First Guaranty Bancshares, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at March 31, 2025 and for the three months ended March 31, 2025 and 2024 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Special Note Regarding Forward-Looking Statements

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

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Three Months Ended March 31, 2025 Financial 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 31 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.

Financial highlights for the three months ended March 31, 2025 are as follows:

• First Guaranty continued with its business strategy to reduce risk in the loan portfolio during the first quarter of 2025. First Guaranty completed the sale of two commercial real estate loans that totaled $70.0 million that the bank identified as experiencing credit deterioration. First Guaranty realized a loss on the sale of the two loans of $5.8 million which was recorded through the allowance for credit losses and subsequent charge offs to the allowance. The first loan was a construction project located in Louisiana with a balance of $41.0 million. The second loan was a land development project located in Texas with a balance of $28.9 million. Both credits were performing at December 31, 2024 but displayed credit related weaknesses that prompted First Guaranty to sell the two loans in order to reduce risk.
• First Guaranty recorded a provision to the credit allowance of $14.5 million for the first quarter of 2025. $5.8 million of the provision was related to the loan sale. Loan charge-offs totaled $1.1 million excluding the charge-offs recorded for the loan sale. Nonaccrual loan balances increased to $133.4 million at March 31, 2025, an increase of $24.9 million compared to December 31, 2024. The increase in nonaccrual loans was concentrated in two credits. The first was a $33.0 million loan related to an assisted living center located in Alabama. This loan was performing at December 31, 2024 but was placed in nonaccrual during the first quarter of 2025. The second nonaccrual loan was a $7.4 million land development loan located in Texas previously recorded as accruing but greater than 90 days. Partially offsetting this increase in nonaccrual loans was the sale of $14.1 million in nonaccrual loans secured by a shopping center.
• First Guaranty loan balances declined to $2.51 billion at March 31, 2025 compared to $2.69 billion at December 31, 2024, $2.77 billion at September 30, 2024 and $2.83 billion at June 30, 2024. The reduction in loan balances occurred due to participations, payoffs, write offs, loan sales and loan amortization. The continued reduction was part of First Guaranty’s strategy to reduce loan concentration risk particularly related to commercial real estate loans. Total real estate secured loans declined to $2.02 billion at March 31, 2025 compared to $2.14 billion at December 31, 2024, $2.16 billion at September 30, 2024 and $2.18 billion at June 30, 2024. First Guaranty’s unfunded loan commitments for commercial real estate construction declined to $58 million at March 31, 2025 compared to $72 million at December 31, 2024, $108 million at September 30, 2024 and $147 million at June 30, 2024. First Guaranty anticipates continuing to reduce commercial real estate secured loans in 2025.
• Total assets decreased $143.5 million and were $3.8 billion at March 31, 2025 and $4.0 billion at December 31, 2024. Total loans at March 31, 2025 were $2.5 billion, a decrease of $181.0 million, or 6.7%, compared with December 31, 2024. Total deposits were $3.3 billion at March 31, 2025, a decrease of $136.8 million, or 3.9%, compared with December 31, 2024. Retained earnings were $66.1 million at March 31, 2025, a decrease of $6.9 million compared to $73.0 million at December 31, 2024. Shareholders' equity was $251.4 million and $255.0 million at March 31, 2025 and December 31, 2024, respectively.
• Net (loss) income for the three months ended March 31, 2025 and 2024 was $(6.2) million and $2.3 million, respectively, a decrease of $8.5 million.
• Earnings per common share were $(0.54) and $0.14 for three months ended March 31, 2025 and 2024, respectively. Total weighted average shares outstanding were 12,506,792 and 12,489,910 for the three months ended March 31, 2025 and 2024, respectively. The change in shares was due to the issuance of 186,787 shares of common stock under private placement in 2025.
• The allowance for credit losses was $43.0 million or 1.71% of total loans at March 31, 2025 compared to $34.8 million or 1.29% at December 31, 2024.
• Net interest income for the three months ended March 31, 2025 was $22.2 million compared to $21.9 million for the three months ended March 31, 2024.
• The provision for credit losses for the three months ended March 31, 2025 was $14.5 million compared to $2.3 million for the three months ended March 31, 2024. As previously noted, $5.8 million of the provision was related to the sale of two commercial real estate loans.
• Charge-offs were $6.9 million during the first three months ended March 31, 2025 and $2.3 million during the same period in 2024. $5.8 million of the charge-offs in 2025 was related to the loan sales noted above. Recoveries totaled $0.2 million during the first three months ended March 31, 2025 and $0.3 million during the same period in 2024.
• First Guaranty had $0.2 million of other real estate owned as of March 31, 2025 compared to $0.3 million at December 31, 2024.
• The net interest margin for the three months ended March 31, 2025 was 2.35% which was a decrease of 23 basis points from the net interest margin of 2.58% for the same period in 2024. Loans as a percentage of average interest earning assets decreased to 68.5% at March 31, 2025 compared to 80.8% at March 31, 2024.

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• Investment securities totaled $594.9 million at March 31, 2025, a decrease of $7.8 million when compared to $602.7 million at December 31, 2024. At March 31, 2025, available for sale securities, at fair value, totaled $273.0 million, a decrease of $8.1 million when compared to $281.1 million at December 31, 2024. The decrease in available for sale securities was primarily due to maturity of Treasury securities. At March 31, 2025, held to maturity securities, at amortized cost and net of the allowance for credit losses totaled $321.9 million, an increase of $0.3 million when compared to $321.6 million at December 31, 2024. The allowance for credit losses for HTM securities was $0.2 million at March 31, 2025 and December 31, 2024.
• Total loans net of unearned income were $2.5 billion at March 31, 2025, a net decrease of $181.0 million from December 31, 2024. Total loans net of unearned income are reduced by the allowance for credit losses which totaled $43.0 million at March 31, 2025 and $34.8 million at December 31, 2024, respectively.
• Nonaccrual loans increased $24.9 million to $133.4 million at March 31, 2025 compared to $108.5 million at December 31, 2024. The increase in total nonaccrual loans was concentrated primarily in two commercial real estate relationships that totaled $40.3 million.
• At March 31, 2025, the largest 6 non-performing loan relationships comprise 78% of total non-performing loans. Additional details on the non-performing relationships are as follows:

1. A $32.9 million loan relationship secured by an assisted living center located in Alabama; the loan was placed on nonaccrual in the first quarter of 2025.

2. A $27.5 million loan relationship secured by an assisted living center located in Louisiana; the loan was placed on nonaccrual in the fourth quarter of 2024.

3. 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.

4. A $8.8 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 and two properties sold in the first quarter of 2025. The proceeds, net of charge-offs, reduced the balance to $8.8 million at March 31, 2025. First Guaranty anticipates continued reduction in this loan relationship through additional sales of properties in 2025.

5. A $7.4 million loan relationship was placed on nonaccrual during the first quarter of 2025. The loan is secured by land located in Texas.

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.

• First Guaranty charged off $6.9 million in loan balances during the first quarter of 2025. The details of the $6.9 million in charged-off loans were as follows:

1. First Guaranty charged off $0.4 million in consumer loans during the first quarter of 2025. The consumer loan charge offs included $0.1 million in credit card loans, $0.1 million of loans secured by automobiles or equipment, and $0.2 million in unsecured loans.

2. First Guaranty charged off $4.9 million on a construction and land development loan that was subsequently sold during the first quarter of 2025. This relationship had no remaining principal balance as of March 31, 2025.

3. First Guaranty charged off $0.9 million on a construction and land development loan that was subsequently sold during the first quarter of 2025. This relationship had no remaining principal balance as of March 31, 2025.

4. Smaller loans and overdrawn deposit accounts comprised the remaining $0.7 million of charge-offs for the first quarter of 2025.

• Noninterest expense totaled $18.0 million for the first quarter of 2025 which included $0.7 million in fees related to the loan sale. Noninterest expense totaled $17.9 million for the fourth quarter of 2024, $19.7 million for the third quarter of 2024, $20.6 million for the second quarter of 2024, and $18.9 million for the first quarter of 2024. Full time equivalent employees totaled 380 at March 31, 2025. Full time equivalent employees totaled 399 at December 31, 2024, 404 at September 30, 2024, and 491 at December 31, 2023.
• Return on average assets for the three months ended March 31, 2025 and 2024 was (0.63)% and 0.26%, respectively. Return on average common equity for the three months ended March 31, 2025 and 2024 was (12.29)% and 3.17%, respectively. Return on average assets is calculated by dividing annualized net income by average assets. Return on average common equity is calculated by dividing annualized net income by average common equity.
• Book value per common share was $17.21 as of March 31, 2025 compared to $17.75 as of December 31, 2024. The decrease was due primarily to the decrease in retained earnings and recent issuance of new shares, offset by changes in accumulated other comprehensive income ("AOCI"). AOCI is comprised of unrealized gains and losses on available for sale securities, including unrealized losses on available for sale securities at the time of transfer to held to maturity.
• First Guaranty's Board of Directors declared cash dividends of $0.01 and $0.16 per common share in the first quarter of 2025 and 2024. The reduction in the common stock dividend payment was done in order to increase capital as part of First Guaranty’s new business strategy announced in the third quarter of 2024. First Guaranty has paid 127 consecutive quarterly dividends as of March 31, 2025.
• First Guaranty paid preferred stock dividends of $0.6 million during the first three months of 2025 and 2024.
• 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 did not materially affect operations.

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Financial Condition

Changes in Financial Condition from December 31, 2024 to March 31, 2025

Assets

Total assets at March 31, 2025 were $3.8 billion, a decrease of $143.5 million, or 3.6%, from December 31, 2024. Assets decreased primarily due to decreases in investment securities of $7.8 million and net loans of $189.2 million offset by an increase in cash and cash equivalents of $54.2 million at March 31, 2025 compared to December 31, 2024.

Loans

Net loans decreased $189.2 million, or 7.1%, to $2.5 billion at March 31, 2025 from December 31, 2024. Non-farm non-residential loan balances decreased $42.7 million due to paydowns. Construction and land development loans decreased $41.8 million principally due to the sale of loans and the conversion of existing loans to permanent financing. Commercial lease loan balances decreased $36.2 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. Commercial and industrial loans decreased $23.0 million primarily due to paydowns. Multifamily loans decreased $20.6 million primarily due to paydowns. Farmland loans decreased $6.0 million primarily due to seasonal activity. One-to-four family residential loans decreased $6.0 million primarily due to paydowns. Agricultural loans decreased $3.1 million due to seasonal activity. Consumer and other loans decreased $2.5 million primarily due to paydowns. First Guaranty had approximately 3.3% of funded and 1.9% 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 $176.6 million at March 31, 2025. 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 $336.2 million in loans related to our Texas markets at March 31, 2025 compared to $407.1 million at December 31, 2024. First Guaranty had $332.5 million in loans related to our Mideast markets in Kentucky and West Virginia at March 31, 2025 compared to $335.5 million at December 31, 2024. Syndicated loans at March 31, 2025 were $54.5 million, of which $27.2 million were shared national credits. Syndicated loans increased $0.7 million from $53.9 million at December 31, 2024.

As of March 31, 2025, 80.3% of our loan portfolio was secured by real estate. The largest portion of our loan portfolio, at 44.4% as of March 31, 2025, was non-farm non-residential loans secured by real estate. Approximately 55.9% of the loan portfolio was based on a floating rate tied to the prime rate, Secured Overnight Financing Rate ("SOFR"), or Treasury rates as of March 31, 2025. 47.1% of the loan portfolio is scheduled to mature within five years from March 31, 2025.

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 continued this strategy in the first quarter of 2025.

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 March 31, 2025. First Guaranty generally does not finance standalone multi-story office buildings in major metropolitan areas. The largest CRE loan secured by a hotel or motel totaled $19.8 million. The property is a flagged hotel located in Texas. The largest CRE loan secured by an office related property totaled $24.5 million and is located in Utah. The largest CRE loan secured by an apartment complex totaled $41.1 million and is located in Louisiana. The largest healthcare related loan is a $32.9 million property secured by an assisted living center located in Alabama. This healthcare loan is in non-accrual status. The largest CRE loan under construction totaled $29.1 million for an apartment complex and is secured by a property located in Texas.

The increase in classified assets at March 31, 2025 as compared to December 31, 2024 was due to a $99.6 million increase in substandard loans. The increase in substandard loans was primarily the result of downgrades during the first quarter of 2025 of one non-farm non-residential loan relationship totaling $48.6 million, from pass to substandard status, one construction and land development loan totaling $16.8 million, from special mention to substandard, one non-farm non-residential loan relationship totaling $15.8 million, from pass to substandard, and one commercial loan relationship totaling $11.1 million, from pass to substandard. Special mention loans increased by $56.5 million in 2025. The increase in special mention loans was primarily the result of downgrade during the first quarter of 2025 of two non-farm non-residential loan relationships, with balances of $26.6 million and $20.0 million, from pass to special mention status.

Net loans are reduced by the allowance for credit losses which totaled $43.0 million at March 31, 2025 and $34.8 million at December 31, 2024. Loan charge-offs were $6.9 million during the first three months of 2025 and $2.3 million during the same period in 2024. Recoveries totaled $0.2 million during the first three months of 2025 and $0.3 million during the same period in 2024. The provision for credit losses totaled $14.5 million for the first three months of 2025 and $2.3 million for the same period in 2024. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for more information on the allowance for credit losses.

Investment Securities

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Investment securities at March 31, 2025 totaled $594.9 million, a decrease of $7.8 million compared to $602.7 million at December 31, 2024. 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, U.S. Government 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, Fannie Mae, or the U.S Government (GNMA). 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 securities that have maturities of less than two years. Government agency securities generally have maturities of 15 years or less. Agency and Government mortgage-backed securities generally stated final maturities of 15 to 20 years.

Our available for sale securities portfolio totaled $273.0 million at March 31, 2025, a decrease of $8.1 million, or 2.9%, compared to $281.1 million at December 31, 2024. The decrease was primarily due to the maturity of U.S. Treasury securities.

Our held to maturity securities portfolio totaled $321.9 million at March 31, 2025, an increase of $0.3 million, or 0.1%, compared to $321.6 million at December 31, 2024.

At March 31, 2025, $50.3 million, or 8.5%, of the securities portfolio was scheduled to mature in less than one year. $14.0 million, or 2.4%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between one and five years. The majority of these securities were corporate bonds. $152.5 million, or 25.6%, of the securities portfolio, not including collateralized mortgage obligations and mortgage-backed securities, were scheduled to mature between five and ten years. Securities, not including collateralized mortgage obligations and mortgage-backed securities, with contractual maturity dates over 10 years totaled $182.2 million, or 30.6%, of the total securities portfolio at March 31, 2025. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of March 31, 2025, management believes that the securities portfolio has a forecasted weighted average life of approximately 7.66 years based on the current interest rate environment. The portfolio had an estimated effective duration of 5.73 years at March 31, 2025.

There were no credit related impairment of available for sale securities during the three months ended March 31, 2025 or 2024. The allowance for credit losses for held to maturity securities was $0.2 million at March 31, 2025 and December 31, 2024.

Nonperforming Assets

Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming 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 asset is well secured and in the process of collection. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest and a reasonable payment performance period is observed (generally considered six months or longer). Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.

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

(in thousands)

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At March 31, 2025, nonperforming assets totaled $133.9 million, or 3.50% of total assets, compared to $120.4 million, or 3.03%, of total assets at December 31, 2024, which represented an increase of $13.6 million, or 11.3%. The increase in nonperforming 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 $108.5 million at December 31, 2024 to $133.4 million at March 31, 2025. The increase in total nonaccrual loans was concentrated primarily in two commercial real estate relationships that totaled $40.3 million. Nonaccrual loans included $3.7 million in loans with a government guarantee. These are structured as net loss guarantees in which up to 90% of loss exposure is covered.

At March 31, 2025, loans 90 days or greater delinquent and still accruing totaled $0.4 million, a decrease of $11.1 million compared to $11.5 million at December 31, 2024. The decrease in loans 90 days or greater delinquent and still accruing was attributed to moving those loans to nonaccrual, and was concentrated primarily in non-farm non-residential and construction and land development loans.

Other real estate owned totaled $0.2 million at March 31, 2025, a decrease of $0.2 million compared to $0.3 million at December 31, 2024.

At March 31, 2025, the largest 6 non-performing loan relationships comprise 78% of total non-performing loans. Additional details on the non-performing relationships are as follows:

1. A $32.9 million loan relationship secured by an assisted living center located in Alabama; the loan was placed on nonaccrual in the first quarter of 2025.

2. A $27.5 million loan relationship secured by an assisted living center located in Louisiana; the loan was placed on nonaccrual in the fourth quarter of 2024.

3. 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.

4. A $8.8 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 and two properties sold in the first quarter of 2025. The proceeds, net of charge-offs, reduced the balance to $8.8 million at March 31, 2025. First Guaranty anticipates continued reduction in this loan relationship through additional sales of properties in 2025.

5. A $7.4 million loan relationship was placed on nonaccrual during the first quarter of 2025. The loan is secured by land located in Texas.

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.

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

• past due and nonperforming assets;
• specific internal analysis of loans requiring special attention;
• the current level of regulatory classified and criticized assets and the associated risk factors with each;
• changes in underwriting standards or lending procedures and policies;
• charge-off and recovery practices;
• national and local economic and business conditions;
• nature and volume of loans;
• overall portfolio quality;
• adequacy of loan collateral;
• quality of loan review system and degree of oversight by our board of directors;
• competition and legal and regulatory requirements on borrowers;
• examinations of the loan portfolio by federal and state regulatory agencies and examinations; and
• review by our internal loan review department and independent accountants.

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

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, 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 loan 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 on loans was $43.0 million, or 1.71% of total loans, and 32.2% of nonperforming loans at March 31, 2025.

Comparing March 31, 2025 to December 31, 2024, there were changes within the specific components of the allowance balance.

A provision for credit losses of $14.5 million was made during the three months ended March 31, 2025 and $2.3 million for the same period in 2024. The $14.5 million provision made in 2025 included a $0.3 million negative provision for credit losses related to unfunded commitments. First Guaranty's unfunded commitments declined during the first three months of 2025 which resulted in a reduced liability. The provisions made were taken to provide for current credit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio.

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The loan portfolio factors in the first three months of 2025 that primarily affected the allocation of the allowance included the following:

• Construction and land development loans decreased during the first three months of 2025 due to the sale of loans. The allowance increase related to this portfolio was due to an increase in the allowance for loans individually evaluated of $2.6 million.
• One-to-four family residential loans decreased $6.0 million during the first three months of 2025. The allowance increase was due to changes in the qualitative analysis of the portfolio.
• Multifamily loans decreased $20.6 million during the first three months of 2025. The allowance increase related to this portfolio was due to changes in the qualitative analysis of the portfolio, and a $1.3 million increase in the allowance for loan individually evaluated.
• Non-farm non-residential loans decreased by $42.7 million during the first three months of 2025. The allowance increase related to this portfolio was due to changes in the qualitative analysis of the portfolio related to economic conditions, and a $3.5 million increase in the allowance for loans individually evaluated.
• Commercial and industrial loans decreased $23.0 million during the first three months of 2025. The allowance increase related to this portfolio was due to changes in the qualitative analysis of the portfolio.
• Commercial leases decreased $36.2 million during the first three months of 2025. The allowance increase related to this portfolio was due to changes in the qualitative analysis of the portfolio.
• Consumer and other loans decreased $2.5 million during the first three months of 2025. 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 $6.9 million in loan balances during the first three months of 2025. The details of the $6.9 million in charged-off loans were as follows:

1. First Guaranty charged off $0.4 million in consumer loans during the first quarter of 2025. The consumer loan charge offs included $0.1 million in credit card loans, $0.1 million of loans secured by automobiles or equipment, and $0.2 million in unsecured loans.

2. First Guaranty charged off $4.9 million on a construction and land development loan that was subsequently sold during the first quarter of 2025. This relationship had no remaining principal balance as of March 31, 2025.

3. First Guaranty charged off $0.9 million on a construction and land development loan that was subsequently sold during the first quarter of 2025. This relationship had no remaining principal balance as of March 31, 2025.

4. Smaller loans and overdrawn deposit accounts comprised the remaining $0.7 million of charge-offs for the first quarter of 2025.

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

(in thousands)

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, 2024 to March 31, 2025, total deposits decreased $136.8 million, or 3.9%, to $3.3 billion. Noninterest-bearing demand deposits increased $21.6 million, or 5.3%, to $425.6 million at March 31, 2025. The increase in noninterest-bearing demand deposits was primarily concentrated in individual and business noninterest-bearing demand deposits. Interest-bearing demand deposits decreased $138.4 million, or 10.0%, to $1.2 billion at March 31, 2025. The decrease in interest-bearing demand deposits was primarily concentrated in public funds interest-bearing demand deposits that have seasonal fluctuations. Savings deposits increased $9.3 million, or 3.9%, to $243.7 million at March 31, 2025, primarily related to increases in business and individual savings deposits. Time deposits decreased $29.2 million, or 2.0%, to $1.4 billion at March 31, 2025, primarily due to decreases in brokered time deposits.

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, select time deposits and other lower cost deposits.

As of March 31, 2025, the aggregate amount of outstanding certificates of deposit in amounts greater than $250,000 was approximately $197.6 million. At March 31, 2025, approximately $25.7 million of First Guaranty's certificates of deposit greater than $250,000 had a remaining term greater than one year.

The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $294.9 million at March 31, 2025. 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 $941.1 million at March 31, 2025.

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

(in thousands)

The following table sets forth the maturity of the time deposits greater than $250,000 at March 31, 2025.

(in thousands)

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Public funds deposits totaled $928.4 million at March 31, 2025 and $1.0 billion at December 31, 2024. Public funds time deposits totaled $75.2 million at March 31, 2025 compared to $78.4 million at December 31, 2024. Public funds deposits decreased due 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 invest these deposits more efficiently in higher yielding loans to improve the net interest margin and earnings. Total public funds collateralized by reciprocal deposit insurance programs decreased to $546.8 million at March 31, 2025 compared to $609.4 million at December 31, 2024.

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

(in thousands except for %)

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 $7.1 million in short-term borrowings outstanding at March 31, 2025 compared to $7.0 million at December 31, 2024. The short-term borrowings at March 31, 2025 were comprised of repurchase agreements of $7.1 million. The short-term borrowings outstanding at December 31, 2024 were comprised of repurchase agreements of $7.0 million.

First Guaranty had long-term borrowings from the FHLB that totaled $135.0 million at March 31, 2025 and 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.

First Guaranty had senior long-term debt totaling $14.2 million as of March 31, 2025 and $15.2 million at December 31, 2024.

First Guaranty had subordinated debt totaling $44.8 million at March 31, 2025 and $44.7 million at December 31, 2024.

First Guaranty had $453.4 million in Federal Home Loan Bank letters of credit as of March 31, 2025 compared to $455.7 million at December 31, 2024. Federal Home Loan Bank letters of credit are obtained primarily for collateralizing public deposits.

Total Shareholders' Equity

Total shareholders' equity decreased to $251.4 million at March 31, 2025 from $255.0 million at December 31, 2024. The decrease in shareholders' equity was principally the result of a decrease of $6.9 million in retained earnings, offset by an increase of $1.4 million in surplus and a decrease of $1.7 million in accumulated other comprehensive loss. The $6.9 million decrease in retained earnings was primarily due to net loss of $6.2 million during the three months ended March 31, 2025, $0.1 million in cash dividends paid on shares of our common stock and $0.6 million in cash dividends paid on shares of our preferred stock. The $1.4 million increase in surplus was due to common stock issued in a private placement during the first quarter of 2025. The decrease in accumulated other comprehensive loss was primarily attributed to the decrease in unrealized losses on available for sale securities during the three months ended March 31, 2025.

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Results of Operations for the First Quarter Ended March 31, 2025 and 2024

Performance Summary

Three months ended March 31, 2025 compared to the three months ended March 31, 2024. Net loss for the three months ended March 31, 2025 was $6.2 million, a decrease of $8.5 million, from net income of $2.3 million for the three months ended March 31, 2024. The decrease in net income for the three months ended March 31, 2025 as compared to the prior year period was primarily the result of the provision to the credit allowance. The increase in the provision for credit losses was related to changes within the portfolio, loan sales and charge-offs experienced in the first quarter. This was partially offset by an increase in interest income, an increase in noninterest income, and a decrease in noninterest expense. Loan interest income decreased primarily due to the decrease in First Guaranty's loan portfolio. Securities interest income increased due to an increase in the average balance and average yield of the investment portfolio. Noninterest income increased primarily due to an increase in service charges, commisions and fees. Noninterest expense decreased primarily due to decreased personnel expenses, travel and lodging, other real estate and repossession expense, sales taxes, and marketing expense. Loss per common share for the three months ended March 31, 2025 was $(0.54) per common share, $0.68 per common share from $0.14 per common share for the three months ended March 31, 2024.

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. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities. There may also be a time lag in the effect of interest rate changes on assets and liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds.

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

Three months ended March 31, 2025 compared to the three months ended March 31, 2024. Net interest income for the three months ended March 31, 2025 and 2024 was $22.2 million and $21.9 million, respectively. The increase in net interest income for the three months ended March 31, 2025 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets and a decrease in the average rate of our total interest-bearing liabilities, partially offset by a decrease in the average yield of our total interest-earning assets and an increase in the average balance of our total interest-bearing liabilities. For the three months ended March 31, 2025, the average balance of our total interest-earning assets increased by $417.9 million to $3.8 billion due to growth in the securities portfolio and an increase in interest-earning deposits with banks. The average yield of our interest-earning assets decreased by 47 basis points to 5.76% for the three months ended March 31, 2025 from 6.23% for the three months ended March 31, 2024 primarily due to a lower yield on interest-earning deposits with banks. For the three months ended March 31, 2025, the average balance of our total interest-bearing liabilities increased by $410.9 million to $3.3 billion primarily due to growth in interest-bearing deposits. The average rate of our total interest-bearing liabilities decreased by 36 basis points to 4.02% for the three months ended March 31, 2025 from 4.38% for the three months ended March 31, 2024. The primary source of the decrease in liabilities cost was associated with the repricing of interest bearing demand deposits for public funds that are primarily indexed to Treasury rates. As a result, our net interest rate spread decreased 11 basis points to 1.74% for the three months ended March 31, 2025 from 1.85% for the three months ended March 31, 2024. Our net interest margin decreased 23 basis points to 2.35% for the three months ended March 31, 2025 from 2.58% for the three months ended March 31, 2024.

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Interest Income

Three months ended March 31, 2025 compared to the three months ended March 31, 2024. Interest income increased $1.6 million, or 2.9%, to $54.5 million for the three months ended March 31, 2025 as compared to the prior year period. These factors contributed to the increase in interest income as the average balance of our total interest-earning assets, primarily associated with securities and interest-earning deposits with banks, increased, partially offset by the decrease in the average yield of interest-earning assets. The average balance of our interest-earning assets increased $417.9 million to $3.8 billion for the three months ended March 31, 2025 as compared to the same period in the prior year. The average yield of interest-earning assets decreased by 47 basis points to 5.76% for the three months ended March 31, 2025 compared to 6.23% for the three months ended March 31, 2024.

Interest income on securities increased $3.0 million to $5.5 million for the three months ended March 31, 2025 as compared to the prior year period primarily as a result of an increase in average balance and average yield of securities. The average balance of securities increased $265.4 million to $657.6 million for the three months ended March 31, 2025 from $392.2 million for the three months ended March 31, 2024 primarily due to a increase in the average balance of our U.S. Treasuries, mortgage-backed securities, and collateralized mortgage obligations securities portfolio compared to the prior year. The average yield on securities increased 81 basis points to 3.39% for the three months ended March 31, 2025 compared to 2.58% for the three months ended March 31, 2024 due to the increase in higher yielding securities.

Interest income on loans decreased $3.9 million or 8.4%, to $43.0 million for the three months ended March 31, 2025 as compared to the prior year period as a result of an decrease in the average balance and average yield of loans. The average balance of loans (excluding loans held for sale) decreased by $136.6 million to $2.6 billion for the three months ended March 31, 2025 from $2.8 billion for the three months ended March 31, 2024 largely as a result of loan sales and payoffs on the portfolio. The average yield on loans (excluding loans held for sale) decreased by 19 basis points to 6.64% for the three months ended March 31, 2025 from 6.83% for the three months ended March 31, 2024. Nonaccrual loans were $133.4 million at March 31, 2025 compared to $108.5 million at December 31, 2024.

Interest income on interest-earning deposits with banks increased $2.5 million to $6.0 million for the three months ended March 31, 2025 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 $285.5 million to $547.5 million for the three months ended March 31, 2025 from $262.0 million for the three months ended March 31, 2024. This was partially offset by a decrease in the yield on interest-earning deposits of 90 basis points.

Interest Expense

Three months ended March 31, 2025 compared to the three months ended March 31, 2024. Interest expense increased $1.3 million, or 4.0%, to $32.2 million for the three months ended March 31, 2025 from $31.0 million for the three months ended March 31, 2024 due primarily to an increase in the average balance of interest-bearing liabilities offset by a decrease on the average rate of interest-bearing deposits. The average balance of interest-bearing liabilities increased by $410.9 million during the three months ended March 31, 2025 to $3.3 billion as compared to the prior year period. This increase was a result of a $12.9 million increase in the average balance of savings deposits, a $591.0 million increase in the average balance of time deposits, offset by a $167.0 million decrease in the average balance of interest-bearing demand deposits and a $26.1 million decrease in the average balance of borrowings. The average rate of interest-bearing demand deposits was 3.60% for the three months ended March 31, 2025 and 4.43% for the three months ended March 31, 2024. The decrease in market interest rates, particularly U.S. Treasury rates, contributed to the decrease 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. The average rate of time deposits decreased 6 basis points during the three months ended March 31, 2025 to 4.47% as compared to the prior year period. The decrease in the average rate of time deposits was due to changes in market rates as existing time deposits repriced.

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

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

(in thousands except for %)

(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

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

(4) The tax adjusted net interest margin was 2.36% and 2.58% for the above periods ended March 31, 2025 and 2024, respectively. A 21% tax rate was used to calculate the effect on securities income from tax exempt securities for the above periods ended March 31, 2025 and 2024, respectively.

(5) Annualized.

(6) Includes loan fees of $1.6 million and $2.0 million for the three months ended March 31, 2025 and 2024, respectively.

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Provision for Credit Losses

A provision for credit 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 loan 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.

For the three months ended March 31, 2025, the provision for credit losses was $14.5 million compared to $2.3 million for the same period in 2024. The $14.5 million provision included a $0.3 million negative provision for credit losses related to unfunded commitments. Total charge-offs were $6.9 million for the three months ended March 31, 2025 and $2.3 million for the same period in 2024. Charge-offs for the three months ended March 31, 2025 were concentrated in consumer auto and equipment secured loans, unsecured consumer loan and two construction and land development loans, both were subsequently sold during the first quarter of 2025. Partially offsetting these charge-offs were recoveries that totaled $0.2 million for the three months ended March 31, 2025 and $0.3 million for the same period in 2024.

We believe that the allowance is adequate to cover current expected losses in the loan portfolio given the current economic conditions, and current expected net charge-offs and nonperforming asset levels. Economic uncertainty may result in additional increases to the allowance for credit losses in future periods.

There was no provision for credit losses on AFS or HTM securities in the three months ended March 31, 2025 and 2024.

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 $2.4 million for the three months ended March 31, 2025, an increase of $46,000 from $2.3 million for the three months ended March 31, 2024. The increase was primarily due to increased service charges, commissions and fees. Service charges, commissions and fees totaled $0.8 million for the three months ended March 31, 2025 and $0.7 million for the same period in 2024. ATM and debit card fees totaled $0.7 million for the three months ended March 31, 2025 and $0.8 million for the same period in 2024. Net securities losses were $0 for the three months ended March 31, 2025 and 2024. Net gains on the sale of loans were $0 for the three months ended March 31, 2025 and 2024. Net gains on the sale of assets were $4,000 for the three months ended March 31, 2025 compared to $6,000 for the same period in 2024. Other noninterest income totaled $0.8 million for the three months ended March 31, 2025 and 2024.

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Noninterest Expense

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $18.0 million for the three months ended March 31, 2025 and $18.9 million for the three months ended March 31, 2024. Salaries and benefits expense totaled $8.4 million for the three months ended March 31, 2025 and $9.9 million for the three months ended March 31, 2024. Occupancy and equipment expense totaled $2.6 million for the three months ended March 31, 2025 and $2.3 million for the same period in 2024. Other noninterest expense totaled $6.9 million for the three months ended March 31, 2025 and $6.8 million for the same period in 2024.

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

(in thousands)

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 benefit for income taxes for the three months ended March 31, 2025 was $1.8 million compared to a provision of $0.7 million for the same period in 2024. The provision for income taxes decreased due to a decrease in income before income taxes. First Guaranty's statutory tax rate was 21.0% for the three months ended March 31, 2025 and 2024.

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Liquidity and Capital Resources

Liquidity

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

First Guaranty's cash and cash equivalents totaled $618.4 million at March 31, 2025 compared to $564.2 million at December 31, 2024. Loans maturing within one year or less at March 31, 2025 totaled $400.2 million compared to $486.0 million at December 31, 2024. At March 31, 2025, time deposits maturing within one year or less totaled $890.0 million compared to $804.1 million at December 31, 2024. Time deposits maturing after one year through three years totaled $372.5 million at March 31, 2025 compared to $489.6 million at December 31, 2024. Time deposits maturing after three years totaled $158.9 million at March 31, 2025 compared to $157.0 million at December 31, 2024. First Guaranty's held to maturity ("HTM") securities portfolio at March 31, 2025 was $321.9 million, or 54.1% of the investment portfolio, compared to $321.6 million, or 53.4% at December 31, 2024. First Guaranty's available for sale ("AFS") securities portfolio was $273.0 million, or 45.9% of the investment portfolio as of March 31, 2025 compared to $281.1 million, or 46.6% of the investment portfolio at December 31, 2024. The majority of the AFS portfolio was comprised of U.S. Treasury securities, corporate debt securities, municipal bonds, collaterlized mortgage obligations and mortgage-backed securities.

First Guaranty maintained a net borrowing capacity at the Federal Home Loan Bank totaling $371.9 million and $339.2 million at March 31, 2025 and December 31, 2024, respectively with $135.0 million in FHLB advances outstanding at March 31, 2025 and December 31, 2024. The advances outstanding at March 31, 2025 and December 31, 2024 were comprised of two long-term advances that totaled $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. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $93.0 million as of March 31, 2025. We also have a discount window line with the Federal Reserve Bank that totaled $226.5 million at March 31, 2025 which was a decrease of $23.9 million compared to availability of $250.4 million at December 31, 2024. First Guaranty did not have any advances under this facility at March 31, 2025. Management believes there is sufficient liquidity to satisfy current operating needs.

Capital Resources

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

Total shareholders' equity decreased to $251.4 million at March 31, 2025 from $255.0 million at December 31, 2024. The decrease in shareholders' equity was principally the result of a decrease of $6.9 million in retained earnings, offset by an increase of $1.4 million in surplus and a decrease of $1.7 million in accumulated other comprehensive loss. The $6.9 million decrease in retained earnings was primarily due to net loss of $6.2 million, $0.1 million in cash dividends paid on shares of our common stock and $0.6 million in cash dividends paid on shares of our preferred stock during the three months ended March 31, 2025. The $1.4 million increase in surplus was due to common stock issued in a private placement during the first quarter of 2025. The decrease in accumulated other comprehensive loss was primarily attributed to the decrease in unrealized losses on available for sale securities during the three months ended March 31, 2025.

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Regulatory Capital

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

In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of March 31, 2025, the Bank's capital conservation buffer was 4.74% exceeding the minimum of 2.50%. As of March 31, 2025, First Guaranty's capital conservation buffer was 3.38% exceeding the minimum of 2.50%.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the Federal Reserve Board has amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant nonbanking activities, (ii) do not conduct significant off-balance sheet activities, and (3) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization's complexity, are no longer subject to regulatory capital requirements, effective August 30, 2018. On January 1, 2024, First Guaranty ceased being considered a "small bank holding company". Accordingly, both the Bank and First Guaranty are required to maintain specified ratios of capital to risk-weighted assets.

In addition, as a result of the legislation, the federal banking agencies have developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the new Community Bank Leverage Ratio at 9%. Pursuant to the CARES Act, the federal banking agencies set the Community Bank Leverage Ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the Community Bank Leverage Ratio increased to 8.5% for the calendar year. Community banks will have until January 1, 2022, before the Community Bank Leverage Ratio requirement will return to 9%. A financial institution can elect to be subject to this new definition. As of March 31, 2025, the Bank has not elected to follow the Community Bank Leverage Ratio.

At March 31, 2025, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.

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Asset/Liability Management and Market Risk

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

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

The need for interest sensitivity gap management is most critical in times of rapid changes in overall interest rates. First Guaranty has generally been liability sensitive. We modified our business plan in 2024 to reduce the liability sensitive nature of our balance sheet. We are working to limit our future exposure to interest rate fluctuations by creating a more balanced mix of rate sensitive assets and liabilities on a one-year time horizon and greater than one-year time horizon. We purchased amortizing mortgage backed securities in 2024 and 2025. We also purchased U.S. Treasury securities with a maturity of one year or less in 2024. Because of the significant impact on net interest margin from mismatches in repricing opportunities, we monitor the asset-liability mix periodically depending upon the management asset liability committee's assessment of current business conditions and the interest rate outlook. These strategies include, but are not limited to, frequent internal modeling of asset and liability values and behavior due to changes in interest rates. We monitor cash flow forecasts closely and evaluate the impact of both prepayments and extension risk.

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The following interest sensitivity analysis is one measurement of interest rate risk. This analysis reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments or interest rate floors on loans which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at March 31, 2025 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

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

(in thousands except for %)

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Evaluation of Disclosure Controls and Procedures

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

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

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