First Guaranty Bancshares, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with 2021. First Guaranty is a Louisiana bank holding company operating through First Guaranty Bank, with 36 banking facilities across Louisiana, Texas, Kentucky, and West Virginia. Results are consolidated and audited.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $3.151 billion | $2.878 billion |
| Total loans, net of unearned income | $2.519 billion | $2.159 billion |
| Total deposits | $2.724 billion | $2.596 billion |
| Net interest income | $100.0 million | $89.6 million |
| Net interest margin | 3.47% | 3.44% |
| Net income | $28.9 million | $27.3 million |
| EPS | $2.48 | $2.42 |
| Shareholders’ equity | $235.0 million | $223.9 million |
- Earnings and costs: Interest income rose 22.0% to $136.6 million, while interest expense increased 63.8% to $36.5 million as market rates and funding costs rose. The provision for loan losses was $3.7 million, versus $2.1 million. Noninterest income was $11.0 million; noninterest expense increased to $71.0 million from $63.9 million.
- Profitability: Return on average assets was 0.97% (1.01% in 2021); return on average common equity was 13.64% (14.06%). The reported GAAP efficiency ratio was 63.94% versus 63.63%.
- Cash flow: Operating activities provided $36.9 million; investing activities used $467.9 million, including $362.5 million of net loan growth; financing activities provided $252.3 million. Cash and cash equivalents fell $178.7 million to $83.2 million.
- Credit quality: Nonperforming assets declined to $14.8 million, or 0.47% of assets, from $20.0 million, or 0.70%. The allowance was $23.5 million, equal to 0.93% of loans, compared with $24.0 million and 1.11% a year earlier. Net charge-offs rose to $4.2 million from $2.5 million.
- Capital and dividends: First Guaranty Bank was categorized as well-capitalized. Its year-end ratios were 11.16% total risk-based capital, 10.31% Tier 1 risk-based capital, and 9.35% leverage. Common dividends were $0.64 per share; the company also paid $2.3 million in preferred dividends.
Financial position, liquidity, and material changes
- Loans grew 16.7%, led by commercial real estate, residential, commercial leases, construction, and multifamily lending. The loan-to-deposit ratio was 92.5%.
- Public funds deposits were $1.1 billion, or 40.9% of deposits, up from 36.9%. Management identifies these government deposits as an important funding source, but they can fluctuate or be lost when contracts expire.
- Year-end borrowings were $183.4 million, versus $49.6 million in 2021. This included $120.0 million of short-term FHLB advances, $20.0 million outstanding on a credit line, and $6.4 million in repurchase agreements. Senior long-term debt was $21.9 million and junior subordinated debt was $15.0 million. The filing reports $369.5 million of net FHLB borrowing capacity, plus other borrowing facilities.
- Investment securities totaled $451.5 million. During 2022, $165.8 million of available-for-sale securities were designated held-to-maturity. At year-end, held-to-maturity securities had amortized cost of $320.1 million and estimated fair value of $242.6 million, including $77.5 million in unrealized losses. Available-for-sale securities were $131.5 million; accumulated other comprehensive loss was $15.2 million, reflecting securities valuation losses.
- Uninsured deposits were estimated at $384.5 million, excluding public funds collateralized by securities or FHLB letters of credit. The filing also reports $246.97 million of commitments to extend credit, $253.91 million in unfunded credit-line commitments, and $14.22 million of letters of credit.
- The bank’s 2022 net interest rate spread narrowed to 3.08% from 3.18%, even as net interest margin edged higher. The filing’s one-year cumulative interest-rate gap was negative 37.1% of earning assets, indicating a liability-sensitive position under that measure.
Outlook, risks, and unusual items
- Outlook: Management’s stated priorities include loan growth, expanding lower-cost deposits, maintaining public-funds relationships, and pursuing acquisitions. The filing provides no specific quantitative earnings or margin guidance. It notes uncertainty from inflation, rising rates, competition for deposits, and economic conditions.
- Pending acquisition: On January 6, 2023, First Guaranty agreed to acquire Houston-based Lone Star Bank in an all-stock transaction. The merger was subject to conditions and regulatory approvals. The filing estimates a combined institution of approximately $3.2 billion in assets, $2.5 billion in loans, and $2.8 billion in deposits; share issuance would dilute existing ownership.
- Concentrations and credit risks: Commercial real estate represented 39.3% of loans; 68.7% of loans were secured by real estate. The company disclosed a 399% commercial real estate concentration measure under regulatory guidance. Other exposures include short-maturity loans with balloon payments, commercial leases, syndicated loans, and oil-and-gas-related businesses.
- Rate and liquidity risks: Higher rates could raise deposit and borrowing costs, pressure margins, and reduce securities values. Public-funds balances, uninsured deposits, and the sharp year-over-year cash decline are relevant liquidity monitoring points. Management stated it believed liquidity was adequate.
- Legal and other items: A customer lawsuit alleging losses related to third-party fraud had a possible loss range of $0 to $1.5 million; no liability was accrued. Separately, a loan-related lawsuit was settled in February 2023 for $0.6 million. The SEC requested information about the bank’s employee stock-grant practice; the filing says no process had been instituted and information was provided. Charge-offs included $1.9 million on Hurricane Ida relief consumer loans.
- Accounting and audit: The company adopted the expected-credit-loss standard (CECL) on January 1, 2023; the 2022 allowance used the incurred-loss model. The auditor identified allowance estimation, including loan risk ratings and qualitative factors, as a critical audit matter. The 2022 auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Key facts for investors to verify
- Whether the Lone Star acquisition closed, its final consideration and share dilution, integration costs, and realized benefits.
- Deposit trends and pricing, especially public-funds retention, uninsured deposits, and the company’s liquidity after the year-end cash decline.
- Actual effect of CECL adoption on the allowance, provision, and reported earnings, alongside trends in charge-offs and criticized loans.
- How unrealized securities losses, held-to-maturity classification, and interest-rate changes affect liquidity, capital, and flexibility to sell securities.
- Progress in managing commercial real estate concentration and balloon maturities, and any developments in the disclosed litigation or SEC information request.