First Guaranty Bancshares, Inc. — 2013 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2013. The company is a Louisiana bank holding company with one subsidiary, First Guaranty Bank, operating 21 banking facilities across Louisiana. Figures below are consolidated; dollar amounts are in millions unless stated otherwise.
Key financial metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Total assets | $1,436.4 | $1,407.3 |
| Loans, net of allowance | $692.8 | $619.2 |
| Deposits | $1,303.1 | $1,252.6 |
| Borrowings | $6.3 | $15.8 |
| Stockholders’ equity | $123.4 | $134.2 |
| Net interest income | $39.8 | $42.1 |
| Provision for loan losses | $2.5 | $4.1 |
| Noninterest income | $7.5 | $11.1 |
| Noninterest expense | $31.0 | $31.2 |
| Net income | $9.1 | $12.1 |
| Net income available to common shareholders | $8.4 | $10.1 |
| Common earnings per share | $1.34 | $1.60 |
| Net interest margin | 2.92% | 3.20% |
| Return on average assets | 0.65% | 0.89% |
- Cash flow: Operating cash flow was $17.2 million; investing activities used $78.1 million and financing activities provided $36.2 million. Cash and cash equivalents decreased $24.7 million to $61.5 million.
- Capital and liquidity: The Bank was classified as well capitalized. At year-end, Bank total risk-based capital was 14.76%, Tier 1 risk-based capital 13.66%, and Tier 1 leverage capital 9.17%. Available lines of credit totaled $210.6 million.
- Asset quality: Nonperforming assets were $18.3 million, or 1.27% of assets, versus $23.5 million, or 1.67%, in 2012. Nonaccrual loans were $14.5 million. The allowance for loan losses was $10.4 million, equal to 1.47% of loans.
Material changes versus 2012
- Net income declined 24.2%; common earnings per share fell from $1.60 to $1.34. Net interest income decreased $2.3 million, and securities gains fell to $1.6 million from $4.9 million.
- Interest income on securities decreased $5.5 million, partly offset by $1.2 million of additional loan income and a $2.0 million reduction in interest expense. The lower loan-loss provision also supported results.
- Loans grew $73.7 million, led by commercial and industrial and non-farm non-residential real estate lending. Deposits rose $50.5 million; public funds accounted for 38.6% of deposits.
- Nonperforming assets decreased $5.3 million. Net charge-offs were $2.5 million, compared with $2.7 million in 2012.
- Equity fell $10.8 million. A securities-related accumulated other comprehensive loss of $9.1 million replaced a $6.0 million gain in 2012; common book value per share declined from $15.06 to $13.35.
Outlook, risks, and unusual items
- Management expected credit quality improvement to continue in 2014; it provided no specific earnings or revenue guidance. Management did not expect inflation to be a significant factor in 2014.
- Management attributed the securities portfolio’s unrealized losses primarily to higher market interest rates and stated it had the ability and intent to hold securities until recovery. No securities impairment was recorded in 2013.
- The company reported a liability-sensitive one-year repricing position. Its modeled net interest income declined 1.8% under a 100-basis-point rate increase, 5.2% under a 200-basis-point increase, and 4.6% under a 100-basis-point decrease. These are model estimates, not forecasts.
- Key risks include geographic concentration in Louisiana; significant commercial real estate lending (47.7% of loans were non-farm non-residential); interest-rate and credit risk; hurricane exposure; and dependence on municipal deposits, which were 38.6% of total deposits.
- Time deposits totaled $642.0 million, with $405.0 million scheduled to mature in 2014. The filing also reported $90.0 million of FHLB letters of credit pledged for public deposits and off-balance-sheet commitments to extend credit and unfunded lines totaling $145.8 million, plus $7.7 million of commercial and standby letters of credit.
- The company had $39.4 million of Series C preferred stock under the U.S. Treasury’s Small Business Lending Fund. Its dividend rate was 1.0% through December 31, 2015; the rate may rise to 9.0% if the shares remain outstanding beyond 4.5 years. Common dividends are subject to regulatory, capital, and preferred-dividend restrictions.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management also concluded disclosure controls and internal control over financial reporting were effective. The filing reported no material litigation or unresolved SEC staff comments.
Important facts for investors to verify
- Whether loan growth can offset lower securities income and continued pressure on net interest margin.
- The composition and performance of commercial real estate and commercial and industrial loans, and whether declining nonperforming assets and charge-offs persist.
- How securities values and accumulated other comprehensive income respond to interest-rate changes, including the impact on equity and regulatory capital.
- The stability and renewal terms of municipal deposits and large time deposits, including 2014 maturities and available contingent funding.
- The company’s plan for Series C preferred stock, its future dividend cost, and the capacity to sustain common dividends under applicable restrictions.
- The filing states public-fund deposits were $503.5 million and separately describes $90.0 million of FHLB letters of credit pledged for them; investors may wish to verify collateral and liquidity arrangements in the notes.