First Guaranty Bancshares, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results cover First Guaranty Bancshares and its wholly owned bank subsidiary. Amounts are in U.S. dollars; financial figures below are rounded.
Business context and key financial metrics
The Louisiana-based bank operates 34 banking facilities, primarily serving customers in Louisiana and Texas. Its lending includes commercial real estate, commercial and industrial loans, and a growing equipment-leasing portfolio.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $23.8 million | $19.0 million | $64.9 million | $55.8 million |
| Provision for loan losses | $0.3 million | $1.5 million | $1.8 million | $4.6 million |
| Noninterest income | $2.1 million | $3.6 million | $8.0 million | $9.3 million |
| Noninterest expense | $15.8 million | $14.5 million | $46.8 million | $42.6 million |
| Net income | $7.8 million | $5.2 million | $19.2 million | $14.2 million |
| Net income available to common shareholders | $7.2 million | $5.2 million | $18.4 million | $14.2 million |
| EPS, common | $0.74 | $0.53 | $1.89 | $1.46 |
| Net interest margin | 3.53% | 3.24% | 3.37% | 3.39% |
At September 30, 2021, total assets were $2.82 billion, net loans $2.05 billion, deposits $2.54 billion, and shareholders’ equity $219.1 million. Cash and cash equivalents were $269.8 million. The allowance for loan losses was $25.3 million, or 1.22% of loans. The common dividend was $0.16 per share in Q3.
For the first nine months, operating cash flow was $8.9 million, investing cash flow was negative $377.9 million, and financing cash flow was $339.1 million. Cash and cash equivalents declined $29.8 million from year-end 2020. The filing does not provide a clear standalone quarterly cash-flow figure.
Material changes versus comparable periods
- Q3 net income rose 50.3% year over year; nine-month net income rose 35.6%. Higher loan interest income, lower interest expense, and reduced loan-loss provision were key contributors.
- Loans grew $229.3 million (12.4%) and deposits grew $378.1 million (17.5%) from December 31, 2020. Loan growth included commercial and equipment leases, which increased to $223.6 million from $104.1 million, and multifamily lending. PPP loans declined to $43.2 million from $92.3 million.
- Noninterest income fell, mainly because securities gains were lower; Q3 included $0.2 million of net securities losses versus $0.8 million of gains a year earlier. Nine-month securities gains were $0.9 million versus $2.6 million.
- Noninterest expense increased, including higher salaries, occupancy, marketing, software, and regulatory assessment costs. The nine-month net interest margin slipped two basis points, while the Q3 margin improved 29 basis points year over year.
- Nonperforming assets declined to $22.9 million, or 0.81% of assets, from $30.9 million, or 1.25%, at year-end. However, nonaccrual loans rose to $17.8 million from $15.6 million, and special-mention loans increased to $157.0 million from $99.2 million, with much of the latter increase concentrated in hotel loans.
Liquidity, debt, capital, and notable items
- Short-term borrowings were zero at September 30, versus $50.0 million at year-end; repurchase agreements were $6.1 million. Senior long-term debt fell to $26.0 million from $42.4 million, and junior subordinated debentures were $14.8 million.
- The bank reported $412.8 million of net FHLB borrowing capacity, $100.5 million of federal funds lines, and a $6.5 million revolving line with no balance outstanding. Management stated liquidity was sufficient for current operating needs.
- Bank capital ratios at September 30 included a 10.39% Tier 1 leverage ratio, 10.39% Tier 1 risk-based ratio, and 11.48% total risk-based ratio. The capital conservation buffer was 3.48%, above the 2.50% minimum. The bank reported meeting minimum requirements and being well capitalized.
- In April, the company issued $34.5 million of 6.75% Series A preferred stock. Proceeds funded repayment of $13.3 million of senior debt and a $20.0 million capital contribution to the bank. Preferred dividends totaled $0.8 million for the nine months.
- The company transferred agency securities with approximately $160.0 million amortized cost from available-for-sale to held-to-maturity classification. Held-to-maturity securities totaled $153.3 million at amortized cost; accumulated other comprehensive income declined by $6.3 million during the nine months, primarily reflecting unrealized securities losses.
Outlook, commentary, and risks
- No formal earnings or financial guidance is provided. Management said it expects to renew most maturing non-public-funds time deposits at lower market rates and anticipates opportunities for Texas loan growth. It also expected several special-mention relationships to return to pass status in coming quarters.
- Management cited ongoing COVID-19 uncertainty as a potential source of future credit losses. COVID-related loan deferrals were approximately $2.4 million at quarter-end; Hurricane Ida-related deferrals were approximately $22.3 million.
- Hotel and motel loans totaled $156.6 million, below the company’s internal guidance limit of approximately $190 million. Special-mention loans rose, and the allowance depends on estimates and judgments about borrower conditions, collateral, and economic factors.
- Interest-rate risk is material: the reported cumulative one-year gap was negative $699.4 million. Modeling estimated net interest income would decline 3.00% under an instantaneous +400-basis-point shock and 4.79% under a gradual +400-basis-point increase. Management cautioned that modeled outcomes depend on assumptions.
- The company settled a case for $1.1 million in Q3 and recorded a $0.9 million insurance recovery receivable. It disclosed another lawsuit with a possible loss range of $0–$0.5 million and a $0.1 million accrual, plus a separate lawsuit with a possible loss range of $0–$1.5 million and no accrual.
- The SEC requested information about the bank’s employee stock grant program; the filing states that no process had been instituted. This is a request for information, not a disclosed enforcement proceeding. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether elevated special-mention and nonaccrual loan balances, particularly hotel exposures, translate into higher charge-offs or provisions.
- Whether growth in commercial leases and other loans sustains net interest income without weakening underwriting or liquidity.
- How deposit growth and mix evolve, especially the reliance on public funds, and whether deposit repricing benefits margins as management expects.
- The effects of securities valuation changes, the held-to-maturity classification, and interest-rate movements on earnings, equity, and liquidity.
- Developments in Hurricane Ida-related deferrals, the disclosed litigation, and the SEC’s information request concerning the employee stock program.