First Guaranty Bancshares, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. First Guaranty is a Louisiana bank holding company operating through First Guaranty Bank, with 36 banking facilities and lending and deposit activity primarily in Louisiana and Texas; it added loan and deposit production offices in Kentucky and West Virginia during 2021.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets | $2.878 billion | $2.473 billion |
| Total loans, net of unearned income | $2.159 billion | $1.844 billion |
| Total deposits | $2.596 billion | $2.166 billion |
| Net interest income | $89.6 million | $74.7 million |
| Provision for loan losses | $2.1 million | $14.9 million |
| Net income | $27.3 million | $20.3 million |
| Net income available to common shareholders | $25.9 million | $20.3 million |
| EPS (adjusted for 10% stock dividend) | $2.42 | $1.90 |
| Net interest margin | 3.44% | 3.35% |
| Return on average assets | 1.01% | 0.87% |
| Efficiency ratio (GAAP) | 63.63% | 58.95% |
Interest income was $111.9 million and interest expense was $22.3 million. Total noninterest income was $10.8 million, including $0.7 million of net securities gains. Noninterest expense rose to $63.9 million from $58.0 million. Cash provided by operating activities was $26.5 million; investing activities used $452.6 million and financing activities provided $388.5 million. Cash and cash equivalents declined $37.7 million to $261.9 million.
Shareholders’ equity increased to $223.9 million from $178.6 million. The Bank was well-capitalized; its year-end Tier 1 leverage ratio was 8.71% and total risk-based capital ratio was 11.22%. The company reported $43.2 million in long-term advances and debt, plus $6.4 million in repurchase agreements; senior long-term debt was $25.2 million and junior subordinated debentures were $14.8 million. Available FHLB borrowing capacity was reported at $456.3 million, with $3.2 million of FHLB advances outstanding.
Changes versus the prior year
- Net income increased 34.3%, supported by loan growth, lower funding costs, and a much smaller loan-loss provision.
- Loans grew 17.1% and deposits 19.9%. Commercial leases expanded to $246.0 million from $104.1 million, while PPP loans declined to $35.4 million from $92.3 million as earlier loans were forgiven.
- Net interest margin improved nine basis points as the loan mix increased and funding costs declined. Average asset yield nevertheless fell 23 basis points, while the average cost of interest-bearing liabilities fell 37 basis points.
- Noninterest income fell to $10.8 million from $23.8 million, chiefly because securities gains declined to $0.7 million from $14.8 million. Excluding securities transactions, noninterest income increased to $10.0 million from $9.0 million.
- Asset quality indicators improved overall: nonperforming assets fell to $20.0 million, or 0.70% of assets, from $30.9 million, or 1.25%. Nonaccrual loans, however, increased to $16.7 million from $15.6 million, and classified special-mention loans rose to $138.7 million from $99.2 million.
- Common book value per share rose to $17.81 from $16.66; tangible book value per share rose to $16.13 from $14.92. AOCI shifted from $0.6 million of income to a $6.6 million loss, largely reflecting unrealized losses on available-for-sale securities.
Outlook, risks, and unusual items
- Management’s stated priorities include growing loans and core deposits, expanding small-business, SBA, USDA, and commercial lease lending, maintaining asset quality, developing digital services, and selectively pursuing acquisitions. The filing does not provide quantified earnings or growth guidance.
- Management cited improvement in COVID-related economic conditions as a reason for lower 2021 provisioning, but noted that uncertainty could lead to higher future loan-loss provisions. About $12.4 million of loans were on deferral related to Hurricane Ida at year-end.
- Credit concentration is material: non-farm, non-residential real estate represented 40.9% of loans; 66.8% of loans were secured by real estate. Commercial real estate concentration subject to heightened supervisory guidance was 363.93% of total capital. The hotel and hospitality portfolio was $182.8 million.
- Public funds were $957.9 million, or 36.9% of deposits, creating funding sensitivity to government deposit balances and renewal decisions. Uninsured deposits were estimated at $667.5 million.
- Interest-rate exposure is notable. The filing reports a negative cumulative one-year repricing gap of $734.2 million, while modeled instantaneous rate increases of 100 to 400 basis points indicated higher 12-month net interest income; these estimates rely on assumptions and are not forecasts. Some floating-rate loans were at their rate floors.
- The company issued $34.5 million of 6.75% Series A perpetual preferred stock in April 2021, used $13.3 million of proceeds to redeem senior debt, and contributed $20.0 million to the Bank. Preferred dividends were $1.4 million. A 10% common stock dividend was paid in December 2021; the company reported 114 consecutive quarterly common dividends.
- Legal matters include an appealed judgment in a loan-interest lawsuit (possible loss of $0–$0.5 million; $0.1 million accrued) and a customer-funds lawsuit (possible loss of $0–$1.5 million; no accrual). A separate case settled for $1.1 million, with a $0.9 million insurance recovery receivable recorded.
- The SEC requested information about the company’s employee stock grant program; the filing says no process had been instituted and describes the matter as a request for information. The auditor issued unqualified opinions on the financial statements and internal controls; the allowance for loan and lease losses was identified as a critical audit matter.
Important facts for investors to verify
- Whether the increase in special-mention loans, hotel exposure, and commercial lease balances leads to deterioration, additional provisions, or charge-offs.
- The durability and pricing of public-funds deposits, including collateral requirements and the effect of withdrawals or repricing on liquidity and margins.
- Realized and unrealized effects of securities portfolio positioning, including the held-to-maturity transfer and the year-end unrealized loss in AOCI.
- Progress and any outcome of the SEC information request concerning the employee stock grant program, and developments in the disclosed lawsuits.
- Dividend capacity and preferred-stock obligations, taking account of regulatory limits on Bank distributions and the company’s debt service.