First Guaranty Bancshares, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are to December 31, 2018 unless stated otherwise. Financial statements are unaudited. First Guaranty Bancshares is a Louisiana bank holding company operating First Guaranty Bank, with 26 banking facilities in Louisiana and North Central Texas.
Financial performance and condition
| Metric | Q1 2019 / March 31, 2019 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $22.0 million | $18.3 million in Q1 2018 |
| Net interest income | $14.6 million | $13.8 million in Q1 2018 |
| Net interest margin | 3.29% | 3.32% in Q1 2018 |
| Provision for loan losses | $0.8 million | $0.6 million in Q1 2018 |
| Noninterest income / expense | $1.3 million / $11.2 million | $1.6 million / $10.2 million in Q1 2018 |
| Net income / diluted earnings per share | $3.1 million / $0.36 | $3.6 million / $0.41 in Q1 2018 |
| Total assets | $1.91 billion | $1.82 billion |
| Loans, net of allowance | $1.29 billion | $1.21 billion |
| Deposits | $1.71 billion | $1.63 billion |
| Cash and cash equivalents | $166.2 million | $128.0 million |
| Shareholders’ equity | $154.6 million | $147.3 million |
- Profitability and margins: Net income declined 13.0% year over year. Net interest income grew, but deposit-cost increases outpaced asset-yield gains: the average yield on interest-earning assets rose 55 basis points to 4.96%, while the average cost of interest-bearing liabilities rose 69 basis points to 2.06%. Net interest spread was 2.90%, down from 3.04%. Return on average assets was 0.68% versus 0.84%; return on average common equity was 8.43% versus 10.29%.
- Cash flow: Operating activities provided $7.1 million; investing activities used $48.3 million, principally reflecting $73.5 million of net loan growth; financing activities provided $79.4 million, mainly from an $81.5 million increase in deposits. Cash and cash equivalents increased $38.2 million during the quarter.
- Debt and liquidity: Senior long-term debt was $19.1 million and junior subordinated debentures were $14.7 million. There were no short-term borrowings outstanding. The company reported $100.2 million of available FHLB borrowing capacity and $100.5 million of correspondent-bank federal funds lines; management said liquidity was sufficient for current needs.
- Credit quality: Nonperforming assets increased to $14.7 million, or 0.77% of assets, from $10.0 million, or 0.55%. Nonaccrual loans rose to $13.0 million from $8.7 million, primarily in non-farm non-residential and agricultural loans. The allowance was $11.0 million, or 0.85% of loans, and equaled 80.8% of nonperforming loans. Six relationships represented 58.9% of nonaccrual loans.
- Capital and shareholder returns: The Bank reported a 9.26% Tier 1 leverage ratio, 11.69% Tier 1 risk-based ratio, and 12.44% total risk-based ratio; it stated it was well capitalized. The quarterly dividend was $0.16 per share. The company did not issue shares under its at-the-market offering during the quarter.
Material changes versus comparable periods
- Loan growth supported a 20.1% increase in interest income, while securities interest income fell by $0.5 million as the average securities balance declined $104.6 million.
- Interest expense increased 62.3% to $7.4 million, driven by higher deposit balances and rates, particularly time deposits. This, along with increased expenses and securities-sale losses, contributed to lower earnings.
- Noninterest expense increased $1.0 million; salaries and benefits rose with new hires. Noninterest income fell $0.3 million, mainly due to a $0.4 million securities loss versus a $10,000 gain in Q1 2018.
- Management said securities sales were part of a plan begun in 2018 to shift funds toward loan growth and reduce interest-rate risk. The portfolio declined $30.5 million from year-end.
- Net loans grew 6.0% from year-end. Deposits grew 5.0%, with time deposits up $57.7 million. Assets increased 5.0%.
- Accumulated other comprehensive loss improved by $5.6 million during the quarter, principally due to reduced unrealized losses on available-for-sale securities; comprehensive income was $8.7 million.
Outlook, risks, contingencies and unusual items
- The filing provides no specific earnings, revenue, or margin guidance. Management emphasized attracting noninterest-bearing and other lower-cost deposits to support margins and said it would continue evaluating deposit products and funding for loan growth.
- Interest-rate risk is material: the company reported a liability-sensitive one-year cumulative gap of negative $410.5 million. Its model estimated net interest income would decline 2.21% under an instantaneous 400-basis-point rate increase and 1.06% under a gradual increase of the same size. These are modeled scenarios, not forecasts, and depend on assumptions.
- Funding concentration merits attention: public funds were $677.4 million, or 39.6% of deposits. Management described these balances as generally stable but subject to seasonal changes and possible negotiation by public entities; three relationships accounted for 36% of public funds under fiscal agency agreements.
- Loan concentration includes real estate-secured loans, which were 76.2% of the portfolio, and non-farm non-residential loans, which were 46.7%. Oil-and-gas support or service businesses represented approximately 3.6% of funded and 0.5% of unfunded loan commitments.
- Off-balance-sheet exposures included $104.8 million of commitments to extend credit, $145.2 million of unfunded lines of credit, and $6.9 million of letters of credit. Two facilities under construction carried commitments totaling $12.9 million.
- Management reported no outstanding TDRs at March 31; $1.6 million of prior TDRs returned to market terms and had complied with modified terms for 12 months. Legal proceedings were described as ordinary-course matters, with no expected material adverse effect. The filing reported no material change in previously disclosed risk factors.
- First Guaranty adopted the new lease standard in Q1, recording a $0.9 million right-of-use asset and lease liability. It is evaluating the forthcoming expected-credit-loss standard (CECL); the impact was not yet quantified.
Key facts for investors to verify
- Whether rising deposit costs and time-deposit competition continue to pressure net interest margin and earnings.
- Subsequent trends in nonaccrual loans, criticized or special-mention loans, charge-offs, and allowance coverage—especially in agricultural and commercial real estate exposures.
- The stability and pricing of public-funds deposits, large certificates of deposit, and other funding sources, alongside actual liquidity and borrowing capacity.
- Progress and final costs for the two facility projects, and whether securities repositioning continues to produce realized losses.
- The eventual CECL adoption impact, and any changes in capital ratios, credit assumptions, or dividend capacity.