What changed in this filing

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Item 1. Business

2024-03-15 compared with 2023-03-16 · 35 added, 57 removed, 999 unchanged (8% of the section changed)

2 unchanged sentences

("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.

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/micropolitan 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.

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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 almost 90 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 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.

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

In 2023 we issued $20.0 million of common stock through two separate private placements.

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.

Most of our branches are located along the major Louisiana interstates of I-12, I-55, I-10, I-49 and I-20.

We have four branches in the Dallas-Fort Worth metropolitan area and one branch in Waco, Texas.

We have four branches in the Dallas-Fort Worth metroplex and one branch in Waco, Texas.

We have a loan production office in Lake Charles, Louisiana.

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Our loan to deposit ratio was 91.3% as of December 31, 2023.

The growth in our loan portfolio has broadened our customer base, reduced our interest rate risk exposure to fixed rate investment securities, and helped us expand our net interest margin.

The growth in our loan portfolio has broadened our customer base and reduced our exposure to fixed rate investment securities.

We have invested in the internal development of our lending department along with the select addition of experienced lenders.

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, 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 expect to continue to emphasize this business line in the future with loans to small businesses and real estate projects in our market area.

At December 31, 2022 loans secured by non-farm non-residential properties totaled $992.9 million, or 39.3% of our total loan portfolio.

At December 31, 2023 loans secured by non-farm non-residential properties totaled $1.0 billion, or 37.9% of our total loan portfolio.

Our non-farm non-residential loans are secured by commercial real estate generally located in our market area, which may be owner-occupied or non-owner occupied.

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All non-farm non-residential loans are appraised by outside independent appraisers approved by the board of directors.

Our non-farm non-residential loans are diversified by borrower and industry group, and generally secured by improved property such as hotels, office buildings, retail stores, gaming facilities, warehouses, manufacturing facilities, church buildings and other non-residential buildings.

Non-farm non-residential loans are generally made at rates that adjust above the prime rate as reported in the Wall Street Journal , that mature in three to five years and with principal amortization for a period of up to 20 years.

Our non-farm non-residential loans are diversified by borrower and industry group, and generally secured by improved property such as hotels, office buildings, healthcare facilities, retail stores, gaming facilities, warehouses, manufacturing facilities, church buildings and other non-residential buildings.

Non-farm non-residential loans are generally made at rates that adjust at or above the prime rate as reported in the Wall Street Journal , that mature in three to five years and with principal amortization for a period of up to 20 years.

We will also originate fixed-rate, non-farm non-residential loans that mature in three to five years with principal amortization of up to 20 years.

We have also recently developed a fully amortizing loan product that will have periodic interest rate price resets.

We have recently developed a fully amortizing loan product that will have periodic interest rate price resets which now represents the majority of our new origination and renewed loans.

Our largest concentration of non-farm non-residential loans is secured by hotels, and such loans are generally made only to hotel operators known to management.

We will finance the construction of the hotel project and upon completion the loan will convert to permanent financing with a balloon feature after three to five years.

Loans secured by non-farm non-residential real estate are generally larger and involve a greater degree of risk than residential real estate loans.

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We generally originate fixed-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which at December 31, 2023 was $726,200 for single-family homes in our market area.

At December 31, 2022, we held $29.3 million in jumbo loans that are greater than the conforming loan limit.

At December 31, 2023, we held $19.6 million in jumbo loans exceeded the conforming loan limit at origination.

We generally hold our one- to four-family residential real estate loans in our portfolio.

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At December 31, 2023, we had $118.9 million or 4.3% of our total loan portfolio in multifamily loans.

Such loans may be either fixed- or adjustable-rate loans tied to the prime rate with terms to maturity up to five years and amortization schedules of up to 20 years.

Such loans may be either fixed- or adjustable-rate loans tied to the prime rate with maturity or repricing dates up to five years and amortization schedules of up to 20 years.

We will originate multifamily loans in amounts up to 80% of the value of the multifamily property.

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Commercial leases generally have higher yields and shorter average lives than real estate secured loans.

The average size of our commercial leases was approximately $17.0 million at December 31, 2022 .

The weighted average size of our commercial leases was approximately $14.1 million at December 31, 2023.

Commercial leases totaled $285.4 million, or 10.4% of our total loan portfolio at December 31, 2023.

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Interest rates are determined based on our liquidity requirements, interest rates paid by our competitors, and our growth goals and applicable regulatory restrictions and requirements.

At December 31, 2022, we had $20.3 million in brokered deposits the majority of which were in reciprocal deposit programs.

Our investment policy is to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and to meet pledging requirements for our public funds and other borrowings.

At December 31, 2023, we had $251.2 million in brokered deposits, of which $175.8 million were time deposits and $75.4 million were money market deposits.

The objectives of our investment policy are to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and to meet pledging requirements for our public funds and other borrowings.

Our investment securities consist of:

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During the last five years, our securities portfolio has generated $61.7 million of pre-tax income.

For the year ended December 31, 2022, we had no security with an other than temporary impairment recognized.

For the year ended December 31, 2023, we had no allowance for credit losses on available for sale securities and a $0.1 million allowance on held to maturity securities.

We face intense competition both in making loans and attracting deposits.

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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.

In 2023 our employees volunteered approximately 4,500 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.

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Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized.

The CARES Act required that the community bank leverage ratio be temporarily lowered to 8%.

The federal regulators issued a rule making the reduced ratio effective for the second quarter of 2020.

Another rule was issued to transition back to the 9% community bank leverage ratio by increasing the ratio to 8.5% for calendar year 2021 and to 9% thereafter.

The CARES Act required that the community bank leverage ratio be temporarily lowered to 8% effective for the second quarter of 2020, and the requirement transitioned back to 9% in the first quarter of 2022.

Eligible institutions may opt into and out of the community bank ratio framework on their quarterly call report.

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Assessments for most insured depository institutions are now based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years.

The assessment range (inclusive of possible adjustments) is for institutions of First Guaranty Bank’s size 1.5 basis points to 30 basis points.

The FDIC has authority to increase insurance assessments.

1 unchanged sentence

Management cannot predict what assessment rates will be in the future.

As a result of the bank failures during early 2023 and in an effort to strengthen public confidence in the banking system and protect depositors, regulators imposed a special assessment on banking organizations based on a banking organization’s estimated uninsured deposits as of December 31, 2022, excluding the first $5 billion in estimated uninsured deposits.

Based on our calculation, we do not expect the Bank to be impacted by this special assessment.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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The CRA requires the FDIC to provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system.

First Guaranty Bank's latest FDIC CRA rating, dated September 24, 2019, was "satisfactory."

First Guaranty Bank's latest FDIC CRA rating, dated October 11, 2022, was "satisfactory."

The federal banking agencies approved additional rules in 2023, which begin to take effect on April 1, 2024, aimed at strengthening and modernizing the CRA.

Federal Reserve System.

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Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations;

• Anti-Money Laundering Act of 2020, including the Corporate Transparency Act;

• Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties.

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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 did not have more than $3.0 billion in total assets as of June 30, 2022.

Although we had over $3.0 billion in assets at December 31, 2023, under Federal Reserve guidance, First Guaranty will maintain its status as a “small bank holding company” until March 31, 2024 or earlier in certain circumstances.

Once we are no longer a small bank holding company, both the Bank and First Guaranty will be required to maintain specified ratios of capital to risk-weighted assets.

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.

48 unchanged sentences

Our loan portfolio includes non-farm non-residential real estate loans, primarily loans secured by commercial real estate such as office buildings, hotels and retail facilities.

At December 31, 2022, our non-farm non-residential loans totaled $992.9 million, or 39.3% of our total loan portfolio.

At December 31, 2023, our non-farm non-residential loans totaled $1.0 billion, or 37.9% of our total loan portfolio.

Commercial real estate values have decreased in recent quarters in response to higher interest rates and a number of other factors;

in response, bank regulators have been increasing scrutiny on banks’ exposure to commercial real estate.

Our non-farm non-residential real estate loans expose us to greater risk of nonpayment and loss than one- to four-family family residential mortgage loans because repayment of the loans often depends on the successful operation and income stream of the borrowers.

49 unchanged sentences

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 credit losses in the future.

Any future credit deterioration, 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.

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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.

The Federal Reserve increased interest rates significantly during 2022 and continued to increase interest rates in 2023.

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

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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 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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Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual borrowers with respect to the underlying securities, and instability in the credit markets.

Any of the foregoing factors could cause an other-than-temporary impairment in future periods and result in realized losses.

The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

At December 31, 2022, First Guaranty had no corporate debt securities with other-than-temporary impairment.

Any of the foregoing factors could cause a credit related impairment in future periods and result in realized losses.

The process for determining whether impairment is credit related usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

At December 31, 2023, First Guaranty had no allowance for credit losses on available for sale securities.

Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on our business, financial condition and results of operations.

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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.

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.

The LIBOR yield curve is also utilized in the fair value calculation of many of these instruments.

The reform of major interest benchmarks led to the announcement of the United Kingdom’ s Financial Conduct Authority, the regulator of the LIBOR index, that LIBOR would not be supported in its current form after the end of 2021.

In December 2020, the administrator of LIBOR announced its intention to (i) cease the publication of the one-week and two-month U.S.

dollar LIBOR after December 31, 2021, and (ii) cease the publication of all other tenors of U.S.

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

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.

dollar reference interest rate, it is too early to predict the financial impact this rate index replacement may have, if at all.

First Guaranty had approximately $47.7 million in loans indexed to LIBOR at December 31, 2022.

Difficult market conditions have adversely affected the industry in which we operate.

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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.

During 2023, the FDIC imposed a special assessment to recover losses resulting from the resolution of Silicon Valley Bank, Santa Clara, California, and Signature Bank, New York, New York;

similar special assessments or permanent increases may result in increased 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.

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.

6 unchanged sentences

As of December 31, 2023, $55.4 million, or 2.0% of our total loan portfolio, was comprised of loans where all or some portion of the loans were guaranteed through the SBA, USDA or FSA lending programs, and we intend to grow this segment of our portfolio in the future.

The majority of this portfolio, $5.9 million, was comprised of loans originated under the SBA PPP program at December 31, 2022.

From time to time, the government agencies that guarantee these loans reach their internal limits and cease to guarantee loans.

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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