First Guaranty Bancshares, Inc. 10-K

Item 8 - Financial Statements and Supplementary Data Griffith, DeLaney, Hillman & Lett, CPAs, PSC Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors First Guaranty Bancshares, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of First Guaranty Bancshares, Inc. and Subsidiary (First Guaranty) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes collectively referred to as the financial statements. We also have audited First Guaranty’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Guaranty as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, First Guaranty maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. Basis for Opinion First Guaranty’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on First Guaranty’s financial statements and an opinion on First Guaranty’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to First Guaranty in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. -68- Allowance for Credit Losses As described in Notes 1, 5 and 6 to the financial statements, at December 31, 2023, First Guaranty’s total loans were $2.7 billion and the associated allowance for credit losses balance was $30.9 million. The allowance for credit losses is management’s evaluation of expected credit losses over the life of the loans in the portfolio in accordance with Accounting Standards Codification ASC 326: Financial Instruments – Credit Losses. The Company uses the discounted cash flow method to estimate expected losses for all of the Company’s loan segments that exhibit similar risk characteristics and loans that do not share risk characteristics are evaluated on an individual basis. For each loan segment, the Company generates cash flow projections at the instrument level adjusting payment expectations for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default. Additional qualitative adjustments are applied for risk factors that are not considered within the modeling process but are relevant in assessing the expected credit losses within the loan segments. Consideration is given to the following factors: changes in lending policies, procedures and strategies; changes in nature and volume of the portfolio; staff experience; changes in volume and trends in classified loans, delinquencies and nonaccruals; concentration risk; trends in underlying collateral values; external factors such as competition, legal and regulatory environment; changes in the quality of the loan review system; and economic conditions. Auditing management’s estimate of the allowances for loan credit losses, and more specifically the qualitative factor adjustments applied in the ACL, is a critical audit matter. The principal consideration for our determination of the critical audit matter is a high degree of subjectivity of the assumptions utilized in calculating the qualitative reserve component within the model. Furthermore, certain inputs and assumptions lack observable data and, therefore, applying audit procedures required a higher degree of auditor judgement and subjectivity due to the nature and extent of audit evidence and effort required to address this matter. The primary procedures we performed to address the critical audit matter included: • Obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL including: ◦ Loan data completeness and accuracy, ◦ Grouping of loans by segment, ◦ Model inputs utilized, ◦ Approval of model assumptions selected, and ◦ Qualitative factors have been appropriately identified, are adequately supported, and accurately applied. • Evaluated and tested the data and inputs utilized within the ACL calculation for completeness and accuracy including mathematical accuracy of the calculation. • Evaluated the qualitative factors for appropriate identification and application including reasonableness of the basis for adjustment. • Analyzed the total qualitative factor adjustment applied to each loan segment, in comparison to changes in the Company’s quantitatively driven expected credit losses and loan segments and evaluated the appropriateness of the total qualitative factor adjustments applied in the overall allowance. We have served as First Guaranty's auditor since 2022. Ashland, Kentucky March 15, 2024 -69- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, 2023 December 31, 2022 Assets Cash and cash equivalents: Cash and due from banks $ 286,114 $ 82,796 Federal funds sold 341 423 Cash and cash equivalents 286,455 83,219 Investment securities: Available for sale, at fair value 83,485 131,458 Held to maturity, at cost and net of allowance for credit losses of $ 80 and $ 0 (estimated fair value of $ 253,584 and $ 242,560 , respectively) 320,638 320,068 Investment securities 404,123 451,526 Federal Home Loan Bank stock, at cost 13,390 6,528 Loans held for sale — — Loans, net of unearned income 2,748,708 2,519,077 Less: allowance for credit losses 30,926 23,518 Net loans 2,717,782 2,495,559 Premises and equipment, net 69,792 58,206 Goodwill 12,900 12,900 Intangible assets, net 4,298 4,979 Other real estate, net 1,250 113 Accrued interest receivable 15,713 13,002 Other assets 27,069 25,315 Total Assets $ 3,552,772 $ 3,151,347 Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand $ 442,755 $ 524,415 Interest-bearing demand 1,526,628 1,460,259 Savings 218,986 205,760 Time 820,725 533,358 Total deposits 3,009,094 2,723,792 Short-term advances from Federal Home Loan Bank 50,000 120,000 Short-term borrowings 10,000 20,000 Repurchase agreements 6,297 6,442 Accrued interest payable 11,807 4,289 Long-term advances from Federal Home Loan Bank 155,000 — Senior long-term debt 39,099 21,927 Junior subordinated debentures 15,000 15,000 Other liabilities 6,844 4,906 Total Liabilities 3,303,141 2,916,356 Shareholders' Equity Preferred stock, Series A - $ 1,000 par value - 100,000 shares authorized Non-cumulative perpetual; 34,500 shares issued and outstanding, respectively $ 33,058 $ 33,058 Common stock, $ 1 par value - 100,600,000 shares authorized; 12,475,424 and 10,716,796 shares issued and outstanding 12,475 10,717 Surplus 149,085 130,093 Retained earnings 67,972 76,351 Accumulated other comprehensive (loss) income ( 12,959 ) ( 15,228 ) Total Shareholders' Equity 249,631 234,991 Total Liabilities and Shareholders' Equity $ 3,552,772 $ 3,151,347 See Notes to Consolidated Financial Statements. -70- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (in thousands, except share data) 2023 2022 Interest Income: Loans (including fees) $ 167,140 $ 126,002 Deposits with other banks 6,268 1,324 Securities (including FHLB stock) 9,601 9,250 Federal funds sold — — Total Interest Income 183,009 136,576 Interest Expense: Demand deposits 60,243 21,419 Savings deposits 3,554 915 Time deposits 23,967 10,682 Borrowings 10,540 3,518 Total Interest Expense 98,304 36,534 Net Interest Income 84,705 100,042 Less: Provision for credit losses 3,714 3,656 Net Interest Income after Provision for Credit Losses 80,991 96,386 Noninterest Income: Service charges, commissions and fees 3,401 3,160 ATM and debit card fees 3,242 3,406 Net gains (losses) on securities — ( 17 ) Net gains on sale of loans 12 1,774 Other 3,922 2,686 Total Noninterest Income 10,577 11,009 Noninterest Expense: Salaries and employee benefits 40,422 36,699 Occupancy and equipment expense 9,027 8,932 Other 30,223 25,374 Total Noninterest Expense 79,672 71,005 Income Before Income Taxes 11,896 36,390 Less: Provision for income taxes 2,677 7,506 Net Income 9,219 28,884 Less: Preferred stock dividends 2,329 2,328 Net Income Available to Common Shareholders $ 6,890 $ 26,556 Per Common Share: Earnings $ 0.62 $ 2.48 Cash dividends paid $ 0.64 $ 0.64 Weighted Average Common Shares Outstanding 11,165,303 10,716,796 See Notes to Consolidated Financial Statements -71- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31, (in thousands) 2023 2022 Net Income $ 9,219 $ 28,884 Other comprehensive income: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period 2,872 ( 10,897 ) Reclassification adjustments for losses (gains) included in net income — 17 Change in unrealized gains (losses) on securities 2,872 ( 10,880 ) Tax impact ( 603 ) 2,285 Other comprehensive income (loss) 2,269 ( 8,595 ) Comprehensive Income $ 11,488 $ 20,289 See Notes to Consolidated Financial Statements -72- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Preferred Stock $ 1,000 Par Common Stock $ 1 Par Surplus Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total Balance December 31, 2021 $ 33,058 $ 10,717 $ 130,093 $ 56,654 $ ( 6,633 ) $ 223,889 Net income — — — 7,585 — 7,585 Other comprehensive income (loss) — — — — ( 7,425 ) ( 7,425 ) Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,715 ) — ( 1,715 ) Balance March 31, 2022 $ 33,058 $ 10,717 $ 130,093 $ 61,942 $ ( 14,058 ) $ 221,752 Net income — — — 8,124 — 8,124 Other comprehensive income (loss) — — — — ( 1,043 ) ( 1,043 ) Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,715 ) — ( 1,715 ) Balance June 30, 2022 $ 33,058 $ 10,717 $ 130,093 $ 67,769 $ ( 15,101 ) $ 226,536 Net income — — — 8,053 — 8,053 Other comprehensive income (loss) — — — — ( 855 ) ( 855 ) Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,714 ) — ( 1,714 ) Balance September 30, 2022 $ 33,058 $ 10,717 $ 130,093 $ 73,526 $ ( 15,956 ) $ 231,438 Net income — — — 5,122 — 5,122 Other comprehensive income — — — — 728 728 Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,715 ) — ( 1,715 ) Balance December 31, 2022 $ 33,058 $ 10,717 $ 130,093 $ 76,351 $ ( 15,228 ) $ 234,991 -73- Preferred Stock $ 1,000 Par Common Stock $ 1 Par Surplus Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total Balance December 31, 2022 $ 33,058 $ 10,717 $ 130,093 $ 76,351 $ ( 15,228 ) $ 234,991 Net income — — — 3,468 — 3,468 Cumulative effect of adoption of ASC Topic 326, net of tax — — — ( 7,900 ) — ( 7,900 ) Other comprehensive income — — — — 414 414 Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,715 ) — ( 1,715 ) Balance March 31, 2023 $ 33,058 $ 10,717 $ 130,093 $ 69,622 $ ( 14,814 ) $ 228,676 Net income — — — 2,676 — 2,676 Common stock issued in private placement, 714,287 shares — 714 9,286 — — 10,000 Other comprehensive income (loss) — — — — ( 84 ) ( 84 ) Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,829 ) — ( 1,829 ) Balance June 30, 2023 $ 33,058 $ 11,431 $ 139,379 $ 69,887 $ ( 14,898 ) $ 238,857 Net income — — — 1,772 — 1,772 Other comprehensive income — — — — 605 605 Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,830 ) — ( 1,830 ) Balance September 30, 2023 $ 33,058 $ 11,431 $ 139,379 $ 69,247 $ ( 14,293 ) $ 238,822 Net income — — — 1,303 — 1,303 Common stock issued in private placement, 1,000,000 shares — 1,000 9,000 — — 10,000 Common stock issued under Equity Bonus Plan, 44,341 shares — 44 706 — — 750 Other comprehensive income — — — — 1,334 1,334 Preferred stock dividends — — — ( 582 ) — ( 582 ) Cash dividends on common stock ($ 0.16 per share) — — — ( 1,996 ) — ( 1,996 ) Balance December 31, 2023 $ 33,058 $ 12,475 $ 149,085 $ 67,972 $ ( 12,959 ) $ 249,631 See Notes to Consolidated Financial Statements -74- FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in thousands) 2023 2022 Cash Flows From Operating Activities: Net income $ 9,219 $ 28,884 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,714 3,656 Depreciation and amortization 4,026 4,109 Amortization/Accretion of investments 987 1,801 (Gain) loss on sale/call of securities — 17 Gain on sale of assets ( 35 ) ( 1,857 ) Repossessed asset write downs, gains and losses on dispositions 150 96 FHLB stock dividends ( 358 ) ( 20 ) Change in other assets and liabilities, net 4,011 179 Net Cash Provided by Operating Activities 21,714 36,865 Cash Flows From Investing Activities: Proceeds from maturities, calls and sales of AFS securities 51,406 52,986 Funds invested in AFS securities ( 2,626 ) ( 153,053 ) Proceeds from maturities and calls of HTM securities 289 — Proceeds from sale/redemption of Federal Home Loan Bank stock 2,425 2,182 Funds invested in Federal Home Loan Bank stock ( 8,929 ) ( 7,331 ) Funds invested in intangibles ( 100 ) — Net increase in loans ( 234,123 ) ( 362,543 ) Purchases of premises and equipment ( 14,855 ) ( 2,643 ) Proceeds from sales of premises and equipment 324 70 Proceeds from sales of other real estate owned 101 2,421 Net Cash Used In Investing Activities ( 206,088 ) ( 467,911 ) Cash Flows From Financing Activities: Net increase in deposits 285,302 127,300 Net (decrease) increase in federal funds purchased and short-term borrowings ( 80,145 ) 140,003 Proceeds of long-term borrowings, net of costs 195,097 — Repayment of long-term borrowings ( 22,946 ) ( 5,783 ) Common stock issued in private placement 20,000 — Dividends paid on preferred stock ( 2,328 ) ( 2,328 ) Dividends paid on common stock ( 7,370 ) ( 6,859 ) Net Cash Provided By Financing Activities 387,610 252,333 Net (Decrease) Increase In Cash and Cash Equivalents 203,236 ( 178,713 ) Cash and Cash Equivalents at the Beginning of the Period 83,219 261,932 Cash and Cash Equivalents at the End of the Period $ 286,455 $ 83,219 Noncash Activities: Acquisition of real estate in settlement of loans $ 1,388 $ 558 Transfer of securities from AFS to HTM $ — $ 176,181 Common stock issued for stock grants $ 750 $ — Cash Paid During the Period: Interest on deposits and borrowed funds $ 90,786 $ 36,725 Federal income taxes $ 3,100 $ 7,600 State income taxes $ 330 $ 20 See Notes to Consolidated Financial Statements. -75- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business and Summary of Significant Accounting Policies Business First Guaranty Bancshares, Inc. ("First Guaranty") is a Louisiana corporation and a financial holding company headquartered in Hammond, LA. First Guaranty owns all of the outstanding shares of common stock of First Guaranty Bank. First Guaranty Bank (the "Bank") is a Louisiana-chartered commercial bank that offers a wide range of financial services and focuses on building client relationships and providing exceptional customer service. These services include consumer and commercial lending, mortgage loan origination, the issuance of credit cards and retail banking services. The Bank also maintains an investment portfolio comprised of government, government agency, corporate, and municipal securities. The Bank has thirty-six banking facilities and forty-nine automated teller machines (ATMs) in Southeast, Southwest, Central and North Louisiana, North Central Texas, Kentucky and West Virginia. Summary of significant accounting policies The accounting and reporting policies of First Guaranty conform to generally accepted accounting principles and to predominant accounting practices within the banking industry. The more significant accounting and reporting policies are as follows: Consolidation The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc., and its wholly owned subsidiary, First Guaranty Bank. All significant intercompany balances and transactions have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan and lease losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of investment securities. In connection with the determination of the allowance for loan and lease losses and real estate owned, First Guaranty obtains independent appraisals for significant properties. Cash and cash equivalents For purposes of reporting cash flows, cash and cash equivalents are defined as cash, due from banks, interest-bearing demand deposits with banks and federal funds sold with maturities of three months or less. Securities First Guaranty reviews its financial position, liquidity and future plans in evaluating the criteria for classifying investment securities. Debt securities that Management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Securities available for sale are stated at fair value. The unrealized difference, if any, between amortized cost and fair value of these AFS securities is excluded from income and is reported, net of deferred taxes, in accumulated other comprehensive income as a part of shareholders' equity. Details of other comprehensive income are reported in the consolidated statements of comprehensive income. Realized gains and losses on securities are computed based on the specific identification method and are reported as a separate component of other income. Amortization of premiums and discounts is included in interest income. Discounts and premiums related to debt securities are amortized using the effective interest rate method. On January 1, 2023 the Bank adopted ASC 326, which requires expected credit related losses on available for sale debt securities to be recorded through an allowance for credit losses, while non-credit related losses or declines in fair value continue to be recognized through other comprehensive income. Under the new guidance, First Guaranty is also required to evaluate held to maturity debt securities for expected credit losses. Management evaluates securities for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In estimating losses, management considers the extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through an allowance for credit losses. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) impairment related to credit loss, which must be recognized in the income statement and 2) impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis but cannot be more than the difference between amortized cost and the fair value of the security. -76- Loans held for sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty days . Buyers generally have recourse to return a purchased loan under limited circumstances. Recourse conditions may include early payment default, breach of representations or warranties and documentation deficiencies. Mortgage loans held for sale are generally sold with the mortgage servicing rights released. Gains or losses on sales of mortgage loans are recognized based on the differences between the selling price and the carrying value of the related mortgage loans sold. Loans Loans are stated at the principal amounts outstanding, net of unearned income and deferred loan fees. In addition to loans issued in the normal course of business, overdrafts on customer deposit accounts are considered to be loans and reclassified as such. Interest income on all classifications of loans is calculated using the simple interest method on daily balances of the principal amount outstanding. Accrual of interest is discontinued on a loan when Management believes, after considering economic and business conditions and collection efforts, the borrower's financial condition is such that reasonable doubt exists as to the full and timely collection of principal and interest. This evaluation is made for all loans that are 90 days or more contractually past due. When a loan is placed in nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of interest and principal is probable. Loans are returned to accrual status when, in the judgment of Management, all principal and interest amounts contractually due are reasonably assured to be collected within a reasonable time frame and when the borrower has demonstrated payment performance of cash or cash equivalents; generally for a period of 6 months. All loans, except mortgage loans, are considered past due if they are past due 30 days. Mortgage loans are considered past due when two consecutive payments have been missed. Loans that are past due 90 - 120 days and deemed uncollectible are charged-off. The loan charge off is a reduction of the allowance for credit losses. Troubled Debt Restructurings (TDRs) TDRs are loans in which the borrower is experiencing financial difficulty at the time of restructuring, and the Bank has granted a concession to the borrower. TDRs are undertaken in order to improve the likelihood of recovery on the loan and may take the form of modifications made with the stated interest rate lower than the current market rate for new debt with similar risk, other modifications to the structure of the loan that fall outside of normal underwriting policies and procedures, or in limited circumstances forgiveness of principal and / or interest. TDRs can involve loans remaining on non-accrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. TDRs are subject to policies governing accrual and nonaccrual evaluation consistent with all other loans as discussed in the "Loans" section above. All loans with the TDR designation are considered to be impaired, even if they are accruing. First Guaranty's policy is to evaluate TDRs that have subsequently been restructured and returned to market terms after 6 months of performance. The evaluation includes a review of the loan file and analysis of the credit to assess the loan terms, including interest rate to insure such terms are consistent with market terms. The loan terms are compared to a sampling of loans with similar terms and risk characteristics, including loans originated by First Guaranty and loans lost to a competitor. The sample provides a guide to determine market terms pursuant to ASC 310-40-50-2. The loan is also evaluated at that time for impairment. A loan determined to be restructured to market terms and not considered impaired will no longer be disclosed as a TDR in the years following the restructuring. These loans will continue to be individually evaluated for impairment. A loan determined to either be restructured to below market terms or to be impaired will remain a TDR. The TDR requirements became inapplicable to First Guaranty upon our adoption of CECL on January 1, 2023. Credit Quality First Guaranty's credit quality indicators are pass, special mention, substandard, and doubtful. Loans included in the pass category are performing loans with satisfactory debt coverage ratios, collateral, payment history, and documentation requirements. Special mention loans have potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. -77- A substandard loan is inadequately protected by the paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness. They are characterized by the distinct possibility that First Guaranty will sustain some loss if the deficiencies are not corrected. These loans require more intensive supervision. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigates. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and interest is no longer accrued. Consumer loans that are 90 days or more past due or that are nonaccrual are considered substandard. Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. Loan fees and costs Nonrefundable loan origination and commitment fees and direct costs associated with originating loans are deferred and recognized over the lives of the related loans as an adjustment to the loans' yield using the level yield method. Allowance for credit losses The allowance for credit losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. The allowance is based on management’s evaluation of expected credit losses over the life of the loans in the portfolio, in accordance with ASC 326. The loan portfolio is divided into segments to evaluate expected losses. Loans that do not share risk characteristics with a segment are evaluated individually. Management estimates the allowance balance using available information such as past events, current conditions and reasonable forecasts. Adjustments to historical information are made using qualitative and qualitative factors developed by management. The following are general credit risk factors that affect our loan portfolio segments. These factors do not encompass all risks associated with each loan category. Construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property. Farmland and agricultural loans have risks such as weather, government agricultural policies, fuel and fertilizer costs, and market price volatility. One- to four-family residential, multifamily, and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy. Non-farm non-residential loans include both owner-occupied real estate and non-owner occupied real estate. Common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses. Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral. The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and individually evaluated for impairment. For such loans that are also classified as individually evaluated for impairment, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the loan is lower than the carrying value of that loan. The general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors include analysis of levels and trends in delinquencies, nonaccrual loans, charge-offs and recoveries, loan risk ratings, trends in volume and terms of loans, changes in lending policy, credit concentrations, portfolio stress test results, national and local economic trends, industry conditions, and other relevant factors. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for credit losses on unfunded commitments represents expected credit losses over the contractual period for which First Guaranty is exposed to credit risk from a contractual obligation to extend credit. No allowance is recorded if there is an unconditional right to cancel the obligation. The allowance is reported as a component of Other Liabilities on the Consolidated Balance Sheets. Adjustments to the allowance for unfunded commitments are included in the provision for credit losses on the Consolidated Statements of Income. -78- Goodwill and intangible assets Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in an acquisition. First Guaranty's goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment in accordance with ASC Topic 350. Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with the related contract, asset or liability. First Guaranty's intangible assets primarily relate to core deposits and loan servicing assets related to the SBA portfolio. These core deposit intangibles are amortized on a straight-line basis over terms ranging from seven to fifteen years . Management periodically evaluates whether events or circumstances have occurred that impair this deposit intangible. Premises and equipment Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the respective assets as follows: Buildings and improvements 10 - 40 years Equipment, fixtures and automobiles 3 - 10 years Expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Repairs, maintenance and minor improvements are charged to operating expense as incurred. Gains or losses on disposition, if any, are recorded as a separate line item in noninterest income on the Statements of Income. Other real estate Other real estate includes properties acquired through foreclosure or acceptance of deeds in lieu of foreclosure. These properties are recorded at the lower of the recorded investment in the property or its fair value less the estimated cost of disposition. Any valuation adjustments required prior to foreclosure are charged to the allowance for loan and lease losses. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged to current period earnings as other real estate expense or to the allowance for other real estate. Costs of operating and maintaining the properties are charged to other real estate expense as incurred. Any subsequent gains or losses on dispositions are credited or charged to income in the period of disposition . Off-balance sheet financial instruments In the ordinary course of business, First Guaranty has entered into commitments to extend credit, including commitments under credit card arrangements, commitments to fund commercial real estate, construction and land development loans secured by real estate, and performance standby letters of credit. Such financial instruments are recorded when they are funded. -79- Income taxes First Guaranty and its subsidiary file a consolidated federal income tax return on a calendar year basis. In lieu of Louisiana state income tax, the Bank is subject to the Louisiana bank shares tax, which is included in noninterest expense in First Guaranty's consolidated financial statements. With few exceptions, First Guaranty is no longer subject to U.S. federal, state or local income tax examinations for years before 2019. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the deferred tax assets or liabilities are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be utilized. Comprehensive income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects are presented in the Statements of Comprehensive Income. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. See Note 19 for a detailed description of fair value measurements. Transfers of Financial Assets Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from First Guaranty, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) First Guaranty does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Earnings per common share Earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. In December of 2021, First Guaranty issued a pro rata, 10 % common stock dividend. The shares issued for the stock dividend have been retrospectively factored into the calculation of earnings per share as well as cash dividends paid on common stock and represented on the face of the financial statements. No convertible shares of First Guaranty's stock are outstanding. Operating Segments All of First Guaranty's operations are considered by management to be aggregated into one reportable operating segment. While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material. Operations are managed and financial performance is evaluated on a Company-wide basis. Reclassifications Certain reclassifications have been made to prior year end financial statements in order to conform to the classification adopted for reporting in 2023. -80- Note 2. Recent Accounting Pronouncements Accounting Standards Adopted in 2023 First Guaranty adopted FASB ASC Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” Update No. 2016-13 (“ASU 2016-13”). ASU 2016-13 on January 1, 2023. ASU 2016-13, referred to as the Current Expected Credit Loss (“CECL”) standard, requires financial assets measured on an amortized cost basis, including loans and held-to-maturity debt securities, to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset. Unfunded lending commitments are also within the scope of this topic. Under prior GAAP losses were not recognized until the occurrence of the loss was probable. CECL requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. The CECL methodology requires that lifetime expected credit losses be recorded at the time the financial asset is originated or acquired, and be adjusted each period as a provision for credit losses for changes in expected lifetime credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the lifetime credit loss estimate. First Guaranty developed a CECL model methodology that calculates expected credit losses over the life of the portfolio by analyzing the composition, characteristics and quality of the loan and securities portfolios, as well as prevailing economic conditions and forecasts. First Guaranty’s CECL calculation estimates loan losses using a combination of discounted cash flow and remaining life analyses. First Guaranty adopted ASU 2016-13 using the modified retrospective approach for all loans and off-balance sheet credit exposures measured at amortized cost, other than purchased credit deteriorated (“PCD”) financial assets. Results for reporting periods beginning after December 31, 2022 are presented in accordance with ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. ASU 2016-13 also amended the accounting model for purchased financial assets and replaced the guidance for purchased credit impaired (“PCI”) financial assets with the concept of PCDs. For PCD assets, the CECL estimate is recognized through the allowance for credit losses with an offset to the amortized cost basis of the PCD asset at the date of acquisition. Subsequent changes in the allowance for credit losses for PCD assets are recognized through a provision for credit losses on loans. First Guaranty used the prospective transition approach for PCD loans that were previously classified as PCI and accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). First Guaranty determined that certain PCI assets no longer met meet the criteria of PCD assets as of the date of adoption. First Guaranty adopted ASU 2016-13 on January 1, 2023, and recorded a one-time, cumulative effect adjustment as shown in the table below (dollars in thousands). December 31, 2022 Impact of ASU 2016-13 Adoption January 1, 2023 Assets: Allowance for credit losses $ ( 23,518 ) $ ( 8,220 ) $ ( 31,738 ) Deferred tax asset 6,420 2,100 8,520 Remaining purchase discount on loans ( 1,120 ) 1,120 — Liabilities: Reserve for unfunded loan commitments — ( 2,900 ) ( 2,900 ) Stockholders’ Equity Retained earnings 76,351 ( 7,900 ) 68,451 In addition, ASU 2016-13 amends the accounting for credit losses on available for sale (“AFS”) securities, requiring expected credit losses on AFS securities to be recorded in an allowance for credit losses rather than as a write-down of the securities’ amortized cost. Declines in the fair value of AFS securities that are not considered credit related are recognized in accumulated other comprehensive income. In addition, expected credit losses on held to maturity (“HTM”) securities are required to be recorded in an allowance for credit losses rather than as a write-down of the securities’ amortized cost basis. First Guaranty’s AFS securities portfolio was not materially impacted by the adoption of ASC 326. A $ 100,000 allowance for HTM securities was recorded at the adoption of ASC 326. The allowance for credit losses is measured on a pool basis when similar risk characteristics exist and is maintained at an amount which management believes is a current estimate of the expected credit losses for the full life of the relevant pool of loans and related unfunded lending commitments. For modeling purposes, loan pools include: Real Estate based pools for construction and land development, farmland, 1-4 family residential, multifamily, and non-farm non-residential and non-real-estate pools for agricultural, commercial and industrial, commercial leases and consumer and other. Management periodically reassesses each pool to confirm the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded lending commitments to calculate an allowance for credit losses. Loans that do not share similar risk characteristics with other loans are excluded from the loan pools and individually evaluated for impairment. Individually evaluated loans are loans for which it is probable that all the amounts due under the contractual terms of the loan will not be collected. -81- FASB ASC Topic 326 “Financial Instruments – Credit Losses, Troubled Debt Restructurings and Vintage Disclosures” Update No. 2022-02 (“ASU 2022-02”). ASU 2022-02 became effective for First Guaranty on January 1, 2023 and is applied prospectively. ASU 2022-02 amends Topic 326 to eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted ASU 2016-13 and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendment also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases. The adoption of ASU 2022-02 did not have a material impact on First Guaranty’s consolidated financial statements. Accounting Pronouncements Not Yet Adopted ASU No. 2023-09, "Improvements to Tax Disclosures" ("ASU 2023-09") is intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We do not expect it to have a material effect on First Guaranty's consolidated financial statements. Note 3. Cash and Due from Banks Certain reserves are required to be maintained at the Federal Reserve Bank. There was no reserve requirement as of December 31, 2023 and 2022. At December 31, 2023 First Guaranty had three accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000. These accounts were over the insurable limit by $ 1.2 million. At December 31, 2022 First Guaranty had three accounts at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000. These accounts were over the insurable limit by $ 4.6 million. -82- Note 4. Securities A summary comparison of securities by type at December 31, 2023 and 2022 is shown below. December 31, 2023 December 31, 2022 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale: U.S. Treasuries $ 50,048 $ — $ ( 218 ) $ 49,830 $ 100,642 $ — $ ( 2,142 ) $ 98,500 U.S. Government Agencies — — — — — — — — Corporate debt securities 16,750 3 ( 1,279 ) 15,474 16,750 — ( 752 ) 15,998 Municipal bonds 13,522 31 ( 372 ) 13,181 14,742 31 ( 426 ) 14,347 Mortgage-backed securities 5,144 — ( 144 ) 5,000 2,711 — ( 98 ) 2,613 Total available for sale securities $ 85,464 $ 34 $ ( 2,013 ) $ 83,485 $ 134,845 $ 31 $ ( 3,418 ) $ 131,458 Held to maturity: U.S. Government Agencies $ 265,896 $ — $ ( 61,532 ) $ 204,364 $ 265,032 $ — $ ( 69,503 ) $ 195,529 Corporate debt securities 54,822 — ( 5,602 ) 49,220 55,036 — ( 8,005 ) 47,031 Total held to maturity securities $ 320,718 $ — $ ( 67,134 ) $ 253,584 $ 320,068 $ — $ ( 77,508 ) $ 242,560 The scheduled maturities of securities at December 31, 2023, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to call or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below. December 31, 2023 (in thousands) Amortized Cost Fair Value Available for sale: Due in one year or less $ 50,858 $ 50,637 Due after one year through five years 2,784 2,762 Due after five years through 10 years 20,041 18,764 Over 10 years 6,637 6,322 Subtotal 80,320 78,485 Mortgage-backed Securities 5,144 5,000 Total available for sale securities $ 85,464 $ 83,485 Held to maturity: Due in one year or less $ — $ — Due after one year through five years 2,004 1,865 Due after five years through 10 years 115,574 100,500 Over 10 years 203,140 151,219 Total held to maturity securities $ 320,718 $ 253,584 At December 31, 2023 and 2022 the carrying value of pledged securities totaled $ 192.2 million and $ 260.8 million, respectively. Accrued interest receivable on First Guaranty's investment securities was $ 1.8 million and $ 2.0 million at December 31, 2023 and 2022, respectively, and was included in accrued interest receivable on the consolidated balance sheet. First Guaranty had a $ 0.1 million allowance for credit losses related to the held to maturity portfolio at December 31, 2023. -83- 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, 2023. December 31, 2023 Less Than 12 Months 12 Months or More Total (in thousands) Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Available for sale: U.S. Treasuries — $ — $ — 3 $ 49,830 $ ( 218 ) 3 $ 49,830 $ ( 218 ) U.S. Government Agencies — — — — — — — — — Corporate debt securities — — — 15 14,471 ( 1,279 ) 15 14,471 ( 1,279 ) Municipal bonds 12 3,417 ( 6 ) 41 5,895 ( 366 ) 53 9,312 ( 372 ) Mortgage-backed securities 2 2,606 ( 21 ) 5 2,394 ( 123 ) 7 5,000 ( 144 ) Total available for sale securities 14 $ 6,023 $ ( 27 ) 64 $ 72,590 $ ( 1,986 ) 78 $ 78,613 $ ( 2,013 ) Held to maturity: U.S. Government Agencies — $ — — 29 $ 204,364 $ ( 61,532 ) 29 $ 204,364 $ ( 61,532 ) Corporate debt securities — — — 57 49,220 ( 5,602 ) 57 49,220 ( 5,602 ) Total held to maturity securities — $ — $ — 86 $ 253,584 $ ( 67,134 ) 86 $ 253,584 $ ( 67,134 ) 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, 2022. December 31, 2022 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 $ 98,500 $ ( 2,142 ) 6 $ 98,500 $ ( 2,142 ) U.S. Government Agencies — — — — — — — — — Corporate debt securities 14 14,628 ( 622 ) 2 1,370 ( 130 ) 16 15,998 ( 752 ) Municipal bonds 46 5,854 ( 394 ) 6 673 ( 32 ) 52 6,527 ( 426 ) Mortgage-backed securities 3 2,608 ( 98 ) 4 5 — 7 2,613 ( 98 ) Total available for sale securities 63 $ 23,090 $ ( 1,114 ) 18 $ 100,548 $ ( 2,304 ) 81 $ 123,638 $ ( 3,418 ) Held to maturity: U.S. Government Agencies 13 $ 89,695 ( 21,724 ) 16 $ 105,834 $ ( 47,779 ) 29 $ 195,529 $ ( 69,503 ) Corporate debt securities 59 47,031 ( 8,005 ) — — — 59 47,031 ( 8,005 ) Total held to maturity securities 72 $ 136,726 $ ( 29,729 ) 16 $ 105,834 $ ( 47,779 ) 88 $ 242,560 $ ( 77,508 ) As of December 31, 2023, 164 of First Guaranty's debt securities had gross unrealized losses totaling 17.2 % of the individual securities' amortized cost basis and 17.0 % of First Guaranty's total amortized cost basis of the investment securities portfolio. 150 of the 164 securities had been in a continuous loss position for over 12 months at such date. The 150 securities had an aggregate amortized cost basis of $ 395.3 million and an unrealized loss of $ 69.1 million at December 31, 2023. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery. -84- Securities are evaluated for impairment from credit losses at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) 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 credit impaired. First Guaranty has the ability and intent to hold these securities until recovery, which may not be until maturity. There was one charge-off, net of recovery, of $ 0.1 million recognized on a corporate security during the year ended December 31, 2023. There was a $ 0.1 million provision for credit losses recognized on securities during the year ended December 31, 2023. Gross realized gains on sales of securities were $ 0 and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively. Gross realized losses were $ 0 and $ 0.1 million for the years ended December 31, 2023 and 2022. The tax applicable to these transactions amounted to $ 0 and $ 3,000 for 2023 and 2022, respectively. Proceeds from sales of securities classified as available for sale amounted to $ 0 and $ 3.1 million for the years ended December 31, 2023 and 2022, respectively. Net unrealized losses on available for sale securities included in accumulated other comprehensive income (loss) ("AOCI"), net of applicable income taxes, totaled $ 13.0 million and $ 15.2 million at December 31, 2023 and 2022. During 2023 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 0 . During 2022 net gains, net of tax, reclassified out of AOCI into earnings totaled $ 13,000 . At December 31, 2023, First Guaranty's exposure to investment securities issuers that exceeded 10% of shareholders' equity was as follows: December 31, 2023 (in thousands) Amortized Cost Fair Value U.S. Government Treasuries (U.S.) $ 50,048 $ 49,830 Federal Home Loan Bank (FHLB) 32,196 26,109 Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) 97,488 69,941 Federal Farm Credit Bank (FFCB) 138,730 110,707 Total $ 318,462 $ 256,587 -85- Note 5. Loans The following table summarizes the components of First Guaranty's loan portfolio as of December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 (in thousands except for %) Balance As % of Category Balance As % of Category Real Estate: Construction & land development $ 399,435 14.5 % $ 233,091 9.2 % Farmland 32,530 1.2 % 24,823 1.0 % 1- 4 Family 444,850 16.1 % 366,330 14.5 % Multifamily 118,921 4.3 % 119,785 4.7 % Non-farm non-residential 1,045,865 37.9 % 992,929 39.3 % Total Real Estate 2,041,601 74.0 % 1,736,958 68.7 % Non-Real Estate: Agricultural 41,008 1.5 % 39,045 1.5 % Commercial and industrial (1) 334,972 12.1 % 385,279 15.3 % Commercial leases 285,415 10.4 % 317,574 12.6 % Consumer and other 54,485 2.0 % 47,864 1.9 % Total Non-Real Estate 715,880 26.0 % 789,762 31.3 % Total Loans Before Unearned Income 2,757,481 100.0 % 2,526,720 100.0 % Unearned income ( 8,773 ) ( 7,643 ) Total Loans Net of Unearned Income $ 2,748,708 $ 2,519,077 (1) Includes PPP loans fully guaranteed by the SBA of $ 2.8 million and $ 5.9 million at December 31, 2023 and December 31, 2022, respectively. Accrued interest receivable on First Guaranty's loans totaled $ 13.9 million and $ 11.0 million at December 31, 2023 and December 31, 2022, respectively, and is included in accrued interest receivable on the consolidated balance sheet. Accrued interest receivable is excluded from First Guaranty's estimate of the allowance for credit losses. The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of December 31, 2023 and December 31, 2022 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered. December 31, 2023 December 31, 2022 (in thousands) Fixed Floating Total Fixed Floating Total One year or less $ 268,864 $ 88,884 $ 357,748 $ 234,921 $ 137,203 $ 372,124 One to five years 782,754 357,981 1,140,735 900,960 339,894 1,240,854 Five to 15 years 88,490 269,918 358,408 114,425 216,251 330,676 Over 15 years 334,337 541,066 875,403 261,209 308,291 569,500 Subtotal $ 1,474,445 $ 1,257,849 2,732,294 $ 1,511,515 $ 1,001,639 2,513,154 Nonaccrual loans 25,187 13,566 Total Loans Before Unearned Income 2,757,481 2,526,720 Unearned income ( 8,773 ) ( 7,643 ) Total Loans Net of Unearned Income $ 2,748,708 $ 2,519,077 Included in floating rate loans are loans that adjust to a floating rate following an initial fixed rate period. The initial fixed rate periods are typically one , three , or five years . -86- The following tables present the age analysis of past due loans at December 31, 2023 and December 31, 2022: As of December 31, 2023 (in thousands) 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans Recorded Investment 90 Days Accruing Real Estate: Construction & land development $ 1,281 $ 530 $ 1,811 $ 397,624 $ 399,435 $ — Farmland 97 836 933 31,597 32,530 — 1- 4 family 3,929 7,109 11,038 433,812 444,850 124 Multifamily 824 537 1,361 117,560 118,921 — Non-farm non-residential 1,020 24,451 25,471 1,020,394 1,045,865 14,711 Total Real Estate 7,151 33,463 40,614 2,000,987 2,041,601 14,835 Non-Real Estate: Agricultural 240 1,426 1,666 39,342 41,008 57 Commercial and industrial 2,483 1,976 4,459 330,513 334,972 395 Commercial leases — 1,799 1,799 283,616 285,415 — Consumer and other 1,037 1,810 2,847 51,638 54,485 — Total Non-Real Estate 3,760 7,011 10,771 705,109 715,880 452 Total Loans Before Unearned Income $ 10,911 $ 40,474 $ 51,385 $ 2,706,096 2,757,481 $ 15,287 Unearned income ( 8,773 ) Total Loans Net of Unearned Income $ 2,748,708 As of December 31, 2022 (in thousands) 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans Recorded Investment 90 Days Accruing Real Estate: Construction & land development $ 1,029 $ 652 $ 1,681 $ 231,410 $ 233,091 $ 427 Farmland 357 290 647 24,176 24,823 — 1- 4 family 4,512 4,158 8,670 357,660 366,330 332 Multifamily 874 157 1,031 118,754 119,785 157 Non-farm non-residential 1,133 3,849 4,982 987,947 992,929 103 Total Real Estate 7,905 9,106 17,011 1,719,947 1,736,958 1,019 Non-Real Estate: Agricultural 120 1,622 1,742 37,303 39,045 — Commercial and industrial 1,369 942 2,311 382,968 385,279 123 Commercial leases — 1,799 1,799 315,775 317,574 — Consumer and other 1,997 1,239 3,236 44,628 47,864 — Total Non-Real Estate 3,486 5,602 9,088 780,674 789,762 123 Total Loans Before Unearned Income $ 11,391 $ 14,708 $ 26,099 $ 2,500,621 2,526,720 $ 1,142 Unearned income ( 7,643 ) Total Loans Net of Unearned Income $ 2,519,077 The tables above include $ 25.2 million and $ 13.6 million of nonaccrual loans for December 31, 2023 and 2022, respectively. See the tables below for more detail on nonaccrual loans. -87- The following is a summary of nonaccrual loans by class at the dates indicated: As of December 31, 2023 (in thousands) With Related Allowance Without Related Allowance Total Real Estate: Construction & land development $ 530 $ — $ 530 Farmland 511 325 836 1 - 4 family 5,417 1,568 6,985 Multifamily — 537 537 Non-farm non-residential 8,730 1,010 9,740 Total Real Estate 15,188 3,440 18,628 Non-Real Estate: Agricultural 399 970 1,369 Commercial and industrial 1,581 — 1,581 Commercial leases — 1,799 1,799 Consumer and other 1,810 — 1,810 Total Non-Real Estate 3,790 2,769 6,559 Total Nonaccrual Loans $ 18,978 $ 6,209 $ 25,187 (in thousands) As of December 31, 2022 Real Estate: Construction & land development $ 225 Farmland 290 1- 4 family 3,826 Multifamily — Non-farm non-residential 3,746 Total Real Estate 8,087 Non-Real Estate: Agricultural 1,622 Commercial and industrial 819 Commercial leases 1,799 Consumer and other 1,239 Total Non-Real Estate 5,479 Total Nonaccrual Loans $ 13,566 -88- The following table presents First Guaranty's loan portfolio by credit quality classification and origination year as of the date indicated: As of December 31, 2023 Term Loans by Origination Year (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Total Real Estate: Construction & land development: Pass $ 134,527 $ 140,068 $ 75,884 $ 3,369 $ 8,533 11,940 $ 18,907 $ 393,228 Special Mention 789 1,579 170 — 90 250 — 2,878 Substandard — 716 458 263 94 1,668 — 3,199 Doubtful — 39 91 — — — — 130 Total Construction & land development 135,316 142,402 76,603 3,632 8,717 13,858 18,907 399,435 Current period gross charge-offs — — — — — — — — Farmland Pass 9,513 4,032 3,340 1,768 253 2,730 2,162 23,798 Special Mention — 194 — 514 — 359 — 1,067 Substandard — 251 1,369 3,877 115 653 1,355 7,620 Doubtful — — — — — — 45 45 Total Farmland 9,513 4,477 4,709 6,159 368 3,742 3,562 32,530 Current period gross charge-offs — — — — — — — — 1- 4 family Pass 112,636 110,978 70,599 41,766 19,542 47,374 17,215 420,110 Special Mention 1,307 2,505 749 1,544 775 997 667 8,544 Substandard 48 2,625 5,368 1,357 1,956 3,086 773 15,213 Doubtful — 122 391 — 239 159 72 983 Total 1- 4 family 113,991 116,230 77,107 44,667 22,512 51,616 18,727 444,850 Current period gross charge-offs — — — — — 964 — 964 Multifamily Pass 9,945 76,217 6,121 15,131 1,877 2,311 5,110 116,712 Special Mention — — — — — 1,648 24 1,672 Substandard — — — — — 537 — 537 Doubtful — — — — — — — — Total Multifamily 9,945 76,217 6,121 15,131 1,877 4,496 5,134 118,921 Current period gross charge-offs — — — — — — — — Non-farm non-residential Pass 162,234 247,182 111,054 88,039 73,797 256,032 33,907 972,245 Special Mention 708 369 1,014 388 15,846 5,191 1,525 25,041 Substandard 247 18,930 18,488 — — 6,125 4,723 48,513 Doubtful — — — 66 — — — 66 Total non-farm non-residential 163,189 266,481 130,556 88,493 89,643 267,348 40,155 1,045,865 Current period gross charge-offs — — — 138 — — — 138 Total Real Estate 431,954 605,807 295,096 158,082 123,117 341,060 86,485 2,041,601 Non-Real Estate: Agricultural Pass 2,555 10,406 3,142 1,336 1,532 2,378 16,259 37,608 Special Mention — 104 — 81 — — 25 210 Substandard — — 692 279 20 2,100 57 3,148 Doubtful — — — — — 42 — 42 Total Agricultural 2,555 10,510 3,834 1,696 1,552 4,520 16,341 41,008 Current period gross charge-offs — — — — — — — — Commercial and industrial Pass 41,105 27,800 48,097 53,585 5,613 27,634 119,886 323,720 -89- Special Mention 63 37 4,382 146 — 53 598 5,279 Substandard 45 283 178 602 27 4,531 145 5,811 Doubtful — — — — — 162 — 162 Total Commercial and industrial 41,213 28,120 52,657 54,333 5,640 32,380 120,629 334,972 Current period gross charge-offs 29 791 133 532 — 209 — 1,694 Commercial leases Pass 74,456 117,566 67,615 6,087 4,428 — — 270,152 Special Mention — 11,867 1,597 — — — — 13,464 Substandard — 1,799 — — — — — 1,799 Doubtful — — — — — — — — Total Commercial leases 74,456 131,232 69,212 6,087 4,428 — — 285,415 Current period gross charge-offs — — — — — — — — Consumer and other loans Pass 21,257 8,770 6,463 6,164 650 7,887 150 51,341 Special Mention 36 151 255 87 15 19 — 563 Substandard 164 1,077 790 265 86 68 — 2,450 Doubtful — — 34 79 2 16 — 131 Total Consumer and other loans 21,457 9,998 7,542 6,595 753 7,990 150 54,485 Current period gross charge-offs 598 1,126 820 359 28 44 — 2,975 Total Non-Real Estate 139,681 179,860 133,245 68,711 12,373 44,890 137,120 715,880 Total Loans Pass 568,228 743,019 392,315 217,245 116,225 358,286 213,596 2,608,914 Special Mention 2,903 16,806 8,167 2,760 16,726 8,517 2,839 58,718 Substandard 504 25,681 27,343 6,643 2,298 18,768 7,053 88,290 Doubtful — 161 516 145 241 379 117 1,559 Total Loans Before Unearned Income $ 571,635 $ 785,667 $ 428,341 $ 226,793 $ 135,490 $ 385,950 $ 223,605 $ 2,757,481 Unearned income ( 8,773 ) Total Loans Net of Unearned Income $ 2,748,708 Total Current Period Gross Charge-offs $ 627 $ 1,917 $ 953 $ 1,029 $ 28 $ 1,217 $ — $ 5,771 -90- 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 date indicated: As of December 31, 2022 (in thousands) Pass Special Mention Substandard Doubtful Total Real Estate: Construction & land development $ 229,416 $ 2,846 $ 829 $ — $ 233,091 Farmland 19,722 35 5,066 — 24,823 1- 4 family 347,842 8,667 9,821 — 366,330 Multifamily 117,081 444 2,260 — 119,785 Non-farm non-residential 968,861 15,071 8,997 — 992,929 Total Real Estate 1,682,922 27,063 26,973 — 1,736,958 Non-Real Estate: Agricultural 34,827 198 4,020 — 39,045 Commercial and industrial 374,947 2,016 8,316 — 385,279 Commercial leases 315,775 — 1,799 — 317,574 Consumer and other 45,225 1,031 1,608 — 47,864 Total Non-Real Estate 770,774 3,245 15,743 — 789,762 Total Loans Before Unearned Income $ 2,453,696 $ 30,308 $ 42,716 $ — 2,526,720 Unearned income ( 7,643 ) Total Loans Net of Unearned Income $ 2,519,077 Purchased Credit Deteriorated Loans As part of the acquisition of Union Bancshares, Inc. on November 7, 2019 and Premier Bancshares, Inc. on June 16, 2017, First Guaranty purchased credit impaired loans for which there was, at acquisition, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at December 31, 2022. (in thousands) As of December 31, 2022 Real Estate: Construction & land development $ 301 Farmland — 1- 4 family 1,311 Multifamily — Non-farm non-residential 1,904 Total Real Estate 3,516 Non-Real Estate: Agricultural — Commercial and industrial 742 Commercial leases — Consumer and other — Total Non-Real Estate 742 Total $ 4,258 -91- Note 6. Allowance for Credit Losses on Loans A summary of changes in the allowance for credit losses, by portfolio type, for the years ended December 31, 2023 and 2022 are as follows: For the Year ended December 31, 2023 (in thousands) Beginning Allowance (12/31/2022) ASC 326 Adoption Day 1 Adjustment Charge-offs Recoveries Provision Ending Allowance (12/31/2023) Real Estate: Construction & land development $ 1,232 $ 1,891 $ — $ 7 $ 2,715 $ 5,845 Farmland 83 ( 39 ) — — ( 8 ) 36 1- 4 family 1,761 3,465 ( 964 ) 93 2,298 6,653 Multifamily 746 1,418 — — ( 550 ) 1,614 Non-farm non-residential 9,280 307 ( 138 ) 230 917 10,596 Total Real Estate 13,102 7,042 ( 1,102 ) 330 5,372 24,744 Non-Real Estate: Agricultural 240 ( 98 ) — 414 ( 459 ) 97 Commercial and industrial 2,194 2,971 ( 1,694 ) 205 ( 965 ) 2,711 Commercial leases 4,879 ( 162 ) — — ( 2,769 ) 1,948 Consumer and other 2,506 ( 1,042 ) ( 2,975 ) 426 2,511 1,426 Unallocated 597 ( 591 ) — — ( 6 ) — Total Non-Real Estate 10,416 1,078 ( 4,669 ) 1,045 ( 1,688 ) 6,182 Total $ 23,518 $ 8,120 $ ( 5,771 ) $ 1,375 $ 3,684 $ 30,926 For the Year ended December 31, 2022 (in thousands) Beginning Allowance (12/31/2021) Charge-offs Recoveries Provision Ending Allowance (12/31/2022) Real Estate: Construction & land development $ 769 $ ( 65 ) $ 340 $ 188 $ 1,232 Farmland 478 — — ( 395 ) 83 1- 4 family 1,921 ( 94 ) 76 ( 142 ) 1,761 Multifamily 940 — 452 ( 646 ) 746 Non-farm non-residential 12,730 ( 603 ) 349 ( 3,196 ) 9,280 Total Real Estate 16,838 ( 762 ) 1,217 ( 4,191 ) 13,102 Non-Real Estate: Agricultural 183 ( 460 ) 133 384 240 Commercial and industrial 2,363 ( 563 ) 91 303 2,194 Commercial leases 2,486 ( 150 ) 5 2,538 4,879 Consumer and other 1,371 ( 4,151 ) 473 4,813 2,506 Unallocated 788 — — ( 191 ) 597 Total Non-Real Estate 7,191 ( 5,324 ) 702 7,847 10,416 Total $ 24,029 $ ( 6,086 ) $ 1,919 $ 3,656 $ 23,518 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 credit loss reserve from one category to another. -92- A summary of the allowance along with loans and leases individually and collectively evaluated are as follows: As of December 31, 2023 (in thousands) Allowance Individually Evaluated Allowance Collectively Evaluated Total Allowance for Credit Losses Loans Individually Evaluated Loans Collectively Evaluated Total Loans before Unearned Income Real Estate: Construction & land development $ — $ 5,845 $ 5,845 $ 1,389 $ 398,046 $ 399,435 Farmland — 36 36 5,670 26,860 32,530 1- 4 family 316 6,337 6,653 5,066 439,784 444,850 Multifamily — 1,614 1,614 537 118,384 118,921 Non-farm non-residential 3,047 7,549 10,596 46,571 999,294 1,045,865 Total Real Estate 3,363 21,381 24,744 59,233 1,982,368 2,041,601 Non-Real Estate: Agricultural 1 96 97 1,466 39,542 41,008 Commercial and industrial 758 1,953 2,711 4,464 330,508 334,972 Commercial leases — 1,948 1,948 1,799 283,616 285,415 Consumer and other — 1,426 1,426 — 54,485 54,485 Unallocated — — — — — — Total Non-Real Estate 759 5,423 6,182 7,729 708,151 715,880 Total $ 4,122 $ 26,804 $ 30,926 $ 66,962 $ 2,690,519 $ 2,757,481 Unearned Income ( 8,773 ) Total Loans Net of Unearned Income $ 2,748,708 All loans individually evaluated for impairment as of December 31, 2023 were considered collateral dependent loans. As of December 31, 2022 (in thousands) Allowance Individually Evaluated for Impairment Allowance Individually Evaluated for Purchased Credit-Impairment Allowance Collectively Evaluated for Impairment Total Allowance for Credit Losses Loans Individually Evaluated for Impairment Loans Individually Evaluated for Purchased Credit-Impairment Loans Collectively Evaluated for Impairment Total Loans before Unearned Income Real Estate: Construction & land development $ — $ — $ 1,232 $ 1,232 $ 68 $ 301 $ 232,722 $ 233,091 Farmland — — 83 83 4,240 — 20,583 24,823 1- 4 family — — 1,761 1,761 949 1,311 364,070 366,330 Multifamily — — 746 746 — — 119,785 119,785 Non-farm non-residential 666 512 8,102 9,280 4,095 1,904 986,930 992,929 Total Real Estate 666 512 11,924 13,102 9,352 3,516 1,724,090 1,736,958 Non-Real Estate: Agricultural — — 240 240 2,366 — 36,679 39,045 Commercial and industrial 412 212 1,570 2,194 5,919 742 378,618 385,279 Commercial leases 1,799 — 3,080 4,879 1,799 — 315,775 317,574 Consumer and other — — 2,506 2,506 — — 47,864 47,864 Unallocated — — 597 597 — — — — Total Non-Real Estate 2,211 212 7,993 10,416 10,084 742 778,936 789,762 Total $ 2,877 $ 724 $ 19,917 $ 23,518 $ 19,436 $ 4,258 $ 2,503,026 $ 2,526,720 Unearned Income ( 7,643 ) Total Loans Net of Unearned Income $ 2,519,077 -93- As of December 31, 2023 and 2022, First Guaranty had loans totaling $ 25.2 million and $ 13.6 million, respectively, not accruing interest. As of December 31, 2023, and 2022, First Guaranty had loans past due 90 days or more and still accruing interest totaling $ 15.3 million and $ 1.1 million, respectively. The average outstanding balance of nonaccrual loans in 2023 was $ 22.5 million compared to $ 12.8 million in 2022. A loan is considered impaired when, based on current information and events, it is probable that First Guaranty will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Payment status, collateral value and the probability of collecting scheduled principal and interest payments when due are considered in evaluating loan impairment. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class as of the date indicated: As of December 31, 2022 (in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Impaired Loans with no related allowance: Real Estate: Construction & land development $ 68 $ 68 $ — $ 68 $ — Farmland 4,240 4,240 — 4,242 51 1- 4 family 949 949 — 949 5 Multifamily — — — — — Non-farm non-residential 1,814 1,814 — 1,817 56 Total Real Estate 7,071 7,071 — 7,076 112 Non-Real Estate: Agricultural 2,366 2,521 — 2,366 7 Commercial and industrial 4,871 4,988 — 4,988 33 Commercial leases — — — — — Consumer and other — — — — — Total Non-Real Estate 7,237 7,509 — 7,354 40 Total Impaired Loans with no related allowance 14,308 14,580 — 14,430 152 Impaired Loans with an allowance recorded: Real estate: Construction & land development — — — — — Farmland — — — — — 1- 4 family — — — — — Multifamily — — — — — Non-farm non-residential 2,281 2,855 666 2,279 5 Total Real Estate 2,281 2,855 666 2,279 5 Non-Real Estate: Agricultural — — — — — Commercial and industrial 1,048 1,048 412 1,112 35 Commercial leases 1,799 1,812 1,799 1,817 27 Consumer and other — — — — — Total Non-Real Estate 2,847 2,860 2,211 2,929 62 Total Impaired Loans with an allowance recorded 5,128 5,715 2,877 5,208 67 Total Impaired Loans $ 19,436 $ 20,295 $ 2,877 $ 19,638 $ 219 -94- Note 7. Premises and Equipment The components of premises and equipment at December 31, 2023 and 2022 are as follows: (in thousands) December 31, 2023 December 31, 2022 Land $ 15,541 $ 15,284 Bank premises 55,452 54,423 Furniture and equipment 31,681 31,109 Construction in progress 14,368 1,854 Acquired value 117,042 102,670 Less: accumulated depreciation 47,250 44,464 Net book value $ 69,792 $ 58,206 Depreciation expense amounted to $ 3.0 million and $ 3.1 million for 2023 and 2022, respectively. Interest cost capitalized as a construction cost was $ 0 for 2023 and 2022, respectively. Note 8. Goodwill and Other Intangible Assets Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets, such as core deposit intangibles and loan servicing assets, continue to be amortized over their useful lives. Goodwill represents the purchase price over the fair value of net assets acquired from the Homestead Bancorp in 2007, Premier Bancshares, Inc. in 2017 and Union Bancshares, Incorporated in 2019. No impairment charges have been recognized since acquisition. Goodwill totaled $ 12.9 million at December 31, 2023 and 2022. Other intangible assets not subject to amortization totaled $ 0.1 million and $ 0 at December 31, 2023 and 2022. The following table summarizes intangible assets subject to amortization. December 31, 2023 December 31, 2022 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Core deposit intangibles $ 16,266 $ 12,607 $ 3,659 $ 16,266 $ 11,911 $ 4,355 Loan servicing assets 2,198 1,659 539 2,195 1,571 624 Total $ 18,464 $ 14,266 $ 4,198 $ 18,461 $ 13,482 $ 4,979 The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions. The weighted-average amortization period remaining for the core deposit intangibles is 5.3 years. Amortization expense relating to purchase accounting intangibles totaled $ 0.7 million for the years ended December 31, 2023 and 2022, respectively. Amortization expense of the core deposit intangible assets for the next five years is as follows: For the Years Ended Estimated Amortization Expense (in thousands) December 31, 2024 $ 696 December 31, 2025 $ 696 December 31, 2026 $ 696 December 31, 2027 $ 696 December 31, 2028 $ 696 -95- Note 9. Other Real Estate Other real estate owned consists of the following at the dates indicated: (in thousands) December 31, 2023 December 31, 2022 Real Estate Owned Acquired by Foreclosure: Residential $ 309 $ 113 Construction & land development 251 — Non-farm non-residential 690 — Total Other Real Estate Owned and Foreclosed Property 1,250 113 Allowance for Other Real Estate Owned losses — — Net Other Real Estate Owned and Foreclosed Property $ 1,250 $ 113 Loans secured by one-to-four family residential properties in the process of foreclosure totaled $ 1.3 million as of December 31, 2023. Note 10. Deposits A schedule of maturities of all time deposits are as follows: (in thousands) December 31, 2023 2024 $ 505,561 2025 179,990 2026 32,228 2027 10,520 2028 and thereafter 92,426 Total $ 820,725 The table above includes $ 175.1 million in brokered deposits for December 31, 2023. The aggregate amount of jumbo time deposits, each with a minimum denomination of $250,000 totaled $ 196.9 million and $ 155.0 million at December 31, 2023 and 2022, respectively. Note 11. Borrowings Short-term borrowings are summarized as follows: (in thousands) December 31, 2023 December 31, 2022 Federal Home Loan Bank advances $ 50,000 $ 120,000 Repurchase agreements 6,297 6,442 Line of credit 10,000 20,000 Total short-term borrowings $ 66,297 $ 146,442 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 $ 66.3 million in short-term borrowings outstanding at December 31, 2023 compared to $ 146.4 million outstanding at December 31, 2022. First Guaranty has available lines of credit of $ 20.0 million, with $ 10.0 million outstanding balance at December 31, 2023. Available lines of credit totaled $ 589.2 million at December 31, 2023 and $ 505.5 million at December 31, 2022. The following schedule provides certain information about First Guaranty's short-term borrowings for the periods indicated: December 31, (in thousands except for %) 2023 2022 Outstanding at year end $ 66,297 $ 146,442 Maximum month-end outstanding $ 152,659 $ 146,442 Average daily outstanding $ 67,102 $ 42,149 Weighted average rate during the year 5.78 % 5.12 % Weighted average rate at year end 5.65 % 4.86 % -96- Long-term debt is summarized as follows: Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 70 basis points ( 6.80 %), totaled $ 21.9 million at December 31, 2022. First Guaranty refinanced this note in October of 2023. Senior long-term debt with a commercial bank, priced at floating Wall Street Journal Prime less 50 basis points (currently 8.00 %), totaled $ 39.1 million at December 31, 2023 and $ 0 at December 31, 2022. First Guaranty refinanced this note on October 2023. First Guaranty pays $ 1.0 million principal plus interest quarterly. First Guaranty refinanced this note on October 2023. This loan has a contractual maturity date of October 5, 2033. This long-term debt is secured by a pledge of 86.77 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary). Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points ( 9.25 % as of December 31, 2023), totaled 15.0 million at December 31, 2023 and December 31, 2022. First Guaranty pays interest quarterly. The Note is unsecured and ranks junior in right of payment to any senior indebtedness and obligations to general and secured creditors. The current Note is scheduled to mature on June 21, 2032. The Note qualifies for treatment as Tier 2 capital for regulatory capital purposes. First Guaranty maintains one revolving line of credit. A $ 20.0 million line of credit with an availability of $ 10.0 million at December 31, 2023. This line of credit is secured by a pledge of 86.77 % ( 4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary) and is priced at 8.50 %. At December 31, 2023, letters of credit issued by the FHLB totaling $ 513.3 million were outstanding and carried as off-balance sheet items, all of which expire by 2024. At December 31, 2022, letters of credit issued by the FHLB totaling $ 388.6 million were outstanding and carried as off-balance sheet items, all of which expire by 2024. The letters of credit are solely used for pledging towards public fund deposits. The FHLB has a blanket lien on substantially all of the loans in First Guaranty's portfolio which is used to secure borrowing availability from the FHLB. First Guaranty has obtained a subordination agreement from the FHLB on First Guaranty's farmland, agricultural, and commercial and industrial loans. These loans are available to be pledged for additional reserve liquidity. As of December 31, 2023 obligations on long-term advances from FHLB, senior long-term debt and junior subordinated debentures totaled $ 209.1 million. The scheduled payments are as follows: (in thousands) Long-term Advances from FHLB Senior Long-term Debt Junior Subordinated Debentures 2024 $ — $ 4,031 $ — 2025 20,000 4,031 — 2026 — 4,031 — 2027 135,000 4,031 — 2028 — 4,031 — 2029 and thereafter — 19,149 15,000 Subtotal $ 155,000 $ 39,304 $ 15,000 Debt issuance costs — ( 205 ) — Total $ 155,000 $ 39,099 $ 15,000 -97- Note 12. Capital Requirements First Guaranty Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on First Guaranty's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of December 31, 2023 and 2022, that the Bank met all capital adequacy requirements. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5 % of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. First Guaranty Bank's capital conservation buffer was 3.20 % at December 31, 2023. In addition, as a result of the legislation, the federal banking agencies have developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $ 10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the new Community Bank Leverage Ratio at 9%. Pursuant to the CARES Act, the federal banking agencies set the Community Bank Leverage Ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the Community Bank Leverage Ratio increased to 8.5% for the calendar year. Community banks will have until Jan. 1, 2022, before the Community Bank Leverage Ratio requirement will return to 9%. A financial institution can elect to be subject to this new definition. The new rule took effect on January 1, 2020. The Bank has not elected to follow the Community Bank Leverage Ratio. As of December 31, 2023, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that Management believes have changed the Bank's category. First Guaranty Bank's actual capital amounts and ratios as of December 31, 2023 and 2022 are presented in the following table. Actual Minimum Capital Requirements Minimum to be Well Capitalized Under Action Provisions (in thousands except for %) Amount Ratio Amount Ratio Amount Ratio December 31, 2023 Total Risk-based Capital: $ 330,944 11.20 % $ 236,321 8.00 % $ 295,402 10.00 % Tier 1 Capital: $ 304,553 10.31 % $ 177,241 6.00 % $ 236,321 8.00 % Tier 1 Leverage Capital: $ 304,553 8.94 % $ 121,821 4.00 % $ 152,277 5.00 % Common Equity Tier One Capital: $ 304,553 10.31 % $ 132,931 4.50 % $ 192,011 6.50 % December 31, 2022 Total Risk-based Capital: $ 308,510 11.16 % $ 221,066 8.00 % $ 276,333 10.00 % Tier 1 Capital: $ 284,992 10.31 % $ 165,800 6.00 % $ 221,066 8.00 % Tier 1 Leverage Capital: $ 284,992 9.35 % $ 121,884 4.00 % $ 152,355 5.00 % Common Equity Tier One Capital: $ 284,992 10.31 % $ 124,350 4.50 % $ 179,616 6.50 % -98- Note 13. Dividend Restrictions The Federal Reserve Bank ("FRB") has stated that, generally, a bank holding company should not maintain a rate of distributions to shareholders unless its available net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. As a Louisiana corporation, First Guaranty is restricted under the Louisiana corporate law from paying dividends under certain conditions. First Guaranty Bank may not pay dividends or distribute capital assets if it is in default on any assessment due to the FDIC. First Guaranty Bank is also subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution. In addition, under the Louisiana Banking Law, dividends may not be paid if it would reduce the unimpaired surplus below 50 % of outstanding capital stock in any year. The Bank is restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions for the State of Louisiana. Dividends payable by the Bank in 2024 without permission will be limited to 2024 earnings plus the undistributed earnings of $ 3.9 million from 2023. Accordingly, at January 1, 2024, $ 298.4 million of First Guaranty's equity in the net assets of the Bank was restricted. In addition, dividends paid by the Bank to First Guaranty would be prohibited if the effect thereof would cause the Bank's capital to be reduced below applicable minimum capital requirements. Note 14. Related Party Transactions In the normal course of business, First Guaranty and its subsidiary, First Guaranty Bank, have loans, deposits and other transactions with its executive officers, directors, affiliates and certain business organizations and individuals with which such persons are associated. These transactions are completed with terms no less favorable than current market rates. An analysis of the activity of loans made to such borrowers during the year ended December 31, 2023 and 2022 follows: December 31, (in thousands) 2023 2022 Balance, beginning of year $ 89,735 $ 93,270 Net (Decrease) Increase ( 33,850 ) ( 3,535 ) Balance, end of year $ 55,885 $ 89,735 Unfunded commitments to First Guaranty and Bank directors and executive officers totaled $ 19.6 million and $ 45.6 million at December 31, 2023 and 2022, respectively. At December 31, 2023 First Guaranty and the Bank had deposits from directors and executives totaling $ 54.8 million. There were no participations in loans purchased from affiliated financial institutions included in First Guaranty's loan portfolio in 2023 or 2022. During the years ended 2023 and 2022, First Guaranty paid approximately $ 0.3 million, respectively, for printing services and supplies and office furniture and equipment to Champion Industries, Inc., of which Mr. Marshall T. Reynolds, the Chairman of First Guaranty's Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors and a major shareholder of Champion. On December 21, 2015, First Guaranty issued a $ 15.0 million subordinated note (the "2015 Note") to Edgar Ray Smith III, a director of First Guaranty. The 2015 Note had a ten-year term (non-callable for first five years ) and bore interest at a fixed annual rate of 4.0 % for the first five years of the term and then adjusted to a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points for the period of time after the fifth year until redemption or maturity. On June 21, 2022, First Guaranty issued a $ 15.0 million subordinated note (the “2022 Note”) to Mr. Smith, and used the proceeds of such issuance to redeem the 2015 Note in full. The 2022 Note has a ten-year term, maturing on June 21, 2032, is non-callable for the first five years , and bears interest at a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points. During the years ended 2023 and 2022, First Guaranty paid interest of $ 1.2 million and $ 0.7 million, respectively, under the 2015 Note and the 2022 Note. During the years ended 2023 and 2022, First Guaranty paid approximately $ 0.1 million and $ 0.1 million, respectively, for the purchase and maintenance of First Guaranty's automobiles to subsidiaries of Hood Automotive Group, of which William K. Hood, a director of First Guaranty, is President. During the years ended 2023 and 2022, First Guaranty paid approximately $ 0.7 million and $ 58,000 , respectively, for architectural services in relation to bank branches to Gasaway Gasaway Bankston Architects, of which bank subsidiary board member Andrew B. Gasaway is part owner. During the years ended 2023 and 2022, First Guaranty paid approximately $ 0.8 million and $ 0.7 million, respectively, to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance. First Guaranty owns a 50 % interest in Centurion and accounts for this investment under the equity method. -99- Note 15. Employee Benefit Plans First Guaranty has an employee savings plan to which employees, who meet certain service requirements, may defer 1 % up to the IRS legal limit of their base salaries, 6 % of which may be matched up to 100 %, at its sole discretion. Contributions to the savings plan were $ 80,000 and $ 440,000 in 2023 and 2022, respectively. First Guaranty has an Employee Stock Ownership Plan ("ESOP") which was frozen in 2010. No contributions were made to the ESOP for the years 2023 or 2022. As of December 31, 2023, the ESOP held 1,003 shares. First Guaranty is in the process of terminating the plan. On May 19, 2022 the shareholders of First Guaranty adopted the First Guaranty Bank Equity Bonus Plan. The plan established an equity bonus pool of 80,000 shares. All full time employees of First Guaranty are eligible to participate. In December 31, 2023, 44,341 shares were distributed to a total of 311 employees. Grant date fair market value of the shares issued was $ 750,000 . All shares were vested on the date of issuance. Note 16. Other Expenses The following is a summary of the significant components of other noninterest expense: December 31, (in thousands) 2023 2022 Other noninterest expense: Legal and professional fees $ 5,709 $ 4,159 Data processing 2,100 1,596 ATM Fees 1,804 1,750 Marketing and public relations 1,927 1,747 Taxes - sales, capital and franchise 2,263 1,949 Operating supplies 778 728 Software expense and amortization 5,282 4,191 Travel and lodging 1,362 1,236 Telephone 382 406 Amortization of core deposits 696 696 Donations 595 638 Net costs from other real estate and repossessions 157 393 Regulatory assessment 3,136 1,997 Other 4,032 3,888 Total other noninterest expense $ 30,223 $ 25,374 First Guaranty does not capitalize advertising costs. They are expensed as incurred and are included in other noninterest expense on the Consolidated Statements of Income. Advertising expense was $ 1.0 million for 2023 and 2022. -100- Note 17. Income Taxes The following is a summary of the provision for income taxes included in the Consolidated Statements of Income: December 31, (in thousands) 2023 2022 Current $ 2,857 $ 7,761 Deferred ( 180 ) ( 255 ) Total $ 2,677 $ 7,506 The difference between income taxes computed by applying the statutory federal income tax rate and the provision for income taxes in the financial statements is reconciled as follows: December 31, (in thousands except for %) 2023 2022 Statutory tax rate 21.0 % 21.0 % Federal income taxes at statutory rate $ 2,452 $ 7,642 Tax exempt municipal income ( 102 ) ( 108 ) Other 107 ( 28 ) State tax expense 220 — Total $ 2,677 $ 7,506 Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities, and available tax credit carry forwards. Temporary differences between the financial statement and tax values of assets and liabilities give rise to deferred taxes. The significant components of deferred taxes classified in First Guaranty's Consolidated Balance Sheets at December 31, 2023 and 2022 are as follows: December 31, (in thousands) 2023 2022 Deferred tax assets: Allowance for credit losses $ 7,101 $ 4,939 Other real estate owned 18 5 Unrealized losses on available for sale securities 416 711 Unrealized losses on available for sale securities transferred to held to maturity 3,029 3,337 Net operating loss 914 1,006 Other 473 648 Gross deferred tax assets 11,951 10,646 Deferred tax liabilities: Depreciation and amortization ( 1,871 ) ( 2,116 ) Core deposit intangibles ( 768 ) ( 914 ) Unrealized gains on available for sale securities — — Discount on purchased loans ( 180 ) ( 60 ) Other ( 927 ) ( 880 ) Gross deferred tax liabilities ( 3,746 ) ( 3,970 ) Net deferred tax assets (liabilities) $ 8,205 $ 6,676 First Guaranty determined that the net deferred tax asset at December 31, 2023 and 2022 was more likely than not to be realized based on an assessment of all available positive and negative evidence, and therefore no valuation allowance was recorded. Net operating loss carryforwards for income tax purposes were $ 4.4 million as of December 31, 2023 and $ 4.8 million in 2022. The carryforwards were acquired in 2017 in the Premier acquisition and expire from 2027 to 2034, and will be utilized subject to annual Internal Revenue Code Section 382 limitations. -101- ASC 740-10, Income Taxes, clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. First Guaranty does not believe it has any unrecognized tax benefits included in its consolidated financial statements. First Guaranty has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. First Guaranty recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in noninterest expense. During the years ended December 31, 2023 and 2022, First Guaranty did no t recognize any interest or penalties in its consolidated financial statements, no r has it recorded an accrued liability for interest or penalty payments. Note 18. Commitments and Contingencies Off-balance sheet commitments First Guaranty is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk. Set forth below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at December 31, 2023 and December 31, 2022. Contract Amount December 31, 2023 December 31, 2022 (in thousands) Commitments to Extend Credit $ 304,218 $ 246,968 Unfunded Commitments under lines of credit $ 214,546 $ 253,906 Commercial and Standby letters of credit $ 13,971 $ 14,222 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Management's credit evaluation of the counterpart. Collateral requirements vary but may include accounts receivable, inventory, property, plant and equipment, residential real estate and commercial properties. Standby and commercial letters of credit are conditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The majority of these guarantees are short-term, one year or less; however, some guarantees extend for up to three years . The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. Collateral requirements are the same as on-balance sheet instruments and commitments to extend credit. There were no losses incurred on off-balance sheet commitments in 2023 or 2022. -102- Note 19. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy. Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified Level 3 as of December 31, 2023 includes corporate debt and municipal securities. Impaired loans . Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Other real estate owned. Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") at December 31, 2023 and 2022 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values or recent sales activity for similar assets in the property's market; thus OREO measured at fair value would be classified within either Level 2 or Level 3 of the hierarchy. Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. The following table summarizes financial assets measured at fair value on a recurring basis as of December 31, 2023 and 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: (in thousands) December 31, 2023 December 31, 2022 Available for Sale Securities Fair Value Measurements Using: Level 1: Quoted Prices in Active Markets For Identical Assets $ 49,830 $ 98,466 Level 2: Significant Other Observable Inputs 23,172 21,890 Level 3: Significant Unobservable Inputs 10,483 11,102 Securities available for sale measured at fair value $ 83,485 $ 131,458 First Guaranty's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While Management believes the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. The change in Level 1 securities available for sale from December 31, 2022 to December 31, 2023 was due to a net decrease in Treasury bills of $ 48.6 million. There were no transfers between Level 1 and 2 securities available for sale from December 31, 2022 to December 31, 2023. There were no transfers between Level 2 and Level 3 from December 31, 2022 to December 31, 2023. -103- The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs ( Level 3 ): Level 3 Changes (in thousands) December 31, 2023 December 31, 2022 Balance, beginning of year $ 11,102 $ 12,305 Total gains or losses (realized/unrealized): Included in earnings — — Included in other comprehensive income ( 38 ) ( 676 ) Purchases, sales, issuances and settlements, net ( 581 ) ( 527 ) Transfers in and/or out of Level 3 — — Balance as of end of year $ 10,483 $ 11,102 There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2023. The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of December 31, 2023 and December 31, 2022, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value: (in thousands) At December 31, 2023 At December 31, 2022 Fair Value Measurements Using: Loan Individually Evaluated for Impairment Level 1: Quoted Prices in Active Markets For Identical Assets $ — $ — Level 2: Significant Other Observable Inputs — — Level 3: Significant Unobservable Inputs 8,083 2,251 Impaired loans measured at fair value $ 8,083 $ 2,251 Fair Value Measurements Using: Other Real Estate Owned Level 1: Quoted Prices in Active Markets For Identical Assets $ — $ — Level 2: Significant Other Observable Inputs 1,250 — Level 3: Significant Unobservable Inputs — 113 Other real estate owned measured at fair value $ 1,250 $ 113 ASC 825-10 provides First Guaranty with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits First Guaranty to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation. First Guaranty has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States. -104- Note 20. Financial Instruments Fair value estimates are generally subjective in nature and are dependent upon a number of significant assumptions associated with each instrument or group of similar instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows and relevant available market information. Fair value information is intended to represent an estimate of an amount at which a financial instrument could be exchanged in a current transaction between a willing buyer and seller engaging in an exchange transaction. However, since there are no established trading markets for a significant portion of First Guaranty's financial instruments, First Guaranty may not be able to immediately settle financial instruments; as such, the fair values are not necessarily indicative of the amounts that could be realized through immediate settlement. In addition, the majority of the financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer. Quoted market prices are used to estimate fair values when available. However, due to the nature of the financial instruments, in many instances quoted market prices are not available. Accordingly, estimated fair values have been estimated based on other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. Fair values are estimated without regard to any premium or discount that may result from concentrations of ownership of financial instruments, possible income tax ramifications or estimated transaction costs. The fair value estimates are subjective in nature and involve matters of significant judgment and, therefore, cannot be determined with precision. Fair values are also estimated at a specific point in time and are based on interest rates and other assumptions at that date. As events change the assumptions underlying these estimates, the fair values of financial instruments will change. Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations of pension and other postretirement benefits, premises and equipment, other real estate, prepaid expenses, the value of long-term relationships with depositors (core deposit intangibles) and other customer relationships, other intangible assets and income tax assets and liabilities. Fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses have not been considered in the estimates. Accordingly, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of First Guaranty. Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the fair values, reasonable comparison of the fair value information with other financial institutions' fair value information cannot necessarily be made. The methods and assumptions used to estimate the fair values of financial instruments are as follows: Cash and due from banks, interest-bearing deposits with banks, federal funds sold and federal funds purchased . These items are generally short-term and the carrying amounts reported in the consolidated balance sheets are a reasonable estimation of the fair values. Investment Securities. Fair values are principally based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or the use of discounted cash flow analyses. Loans Held for Sale. Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. These loans are classified within level 3 of the fair value hierarchy. Loans, net . Market values are computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. These loans are classified within level 3 of the fair value hierarchy. Loan individually evaluated for impairment. Fair value is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Cash Surrender of BOLI. The cash surrender value of BOLI approximates fair value. Accrued interest receivable. The carrying amount of accrued interest receivable approximates its fair value. -105- Deposits. The fair value of customer deposits, excluding certificates of deposit, is the amount payable on demand. Market values of certificates of deposit are actually computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Deposits are classified within level 3 of the fair value hierarchy. Accrued interest payable. The carrying amount of accrued interest payable approximates its fair value. Borrowings . The carrying amount of federal funds purchased and other short-term borrowings approximate their fair values. The fair value of First Guaranty's long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy. Other Unrecognized Financial Instruments. The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit are based on fees charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At December 31, 2023 and 2022 the fair value of guarantees under commercial and standby letters of credit was not material. The carrying amounts and estimated fair values of financial instruments at December 31, 2023 were as follows: Fair Value Measurements at December 31, 2023 Using (in thousands) Carrying Amount Level 1 Level 2 Level 3 Total Assets Cash and due from banks $ 286,114 $ 286,114 $ — $ — $ 286,114 Federal funds sold 341 341 — — 341 Securities, available for sale 83,485 49,830 23,172 10,483 83,485 Securities, held for maturity 320,638 — 253,584 — 253,584 Loans, net 2,717,782 — — 2,581,979 2,581,979 Cash surrender value of BOLI 5,861 — — 5,861 5,861 Accrued interest receivable 15,713 — — 15,713 15,713 Liabilities Deposits $ 3,009,094 $ — $ — $ 3,001,498 3,001,498 Short-term advances from Federal Home Loan Bank 50,000 — — 50,000 50,000 Short-term borrowings 10,000 — — 10,000 10,000 Repurchase agreements 6,297 — — 6,285 6,285 Accrued interest payable 11,807 — — 11,807 11,807 Long-term advances from Federal Home Loan Bank 155,000 — — 152,299 152,299 Senior long-term debt 39,099 — — 39,304 39,304 Junior subordinated debentures 15,000 — — 15,000 15,000 -106- The carrying amounts and estimated fair values of financial instruments at December 31, 2022 were as follows: Fair Value Measurements at December 31, 2022 Using (in thousands) Carrying Amount Level 1 Level 2 Level 3 Total Assets Cash and due from banks $ 82,796 $ 82,796 $ — $ — $ 82,796 Federal funds sold 423 423 — — 423 Securities, available for sale 131,458 98,466 21,890 11,102 131,458 Securities, held for maturity 320,068 — 242,560 — 242,560 Loans, net 2,495,559 — — 2,404,402 2,404,402 Cash surrender value of BOLI 5,712 — — 5,712 5,712 Accrued interest receivable 13,002 — — 13,002 13,002 Liabilities Deposits $ 2,723,792 $ — $ — $ 2,717,471 2,717,471 Short-term advances from Federal Home Loan Bank 120,000 — — 120,000 120,000 Short-term borrowings 20,000 — — 20,000 20,000 Repurchase agreements 6,442 — — 6,509 6,509 Accrued interest payable 4,289 — — 4,289 4,289 Long-term advances from Federal Home Loan Bank — — — — — Senior long-term debt 21,927 — — 21,938 21,938 Junior subordinated debentures 15,000 — — 15,000 15,000 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. -107- Note 21. Concentrations of Credit and Other Risks First Guaranty monitors loan portfolio concentrations by region, collateral type, loan type, and industry on a monthly basis and has established maximum thresholds as a percentage of its capital to ensure that the desired mix and diversification of its loan portfolio is achieved. First Guaranty is compliant with the established thresholds as of December 31, 2023. Personal, commercial and residential loans are granted to customers, most of who reside in northern and southern areas of Louisiana. Although First Guaranty has a diversified loan portfolio, significant portions of the loans are collateralized by real estate located in Tangipahoa Parish and surrounding parishes in Southeast Louisiana. Declines in the Louisiana economy could result in lower real estate values which could, under certain circumstances, result in losses to First Guaranty. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. Approximately 39.7 % of First Guaranty's deposits are derived from local governmental agencies at December 31, 2023. These governmental depositing authorities are generally long-term customers. A number of the depositing authorities are under contractual obligation to maintain their operating funds exclusively with First Guaranty. In most cases, First Guaranty is required to pledge securities or letters of credit issued by the Federal Home Loan Bank to the depositing authorities to collateralize their deposits. Under certain circumstances, the withdrawal of all of, or a significant portion of, the deposits of one or more of the depositing authorities may result in a temporary reduction in liquidity, depending primarily on the maturities and/or classifications of the securities pledged against such deposits and the ability to replace such deposits with either new deposits or other borrowings. Public fund deposits totaled $ 1.2 billion at December 31, 2023. Note 22. Litigation First Guaranty is subject to various legal proceedings in the normal course of its business. First Guaranty assesses its liabilities and contingencies in connection with outstanding legal proceedings. Where it is probable that First Guaranty will incur a loss and the amount of the loss can be reasonably estimated, First Guaranty records a liability in its consolidated financial statements. First Guaranty does not record a loss if the loss is not probable or the amount of the loss is not estimable. First Guaranty Bank is a defendant in a lawsuit alleging fault for a loss of funds by a customer related to fraud by a third party with a possible loss range of $ 0.0 million to $ 1.5 million. The Bank denies the allegations and intends to vigorously defend against this lawsuit, which is in early stages and no trial date has been set. No accrued liability has been recorded related to this lawsuit. First Guaranty settled a case in the third quarter of 2021 for $ 1.1 million. A receivable for $ 0.9 million has been recorded for recovery by a claim against First Guaranty's insurer. In the opinion of management, neither First Guaranty nor First Guaranty Bank is currently involved in such legal proceedings, either individually or in the aggregate, that the resolution is expected to have a material adverse effect on First Guaranty’s consolidated results of operations, financial condition, or cash flows. However, one or more unfavorable outcomes in these ordinary claims or litigation against First Guaranty or First Guaranty Bank could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or ultimate outcomes, such matters are costly, divert management’s attention, and may materially and adversely affect the reputation of First Guaranty and First Guaranty Bank, even if resolved favorably. -108- Note 23. Condensed Parent Company Information The following condensed financial information reflects the accounts and transactions of First Guaranty Bancshares, Inc. for the dates indicated: First Guaranty Bancshares, Inc. Condensed Balance Sheets December 31, (in thousands) 2023 2022 Assets Cash $ 8,955 $ 3,324 Investment in bank subsidiary 302,327 287,019 Other assets 2,952 2,375 Total Assets $ 314,234 $ 292,718 Liabilities and Shareholders' Equity Short-term debt 10,000 20,000 Senior long-term debt 39,099 21,927 Junior subordinated debentures 15,000 15,000 Other liabilities 504 800 Total Liabilities 64,603 57,727 Shareholders' Equity 249,631 234,991 Total Liabilities and Shareholders' Equity $ 314,234 $ 292,718 First Guaranty Bancshares, Inc. Condensed Statements of Income December 31, (in thousands) 2023 2022 Operating Income Dividends received from bank subsidiary $ 10,579 $ 21,863 Net gains on sale of equity securities — — Other income 638 526 Total operating income 11,217 22,389 Operating Expenses Interest expense 4,532 2,703 Salaries & Benefits 313 252 Other expenses 2,365 1,783 Total operating expenses 7,210 4,738 Income before income tax benefit and increase in equity in undistributed earnings of subsidiary 4,007 17,651 Income tax benefit 1,273 910 Income before increase in equity in undistributed earnings of subsidiary 5,280 18,561 Increase in equity in undistributed earnings of subsidiary 3,939 10,323 Net Income $ 9,219 $ 28,884 -109- First Guaranty Bancshares, Inc. Condensed Statements of Cash Flows December 31, (in thousands) 2023 2022 Cash flows from operating activities: Net income $ 9,219 $ 28,884 Adjustments to reconcile net income to net cash provided by operating activities: Increase in equity in undistributed earnings of subsidiary ( 3,939 ) ( 10,323 ) Depreciation and amortization 24 225 Net change in other liabilities ( 296 ) 350 Net change in other assets ( 580 ) 1,482 Net cash provided by operating activities 4,428 20,618 Cash flows from investing activities: Proceeds from sales of equity securities — — Funds invested in equity securities — — Funds invested in bank subsidiary ( 17,000 ) ( 30,000 ) Net cash used in investing activities ( 17,000 ) ( 30,000 ) Cash flows from financing activities: Net (decrease) increase in short-term borrowings ( 10,000 ) 20,000 Proceeds from long-term borrowings, net of costs 40,097 — Repayment of long-term debt ( 22,946 ) ( 3,250 ) Net proceeds from issuance of common stock 20,000 — Subsidiary payment for stock grants issued 750 — Dividends paid ( 9,698 ) ( 9,187 ) Net cash provided by financing activities 18,203 7,563 Net (decrease) increase in cash and cash equivalents 5,631 ( 1,819 ) Cash and cash equivalents at the beginning of the period 3,324 5,143 Cash and cash equivalents at the end of the period $ 8,955 $ 3,324 -110- Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None