First Guaranty Bancshares, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are with December 31, 2019 unless noted. Financial statements are unaudited. First Guaranty is a Louisiana-based bank holding company operating through First Guaranty Bank, with 34 banking facilities primarily in Louisiana and North Central Texas. The quarter includes the effects of the November 2019 Union Bancshares acquisition.
Financial results and condition
| Metric | Q1 2020 / March 31, 2020 | Comparison |
|---|---|---|
| Total assets | $2.251 billion | Up $133.9 million (6.3%) from year-end |
| Loans, net of unearned income | $1.544 billion | Up $18.6 million (1.2%) from year-end |
| Total deposits | $1.949 billion | Up $95.6 million (5.2%) from year-end |
| Net interest income | $17.9 million | $14.6 million in Q1 2019 |
| Net income / diluted or basic EPS as reported | $3.8 million / $0.39 per share | $3.1 million / $0.32 in Q1 2019 |
| Net interest margin | 3.57% | 3.29% in Q1 2019 |
| Cash and cash equivalents | $169.5 million | $67.4 million at year-end |
| Shareholders’ equity | $169.0 million | $166.0 million at year-end |
Interest income was $25.4 million versus $22.0 million a year earlier; interest expense was $7.5 million versus $7.4 million. Net interest income after the $1.2 million loan-loss provision was $16.7 million. Noninterest income was $2.4 million, including $0.5 million in securities gains, compared with $1.3 million and a $0.4 million securities loss in Q1 2019. Noninterest expense rose to $14.3 million from $11.2 million, including approximately $0.7 million of one-time Union merger costs. Net cash provided by operating activities was $4.2 million; investing activities used $31.3 million and financing activities provided $129.1 million, producing a $102.0 million increase in cash.
The allowance for loan losses was $12.0 million, or 0.77% of loans, compared with $10.9 million, or 0.72%, at year-end. Nonperforming assets rose to $27.2 million (1.21% of assets) from $21.9 million (1.04%); nonaccrual loans increased to $15.9 million from $14.4 million. Total liabilities were $2.082 billion. At quarter-end, short-term FHLB advances were $50.0 million, repurchase agreements $6.6 million, senior long-term debt $47.0 million, and junior subordinated debentures $14.7 million. The Bank reported that it was well capitalized; its total risk-based capital ratio was 11.94% and its capital conservation buffer was 3.94%.
Material changes and notable items
- Growth in net interest income reflected higher average earning assets, loan growth and a lower average cost of interest-bearing liabilities. Average loan yield increased to 5.96% from 5.87%; average interest-bearing liability cost declined to 1.85% from 2.06%.
- Expenses and funding costs were affected by the Union acquisition, including acquired branches and deposits. Management reported completion of the acquisition’s data conversion.
- The company sold securities to fund loan growth and manage interest-rate and liquidity risk. It transferred $52.6 million of securities from held-to-maturity to available-for-sale and sold securities previously classified as held-to-maturity, ending the HTM portfolio. Securities gains were $0.5 million; management reported no other-than-temporary impairment losses.
- Cash rose substantially, supported by deposit growth and additional short-term funding. Management said it increased on-balance-sheet liquidity by about $100 million before quarter-end, including a new $50 million FHLB advance at 0.71% fixed for 11 months and brokered deposits.
- Loans increased in non-farm commercial real estate and commercial and industrial categories, while construction and land-development balances declined. Real estate secured 72.1% of loans; 37.1% of the portfolio was floating-rate, with $289.8 million of floating-rate loans at their rate floors.
- Q1 2020 dividends were $0.16 per share; cash dividends paid totaled $1.6 million. The filing reports 107 consecutive quarterly dividends.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management said the duration and financial effects of COVID-19 were uncertain and that prolonged economic weakness could increase delinquencies, problem assets, collateral losses and required loan-loss provisions. Management expected economic uncertainty to continue for several months and said this could lead to further allowance increases. Lower interest rates also could reduce asset yields and net interest margin. The company disclosed a liability-sensitive one-year cumulative interest-rate gap; its modeled instantaneous +100 basis-point scenario showed a 2.20% decrease in net interest income over 12 months, while a −25 basis-point scenario showed a 3.68% increase. These are model estimates, not forecasts.
As of April 30, after quarter-end, the company reported more than 960 loan deferments totaling approximately $557 million, over 1,400 company relief loans totaling approximately $21 million, and more than 670 SBA Paycheck Protection Program loans approved or funded totaling approximately $107 million. Estimated PPP fees on loans approved or funded by that date were $3.3 million. The company elected CARES Act relief that permits eligible COVID-related loan modifications to be excluded from TDR accounting.
Off-balance-sheet exposure included $125.1 million of commitments to extend credit, $161.9 million of unfunded lines of credit and $9.7 million of letters of credit. One new facility had a $10.1 million construction commitment, of which $8.1 million had been incurred. The filing describes ordinary-course litigation, including a case with a possible loss range of $0 to $0.5 million and a $0.1 million accrual, and another with a possible loss range of $0 to $1.5 million and no accrual. Management stated that, based on information available, legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether COVID-related deferrals and relief lending translate into higher subsequent delinquencies, nonperforming assets, charge-offs or provisions; the filing’s quarter-end figures predate much of the reported April activity.
- The performance and risk concentrations of the loan book, including commercial real estate, oil-and-gas-related borrowers, public funds exposure, syndicated loans and larger nonaccrual relationships.
- Whether deposit growth and elevated liquidity are durable, particularly given public-funds seasonality, large time deposits and reliance on brokered deposits and FHLB funding.
- The ongoing effects of Union integration, merger expenses, acquired-loan discounts and purchase-accounting adjustments; the Union purchase-price allocation remained preliminary.
- Interest-rate sensitivity, funding costs and securities valuation, including the consequences of ending the held-to-maturity portfolio and the extent of unrealized securities gains and losses.
- Developments in the disclosed lawsuits, dividend capacity and regulatory capital. The filing reports Bank capital ratios but does not provide a clear consolidated holding-company regulatory capital ratio.