First Guaranty Bancshares, Inc. — FY 2020 Form 10-K
Business context and period. Louisiana bank holding company operating First Guaranty Bank, with 34 banking facilities serving Louisiana and Texas markets. This audited 10-K covers the fiscal year ended December 31, 2020; comparisons are primarily with FY 2019. Amounts below are U.S. dollars.
Key financial metrics
| Metric | FY 2020 / December 31, 2020 | FY 2019 / December 31, 2019 |
|---|---|---|
| Total assets | $2.473 billion | $2.117 billion |
| Total loans, net of unearned income | $1.844 billion | $1.525 billion |
| Total deposits | $2.166 billion | $1.853 billion |
| Shareholders’ equity | $178.6 million | $166.0 million |
| Net interest income | $74.7 million | $61.7 million |
| Noninterest income | $23.8 million | $8.3 million |
| Net income / diluted earnings per share as reported | $20.3 million / $2.09 | $14.2 million / $1.47 |
| Net interest margin | 3.35% | 3.41% |
| Return on average assets | 0.87% | 0.76% |
| Cash and cash equivalents at year-end | $299.6 million | $67.4 million |
| Borrowings | $116.6 million | $86.7 million |
| Allowance for loan losses | $24.5 million; 1.33% of loans | $10.9 million; 0.72% of loans |
Net income increased 42.7%. Net interest income after provision for loan losses was $59.8 million, versus $56.8 million. The GAAP efficiency ratio improved to 58.95% from 67.48%; excluding amortization and securities transactions, the company’s non-GAAP ratio was 68.44% versus 66.77%. FY 2020 operating cash flow was $23.8 million, investing cash flow was negative $128.5 million, and financing cash flow was positive $336.9 million. Cash increased $232.2 million.
The Bank was classified as well-capitalized at year-end: total risk-based capital 12.22%, Tier 1 risk-based capital 10.97%, and leverage ratio 8.58%. Management reported a 4.22% capital conservation buffer.
Material changes versus FY 2019
- Assets grew 16.8%, loans 20.9%, and deposits 16.9%. Loan growth reflected originations, commercial real estate purchases and PPP lending, as well as the full-year contribution from the November 2019 Union acquisition.
- Noninterest income rose substantially, mainly because of securities gains: $14.8 million in 2020 versus a $0.2 million loss in 2019. Net interest income increased, while interest expense declined 13.2% to $26.0 million; the margin nevertheless edged down six basis points as asset yields fell.
- Provision for loan losses rose to $14.9 million from $4.9 million, reflecting COVID-19 uncertainty, loan growth and other identified risks. Nonperforming assets increased to $30.9 million, or 1.25% of assets, from $21.9 million, or 1.04%.
- Noninterest expense increased to $58.0 million from $47.2 million, including acquisition-related staffing and occupancy, technology investment, higher regulatory assessments and $1.2 million more in OREO and repossession costs. The Union data conversion was completed in March 2020; related one-time costs were $0.5 million for the year.
- Cash and cash equivalents rose by $232.2 million. Investment securities fell by $188.0 million, and the company ended 2020 with no held-to-maturity securities.
Outlook, commentary, risks and unusual items
- COVID-19 and PPP: The Bank funded more than 900 PPP loans, peaking at approximately $111.1 million; $92.3 million remained at year-end. PPP fees generated were $3.4 million, of which $2.2 million was recognized and $1.2 million deferred. The Bank initially deferred payments on over 1,000 loans totaling about $590 million; approximately $18.3 million remained on deferral at year-end. Management said it continued to monitor credit quality amid economic uncertainty. No specific earnings or revenue guidance was provided.
- Credit quality and concentrations: Nonperforming loans were $28.7 million, including $13.1 million 90 days or more past due and still accruing; the latter compared with $2.6 million a year earlier. Management attributed some residential delinquencies to acquired Union loans contractually matured but not renewed after acquisition-related operating issues, and expected most to be renewed. Special-mention loans increased to $99.2 million, with exposure in oil and gas, hospitality and childcare. Commercial real estate concentration was reported at 354.41% of total capital. Real estate secured 71.4% of loans; non-farm, non-residential real estate represented 44.6%.
- Liquidity and funding: Public funds were $715.3 million, or 33.0% of deposits, and are subject to seasonal variation and depositor retention risk. The Bank also relied on a $50 million short-term FHLB advance and brokered deposits as pandemic liquidity measures; the $50 million advance was repaid in February 2021. Management stated liquidity was sufficient. Available borrowing capacity included $161.2 million of net FHLB capacity and $100.5 million in correspondent-bank federal funds lines.
- Interest-rate risk: The filing describes a liability-sensitive one-year cumulative gap. Its model estimated that an instantaneous +100 basis-point shock would reduce 12-month net interest income by 2.71%; a gradual +100 basis-point change would reduce it by 1.32%. The filing cautions that modeled outcomes depend on assumptions and may differ from actual results.
- Other unusual items and contingencies: The company sold securities during 2020 and recognized net securities gains of $14.8 million. Management’s discussion separately describes approximately $12.1 million of pretax gains from October sales of mortgage-backed and corporate securities. One corporate debt security incurred a $0.1 million credit impairment. Two lawsuits were disclosed: one with a possible loss range of $0–$0.5 million, for which judgment was rendered against the company and is being appealed (a $0.1 million liability was accrued); another with a possible range of $0–$1.5 million and no accrual.
- Shareholder returns and accounting: The company reported a $0.64 per-share cash dividend for 2020 and 110 consecutive quarters of dividends, subject to earnings, capital and regulatory limits. CECL adoption was deferred to 2023 for the company as a smaller reporting company; management was evaluating the impact. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile the $14.8 million reported net securities gain with management’s $12.1 million pretax gain description, including the transactions and timing represented by each figure.
- Track the progression of past-due, nonaccrual and special-mention loans, especially hospitality, commercial real estate, oil and gas, and acquired Union loans, and assess whether the $24.5 million allowance remains adequate.
- Monitor public-funds deposit stability, brokered-deposit reliance, borrowing capacity and liquidity after the February 2021 FHLB repayment.
- Review the outcomes and any changes in estimated exposure for both lawsuits, particularly the matter with judgment entered and the unaccrued customer-funds claim.
- Assess the effect of low interest rates, loan repricing and eventual CECL adoption on net interest income, credit provisioning and capital; the filing provides no formal earnings guidance.