First Guaranty Bancshares, Inc. 10-K

Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. A discussion regarding significant changes in our financial condition from December 31, 2022 to December 31, 2023 and our results of operations for the year ended December 31, 2022 can be found under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024, which is available on the SEC's website at www.sec.gov and First Guaranty's website, www.fgb.net This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under "Forward-Looking Statements," "Risk Factors" and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements. Overview First Guaranty Bancshares is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana. Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 35 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and Alexandria, Louisiana and Dallas-Fort Worth-Arlington, Waco, Texas and Mideast markets in Kentucky and West Virginia. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. We compete for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees. Total assets were $4.0 billion at December 31, 2024 and $3.6 billion at December 31, 2023. Total deposits were $3.5 billion at December 31, 2024 and $3.0 billion at December 31, 2023. Total loans were $2.7 billion at December 31, 2024, a decrease of $54.9 million, or 2.0%, compared with $2.7 billion at December 31, 2023. Total shareholders' equity was $255.0 million and $249.6 million at December 31, 2024 and December 31, 2023, respectively. Net income was $12.4 million and $9.2 million for the years ended December 31, 2024 and 2023, respectively. We generate most of our revenues from interest income on loans, interest income on securities, sales of securities, ATM and debit card fees and service charges, commissions and fees. We incur interest expense on deposits and other borrowed funds and noninterest expense such as salaries and employee benefits and occupancy and equipment expenses. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is our largest source of revenue. To evaluate net interest income, we measure and monitor: (1) yields on our loans and other interest-earning assets; (2) the costs of our deposits and other funding sources; (3) our net interest spread and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources. The increase in net income was caused principally by an increase in net interest income of $3.7 million, an increase in noninterest income of $14.2 million, and a decrease in noninterest expense of $2.5 million, partially offset by an increase in provision for credit losses of $16.3 million. Changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions, conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Louisiana, Texas and our other out-of-state market areas. As the economy transitioned from an extended period of historically low interest rates to a period of higher interest rates in 2022-2023, we continue to evaluate our investments in interest-earning assets in relation to the impact such investments have on our financial condition, results of operations and shareholders' equity. -38- Financial highlights for the fourth quarter and years ended December 31, 2024 and 2023: • Total assets increased $420.0 million, or 11.8%, to $4.0 billion at December 31, 2024 when compared with December 31, 2023. Total loans at December 31, 2024 were $2.7 billion, a decrease of $54.9 million, or 2.0%, compared with December 31, 2023. Total deposits were $3.5 billion at December 31, 2024, an increase of $467.2 million, or 15.5% compared with December 31, 2023. Retained earnings were $73.0 million at December 31, 2024, an increase of $5.0 million compared to $68.0 million at December 31, 2023. Shareholders' equity was $255.0 million and $249.6 million at December 31, 2024 and December 31, 2023, respectively. • Net income for each of the years ended December 31, 2024 and 2023 was $12.4 million and $9.2 million, respectively. • Earnings per common share were $0.81 for the year ended December 31, 2024 and $0.62 for the year ended December 31, 2023. Total weighted average common shares outstanding were 12,501,035 and 11,165,303 at December 31, 2024 and December 31, 2023, respectively. • The allowance for credit losses was 1.29% of total loans at December 31, 2024 compared to 1.13% at December 31, 2023. • The provision for credit losses totaled $20.0 million for 2024 and $3.7 million in 2023. • Net interest income for 2024 was $88.4 million compared to $84.7 million for 2023. • Noninterest income for 2024 was $24.7 million compared to $10.6 million for 2023. • The net interest margin was 2.47% for 2024 and 2.69% for 2023. Loans as a percentage of average interest earning assets decreased to 77.4% at December 31, 2024 compared to 82.8% at December 31, 2023. • Investment securities totaled $602.7 million at December 31, 2024, an increase of $198.6 million when compared to $404.1 million at December 31, 2023. At December 31, 2024, available for sale securities, at fair value, totaled $281.1 million, an increase of $197.6 million when compared to $83.5 million at December 31, 2023. At December 31, 2024, held to maturity securities, at amortized cost and net of the allowance for credit losses, totaled $321.6 million as compared to $320.6 million at December 31, 2023. The allowance for credit losses for HTM securities was $0.2 million at December 31, 2024, an increase of $0.1 million when compared to $0.1 million at December 31, 2023. • Total loans net of unearned income were $2.7 billion at December 31, 2024 a net decrease of $54.9 million from December 31, 2023. Total loans net of unearned income are reduced by the allowance for credit losses which totaled $34.8 million at December 31, 2024 and $30.9 million at December 31, 2023. First Guaranty adopted ASC 326 effective January 1, 2023 and recorded a cumulative adoption adjustment to the allowance of $7.1 million. • Nonaccrual loans increased $83.3 million to $108.5 million at December 31, 2024 compared to $25.2 million at December 31, 2023. The increase in total nonaccrual loans was concentrated primarily in non-farm non-residential and multifamily loans. • Return on average assets was 0.34% and 0.28% for the years ended December 31, 2024 and 2023, respectively. Return on average common equity was 4.58% and 3.36% for 2024 and 2023, respectively. Return on average assets is calculated by dividing net income by average assets. Return on average common equity is calculated by dividing net income by average common equity. • Book value per common share was $17.75 as of December 31, 2024 compared to $17.36 as of December 31, 2023. Tangible book value per common share was $16.48 as of December 31, 2024 compared to $16.03 as of December 31, 2023. • First Guaranty's Board of Directors declared cash dividends of $0.41 per common share in 2024 and $0.64 per common share in 2023. First Guaranty has paid 126 consecutive quarterly dividends on its common stock as of December 31, 2024. • First Guaranty paid preferred cash dividends of $2.3 million during 2024 and 2023. • As previously announced, on March 28, 2024, First Guaranty issued a $30.0 million subordinate note in a private placement. • As previously announced, on June 28, 2024, the Bank consummated a sale-leaseback transaction relating to two stand-alone branches and a portion of the headquarters building which also contains a branch (collectively, the “Properties”). The aggregate cash purchase price was $14.7 million. The sale-leaseback transaction resulted in a pre-tax gain of approximately $13.3 million, or $10.5 million after tax. Aggregate first full year of rent expense under the Lease Agreements will be approximately $1.3 million pre-tax, or $1.0 million after tax. Recent Developments • In the first quarter of 2025, First Guaranty closed three branches and consolidated two existing branches into one location on March 7, 2025. These branches were located in Louisiana. The impact of the branch closures and consolidation is not expected to materially affect operations. -39- Critical Accounting Estimates Our consolidated financial statements are prepared to conform to generally accepted accounting principles in the United States and with predominant accounting practices within the banking industry. Certain critical estimates require judgment and estimates which are used in the preparation of the financial statements and accompanying notes. We have identified the following critical accounting estimate that is critical to an understanding of our financial condition and results of operations. Allowance for Credit Losses. The allowance for credit losses is established through a provision for credit 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 quantitative 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. -40- Financial Condition Assets Our total assets were $4.0 billion at December 31, 2024, an increase of $420.0 million, or 11.8%, from total assets of $3.6 billion at December 31, 2023. Assets increased primarily due to increases in cash and cash equivalents of $277.8 million and investment securities of $198.6 million, partially offset by a decrease in net loans of $58.8 million at December 31, 2024 compared to December 31, 2023. Loans Net loans decreased $58.8 million, or 2.2%, to $2.7 billion at December 31, 2024 from December 31, 2023. Commercial and industrial loans decreased $77.5 million primarily due to paydowns. Construction and land development loans decreased $69.4 million principally due to the conversion of existing loans to permanent financing. Commercial lease loan balances decreased $65.2 million primarily due to paydowns on the existing lease portfolio. First Guaranty's commercial lease portfolio generally has higher yields than commercial real estate loans but shorter average lives. Consumer and other loans decreased $12.2 million primarily due to paydowns. Agricultural loans decreased $0.3 million primarily due to seasonal activity. Farmland loans increased $3.5 million due to seasonal activity. One-to four-family loans increased $5.5 million primarily due to new originations. Multifamily loans increased $46.2 million primarily due to the conversion of existing construction loans to permanent financing and the origination of new loans. Non-farm non-residential loan balances increased $114.0 million primarily due to new originations and the conversion of construction and land development loans to permanent financing. First Guaranty had approximately 3.0% of funded and 1.7% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. First Guaranty's hotel and hospitality portfolio totaled $178.9 million at December 31, 2024. As part of the management of risks in our loan portfolio, First Guaranty had previously established an internal guidance limit of approximately $200.0 million for its hotel and hospitality portfolio. First Guaranty had $407.1 million in loans related to our Texas markets at December 31, 2024 which was an increase of $31.4 million or 8.4% from $375.7 million at December 31, 2023. First Guaranty had $335.5 million in loans related to our new Mideast markets in Kentucky and West Virginia at December 31, 2024 which was an increase of $57.5 million or 20.7% from $278.1 million at December 31, 2023. Syndicated loans at December 31, 2024 were $53.9 million, of which $27.6 million were shared national credits. Syndicated loans decreased $22.8 million from $76.7 million at December 31, 2023. As of December 31, 2024, 79.2% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 42.9% as of December 31, 2024, was non-farm non-residential loans secured by real estate. As of December 31, 2024, approximately 53.1% of the loan portfolio was based on a floating rate tied to the prime rate, SOFR or Treasury rates. 46.2% of the loan portfolio is scheduled to mature within five years from December 31, 2024. First Guaranty initiated a process to transfer any LIBOR indexed loans to alternative reference rates such as the prime rate or SOFR as LIBOR was discontinued for repricings after June 30, 2023. Commercial real estate (“CRE”) has received increased regulatory scrutiny in recent quarters due to valuation concerns associated with the increase in market interest rates and the impact of the COVID-19 pandemic. First Guaranty has utilized enhanced risk management practices for CRE concentration analysis for several years. First Guaranty Bank’s credit department conducts an annual stress test for CRE related loans that is presented to the Bank’s board of directors. The stress test analyzes the impact of changes in interest rates and cash flow on loan customers with credit exposures of $2.5 million or greater. First Guaranty generally requires personal guarantees on CRE loans. First Guaranty generally approves CRE loans with loan-to-values of 80% or less. First Guaranty also generally requires for construction related CRE loans that the borrower provides their equity contribution upfront before loan funds are advanced. First Guaranty modified its business strategy in 2024 to reduce exposure to commercial real estate related loans, particularly loans secured by non-owner occupied properties and construction loans for commercial real estate. First Guaranty has diversified its CRE portfolio across both industries and geographic location. The following is a summary of the largest CRE related loans associated with hotel and motels, office properties, apartment complexes, healthcare related properties, and properties under construction as of December 31, 2024. The largest CRE loan secured by a hotel or motel totaled $19.9 million. The property is a flagged hotel located in Texas. The largest CRE loan secured by an office related property totaled $21.3 million and is located in West Virginia. The largest CRE loan secured by an apartment complex totaled $26.0 million and is located in Texas. The largest healthcare related loan is a $32.9 million property secured by an assisted living center located in Alabama. The largest CRE loan under construction totaled $40.4 million for an apartment complex and is secured by a property located in Louisiana. -41- Loan Portfolio Maturities . The following tables summarize the scheduled repayments of our loan portfolio at December 31, 2024. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Maturities are based on the final contractual payment date and do not reflect the effect of prepayments and scheduled principal amortization. December 31, 2024 (in thousands) One Year or Less More Than One Year Through Five Years More Than Five Years Through Fifteen Years After Fifteen Years Total Real Estate: Construction & land development $ 129,043 $ 52,341 $ 97,026 $ 51,638 $ 330,048 Farmland 7,406 2,302 4,038 22,245 35,991 1- 4 family 10,754 27,991 43,417 368,209 450,371 Multifamily 22,219 59,613 20,410 62,879 165,121 Non-farm non-residential 174,350 314,846 161,073 509,574 1,159,843 Total Real Estate 343,772 457,093 325,964 1,014,545 2,141,374 Non-Real Estate: Agricultural 14,162 7,673 8,181 10,706 40,722 Commercial and industrial 105,225 125,548 21,804 4,941 257,518 Commercial leases 45,615 174,585 — — 220,200 Consumer and other 10,474 27,004 4,788 — 42,266 Total Non-Real Estate 175,476 334,810 34,773 15,647 560,706 Total Loans Before Unearned Income $ 519,248 $ 791,903 $ 360,737 $ 1,030,192 $ 2,702,080 Less: Unearned income (8,300) Total Loans Net of Unearned Income $ 2,693,780 The following table sets forth the scheduled repayments of fixed and adjustable-rate loans at December 31, 2024 that are contractually due after December 31, 2024. Due After December 31, 2024 (in thousands) Fixed Floating Total One year or less $ 240,685 245,272 485,957 One to five years 501,800 256,720 758,520 Over five to 15 years 62,412 293,173 355,585 Over 15 years 358,727 634,762 993,489 Subtotal $ 1,163,624 $ 1,429,927 $ 2,593,551 Nonaccrual loans 108,529 Total $ 2,702,080 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 year periods. -42- Non-performing Assets Non-performing assets consist of non-performing loans and other real-estate owned. Non-performing loans are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the estimated net available value of collateral is sufficient to cover the principal balance and accrued interest. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest. Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure. The following table shows the principal amounts and categories of our non-performing assets at December 31, 2024 and 2023. -43- December 31, (in thousands) 2024 2023 Nonaccrual loans: Real Estate: Construction and land development $ 3,624 $ 530 Farmland 2,619 836 1- 4 family 10,053 6,985 Multifamily 27,542 537 Non-farm non-residential 54,171 9,740 Total Real Estate 98,009 18,628 Non-Real Estate: Agricultural 1,992 1,369 Commercial and industrial 6,762 1,581 Commercial leases 1,533 1,799 Consumer and other 233 1,810 Total Non-Real Estate 10,520 6,559 Total nonaccrual loans 108,529 25,187 Loans 90 days and greater delinquent & still accruing: Real Estate: Construction and land development 7,394 — Farmland — — 1- 4 family — 124 Multifamily — — Non-farm non-residential 4,108 14,711 Total Real Estate 11,502 14,835 Non-Real Estate: Agricultural — 57 Commercial and industrial — 395 Commercial leases — — Consumer and other — — Total Non-Real Estate — 452 Total loans 90 days and greater delinquent & still accruing 11,502 15,287 Total non-performing loans $ 120,031 $ 40,474 Other real estate owned and foreclosed assets: Real Estate: Construction and land development 226 251 Farmland — — 1- 4 family 3 309 Multifamily — — Non-farm non-residential 90 690 Total Real Estate 319 1,250 Non-Real Estate: Agricultural — — Commercial and industrial — — Commercial leases — — Consumer and other — — Total Non-Real estate — — Total other real estate owned and foreclosed assets 319 1,250 Total non-performing assets $ 120,350 $ 41,724 Non-performing assets to total loans 4.47 % 1.52 % Non-performing assets to total assets 3.03 % 1.17 % Non-performing loans to total loans 4.46 % 1.47 % Nonaccrual loans to total loans 4.03 % 0.92 % Allowance for credit losses to nonaccrual loans 32.08 % 122.79 % -44- Non-performing assets were $120.4 million, or 3.03%, of total assets at December 31, 2024, compared to $41.7 million, or 1.17%, of total assets at December 31, 2023, which represented an increase in non-performing assets of $78.6 million. The increase in non-performing assets occurred primarily due to an increase in nonaccrual loans, partially offset by a decrease in loans 90 days greater delinquent and still accruing and other real estate owned. Nonperforming loans included loans previously classified as purchase credit deteriorated following the adoption of CECL. Nonaccrual loans increased from $25.2 million at December 31, 2023 to $108.5 million at December 31, 2024. The increase in total nonaccrual loans was concentrated primarily in non-farm non-residential and multifamily loans. Non-performing assets included $3.9 million in loans with a government guarantee, or 3.24% of non-performing assets. These are structured as net loss guarantees in which up to 90% of loss exposure is covered. At December 31, 2024 loans 90 days and greater delinquent and still accruing totaled $11.5 million, a decrease of $3.8 million or 24.8% from $15.3 million at December 31, 2023. The decrease in loans 90 days or greater delinquent and still accruing was concentrated primarily in non-farm non-residential loans. Other real estate owned at December 31, 2024 totaled $0.3 million, a decrease of $0.9 million from $1.3 million at December 31, 2023. At December 31, 2024, the largest 6 non-performing loan relationships comprise 76% of total non-performing loans. Additional details on the non-performing relationships are as follows: 1. A $28.7 million loan relationship secured by an assisted living center located in Louisiana; the loan was placed on nonaccrual in the fourth quarter of 2024. 2. A $26.0 million loan relationship secured by a multifamily apartment complex located in Texas; the loan was placed on nonaccrual in the fourth quarter of 2024. 3. A $23.0 million loan relationship was placed on nonaccrual at June 30, 2024. The loan relationship originally totaled $37.0 million and was secured by five retail shopping center properties located in the Midwest. First Guaranty initiated liquidation of the collateral with two properties sold in the fourth quarter of 2024. The proceeds, net of charge-offs, reduced the balance to $23.0 million. First Guaranty anticipates continued reduction in this loan relationship through additional sales of properties in 2025. 4. A $7.4 million loan relationship contractually matured at the end of the third quarter of 2024 and was greater than 90 days at December 31, 2024. The loan is secured by land located in Texas. 5. A $4.0 million loan relationship contractually matured at the end of the third quarter of 2024 and was greater than 90 days at December 31, 2024. The loan is secured by a hotel located in Louisiana. First Guaranty and the borrower satisfactorily renewed the relationship in January 2025. It was removed from the nonperforming category and moved to performing in January of 2025. 6. A $2.0 million loan relationship secured by a one- to four- family residential property located in West Virginia; the loan was placed on nonaccrual at June 30, 2024. -45- Classified Assets . Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the FDIC to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified as "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific allowance for credit losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as "special mention" by our management. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances. In connection with the filing of our periodic regulatory reports and in accordance with our classification of assets policy, we continuously assess the quality of our loan portfolio and we regularly review the problem loans in our loan portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the "watch list" initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or delinquency status, or if the loan possesses weaknesses although currently performing. Management reviews the status of our loan portfolio delinquencies, by product types, with the full board of directors on a monthly basis. Individual classified loan relationships are discussed as warranted. If a loan deteriorates in asset quality, the classification is changed to "special mention," "substandard," "doubtful" or "loss" depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified "substandard." We also employ a risk grading system for our loans to help assure that we are not taking unnecessary and/or unmanageable risk. The primary objective of the loan risk grading system is to establish a method of assessing credit risk to further enable management to measure loan portfolio quality and the adequacy of the allowance for credit losses. Further, we contract with an external loan review firm to complete a credit risk assessment of the loan portfolio on a regular basis to help determine the current level and direction of our credit risk. The external loan review firm communicates the results of their findings to the Bank's audit committee. Any material issues discovered in an external loan review are also communicated to us immediately. The increase in classified assets at December 31, 2024 as compared to December 31, 2023 was due to a $96.8 million increase in substandard loans offset by a $1.1 million decrease in doubtful loans. The increase in substandard loans was primarily the result of downgrades during the second quarter of 2024 of two related commercial loan relationships, with balances of $22.3 million and $16.9 million, from pass to substandard status, and one commercial loan relationship totaling $28.7 million downgraded during the third quarter of 2024, from special mention to substandard status, and one multifamily loan totaling $26.0 million downgraded during the fourth quarter of 2024, from special mention to substandard status. The $28.7 million commercial loan relationship was pass status at December 31, 2023. The decrease in doubtful loans was primarily the result of the payoff of a $0.4 million one-to-four family loan classified as doubtful during the first quarter of 2024. Special mention loans increased by $66.9 million in 2024. The increase in special mention loans was primarily the result of downgrade during the third quarter of 2024 of one commercial lease loan relationship totaling $18.1 million, and one downgrade during the fourth quarter of 2024 of one real estate loan relationship totaling $16.0 million, from pass to special mention status. -46- Allowance for Credit Losses 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. The allowance for credit losses on loans is maintained to absorb expected losses over the life of the loans in the loan portfolio. The allowance is increased by the provision for credit losses, offset by recoveries of previously charged-off loans and is decreased by loan charge-offs. The provision is a charge to current expense to provide for current expected loan losses and to maintain the allowance commensurate with management's evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to: • past due and non-performing assets; • specific internal analysis of loans requiring special attention; • the current level of regulatory classified and criticized assets and the associated risk factors with each; • changes in underwriting standards or lending procedures and policies; • charge-off and recovery practices; • national and local economic and business conditions; • nature and volume of loans; • overall portfolio quality, loan concentrations and portfolio stress test results; • adequacy of loan collateral; • quality of loan review system and degree of oversight by our board of directors; • competition and legal and regulatory requirements on borrowers; • examinations of the loan portfolio by federal and state regulatory agencies and examinations; and • review by our internal loan review department and independent accountants. The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available. The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, or collateral dependent. For such loans that are also classified as collateral dependent, an allowance is established when the collateral value 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 for the past three years adjusted for qualitative factors described above. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The balance in the allowance for credit losses is principally influenced by the provision for credit losses, recoveries, and by net loan loss experience. Additions to the allowance are charged to the provision for credit losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected. The allowance for credit losses was $34.8 million at December 31, 2024 compared to $30.9 million at December 31, 2023. -47- The balance in the allowance for credit losses is principally influenced by the provision for credit losses and by net loan loss experience. Additions to the allowance are charged to the provision for credit losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected. The table below reflects the activity in the allowance for credit losses for the years indicated. As previously disclosed, the adoption of the CECL model in ASC 326 was the cause of most of the increase in the allowance in 2023. At or For the Years Ended December 31, (dollars in thousands) 2024 2023 Balance at beginning of year $ 30,926 $ 23,518 ASC 326 Adoption Day 1 Adjustment — 8,120 Charge-offs: Real Estate: Construction and land development (39) — Farmland (258) — 1- 4 family (1,034) (964) Multifamily — — Non-farm non-residential (9,000) (138) Total Real Estate (10,331) (1,102) Non-Real Estate: Agricultural (33) — Commercial and industrial loans (4,873) (1,694) Commercial leases — — Consumer and other (3,354) (2,975) Total Non-Real Estate (8,260) (4,669) Total charge-offs (18,591) (5,771) Recoveries: Real Estate: Construction and land development 1 7 Farmland 2 — 1- 4 family 12 93 Multifamily — — Non-farm non-residential 93 230 Total Real Estate 108 330 Non-Real Estate: Agricultural 18 414 Commercial and industrial loans 235 205 Commercial leases — — Consumer and other 551 426 Total Non-Real Estate 804 1,045 Total recoveries 912 1,375 Net charge-offs (17,679) (4,396) Provision for credit losses 21,564 3,684 Balance at end of year $ 34,811 $ 30,926 Ratios: Net loan charge-offs to average loans 0.64 % 0.17 % Net loan charge-offs to loans at end of year 0.66 % 0.16 % Allowance for credit losses to loans at end of year 1.29 % 1.13 % Net loan charge-offs to allowance for credit losses 50.79 % 14.21 % Net loan charge-offs to provision charged to expense 81.98 % 119.33 % -48- A provision for credit losses of $20.0 million was made during the year ended December 31, 2024 and $3.7 million for the same period in 2023. The provisions made in 2024 included a $1.6 million negative provision for credit losses related to unfunded commitments and a $0.1 million provision for credit losses on HTM securities. The provisions made were taken to provide for current credit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. The loan portfolio factors in 2024 that primarily affected the allocation of the allowance included the following: • Construction and land development loans decreased during 2024 due to loans converted to permanent financing. The allowance decrease related to this portfolio was due to a decline in the portfolio along with changes in the qualitative analysis of the portfolio related to economic conditions. • One-to-four family residential loans increased $5.5 million during 2024. The allowance increase related to this portfolio was due to growth in the portfolio. • Multifamily loans increased during 2024. The allowance increase related to this portfolio was due to growth in the portfolio and changes in the qualitative analysis of the portfolio. • Non-farm non-residential loans increased by $114.0 million during 2024. The allowance increase related to this portfolio was due to growth, charge-offs and changes in the qualitative analysis of the portfolio related to economic conditions. • Commercial and industrial loans decreased during 2024. The allowance decrease related to this portfolio was due to charge-offs and changes in the qualitative analysis of the portfolio. • Commercial leases decreased during 2024 from $285.4 million at December 31, 2023 to $220.2 million at December 31, 2024. The allowance decrease related to this portfolio was due a decline in the portfolio along with changes in the qualitative analysis of the portfolio. • Consumer and other loans decreased during 2024. The decrease in the related loan loss allowance balance was due primarily to charge-offs and qualitative analysis of the portfolio. First Guaranty charged off $18.6 million in loan balances during the year ended December 31, 2024 as compared to $5.8 million for 2023. Recoveries totaled $0.9 million for the year ended December 31, 2024 and $1.4 million during 2023. The details of the $18.6 million in charged-off loans were as follows: 1. First Guaranty charged off $3.2 million in consumer loans during 2024. The consumer loan charge offs included $0.2 million in credit card loans, $1.3 million of loans secured by automobiles or equipment and $1.7 million in unsecured loans. 2. First Guaranty charged off $0.2 million on a commercial and industrial SBA loan relationship during the first quarter of 2024. This relationship had no remaining principal balance at December 31, 2024. 3. First Guaranty charged off $3.8 million on a loan relationship associated with a restaurant supply business located in Louisiana during the second quarter of 2024. This loan was secured by real estate, equipment, and inventory. This loan had a previous specific reserve of $2.5 million as of March 31, 2024. This loan had no remaining principal balance at December 31, 2024. 4. First Guaranty charged off a $1.8 million commercial and industrial loan that was originated under the Main Street Lending Program during the second quarter of 2024. The $1.8 million was the unguaranteed retained portion of the loan. This loan had a previous allocation in the reserve of $1.8 million at March 31, 2024. This loan had no remaining principal balance at December 31, 2024. 5. First Guaranty charged off $0.6 million on a real estate secured loan located in Louisiana during 2024. This was an acquired loan from the Union Bank acquisition and was secured by rental properties. This loan had no remaining principal balance at December 31, 2024. 6. First Guaranty charged off $0.4 million on a commercial and industrial SBA loan relationship during the second quarter of 2024. This relationship had a remaining principal balance of $0.6 million at December 31, 2024. 7. First Guaranty charged off $0.3 million on a real estate secured SBA loan during the second quarter of 2024. This loan had a remaining principal balance of $0.9 million at December 31, 2024. 8. First Guaranty charged off $1.0 million on a loan relationship that is classified as purchased credit deteriorated during the third quarter of 2024. This relationship had remaining principal balance of $1.3 million at December 31, 2024. 9. First Guaranty charged off $3.9 million on a non-farm non-residential loan relationship during the fourth quarter of 2024. This relationship had remaining principal balance of $23.0 million at December 31, 2024. 10. Smaller loans and overdrawn deposit accounts comprised the remaining $3.4 million of charge-offs for 2024. -49- Allocation of Allowance for Credit Losses. The following tables set forth the allowance for credit losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance for losses in other categories. At December 31, 2024 2023 (dollars in thousands) Allowance for Credit Losses Percent of Allowance to Total Allowance for Credit Losses Percent of Loans in Each Category to Total Loans Allowance for Credit Losses Percent of Allowance to Total Allowance for Credit Losses Percent of Loans in Each Category to Total Loans Real Estate: Construction and land development $ 3,930 11.3 % 12.2 % $ 5,845 18.9 % 14.5 % Farmland 50 0.1 % 1.3 % 36 0.1 % 1.2 % 1- 4 family 9,243 26.6 % 16.7 % 6,653 21.5 % 16.1 % Multifamily 3,949 11.4 % 6.1 % 1,614 5.2 % 4.3 % Non-farm non-residential 11,531 33.1 % 42.9 % 10,596 34.3 % 37.9 % Non-Real Estate: Agricultural 204 0.6 % 1.5 % 97 0.3 % 1.5 % Commercial and industrial 1,994 5.7 % 9.5 % 2,711 8.8 % 12.1 % Commercial leases 1,719 4.9 % 8.2 % 1,948 6.3 % 10.4 % Consumer and other 1,337 3.8 % 1.6 % 1,426 4.6 % 2.0 % Unallocated 854 2.5 % — — — % — Total Allowance $ 34,811 100.0 % 100.0 % $ 30,926 100.0 % 100.0 % The following table presents net charge-offs during the period to average loans outstanding: December 31, 2024 December 31, 2023 (in thousands except for %) Net (Charge-offs) Recoveries Average Loans Outstanding 1 Net Charge-offs During Period to Average Loans Outstanding Net (Charge-offs) Recoveries Average Loans Outstanding 1 Net Charge-offs During Period to Average Loans Outstanding Real Estate: Construction & land development $ (38) $ 334,119 — % $ 7 $ 333,107 — % Farmland (256) 37,897 (0.7) % — 29,089 — % 1- 4 Family (1,022) 459,045 (0.2) % (871) 414,007 (0.2) % Multifamily — 163,192 — % — 120,522 — % Non-farm non-residential (8,907) 1,155,757 (0.8) % 92 1,037,722 — % Non-Real Estate: Agricultural (15) 44,887 — % 414 44,308 0.9 % Commercial and industrial (4,638) 281,462 (1.6) % (1,489) 343,041 (0.4) % Commercial leases — 247,802 — % — 290,559 — % Consumer and other (2,803) 46,308 (6.1) % (2,549) 49,370 (5.2) % 1 Average loans outstanding was calculated using the trailing four quarters total for loans. -50- Investment Securities Investment securities at December 31, 2024 totaled $602.7 million, an increase of $198.6 million, or 49.1%, compared to $404.1 million at December 31, 2023. The portfolio consists of both available for sale (AFS) and held to maturity securities (HTM). The securities designated as held to maturity are agency and corporate debt securities that are part of First Guaranty’s investment strategy and public funds collateralization program. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings. The securities portfolio consisted principally of U.S. Government and Government agency securities, agency mortgage-backed securities, corporate debt securities and municipal bonds. U.S. government agencies consist of FHLB, Federal Farm Credit Bank ("FFCB"), Freddie Mac and Fannie Mae obligations. Mortgage-backed securities that we purchase are issued by Freddie Mac and Fannie Mae. Management monitors the securities portfolio for both credit and interest rate risk. We generally limit the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. U.S. Government securities consist of U.S. Treasury bills that have maturities of less than 30 days. Government agency securities generally have maturities of 15 years or less. Agency mortgage-backed securities have stated final maturities of 15 to 20 years. At December 31, 2024, the U.S. Government and Government agency securities and municipal bonds qualified as securities available to collateralize public funds. Securities pledged as collateral totaled $233.9 million at December 31, 2024 and $192.2 million at December 31, 2023. Our public funds deposits have a seasonal increase due to tax collections at the end of the year and the first quarter. We typically collateralize the seasonal public fund increases with short term instruments such as U.S. Treasuries or other agency backed securities. Our available for sale securities portfolio totaled $281.1 million at December 31, 2024, an increase of $197.6 million, or 236.7%, compared to $83.5 million at December 31, 2023. The increase was primarily due to the purchase of U.S. Treasury securities, collateralized mortgage obligations, and mortgage-backed securities. Our held to maturity securities portfolio had an amortized cost of $321.6 million, net of allowance at December 31, 2024, compared to $320.6 million at December 31, 2023. There were no credit related impairment of available for sale securities during 2024. There were no charge-offs recorded during 2024. There was a provision of $0.1 million recorded in the fourth quarter of 2024. The allowance for credit losses for held to maturity securities was $0.2 million at December 31, 2024. The following tables set forth the stated maturities and weighted average yields of our investment securities at December 31, 2024. At December 31, 2024 One Year or Less More than One Year through Five Years More than Five Years through Ten Years More than Ten Years (in thousands except for %) Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Available for sale: U.S. Treasuries $ 147,780 4.2 % $ — — % $ — — % $ — — % U.S. Government Agencies — — % — — % — — % — 2.3 — % Corporate debt securities — — % 1,451 8.1 % 10,131 5.5 % — — % Municipal bonds 6,056 5.7 % 4,494 4.1 % 8,402 4.1 % 2,602 3.5 % Collateralized mortgage obligations — — % — — % 4,132 4.6 % 27,486 4.3 % Mortgage-backed securities — — % 1 5.3 % 3 6.4 % 68,495 4.4 % Total available for sale securities $ 153,836 4.3 % $ 5,946 5.1 % $ 22,668 4.8 % $ 98,583 4.4 % Held to maturity: U.S. Government Agencies $ — — % $ — — % $ 87,143 2.4 % $ 179,619 2.4 % Corporate debt securities $ — — % $ 6,420 3.3 % $ 48,591 3.2 % $ — — % Total held to maturity securities $ — — % $ 6,420 3.3 % $ 135,734 2.7 % $ 179,619 2.4 % At December 31, 2024, $153.8 million, or 25.5%, of the securities portfolio was scheduled to mature in less than one year. Securities, not including mortgage-backed securities and collateralized mortgage obligations, with contractual maturity dates over 10 years totaled $182.2 million, or 30.2%, of the total portfolio at December 31, 2024. We closely monitor the investment portfolio's yield, duration, and maturity to ensure a satisfactory return. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. -51- Deposits Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December 31, 2023 to December 31, 2024, total deposits increased $467.2 million, or 15.5%, to $3.5 billion. Noninterest-bearing demand deposits decreased $38.7 million, or 8.7% to $404.1 million at December 31, 2024. The decrease in noninterest-bearing demand deposits was primarily concentrated in individual and business noninterest-bearing demand deposits. Interest-bearing demand deposits decreased $139.6 million, or 9.1%, to $1.4 billion at December 31, 2024. The decrease in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits. Savings deposits increased $15.5 million, or 7.1%, to $234.4 million at December 31, 2024, primarily related to increases in business and individual savings deposits. Time deposits increased $630.0 million, or 76.8%, to $1.5 billion at December 31, 2024, primarily due to increases in consumer and business time deposits along with increased brokered time deposits of approximately $481.7 million. These new brokered time deposits have maturities of two and three years. The proceeds from the new deposits were used to reduce short-term FHLB borrowings. Management will continue to evaluate and update our product mix and related technology in its efforts to attract additional customers. We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits and other lower cost deposits. At December 31, 2024, public funds deposits totaled $1.0 billion compared to $1.2 billion at December 31, 2023. Public funds time deposits totaled $78.4 million at December 31, 2024 compared to $50.9 million at December 31, 2023. Public funds deposits decreased due to decreased balances from existing customers that was primarily attributed to seasonal fluctuations. First Guaranty has developed a program for the retention and management of public funds deposits. Since the end of 2012, First Guaranty has maintained public funds deposits in excess of $400.0 million. These deposits are from public entities such as school districts, hospital districts, sheriff departments and municipalities. The majority of these funds are under fiscal agency agreements with terms of three years or less. Deposits under fiscal agency agreements are generally stable but public entities may maintain the ability to negotiate term deposits on a specific basis including with other financial institutions. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds will increase at the end of the year and during the first quarter. In addition to seasonal fluctuations, there are monthly fluctuations associated with internal payroll and short-term tax collection accounts for our public funds deposit accounts. Public funds deposit accounts are collateralized by FHLB letters of credit, by expanded reciprocal deposit insurance programs, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac. First Guaranty continues to grow the proportion of its public funds portfolio that is collateralized by reciprocal deposit insurance as an alternative to pledging securities or utilizing FHLB letters of credit. First Guaranty initiated this strategy to more efficiently invest these deposits in higher yielding loans to improve the net interest margin and earnings. Total public funds collateralized by reciprocal deposit insurance programs increased to $609.4 million at December 31, 2024 compared to $591.7 million at December 31, 2023. The following table sets forth public funds as a percent of total deposits. At December 31, (in thousands except for %) 2024 2023 Public Funds: Noninterest-bearing Demand $ 4,385 $ 6,471 Interest-bearing Demand 915,067 1,090,527 Savings 48,925 46,606 Time 78,420 50,934 Total Public Funds $ 1,046,797 $ 1,194,538 Total Deposits $ 3,476,260 $ 3,009,094 Total Public Funds as a percent of Total Deposits 30.1 % 39.7 % At December 31, 2024, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $250,000 was approximately $201.0 million. At December 31, 2024, approximately $31.8 million of our certificates of deposit greater than or equal to $250,000 had a remaining term greater than one year. The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $278.9 million at December 31, 2024. This total excludes public funds deposits that are collateralized by securities or FHLB letters of credit. The amount of uninsured deposits including collateralized public funds deposits was estimated at $840.2 million at December 31, 2024. -52- The following table sets forth the maturity of certificates of deposits greater than $250,000 at December 31, 2024. (in thousands) December 31, 2024 Three months or less $ 57,031 Three to six months 41,472 Six months to one year 70,657 One to three years 18,393 More than three years 13,423 Total certificates of deposit greater than $250,000 $ 200,976 Borrowings First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs. First Guaranty had $7.0 million in short-term borrowings outstanding at December 31, 2024 compared to $66.3 million outstanding at December 31, 2023. The short-term borrowings at December 31, 2024 were comprised of repurchase agreements of $7.0 million. The short-term borrowings outstanding at December 31, 2023 were comprised of short-term Federal Home Loan Bank advances of $50.0 million, a line of credit of $20.0 million with an outstanding balance of $10.0 million and repurchase agreements of $6.3 million. First Guaranty had long-term borrowings from the FHLB that totaled $135.0 million at December 31, 2024. First Guaranty converted previous short-term floating rate borrowings from the FHLB into long-term lower fixed rate borrowings in order to reduce interest expense. First Guaranty has a $100.0 million FHLB advance that matures in the second quarter of 2027, and a $35.0 million FHLB advance that matures in the third quarter of 2027. At December 31, 2024, we had $455.7 million in FHLB letters of credit outstanding obtained primarily for collateralizing public deposits compared to $513.3 million at December 31, 2023. First Guaranty had senior long-term debt totaling $15.2 million at December 31, 2024 and $39.1 million at December 31, 2023. The change in senior long-term debt occurred when First Guaranty paid down $30.0 million of long term senior debt with the issuance of subordinated debt in March 2024. First Guaranty also had subordinated debt totaling $44.7 million at December 31, 2024 and $15.0 million at December 31, 2023. Shareholders' Equity Total shareholders' equity increased to $255.0 million at December 31, 2024 from $249.6 million at December 31, 2023. The increase in shareholders' equity was principally the result of an increase of $5.0 million in retained earnings, $0.3 million in surplus and a $0.1 million decrease in accumulated other comprehensive loss. The $5.0 million increase in retained earnings was primarily due to net income of $12.4 million during the year ended December 31, 2024, partially offset by $5.1 million in cash dividends paid on shares of our common stock and $2.3 million in cash dividends paid on shares of our preferred stock. The $0.3 million increase in surplus was due to common stock issued under the Equity Bonus Plan during the first quarter of 2024. The decrease in accumulated other comprehensive loss was primarily attributed to the decrease in unrealized losses on available for sale securities during the year ended December 31, 2024. -53- Results of Operations A discussion regarding significant changes in our financial condition from December 31, 2022 to December 31, 2023 and our results of operations for the year ended December 31, 2022 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024, which is available on the SEC’s website at www.sec.gov and on our website, www.fgb.net. Performance Summary Year ended December 31, 2024 compared with year ended December 31, 2023. Net income for the year ended December 31, 2024 was $12.4 million, an increase of $3.2 million, or 35.0%, as compared to $9.2 million for the year ended December 31, 2023. The increase in net income of $3.2 million for the year ended December 31, 2024 was the result of several factors. First Guaranty experienced an increase in interest income, an increase in noninterest income, and a decrease in noninterest expense. This increased income was partially offset by an increase in interest expense and an increase in the provision for credit losses. Loan interest income increased due to the growth in First Guaranty's loan portfolio and repricing of existing loans to higher market rates, including loan fees recognized as an adjustment to yield. Securities interest income increased due to an increase in the average yield of the investment portfolio. Noninterest income increased primarily due to the net gain on sale of assets related to the sale-leaseback transaction and an increase on gains on the sale of loans. Noninterest expense decreased primarily due to decreased legal and professional fees, marketing, travel and lodging, operating supplies, and data processing. Factors that partially offset the increase in net income included an increase in interest expense that was due to increases in volume of interest-bearing liabilities and market interest rates. The increase in the provision was related to changes within the portfolio and charge-offs experienced in 2024. Earnings per common share for the years ended December 31, 2024 was $0.81 per common share, an increase of 30.6% or $0.19 per common share from $0.62 per common share for the year ended December 31, 2023. Net Interest Income Our operating results depend primarily on our net interest income, which is the difference between interest income earned on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income. First Guaranty’s assets and liabilities are generally most affected by changes in the Federal Funds rate, SOFR rate, short term Treasury rates such as one month and three month Treasury bills, and longer term Treasury rates such as the U.S. ten year Treasury rate. These rates increased in 2022 and 2023 due to the impact of inflation and the Federal Reserve's actions to reduce inflation by increasing interest rates. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities. There may also be a time lag in the effect of interest rate changes on assets and liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds. A financial institution's asset and liability structure is substantially different from that of a non-financial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a financial institution's performance. The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest-bearing liabilities. The effects of the changing interest rate environment in recent periods and our interest sensitivity position is discussed below. Year ended December 31, 2024 compared with year ended December 31, 2023 . Net interest income for the years ended December 31, 2024 and 2023 was $88.4 million and $84.7 million, respectively. The increase in net interest income for the year ended December 31, 2024 as compared to the prior year was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by an increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. For the year ended December 31, 2024, the average balance of our total interest-earning assets increased by $438.4 million to $3.6 billion due to strong growth in our loan portfolio and an increase in interest-earning deposits with banks. The average yield of our interest-earning assets increased by 37 basis points to 6.18% from 5.81% for the year ended December 31, 2023 due to an improved mix of higher yielding assets. For the year ended December 31, 2024, the average balance of our total interest-bearing liabilities increased by $495.7 million to $3.0 billion due to growth in interest-bearing deposits and borrowings. The average rate of our total interest-bearing liabilities increased by 52 basis points to 4.42% from 3.90% for the year ended 2023. The rise in market interest rates, particularly associated with Treasury rates, contributed to the increase in our liabilities cost. The primary source of the increase in liabilities cost was associated with the repricing of maturing time deposits to higher market rates along with interest bearing demand deposits for public funds that are primarily indexed to Treasury rates. As a result, our net interest rate spread decreased 15 basis points to 1.76% for the year ended December 31, 2024 from 1.91% for the year ended December 31, 2023. Our net interest margin decreased 22 basis points to 2.47% for the year ended December 31, 2024 from 2.69% for the year ended December 31, 2023. -54- Interest Income Year ended December 31, 2024 compared with year ended December 31, 2023 . Interest income increased $38.7 million, or 21.1%, to $221.7 million for the year ended December 31, 2024 as compared to the prior year. First Guaranty's loan portfolio expanded during 2024 due to growth associated with our loan originations and existing loans repriced to higher market rates. These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, primarily associated with loans, increased, and the average yield of interest-earning assets increased. The average balance of our interest-earning assets increased $438.4 million to $3.6 billion for the year ended December 31, 2024 as compared to the prior year. The average yield of interest-earning assets increased by 37 basis points to 6.18% for the year ended December 31, 2024 compared to 5.81% for the year ended December 31, 2023. Interest income on securities increased $4.3 million to $13.9 million for the year ended December 31, 2024 as compared to the prior year primarily as a result of an increase in average yield and average balance of securities. The average yield on securities increased by 65 basis points to 2.96% for the year ended December 31, 2024 from 2.31% for the year ended December 31, 2023 due to the decrease in lower yielding Treasury securities that matured in 2023. The average balance of securities increased $54.2 million to $469.7 million for the year ended December 31, 2024 from $415.5 million for the year ended December 31, 2023 primarily due to an increase in the average balance of our U.S. Treasuries securities, collateralized mortgage obligations, and mortgage -backed securities portfolios compared to the prior year. Interest income on loans increased $23.2 million, or 13.9%, to $190.4 million for the year ended December 31, 2024 as a result of an increase in the average balance and average yield of loans. The average balance of loans (excluding loans held for sale) increased by $169.9 million to $2.8 billion for the year ended December 31, 2024 from $2.6 billion for the year ended December 31, 2023 as a result of new loan originations. The average yield on loans (excluding loans held for sale) increased by 45 basis points to 6.86% for the year ended December 31, 2024 from 6.41% for the year ended December 31, 2023 due to the improved mix of loans along with an increase in market interest rates. Interest income on interest-earning deposits with banks increased $11.1 million to $17.4 million for the year ended December 31, 2024 as compared to the prior year period as a result of an increase in the average balance of interest-bearing deposits with banks. The average balance of interest-bearing deposits with banks increased $213.3 million to $338.7 million for the year ended December 31, 2024 from $125.4 million for the year ended December 31, 2023. Interest Expense Year ended December 31, 2024 compared with year ended December 31, 2023 . Interest expense increased $35.0 million, or 35.6%, to $133.3 million for the year ended December 31, 2024 from $98.3 million for the year ended December 31, 2023 due primarily to an increase in market interest rates and due to an increase in the average balance of interest-bearing liabilities. The average rate of interest-bearing demand deposits increased by 20 basis points during the year ended December 31, 2024 to 4.36% as compared to 4.16% for the prior year. The increase in market interest rates, particularly U.S. Treasury rates, contributed to the increase in rates paid on interest-bearing demand deposits. The largest concentration of interest-bearing demand deposits is associated with public funds deposits that are primarily indexed to Treasury rates. Treasury rates increased as the Federal Reserve increased rates to address increased inflation in the U.S. economy. The average rate of time deposits increased 111 basis points during the year ended December 31, 2024 to 4.69% as compared to 3.58% for the prior year. The increase in the average rate of time deposits was due to changes in market rates as existing time deposits repriced to higher market rates. The average balance of interest-bearing liabilities increased by $495.7 million during the year ended December 31, 2024 to $3.0 billion. This increase was a result of a $51.4 million increase in the average balance of interest-bearing demand deposits, a $17.4 million increase in the average balance of savings deposits, a $378.5 million increase in the average balance of time deposits, and a $48.5 million increase in the average balance of borrowings. Average Balances and Yields. The following table sets forth average balance sheet balances, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. Loans, net of unearned income, include loans held for sale. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. The net interest income yield presented below is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from the balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities. -55- December 31, 2024 December 31, 2023 (in thousands except for %) Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate Assets Interest-earning assets: Interest-earning deposits with banks(1) $ 338,743 $ 17,399 5.14 % $ 125,417 $ 6,268 5.00 % Securities (including FHLB stock) 469,679 13,925 2.96 % 415,504 9,601 2.31 % Federal funds sold 1,378 — — % 374 — — % Loans held for sale — — — % — — — % Loans, net of unearned income (6) 2,776,990 190,382 6.86 % 2,607,074 167,140 6.41 % Total interest-earning assets 3,586,790 221,706 6.18 % 3,148,369 183,009 5.81 % Noninterest-earning assets: Cash and due from banks 19,891 18,729 Premises and equipment, net 69,548 61,733 Other assets 30,785 27,514 Total Assets $ 3,707,014 $ 3,256,345 Liabilities and Shareholders' Equity Interest-bearing liabilities: Demand deposits $ 1,499,959 65,331 4.36 % $ 1,448,597 60,243 4.16 % Savings deposits 230,393 5,173 2.25 % 213,025 3,554 1.67 % Time deposits 1,048,118 49,166 4.69 % 669,661 23,967 3.58 % Borrowings 235,542 13,598 5.77 % 187,019 10,540 5.64 % Total interest-bearing liabilities 3,014,012 133,268 4.42 % 2,518,302 98,304 3.90 % Noninterest-bearing liabilities: Demand deposits 414,804 481,456 Other 24,084 18,672 Total Liabilities 3,452,900 3,018,430 Shareholders' Equity 254,114 237,915 Total Liabilities and Shareholders' Equity $ 3,707,014 $ 3,256,345 Net interest income $ 88,438 $ 84,705 Net interest rate spread(2) 1.76 % 1.91 % Net interest-earning assets(3) $ 572,778 $ 630,067 Net interest margin(4)(5) 2.47 % 2.69 % Average interest-earning assets to interest-bearing liabilities 119.00 % 125.02 % (1) Includes Federal Reserve balances reported in cash and due from banks on the consolidated balance sheets. (2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average total interest-earning assets. (5) The tax adjusted net interest margin was 2.47% and 2.69% for the years ended December 31, 2024 and 2023. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the years ended December 31, 2024 and 2023. (6) Includes loan fees of $7.1 million and $6.0 million for the years ended December 31, 2024 and 2023. -56- Volume/Rate Analysis . The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the years indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior year's rate); (2) changes attributable to rate (change in rate multiplied by the prior year's volume) and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories. For the Years Ended December 31, 2024 vs. 2023 Increase (Decrease) Due To (in thousands except for %) Volume Rate Increase/ Decrease Interest earned on: Interest-earning deposits with banks $ 10,952 $ 179 $ 11,131 Securities (including FHLB stock) 1,363 2,961 4,324 Federal funds sold — — — Loans held for sale — — — Loans, net of unearned income 11,259 11,983 23,242 Total interest income 23,574 15,123 38,697 Interest paid on: Demand deposits 2,180 2,908 5,088 Savings deposits 309 1,310 1,619 Time deposits 16,260 8,939 25,199 Borrowings 2,796 262 3,058 Total interest expense 21,545 13,419 34,964 Change in net interest income $ 2,029 $ 1,704 $ 3,733 Provision for Credit and Loan Losses A provision for credit and loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for credit losses. The allowance for credit losses is calculated under ASC 326 and is management's evaluation of expected credit losses over the life of the loans in the portfolio. The provision is based on management's regular evaluation of current economic conditions in our specific markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values securing loans, and other factors which deserve recognition in estimating loan losses. Past events, current conditions, and reasonable forecasts, along with quantitative and qualitative adjustments, are used in calculating the allowance for credit losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. We recorded a $20.0 million provision for credit losses for the year ended December 31, 2024 compared to $3.7 million for 2023. The $20.0 million provision included a $1.6 million negative provision for credit losses related to unfunded commitments and a $0.1 million provision for credit losses on HTM securities. Total charge-offs were $18.6 million for year ended December 31, 2024 and $5.8 million for 2023. Charge-offs for 2024 were concentrated in consumer auto and equipment secured loans, unsecured consumer loans, a loan relationship that is classified as purchased credit deteriorated, a loan relationship associated with a restaurant supply business located in Louisiana secured by real estate, equipment and inventory, and a commercial and industrial loan associated with the Main Street Lending Program. Partially offsetting these charge-offs were recoveries that totaled $0.9 million for the year ended December 31, 2024 and $1.4 million for the same period in 2023. We believe that the allowance is adequate to cover expected losses in the loan portfolio. Economic uncertainty may result in additional increases to the allowance for credit losses in future periods. -57- Noninterest Income Our primary sources of recurring noninterest income are customer service fees, ATM and debit card fees, loan fees, gains on the sales of loans and available for sale securities and other service fees. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method. Noninterest income totaled $24.7 million for the year ended December 31, 2024, an increase of $14.2 million from $10.6 million for the year ended December 31, 2023. The increase was primarily due to increased gains on sale of assets associated with the sale-leaseback transaction during the second quarter of 2024. Net securities losses were $0 for the year ended December 31, 2024 as compared to net securities losses of $0 for 2023. Service charges, commissions and fees totaled $3.2 million for the year ended December 31, 2024 as compared to $3.4 million for 2023. ATM and debit card fees totaled $3.1 million for the year ended December 31, 2024 and $3.2 million for 2023. Net gains on the sale of loans were $1.5 million for the year ended December 31, 2024 and $12,000 for 2023. Other noninterest income totaled $3.6 million and $3.9 million for the years ended December 31, 2024 and 2023, respectively. Noninterest Expense Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $77.1 million for the year ended December 31, 2024 and $79.7 million for the year ended December 31, 2023. Salaries and benefits expense totaled $38.3 million for the year ended December 31, 2024 and $40.4 million for the year ended December 31, 2023. Occupancy and equipment expense totaled $10.2 million for the year ended December 31, 2024 and $9.0 million for the year ended December 31, 2023. Other noninterest expense totaled $28.6 million for the year ended December 31, 2024 and $30.2 million for 2023. The following table presents, for the years indicated, the major categories of other noninterest expense: (in thousands) December 31, 2024 December 31, 2023 Other noninterest expense: Legal and professional fees $ 4,465 $ 5,709 Data processing 1,555 2,100 ATM fees 1,668 1,804 Marketing and public relations 1,240 1,927 Taxes - sales, capital, and franchise 2,237 2,263 Operating supplies 336 778 Software expense and amortization 5,093 5,282 Travel and lodging 685 1,362 Telephone 424 382 Amortization of core deposits 696 696 Donations 267 595 Net costs from other real estate and repossessions 827 157 Regulatory assessment 4,688 3,136 Other 4,465 4,032 Total other expense $ 28,646 $ 30,223 -58- Income Taxes The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses and the statutory tax rate. The provision for income taxes for the years ended December 31, 2024 and 2023 was $3.6 million and $2.7 million, respectively. The provision for income taxes in 2024 increased as compared to 2023 due to the increase in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the years ended December 31, 2024 and 2023. Impact of Inflation Our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or deflation. Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation. The Federal Reserve increased interest rates during 2022 and 2023 to address rising inflation in the U.S. The impact of rising interest rates associated with inflation impacted First Guaranty's net interest income and net interest margin along with the value of its financial assets. Selected Financial Data The following table presents consolidated selected financial data for First Guaranty. It does not purport to be complete and is qualified in its entirety by more detailed financial information and the audited consolidated financial statements contained elsewhere in this annual report. At or For the Years Ended December 31, (in thousands except for %) 2024 2023 2022 2021 2020 Year End Balance Sheet Data: Investment securities $ 602,719 $ 404,123 $ 451,526 $ 364,156 $ 238,548 Federal funds sold $ 430 $ 341 $ 423 $ 183 $ 702 Loans, net of unearned income $ 2,693,780 $ 2,748,708 $ 2,519,077 $ 2,159,359 $ 1,844,135 Allowance for credit losses $ 34,811 $ 30,926 $ 23,518 $ 24,029 $ 24,518 Total assets $ 3,972,728 $ 3,552,772 $ 3,151,347 $ 2,878,120 $ 2,473,078 Total deposits $ 3,476,260 $ 3,009,094 $ 2,723,792 $ 2,596,492 $ 2,166,318 Borrowings $ 201,923 $ 275,396 $ 183,369 $ 49,635 $ 116,630 Shareholders' equity $ 255,049 $ 249,631 $ 234,991 $ 223,889 $ 178,591 Common shareholders' equity $ 221,991 $ 216,573 $ 201,933 $ 190,831 $ 178,591 Performance Ratios and Other Data: Return on average assets 0.34 % 0.28 % 0.97 % 1.01 % 0.87 % Return on average common equity 4.58 % 3.36 % 13.64 % 14.06 % 11.36 % Return on average tangible assets (1) 0.35 % 0.30 % 0.99 % 1.04 % 0.90 % Return on average tangible common equity (1) 5.21 % 3.98 % 15.31 % 15.98 % 13.08 % Net interest margin 2.47 % 2.69 % 3.47 % 3.44 % 3.35 % Average loans to average deposits 86.96 % 92.69 % 85.94 % 83.65 % 81.25 % Efficiency ratio (2) 68.16 % 83.62 % 63.94 % 63.63 % 58.95 % Efficiency ratio (excluding amortization of intangibles and securities transactions) (2) 67.54 % 82.89 % 63.30 % 63.32 % 68.44 % Full time equivalent employees (year end) 399 491 472 470 429 (Footnotes follow on next page) -59- At or For the Years Ended December 31, (in thousands except for % and share data) 2024 2023 2022 2021 2020 Capital Ratios: Average shareholders' equity to average assets 6.85 % 7.31 % 7.62 % 7.65 % 7.62 % Average tangible equity to average tangible assets (3) 6.44 % 6.82 % 7.08 % 7.02 % 6.86 % Common shareholders' equity to total assets 5.59 % 6.10 % 6.41 % 6.63 % 7.22 % Tangible common equity to tangible assets (3) 5.21 % 5.65 % 5.89 % 6.04 % 6.51 % Income Data: Interest income $ 221,706 $ 183,009 $ 136,576 $ 111,917 $ 100,684 Interest expense $ 133,268 $ 98,304 $ 36,534 $ 22,299 $ 26,017 Net interest income $ 88,438 $ 84,705 $ 100,042 $ 89,618 $ 74,667 Provision for credit losses $ 20,034 $ 3,714 $ 3,656 $ 2,055 $ 14,877 Noninterest income (excluding securities transactions) $ 24,739 $ 10,577 $ 11,026 $ 10,046 $ 8,989 Securities (losses) gains $ — $ — $ (17) $ 714 $ 14,791 Noninterest expense $ 77,137 $ 79,672 $ 71,005 $ 63,868 $ 58,033 Earnings before income taxes $ 16,006 $ 11,896 $ 36,390 $ 34,455 $ 25,537 Net income $ 12,448 $ 9,219 $ 28,884 $ 27,297 $ 20,318 Net income available to common shareholders $ 10,119 $ 6,890 $ 26,556 $ 25,913 $ 20,318 Per Common Share Data: Net earnings $ 0.81 $ 0.62 $ 2.48 $ 2.42 $ 1.90 Cash dividends paid $ 0.41 $ 0.64 $ 0.64 $ 0.60 $ 0.58 Book value $ 17.75 $ 17.36 $ 18.84 $ 17.81 $ 16.66 Tangible book value (4) $ 16.48 $ 16.03 $ 17.23 $ 16.13 $ 14.92 Dividend payout ratio for Common and Preferred 59.90 % 105.20 % 31.81 % 28.49 % 30.68 % Weighted average number of shares outstanding 12,501,035 11,165,303 10,716,796 10,716,796 10,716,796 Number of shares outstanding 12,504,717 12,475,424 10,716,796 10,716,796 10,716,796 Asset Quality Ratios: Non-performing assets to total assets 3.03 % 1.17 % 0.47 % 0.70 % 1.25 % Non-performing assets to total loans 4.47 % 1.52 % 0.59 % 0.93 % 1.68 % Non-performing loans to total loans 4.46 % 1.47 % 0.58 % 0.83 % 1.55 % Loan loss reserve to non-performing assets 28.92 % 74.12 % 158.68 % 119.95 % 79.33 % Net charge-offs to average loans 0.64 % 0.17 % 0.18 % 0.13 % 0.08 % Provision for credit losses to average loans 0.72 % 0.14 % 0.16 % 0.10 % 0.89 % Allowance for credit losses to total loans 1.29 % 1.13 % 0.93 % 1.11 % 1.33 % (1) Tangible calculation eliminates goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization, net of tax. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Historical Consolidated Financial and Other Data— Non-GAAP Financial Measures." (2) Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income. We calculate both a GAAP and a non-GAAP efficiency ratio. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Financial Data— Non-GAAP Financial Measures. (3) We calculate tangible common equity as total shareholders' equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and core deposit intangibles. Tangible common equity to tangible assets is a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total shareholders' equity to total assets. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Historical Consolidated Financial and Other Data— Non-GAAP Financial Measures." (4) We calculate tangible book value per common share as total shareholders' equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization at the end of the relevant period, divided by the outstanding number of shares of our common stock at the end of the relevant period. Tangible book value per common share is a non-GAAP financial measure, and, as we calculate tangible book value per common share, the most directly comparable GAAP financial measure is book value per common share. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Selected Financial Data— Non-GAAP Financial Measures." -60- Non-GAAP Financial Measures Our accounting and reporting policies conform to accounting principles generally accepted in the United States, or GAAP, and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional metrics. Tangible book value per share and the ratio of tangible equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures. Our management, banking regulators, many financial analysts and other investors use these non-GAAP financial measures to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible equity, tangible assets, tangible book value per share or related measures should not be considered in isolation or as a substitute for total shareholders' equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. The following table reconciles, as of the dates set forth below, shareholders' equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates our tangible book value per share. At December 31, (in thousands except for share data and %) 2024 2023 2022 2021 2020 Tangible Common Equity Total shareholders' equity $ 255,049 $ 249,631 $ 234,991 $ 223,889 $ 178,591 Adjustments: Preferred Stock 33,058 33,058 33,058 33,058 — Goodwill 12,900 12,900 12,900 12,900 12,900 Acquisition intangibles 2,962 3,658 4,355 5,051 5,815 Other intangibles 100 100 — — — Tangible common equity $ 206,029 $ 199,915 $ 184,678 $ 172,880 $ 159,876 Common shares outstanding 12,504,717 12,475,424 10,716,796 10,716,796 10,716,796 Book value per common share $ 17.75 $ 17.36 $ 18.84 $ 17.81 $ 16.66 Tangible book value per common share $ 16.48 $ 16.03 $ 17.23 $ 16.13 $ 14.92 Tangible Assets Total Assets $ 3,972,728 $ 3,552,772 $ 3,151,347 $ 2,878,120 $ 2,473,078 Adjustments: Goodwill 12,900 12,900 12,900 12,900 12,900 Acquisition intangibles 2,962 3,658 4,355 5,051 5,815 Other intangibles 100 100 — — — Tangible Assets $ 3,956,766 $ 3,536,114 $ 3,134,092 $ 2,860,169 $ 2,454,363 Tangible common equity to tangible assets 5.21 % 5.65 % 5.89 % 6.04 % 6.51 % The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate the efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income, excluding amortizations of intangibles and securities transactions. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income. Noninterest income in 2024 included the gain from the sale-leaseback transaction. The following table reconciles, as of the dates set forth below, our efficiency ratio to the GAAP-based efficiency ratio: For the Year Ended December 31, (in thousands except for share data and %) 2024 2023 2022 2021 2020 GAAP-based efficiency ratio 68.16 % 83.62 % 63.94 % 63.63 % 58.95 % Noninterest expense $ 77,137 $ 79,672 $ 71,005 $ 63,868 $ 58,033 Amortization of intangibles 696 696 696 764 711 Noninterest expense, excluding amortization 76,441 78,976 70,309 63,104 57,322 Net interest income 88,438 84,705 100,042 89,618 74,667 Noninterest income 24,739 10,577 11,009 10,760 23,780 Adjustments: Securities transactions — — (17) 714 14,691 Noninterest income, excluding securities transactions $ 24,739 $ 10,577 $ 11,026 $ 10,046 $ 9,089 Efficiency ratio 67.54 % 82.89 % 63.30 % 63.32 % 68.44 % -61- Liquidity and Capital Resources Liquidity Liquidity refers to the ability or flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available to meet customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Liquid assets include cash and due from banks, interest-earning demand deposits with banks, federal funds sold and available for sale investment securities. First Guaranty's cash and cash equivalents totaled $564.2 million at December 31, 2024 compared to $286.5 million at December 31, 2023. Loans maturing within one year or less at December 31, 2024 totaled $486.0 million compared to $357.7 million at December 31, 2023. At December 31, 2024, time deposits maturing within one year or less totaled $804.1 million compared to $503.7 million at December 31, 2023. Time deposits maturing after one year through three years totaled $489.6 million at December 31, 2024 compared to $214.0 million at December 31, 2023. Time deposits maturing after three years totaled $157.0 million at December 31, 2024 compared to $103.0 million at December 31, 2023. First Guaranty's held to maturity ("HTM") investment securities portfolio at December 31, 2024 was $321.6 million or 53.4% of the investment portfolio compared to $320.6 million at December 31, 2023. First Guaranty's available for sale ("AFS") portfolio was $281.1 million, or 46.6% of the investment portfolio at December 31, 2024 compared to $83.5 million, or 20.7% at December 31, 2023. The majority of the AFS portfolio was comprised of U.S. Treasuries, U.S. Government Agencies, collateralized mortgage obligations, mortgage-backed securities, municipal bonds and investment grade corporate bonds. We believe these securities are readily marketable and enhance our liquidity. We maintained a net borrowing capacity at the FHLB totaling $339.2 million and $259.6 million at December 31, 2024 and December 31, 2023, respectively with $135.0 million and $205.0 million in FHLB advances outstanding at December 31, 2024 and December 31, 2023, respectively. The advances outstanding at December 31, 2024 were comprised of two long term advances totaling $135.0 million. The change in borrowing capacity with the Federal Home Loan Bank was due to changes in the value that First Guaranty receives on pledged collateral and due to First Guaranty's usage of the line. First Guaranty has increasingly transitioned public funds deposits into reciprocal deposit programs for collateralization as an alternative to FHLB letters of credit. At December 31, 2024, we had outstanding letters of credit from the FHLB in the amount of $455.7 million that were primarily used to collateralize public funds deposits. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $93.0 million at December 31, 2024. We also have a discount window line with the Federal Reserve Bank that totaled $250.4 million at December 31, 2024. Management believes there is sufficient liquidity to satisfy current operating needs. Capital Resources Our capital position is reflected in total shareholders' equity, subject to certain adjustments for regulatory purposes. Further, our capital base allows us to take advantage of business opportunities while maintaining the level of resources we deem appropriate to address business risks inherent in daily operations. Total shareholders' equity increased to $255.0 million at December 31, 2024 from $249.6 million at December 31, 2023. The increase in shareholders' equity was principally the result of an increase of $5.0 million in retained earnings, $0.3 million in surplus and a $0.1 million decrease in accumulated other comprehensive loss. The $5.0 million increase in retained earnings was primarily due to net income of $12.4 million during the year ended December 31, 2024, partially offset by $5.1 million in cash dividends paid on shares of our common stock and $2.3 million in cash dividends paid on shares of our preferred stock. The $0.3 million increase in surplus was due to common stock issued under the Equity Bonus Plan during the first quarter of 2024. The decrease in accumulated other comprehensive loss was primarily attributed to the decrease in unrealized losses on available for sale securities during the year ended December 31, 2024. -62- Capital Management We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the Federal Reserve and the FDIC. We review capital levels on a monthly basis. We evaluate a number of capital ratios, including Tier 1 capital to total adjusted assets (the leverage ratio) and Tier 1 capital to risk-weighted assets. At December 31, 2024, First Guaranty and the Bank was classified as well-capitalized. First Guaranty's capital conservation buffer was 3.04% at December 31, 2024. The Bank's capital conservation buffer was 4.11% at December 31, 2024. The following table presents First Guaranty and the Bank's capital ratios as of the indicated dates. "Well Capitalized Minimums" At December 31, 2024 "Well Capitalized Minimums" At December 31, 2023 Tier 1 Leverage Ratio Bank 5.00 % 7.82 % 5.00 % 8.94 % Consolidated 5.00 % 6.42 % N/A N/A Tier 1 Risk-based Capital Ratio Bank 8.00 % 11.00 % 8.00 % 10.31 % Consolidated 8.00 % 9.04 % N/A N/A Total Risk-based Capital Ratio Bank 10.00 % 12.11 % 10.00 % 11.20 % Consolidated 10.00 % 11.73 % N/A N/A Common Equity Tier One Capital Bank 6.50 % 11.00 % 6.50 % 10.31 % Consolidated 6.50 % 7.87 % N/A N/A Off-balance sheet commitments We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers and to reduce our 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 our 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 we do for on-balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk. The notional amounts of the financial instruments with off-balance sheet risk at December 31, 2024 and 2023 are as follows: Contract Amount (in thousands) December 31, 2024 December 31, 2023 Commitments to Extend Credit $ 134,178 $ 304,218 Unfunded Commitments under lines of credit $ 186,006 $ 214,546 Commercial and Standby letters of credit $ 13,576 $ 13,971 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 our credit evaluation of the counterpart. Collateral requirements vary but may include accounts receivable, inventory, property, plant and equipment, residential real estate and commercial properties. Unfunded commitments under lines of credit are contractually obligated by us as long as the borrower is in compliance with the terms of the loan relationship. Unfunded lines of credit are typically operating lines of credit that adjust on a regular basis as a customer requires funding. There may be seasonal variations to the usage of these lines. At December 31, 2024, the largest concentrations of unfunded commitments were lines of credit associated with construction and land development loans and commercial and industrial loans. Commercial and standby 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 -63- credit is essentially the same as that involved in extending loan facilities to customers. Collateral requirements are the same as on-balance sheet instruments and commitments to extend credit. There were no losses incurred on any commitments during the years ended December 31, 2024 and 2023. The reserve for credit losses on unfunded commitments was $1.2 million at December 31, 2024. -64-