What changed in this filing

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Item 1. Business

2023-03-16 compared with 2022-03-16 · 155 added, 82 removed, 901 unchanged (21% of the section changed)

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First Guaranty Bancshares, Inc.

("First Guaranty") is a Louisiana-chartered bank holding company headquartered in Hammond, Louisiana.

Our wholly owned subsidiary, First Guaranty Bank (the "Bank"), a Louisiana-chartered commercial bank, provides personalized commercial banking services mainly to Louisiana and Texas customers through 36 banking facilities primarily located in the Market Services Areas ("MSAs"), of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles, Alexandria, Dallas-Fort Worth-Arlington, Waco, Texas.

First Guaranty expanded into Kentucky and West Virginia, our Mideast markets, in 2021 with loan and deposit production offices in Vanceburg, Kentucky and Bridgeport, West Virginia.

Our principal business consists of attracting deposits from the general public and local municipalities in our market areas and investing those deposits.

It also includes generating funds from operations and borrowings in lending and in securities activities to serve the credit needs of our customer base, including commercial real estate loans, commercial and industrial loans, commercial leases, one- to four-family residential real estate loans, construction and land development loans, agricultural and farmland loans, and to a lesser extent, consumer and multifamily loans.

("First Guaranty") is a Louisiana corporation, and bank holding company headquartered in Hammond, Louisiana.

Our wholly owned subsidiary, First Guaranty Bank (the "Bank"), a Louisiana state-chartered commercial bank, provides personalized commercial banking services mainly to Louisiana and Texas customers through 36 banking facilities primarily located in the metropolitan statistical areas ("MSAs"), of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles, Alexandria, Dallas-Fort Worth-Arlington, Waco, Texas.

First Guaranty expanded into Kentucky and West Virginia, our Mideast markets, in 2021 with loan and deposit production offices in Vanceburg, Kentucky.

The Vanceburg location is now a branch of the bank.

As discussed further below, we are subject to a pending acquisition that would expand our markets into Houston and the I-10 corridor west of Houston.

Our principal business consists of attracting deposits from the general public and local municipalities in our market areas and then investing those deposits.

We also generate funds from operations, borrowings in lending and investing in securities.

We serve the credit needs of our customer base, including commercial real estate loans, commercial and industrial loans, commercial leases, one- to four-family residential real estate loans, construction and land development loans, agricultural and farmland loans, and to a lesser extent, consumer and multifamily loans.

We also participate in certain syndicated loans, including shared national credits, with other financial institutions.

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First Guaranty Bank was founded in Amite, Louisiana on March 12, 1934.

While the origins of First Guaranty Bank go back over 80 years, we began our modern history in 1993 when an investor group, led by Marshall T.

While the origins of First Guaranty Bank go back almost 90 years, we began our modern history in 1993 when an investor group, led by Marshall T.

Reynolds, our Chairman, invested $3.6 million in First Guaranty Bank as part of a recapitalization plan with the objective of building a community-focused commercial bank in our Louisiana markets.

Since the implementation of that recapitalization plan, we have grown from six branches and $159 million in assets at the end of 1993 to 36 locations and $2.9 billion in assets at December 31, 2021.

We have also paid a quarterly dividend for 114 consecutive quarters as of December 31, 2021.

Since the implementation of that recapitalization plan, we have grown from six branches and $159 million in assets at the end of 1993 to 36 locations currently and $3.2 billion in assets at December 31, 2022.

We have also paid a quarterly dividend on our common stock for 118 consecutive quarters as of December 31, 2022.

On July 27, 2007, we formed First Guaranty Bancshares and completed a one-for-one share exchange that resulted in First Guaranty Bank becoming the wholly-owned subsidiary of First Guaranty Bancshares (the "Share Exchange") and First Guaranty Bancshares becoming an SEC reporting public company.

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In connection with the completion of the stock offering, First Guaranty's common shares began trading on the Nasdaq Global Market.

In 2021 we issued $34.5 million of preferred stock and depositary shares that trades on the Nasdaq Global Market.

Since our Share Exchange, we have supplemented our organic growth with four acquisitions, which added stable deposits that provided funding for our lending business and extended our geographic footprint in the Baton Rouge, Hammond, Alexandria, Dallas-Fort Worth-Arlington, and Waco MSAs.

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July 30, 2007 $ 12,140 $ 129,606

On January 6, 2023, we entered into a definitive agreement with Lone Star Bank, a Texas state-chartered bank with its main office in Houston, Texas, pursuant to which we will acquire all of the issued and outstanding shares of Lone Star Bank common stock in exchange solely for shares of First Guaranty common stock through the merger of Lone Star Bank with and into First Guaranty Bank, with First Guaranty Bank surviving the merger.

The proposed merger, if consummated, will expand our geographic footprint into the Greater Houston area, as well as westward along the I-10 corridor.

Our primary market areas include the Louisiana MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and Alexandria along with the Texas MSAs of Dallas-Fort Worth-Arlington and Waco.

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In 2021, First Guaranty expanded into Kentucky and West Virginia.

We have loan and deposit production offices in Vanceburg, Kentucky and Bridgeport, West Virginia that are not in MSAs.

We have a branch located in Vanceburg, Kentucky and a loan and deposit production office in Bridgeport, West Virginia that are not in MSAs.

We refer to this region as our Mideast market.

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Hammond hosts numerous warehouses and distribution centers, and is a major distribution point for Wal-Mart and Winn Dixie.

Medline began construction of a $45 million facility in Hammond in 2021 and Intralox announced a $60 million expansion of its existing Hammond facility in 2021.

Baton Rouge MSA.

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Shreveport-Bossier City MSA .

Our primary market areas in northwest Louisiana are the Bossier and Caddo Parishes, which are a part of the Shreveport-Bossier City MSA.

Our primary market areas in northwest Louisiana are in the Bossier and Caddo Parishes, which are a part of the Shreveport-Bossier City MSA.

The Shreveport and Bossier City MSA has a population of approximately 436,000.

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Alexandria MSA.

The Union acquisition expanded First Guaranty into the Alexandria MSA with branches in Alexandria and Pineville.

The Union acquisition expanded First Guaranty into the Alexandria MSA with branches in Rapides and Avoyelles parishes.

Alexandria is the ninth largest city in Louisiana with a population of approximately 48,000 and is located along Interstate I-49.

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Mideast Market .

First Guaranty's office in Vanceburg, Kentucky is located approximately 90 miles from Cincinnati, Ohio and 95 miles from Lexington, Kentucky.

First Guaranty's branch in Vanceburg, Kentucky is located approximately 90 miles from Cincinnati, Ohio and 95 miles from Lexington, Kentucky.

First Guaranty's office in Bridgeport, West Virginia is located approximately 35 miles from Morgantown, West Virginia and 105 miles from Pittsburgh, Pennsylvania.

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We plan to continue expanding our Texas markets in Dallas Fort-Worth-Arlington and Waco both organically and through strategic acquisitions.

We opened loan and deposit production offices in Vanceburg, Kentucky and Bridgeport, West Virginia.

We opened loan and deposit production offices in Vanceburg, Kentucky and Bridgeport, West Virginia in late 2021.

The Vanceburg, Kentucky location opened as a branch in January 2023.

This mission involves not only expanding our geographical footprint but also evolving as an institution and staying relevant while offering new ways of banking.

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We continue to upgrade our technology to efficiently handle both our loan and deposit customers.

First Guaranty uses the nCino loan platform and a suite of online banking products delivered by Q2.

First Guaranty uses the nCino loan platform and a suite of online banking products delivered by Q2, a digital products company.

We intend to continue to grow our loan portfolio organically by targeting small and medium-sized businesses engaged in manufacturing, agriculture, petrochemicals, real estate, healthcare and other professional services.

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We are expanding upon our successful small business lending program with a new emphasis on growing our SBA, USDA and commercial leasing lending programs.

The acquisition of Synergy Bank brought expertise in SBA lending that we have leveraged through both our new Texas markets and our existing Louisiana markets.

We have invested in training key personnel to focus on this market as we believe that SBA, USDA and commercial leasing loans can serve as new market opportunities for our Bank.

We will continue to be a leading agricultural lender and grow our Farm Service Agency lending.

Over the last fourteen years, we have pursued a focused program to participate in syndicated loans (loans made by a group of lenders, including us, who share or participate in a specific loan, which is typically secured by business assets or equipment, and also commercial real estate) with a larger regional financial institution as the lead lender.

Over the last 15 years, we have pursued a focused program to participate in syndicated loans (loans made by a group of lenders, including us, who share or participate in a specific loan, which is typically secured by business assets or equipment, and also commercial real estate) with a larger regional financial institution as the lead lender.

Our focus has been to finance middle market companies whose borrowing needs typically range from $25 million to $75 million.

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Our strategy is to supplement our organic growth by executing a targeted and disciplined acquisition strategy of community banks and non-banking financial companies as opportunities arise.

We have successfully integrated prior acquisitions as demonstrated by our acquisitions of Union Bancshares, Incorporated in 2019, Premier Bancshares, Inc.

We have successfully integrated prior acquisitions as demonstrated by our acquisitions of Union Bancshares, Inc.

in 2019, Premier Bancshares, Inc.

in 2017, Greensburg Bancshares, Inc.

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We generally obtain personal guarantees from the borrower or a third party as a condition to originating commercial and industrial loans.

Over the last fourteen years, we pursued a focused program to participate in syndicated loans (loans made by a group of lenders, including us, who share or participate in a specific loan) with a larger regional financial institution as the lead lender.

Over the last 15 years, we pursued a focused program to participate in syndicated loans (loans made by a group of lenders, including us, who share or participate in a specific loan) with a larger regional financial institution as the lead lender.

Syndicated loans are typically made to large businesses (which are referred to as shared national credits) or middle market companies (which do not meet the regulatory definition of shared national credits), both of which are secured by business assets or equipment, and also commercial real estate.

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We had $71.6 million in purchased loans, primarily secured by real estate, at December 31, 2022.

First Guaranty acquired approximately $59.7 million in loans associated with our Mideast market at December 31, 2021.

At December 31, 2022, we had $88.3 million in syndicated loans, of which $26.6 million were shared national credits.

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The director loan committee approves loan relationships of between $2,500,001 and up to $20.0 million.

Syndicated loans and commercial leases are approved by the Bank's director loan committee in amounts up to $20.0 million .

Any loan relationship exceeding $20.0 million requires the approval of the board of directors.

Syndicated loans and Commercial Leases are approved by the Bank's Syndicate/Lease committee in amounts up to $20.0 million .

Our lending activities are also subject to Louisiana statutes and internal guidelines limiting the amount we can lend to any one borrower.

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We actively seek to obtain public funds deposits.

At December 31, 2021, public funds deposits totaled $957.9 million.

At December 31, 2022, public funds deposits totaled $1.1 billion.

We have developed a program for the retention and management of public funds deposits.

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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 clients received funds associated with the CARES Act during 2021 and we anticipate that public funds will receive further CARES Act funds in 2022.

Public funds clients received funds associated with the CARES Act during 2021 and 2022 which increased average balances.

These balances from CARES Act relief funds are anticipated to decline over time.

Public funds deposit accounts are collateralized by FHLB letters of credit, reciprocal deposit insurance programs, Louisiana municipal bonds and eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac.

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(4) collateralized mortgage obligations;

(5) corporate and other debt securities;

(6) mutual funds and other equity securities and (7) municipal bonds.

Government agency securities comprise the largest share of our investment securities, having a fair value of $266.7 million, of which $116.1 million were classified as available for sale and $150.6 million as held to maturity, at December 31, 2021.

(5) corporate and other debt securities and (6) municipal bonds.

Government agency securities comprise the largest share of our investment securities, having a fair value of $195.5 million all of which were classified as held to maturity at December 31, 2022.

The Bank's management asset liability committee and board investment committee are responsible for regular review of our investment activities and the review and approval of our investment policy.

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Human Capital Resources

First Guaranty Bank recently reached the milestone of 89 years in operation, and throughout our history, we have worked to build and grow trust and relationships, operating with a strong commitment to the welfare of our customers and communities.

Our workforce drives this success and longevity.

Our employees are our most valuable asset.

They are the face and voice of our institution.

At First Guaranty we promote respect, support, and teamwork.

Honesty, integrity, and fairness are paramount in all that we do.

We actively recruit new employees who operate by these core values, and we continue to instill and promote these principles.

We also work to cultivate professionalism, dedication, and an environment of openness, where all can contribute new ideas and innovations.

This culture results in employees with passion, drive, and a deep commitment to our customers and communities.

The Bank was named the number one “Best Small Bank” in the United States for the third consecutive year by Newsweek in its “America’s Best Banks” survey.

We thank our employees for this distinction.

We strive to be socially responsible corporate citizens by supporting our communities and helping them to improve.

Our employees are actively involved, volunteering with local charitable organizations, and helping during times of need, such as in the aftermath of hurricanes and other natural disasters.

In 2022 our employees volunteered over 2,960 hours of service across Louisiana, in Texas, and in our newest market, the Mideast market in West Virginia and Kentucky.

Employees serve both in their personal time and during work hours.

In furtherance of our employees’ commitment to service, the Bank contributed over $600,000 in 2022 to charitable organizations in our communities.

Our employees’ personal and professional growth is important to First Guaranty Bank.

We offer comprehensive compensation and benefits packages to our employees including a 401(k) Plan, healthcare and insurance benefits, health and childcare flexible spending accounts, and paid vacation and sick time.

First Guaranty also provides tuition reimbursement for employees and support for continuing education and advanced certifications.

We are an Equal Opportunity Employer committed to workplace diversity, inclusion, equity, and opportunity for everyone.

At December 31, 2022, we had 465 full-time and 34 part-time employees.

None of our employees is represented by a collective bargaining group or are parties to a collective bargaining agreement.

We believe that our relationship with our employees is good.

We believe that our relations with our employees are very good.

Other than our wholly-owned bank subsidiary, First Guaranty Bank, we have no subsidiaries.

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• Temporarily reducing the community bank leverage ratio alternative available to institutions of less than $10 billion of assets to 8%.

The ratio increased to 8.5% for 2021 and reverts to 9% thereafter;

The ratio increased to 8.5% for 2021 and reverted to 9% thereafter;

• The establishment of the Paycheck Protection Program (the “PPP”), a specialized low-interest forgivable loan program funded by the U.S.

Treasury Department and administered through the SBA’s 7(a) loan guaranty program to support businesses affected by the COVID-19 pandemic;

In May 2021, the SBA announced that PPP funding has been exhausted and the SBA stopped accepting new PPP loan applications;

• The ability of a borrower of a federally-backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic, to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency.

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During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract could accrue on the borrower’s account.

Except for vacant or abandoned property, the servicer of a federally-backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, which period has subsequently been extended several times by federal mortgage-backing agencies.

Except for vacant or abandoned property, the servicer of a federally-backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, which period was subsequently extended several times by federal mortgage-backing agencies prior to its expiration in 2021.

Louisiana Bank Regulation

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Bank holding companies with greater than $3 billion in total consolidated assets are subject to consolidated regulatory capital requirements.

We are not subject to the Federal Reserve Board's consolidated capital adequacy guidelines for bank holding companies as we do not have more than $3.0 billion in total assets.

We are not subject to the Federal Reserve Board's consolidated capital adequacy guidelines for bank holding companies as we did not have more than $3.0 billion in total assets as of June 30, 2022.

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company's consolidated net worth.

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If any of the risks described herein develop into actual events, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected, the market price of our common stock could decline and you may lose all or part of your investment.

Risks Related to the COVID-19 Pandemic

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations and our ability to execute on our growth strategies.

The COVID-19 pandemic has caused significant economic dislocation in the United States, including a slow-down in economic activity and a related increase in unemployment.

Since the COVID-19 outbreak, millions of individuals have filed claims for unemployment.

In response to the COVID-19 outbreak, the Federal Open Market Committee has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows.

Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).

The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.

Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.

The spread of the coronavirus has caused us to significantly modify our business practices, including business operating hours and delivery methods, as well as employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

These changes, as well as adverse economic conditions, could cause us not to be able to execute on our growth strategies.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business.

The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

• demand for our products and services may decline, making it difficult to execute on our strategic initiatives related to growing assets and earnings;

• if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

• our allowance for loan and lease losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• as the result of the decline in the target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

• a material decrease in net income or a net loss over several quarters could result in a decrease or elimination of our quarterly cash dividend;

• our cyber security risks are increased as the result of an increase in the number of employees working remotely;

• we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us;

• Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs;

• internal controls as designed may not prove effective, to the extent procedures are modified as a result of remote work locations.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

Risks Related to Our Lending

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Our business, the location of our branches and the real estate used as collateral on our real estate loans are primarily concentrated in Louisiana and North Central Texas.

We anticipate future loan growth in our new Mideast markets located in Kentucky and West Virginia.

We anticipate continued future loan growth in our new Mideast markets located in Kentucky and West Virginia.

At December 31, 2022, approximately 80.4% of the secured loans in our loan portfolio were secured by real estate and other collateral located in our market area.

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The occurrence of an economic downturn in Louisiana and North Central Texas, or adverse changes in laws or regulations in Louisiana and Texas could impact the credit quality of our assets, the businesses of our customers and our ability to expand our business.

The COVID-19 pandemic has caused a severe economic downturn in our market area.

Our success significantly depends upon the growth in population, income levels, deposits and housing in our market area.

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First Guaranty may participate in or purchase real estate loans located outside of our traditional markets which may be affected by national or other localized market trends.

This could require increasing our allowance for loan and lease losses to address the decrease in the value of the real estate securing our loans which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

This could require increasing our allowance for credit losses to address the decrease in the value of the real estate securing our loans which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Our loan portfolio consists of a high percentage of loans secured by non-farm non-residential real estate.

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Syndicated loans may have a higher risk of loss than other loans we originate because we are not the lead lender and we have limited control over credit monitoring.

Over the last fourteen years, we have pursued a focused program to participate in select syndicated loans (loans made by a group of lenders, including us, who share or participate in a specific loan) with a larger regional financial institution as the lead lender.

Over the last 15 years, we have pursued a focused program to participate in select syndicated loans (loans made by a group of lenders, including us, who share or participate in a specific loan) with a larger regional financial institution as the lead lender.

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If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our non-performing assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.

If the allowance for loan and lease losses is not sufficient to cover actual loan losses, earnings could decrease.

If the allowance for credit losses is not sufficient to cover actual loan losses, earnings could decrease.

Loan customers may not repay their loans according to the terms of their loans, and the collateral securing the payment of their loans may be insufficient to assure repayment.

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In determining the amount of the allowance for loan and lease losses, management reviews the loans and the loss and delinquency experience and evaluates economic conditions.

At December 31, 2021, our allowance for loan and lease losses as a percentage of total loans, net of unearned income, was 1.11% and as a percentage of total non-performing loans was 133.79%.

At December 31, 2022, our allowance for credit losses as a percentage of total loans, net of unearned income, was 0.93% and as a percentage of total non-performing loans was 159.90%.

The determination of the appropriate level of allowance is subject to judgment and requires us to make significant estimates of current credit risks and future trends, all of which are subject to material changes.

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Non-performing loans may increase and non-performing or delinquent loans may adversely affect future performance.

Any future credit deterioration, including as a result of COVID-19, could require us to increase our allowance for loan and lease losses in the future.

Any future credit deterioration, including as a result of COVID-19, could require us to increase our allowance for credit losses in the future.

In addition, federal and state regulators periodically review the allowance for loan and lease losses and may require an increase in the allowance for loan and lease losses or recognize further loan charge-offs.

Any significant increase in our allowance for loan and lease losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition.

Any significant increase in our allowance for credit losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition.

Emphasis on the origination of short-term loans could expose us to increased lending risks.

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Our bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us or that may result in a curtailment of our commercial real estate and multifamily lending and/or the requirement that we maintain higher levels of regulatory capital, either of which would adversely affect our loan originations and profitability.

We are subject to regulatory enforcement risk, reputation risk and litigation risk regarding our participation in the PPP, and we are subject to the risk that the SBA may not fund some or all PPP loan guarantees .

The CARES Act included the PPP as a loan program administered through the SBA.

We are subject to regulatory enforcement risk, reputation risk and litigation risk regarding our participation in the PPP and Main Street Lending Program and we are subject to the risk that the SBA may not fund some or all PPP loan guarantees .

The CARES Act included the PPP as a loan program administered through the SBA and the Main Street Lending Program ("MSLP") administered through the U.S.

Treasury Department.

Under the PPP, small businesses and other entities and individuals applied for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to detailed qualifications and eligibility criteria.

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In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced a PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

We were also a participating lender in the Federal Reserve’s MSLP.

The Federal Reserve established the MSLP to support lending to small and midsized for-profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

The program was terminated on January 8, 2021.

We were able to transfer/sell 95% of the originated principal loan balances to a special purpose vehicle created by the Federal Reserve;

however, we retained 5% of the originated principal balance, including the associated credit risk on such amounts.

In addition, we are subject to potential litigation risk with respect to the entire loans, including the transferred/sold portions of the loan balances.

The foreclosure process may adversely impact our recoveries on non-performing loans.

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Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes.

The Federal Reserve increased interest rates significantly during 2022.

Both the pace of these increases and the resulting interest rate levels are unprecedented in recent times.

This new interest rate environment could have a number of effects on our business, which may include reduced loan demand, increased delinquencies and increased loan paydowns and payoffs.

Conversely, a decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio and increased competition for deposits.

Accordingly, changes in the level of market interest rates affect our net yield on interest-earning assets, loan origination volume, loan portfolio and our overall results.

Although our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in market interest rates, those rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets.

When interest-bearing liabilities mature or reprice more quickly, or to a greater degree than interest-earning assets in a period, an increase in interest rates could reduce net interest income.

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Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff.

Recent increases in interest rates have resulted in increased competition for deposits.

If customers move money out of bank deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.

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Public funds deposits are a significant source of funds for our lending and investment activities.

At December 31, 2021, $957.9 million, or 36.9% of our total deposits, consisted of public funds deposits from local government entities such as school districts, hospital districts, sheriff departments and other municipalities, which are collateralized by letters of credit from the Federal Home Loan Bank ("FHLB"), investment securities, and reciprocal deposit insurance programs.

At December 31, 2022, $1.1 billion, or 40.9% of our total deposits, consisted of public funds deposits from local government entities such as school districts, hospital districts, sheriff departments and other municipalities, which are collateralized by letters of credit from the Federal Home Loan Bank ("FHLB"), investment securities, and reciprocal deposit insurance programs.

Given our dependence on high-average balance public funds deposits as a source of funds, our inability to retain such funds could significantly and adversely affect our liquidity.

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Our strategy of pursuing acquisitions exposes us to financial, execution and operational risks that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

On November 7, 2019, we completed our merger with Union Bancshares, Incorporated and its subsidiary The Union Bank headquartered in Marksville, Louisiana.

On January 6, 2023, we entered into a definitive agreement with Lone Star Bank, a Texas state-chartered bank with its main office in Houston, Texas, pursuant to which we intend to acquire all of the issued and outstanding shares of Lone Star Bank common stock in exchange solely for shares of First Guaranty common stock through the merger of Lone Star Bank with and into First Guaranty Bank, with First Guaranty Bank surviving the merger.

First Guaranty will incur significant, non-recurring merger-related transaction and integration costs in connection with the merger.

In addition to the transaction and integration costs, the merger with Lone Star Bank will require our management to devote a significant amount of time and resources that could otherwise be directed to the business and operations of First Guaranty and First Guaranty Bank, which could adversely affect our business, financial condition and results of operations.

Consummation of the merger is expected to result in dilution of our current shareholders’ investments.

The issuance of First Guaranty common stock in connection with the merger will dilute the ownership interests of current First Guaranty shareholders and will dilute the per share book value of First Guaranty common stock.

Further, the success of the merger will depend on, among other things, our ability to successfully combine the businesses of First Guaranty Bank and Lone Star Bank.

If we are unable to successfully integrate Lone Star Bank into First Guaranty Bank’s existing operations, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than anticipated.

The merger may not be consummated unless certain conditions are met;

satisfaction of many of these conditions is beyond First Guaranty’s and Lone Star Bank’s control.

If these conditions are not satisfied or waived, the merger will not be completed or may be delayed and each of First Guaranty and Lone Star Bank may lose some or all of the intended benefits of the merger.

In addition, either First Guaranty or Lone Star Bank may terminate the merger agreement under certain circumstances.

We intend to continue pursuing a strategy that includes acquisitions.

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A significant portion of our noninterest revenue is derived from service charge income.

During the year ended December 31, 2021, service charges, commissions and fees represented $2.7 million, or 26.9% of our total noninterest income excluding gains on securities.

During the year ended December 31, 2022, service charges, commissions and fees represented $3.2 million, or 28.7% of our total noninterest income excluding losses on securities.

During the year ended December 31, 2021, service charges, commissions and fees represented $2.7 million, or 26.9% of our total noninterest income excluding gains on securities.

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The current expected credit loss model will require banks to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard.

This standard is effective for us beginning on January 1, 2023.

We are currently evaluating the impact of an adoption of this standard.

First Guaranty adopted this standard effective January 1, 2023.

We hold certain intangible assets that could be classified as impaired in the future.

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Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation.

Uncertainty surrounding the future of LIBOR (London Interbank Offer Rate) may affect the fair value and return on our financial instruments that use LIBOR as a reference rate.

We may be adversely affected by the transition from LIBOR (London Interbank Offer Rate)

We hold assets, liabilities, and derivatives that are indexed to the various tenors of LIBOR including but not limited to the one-month LIBOR, three-month LIBOR, one-year LIBOR, and the ten-year constant maturing swap rate.

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dollar LIBOR (one, three, six and 12 month LIBOR) after June 30, 2023.

We believe the U.S.

financial sector will maintain an orderly and smooth transition to new interest rate benchmarks of which we will evaluate and adopt if appropriate.

While in the U.S., the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York have identified the SOFR as an alternative U.S.

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If we determine that a significant portion of our assets have values significantly below their recorded carrying value, we could recognize a material charge to earnings in the quarter in which such determination was made, our capital ratios would be adversely affected and a rating agency might downgrade our credit rating or put us on credit watch;

• depositor confidence may be shaken, which could lead to deposit outflows that could cause liquidity concerns;

• the downgrade of the United States government's sovereign credit rating, any related rating agency action in the future, and the downgrade of the sovereign credit ratings for several European nations could negatively impact our business, financial condition and results of operations.

The rapid rise in interest rates during 2022, the resulting industry-wide reduction in the fair value of securities portfolios, and the related bank runs that led to the failures of Silicon Valley Bank and Signature Bank (New York) in March 2023, among other events, have resulted a current state of volatility and uncertainty with respect to the health of the U.S.

banking system, particularly around liquidity, uninsured deposits and customer concentrations.

While we are unable to predict the full impact of this turmoil, it is likely to result in among other things, increased regulatory pressures, which could have material adverse effects on our business, results of operations, financial condition and growth prospects.

Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.

The deposits of the Bank are insured by the FDIC up to legal limits and, accordingly, subject to the payment of FDIC deposit insurance assessments.

The Bank’s regular assessments are determined by its risk classification, which is based on a number of factors, including regulatory capital levels, asset growth and asset quality.

On March 12, 2023, the Department of the Treasury, the Federal Reserve and the FDIC issued a joint statement relating to the resolution of Silicon Valley Bank, Santa Clara, California, and Signature Bank, New York, New York which stated that losses to support uninsured deposits of those banks would be recovered via a special assessment on banks.

Although the exact terms of that special assessment have not been announced, it is likely to increase the FDIC deposit insurance assessments incurred by the Bank.

In addition, other changes to the assessment regime, including as a result of additional bank failures and any potential increase in the statutory deposit insurance limits or rates are likely to result in increased deposit insurance costs to the Bank.

The announced special assessment, as well as any future special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could have a material adverse effect on our business, financial condition and results of operations.

Changes in the policies of monetary authorities and other government action could adversely affect our profitability.

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In view of changing conditions in the national economy and in the money markets, particularly in light of the continuing threat of terrorist attacks, the current military operations in the Middle East, COVID-19, changes in rates of inflation, and uncertainty with the recent conflict in Eastern Europe, we cannot predict possible future changes in interest rates, deposit levels, loan demand or our business and earnings.

Furthermore, the actions of the United States government and other governments in responding to such terrorist attacks, the military operations in the Middle East, COVID-19, or uncertainty in Eastern Europe, may result in currency fluctuations, exchange controls, market disruption and other adverse effects.

Furthermore, the actions of the United States government and other governments in responding to such terrorist attacks, the military operations in the Middle East, or uncertainty in Eastern Europe, may result in currency fluctuations, exchange controls, market disruption and other adverse effects.

Curtailment of government guaranteed loan programs could affect a segment of our business, and government agencies may not honor their guarantees if we do not originate loans in compliance with their guidelines.

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If our employees do not follow the SBA, USDA or FSA guidelines in originating loans and if our loan review and audit programs fail to identify and rectify such failures, the government agencies that guarantee these loans may refuse to honor their guarantee obligations and we may incur losses as a result.

Risk Associated with an Investment in our Common Stock

An active, liquid market for our common stock may not be sustained.

Risk Associated with an Investment in our Securities

An active, liquid market for our securities may not be sustained.

Our shares of common stock began trading on the Nasdaq Global Market in November 2015.

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An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to expand our business by using our common stock as consideration in an acquisition.

Although the depositary shares underlying our 6.75% Series A Fixed-Rate Non-Cumulative perpetual preferred stock (the “Series A Preferred Stock”) are currently traded on the [Nasdaq Global Market], there is currently very low liquidity, and we do not expect an active trading market for our depositary shares to develop or be sustained.

Because of this, it may be more difficult for holders of our depositary shares to sell their depositary shares.

We have several large shareholders, and such shareholders may independently vote their shares in a manner that you may not consider to be consistent with your best interest or the best interest of our shareholders as a whole.

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On any such matter, the interests of these shareholders may not coincide with the interests of the other holders of our common stock and any such difference in interests may result in that shareholder voting its shares in a manner inconsistent with the interests of other shareholders.

Our dividend policy may change without notice, and our future ability to pay dividends is also subject to regulatory restrictions.

Holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for the payment of dividends.

First Guaranty is obligated to make payments on its senior debt, subordinated debt and preferred stock before making dividend payments to common shareholders.

Although First Guaranty Bancshares, Inc.

and First Guaranty Bank prior to the Share Exchange, have paid a quarterly dividend to our shareholders for 114 consecutive quarters as of December 31, 2021, we have no obligation to continue paying dividends, and we may change our dividend policy at any time without prior notice to our common shareholders.

Our ability to declare and pay dividends is limited.

We have no obligation to continue paying dividends, and we may change our dividend policy at any time without prior notice to our common shareholders.

In addition, our ability to pay dividends will continue to be subject, among other things, to certain regulatory guidance and/or restrictions.

Future dividends, if any, will be declared and paid at the discretion of our board of directors and will depend on a number of factors, including our and First Guaranty Bank’s capital levels.

Subject to certain exceptions, the terms of our senior debt and subordinated debt prohibit us from paying dividends on shares of our capital stock at times when we are deferring the payment of interest on such subordinated debt.

Moreover, our ability to pay dividends on our common stock is limited by the terms of our Series A Preferred Stock which provides that if we have not paid dividends on the Series A Preferred Stock for the most recently completed dividend period, then no dividend or distribution shall be declared, paid, or set aside for payment on shares of our common stock.

Our principal source of funds used to pay cash dividends on our common stock will be cash we may hold from time to time as well as dividends that we receive from First Guaranty Bank.

Although First Guaranty Bank’s asset quality, earnings performance, liquidity and capital requirements will be taken into account before we declare or pay any future dividends on our capital stock, our board of directors will also consider our liquidity and capital requirements and our board of directors could determine to declare and pay dividends without relying on dividend payments from First Guaranty Bank.

Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends we may declare and pay and that First Guaranty Bank may declare and pay to us.

For example, Federal Reserve regulations implementing the capital rules required under Basel III do not permit dividends unless capital levels exceed certain higher levels applying capital conservation buffers.

In addition, the Federal Reserve has issued supervisory guidance advising bank holding companies to eliminate, defer or reduce dividends paid on common stock and other forms of capital, like the Series A Preferred Stock, where the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, the company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition or the company will not meet, or is in danger of not meeting, minimum regulatory capital adequacy ratios.

Recent supplements to this guidance reiterate the need for bank holding companies to inform their applicable reserve bank sufficiently in advance of the proposed payment of a dividend in certain circumstances.

The Series A Preferred Stock constitutes an equity security and ranks junior to all of our indebtedness and will rank junior to our and First Guaranty Bank’s future indebtedness.

Shares of the Series A Preferred Stock are equity interests in First Guaranty and do not constitute indebtedness.

Accordingly, shares of the Series A Preferred Stock and the related depositary shares are and will be junior in right of payment to any existing and all future indebtedness and other non-equity claims of First Guaranty with respect to assets available to satisfy claims on us, including in a liquidation of First Guaranty.

In the event of our bankruptcy, liquidation, dissolution or winding-up, our assets will be available to pay obligations on the Series A Preferred Stock and any parity stock only after all of our liabilities have been paid and any obligations we owe on any securities that rank senior to the Series A Preferred Stock then outstanding, if any, have been satisfied.

In case of such bankruptcy, liquidation, dissolution or winding-up, the Series A Preferred Stock will rank equally with any parity stock in the distribution of our assets.

Holders of the depositary shares may be fully subordinated to interests held by the U.S.

government in the event of a receivership, insolvency, liquidation or similar proceeding.

In addition, our existing indebtedness restricts payment of dividends on the Series A Preferred Stock, and any future indebtedness may further restrict payment of dividends on the Series A Preferred Stock.

The Series A Preferred Stock and the depositary shares representing the Series A Preferred Stock effectively rank junior to any existing and all future liabilities of our subsidiary First Guaranty Bank.

First Guaranty is a financial holding company and conducts substantially all of our operations through our subsidiary First Guaranty Bank.

Our right to participate in any distribution of the assets of our subsidiaries upon any liquidation, reorganization, receivership or conservatorship of any subsidiary (and thus the ability of the holder of the Series A Preferred Stock and the holders of the depositary shares to benefit indirectly from such distribution) will rank junior to the prior claims of that subsidiary’s creditors.

In the event of bankruptcy, liquidation or winding-up, there may not be sufficient assets remaining, after paying our and our subsidiaries’ liabilities, to pay amounts due on any or all of the Series A Preferred Stock and the depositary shares representing the Series A Preferred Stock then outstanding.

The Series A Preferred Stock and the depositary shares representing the Series A Preferred Stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the limited voting rights of the shares of Series A Preferred Stock.

Dividends on the Series A Preferred Stock are non-cumulative and discretionary.

If our board of directors does not authorize and declare a dividend for any dividend period, the holder of the Series A Preferred Stock, and therefore the holders of the depositary shares, will not be entitled to receive a dividend for such period, and such undeclared dividend will not accrue and be payable.

We will have no obligation to pay dividends for such dividend period, whether or not dividends are authorized and declared for any subsequent dividend period with respect to the Series A Preferred Stock.

Our board of directors may determine that it would be in our best interests to pay less than the full amount of the stated dividends on the Series A Preferred Stock or no dividend for any dividend period even if funds are available.

Factors that would be considered by our board of directors in making this determination include our financial condition, liquidity and capital needs, the impact of current and pending legislation and regulations, economic conditions, our ability to service any equity or debt obligations senior to the Series A Preferred Stock, any credit agreements to which we are a party, tax considerations and such other factors as our board of directors may deem relevant.

Unlike indebtedness, where principal and interest would customarily be payable on specified due dates, in the case of preferred stock like the Series A Preferred Stock dividends are payable only when, as and if authorized and declared by our board of directors or a duly authorized committee of the board and, as a Louisiana corporation and financial holding company, we are subject to restrictions on payments of dividends out of lawfully available funds as described elsewhere in this Annual Report on Form 10-K.

The holders of the Series A Preferred Stock, and therefore the holders of the depositary shares representing the Series A Preferred Stock, have limited voting rights.

Until and unless we are in arrears on our dividend payments on the Series A Preferred Stock for six quarterly dividend periods, whether consecutive or not, the holders of the Series A Preferred Stock, and therefore the holders of the depositary shares, have no voting rights with respect to matters that generally require the approval of voting shareholders, except with respect to certain fundamental changes in the terms of the Series A Preferred Stock, and except as may be required by the rules of any securities exchange or quotation system on which the Series A Preferred Stock is listed, traded or quoted or by Louisiana law.

If dividends on the Series A Preferred Stock are not paid in full for six dividend periods, whether consecutive or not, the holders of Series A Preferred Stock, voting together as a class with any other equally ranked series of preferred stock that have similar voting rights then outstanding, if any, will have the right, at the first annual meeting or special meeting held thereafter and at subsequent annual meetings, to elect two directors to our board.

The terms of the additional directors so elected will end upon the payment or setting aside for payment by us of continuous noncumulative dividends for at least twelve consecutive months on the Series A Preferred Stock and any other equally ranked series of preferred stock then outstanding, if any.

Holders of the depositary shares must act through the depositary to exercise any voting rights of the Series A Preferred Stock.

Although each depositary share is entitled to 1/40th of a vote, the depositary can only vote whole shares of Series A Preferred Stock.

While the depositary will vote the maximum number of whole shares of Series A Preferred Stock in accordance with the instructions it receives, any remaining fractional votes of holders of the depositary shares underlying such shares of Series A Preferred Stock will not be voted.

First Guaranty and First Guaranty Bank have incurred indebtedness, and may in the future incur additional indebtedness, which have rights that are senior to those of First Guaranty’s shareholders.

At December 31, 2022, First Guaranty had an aggregate of $56.9 million of senior and subordinated indebtedness outstanding.

The notes we have issued, as well as any note we may issue in the future, rank senior to shares of First Guaranty’s common and preferred stock.

In addition, any indebtedness owed by First Guaranty Bank is and will be structurally senior to the rights of the holders of First Guaranty’s common and preferred stock.

In the event of any bankruptcy, dissolution or liquidation of First Guaranty, these notes, along with First Guaranty’s other indebtedness, would have to be repaid before First Guaranty’s shareholders would be entitled to receive any of the assets of First Guaranty.

First Guaranty or First Guaranty Bank may from time to time issue, or assume in connection with an acquisition, additional subordinated indebtedness that would have to be repaid before First Guaranty’s shareholders would be entitled to receive any of the assets of First Guaranty or First Guaranty Bank.

An investment in our common stock or depositary shares is not an insured deposit and is not guaranteed by the FDIC.

An investment in our common stock or depositary shares is not a bank deposit and, therefore, is not insured against loss or guaranteed by the FDIC, any other deposit insurance fund or by any other public or private entity.

An investment in our common stock or depositary shares is inherently risky for the reasons described herein and our shareholders will bear the risk of loss if the value or market price of our common stock or depositary shares is adversely affected.

Item 1B – Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business