First Guaranty Bancshares, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are with December 31, 2016. Unaudited consolidated results include First Guaranty Bancshares and its wholly owned bank subsidiary.
Financial performance and position
| Metric | Q1 2017 / March 31, 2017 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $1.572 billion | $1.501 billion at Dec. 31, 2016 |
| Total loans, net of unearned income | $994.4 million | $948.9 million at Dec. 31, 2016 |
| Total deposits | $1.402 billion | $1.326 billion at Dec. 31, 2016 |
| Net interest income | $12.7 million | $11.8 million in Q1 2016 |
| Net income / diluted? earnings per share | $3.25 million / $0.43 per common share | $3.15 million / $0.41 in Q1 2016 |
| Net interest margin / spread | 3.35% / 3.14% | 3.30% / 3.11% in Q1 2016 |
| Allowance for loan losses | $11.6 million; 1.17% of loans | $11.1 million at Dec. 31, 2016 |
| Shareholders’ equity | $126.9 million | $124.3 million at Dec. 31, 2016 |
Interest income was $15.6 million, up 8.3% year over year, while interest expense rose 13.1% to $2.9 million. Provision for loan losses was $0.7 million, versus $0.8 million. Noninterest income increased to $2.0 million from $1.8 million; noninterest expense rose to $9.0 million from $8.1 million. Net income increased 3.2% year over year.
Q1 cash flows were $2.7 million provided by operations, $72.3 million used in investing, and $69.6 million provided by financing. Cash and cash equivalents ended at $18.1 million, down $18,000 from year-end. Financing included a $76.1 million increase in deposits, partly offset by borrowings repayments and $1.2 million of dividends.
Debt at March 31 included $2.0 million of short-term borrowings, $21.3 million of senior long-term debt and $14.6 million of junior subordinated debentures. The company reported $95.5 million of available correspondent-bank federal funds lines, $28.1 million net FHLB borrowing capacity, and a $2.5 million revolving line with full availability. Management said liquidity was sufficient for current operating needs.
Material changes and operating trends
- Loans grew 4.8% from year-end, with growth led by non-farm non-residential real estate, commercial and industrial, and consumer lending. Real estate secured 70.1% of loans; non-farm non-residential loans were 43.8% of the portfolio.
- Deposits rose 5.7%, including growth in interest-bearing demand accounts and public funds. Public funds were 44.2% of deposits; brokered deposits were $93.2 million. Three fiscal-agency relationships represented about 40% of public funds held under fiscal-agency agreements.
- Management attributed the higher net interest margin to shifting earning assets from lower-yielding securities to higher-yielding loans. Average loan yield fell 14 basis points year over year to 5.06%, while average earning-asset yield rose 10 basis points to 4.12%.
- Nonperforming assets declined to $21.3 million, or 1.35% of assets, from $22.2 million, or 1.48%, at year-end. Nonaccrual loans were $21.0 million; three relationships made up 66.9% of that amount. Impaired loans were $29.0 million, slightly above year-end.
- Capital ratios remained above stated well-capitalized thresholds. At March 31, the consolidated tier 1 leverage, tier 1 risk-based, total risk-based and common equity tier 1 ratios were 8.08%, 10.49%, 12.68% and 10.49%, respectively. The Bank’s corresponding ratios were 9.11%, 11.83%, 12.79% and 11.83%.
Outlook, risks and unusual items
- First Guaranty agreed to acquire Premier Bancshares, Inc.; Premier shareholders approved the agreement on May 10, 2017. Closing was expected in Q2 or Q3 2017, subject to remaining regulatory approvals. Q1 noninterest expense included approximately $281,000 of merger-related costs.
- Q1 expense also included $26,000 related to the August 2016 South Louisiana flood. Management cited higher legal and professional fees as a key expense increase. No formal earnings or margin guidance was provided.
- Interest-rate sensitivity analysis showed a liability-sensitive position and estimated 12-month net interest income declines of 4.10% under an instantaneous +100-basis-point shock and 18.04% under +400 basis points; gradual +100 and +400 basis-point scenarios showed declines of 2.12% and 9.25%. Management cautioned that model assumptions and actual balance-sheet responses may differ.
- Credit risks include commercial real estate exposure, syndicated/shared national credits, and oil-and-gas-related lending. Approximately 2.7% of funded and 0.5% of unfunded commitments related to businesses supporting or servicing oil and gas operations. One $7.7 million nonaccrual commercial and industrial loan was an oil-and-gas-related shared national credit.
- Management considered the loan-loss allowance adequate, but noted estimates are subjective and sensitive to economic conditions, collateral values and borrower performance. The filing reported ordinary-course litigation and stated that any incremental liability was not expected to materially affect financial position; risk factors were unchanged from the 2016 Form 10-K.
- The company reported unrealized losses on securities but no new other-than-temporary impairment losses in Q1. It stated it had the intent and ability to hold securities in loss positions until recovery or maturity.
Important facts for investors to verify
- Whether the Premier/Synergy transaction received regulatory approvals and closed on the expected timetable, and its ultimate integration costs and financial impact.
- Whether deposit growth—particularly public funds, brokered deposits and large certificates—remains stable and cost-effective.
- Credit performance of the concentrated nonaccrual relationships, shared national credits and commercial real estate portfolio; assess allowance coverage against subsequent charge-offs and loan growth.
- Actual net interest income and deposit pricing as rates change, compared with the filing’s modeled rate-shock scenarios.
- Whether reported Q1 earnings growth persists after merger and flood-related costs and other elevated expenses.