First Guaranty Bancshares, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. This is an annual report, not a quarterly earnings filing. First Guaranty is a bank holding company operating 36 banking facilities, principally in Louisiana and Texas, with additional operations in Kentucky and West Virginia.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $3.553 billion | $3.151 billion |
| Total loans, net of unearned income, year-end | $2.749 billion | $2.519 billion |
| Total deposits, year-end | $3.009 billion | $2.724 billion |
| Net interest income | $84.7 million | $100.0 million |
| Net income | $9.2 million | $28.9 million |
| Net income available to common shareholders | $6.9 million | $26.6 million |
| Common earnings per share | $0.62 | $2.48 |
| Net interest margin | 2.69% | 3.47% |
| Shareholders’ equity, year-end | $249.6 million | $235.0 million |
Interest income rose 34.0% to $183.0 million, but interest expense rose 169.1% to $98.3 million as deposit and borrowing costs increased. The provision for credit losses was $3.7 million in both years. Noninterest income declined to $10.6 million from $11.0 million; noninterest expense increased to $79.7 million from $71.0 million. Return on average assets fell to 0.28% from 0.97%, and the efficiency ratio rose to 83.62% from 63.94%.
Cash flow and liquidity: Operating cash flow was $21.7 million, compared with $36.9 million in 2022. Investing activities used $206.1 million, principally reflecting loan growth; financing activities provided $387.6 million, including deposit growth and long-term borrowing proceeds. Cash and cash equivalents ended the year at $286.5 million, up from $83.2 million. The company reported $589.2 million of available lines of credit, including $259.6 million of net FHLB borrowing capacity; management stated liquidity was sufficient for current operating needs.
Debt and capital: Total borrowings reported on the balance sheet were $275.4 million, versus $183.4 million in 2022. This included $155.0 million of long-term FHLB advances, $39.1 million of senior long-term debt, and $15.0 million of subordinated debt. The Bank was classified as well-capitalized: year-end total risk-based capital was 11.20%, Tier 1 leverage was 8.94%, and the capital conservation buffer was 3.20%.
Material changes versus 2022
- Net income fell 68.1%, primarily because higher funding costs reduced net interest income, while operating expenses rose. The net interest margin contracted 78 basis points.
- Loans increased 9.1%. Growth was concentrated in construction and land development, one-to-four-family residential, and non-farm non-residential lending. Real estate secured 74.0% of loans; non-farm non-residential real estate was 37.9% of the portfolio.
- Asset quality weakened: nonperforming assets rose to $41.7 million, or 1.17% of assets, from $14.8 million, or 0.47%. Nonaccrual loans increased to $25.2 million from $13.6 million; loans 90 days delinquent and still accruing were $15.3 million versus $1.1 million.
- Deposits increased 10.5%, but noninterest-bearing demand deposits decreased $81.7 million. Time deposits increased $287.4 million, including growth in brokered deposits. Public funds were $1.195 billion, or 39.7% of deposits.
- The allowance for credit losses increased to $30.9 million, or 1.13% of loans, from $23.5 million, or 0.93%. Adoption of CECL on January 1, 2023 produced a $7.9 million after-tax reduction to retained earnings.
- Shareholders’ equity included $20.0 million of common stock issued through private placements. Common dividends remained $0.64 per share despite EPS of $0.62; common and preferred dividends together represented a reported 105.20% payout ratio.
Outlook, risks, contingencies and unusual items
- The filing gives no quantified earnings or revenue guidance. Management’s stated priorities include organic loan and deposit growth, maintaining public-funds relationships, asset quality, digital services, and selectively pursuing acquisitions.
- Management attributes margin pressure to rapid interest-rate increases and higher deposit costs. The Bank’s interest sensitivity analysis showed a liability-sensitive position with a negative cumulative one-year gap. Deposit competition and potential loss or repricing of public funds are key liquidity and earnings risks.
- Credit risks include the concentration in commercial real estate, construction and land development lending, and local markets. The filing reports a 369% CRE concentration measure against total capital under the relevant supervisory guidance. One shopping-center loan relationship with $36.5 million outstanding was downgraded; management cited appraisals totaling $47.4 million but noted full repayment on liquidation is not certain.
- Investment securities totaled $404.1 million. HTM securities had a disclosed fair value of $253.6 million against carrying value of $320.6 million, reflecting $67.1 million of gross unrealized losses. Management said it had the intent and ability to hold the securities until recovery or maturity. AFS securities had $13.0 million of net unrealized losses in AOCI.
- First Guaranty terminated its proposed Lone Star Bank acquisition in July 2023 and reported approximately $0.5 million of related costs. It also refinanced prior debt with a $40.3 million term loan and a $20.0 million revolving facility in October; the term loan matures in 2033 and the revolving facility in 2024 unless renewed.
- A lawsuit alleging customer funds were lost through third-party fraud remained in early stages. The disclosed possible loss range was $0–$1.5 million, and no liability was accrued. A separate disputed-interest-rate lawsuit was settled for $0.6 million in 2023.
- The company adopted CECL in 2023, which changed credit-loss measurement and increased estimates, including a $2.9 million reserve for unfunded commitments. The allowance estimate and its qualitative adjustments were identified as a critical audit matter. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the sharp increase in nonperforming and criticized loans, including the large commercial real estate exposures, results in further provisions, charge-offs, or collateral shortfalls.
- Deposit composition, brokered deposit reliance, public-funds retention and pricing, uninsured deposit exposure, and the availability and terms of contingent borrowing capacity.
- Whether asset yields can keep pace with deposit and borrowing costs, and how interest-rate movements affect net interest margin and securities values.
- The assumptions behind the CECL allowance and the degree to which the $30.9 million loan allowance and $2.8 million unfunded-commitment reserve cover expected losses.
- The implications of the HTM portfolio’s disclosed fair-value shortfall, including liquidity needs and the ability to hold securities through recovery or maturity.
- Dividend sustainability: 2023 common dividends per share exceeded common EPS, and distributions depend on earnings, capital, liquidity, and regulatory limits.
- Developments in the customer-fraud lawsuit and any other legal, regulatory, or acquisition-related costs or contingencies.