First Guaranty Bancshares, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are against December 31, 2012. Unaudited consolidated results include First Guaranty Bank.
Financial performance and position
Amounts below are in millions except per-share data and percentages.
| Metric | Q1 2013 / March 31, 2013 | Comparable / prior period |
|---|---|---|
| Interest income | $12.50 | $14.42 in Q1 2012 |
| Net interest income | $9.58 | $10.85 in Q1 2012 |
| Net interest margin | 2.85% | 3.31% in Q1 2012 |
| Provision for loan losses | $0.90 | $1.20 in Q1 2012 |
| Net income | $2.09 | $3.05 in Q1 2012 |
| Income available to common shareholders; EPS | $1.81; $0.29 | $2.57; $0.41 in Q1 2012 |
| Operating cash flow | $5.23 | $6.88 in Q1 2012 |
| Cash and cash equivalents | $78.38 | $86.23 at December 31, 2012 |
| Total assets | $1,383.75 | $1,407.30 at December 31, 2012 |
| Net loans | $643.88 | $619.16 at December 31, 2012 |
| Total deposits | $1,227.79 | $1,252.61 at December 31, 2012 |
| Borrowings | $15.62 total: $14.67 short-term and $0.95 long-term | $15.85 at December 31, 2012 |
| Stockholders’ equity | $134.10 | $134.18 at December 31, 2012 |
- Net interest income fell 11.7% year over year. Interest income on securities declined $2.26 million, partly offset by $0.32 million higher loan interest income and $0.65 million lower interest expense.
- Noninterest income was $2.23 million, including $0.78 million of securities gains. Noninterest expense rose to $7.70 million from $7.25 million, including higher salaries, occupancy, data processing, and regulatory assessments.
- Net cash decreased $7.85 million during the quarter: operating activities provided $5.23 million, investing activities provided $13.26 million, and financing activities used $26.33 million. Financing cash use chiefly reflected a $24.82 million deposit decline and $1.29 million of dividends paid.
- The allowance for loan losses was $9.41 million, or 1.44% of loans; it covered 52.8% of nonperforming loans. First-quarter charge-offs were $1.93 million, compared with $0.39 million in Q1 2012.
- Nonperforming assets were $22.23 million, or 1.61% of assets, versus $23.54 million, or 1.67%, at year-end. Nonaccrual loans declined to $17.00 million; other real estate owned rose to $4.41 million from $2.39 million.
- Regulatory capital ratios remained above stated “well capitalized” minimums: consolidated Tier 1 leverage 8.98%, Tier 1 risk-based 14.03%, and total risk-based 15.09% at March 31, 2013.
Material changes and management commentary
- Management attributed lower earnings primarily to reduced securities income as called securities were replaced with shorter-term, lower-yielding investments. Average yield on interest-earning assets declined to 3.72% from 4.40%; the reported net interest margin fell to 2.85% from 3.31%.
- Loans increased 4.0% from year-end, while deposits decreased 2.0%, mainly due to seasonal public-fund fluctuations. Public funds were $445.7 million, or 36.3% of deposits.
- Impaired loans declined to $40.3 million from $48.6 million, and troubled debt restructurings declined to $9.3 million from $16.6 million. Management cited a $5.7 million relationship no longer considered impaired, charge-offs, transfers to other real estate, and loans returned to market terms.
- Available-for-sale and held-to-maturity securities totaled $619.6 million, down $41.6 million from year-end. Securities pledged to secure public funds totaled $460.9 million. Management reported no securities other-than-temporarily impaired.
- Common dividends were $0.16 per share, unchanged from Q1 2012. The SBLF preferred dividend declined to $0.3 million from $0.5 million; management expected it to decline further, with $0.2 million anticipated for Q2 2013, and expected loans to increase.
Outlook, risks, and contingencies
- The filing provides no formal earnings or revenue guidance. Management’s stated expectations include loan growth and lower SBLF preferred dividends during 2013.
- Interest-rate risk is material: the company reported a negative cumulative one-year repricing gap of $402.3 million, or 29.9% of earning assets. Management cautioned that the gap analysis excludes prepayments and actual rate responses may differ.
- Credit risks include a loan portfolio concentrated in real estate (74.5% of loans), particularly non-farm non-residential real estate (49.3%). Four credit relationships represented 54.2% of nonaccrual loans. Management’s allowance estimate is subjective and sensitive to economic conditions, collateral values, and borrower performance.
- Funding risk includes reliance on public funds and sizable time deposits: $427.7 million of certificates of deposit were at least $100,000, and $399.6 million of time deposits matured within one year. Management said available borrowing capacity and liquidity were sufficient for current needs.
- Off-balance-sheet commitments included $25.4 million to extend credit, $79.9 million of unfunded credit lines, and $5.5 million of letters of credit. Management said existing legal proceedings were not expected to have a material adverse effect.
- Management identified broader risks from economic conditions, competition, interest rates, securities markets, regulation, and issuer credit quality. It reported effective disclosure controls, no material change in internal control over financial reporting, and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether loan growth and improved credit classifications continue, and whether charge-offs or nonperforming assets increase.
- The adequacy of the $9.4 million loan-loss allowance relative to the concentrated commercial real-estate exposure and subsequent credit performance.
- Whether public-fund and large-certificate-of-deposit balances remain stable, including collateral requirements and deposit maturities.
- How securities reinvestment yields and interest-rate movements affect net interest margin and the value of the securities portfolio.
- Whether management’s expected 2013 loan growth and Q2 SBLF preferred dividend of $0.2 million are realized.