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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-03-17 · 312 added, 211 removed, 775 unchanged (40% of the section changed)

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First Guaranty Bancshares is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana.

Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 35 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles and Alexandria, Louisiana and Dallas-Fort Worth-Arlington, Waco, Texas and Mideast markets in Kentucky and West Virginia.

Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 30 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, 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.

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Total shareholders' equity was $226.2 million and $255.0 million at December 31, 2025 and December 31, 2024, respectively.

Net income was $12.4 million and $9.2 million for the years ended December 31, 2024 and 2023, respectively.

Net (loss) income was $(56.0) million and $12.4 million for the years ended December 31, 2025 and 2024, respectively.

We generate most of our revenues from interest income on loans, interest income on securities, sales of securities, ATM and debit card fees and service charges, commissions and fees.

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Because noninterest-bearing sources of funds, such as noninterest-bearing deposits also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

The increase in net income was caused principally by an increase in net interest income of $3.7 million, an increase in noninterest income of $14.2 million, and a decrease in noninterest expense of $2.5 million, partially offset by an increase in provision for credit losses of $16.3 million.

The decrease in net income was the result of a decrease in net interest income of $1.5 million, an increase of $61.7 million in the provision to the credit allowance, a decrease in noninterest income of $16.3 million, and an increase in noninterest expense of $5.1 million, which was attributable to a goodwill impairment charge of $12.9 million.

Changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

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Financial highlights for the fourth quarter and years ended December 31, 2025 and 2024:

• Net (loss) income for each of the years ended December 31, 2025 and 2024 was $(56.0) million and $12.4 million, respectively, a decrease of $68.5 million.

The loss in 2025 was primarily driven by the provision for credit losses and a $12.9 million goodwill impairment charge.

• Total assets increased $105.6 million, or 2.7%, to $4.1 billion at December 31, 2025 when compared with December 31, 2024.

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Total deposits were $3.6 billion at December 31, 2025, an increase of $156.6 million, or 4.5% compared with December 31, 2024.

Retained earnings were $73.0 million at December 31, 2024, an increase of $5.0 million compared to $68.0 million at December 31, 2023.

Retained earnings were $14.1 million at December 31, 2025, a decrease of $58.9 million compared to $73.0 million at December 31, 2024.

Shareholders' equity was $226.2 million and $255.0 million at December 31, 2025 and December 31, 2024, respectively.

• Net income for each of the years ended December 31, 2024 and 2023 was $12.4 million and $9.2 million, respectively.

• Earnings per common share were $0.81 for the year ended December 31, 2024 and $0.62 for the year ended December 31, 2023.

• (Loss) earnings per common share were $(4.17) for the year ended December 31, 2025 and $0.81 for the year ended December 31, 2024.

Total weighted average common shares outstanding were 13,985,460 and 12,501,035 at December 31, 2025 and December 31, 2024, respectively.

• The allowance for credit losses was 1.97% of total loans at December 31, 2025 compared to 1.29% at December 31, 2024.

• The provision for credit losses totaled $20.0 million for 2024 and $3.7 million in 2023.

• Net interest income for 2025 was $86.9 million compared to $88.4 million for 2024.

• Noninterest income for 2024 was $24.7 million compared to $10.6 million for 2023.

• The provision for credit losses totaled $81.7 million for 2025 and $20.0 million in 2024.

• Charge-offs were $77.2 million for 2025 and $18.6 million for the same period in 2024.

Recoveries totaled $0.9 million for 2025 and 2024.

• Net gains on the sale of loans for the year ended December 31, 2025 was $0 compared to $1.5 million for the year ended December 31, 2024.

• Noninterest expense totaled $82.2 million for the year ended December 31, 2025 (including $12.9 million of goodwill impairment) compared to $77.1 million for the year ended December 31, 2024.

• First Guaranty had $35.1 million of other real estate owned as of December 31, 2025 compared to $0.3 million at December 31, 2024.

The largest component of OREO consists of a $23.3 million property that was foreclosed upon in the fourth quarter of 2025.

As part of the foreclosure, the bank purchased the first mortgage from a senior lender, which resulted in a net book balance of $23.3 million.

First Guaranty subsequently sold a $7.0 million OREO property in January 2026.

• The net interest margin was 2.28% for 2025 and 2.47% for 2024.

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At December 31, 2025, available for sale securities, at fair value, totaled $676.6 million, an increase of $395.5 million when compared to $281.1 million at December 31, 2024.

The increase in available for sale securities was primarily due to purchases of mortgage-backed securities.

At December 31, 2025, held to maturity securities, at amortized cost and net of the allowance for credit losses, totaled $322.7 million as compared to $321.6 million at December 31, 2024.

The allowance for credit losses for HTM securities was $0.2 million at December 31, 2024, an increase of $0.1 million when compared to $0.1 million at December 31, 2023.

The allowance for credit losses for HTM securities was $0.2 million at December 31, 2025 and December 31, 2024.

• Total loans net of unearned income were $2.1 billion at December 31, 2025 a net decrease of $624.0 million from December 31, 2024.

Total loans net of unearned income are reduced by the allowance for credit losses which totaled $34.8 million at December 31, 2024 and $30.9 million at December 31, 2023.

First Guaranty adopted ASC 326 effective January 1, 2023 and recorded a cumulative adoption adjustment to the allowance of $7.1 million.

• Nonaccrual loans increased $83.3 million to $108.5 million at December 31, 2024 compared to $25.2 million at December 31, 2023.

The increase in total nonaccrual loans was concentrated primarily in non-farm non-residential and multifamily loans.

Total loans net of unearned income are reduced by the allowance for credit losses which totaled $40.8 million at December 31, 2025 and $34.8 million at December 31, 2024, respectively.

• Nonaccrual loans decreased $48.9 million to $59.6 million at December 31, 2025 compared to $108.5 million at December 31, 2024.

• At December 31, 2025, the largest 10 nonperforming loan relationships comprise 74% of total nonperforming assets.

Additional details on the nonperforming relationships are as follows:

A $23.3 million loan relationship secured by an independent living center located in Louisiana;

the loan was transferred to other real estate owned in the fourth quarter of 2025.

A $14.9 million loan relationship secured by an assisted living center located in Louisiana;

the loan was placed on nonaccrual in the second quarter of 2025.

Payments received on the loan in the fourth quarter of 2025 reduced the balance by $0.2 million.

A $8.8 million loan relationship secured by an assisted living center located in Texas;

the loan was placed on nonaccrual in the third quarter of 2025.

A $7.0 million loan relationship secured by land located in Texas;

the loan was transferred to other real estate owned in the second quarter of 2025.

The property was charged off $0.4 million in the fourth quarter of 2025 and subsequently sold in January 2026.

A $5.7 million commercial lease loan for an automotive parts wholesaler;

the loan was placed on nonaccrual and charged down $26.2 million in the fourth quarter of 2025.

A $5.2 million loan relationship was placed on nonaccrual during the second quarter of 2025.

The loan is secured by multifamily apartment complexes located in Louisiana.

A $1.4 million guaranteed loan secured by livestock and farmland located in Louisiana;

the loan was placed in nonaccrual in the fourth quarter of 2024.

A $1.3 million loan secured by commercial real estate in Texas;

the loan was placed on nonaccrual during the third quarter of 2024.

A $1.3 million loan secured by retail real estate in Kentucky;

the loan was placed on nonaccrual during the fourth quarter of 2025.

A $1.2 million loan secured by multiple office buildings located in West Virginia;

the loan was placed on nonaccrual during the second quarter of 2025.

• First Guaranty charged off $47.8 million in loan balances during the fourth quarter of 2025.

The details of the charged-off loans were as follows:

First Guaranty charged off $0.3 million in consumer loans during the fourth 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 $0.1 million in unsecured loans.

First Guaranty charged off $0.2 million on a multifamily loan during the fourth quarter of 2025.

This relationship had no remaining principal balance as of December 31, 2025.

First Guaranty charged off $3.3 million on a non-farm non-residential loan during the fourth quarter of 2025.

This relationship was moved into OREO in the fourth quarter.

First Guaranty charged off $43.4 million against the commercial lease loans to an auto parts manufacturer during the fourth quarter of 2025.

This relationship had a remaining principal balance of $5.7 million as of December 31, 2025.

Smaller loans and overdrawn deposit accounts comprised the remaining $0.6 million of charge-offs for the fourth quarter of 2025.

• Special mention loan relationships totaled $329.4 million as of December 31, 2025.

• Substandard loan relationships totaled $347.5 million as of December 31, 2025.

• Doubtful loan relationships totaled $9.4 million as of December 31, 2025.

• Return on average assets was (1.43)% and 0.34% for the years ended December 31, 2025 and 2024, respectively.

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• First Guaranty paid preferred cash dividends of $2.3 million during 2025 and 2024.

• As previously announced, on March 28, 2024, First Guaranty issued a $30.0 million subordinate note in a private placement.

• As previously announced, on June 28, 2024, the Bank consummated a sale-leaseback transaction relating to two stand-alone branches and a portion of the headquarters building which also contains a branch (collectively, the “Properties”).

The aggregate cash purchase price was $14.7 million.

The sale-leaseback transaction resulted in a pre-tax gain of approximately $13.3 million, or $10.5 million after tax.

Aggregate first full year of rent expense under the Lease Agreements will be approximately $1.3 million pre-tax, or $1.0 million after tax.

Recent Developments

• In the first quarter of 2025, First Guaranty closed three branches and consolidated two existing branches into one location on March 7, 2025.

These branches were located in Louisiana.

The impact of the branch closures and consolidation is not expected to materially affect operations.

• On March 10, 2026, First Guaranty Bank entered into an agreement with Armstrong Bank, Muskogee, Oklahoma, to sell the Bank's Texas operations, consisting of five branches and related deposits, loans and certain other assets, to Armstrong Bank.

The transaction is expected to consist of approximately $270 million in deposits and $110 million in loans.

• On March 20, 2026, First Guaranty entered into a second amendment to its promissory note with Smith & Tate Investment, L.L.C., which further amends the promissory note originally dated October 5, 2023, as previously amended on June 4, 2025.

The second amendment extends the existing waiver of quarterly principal payments from March 31, 2026 through March 31, 2028 and extends First Guaranty’s option during this period to satisfy interest payments either in cash or through the issuance of shares of the Company’s common stock, based on the closing bid price immediately preceding the interest payment date.

Smith & Tate is controlled by Edgar Ray Smith, III, a director and principal shareholder of First Guaranty.

• On March 20, 2026, First Guaranty entered into a second amendment to its Floating Rate Subordinated Note due March 28, 2034 with Smith & Tate, which further amended the subordinated note previously amended on June 4, 2025.

The second amendment extends First Guaranty’s ability to elect to satisfy quarterly interest payments either in cash or through the issuance of shares of First Guaranty’s common stock, based on the closing bid price immediately preceding the interest payment date.

Smith & Tate is controlled by Edgar Ray Smith, III, a director and principal shareholder of First Guaranty.

Critical Accounting Estimates

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Net loans decreased $629.9 million, or 23.7%, to $2.0 billion at December 31, 2025 from December 31, 2024.

Commercial and industrial loans decreased $77.5 million primarily due to paydowns.

Construction and land development loans decreased $69.4 million principally due to the conversion of existing loans to permanent financing.

Commercial lease loan balances decreased $65.2 million primarily due to paydowns on the existing lease portfolio.

First Guaranty adopted a change in its business plan in July 2024 that focused on reducing risk in the balance sheet, including risk associated with the loan portfolio.

As part of this strategy, First Guaranty has reduced loan originations, charged-off loan balances and conducted select loan sales, which have each contributed to a decline in loan balances.

Non-farm non-residential loan balances decreased $211.3 million primarily due to the sale of loans and payoffs.

Construction and land development loans decreased $180.6 million principally due to the sale of loans, charge-offs, and the conversion of existing loans to permanent financing.

Commercial lease loan balances decreased $144.6 million primarily due to paydowns on the existing lease portfolio and charge-offs.

First Guaranty's commercial lease portfolio generally has higher yields than commercial real estate loans but shorter average lives.

Commercial and industrial loans decreased $28.8 million primarily due to paydowns.

One-to four-family loans decreased $21.6 million primarily due to paydowns.

Multifamily loans decreased $20.9 million primarily due to paydowns and charge-offs.

Consumer and other loans decreased $9.2 million primarily due to paydowns.

Agricultural loans decreased $5.5 million primarily due to seasonal activity.

Farmland loans increased $3.5 million due to seasonal activity.

One-to four-family loans increased $5.5 million primarily due to new originations.

Multifamily loans increased $46.2 million primarily due to the conversion of existing construction loans to permanent financing and the origination of new loans.

Non-farm non-residential loan balances increased $114.0 million primarily due to new originations and the conversion of construction and land development loans to permanent financing.

Farmland loans decreased $3.8 million due to seasonal activity.

First Guaranty had approximately 3.3% of funded and 1.7% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations.

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As part of the management of risks in our loan portfolio, First Guaranty had previously established an internal guidance limit of approximately $200.0 million for its hotel and hospitality portfolio.

First Guaranty had $407.1 million in loans related to our Texas markets at December 31, 2024 which was an increase of $31.4 million or 8.4% from $375.7 million at December 31, 2023.

First Guaranty had $335.5 million in loans related to our new Mideast markets in Kentucky and West Virginia at December 31, 2024 which was an increase of $57.5 million or 20.7% from $278.1 million at December 31, 2023.

First Guaranty had $192.6 million in loans related to our Texas markets at December 31, 2025 which was a decrease of $214.4 million or 52.7% from $407.1 million at December 31, 2024.

As noted above, First Guaranty has entered into an agreement to sell its Texas operations.

First Guaranty had $323.1 million in loans related to our Mideast markets in Kentucky and West Virginia at December 31, 2025 which was a decrease of $12.5 million or 3.7% from $335.5 million at December 31, 2024.

Syndicated loans at December 31, 2025 were $50.3 million, of which $21.1 million were shared national credits.

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39.6% of the loan portfolio is scheduled to mature within five years from December 31, 2025.

First Guaranty initiated a process to transfer any LIBOR indexed loans to alternative reference rates such as the prime rate or SOFR as LIBOR was discontinued for repricings after June 30, 2023.

Commercial real estate (“CRE”) has received increased regulatory scrutiny in recent quarters due to valuation concerns associated with the increase in market interest rates and the impact of the COVID-19 pandemic.

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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 requires personal guaranties on CRE loans.

First Guaranty generally approves CRE loans with loan-to-values of 80% or less.

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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 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 December 31, 2025.

First Guaranty generally does not finance multi-story office buildings in major metropolitan areas.

The largest CRE loan secured by a hotel or motel totaled $19.4 million.

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The largest CRE loan secured by an office related property totaled $20.9 million and is located in West Virginia.

The largest CRE loan secured by an apartment complex totaled $26.0 million and is located in Texas.

The largest CRE loan secured by an apartment complex totaled $40.4 million and is located in Louisiana.

The largest healthcare related loan is a $33.5 million property secured by an assisted living center located in Alabama.

The largest CRE loan under construction totaled $40.4 million for an apartment complex and is secured by a property located in Louisiana.

The largest CRE loan under construction totaled $16.6 million for a multipurpose CRE building and is secured by a property located in Louisiana.

Loan Portfolio Maturities .

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Allowance for credit losses to nonaccrual loans 68.40 % 32.08 %

Non-performing assets were $120.4 million, or 3.03%, of total assets at December 31, 2024, compared to $41.7 million, or 1.17%, of total assets at December 31, 2023, which represented an increase in non-performing assets of $78.6 million.

The increase in non-performing assets occurred primarily due to an increase in nonaccrual loans, partially offset by a decrease in loans 90 days greater delinquent and still accruing and other real estate owned.

Net loan charge-offs to average loans 3.17 % 0.64 %

Top 10 Nonperforming Assets

December 31, 2025

(in thousands) Balance Allocated Reserve Origination Year Location

Asset Description

1 Independent Living Center OREO $ 23,301 $ — 2021 Louisiana

2 Assisted Living Center 14,910 $ — 2019 Louisiana

3 Assisted Living Center 8,846 — 2023 Texas

4 Land Development OREO* 7,000 — 2022 Texas

5 Commercial Lease 5,711 — 2024 Multistate

6 Apartment Complex 5,244 857 2023 Louisiana

7 Farmland 1,450 — 2020 Louisiana

8 Commercial Real Estate 1,308 28 2017 Texas

9 Commercial Building 1,281 1,227 2020 Kentucky

10 Commercial Building 1,217 21 2023 West Virginia

$ 70,268 $ 2,133

*Property was sold as of January 2026

Non-performing assets were $95.5 million, or 2.34%, of total assets at December 31, 2025, compared to $120.4 million, or 3.03%, of total assets at December 31, 2024, which represented a decrease in non-performing assets of $24.9 million.

The decrease in non-performing assets occurred primarily due to a decrease in nonaccrual loans and loans 90 days greater delinquent and still accruing, partially offset by an increase in other real estate owned.

Nonperforming loans included loans previously classified as purchase credit deteriorated following the adoption of CECL.

Nonaccrual loans increased from $25.2 million at December 31, 2023 to $108.5 million at December 31, 2024.

The increase in total nonaccrual loans was concentrated primarily in non-farm non-residential and multifamily loans.

Nonaccrual loans decreased from $108.5 million at December 31, 2024 to $59.6 million at December 31, 2025.

The decrease in total nonaccrual loans was concentrated primarily in non-farm non-residential and multifamily loans.

Non-performing assets included $4.5 million in loans with a government guarantee, or 4.73% of non-performing assets.

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At December 31, 2025 loans 90 days and greater delinquent and still accruing totaled $0.8 million, a decrease of $10.7 million or 93.1% from $11.5 million at December 31, 2024.

The decrease in loans 90 days or greater delinquent and still accruing was concentrated primarily in non-farm non-residential loans.

Other real estate owned at December 31, 2024 totaled $0.3 million, a decrease of $0.9 million from $1.3 million at December 31, 2023.

The decrease in loans 90 days or greater delinquent and still accruing was concentrated primarily in construction and land development and non-farm non-residential loans.

Other real estate owned at December 31, 2025 totaled $35.1 million, an increase of $34.8 million from $0.3 million at December 31, 2024.

$7.0 million of other real estate owned as of December 31, 2025 was comprised of a land development project that was subsequently sold in January 2026.

First Guaranty also transferred $4.4 million of existing bank owned properties previously used as either operating branches or future branch development to other real estate owned.

The Bank plans to sell these properties.

At December 31, 2025, the largest 10 non-performing loan relationships comprise 74% of total non-performing loans.

Additional details on the non-performing relationships are as follows:

A $23.3 million loan relationship secured by an independent living center located in Louisiana;

the loan was transferred to other real estate owned in the fourth quarter of 2025.

A $14.9 million loan relationship secured by an assisted living center located in Louisiana;

the loan was placed on nonaccrual in the fourth quarter of 2024.

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.

A $23.0 million loan relationship was placed on nonaccrual at June 30, 2024.

The loan relationship originally totaled $37.0 million and was secured by five retail shopping center properties located in the Midwest.

First Guaranty initiated liquidation of the collateral with two properties sold in the fourth quarter of 2024.

The proceeds, net of charge-offs, reduced the balance to $23.0 million.

First Guaranty anticipates continued reduction in this loan relationship through additional sales of properties in 2025.

A $7.4 million loan relationship contractually matured at the end of the third quarter of 2024 and was greater than 90 days at December 31, 2024.

The loan is secured by land located in Texas.

A $4.0 million loan relationship contractually matured at the end of the third quarter of 2024 and was greater than 90 days at December 31, 2024.

The loan is secured by a hotel located in Louisiana.

First Guaranty and the borrower satisfactorily renewed the relationship in January 2025.

It was removed from the nonperforming category and moved to performing in January of 2025.

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.

the loan was placed on nonaccrual in the second quarter of 2025.

Payments received on the loan in the fourth quarter of 2025 reduced the balance by $0.2 million.

An $8.8 million loan relationship secured by an assisted living center located in Texas;