First Guaranty Bancshares, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual report, not a standalone fourth-quarter report. First Guaranty Bancshares is a Louisiana bank holding company operating First Guaranty Bank, with 21 banking facilities. The financial statements received an unqualified audit opinion.
Key financial results
| Metric | 2011 | 2010 |
|---|---|---|
| Total assets at year-end | $1.354 billion | $1.133 billion |
| Total deposits at year-end | $1.207 billion | $1.007 billion |
| Loans, net of unearned income | $573.1 million | $575.6 million |
| Net interest income | $39.5 million | $38.2 million |
| Net interest margin | 3.31% | 3.96% |
| Provision for loan losses | $10.2 million | $5.7 million |
| Net income | $8.0 million | $10.0 million |
| Net income available to common shareholders | $6.1 million | $8.7 million |
| Earnings per common share | $0.98 | $1.42 |
| Return on average assets | 0.65% | 0.99% |
| Stockholders’ equity at year-end | $126.6 million | $97.9 million |
| Borrowings at year-end | $15.4 million | $12.6 million |
Cash and cash equivalents totaled $112.4 million at year-end, up from $44.8 million. Operating cash flow was $18.0 million; investing activities used $84.5 million and financing activities provided $134.1 million. The allowance for loan losses was $8.9 million, or 1.55% of loans. Consolidated total risk-based capital was 14.75%; the Bank was categorized as well capitalized.
Material changes and notable items
- Net income fell 19.9%, while earnings available to common shareholders fell 30.3%. Management attributed the decline primarily to a $4.5 million increase in loan-loss provision expense; the higher provision reflected increased charge-offs and efforts to address problem assets.
- Net interest income rose 3.5%, but net interest margin contracted by 65 basis points. Securities interest income increased, while yields on earning assets declined.
- Assets and deposits grew about 19.5% and 19.8%, respectively, partly due to the July 1 acquisition of Greensburg Bancshares. The acquisition added approximately $63 million in loans and $78 million in deposits and produced a $1.7 million bargain-purchase gain.
- Loan balances were nearly flat year over year. Nonperforming assets declined to $28.9 million from $31.0 million; nonperforming loans were $23.2 million. Net charge-offs rose to $9.6 million from $5.3 million.
- The company issued $39.4 million of Treasury Series C preferred stock through the Small Business Lending Fund (SBLF) and redeemed its Series A and B Treasury preferred stock. The SBLF dividend rate was 5% in the fourth quarter of 2011 and can vary with qualified small-business lending, with higher rates possible under the program’s terms.
- Common dividends remained $0.58 per share for the year. A 10% stock dividend was paid in February 2012; reported share and per-share figures reflect that stock dividend.
Liquidity, risks, outlook, and contingencies
- Available borrowing capacity at year-end included $134.9 million at the Federal Home Loan Bank and $43.6 million through federal-funds and other correspondent lines. Management stated liquidity was sufficient for current operating needs.
- Funding concentration is notable: public funds were $431.9 million, or 35.8% of deposits; seven public entities accounted for 86.1% of public funds. Time deposits totaled $692.5 million, with $486.7 million scheduled to mature in 2012.
- Credit exposure is concentrated in real estate: 81.0% of loans were real-estate-related, including $268.6 million (46.8% of loans) in non-farm, non-residential real estate. Management also highlighted short contractual maturities and borrower balloon-payment risk.
- Nonaccrual loans included several large commercial-property relationships. Restructured loans totaled $17.5 million, concentrated in three relationships; the filing says these had not subsequently defaulted as of year-end. A $1.4 million commercial-loan charge-off involved collateral management determined was fraudulent; the company was pursuing recourse against the guarantor.
- Interest-rate modeling estimated net interest income would decline 1.7% under an instantaneous +100-basis-point shock and 5.4% under +200 basis points; the filing cautions that actual results may differ. Securities totaled $633.2 million, with 44.1% of the portfolio scheduled to mature after ten years. Gross unrealized losses were $1.6 million, offset by $8.3 million of unrealized gains; management considered losses temporary.
- Management said it did not expect inflation to be a significant factor in 2012. It also stated that difficult financial-market conditions were not expected to improve in the near future. The filing provides no earnings or revenue guidance.
- Risks include Louisiana economic and hurricane exposure, commercial real estate credit quality, deposit competition and public-fund withdrawals, changing interest rates, regulatory and compliance costs, and the SBLF’s future dividend cost and restrictions. The company reported no material legal proceedings and stated internal control over financial reporting was effective.
Important facts for investors to verify
- Whether credit quality and charge-offs improved sustainably after the elevated 2011 provision, including performance of large nonaccrual, impaired, and restructured credits.
- Whether allowance coverage remains adequate given real-estate concentration, local-market exposure, and collateral valuations.
- How the SBLF dividend rate changes with qualified small-business lending and what that means for common earnings, dividends, and capital flexibility.
- Whether public-fund deposit concentration and substantial 2012 time-deposit maturities create replacement-funding or liquidity pressure.
- Whether reported earnings are repeatable without the $1.7 million acquisition gain and $3.5 million net securities gains, and whether margin pressure persists.
- The effects of the acquisition and the company’s stated interest-rate sensitivity on future results; common shares have no active or liquid trading market.