.7$20.4 million, or 16.9%35.2%, to $39.4$78.4 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to the prior year period as a result of an increase in the average balance and average yield of loans. The average balance of loans (excluding loans held for sale) increased by $158.1$349.0 million to $1.0$2.5 billion for the ninesix months ended SeptemberJune 30, 20172023 from $869.3 million$2.2 billion for the ninesix months ended SeptemberJune 30, 20162022 as a result of new loan originations, acquired loans and loans assumed from the Premier acquisition, the majority of which were one-to-four family residential loans, commercial leases, commercial real estate loans and commercial and industrial loans.originations. The average yield on loans (excluding loans held for sale) decreasedincreased by six89 basis points to 5.13%6.21% for the ninesix months ended SeptemberJune 30, 20172023 from 5.19%5.32% for the ninesix months ended SeptemberJune 30, 2016.2022 due to the improved mix of loans along with an increase in market interest rates.
Interest Expense
Three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 2016.2022. Interest expense increased $1.4$16.6 million, or 57.5%267.1%, to $4.0$22.9 million for the three months ended SeptemberJune 30, 20172023 from $2.5$6.2 million for the three months ended SeptemberJune 30, 20162022 due primarily to an increase in market interest rates and due to an increase in the average balance of interest-bearing liabilities. The average rate of interest-bearing demand deposits alongwas 4.14% for the three months ended June 30, 2023 and 0.87% for the three months ended June 30, 2022. The increase in market interest rates, particularly U.S. Treasury rates, contributed to the increase in rates paid on interest-bearing demand deposits. The largest concentration of interest-bearing demand deposits is associated with anpublic funds deposits that are primarily indexed to Treasury rates. Treasury rates increased as the Federal Reserve increased rates to address increased inflation in the U.S. economy. The average rate of time deposits increased 146 basis points during the three months ended June 30, 2023 to 3.32% as compared to the prior year period. The increase in the average rate paid on interest-bearing deposits.of time deposits was due to changes in market rates. The average balance of interest-bearing depositsliabilities increased by $205.9$283.2 million during the three months ended SeptemberJune 30, 20172023 to $1.3$2.4 billion as compared to the prior year period. This increase was a result of a $129.2$130.4 million increase in the average balance of interest-bearing demand deposits, a $61.7$2.8 million increase in time deposits and a $15.1 million increase in savings deposits. The average rate of interest-bearing demand deposits increased by 43 basis points during the three months ended September 30, 2017 to 1.08%. The increase in the average rate on interest-bearing demandbalance of savings deposits, was due to thosea $82.6 million increase in the average balance of time deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such asan $67.4 million increase in the U.S. Federal Funds rate or short term U.S. Treasury rates. These index rates increased during the second quarteraverage balance of 2017.borrowings.
Nine
Six months ended SeptemberJune 30, 20172023 compared to the ninesix months ended SeptemberJune 30, 2016.2022. Interest expense increased $2.6$30.1 million, or 34.7%256.9%, to $10.3$41.9 million for the ninesix months ended SeptemberJune 30, 20172023 from $7.6$11.7 million for the ninesix months ended SeptemberJune 30, 20162022 due primarily to an increase in market interest rates and due to an increase in the average balance of interest-bearing liabilities. The average rate of interest-bearing demand deposits alongwas 3.84% for the six months ended June 30, 2023 and 0.78% for the six months ended June 30, 2022. The increase in market interest rates, particularly U.S. Treasury rates, contributed to the increase in rates paid on interest-bearing demand deposits. The largest concentration of interest-bearing demand deposits is associated with anpublic funds deposits that are primarily indexed to Treasury rates. Treasury rates increased as the Federal Reserve increased rates to address increased inflation in the U.S. economy. The average rate of time deposits increased 107 basis points during the six months ended June 30, 2023 to 2.97% as compared to the prior year period. The increase in the average rate paid on interest-bearing deposits.of time deposits was due to changes in market rates. The average balance of interest-bearing depositsliabilities increased by $127.0$253.1 million during the ninesix months ended SeptemberJune 30, 20172023 to $1.2$2.4 billion as compared to the prior year period. This increase was a result of a $134.5$147.4 million increase in the average balance of interest-bearing demand anddeposits, a $1.5 million increase in the average balance of savings deposits. Thedeposits, a $34.0 million increase was partially offset by a $7.5 million decrease in the average balance of time deposits, during the same time period. The average rate of interest-bearing demand deposits increased by 37 basis points during the nine months ended September 30, 2017 to 0.98%. Theand a $70.2 million increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates. These rates increased during the second quarterbalance of 2017.borrowings.
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 tabletables as loans carrying a zero yield. Loans, net of unearned income, include loans held for sale. 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, 2017 | | | Three Months Ended September 30, 2016 | |
(in thousands except for %) | | Average Balance | | | Interest | | | Yield/Rate (5) | | | Average Balance | | | Interest | | | Yield/Rate (5) | |
Assets | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | |
Interest-earning deposits with banks | | $ | 30,295 | | | $ | 82 | | | | 1.07 | % | | $ | 14,365 | | | $ | 11 | | | | 0.30 | % |
Securities (including FHLB stock) | | | 503,511 | | | | 3,317 | | | | 2.61 | % | | | 488,769 | | | | 2,998 | | | | 2.44 | % |
Federal funds sold | | | 1,736 | | | | 6 | | | | 1.37 | % | | | 279 | | | | - | | | | 0.00 | % |
Loans held for sale | | | 1,976 | | | | 27 | | | | 5.42 | % | | | - | | | | - | | | | 0.00 | % |
Loans, net of unearned income | | | 1,095,541 | | | | 14,394 | | | | 5.21 | % | | | 910,341 | | | | 11,642 | | | | 5.09 | % |
Total interest-earning assets | | | 1,633,059 | | | $ | 17,826 | | | | 4.33 | % | | | 1,413,754 | | | $ | 14,651 | | | | 4.12 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | | | 13,122 | | | | | | | | | | | | 8,230 | | | | | | | | | |
Premises and equipment, net | | | 36,262 | | | | | | | | | | | | 22,257 | | | | | | | | | |
Other assets | | | 13,806 | | | | | | | | | | | | 3,298 | | | | | | | | | |
Total Assets | | $ | 1,696,249 | | | | | | | | | | | $ | 1,447,539 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits | | $ | 534,400 | | | $ | 1,460 | | | | 1.08 | % | | $ | 405,196 | | | $ | 662 | | | | 0.65 | % |
Savings deposits | | | 105,211 | | | | 61 | | | | 0.23 | % | | | 90,160 | | | | 19 | | | | 0.08 | % |
Time deposits | | | 612,406 | | | | 2,044 | | | | 1.32 | % | | | 550,736 | | | | 1,470 | | | | 1.06 | % |
Borrowings | | | 40,965 | | | | 403 | | | | 3.90 | % | | | 48,478 | | | | 369 | | | | 3.03 | % |
Total interest-bearing liabilities | | | 1,292,982 | | | $ | 3,968 | | | | 1.22 | % | | | 1,094,570 | | | $ | 2,520 | | | | 0.92 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits | | | 254,825 | | | | | | | | | | | | 218,187 | | | | | | | | | |
Other | | | 5,613 | | | | | | | | | | | | 5,384 | | | | | | | | | |
Total Liabilities | | | 1,553,420 | | | | | | | | | | | | 1,318,141 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Shareholders' equity | | | 142,829 | | | | | | | | | | | | 129,398 | | | | | | | | | |
Total Liabilities and Shareholders' Equity | | $ | 1,696,249 | | | | | | | | | | | $ | 1,447,539 | | | | | | | | | |
Net interest income | | | | | | $ | 13,858 | | | | | | | | | | | $ | 12,131 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest rate spread (1) | | | | | | | | | | | 3.11 | % | | | | | | | | | | | 3.20 | % |
Net interest-earning assets (2) | | $ | 340,077 | | | | | | | | | | | $ | 319,184 | | | | | | | | | |
Net interest margin (3), (4) | | | | | | | | | | | 3.37 | % | | | | | | | | | | | 3.41 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Average interest-earning assets to interest-bearing liabilities | | | | | | | | | | | 126.30 | % | | | | | | | | | | | 129.16 | % |
| (1) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 |
(in thousands except for %) | | Average Balance | | Interest | | Yield/Rate (5) | | Average Balance | | Interest | | Yield/Rate (5) |
Assets | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | |
Interest-earning deposits with banks | | $ | 90,388 | | | $ | 1,071 | | | 4.75 | % | | $ | 135,072 | | | $ | 261 | | | 0.77 | % |
Securities (including FHLB stock) | | 407,689 | | | 2,420 | | | 2.38 | % | | 455,224 | | | 2,280 | | | 2.01 | % |
Federal funds sold | | 410 | | | — | | | — | % | | 162 | | | — | | | — | % |
Loans held for sale | | — | | | — | | | — | % | | — | | | — | | | — | % |
Loans, net of unearned income(6) | | 2,568,051 | | | 40,290 | | | 6.29 | % | | 2,244,110 | | | 29,999 | | | 5.36 | % |
Total interest-earning assets | | 3,066,538 | | | $ | 43,781 | | | 5.73 | % | | 2,834,568 | | | $ | 32,540 | | | 4.60 | % |
| | | | | | | | | | | | |
Noninterest-earning assets: | | | | | | | | | | | | |
Cash and due from banks | | 18,443 | | | | | | | 19,334 | | | | | |
Premises and equipment, net | | 59,924 | | | | | | | 58,235 | | | | | |
Other assets | | 28,958 | | | | | | | 28,828 | | | | | |
Total Assets | | $ | 3,173,863 | | | | | | | $ | 2,940,965 | | | | | |
| | | | | | | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | |
Demand deposits | | $ | 1,458,353 | | | $ | 15,036 | | | 4.14 | % | | $ | 1,327,954 | | | $ | 2,884 | | | 0.87 | % |
Savings deposits | | 214,055 | | | 838 | | | 1.57 | % | | 211,281 | | | 101 | | | 0.19 | % |
Time deposits | | 631,605 | | | 5,224 | | | 3.32 | % | | 549,052 | | | 2,540 | | | 1.86 | % |
Borrowings | | 122,969 | | | 1,770 | | | 5.77 | % | | 55,536 | | | 705 | | | 5.10 | % |
Total interest-bearing liabilities | | 2,426,982 | | | $ | 22,868 | | | 3.78 | % | | 2,143,823 | | | $ | 6,230 | | | 1.17 | % |
| | | | | | | | | | | | |
Noninterest-bearing liabilities: | | | | | | | | | | | | |
Demand deposits | | 496,209 | | | | | | | 563,832 | | | | | |
Other | | 17,366 | | | | | | | 7,947 | | | | | |
Total Liabilities | | 2,940,557 | | | | | | | 2,715,602 | | | | | |
| | | | | | | | | | | | |
Shareholders' equity | | 233,306 | | | | | | | 225,363 | | | | | |
Total Liabilities and Shareholders' Equity | | $ | 3,173,863 | | | | | | | $ | 2,940,965 | | | | | |
Net interest income | | | | $ | 20,913 | | | | | | | $ | 26,310 | | | |
| | | | | | | | | | | | |
Net interest rate spread (1) | | | | | | 1.95 | % | | | | | | 3.43 | % |
Net interest-earning assets (2) | | $ | 639,556 | | | | | | | $ | 690,745 | | | | | |
Net interest margin (3), (4) | | | | | | 2.74 | % | | | | | | 3.72 | % |
| | | | | | | | | | | | |
Average interest-earning assets to interest-bearing liabilities | | | | | | 126.35 | % | | | | | | 132.22 | % |
| (2) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(1)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 margin represents net interest income divided by average total interest-earning assets. |
(2)Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. | (4) | The tax adjusted net interest margin was 3.39% and 3.43% for the above periods ended September 30, 2017 and 2016 respectively. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities. |
(3)Net interest margin represents net interest income divided by average total interest-earning assets.(4)The tax adjusted net interest margin was 2.74% and 3.73% for the above periods ended June 30, 2023 and 2022, respectively. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended June 30, 2023 and 2022, respectively.
(5)Annualized.
(6)Includes loan fees of $1.4 million and $2.5 million or the above periods ended June 30, 2023 and 2022, respectively. PPP loan fee income of $11,000 and $0.5 million was recognized for above periods ended June 30, 2023 and 2022, respectively.
| | | Nine Months Ended September 30, 2017 | | | Nine Months Ended September 30, 2016 | | | Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
(in thousands except for %) | | Average Balance | | | Interest | | | Yield/Rate (5) | | | Average Balance | | | Interest | | | Yield/Rate (5) | | (in thousands except for %) | | Average Balance | | Interest | | Yield/Rate (5) | | Average Balance | | Interest | | Yield/Rate (5) |
Assets | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | Interest-earning assets: | |
Interest-earning deposits with banks | | $ | 24,808 | | | $ | 142 | | | | 0.76 | % | | $ | 20,926 | | | $ | 55 | | | | 0.35 | % | Interest-earning deposits with banks | | $ | 81,497 | | | $ | 1,822 | | | 4.51 | % | | $ | 183,047 | | | $ | 363 | | | 0.40 | % |
Securities (including FHLB stock) | | | 517,929 | | | | 10,018 | | | | 2.59 | % | | | 538,748 | | | | 10,013 | | | | 2.48 | % | Securities (including FHLB stock) | | 417,104 | | | 4,807 | | | 2.32 | % | | 444,879 | | | 4,619 | | | 2.09 | % |
Federal funds sold | | | 958 | | | | 8 | | | | 1.10 | % | | | 257 | | | | - | | | | 0.00 | % | Federal funds sold | | 421 | | | — | | | — | % | | 197 | | | — | | | — | % |
Loans held for sale | | | 855 | | | | 31 | | | | 4.86 | % | | | - | | | | - | | | | 0.00 | % | Loans held for sale | | — | | | — | | | — | % | | — | | | — | | | — | % |
Loans, net of unearned income | | | 1,027,382 | | | | 39,416 | | | | 5.13 | % | | | 869,325 | | | | 33,749 | | | | 5.19 | % | |
Loans, net of unearned income(6) | | Loans, net of unearned income(6) | | 2,548,446 | | | 78,439 | | | 6.21 | % | | 2,199,435 | | | 58,037 | | | 5.32 | % |
Total interest-earning assets | | | 1,571,932 | | | $ | 49,615 | | | | 4.22 | % | | | 1,429,256 | | | $ | 43,817 | | | | 4.10 | % | Total interest-earning assets | | 3,047,468 | | | $ | 85,068 | | | 5.63 | % | | 2,827,558 | | | $ | 63,019 | | | 4.49 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | Noninterest-earning assets: | |
Cash and due from banks | | | 9,675 | | | | | | | | | | | | 7,988 | | | | | | | | | | Cash and due from banks | | 18,853 | | | 18,910 | | |
Premises and equipment, net | | | 29,343 | | | | | | | | | | | | 22,099 | | | | | | | | | | Premises and equipment, net | | 59,043 | | | 58,314 | | |
Other assets | | | 7,924 | | | | | | | | | | | | 3,855 | | | | | | | | | | Other assets | | 27,854 | | | 28,709 | | |
Total Assets | | $ | 1,618,874 | | | | | | | | | | | $ | 1,463,198 | | | | | | | | | | Total Assets | | $ | 3,153,218 | | | $ | 2,933,491 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities and Shareholders' Equity | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Interest-bearing liabilities: | |
Demand deposits | | $ | 534,898 | | | $ | 3,902 | | | | 0.98 | % | | $ | 414,633 | | | $ | 1,902 | | | | 0.61 | % | Demand deposits | | $ | 1,473,147 | | | $ | 28,085 | | | 3.84 | % | | $ | 1,325,755 | | | $ | 5,160 | | | 0.78 | % |
Savings deposits | | | 101,581 | | | | 147 | | | | 0.19 | % | | | 87,344 | | | | 54 | | | | 0.08 | % | Savings deposits | | 209,190 | | | 1,417 | | | 1.37 | % | | 207,664 | | | 162 | | | 0.16 | % |
Time deposits | | | 563,076 | | | | 5,079 | | | | 1.21 | % | | | 570,615 | | | | 4,541 | | | | 1.06 | % | Time deposits | | 596,575 | | | 8,800 | | | 2.97 | % | | 562,550 | | | 5,295 | | | 1.90 | % |
Borrowings | | | 40,074 | | | | 1,143 | | | | 3.81 | % | | | 43,485 | | | | 1,126 | | | | 3.46 | % | Borrowings | | 121,892 | | | 3,552 | | | 5.88 | % | | 51,732 | | | 1,109 | | | 4.32 | % |
Total interest-bearing liabilities | | | 1,239,629 | | | $ | 10,271 | | | | 1.11 | % | | | 1,116,077 | | | $ | 7,623 | | | | 0.91 | % | Total interest-bearing liabilities | | 2,400,804 | | | $ | 41,854 | | | 3.52 | % | | 2,147,701 | | | $ | 11,726 | | | 1.10 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Noninterest-bearing liabilities: | |
Demand deposits | | | 240,923 | | | | | | | | | | | | 217,474 | | | | | | | | | | Demand deposits | | 503,216 | | | 554,475 | | |
Other | | | 4,926 | | | | | | | | | | | | 4,384 | | | | | | | | | | Other | | 15,071 | | | 7,396 | | |
Total Liabilities | | | 1,485,478 | | | | | | | | | | | | 1,337,935 | | | | | | | | | | Total Liabilities | | 2,919,091 | | | 2,709,572 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shareholders' equity | | | 133,396 | | | | | | | | | | | | 125,263 | | | | | | | | | | Shareholders' equity | | 234,127 | | | 223,919 | | |
Total Liabilities and Shareholders' Equity | | $ | 1,618,874 | | | | | | | | | | | $ | 1,463,198 | | | | | | | | | | Total Liabilities and Shareholders' Equity | | $ | 3,153,218 | | | $ | 2,933,491 | | |
Net interest income | | | | | | $ | 39,344 | | | | | | | | | | | $ | 36,194 | | | | | | Net interest income | | | | $ | 43,214 | | | | | $ | 51,293 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest rate spread (1) | | | | | | | | | | | 3.11 | % | | | | | | | | | | | 3.19 | % | Net interest rate spread (1) | | 2.11 | % | | 3.39 | % |
Net interest-earning assets (2) | | $ | 332,303 | | | | | | | | | | | $ | 313,179 | | | | | | | | | | Net interest-earning assets (2) | | $ | 646,664 | | | | | $ | 679,857 | | | |
Net interest margin (3), (4) | | | | | | | | | | | 3.35 | % | | | | | | | | | | | 3.38 | % | Net interest margin (3), (4) | | | | 2.86 | % | | | | 3.66 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average interest-earning assets to interest-bearing liabilities | | | | | | | | | | | 126.81 | % | | | | | | | | | | | 128.06 | % | Average interest-earning assets to interest-bearing liabilities | | 126.94 | % | | 131.66 | % |
| (1) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
| (2) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(1)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 margin represents net interest income divided by average total interest-earning assets. |
(2)Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. | (4) | The tax adjusted net interest margin was 3.37% and 3.41% for the above periods ended September 30, 2017 and 2016 respectively. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities. |
(3)Net interest margin represents net interest income divided by average total interest-earning assets.(4)The tax adjusted net interest margin was 2.86% and 3.66% for the above periods ended June 30, 2023 and 2022, respectively. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended June 30, 2023 and 2022, respectively.
(5)Annualized.
(6)Includes loan fees of $2.8 million and $4.5 million or the above periods ended June 30, 2023 and 2022, respectively. PPP loan fee income of $16,000 and $1.1 million was recognized for above periods ended June 30, 2023 and 2022, respectively.
Provision for Credit and Loan Losses
A provision for credit and loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loancredit 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 SeptemberJune 30, 2017,2023, the provision for loan losses was $1.1$0.5 million compared to $1.2$0.8 million for the same period in 2016. The allowance for loan losses at September 30, 2017 was $10.3 million and was 0.93% of total loans.2022. The decrease in the provision was attributedattributable to the decrease in provisions on loans evaluated individually for impairment. The allowance for loan losses as a percentage of total loans was 1.03% prior to the inclusionevaluation of the acquired loans from Premier.
We recorded a $3.1loan portfolio at June 30, 2023. Total charge-offs were $0.6 million provision for loan losses for the ninethree months ended SeptemberJune 30, 2017 compared to $3.02023 and $2.4 million for the same period in 2016. The increase in the provision was attributed to the additional provisions on loans evaluated individually for impairment. Total2022. Partially offsetting these charge-offs were $4.3recoveries that totaled $0.5 million for the first ninethree months of 2017ended June 30, 2023 and $2.7$1.1 million for the same period in 2016. The increase2022.
For the six months ended June 30, 2023, the provision for loan losses was $0.9 million compared to $1.4 million for the same period in 2022. Total charge-offs was primarily due towere $1.5 million for the six months ended June 30, 2023 and $3.3 million for the same period in 2022. Charge-offs for the six months ended June 30, 2023 were concentrated in consumer relief loans associated with Hurricane Ida and a $2.2non-farm non-residential loan. Hurricane Ida consumer relief loans charge-offs totaled $0.3 million charge-off on a commercialduring the first six months of 2023. Partially offsetting these charge-offs were recoveries that totaled $1.0 million for the six months ended June 30, 2023 and industrial loan relationship.$1.4 million for the same period in 2022.
We believe that the allowance is adequate to cover potentialcurrent expected losses in the loan portfolio given the current economic conditions, and current expected net charge-offs and non-performing asset levels.
Economic uncertainty may result in additional increases to the allowance for credit 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-saleavailable 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 $2.0$2.8 million for the three months ended SeptemberJune 30, 2017, a decrease2023, an increase of $0.5$0.3 million from $2.6$2.5 million for the three months ended SeptemberJune 30, 2016.2022. The decreaseincrease was primarily due to lower gains on securities sales. Net securities gains were $0.1salary tax credits related to the COVID-19 pandemic. Service charges, commissions and fees totaled $0.8 million for the three months ended SeptemberJune 30, 2017 as2023 and 2022. ATM and debit card fees totaled $0.8 million for the three months ended June 30, 2023 compared to $1.2$0.9 million for the same period in 2016. The2022. Net securities losses were $0 for the three months ended June 30, 2023 and 2022. Net gains on securities sales occurred as First Guaranty sold investment securitiesthe sale of loans were $0 for the three months ended June 30, 2023 compared to $90,000 for the same period in order2022. Other noninterest income totaled $1.2 million for the three months ended June 30, 2023 compared to fund$0.8 million for the same period in 2022.
Noninterest income totaled $5.5 million for the six months ended June 30, 2023, an increase of $1.0 million from $4.5 million for the six months ended June 30, 2022. The increase was primarily due to salary tax credits related to the COVID-19 pandemic, recoveries of prior legal fees and due to an improved valuation of loan growth. We also continuedservicing assets in the first six months of 2023 compared to have gains from bonds that were called and paid off before their contractual maturity.the valuation of the loan servicing asset in the same period of 2022. Service charges, commissions and fees totaled $0.7$1.6 million for the threesix months ended SeptemberJune 30, 20172023 and $0.62022. ATM and debit card fees totaled $1.7 million for the six months ended June 30, 2023 and 2022. Net securities losses were $0 for the six months ended June 30, 2023 and compared to $17,000 for the same period in 2022. Net gains on the sale of loans were $12,000 for the six months ended June 30, 2023 compared to $89,000 for the same period in 2022. Other noninterest income totaled $2.2 million for the 2,248 months ended June 30, 2023 compared to $1.1 million for the same period in 2016. ATM and debit card fees totaled $0.5 million for the three months ended September 30, 2017 and 2016. Net loan gains were $3,000 for the three months ended September 30, 2017 and $6,000 for the same period in 2016. Other noninterest income totaled $0.7 million and $0.4 million for the three months ended September 30, 2017 and 2016, respectively.2022.
Noninterest income totaled $6.0 million for the nine months ended September 30, 2017, a decrease of $2.1 million from $8.0 million for the nine months ended September 30, 2016. The decrease was primarily due to lower gains on securities sales. Net securities gains were $1.0 million for the nine months ended September 30, 2017 as compared to $3.8 million for the same period in 2016. The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth. We also continued to have gains from bonds that were called and paid off before their contractual maturity. Service charges, commissions and fees totaled $1.9 million for the nine months ended September 30, 2017 as compared to $1.8 million for the same period in 2016. ATM and debit card fees totaled $1.5 million for the nine months ended September 30, 2017 and $1.4 million for the same period in 2016. Net loan gains were $0.1 million for the nine months ended September 30, 2017 and $9,000 for the same period in 2016. The increase in net loan gains during the nine months ended September 30, 2017 were related to $0.1 million in net gains on the sale of the guaranteed portion of SBA loans. Other noninterest income totaled $1.5 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively.
Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $10.1$19.7 million for the three months ended SeptemberJune 30, 20172023 and $8.3$17.8 million for the three months ended SeptemberJune 30, 2016.2022. Salaries and benefits expense totaled $5.3$9.9 million for the three months ended SeptemberJune 30, 20172023 and $4.2$9.1 million for the three months ended SeptemberJune 30, 2016,2022. The increase was primarily due to the increase in personnel expense from the Premier acquisition.new hires. Occupancy and equipment expense totaled $1.2$2.2 million for the three months ended SeptemberJune 30, 20172023 and $1.1$2.3 million for the same period of 2016.in 2022. Other noninterest expense totaled $3.7$7.6 million for the three months ended SeptemberJune 30, 20172023 and $3.0$6.5 million for the three months ended September 30, 2016. The largest increasesame period in other noninterest expense occurred due to increased legal and professional fees associated with the Premier acquisition. Included in other non-interest expense were non-recurring expenses related to the acquisition of Premier of approximately $0.3 million.2022.
The following table presents, for the periods indicated, the major categories of other noninterest expense: