First Guaranty Bancshares (FGBI) 10-Q 2018 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2018

Commission File Number: 001-37621

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Louisiana	26-0513559
(State or other jurisdiction incorporation or organization)	(I.R.S. Employer Identification Number)
400 East Thomas Street
Hammond, Louisiana	70401
(Address of principal executive offices)	(Zip Code)
(985) 345-7685
(Registrant's telephone number, including area code)

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

Yes  No 

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

Yes  No 

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

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

        Smaller reporting company ☒

        Emerging growth company ☒

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

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

Yes No 

As of November 8, 2018 the registrant had 8,807,175 shares of $1 par value common stock outstanding.

Table of Contents

		Page
Part I.	Financial Information
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	3
	Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017	5
	Consolidated Statements of Shareholders' Equity for the nine months ended September 30, 2018 and 2017	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	51
Part II.	Other Information	52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 6.	Exhibits	53
Signatures		54

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)	September 30, 2018			December 31, 2017
Assets
Cash and cash equivalents:
Cash and due from banks	$	63,762		$	37,205
Federal funds sold		94			823
Cash and cash equivalents		63,856			38,028
Investment securities:
Available for sale, at fair value		327,449			381,535
Held to maturity, at cost (estimated fair value of $105,726 and $118,557 respectively)		110,950			120,121
Investment securities		438,399			501,656
Federal Home Loan Bank stock, at cost		2,381			2,351
Loans held for sale		570			1,308
Loans, net of unearned income		1,189,386			1,149,014
Less: allowance for loan losses		10,577			9,225
Net loans		1,178,809			1,139,789
Premises and equipment, net		38,902			38,020
Goodwill		3,472			3,472
Intangible assets, net		3,900			4,424
Other real estate, net		1,161			1,281
Accrued interest receivable		7,459			7,982
Other assets		13,644			12,119
Total Assets	$	1,752,553		$	1,750,430
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	251,767		$	251,617
Interest-bearing demand		508,837			611,677
Savings		112,271			104,661
Time		671,567			581,331
Total deposits		1,544,442			1,549,286
Short-term borrowings		24,000			15,500
Accrued interest payable		3,295			2,488
Senior long-term debt		20,572			22,774
Junior subordinated debentures		14,691			14,664
Other liabilities		3,209			1,735
Total Liabilities		1,610,209			1,606,447
Shareholders' Equity
Common stock:
$1 par value - authorized 100,600,000 shares; issued 8,807,175 shares		8,807			8,807
Surplus		92,268			92,268
Retained earnings		52,138			44,464
Accumulated other comprehensive (loss)		(10,869	)		(1,556	)
Total Shareholders' Equity		142,344			143,983
Total Liabilities and Shareholders' Equity	$	1,752,553		$	1,750,430

See Notes to Consolidated Financial Statements

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except share data)	2018			2017		2018			2017
Interest Income:
Loans (including fees)	$	16,867		$	14,421	$	47,650		$	39,447
Deposits with other banks		158			82		274			142
Securities (including FHLB stock)		3,083			3,317		9,766			10,018
Federal funds sold		-			6		1			8
Total Interest Income		20,108			17,826		57,691			49,615
Interest Expense:
Demand deposits		2,155			1,460		6,273			3,902
Savings deposits		107			61		281			147
Time deposits		2,916			2,044		7,291			5,079
Borrowings		439			403		1,316			1,143
Total Interest Expense		5,617			3,968		15,161			10,271
Net Interest Income		14,491			13,858		42,530			39,344
Less: Provision for loan losses		372			1,051		568			3,064
Net Interest Income after Provision for Loan Losses		14,119			12,807		41,962			36,280
Noninterest Income:
Service charges, commissions and fees		768			718		2,262			1,851
ATM and debit card fees		540			497		1,572			1,464
Net (losses) gains on securities		(696	)		62		(902	)		996
Net gains on sale of loans		45			3		176			127
Other		542			723		1,437			1,518
Total Noninterest Income		1,199			2,003		4,545			5,956
Noninterest Expense:
Salaries and employee benefits		5,764			5,270		16,979			14,689
Occupancy and equipment expense		1,370			1,166		4,108			3,274
Other		4,022			3,709		10,953			10,197
Total Noninterest Expense		11,156			10,145		32,040			28,160
Income Before Income Taxes		4,162			4,665		14,467			14,076
Less: Provision for income taxes		765			1,603		2,872			4,831
Net Income	$	3,397		$	3,062	$	11,595		$	9,245
Per Common Share:1
Earnings	$	0.39		$	0.35	$	1.32		$	1.08
Cash dividends paid	$	0.16		$	0.15	$	0.48		$	0.44
Weighted Average Common Shares Outstanding		8,807,175			8,807,175		8,807,175			8,540,997

See Notes to Consolidated Financial Statements

¹All share amounts have been restated to reflect the ten percent stock dividend paid December 14, 2017 to shareholders of record as of December 8, 2017.

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017
Net Income	$	3,397		$	3,062		$	11,595		$	9,245
Other comprehensive income:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during the period		(2,150	)		1,148			(12,690	)		4,488
Reclassification adjustments for gains (losses) included in net income		696			(62	)		902			(996	)
Change in unrealized (losses) gains on securities		(1,454	)		1,086			(11,788	)		3,492
Tax impact		305			(369	)		2,475			(1,187	)
Other comprehensive (loss) income		(1,149	)		717			(9,313	)		2,305
Comprehensive Income	$	2,248		$	3,779		$	2,282		$	11,550

See Notes to Consolidated Financial Statements

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

	Common Stock $1 Par		Surplus		Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total
(in thousands, except per share data)
Balance December 31, 2016(1)	$	8,369	$	81,000	$	38,979		$	(3,999	)	$	124,349
Net income		-		-		9,245			-			9,245
Common stock issued in acquisition, 437,751 shares(1)		438		11,268		(1,056	)		-			10,650
Other comprehensive income		-		-		-			2,305			2,305
Cash dividends on common stock ($0.44 per share)(1)		-		-		(3,780	)		-			(3,780	)
Balance September 30, 2017 (unaudited)	$	8,807	$	92,268	$	43,388		$	(1,694	)	$	142,769
Balance December 31, 2017	$	8,807	$	92,268	$	44,464		$	(1,556	)	$	143,983
Reclassification of stranded tax effects in accumulated other comprehensive income(2)		-		-		306			-			306
Net income		-		-		11,595			-			11,595
Other comprehensive income (loss)		-		-		-			(9,313	)		(9,313	)
Cash dividends on common stock ($0.48 per share)		-		-		(4,227	)		-			(4,227	)
Balance September 30, 2018 (unaudited)	$	8,807	$	92,268	$	52,138		$	(10,869	)	$	142,344

See Notes to Consolidated Financial Statements

(1) All share and per share amounts reflect the ten percent stock dividend paid December 14, 2017 to shareholders of record as of December 8, 2017.

(2) See Note 2 - Recent Accounting Pronouncements

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FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Nine Months Ended September 30,
(in thousands)	2018			2017
Cash Flows From Operating Activities
Net income	$	11,595		$	9,245
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		568			3,064
Depreciation and amortization		2,299			1,757
Amortization/Accretion of investments		1,111			1,345
Loss (gain) on sale/call of securities		902			(996	)
Gain on sale of assets		(190	)		(198	)
Repossessed asset write downs, gains and losses on dispositions		(67	)		88
FHLB stock dividends		(30	)		(15	)
Net decrease (increase) in loans held for sale		738			(959	)
Change in other assets and liabilities, net		3,648			(4,425	)
Net Cash Provided By Operating Activities		20,574			8,906
Cash Flows From Investing Activities
Proceeds from maturities and calls of HTM securities		8,708			8,890
Proceeds from maturities, calls and sales of AFS securities		343,983			503,585
Funds Invested in HTM securities		-			(15,345	)
Funds Invested in AFS securities		(302,848	)		(483,705	)
Net increase in loans		(39,885	)		(42,081	)
Purchase of premises and equipment		(2,449	)		(4,755	)
Proceeds from sales of premises and equipment		38			72
Proceeds from sales of other real estate owned		484			493
Cash paid in excess of cash received in acquisition		-			(2,907	)
Net Cash Provided By (Used In) Investing Activities		8,031			(35,753	)
Cash Flows From Financing Activities
Net (decrease) increase in deposits		(4,844	)		43,673
Net increase (decrease) in federal funds purchased and short-term borrowings		8,500			(8,700	)
Proceeds from long-term borrowings		-			3,750
Repayment of long-term borrowings		(2,206	)		(2,346	)
Dividends paid		(4,227	)		(3,780	)
Net Cash (Used In) Provided By Financing Activities		(2,777	)		32,597
Net Increase In Cash and Cash Equivalents		25,828			5,750
Cash and Cash Equivalents at the Beginning of the Period		38,028			18,111
Cash and Cash Equivalents at the End of the Period	$	63,856		$	23,861
Noncash Activities:
Loans transferred to foreclosed assets	$	297		$	1,259
Common stock issued in acquisition	$	-		$	10,650
Cash Paid During The Period:
Interest on deposits and borrowed funds	$	14,354		$	9,839
Income taxes	$	2,400		$	9,900

See Notes to the Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. ("First Guaranty") thereto should be read in conjunction with the audited consolidated financial statements and note disclosures for First Guaranty previously filed with the Securities and Exchange Commission in First Guaranty's Annual Report on Form 10-K for the year ended December 31, 2017.

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

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations at September 30, 2018 and for the three and nine month periods ended September 30, 2018 and 2017 are not necessarily indicative of the results expected for the full year or any other interim period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of investment securities.

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Note 2. Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, "Leases: Conforming Amendments Related to Leases". This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the balance sheet and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. 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 Financial Statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments- Credit Losses: Measurement of Credit Losses on Financial Instruments". This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The ASU amendments require the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires assets held at cost basis to reflect the company's current estimate of all expected credit losses. For available for sale debt securities, credit losses should be presented as an allowance rather than as a write-down. In addition, this ASU amends the accounting for purchased financial assets with credit deterioration. This ASU is effective for annual and interim periods beginning after December 15, 2019. First Guaranty is currently evaluating the impact of this accounting standard and is implementing a new software application to assist in determining the impact on the Consolidated Financial Statements.

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

In 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 period for certain callable debt securities held 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. First Guaranty is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". This ASU provides an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. This ASU requires disclosure of a description of the accounting policy for releasing income tax effects from AOCI; whether election is made to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and information about the other income tax effects that are reclassified. This ASU is effective for annual and interim periods beginning after December 15, 2018. First Guaranty adopted this ASU in the third quarter of 2018 and reclassified its stranded tax credit of $306,000 from accumulated other comprehensive income to retained earnings.

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

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Note 3. Merger Transaction

Effective at the close of business on June 16, 2017, First Guaranty completed its acquisition of 100% of the outstanding shares of Premier Bancshares, Inc., a Texas corporation ("Premier"), a single bank holding company headquartered in McKinney, Texas and its wholly owned subsidiary, Synergy Bank. This acquisition allowed First Guaranty to expand its presence into the North Central Texas market area. Under terms of an agreement and plan of merger dated January 30, 2017, First Guaranty issued 0.119 of a share of its common stock for each share of Premier for a total of 397,988 shares at a price of $25.86 (unadjusted for the 10% stock dividend in December 2017) and paid $10.3 million in cash for an acquisition value of approximately $21.0 million. The purchase price resulted in $1.5 million in goodwill and $2.7 million in core deposit intangible, none of which is deductible for tax purposes. 

First Guaranty accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, for each transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition. In conjunction with the adoption of ASU 2015-16, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition dates, First Guaranty records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. During the second quarter of 2018, First Guaranty finalized the purchase price allocations related to the Premier acquisition. No adjustments to goodwill were made in 2018.

(in thousands)	Premier Bancshares, Inc.
Cash and due from banks	$	4,542
Federal funds sold		2,855
Securities available for sale		5,892
Loans		128,018
Premises and equipment		9,493
Goodwill		1,474
Intangible assets		3,809
Other real estate		221
Other assets		2,009
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 following pro forma information for the nine months ended September 30, 2017 reflects First Guaranty's estimated consolidated results of operations as if the acquisition of Premier occurred at January 1, 2016, unadjusted for potential cost savings.

(in thousands, except share data)	2017
Net Interest Income	$	41,854
Noninterest Income		6,156
Noninterest Expense		32,073
Net Income		8,379
Earnings per common share	$	0.95

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Note 4. Securities

A summary comparison of securities by type at September 30, 2018 and December 31, 2017 is shown below.

	September 30, 2018									December 31, 2017
(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	$	16,597	$	-	$	(2	)	$	16,595	$	19,490	$	-	$	(4	)	$	19,486
U.S. Government Agencies		161,409		-		(9,579	)		151,830		200,052		-		(4,069	)		195,983
Corporate debt securities		77,181		57		(3,109	)		74,129		91,770		661		(946	)		91,485
Mutual funds or other equity securities		478		-		-			478		500		-		(7	)		493
Municipal bonds		34,633		953		(363	)		35,223		37,210		2,434		(75	)		39,569
Collateralized mortgage obligations		977		-		(28	)		949		1,191		-		(6	)		1,185
Mortgage-backed securities		49,932		-		(1,687	)		48,245		33,680		-		(346	)		33,334
Total available-for-sale securities	$	341,207	$	1,010	$	(14,768	)	$	327,449	$	383,893	$	3,095	$	(5,453	)	$	381,535
Held-to-maturity:
U.S. Government Agencies	$	28,171	$	-	$	(1,597	)	$	26,574	$	28,169	$	-	$	(670	)	$	27,499
Municipal bonds		5,245		-		(182	)		5,063		5,322		15		(12	)		5,325
Mortgage-backed securities		77,534		-		(3,445	)		74,089		86,630		6		(903	)		85,733
Total held-to-maturity securities	$	110,950	$	-	$	(5,224	)	$	105,726	$	120,121	$	21	$	(1,585	)	$	118,557

The scheduled maturities of securities at September 30, 2018, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to call or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below.

	September 30, 2018
(in thousands)	Amortized Cost		Fair Value
Available For Sale:
Due in one year or less	$	20,054	$	20,073
Due after one year through five years		58,371		56,780
Due after five years through 10 years		194,914		185,007
Over 10 years		16,959		16,395
Subtotal		290,298		278,255
Collateralized mortgage obligations		977		949
Mortgage-backed securities		49,932		48,245
Total available-for-sale securities	$	341,207	$	327,449
Held to Maturity:
Due in one year or less	$	-	$	-
Due after one year through five years		5,249		5,136
Due after five years through 10 years		18,337		17,103
Over 10 years		9,830		9,398
Subtotal		33,416		31,637
Mortgage-backed securities		77,534		74,089
Total held to maturity securities	$	110,950	$	105,726

At September 30, 2018, $334.9 million of First Guaranty's securities were pledged to secure public funds deposits and borrowings. The pledged securities had a market value of $329.7 million as of September 30, 2018.

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The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at September 30, 2018.

								At September 30, 2018
	Less Than 12 Months							12 Months or More							Total
(in thousands)	Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries		2	$	16,595	$	(2	)		-	$	-	$	-			2	$	16,595	$	(2	)
U.S. Government agencies		1		954		(37	)		53		150,876		(9,542	)		54		151,830		(9,579	)
Corporate debt securities		120		37,646		(1,153	)		98		30,361		(1,956	)		218		68,007		(3,109	)
Mutual funds or other equity securities		-		-		-			-		-		-			-		-		-
Municipal bonds		22		7,703		(169	)		6		4,370		(194	)		28		12,073		(363	)
Collateralized mortgage obligations		3		588		(17	)		2		361		(11	)		5		949		(28	)
Mortgage-backed securities		27		21,339		(407	)		26		25,688		(1,280	)		53		47,027		(1,687	)
Total available-for-sale		175	$	84,825	$	(1,785	)		185	$	211,656	$	(12,983	)		360	$	296,481	$	(14,768	)
Held to maturity:
U.S. Government agencies		-		-		-			14		26,574		(1,597	)		14		26,574		(1,597	)
Municipal bonds		3		2,024		(72	)		6		3,038		(110	)		9		5,062		(182	)
Mortgage-backed securities		12		17,417		(731	)		44		56,673		(2,714	)		56		74,090		(3,445	)
Total held to maturity		15	$	19,441	$	(803	)		64	$	86,285	$	(4,421	)		79	$	105,726	$	(5,224	)

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, 2017.

								At December 31, 2017
	Less Than 12 Months							12 Months or More							Total
(in thousands)	Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries		6	$	19,486	$	(4	)		-	$	-	$	-			6	$	19,486	$	(4	)
U.S. Government agencies		30		62,991		(519	)		36		132,992		(3,550	)		66		195,983		(4,069	)
Corporate debt securities		56		19,050		(240	)		70		22,818		(706	)		126		41,868		(946	)
Mutual funds or other equity securities		1		493		(7	)		-		-		-			1		493		(7	)
Municipal bonds		9		4,431		(36	)		1		1,079		(39	)		10		5,510		(75	)
Collateralized mortgage obligations		4		936		(6	)		-		-		-			4		936		(6	)
Mortgage-backed securities		26		14,737		(73	)		11		18,313		(273	)		37		33,050		(346	)
Total available for sale		132	$	122,124	$	(885	)		118	$	175,202	$	(4,568	)		250	$	297,326	$	(5,453	)
Held to maturity:
U.S. Government agencies		4	$	9,925	$	(75	)		10	$	17,574	$	(595	)		14	$	27,499	$	(670	)
Municipal bonds		6		3,191		(12	)		-		-		-			6		3,191		(12	)
Mortgage-backed securities		35		54,186		(515	)		17		26,852		(388	)		52		81,038		(903	)
Total held to maturity		45	$	67,302	$	(602	)		27	$	44,426	$	(983	)		72	$	111,728	$	(1,585	)

As of September 30, 2018, 439 of First Guaranty's debt securities had unrealized losses totaling 4.7% of the individual securities' amortized cost basis and 4.4% of First Guaranty's total amortized cost basis of the investment securities portfolio. 249 of the 439 securities had been in a continuous loss position for over 12 months at such date. The 249 securities had an aggregate amortized cost basis of $315.3 million and an unrealized loss of $17.4 million at September 30, 2018. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery.

-12-

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

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

Corporate debt securities in a loss position consist primarily of corporate bonds issued by businesses in the financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas industries. Two securities with an other-than-temporary impairment loss were held at September 30, 2018. First Guaranty believes that the remaining issuers will be able to fulfill the obligations of these securities based on evaluations described above. First Guaranty has the ability and intent to hold these securities until they recover, which could be at their maturity dates.

There were no other-than-temporary impairment losses recognized on securities during the nine months ended September 30, 2018 and 2017.

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, 2018 and 2017:

(in thousands)	Nine Months Ended September 30, 2018		Nine Months Ended September 30, 2017
Beginning balance of credit losses at end of prior year	$	60	$	60
Other-than-temporary impairment credit losses on securities not previously OTTI		-		-
Increases for additional credit losses on securities previously determined to be OTTI		-		-
Reduction for increases in cash flows		-		-
Reduction due to credit impaired securities sold or fully settled		-		-
Ending balance of cumulative credit losses recognized in earnings at end of period	$	60	$	60

In the first nine months of 2018 there were no other-than-temporary impairment credit losses on securities for which we had previously recognized OTTI. For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management's best estimate of future cash flows based on specific assumptions. The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities. Management reviews reports from credit rating agencies and public filings of issuers. 

At September 30, 2018, First Guaranty's exposure to bond issuers that exceeded 10% of shareholders' equity is below:

	At September 30, 2018
(in thousands)	Amortized Cost		Fair Value
U.S. Treasuries	$	16,597	$	16,595
Federal Home Loan Bank (FHLB)		48,397		45,709
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)		49,086		47,200
Federal National Mortgage Association (Fannie Mae-FNMA)		102,289		97,094
Federal Farm Credit Bank (FFCB)		117,274		110,735
Total	$	333,643	$	317,333

-13-

Note 5. Loans

The following table summarizes the components of First Guaranty's loan portfolio as of September 30, 2018 and December 31, 2017:

	September 30, 2018						December 31, 2017
(in thousands except for %)	Balance			As % of Category			Balance			As % of Category
Real Estate:
Construction & land development	$	107,578			9.0	%	$	112,603			9.8	%
Farmland		19,422			1.6	%		25,691			2.2	%
1- 4 Family		166,399			14.0	%		158,733			13.8	%
Multifamily		43,015			3.6	%		16,840			1.4	%
Non-farm non-residential		566,625			47.6	%		530,293			46.1	%
Total Real Estate		903,039			75.8	%		844,160			73.3	%
Non-Real Estate:
Agricultural		29,118			2.4	%		21,514			1.9	%
Commercial and industrial		194,136			16.3	%		230,638			20.0	%
Consumer and other		65,763			5.5	%		55,185			4.8	%
Total Non-Real Estate		289,017			24.2	%		307,337			26.7	%
Total loans before unearned income		1,192,056			100.0	%		1,151,497			100.0	%
Unearned income		(2,670	)					(2,483	)
Total loans net of unearned income	$	1,189,386					$	1,149,014

The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of September 30, 2018 and December 31, 2017 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered.

	September 30, 2018							December 31, 2017
(in thousands)	Fixed		Floating		Total			Fixed		Floating		Total
One year or less	$	133,863	$	86,293	$	220,156		$	89,383	$	75,361	$	164,744
More than one to five years		387,534		230,627		618,161			390,333		251,135		641,468
More than five to 15 years		130,055		72,303		202,358			124,215		70,273		194,488
Over 15 years		80,912		64,648		145,560			70,366		67,881		138,247
Subtotal	$	732,364	$	453,871		1,186,235		$	674,297	$	464,650		1,138,947
Nonaccrual loans						5,821							12,550
Total loans before unearned income						1,192,056							1,151,497
Unearned income						(2,670	)						(2,483	)
Total loans net of unearned income					$	1,189,386						$	1,149,014

As of September 30, 2018, $34.9 million of floating rate loans were at their interest rate floor. At December 31, 2017, $95.4 million of floating rate loans were at the interest rate floor. Nonaccrual loans have been excluded from these totals.

-14-

The following tables present the age analysis of past due loans at September 30, 2018 and December 31, 2017:

	As of September 30, 2018
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	24	$	795	$	819	$	106,759	$	107,578		$	479
Farmland		552		492		1,044		18,378		19,422			-
1 - 4 family		1,675		2,094		3,769		162,630		166,399			-
Multifamily		-		-		-		43,015		43,015			-
Non-farm non-residential		887		609		1,496		565,129		566,625			-
Total Real Estate		3,138		3,990		7,128		895,911		903,039			479
Non-Real Estate:
Agricultural		1,961		1,898		3,859		25,259		29,118			-
Commercial and industrial		390		320		710		193,426		194,136			-
Consumer and other		513		121		634		65,129		65,763			29
Total Non-Real Estate		2,864		2,339		5,203		283,814		289,017			29
Total loans before unearned income	$	6,002	$	6,329	$	12,331	$	1,179,725	$	1,192,056		$	508
Unearned income										(2,670	)
Total loans net of unearned income									$	1,189,386

	As of December 31, 2017
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	95	$	371	$	466	$	112,137	$	112,603		$	-
Farmland		175		65		240		25,451		25,691			-
1 - 4 family		1,481		1,953		3,434		155,299		158,733			-
Multifamily		-		-		-		16,840		16,840			-
Non-farm non-residential		1,006		3,758		4,764		525,529		530,293			-
Total Real Estate		2,757		6,147		8,904		835,256		844,160			-
Non-Real Estate:
Agricultural		239		1,537		1,776		19,738		21,514			41
Commercial and industrial		630		5,624		6,254		224,384		230,638			798
Consumer and other		463		81		544		54,641		55,185			-
Total Non-Real Estate		1,332		7,242		8,574		298,763		307,337			839
Total loans before unearned income	$	4,089	$	13,389	$	17,478	$	1,134,019	$	1,151,497		$	839
Unearned income										(2,483	)
Total loans net of unearned income									$	1,149,014

The tables above include $5.8 million and $12.6 million of nonaccrual loans at September 30, 2018 and December 31, 2017, respectively. See the tables below for more detail on nonaccrual loans.

-15-

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

(in thousands)	As of September 30, 2018		As of December 31, 2017
Real Estate:
Construction & land development	$	316	$	371
Farmland		492		65
1 - 4 family		2,094		1,953
Multifamily		-		-
Non-farm non-residential		609		3,758
Total Real Estate		3,511		6,147
Non-Real Estate:
Agricultural		1,898		1,496
Commercial and industrial		320		4,826
Consumer and other		92		81
Total Non-Real Estate		2,310		6,403
Total Nonaccrual Loans	$	5,821	$	12,550

The following table identifies the credit exposure of the loan portfolio, including loans acquired with deteriorated credit quality, by specific credit ratings as of the dates indicated:

	As of September 30, 2018											As of December 31, 2017
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	102,252	$	2,399	$	2,927	$	-	$	107,578		$	108,200	$	125	$	4,278	$	-	$	112,603
Farmland		13,441		5,451		530		-		19,422			25,030		569		92		-		25,691
1 - 4 family		155,528		2,835		8,036		-		166,399			149,426		1,856		7,451		-		158,733
Multifamily		36,282		-		6,733		-		43,015			9,366		639		6,835		-		16,840
Non-farm non-residential		544,261		6,249		15,583		532		566,625			510,494		2,490		17,309		-		530,293
Total Real Estate		851,764		16,934		33,809		532		903,039			802,516		5,679		35,965		-		844,160
Non-Real Estate:
Agricultural		24,661		1,668		2,789		-		29,118			19,050		995		1,469		-		21,514
Commercial and industrial		188,289		1,778		4,069		-		194,136			201,722		19,187		5,169		4,560		230,638
Consumer and other		65,353		190		220		-		65,763			48,225		68		6,892		-		55,185
Total Non-Real Estate		278,303		3,636		7,078		-		289,017			268,997		20,250		13,530		4,560		307,337
Total loans before unearned income	$	1,130,067	$	20,570	$	40,887	$	532	$	1,192,056		$	1,071,513	$	25,929	$	49,495	$	4,560	$	1,151,497
Unearned income										(2,670	)										(2,483	)
Total loans net of unearned income									$	1,189,386										$	1,149,014

-16-

Purchased Impaired Loans

As part of the acquisition of Premier on June 16, 2017, First Guaranty purchased credit impaired loans for which there was, at acquisition, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at September 30, 2018 and  December 31, 2017.

(in thousands)	As of September 30, 2018		As of December 31, 2017
Real Estate:
Construction & land development	$	-	$	1,135
Farmland		3		8
1 - 4 family		52		50
Multifamily		-		-
Non-farm non-residential		2,330		2,148
Total Real Estate		2,385		3,341
Non-Real Estate:
Agricultural		-		-
Commercial and industrial		917		1,017
Consumer and other		-		-
Total Non-Real Estate		917		1,017
Total	$	3,302	$	4,358

For those purchased loans disclosed above, there was no allowance for loan losses at September 30, 2018 or December 31, 2017.

Where First Guaranty can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion is being recognized as interest income over the remaining life of the loan.

Where First Guaranty cannot reasonably estimate the cash flows expected to be collected on the loans, it has decided to account for those loans using the cost recovery method of income recognition.  As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method.  If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan.  Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. 

The accretable yield, or income expected to be collected, on the purchased loans above is as follows for the nine months ended September 30, 2018 and 2017.

(in thousands)	Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017
Balance, beginning of period	$	1,031		$	-
Acquisition accretable yield		-			1,330
Accretion		(368	)		(109	)
Net transfers from nonaccretable difference to accretable yield		-			-
Balance, end of period	$	663		$	1,221

-17-

Note 6. Allowance for Loan Losses

A summary of changes in the allowance for loan losses, by portfolio type, for the nine months ended September 30, 2018 and 2017 are as follows:

	For the Nine Months Ended September 30,
	2018												2017
(in thousands)	Beginning Allowance (12/31/2017)		Charge-offs			Recoveries		Provision			Ending Allowance (9/30/2018)		Beginning Allowance (12/31/2016)		Charge-offs			Recoveries		Provision			Ending Allowance (9/30/2017)
Real Estate:
Construction & land development	$	628	$	-		$	3	$	(22	)	$	609	$	1,232	$	-		$	43	$	(567	)	$	708
Farmland		5		-			-		7			12		19		-			-		(13	)		6
1 - 4 family		1,078		(99	)		87		(275	)		791		1,204		(1	)		36		(151	)		1,088
Multifamily		994		-			20		232			1,246		591		-			30		781			1,402
Non-farm non-residential		2,811		(404	)		88		2,033			4,528		3,451		(856	)		10		956			3,561
Total real estate		5,516		(503	)		198		1,975			7,186		6,497		(857	)		119		1,006			6,765
Non-Real Estate:
Agricultural		187		(60	)		12		276			415		74		(103	)		131		(4	)		98
Commercial and industrial		2,377		(179	)		1,629		(2,167	)		1,660		3,543		(2,254	)		21		1,506			2,816
Consumer and other		1,125		(468	)		155		469			1,281		972		(1,112	)		190		584			634
Unallocated		20		-			-		15			35		28		-			-		(28	)		-
Total Non-Real Estate		3,709		(707	)		1,796		(1,407	)		3,391		4,617		(3,469	)		342		2,058			3,548
Total	$	9,225	$	(1,210	)	$	1,994	$	568		$	10,577	$	11,114	$	(4,326	)	$	461	$	3,064		$	10,313

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

-18-

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

	As of September 30, 2018
(in thousands)	Allowance Individually Evaluated for Impairment		Allowance Individually Evaluated for Purchased Credit-Impairment		Allowance Collectively Evaluated for Impairment		Total Allowance for Credit Losses		Loans Individually Evaluated for Impairment		Loans Individually Evaluated for Purchased Credit-Impairment		Loans Collectively Evaluated for Impairment		Total Loans before Unearned Income
Real Estate:
Construction & land development	$	38	$	-	$	571	$	609	$	307	$	-	$	107,271	$	107,578
Farmland		-		-		12		12		-		3		19,419		19,422
1 - 4 family		-		-		791		791		632		52		165,715		166,399
Multifamily		-		-		1,246		1,246		-		-		43,015		43,015
Non-farm non-residential		1,172		-		3,356		4,528		4,921		2,330		559,374		566,625
Total Real Estate		1,210		-		5,976		7,186		5,860		2,385		894,794		903,039
Non-Real Estate:
Agricultural		70		-		345		415		1,450		-		27,668		29,118
Commercial and industrial		145		-		1,515		1,660		1,088		917		192,131		194,136
Consumer and other		-		-		1,281		1,281		-		-		65,763		65,763
Unallocated		-		-		35		35		-		-		-		-
Total Non-Real Estate		215		-		3,176		3,391		2,538		917		285,562		289,017
Total	$	1,425	$	-	$	9,152	$	10,577	$	8,398	$	3,302	$	1,180,356	$	1,192,056
Unearned Income																(2,670	)
Total loans net of unearned income															$	1,189,386

	As of December 31, 2017
(in thousands)	Allowance Individually Evaluated for Impairment		Allowance Individually Evaluated for Purchased Credit-Impairment		Allowance Collectively Evaluated for Impairment		Total Allowance for Credit Losses		Loans Individually Evaluated for Impairment		Loans Individually Evaluated for Purchased Credit-Impairment		Loans Collectively Evaluated for Impairment		Total Loans before Unearned Income
Real Estate:
Construction & land development	$	-	$	-	$	628	$	628	$	334	$	1,135	$	111,134	$	112,603
Farmland		-		-		5		5		-		8		25,683		25,691
1 - 4 family		-		-		1,078		1,078		-		50		158,683		158,733
Multifamily		-		-		994		994		-		-		16,840		16,840
Non-farm non-residential		236		-		2,575		2,811		8,990		2,148		519,155		530,293
Total Real Estate		236		-		5,280		5,516		9,324		3,341		831,495		844,160
Non-Real Estate:
Agricultural		66		-		121		187		861		-		20,653		21,514
Commercial and industrial		565		-		1,812		2,377		5,731		1,017		223,890		230,638
Consumer and other		-		-		1,125		1,125		-		-		55,185		55,185
Unallocated		-		-		20		20		-		-		-		-
Total Non-Real Estate		631		-		3,078		3,709		6,592		1,017		299,728		307,337
Total	$	867	$	-	$	8,358	$	9,225	$	15,916	$	4,358	$	1,131,223	$	1,151,497
Unearned Income																(2,483	)
Total loans net of unearned income															$	1,149,014

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.

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

	As of September 30, 2018
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		-		-		-		-		-		-
1 - 4 family		631		631		-		624		14		-
Multifamily		-		-		-		-		-		-
Non-farm non-residential		532		533		-		539		24		29
Total Real Estate		1,163		1,164		-		1,163		38		29
Non-Real Estate:
Agricultural		750		799		-		777		8		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		750		799		-		777		8		-
Total Impaired Loans with no related allowance		1,913		1,963		-		1,940		46		29
Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development		-		-		-		-		-		-
Farmland		-		-		-		-		-		-
1 - 4 family		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
Non-farm non-residential		3,090		3,089		1,169		3,114		103		105
Total Real Estate		3,090		3,089		1,169		3,114		103		105
Non-Real Estate:
Agricultural		700		700		70		700		29		-
Commercial and industrial		1,088		1,088		145		1,124		44		50
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		1,788		1,788		215		1,824		73		50
Total Impaired Loans with an allowance recorded		4,878		4,877		1,384		4,938		176		155
Total Impaired Loans	$	6,791	$	6,840	$	1,384	$	6,878	$	222	$	184

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

	As of December 31, 2017
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		-		-		-		-		-		-
1 - 4 family		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
Non-farm non-residential		5,771		5,771		-		5,933		248		279
Total Real Estate		5,771		5,771		-		5,933		248		279
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-
Total Impaired Loans with no related allowance		5,771		5,771		-		5,933		248		279
Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development		-		-		-		-		-		-
Farmland		-		-		-		-		-		-
1 - 4 family		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
Non-farm non-residential		3,219		3,570		236		3,555		183		127
Total Real Estate		3,219		3,570		236		3,555		183		127
Non-Real Estate:
Agricultural		861		920		66		1,117		70		17
Commercial and industrial		5,731		9,062		565		8,121		65		84
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		6,592		9,982		631		9,238		135		101
Total Impaired Loans with an allowance recorded		9,811		13,552		867		12,793		318		228
Total Impaired Loans	$	15,582	$	19,323	$	867	$	18,726	$	566	$	507

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Troubled Debt Restructurings

A troubled debt restructuring ("TDR") is considered such if the lender for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to First Guaranty's TDRs were concessions on either the interest rate charged or the amortization. The effect of the modifications to First Guaranty was a reduction in interest income. These loans have an allocated reserve in First Guaranty's allowance for loan losses. First Guaranty has not restructured any loans that are considered TDRs in the nine months ended September 30, 2018.

The following table identifies the TDRs as of September 30, 2018 and December 31, 2017:

	September 30, 2018								December 31, 2017
	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	$	-	$	-	$	307	$	307	$	-	$	-	$	334	$	334
Farmland		-		-		-		-		-		-		-		-
1-4 Family		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-
Non-farm non residential		1,299		-		-		1,299		2,138		-		-		2,138
Total Real Estate		1,299		-		307		1,606		2,138		-		334		2,472
Non-Real Estate:
Agricultural		-		-		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-		-		-
Total	$	1,299	$	-	$	307	$	1,606	$	2,138	$	-	$	334	$	2,472

The following table discloses TDR activity for the nine months ended September 30, 2018.

	Troubled Debt Restructured Loans Activity Nine Months Ended September 30, 2018
(in thousands)	Beginning balance December 31, 2017		New TDRs		Charge-offs post-modification		Transferred to ORE		Paydowns			Construction to permanent financing		Restructured to market terms		Other adjustments		Ending balance September 30, 2018
Real Estate:
Construction & land development	$	334	$	-	$	-	$	-	$	(27	)	$	-	$	-	$	-	$	307
Farmland		-		-		-		-		-			-		-		-		-
1 - 4 family		-		-		-		-		-			-		-		-		-
Multifamily		-		-		-		-		-			-		-		-		-
Non-farm non-residential		2,138		-		-		-		(839	)		-		-		-		1,299
Total Real Estate		2,472		-		-		-		(866	)		-		-		-		1,606
Non-Real Estate:
Agricultural		-		-		-		-		-			-		-		-		-
Commercial and industrial		-		-		-		-		-			-		-		-		-
Consumer and other		-		-		-		-		-			-		-		-		-
Total Non-Real Estate		-		-		-		-		-			-		-		-		-
Total	$	2,472	$	-	$	-	$	-	$	(866	)	$	-	$	-		-	$	1,606

There were no commitments to lend additional funds to debtors whose terms have been modified in a TDR at September 30, 2018.

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Note 7. Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. First Guaranty's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007 and Premier in 2017. Goodwill totaled $3.5 million at September 30, 2018 and December 31, 2017. No impairment charges have been recognized on First Guaranty's intangible assets.Loan servicing assets decreased $0.1 million to $1.1 million at September 30, 2018 compared to December 31, 2017. 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 9.5 years at September 30, 2018. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.

Note 8. Other Real Estate (ORE)

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

(in thousands)	September 30, 2018		December 31, 2017
Real Estate Owned Acquired by Foreclosure:
Residential	$	120	$	23
Construction & land development		241		304
Non-farm non-residential		800		954
Total Other Real Estate Owned and Foreclosed Property	$	1,161	$	1,281

Loans secured by one-to-four family residential properties in the process of foreclosure totaled $1.0 million as of September 30, 2018.

Note 9. Commitments and Contingencies

Off-balance sheet commitments

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

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

Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at September 30, 2018 and December 31, 2017:

Contract Amount

(in thousands)	September 30, 2018		December 31, 2017
Commitments to Extend Credit	$	69,595	$	78,125
Unfunded Commitments under lines of credit	$	112,690	$	101,344
Commercial and Standby letters of credit	$	7,005	$	7,886

Litigation

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

While the final outcome of legal proceedings is inherently uncertain, based on information currently available as of September 30, 2018, any incremental liability arising from First Guaranty's legal proceedings will not have a material adverse effect on First Guaranty's financial position or results of operations.

-23-

Note 10. Fair Value Measurements

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

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

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

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

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

Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified within Level 3 in First Guaranty's portfolio as of September 30, 2018 includes corporate debt and municipal securities.

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

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

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

The following table summarizes financial assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	September 30, 2018		December 31, 2017
Available for Sale Securities Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	17,073	$	19,980
Level 2: Significant Other Observable Inputs		305,510		355,022
Level 3: Significant Unobservable Inputs		4,866		6,533
Securities available for sale measured at fair value	$	327,449	$	381,535

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, 2017 to September 30, 2018 was due principally to a net decrease in Treasury bills of $2.9 million. The change in Level 2 securities available for sale from December 31, 2017 to September 30, 2018 was due principally to a reduction in agency and corporate bonds related to sales and maturities offset by the purchase of mortgage-backed securities. There were no transfers between Level 1 and 2 securities available for sale from December 31, 2017 to September 30, 2018.

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

	Level 3 Changes
(in thousands)	September 30, 2018
Balance, beginning of year	$	6,533
Total gains or losses (realized/unrealized):
Included in earnings		15
Included in other comprehensive income		9
Purchases, sales, issuances and settlements, net		(1,899	)
Transfers in and/or out of Level 3		208
Balance as of end of period	$	4,866

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held as of September 30, 2018.

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of September 30, 2018 and December 31, 2017, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	At September 30, 2018		At December 31, 2017
Impaired Loans - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	-	$	-
Level 2: Significant Other Observable Inputs		-		-
Level 3: Significant Unobservable Inputs		4,243		12,003
Impaired loans measured at fair value	$	4,243	$	12,003
Other Real Estate Owned - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	-	$	-
Level 2: Significant Other Observable Inputs		1,161		1,249
Level 3: Significant Unobservable Inputs		-		32
Other real estate owned measured at fair value	$	1,161	$	1,281

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

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

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Note 11. Financial Instruments

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

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

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

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

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

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

Investment Securities.

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

Loans Held for Sale.

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

Loans, net.

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

Impaired loans.

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

-26-

Accrued interest receivable.

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

Deposits.

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

Accrued interest payable.

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

Borrowings.

The carrying amount of federal funds purchased and other short-term borrowings approximate their fair values. The fair value of First Guaranty's long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy.

Other Unrecognized Financial Instruments.

The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. Noninterest-bearing deposits are held at cost. The fair values of letters of credit are based on fees charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At September 30, 2018 and December 31, 2017 the fair value of guarantees under commercial and standby letters of credit was not material.

The estimated fair values and carrying values of the financial instruments at September 30, 2018 and December 31, 2017 are presented in the following table:

	September 30, 2018				December 31, 2017
(in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets
Cash and cash equivalents	$	63,856	$	63,856	$	38,028	$	38,028
Securities, available for sale		327,449		327,449		381,535		381,535
Securities, held to maturity		110,950		105,726		120,121		118,557
Federal Home Loan Bank stock		2,381		2,381		2,351		2,351
Loans held for sale		570		627		1,308		1,439
Loans, net		1,178,809		1,156,881		1,139,789		1,133,868
Accrued interest receivable		7,459		7,459		7,982		7,982
Liabilities
Deposits	$	1,544,442	$	1,542,940	$	1,549,286	$	1,549,449
Borrowings		44,572		44,588		38,274		38,294
Junior subordinated debentures		14,691		14,631		14,664		14,324
Accrued interest payable		3,295		3,295		2,488		2,488

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.

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

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Special Note Regarding Forward-Looking Statements

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from management expectations. This discussion and analysis contains forward-looking statements and reflects management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements.

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Third Quarter and Nine Months Ended September 30, 2018 Financial Overview

First Guaranty Bancshares, Inc. is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana. First Guaranty Bank, the wholly-owned subsidiary of First Guaranty Bancshares, Inc., is a Louisiana chartered commercial bank that provides personalized commercial banking services primarily to Louisiana and Texas customers through 27 banking facilities primary located throughout Southeast, Southwest and North Louisiana and in North Central Texas. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. First Guaranty competes for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees.

Financial highlights for the third quarter and nine months ended September 30, 2018 are as follows:

● Total assets were $1.8 billion at September 30, 2018 and December 31, 2017. Total loans were $1.2 billion at September 30, 2018, an increase of $40.4 million, or 3.5%, compared with December 31, 2017. Total deposits were $1.5 billion at September 30, 2018, a decrease of $4.8 million compared with December 31, 2017. Retained earnings were $52.1 million at September 30, 2018, an increase of $7.7 million compared to $44.5 million at December 31, 2017. Shareholders' equity was $142.3 million and $144.0 million at September 30, 2018 and December 31, 2017, respectively.

● Net income for the third quarter of 2018 and 2017 was $3.4 million and $3.1 million, respectively. Net income for the nine months ended September 30, 2018 was $11.6 million compared to $9.2 million for the nine months ended September 30, 2017.

● Earnings per common share were $0.39 and $0.35 for the third quarter of 2018 and 2017, respectively, and $1.32 and $1.08 for the nine months ended September 30, 2018 and 2017, respectively. Total weighted average shares outstanding were 8,807,175 for the third quarter of 2018 and 2017, and 8,807,175 and 8,540,997 for the nine months ended September 30, 2018 and 2017, respectively.

● Net interest income for the third quarter of 2018 was $14.5 million compared to $13.9 million for the same period in 2017. Net interest income for the nine months ended September 30, 2018 was $42.5 million compared to $39.3 million for the same period in 2017.

● The provision for loan losses for the third quarter of 2018 was $0.4 million compared to $1.1 million for the same period in 2017. The provision for loan losses for the nine months ended September 30, 2018 was $0.6 million compared to $3.1 million for the same period in 2017. First Guaranty received a $3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan during the second quarter of 2018. The payment resulted in a recovery of $1.6 million. The recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018. The negative provision along with overall credit quality improvement resulted in a decrease in the provision for the nine months ended September 30, 2018.

● The net interest margin for the three months ended September 30, 2018 was 3.45% which was an increase of eight basis points from the net interest margin of 3.37% for the same period in 2017. The net interest margin for the first nine months of 2018 was 3.40% which was an increase of five basis points from the net interest margin of 3.35% for the first nine months of 2017. First Guaranty attributed the increase in the net interest margin to a rise in interest income associated with loans and the change in balance sheet composition to higher yielding loans from lower yielding securities. Loans as a percentage of average interest earning assets increased to 69.3% at September 30, 2018 compared to 65.4% at September 30, 2017.

● Investment securities totaled $438.4 million at September 30, 2018, a decrease of $63.3 million when compared to $501.7 million at December 31, 2017. First Guaranty sold investment securities in order to fund loan growth, fund a seasonal decrease in public funds deposits and reduce interest rate risk. First Guaranty recognized a loss on sale of securities of $0.7 million in the third quarter of 2018. At September 30, 2018, available for sale securities, at fair value, totaled $327.4 million, a decrease of $54.1 million when compared to $381.5 million at December 31, 2017. At September 30, 2018, held-to-maturity securities, at amortized cost, totaled $111.0 million, a decrease of $9.2 million when compared to $120.1 million at December 31, 2017.  

● Total loans net of unearned income were $1.2 billion at September 30, 2018 compared to $1.1 billion at December 31, 2017. The net loan portfolio at September 30, 2018 totaled $1.2 billion, a net increase of $39.0 million from the December 31, 2017 net loan portfolio balance of $1.1 billion. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $10.6 million at September 30, 2018 and $9.2 million at December 31, 2017, respectively.

● Total impaired loans decreased $8.8 million to $6.8 million at September 30, 2018 compared to $15.6 million at December 31, 2017. Impaired loans decreased $3.2 million during the third quarter of 2018 from $10.0 million at June 30, 2018.

● Nonaccrual loans decreased $6.7 million to $5.8 million at September 30, 2018 compared to $12.6 million at December 31, 2017. Nonaccrual loans decreased $3.1 million during the third quarter of 2018 from $9.0 million at June 30, 2018. The largest decrease in nonaccrual loans in 2018 occurred as a result of the $3.6 million negotiated payment associated with a nonaccrual syndicated loan related to the oil and gas industry during the second quarter of 2018. This loan was impaired and rated as doubtful. In the third quarter of 2018, First Guaranty also had a paydown of $2.6 million associated with a nonaccrual non-farm non-residential loan.

● The allowance for loan losses was 0.89% of loans at September 30, 2018 compared to 0.80% at December 31, 2017. The allowance for loan losses as a percentage of total loans was 0.97% prior to the inclusion of the acquired loans from Premier.

● Return on average assets for the three months ended September 30, 2018 and 2017 was 0.78% and 0.72%, respectively. Return on average assets for the nine months ended September 30, 2018 and 2017 was 0.89% and 0.76%, respectively. Return on average common equity for the three months ended September 30, 2018 and 2017 was 9.40% and 8.51%, respectively. Return on average common equity for the nine months ended September 30, 2018 and 2017 was 10.92% and 9.27%, respectively. Return on average assets is calculated by dividing annualized net income by average assets.  Return on average common equity is calculated by dividing annualized net income by average common equity.

● Book value per common share was $16.16 as of September 30, 2018 compared to $16.21 as of September 30, 2017. The decrease in book value was due primarily to changes in accumulated other comprehensive loss ("AOCI") partially offset by 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 a cash dividend of $0.16 per common share in the third quarter of 2018. First Guaranty also declared a cash dividend of $0.16 per share during the third quarter of 2017, which was the equivalent of $0.15 per share after adjusting for the 10% common stock dividend paid in December 2017. First Guaranty has paid 101 consecutive quarterly dividends as of September 30, 2018.

● In November 2017, First Guaranty announced the launch of an At-The-Market Equity Offering program ("ATM Offering"). First Guaranty may sell up to $25.0 million of common stock under the ATM Offering. First Guaranty expects to use the net proceeds of the ATM Offering for general corporate purposes, including support for organic growth and financing possible acquisitions of other financial institutions. First Guaranty did not sell any shares of common stock under the ATM Offering during the nine months ended September 30, 2018.

 ● First Guaranty currently has two new facilities under construction in order to facilitate future expansion. These construction commitments total $12.9 million.

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Financial Condition

Changes in Financial Condition from December 31, 2017 to September 30, 2018

General

Total assets at September 30, 2018 were $1.8 billion, an increase of $2.1 million, or 0.1%, from December 31, 2017. Assets increased primarily due to increases in net loans of $39.0 million and cash and cash equivalents of $25.8 million offset by a decrease in investment securities of $63.3 million during the nine months ended September 30, 2018.

Loans

Net loans increased $39.0 million, or 3.4%, to $1.2 billion at September 30, 2018 from December 31, 2017. Total net loans increased during the first nine months of 2018 primarily due to a growth in local originations. Non-farm non-residential loan balances increased $36.3 million primarily due to local originations. Multifamily loans increased $26.2 million primarily due to the conversion of existing construction loans to permanent financing. Consumer and other loans increased $10.6 million primarily due to the purchase of a consumer loan pool. One-to four-family loans increased $7.7 million primarily due to the continued growth in local loan originations. Agricultural loans increased $7.6 million primarily due to seasonal activity. Commercial and industrial loans decreased $36.5 million primarily due to paydowns. Construction and land development loans decreased $5.0 million principally due to payoffs and the conversion of interim construction loans to permanent financing which was concentrated in the multifamily category. Farmland loans decreased $6.3 million due to paydowns on agricultural loan commitments. First Guaranty had approximately 2.1% of funded and 0.8% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. First Guaranty had $158.3 million in loans related to our Texas markets at September 30, 2018. Syndicated loans at September 30, 2018 were $68.1 million, of which $25.8 million were shared national credits. Syndicated loans decreased $2.3 million from $70.4 million at December 31, 2017 primarily due to paydowns on existing lines of credit.

As of September 30, 2018, 75.8% 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 47.6% as of September 30, 2018, was non-farm non-residential loans secured by real estate. Approximately 38.3% of the loan portfolio was based on a floating rate tied to the prime rate or LIBOR as of September 30, 2018. 70.7% of the loan portfolio is scheduled to mature within five years from September 30, 2018.

First Guaranty acquired in the Premier acquisition a portfolio of loans comprised of loans guaranteed principally by the U.S. Small Business Administration ("SBA") or by the U.S. Department of Agriculture ("USDA") and the unguaranteed portion of SBA and USDA loans for which the guaranteed portion had been sold into the secondary market. First Guaranty has incorporated this new business line during the last year in both its newly acquired Texas markets and its existing Louisiana markets. At September 30, 2018, First Guaranty's balance of SBA and USDA loans was $30.6 million of which $11.6 million retained the government guarantee and $19.0 million was the unguaranteed residual balance. At September 30, 2018, First Guaranty also serviced 55 SBA and USDA loans that totaled $48.4 million. First Guaranty receives servicing fee income on this portfolio.

Net loans are reduced by the allowance for loan losses which totaled $10.6 million at September 30, 2018 and $9.2 million at December 31, 2017. Loan charge-offs were $1.2 million during the first nine months of 2018 and $4.3 million during the same period in 2017. Recoveries totaled $2.0 million during the first nine months of 2018 and $0.5 million during the same period in 2017. See Note 5 of the Notes to Consolidated Financial Statements for more information on loans and Note 6 for more information on the allowance for loan losses.

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Investment Securities

Investment securities at September 30, 2018 totaled $438.4 million, a decrease of $63.3 million compared to $501.7 million at December 31, 2017. The investment portfolio consisted of available-for-sale securities at fair market value for a total of $327.4 million at September 30, 2018 and held-to-maturity securities at amortized cost of $111.0 million at September 30, 2018.

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

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

Our available-for-sale securities portfolio totaled $327.4 million at September 30, 2018, a decrease of $54.1 million, or 14.2%, compared to $381.5 million at December 31, 2017. The decrease was primarily due to the sale of $89.9 million in U.S. Government agency and U.S. Treasury securities and $10.6 million in corporate securities for which the proceeds were used to fund loan growth and a seasonal decrease in public funds deposits. Partially offsetting this decrease was the purchase of $21.2 million in mortgage-backed securities used to collateralize public funds deposits.

Our held-to-maturity securities portfolio had an amortized cost of $111.0 million at September 30, 2018, a decrease of $9.2 million, or 7.6%, compared to $120.1 million at December 31, 2017. The decrease was primarily due to the continued amortization of our mortgage-backed securities.

At September 30, 2018, $20.1 million, or 4.6%, of the securities portfolio was scheduled to mature in less than one year. $62.0 million, or 14.1%, of the securities portfolio was scheduled to mature between one and five years. $203.3 million, or 46.4%, 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 $26.2 million, or 6.0%, of the total securities portfolio at September 30, 2018. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of September 30, 2018, management believes that the securities portfolio has a forecasted weighted average life of approximately 6.1 years based on the current interest rate environment. A parallel interest rate shock of 400 basis points is forecasted to increase the weighted average life of the portfolio to approximately 6.4 years. The portfolio had an estimated effective duration of 5.1 years at September 30, 2018.

There was no credit related other-than-temporary impairment of securities losses recognized during the nine months ended September 30, 2018 or September 30, 2017.

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Nonperforming Assets

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

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

(in thousands)	September 30, 2018			December 31, 2017
Nonaccrual loans:
Real Estate:
Construction and land development	$	316		$	371
Farmland		492			65
1 - 4 family residential		2,094			1,953
Multifamily		-			-
Non-farm non-residential		609			3,758
Total Real Estate		3,511			6,147
Non-Real Estate:
Agricultural		1,898			1,496
Commercial and industrial		320			4,826
Consumer and other		92			81
Total Non-Real Estate		2,310			6,403
Total nonaccrual loans		5,821			12,550
Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development		479			-
Farmland		-			-
1 - 4 family residential		-			-
Multifamily		-			-
Non-farm non-residential		-			-
Total Real Estate		479			-
Non-Real Estate:
Agricultural		-			41
Commercial and industrial		-			798
Consumer and other		29			-
Total Non-Real Estate		29			839
Total loans 90 days and greater delinquent & accruing		508			839
Total non-performing loans		6,329			13,389
Real Estate Owned:
Real Estate Loans:
Construction and land development		241			304
Farmland		-			-
1 - 4 family residential		120			23
Multifamily		-			-
Non-farm non-residential		800			954
Total Real Estate		1,161			1,281
Non-Real Estate Loans:
Agricultural		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total Non-Real Estate		-			-
Total Real Estate Owned		1,161			1,281
Total non-performing assets	$	7,490		$	14,670
Non-performing assets to total loans		0.63	%		1.28	%
Non-performing assets to total assets		0.43	%		0.84	%
Non-performing loans to total loans		0.53	%		1.17	%

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At September 30, 2018, nonperforming assets totaled $7.5 million, or 0.43% of total assets, compared to $14.7 million, or 0.84%, of total assets at December 31, 2017, which represented a decrease of $7.2 million, or 48.9%. The decrease in non-performing assets occurred primarily as a result of a decrease in non-accrual loans from $12.6 million at December 31, 2017 to $5.8 million at September 30, 2018. The decrease in non-accrual loans was concentrated primarily in commercial and industrial loans and non-farm non-residential loans.

At September 30, 2018, nonaccrual loans totaled $5.8 million, a decrease of $6.7 million, or 53.6%, compared to nonaccrual loans of $12.6 million at December 31, 2017. The reduction in nonaccrual loans was primarily associated with a $3.6 million payoff on a non-performing commercial and industrial loan relationship associated with a syndicated loan related to the oil and gas industry that was rated as doubtful, and a paydown of $2.6 million associated with a non-performing non-farm non-residential loan. Nonaccrual loans were concentrated in five loan relationships that totaled $2.7 million, or 46.9%, of nonaccrual loans at September 30, 2018.

At September 30, 2018, loans 90 days or greater delinquent and still accruing totaled $0.5 million, a decrease of $0.3 million compared to $0.8 million at December 31, 2017. These loans were comprised of a $0.5 million construction and land development loan and five consumer purchased loans that total $28,000 at September 30, 2018.

Other real estate owned totaled $1.2 million at September 30, 2018 and $1.3 million at December 31, 2017.

At September 30, 2018, our largest non-performing assets were comprised of the following non-accrual loans and other real estate owned: (1) an agricultural loan relationship that totaled $0.7 million; (2) a $0.7 million non-farm non-residential property included in other real estate owned; (3) a one-to four-family loan that totaled $0.6 million; (4) an agricultural loan relationship that totaled $0.6 million; (5) a farmland loan that totaled $0.4 million; and (6) a non-farm non-residential loan that totaled $0.4 million. The $0.7 million agricultural loan has been charged down to its 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, 2018 and December 31, 2017:

(in thousands)	September 30, 2018		December 31, 2017
Restructured Loans:
In Compliance with Modified Terms	$	1,299	$	2,138
Past Due 30 through 89 days and still accruing		-		-
Past Due 90 days and greater and still accruing		-		-
Nonaccrual		307		334
Restructured Loans that subsequently defaulted		-		-
Total Restructured Loans	$	1,606	$	2,472

At September 30, 2018, we had two outstanding TDRs: (1) a $1.3 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 land that is on non-accrual. The restructuring of these loans were related to interest rate or amortization concessions. 

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Allowance for Loan Losses

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

● past due and non-performing assets;

● specific internal analysis of loans requiring special attention;

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

● changes in underwriting standards or lending procedures and policies;

● charge-off and recovery practices;

● national and local economic and business conditions;

● nature and volume of loans;

● overall portfolio quality;

● adequacy of loan collateral;

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

● competition and legal and regulatory requirements on borrowers;

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

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

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

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

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

The allowance for loan losses was $10.6 million, or 0.89% of total loans, and 167.1% of nonperforming loans at September 30, 2018.

Comparing September 30, 2018 to December 31, 2017, there were changes within the specific components of the allowance balance. The primary changes were an increase in the balance associated with non-farm non-residential loans, multifamily loans, agricultural loans, and consumer and other loans. The largest change with the allowance was associated with a non-farm non-residential loan secured by a hotel / motel facility. This credit was rated substandard at September 30, 2018.  The increase in the allowance for non-farm non-residential loans was partially offset by a $2.6 million pay down on a nonaccrual non-farm non-residential loans. This increase was partially offset by a decrease in the allowance for commercial and industrial loans and one-to four-family loans. The largest decrease in the allowance allocation was due to the aforementioned payoff of the $3.6 million non-accrual oil and gas credit. Special mention loans decreased by $5.4 million during the first nine months of 2018 primarily due to improved credit quality in the syndicated loan portfolio. Substandard loans decreased by $8.6 million during the first nine months of 2018 due to the upgrade of certain loans to special mention status. Doubtful loans decreased $4.0 million during the first nine months of 2018, due to the partial charge off and payoff on the $3.6 million non-performing commercial and industrial loan noted above. 

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First Guaranty charged off $1.2 million in loan balances during the first nine months of 2018. The charged-off loan balances were concentrated in three loan relationships which totaled $0.6 million or 46.3% of the total charged off amount. The details of the $1.2 million in charged off loans were as follows:

1. First Guaranty charged off $0.1 million on a one-to four-family loan in the first quarter of 2018. This loan had no remaining principal balance at September 30, 2018.

2. First Guaranty charged off $0.1 million on a commercial and industrial loan in the second quarter of 2018. This loan had no remaining principal balance at September 30, 2018.

3. First Guaranty charged off $0.4 million on a non-farm non-residential loan in the third quarter of 2018. This loan had no remaining principal balance at September 30, 2018.

4. Smaller loans and overdrawn deposit accounts comprised the remaining $0.6 million of charge-offs for the first nine months of 2018.

The provision for loan losses decreased to $0.6 million in the first nine months of 2018 from $3.1 million for the same period in 2017. The primary reason for the decrease year over year was due to the aforementioned $1.6 million recovery on the payoff of the $3.6 million nonperforming commercial and industrial loan received in the second quarter of 2018. The provision in the first nine months of 2018 was taken to provide for current loan and deposit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $1.2 million for the first nine months of 2018 and $4.3 million for the same period in 2017.  Recoveries totaled $2.0 million during the first nine months of 2018 and $0.5 million during the first nine months of 2017. For more information, see Note 6 to Consolidated Financial Statements.

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

(in thousands)	Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017
Loans:
Average outstanding balance	$	1,158,246		$	1,027,382
Balance at end of period	$	1,189,386		$	1,111,791
Allowance for Loan Losses:
Balance at beginning of year	$	9,225		$	11,114
Charge-offs		(1,210	)		(4,326	)
Recoveries		1,994			461
Provision		568			3,064
Balance at end of period	$	10,577		$	10,313

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Deposits

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December 31, 2017 to September 30, 2018, total deposits decreased $4.8 million, or 0.3%, to $1.5 billion. Noninterest-bearing demand deposits increased $0.2 million, or 0.1% during the first nine months of 2018 to $251.8 million at September 30, 2018. The increase in noninterest-bearing demand deposits was due to fluctuations in existing customer balances. Interest-bearing demand deposits decreased $102.8 million, or 16.8%, during the first nine months of 2018 to $508.8 million at September 30, 2018. The reduction in interest-bearing demand deposits was primarily concentrated in brokered deposits and public funds interest-bearing demand deposits. Brokered deposits decreased $29.0 million from $115.9 million at December 31, 2017 to $86.9 million at September 30, 2018. First Guaranty reduced brokered deposits with local deposit growth in order to reduce interest rate risk. Time deposits increased $90.2 million, or 15.5%, to $671.6 million at September 30, 2018, primarily due to our local deposit campaign along with an increase in public funds time deposits. Savings deposits increased $7.6 million, or 7.3%, during the first nine months of 2018 to $112.3 million at September 30, 2018, primarily related to increases in public funds deposits.

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

As of September 30, 2018, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $498.3 million. At September 30, 2018, approximately $228.7 million of First Guaranty's certificates of deposit had a remaining term greater than one year.

The following table compares deposit categories for the periods indicated.

Total Deposits	For the Nine Months Ended September 30,									For the Years Ended December 31,
	2018									2017									2016
(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		$	253,372		16.4	%		0.0	%		$	244,949		16.7	%		0.0	%		$	221,634		17.2	%		0.0	%
Interest-bearing Demand			569,605		36.8	%		1.5	%			539,399		36.9	%		1.0	%			415,410		32.3	%		0.6	%
Savings			110,933		7.2	%		0.3	%			102,779		7.0	%		0.2	%			89,279		7.0	%		0.1	%
Time			611,792		39.6	%		1.6	%			575,666		39.4	%		1.2	%			558,982		43.5	%		1.1	%
Total Deposits		$	1,545,702		100.0	%		1.2	%		$	1,462,793		100.0	%		0.9	%		$	1,285,305		100.0	%		0.7	%

Individual and Business Deposits	For the Nine Months Ended September 30,									For the Years Ended December 31,
	2018									2017									2016
(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		$	247,305		27.1	%		0.0	%		$	240,337		28.0	%		0.0	%		$	217,245		30.1	%		0.0	%
Interest-bearing Demand			202,989		22.2	%		1.0	%			187,439		21.8	%		0.6	%			117,221		16.2	%		0.3	%
Savings			84,808		9.3	%		0.1	%			82,442		9.6	%		0.1	%			72,647		10.0	%		0.1	%
Time			378,025		41.4	%		1.6	%			348,656		40.6	%		1.3	%			316,191		43.7	%		1.3	%
Total Individual and Business Deposits		$	913,127		100.0	%		0.9	%		$	858,874		100.0	%		0.7	%		$	723,304		100.0	%		0.6	%

Public Funds Deposits	For the Nine Months Ended September 30,									For the Years Ended December 31,
	2018									2017									2016
(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		$	6,067		1.0	%		0.0	%		$	4,612		0.8	%		0.0	%		$	4,389		0.8	%		0.0	%
Interest-bearing Demand			366,616		58.0	%		1.7	%			351,960		58.3	%		1.2	%			298,189		53.0	%		0.8	%
Savings			26,125		4.1	%		1.2	%			20,337		3.4	%		0.8	%			16,632		3.0	%		0.3	%
Time			233,767		36.9	%		1.7	%			227,010		37.5	%		1.1	%			242,791		43.2	%		0.8	%
Total Public FundsDeposits		$	632,575		100.0	%		1.7	%		$	603,919		100.0	%		1.2	%		$	562,001		100.0	%		0.8	%

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

(in thousands)	September 30, 2018
Time deposits of less than $100,000	$	173,290
Time deposits of $100,000 through $250,000		164,327
Time deposits of more than $250,000		333,950
Total Time Deposits	$	671,567

At September 30, 2018, public funds deposits totaled $602.5 million compared to $640.7 million at December 31, 2017. Public funds time deposits totaled $255.7 million at September 30, 2018 compared to $225.6 million at December 31, 2017. We have developed a program for the retention and management of public funds deposits. Since the end of 2012, we have maintained public funds deposits in excess of $400.0 million. These deposits are from public entities such as school districts, hospital districts, sheriff departments and municipalities. $531.6 million, or 88%, of these accounts at September 30, 2018, 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 35%of public funds deposits that are under fiscal agency agreements. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds will increase at the end of the year and during the first quarter. In addition to seasonal fluctuations, there are monthly fluctuations associated with internal payroll and short-term tax collection accounts for our public funds deposit accounts. Public funds deposit accounts are collateralized by FHLB letters of credit, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac. We invest the majority of these public deposits in our investment portfolio, but have increasingly invested more public funds into loans during the last several years.  

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

(in thousands except for %)	September 30, 2018			December 31, 2017			December 31, 2016			December 31, 2015			December 31, 2014
Public Funds:
Noninterest-bearing Demand	$	5,962		$	4,828		$	4,114		$	4,906		$	3,241
Interest-bearing Demand		314,208			389,788			324,356			296,416			321,382
Savings		26,688			20,539			20,116			14,667			10,142
Time		255,667			225,591			208,330			252,688			266,743
Total Public Funds	$	602,525		$	640,746		$	556,916		$	568,677		$	601,508
Total Deposits	$	1,544,442		$	1,549,286		$	1,326,181		$	1,295,870		$	1,371,839
Total Public Funds as a percent of Total Deposits		39.0	%		41.4	%		42.0	%		43.9	%		43.9	%

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Borrowings

First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs. First Guaranty had $24.0 million in short-term borrowings outstanding at September 30, 2018 compared to $15.5 million outstanding at December 31, 2017. The short-term borrowings at September 30, 2018 were comprised of collateralized short-term borrowings from the Federal Home Loan Bank totaling $16.0 million and federal funds purchased of $8.0 million from a correspondent bank. First Guaranty has an available line of credit of $6.5 million, with no outstanding balance at September 30, 2018. First Guaranty had senior long-term debt totaling $20.6 million as of September 30, 2018 and $22.8 million at December 31, 2017.

First Guaranty also had junior subordinated debentures totaling $14.7 million at September 30, 2018 and at December 31, 2017.

First Guaranty had $286.3 million in Federal Home Loan Bank letters of credit as of September 30, 2018 compared to $294.2 million at December 31, 2017. Federal Home Loan Bank letters of credit are obtained primarily for collateralizing public deposits.

Total Shareholders' Equity

Total shareholders' equity decreased to $142.3 million at September 30, 2018 from $144.0 million at December 31, 2017. The decrease in shareholders' equity was principally the result of an increase of $9.3 million in accumulated other comprehensive loss, offset by an increase of $7.7 million in retained earnings. The increase in accumulated other comprehensive loss was primarily attributed to the increase in unrealized losses on available-for-sale securities during the nine months ended September 30, 2018 due to the increase in interest rates. The $7.7 million increase in retained earnings was due to net income of $11.6 million during the nine month period ended September 30, 2018, partially offset by $4.2 million in cash dividends paid on our common stock.

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Results of Operations for the Third Quarter and Nine Months Ended September 30, 2018 and 2017

Performance Summary

Three months ended September 30, 2018 compared to the three months ended September 30, 2017. Net income for the three months ended September 30, 2018 was $3.4 million, an increase of $0.3 million, or 10.9%, from $3.1 million for the three months ended September 30, 2017. The increase in net income for the three months ended September 30, 2018 as compared to the prior year period was primarily the result of increased interest income associated with loans and a decline in the provision for loan losses, partially offset by increased interest and noninterest expense and decreased noninterest income. First Guaranty also experienced a decrease in income tax expense of $0.8 million resulting primarily from the decrease in the federal corporate tax rate as a result of the Tax Cuts and Jobs Act. Earnings per common share for the three months ended September 30, 2018 was $0.39 per common share, an increase of 11.4% or $0.04 per common share from $0.35 per common share for the three months ended September 30, 2017.  The increase in earnings per share was caused by the increase in net income.

Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Net income for the nine months ended September 30, 2018 was $11.6 million, an increase of $2.4 million, or 25.4%, from $9.2 million for the nine months ended September 30, 2017. The increase in net income for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 was primarily the result of the decrease in income tax expense of $2.0 million resulting from the decrease in the federal corporate tax rate as a result of the Tax Cuts and Jobs Act. First Guaranty also experienced increased interest income associated with loans along with a decrease in the provision for loan losses, partially offset by increased interest and noninterest expense and decreased noninterest income. The decrease in the provision for loan losses for the nine months ended September 30, 2018 was attributed to the aforementioned recovery associated with the payoff of the non-accrual oil and gas credit along with improvement of overall credit quality of the portfolio. Earnings per common share for the nine months ended September 30, 2018 was $1.32 per common share, an increase of 22.2% or $0.24 per common share from $1.08 per common share for the nine months ended September 30, 2017. The increase in earnings per share was caused by the increase in net income.

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. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds.

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

Three months ended September 30, 2018 compared to the three months ended September 30, 2017. Net interest income for the three months ended September 30, 2018 and 2017 was $14.5 million and $13.9 million, respectively. The increase in net interest income for the three months ended September 30, 2018 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. For the three months ended September 30, 2018, the average balance of our total interest-earning assets increased by $33.7 million to $1.7 billion, and the average yield of our interest-earning assets increased by 46 basis points to 4.79% from 4.33% for the three months ended September 30, 2017.  For the three months ended September 30, 2018, the average balance of our total interest-bearing liabilities increased by $32.1 million to $1.3 billion, and the average rate of our total interest-bearing liabilities increased by 46 basis points to 1.68% from 1.22% for the three months ended September 30, 2017. Our net interest rate spread was 3.11% for the three months ended September 30, 2018 and September 30, 2017.  Our net interest margin increased eight basis points to 3.45% for the three months ended September 30, 2018 from 3.37% for the three months ended September 30, 2017. 

Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Net interest income for the nine months ended September 30, 2018 and 2017 was $42.5 million and $39.3 million, respectively. The increase in net interest income for the nine months ended September 30, 2018 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. For the nine months ended September 30, 2018, the average balance of our total interest-earning assets increased by $99.3 million to $1.7 billion, and the average yield of our interest-earning assets increased by 40 basis points to 4.62% from 4.22% for the nine months ended September 30, 2017.  For the nine months ended September 30, 2018, the average balance of our total interest-bearing liabilities increased by $93.1 million to $1.3 billion, and the average rate of our total interest-bearing liabilities increased by 41 basis points to 1.52% from 1.11% for the nine months ended September 30, 2017. As a result, our net interest rate spread decreased one basis point to 3.10% for the nine months ended September 30, 2018 from 3.11% for the nine months ended September 30, 2017.  Our net interest margin increased five basis points to 3.40% for the nine months ended September 30, 2018 from 3.35% for the nine months ended September 30, 2017. 

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Interest Income

Three months ended September 30, 2018 compared to the three months ended September 30, 2017. Interest income increased $2.3 million, or 12.8%, to $20.1 million for the three months ended September 30, 2018 as compared to the prior year period.  First Guaranty continues to transition assets from lower yielding securities to higher yielding loans in order to increase interest income. The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets along with an increase in the average yield of our interest-earning assets. The average balance of interest-earning assets increased $33.7 million to $1.7 billion for the three months ended September 30, 2018 as compared to the prior year period. The average yield of interest-earning assets increased by 46 basis points to 4.79% for the three months ended September 30, 2018 compared to 4.33% for the three months ended September 30, 2017.   

Interest income on securities decreased $0.2 million, or 7.1%, to $3.1 million for the three months ended September 30, 2018 primarily as a result of a decrease in the average balance of securities. The average balance of securities decreased $56.2 million to $447.3 million for the three months ended September 30, 2018 from $503.5 million for the three months ended September 30, 2017 due to a decrease in the average balance of our agency and corporate securities as a result of securities sales. The average yield on securities increased by 12 basis points to 2.73% for the three months ended September 30, 2018 from 2.61% for the three months ended September 30, 2017 due to the rising interest rate environment.

Interest income on loans increased $2.4 million, or 17.0%, to $16.9 million for the three months ended September 30, 2018 as a result of an increase in the average balance of loans along with an increase in the average yield on loans. The average balance of loans (excluding loans held for sale) increased by $81.1 million to $1.2 billion for the three months ended September 30, 2018 from $1.1 billion for the three months ended September 30, 2017 as a result of new loan originations, such as commercial real estate loans, consumer and other loans, commercial and industrial loans and one-to-four family residential loans. The average yield on loans (excluding loans held for sale) increased by 47 basis points to 5.68% for the three months ended September 30, 2018 from 5.21% for the three months ended September 30, 2017.

Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Interest income increased $8.1 million, or 16.3%, to $57.7 million for the nine months ended September 30, 2018 as compared to the prior year period. First Guaranty continues to transition assets from lower yielding securities to higher yielding loans in order to increase interest income. The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets principally as a result of the Premier acquisition along with an increase in the average yield of interest-earning assets. The average balance of our interest-earning assets increased $99.3 million to $1.7 billion for the nine months ended September 30, 2018 as compared to the prior year period. The average yield of interest-earning assets increased by 40 basis points to 4.62% for the nine months ended September 30, 2018 compared to 4.22% for the nine months ended September 30, 2017.    

Interest income on securities decreased $0.3 million to $9.8 million for the nine months ended September 30, 2018 primarily as a result of a decrease in the average balance of securities. The average balance of securities decreased $37.0 million to $480.9 million for the nine months ended September 30, 2018 from $517.9 million for the nine months ended September 30, 2017 due to a decrease in the average balance of our agency and corporate securities as a result of securities sales. The average yield on securities increased by 13 basis points to 2.72% for the nine months ended September 30, 2018 from 2.59% for the nine months ended September 30, 2017 due to the rising interest rate environment.

Interest income on loans increased $8.2 million, or 20.8%, to $47.7 million for the nine months ended September 30, 2018 as a result of an increase in the average balance of loans along with an increase in the average yield on loans. The average balance of loans (excluding loans held for sale) increased by $130.9 million to $1.2 billion for the nine months ended September 30, 2018 from $1.0 billion for the nine months ended September 30, 2017 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. The average yield on loans (excluding loans held for sale) increased by 36 basis points to 5.49% for the nine months ended September 30, 2018 from 5.13% for the nine months ended September 30, 2017.

Interest Expense

Three months ended September 30, 2018 compared to the three months ended September 30, 2017. Interest expense increased $1.6 million, or 41.6%, to $5.6 million for the three months ended September 30, 2018 from $4.0 million for the three months ended September 30, 2017 due primarily to an increase in the average balance of interest-bearing deposits along with an increase in the average rate paid on interest-bearing deposits. The average balance of interest-bearing deposits increased by $34.8 million during the three months ended September 30, 2018 to $1.3 billion as a result of a $27.2 million increase in the average balance of time deposits, a $6.9 million increase in the average balance of savings deposits and a $0.7 million increase in the average balance of interest-bearing demand deposits. The average rate of interest-bearing demand deposits increased by 52 basis points during the three months ended September 30, 2018 to 1.60%. The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates which have increased over the last year.

Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Interest expense increased $4.9 million, or 47.6%, to $15.2 million for the nine months ended September 30, 2018 from $10.3 million for the nine months ended September 30, 2017 due primarily to an increase in the average balance of interest-bearing deposits principally as a result of the Premier acquisition along with an increase in the average rate paid on interest-bearing deposits. The average balance of interest-bearing deposits increased by $92.8 million during the nine months ended September 30, 2018 to $1.3 billion as a result of a $48.7 million increase in the average balance of time deposits, a $34.7 million increase in the average balance of interest-bearing demand deposits and a $9.4 million increase in the average balance of savings deposits. The average rate of interest-bearing demand deposits increased by 49 basis points during the nine months ended September 30, 2018 to 1.47%. The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates which have increased over the last year.

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

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

	Three Months Ended September 30, 2018							Three Months Ended September 30, 2017
(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	$	41,749	$	158		1.50	%	$	30,295	$	82		1.07	%
Securities (including FHLB stock)		447,348		3,083		2.73	%		503,511		3,317		2.61	%
Federal funds sold		134		-		0.00	%		1,736		6		1.37	%
Loans held for sale		826		12		5.77	%		1,976		27		5.42	%
Loans, net of unearned income		1,176,670		16,855		5.68	%		1,095,541		14,394		5.21	%
Total interest-earning assets		1,666,727	$	20,108		4.79	%		1,633,059	$	17,826		4.33	%
Noninterest-earning assets:
Cash and due from banks		9,968							13,122
Premises and equipment, net		38,294							36,262
Other assets		13,751							13,806
Total Assets	$	1,728,740						$	1,696,249
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	535,123	$	2,155		1.60	%	$	534,400	$	1,460		1.08	%
Savings deposits		112,113		107		0.38	%		105,211		61		0.23	%
Time deposits		639,613		2,916		1.81	%		612,406		2,044		1.32	%
Borrowings		38,268		439		4.55	%		40,965		403		3.90	%
Total interest-bearing liabilities		1,325,117	$	5,617		1.68	%		1,292,982	$	3,968		1.22	%
Noninterest-bearing liabilities:
Demand deposits		254,405							254,825
Other		5,875							5,613
Total Liabilities		1,585,397							1,553,420
Shareholders' equity		143,343							142,829
Total Liabilities and Shareholders' Equity	$	1,728,740						$	1,696,249
Net interest income			$	14,491						$	13,858
Net interest rate spread (1)						3.11	%						3.11	%
Net interest-earning assets (2)	$	341,610						$	340,077
Net interest margin (3), (4)						3.45	%						3.37	%
Average interest-earning assets to interest-bearing liabilities						125.78	%						126.30	%

(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.

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

(4) The tax adjusted net interest margin was 3.46% and 3.39% for the above periods ended September 30, 2018 and 2017, respectively. A 21% and 35% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended September 30, 2018 and 2017, respectively.

(5) Annualized.

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	Nine Months Ended September 30, 2018							Nine Months Ended September 30, 2017
(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	$	30,004	$	274		1.22	%	$	24,808	$	142		0.76	%
Securities (including FHLB stock)		480,899		9,766		2.72	%		517,929		10,018		2.59	%
Federal funds sold		586		1		0.23	%		958		8		1.10	%
Loans held for sale		1,510		69		6.11	%		855		31		4.86	%
Loans, net of unearned income		1,158,246		47,581		5.49	%		1,027,382		39,416		5.13	%
Total interest-earning assets		1,671,245	$	57,691		4.62	%		1,571,932	$	49,615		4.22	%
Noninterest-earning assets:
Cash and due from banks		10,185							9,675
Premises and equipment, net		38,221							29,343
Other assets		13,795							7,924
Total Assets	$	1,733,446						$	1,618,874
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	569,605	$	6,273		1.47	%	$	534,898	$	3,902		0.98	%
Savings deposits		110,933		281		0.34	%		101,581		147		0.19	%
Time deposits		611,792		7,291		1.59	%		563,076		5,079		1.21	%
Borrowings		40,377		1,316		4.36	%		40,074		1,143		3.81	%
Total interest-bearing liabilities		1,332,707	$	15,161		1.52	%		1,239,629	$	10,271		1.11	%
Noninterest-bearing liabilities:
Demand deposits		253,372							240,923
Other		5,366							4,926
Total Liabilities		1,591,445							1,485,478
Shareholders' equity		142,001							133,396
Total Liabilities and Shareholders' Equity	$	1,733,446						$	1,618,874
Net interest income			$	42,530						$	39,344
Net interest rate spread (1)						3.10	%						3.11	%
Net interest-earning assets (2)	$	338,538						$	332,303
Net interest margin (3), (4)						3.40	%						3.35	%
Average interest-earning assets to interest-bearing liabilities						125.40	%						126.81	%

(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.

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

(4) The tax adjusted net interest margin was 3.42% and 3.37% for the above periods ended September 30, 2018 and 2017, respectively. A 21% and  35% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended September 30, 2018 and 2017, respectively.

(5) Annualized.

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Provision for Loan Losses

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

For the three months ended September 30, 2018, the provision for loan losses was $0.4 million compared to $1.1 million for the same period in 2017. The allowance for loan losses at September 30, 2018 was $10.6 million and was 0.89% of total loans. The decrease in the provision was attributed to the improvement in credit quality of the loan portfolio. Total charge-offs were $0.7 million for the three months ended September 30, 2018 and $2.5 million for the same period in 2017. The allowance for loan losses as a percentage of total loans was 0.97% prior to the inclusion of the acquired loans from Premier.

We recorded a $0.6 million provision for loan losses for the nine months ended September 30, 2018 compared to $3.1 million for the same period in 2017. The decrease in the provision was attributed to the improvement in credit quality of the loan portfolio. First Guaranty also received a $3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan on May 9, 2018. The payment resulted in a recovery of $1.6 million. The recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018. Total charge-offs were $1.2 million for the first nine months of 2018 and $4.3 million for the same period in 2017.

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

Noninterest Income

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

Noninterest income totaled $1.2 million for the three months ended September 30, 2018, a decrease of $0.8 million from $2.0 million for the three months ended September 30, 2017.  The decrease was primarily due to lower gains on securities sales.  Net securities losses were $0.7 million for the three months ended September 30, 2018 as compared to net securities gains of $62,000 for the same period in 2017. The gains and losses on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth. Service charges, commissions and fees totaled $0.8 million for the three months ended September 30, 2018 and $0.7 million for the same period in 2017. ATM and debit card fees totaled $0.5 million for the three months ended September 30, 2018 and 2017. Net gains on the sale of loans were $45,000 for the three months ended September 30, 2018 and $3,000 for the same period in 2017. Other noninterest income totaled $0.5 million and $0.7 million for the three months ended September 30, 2018 and 2017, respectively.

Noninterest income totaled $4.5 million for the nine months ended September 30, 2018, a decrease of $1.4 million from $6.0 million for the nine months ended September 30, 2017.  The decrease was primarily due to lower gains on securities sales.  Net securities losses were $0.9 million for the nine months ended September 30, 2018 as compared to net securities gains of $1.0 million for the same period in 2017. The gains and losses on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth. Service charges, commissions and fees totaled $2.3 million for the nine months ended September 30, 2018 as compared to $1.9 million for the same period in 2017.  ATM and debit card fees totaled $1.6 million for the nine months ended September 30, 2018 and $1.5 million for the same period in 2017. Net gains on the sale of loans were $0.2 million for the nine months ended September 30, 2018 and $0.1 million for the same period in 2017. Other noninterest income totaled $1.4 million and $1.5 million for the nine months ended September 30, 2018 and 2017, respectively.

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Noninterest Expense

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses.  Noninterest expense totaled $11.2 million for the three months ended September 30, 2018 and $10.1 million for the three months ended September 30, 2017. Salaries and benefits expense totaled $5.8 million for the three months ended September 30, 2018 and $5.3 million for the three months ended September 30, 2017, primarily due to new hires. Occupancy and equipment expense totaled $1.4 million for the three months ended September 30, 2018 and $1.2 million for the same period of 2017. Other noninterest expense totaled $4.0 million for the three months ended September 30, 2018 and  $3.7 million for the three months ended September 30, 2017. Legal and professional fees totaled $0.7 million for the three months ended September 30, 2018, a decrease of $0.1 million from $0.8 million for the three months ended September 30, 2017. The reduction was due to the non-recurring expenses included in the third quarter of 2017 related to the acquisition of Premier.

Noninterest expense totaled $32.0 million for the nine months ended September 30, 2018 and $28.2 million for the nine months ended September 30, 2017. Salaries and benefits expense totaled $17.0 million for the nine months ended September 30, 2018 and $14.7 million for the nine months ended September 30, 2017, primarily due to the increase in personnel expense from the Premier acquisition and new hires. Occupancy and equipment expense totaled $4.1 million for the nine months ended September 30, 2018 and $3.3 million for the nine months ended September 30, 2017. Other noninterest expense totaled $11.0 million for the nine months ended September 30, 2018 and $10.2 million for the same period in 2017. Legal and professional fees totaled $1.8 million for the nine months ended September 30, 2018, a decrease of $0.5 million from $2.3 million for the nine months ended September 30, 2017. The reduction was due to the non-recurring expenses included in the nine months ended September 30, 2017 related to the acquisition of Premier.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017		2018		2017
Other noninterest expense:
Legal and professional fees	$	724	$	808	$	1,767	$	2,290
Data processing		457		519		1,250		1,150
ATM fees		314		279		919		855
Marketing and public relations		295		295		968		868
Taxes - sales, capital, and franchise		247		144		734		534
Operating supplies		115		167		404		378
Software expense and amortization		270		255		811		671
Travel and lodging		261		217		755		676
Telephone		61		48		163		124
Amortization of core deposits		136		136		409		296
Donations		166		90		356		271
Net costs from other real estate and repossessions		85		51		123		200
Regulatory assessment		266		162		666		563
Other		625		538		1,628		1,321
Total other noninterest expense	$	4,022	$	3,709	$	10,953	$	10,197

Income Taxes

The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses and the statutory tax rate. The provision for income taxes for the three months ended September 30, 2018 and 2017 was $0.8 million and $1.6 million, respectively.  The provision for income taxes decreased due to the decrease in the corporate federal income tax rate from which took effect on January 1, 2018 as a result of the Tax Cuts and Jobs Act and a decrease in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the three months ended September 30, 2018, which was a decrease of 14 basis points from the third quarter of 2017 rate of 35.0%.

The provision for income taxes for the nine months ended September 30, 2018 and 2017 was $2.9 million and $4.8 million, respectively. The provision for income taxes decreased due to the decrease in the corporate federal income tax rate which took effect on January 1, 2018 as a result of the Tax Cuts and Jobs Act, which was partially offset by the increase in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the nine months ended September 30, 2018, which was a decrease of 14 basis points from the nine months ended September 30, 2017 rate of 35.0%.

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Liquidity and Capital Resources

Liquidity

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

Loans maturing within one year or less at September 30, 2018 totaled $220.2 million. At September 30, 2018, time deposits maturing within one year or less totaled $442.8 million. First Guaranty's held-to-maturity ("HTM") portfolio at September 30, 2018 was $111.0 million or 25.3% of the investment portfolio compared to $120.1 million or 23.9% at December 31, 2017. The securities in the HTM portfolio are used to collateralize public funds deposits and may also be used to secure borrowings with the Federal Home Loan Bank or Federal Reserve Bank. The agency securities in the HTM portfolio have maturities of 10 years or less. The mortgage-backed securities have stated final maturities of 15 to 20 years at September 30, 2018. The municipal securities in the HTM portfolio have maturities of 20 years or less. The HTM portfolio had a forecasted weighted average life of approximately 5.82 years based on current interest rates. Management regularly monitors the size and composition of the HTM portfolio to evaluate its effect on First Guaranty's liquidity. First Guaranty's available-for-sale ("AFS") portfolio was $327.4 million or 74.7% of the investment portfolio as of September 30, 2018. The majority of the AFS portfolio was comprised of  U.S. Government Agencies, municipal bonds and investment grade corporate bonds. Management believes these securities are readily marketable and enhance First Guaranty's liquidity.

First Guaranty maintained a net borrowing capacity at the Federal Home Loan Bank totaling $77.2 million and $40.1 million at September 30, 2018 and December 31, 2017, respectively with $16.0 million in FHLB advances outstanding at September 30, 2018. The change in borrowing capacity with the Federal Home Loan Bank was due to changes in the value that First Guaranty receives on pledged collateral and due to First Guaranty's usage of the line. First Guaranty also has a discount window line with the Federal Reserve Bank. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $100.5 million and a revolving line of credit for $6.5 million with an availability of $6.5 million as of September 30, 2018 secured by a pledge of the Bank's common stock. Management believes there is sufficient liquidity to satisfy current operating needs.

Capital Resources

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

Total shareholders' equity decreased to $142.3 million at September 30, 2018 from $144.0 million at December 31, 2017. The decrease in shareholders' equity was principally the result of an increase of $9.3 million in accumulated other comprehensive loss, offset by a $7.7 million increase in retained earnings. The increase in accumulated other comprehensive loss was primarily attributed to the increase in unrealized losses on available-for-sale securities during the nine months ended September 30, 2018 due to the increase in interest rates. The $7.7 million increase in retained earnings was due to net income of $11.6 million during the nine month period ended September 30, 2018, partially offset by $4.2 million in cash dividends paid on our common stock.

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Regulatory Capital

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

In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements.  As of September 30, 2018, the Bank's capital conservation buffer was 5.39% exceeding the minimum of 1.875% for 2018. As of September 30, 2018, First Guaranty's capital conservation buffer was 4.75% exceeding the minimum of 1.875% for 2018.

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

In addition, as a result of the legislation, the federal banking agencies are required to develop a "Community Bank Leverage Ratio" (the ratio of a bank's tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes.  The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%.  A financial institution can elect to be subject to this new definition.

At September 30, 2018, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.

	"Well Capitalized Minimums"		As of September 30, 2018		As of December 31, 2017
Tier 1 Leverage Ratio
Consolidated		5.00%		8.48%		8.27%
Bank		5.00%		9.83%		9.88%
Tier 1 Risk-based Capital Ratio
Consolidated		8.00%		10.86%		10.35%
Bank		8.00%		12.61%		12.39%
Total Risk-based Capital Ratio
Consolidated		10.00%		12.75%		12.14%
Bank		10.00%		13.39%		13.07%
Common Equity Tier One Capital Ratio
Consolidated		6.50%		10.86%		10.35%
Bank		6.50%		12.61%		12.39%

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management and Market Risk

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

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

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

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The following interest sensitivity analysis is one measurement of interest rate risk. This analysis reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments or interest rate floors on loans which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at September 30, 2018 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

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

	September 30, 2018
	Interest Sensitivity Within
(in thousands except for %)	3 Months Or Less			Over 3 Months thru 12 Months			Total One Year			Over One Year		Total
Earning Assets:
Loans (including loans held for sale)	$	400,397		$	123,047		$	523,444		$	666,512	$	1,189,956
Securities (including FHLB stock)		19,457			2,997			22,454			418,326		440,780
Federal Funds Sold		94			-			94			-		94
Other earning assets		54,044			-			54,044			-		54,044
Total earning assets	$	473,992		$	126,044		$	600,036		$	1,084,838	$	1,684,874
Source of Funds:
Interest-bearing accounts:
Demand deposits	$	508,837		$	-		$	508,837		$	-	$	508,837
Savings deposits		112,271			-			112,271			-		112,271
Time deposits		199,622			243,209			442,831			228,736		671,567
Short-term borrowings		24,000			-			24,000			-		24,000
Senior long-term debt		20,572			-			20,572			-		20,572
Junior subordinated debt		-			-			-			14,691		14,691
Noninterest-bearing, net		-			-			-			332,936		332,936
Total source of funds	$	865,302		$	243,209		$	1,108,511		$	576,363	$	1,684,874
Period gap	$	(391,310	)	$	(117,165	)	$	(508,475	)	$	508,475
Cumulative gap	$	(391,310	)	$	(508,475	)	$	(508,475	)	$	-
Cumulative gap as a percent of earning assets		-23.2	%		-30.2	%		-30.2	%

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Net interest income at risk measures the risk of a decline in earnings due to changes in interest rates. The first table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in the yield curve over a 12-month horizon at September 30, 2018. Shifts are measured in 100 basis point increments (+400 through -100 basis points) from base case. We do not present shifts less than 100 basis points because of the current low interest rate environment. The base case scenario encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous shocks are performed against that yield curve. The second table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from a gradual shift in the yield curve over a 12 month horizon.

Instantaneous Changes in Interest Rates (In Basis Points)	Percent Change In Net Interest Income
+400	(6.12)%
+300	(4.25)%
+200	(2.74)%
+100	(1.17)%
Base	-%
-100	2.05%

Gradual Change in Interest Rates (In Basis Points)	Percent Change In Net Interest Income
+400	(3.30)%
+300	(2.41)%
+200	(1.51)%
+100	(0.71)%
Base	-%
-100	1.19%

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

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

At September 30, 2018, First Guaranty is subject to various legal proceedings in the normal course of business and otherwise. It is our belief that the ultimate resolution of such claims will not have a material adverse effect on First Guaranty's financial position or results of operations.

Item 1A. Risk Factors

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

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Item 6. Exhibits

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

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

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SIGNATURES

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

FIRST GUARANTY BANCSHARES, INC.

Date: November 9, 2018	By: /s/ Alton B. Lewis
	Alton B. Lewis
	Principal Executive Officer
Date: November 9, 2018	By: /s/ Eric J. Dosch
	Eric J. Dosch
	Principal Financial Officer
	Secretary and Treasurer

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