Business Context and Reporting Period
First Guaranty Bancshares, Inc. is a Louisiana bank holding company operating First Guaranty Bank, with 21 banking facilities across Southeast, Southwest and North Louisiana. This Form 10-K reports the fiscal year ended December 31, 2012; comparisons are primarily with fiscal 2011.
Financial Performance and Position
| Metric | 2012 | 2011 |
|---|---|---|
| Total assets at year-end | $1.407 billion | $1.354 billion |
| Total deposits at year-end | $1.253 billion | $1.207 billion |
| Loans, net of unearned income | $629.5 million | $573.1 million |
| Net interest income | $42.1 million | $39.5 million |
| Net interest margin | 3.23% | 3.31% |
| Net income | $12.1 million | $8.0 million |
| Net income available to common shareholders | $10.1 million | $6.1 million |
| Common earnings per share | $1.60 | $0.98 |
| Operating cash flow | $16.9 million | $18.0 million |
| Allowance for loan losses | $10.3 million; 1.64% of loans | $8.9 million; 1.55% of loans |
Net income rose 50.1%, principally because the loan-loss provision fell $6.1 million to $4.1 million. Net interest income increased 6.5%, while interest expense declined $2.0 million. Total noninterest income was $11.1 million, including $4.9 million of net securities gains; noninterest expense increased to $31.2 million from $28.8 million. The efficiency ratio increased to 58.56% from 56.77%.
Year-end stockholders’ equity was $134.2 million, including $39.4 million of Series C preferred stock; common stockholders’ equity was $94.7 million. Consolidated total risk-based capital was 15.31%, Tier 1 risk-based capital 14.13%, and Tier 1 leverage capital 9.24%. The Bank was classified as well capitalized.
Cash and cash equivalents declined $26.2 million to $86.2 million. Investing activities used $82.8 million, while financing activities provided $39.7 million. Reported borrowing was $15.8 million, comprising $14.7 million short-term and $1.1 million long-term. Additional stated borrowing capacity included $99.0 million at the FHLB, net of letters of credit, and $76.6 million in correspondent-bank lines.
Material Changes Versus 2011
- Assets increased 3.9%; loans increased 9.8%, with commercial and industrial loans up $49.4 million and non-farm, non-residential real estate loans up $44.1 million.
- Deposits increased 3.8%. Time deposits fell $44.1 million as demand and savings balances grew; management said the shift toward lower-cost core deposits reduced funding costs.
- Nonperforming assets decreased to $23.5 million from $28.9 million. Nonperforming loans were $21.1 million, compared with $23.2 million, and other real estate owned fell to $2.4 million from $5.7 million.
- Net charge-offs declined to $2.7 million from $9.6 million. The allowance nevertheless increased to $10.3 million, or 1.64% of loans, from $8.9 million, or 1.55%.
- The securities portfolio increased to $661.2 million. Its contractual weighted-average maturity shortened to 7.0 years from 10.2 years; available-for-sale securities increased while held-to-maturity securities declined, principally because of called bonds.
- 2011 results included a $1.7 million gain on acquisition related to the 2011 Greensburg Bancshares merger; there was no comparable acquisition gain in 2012.
Outlook, Commentary, Risks and Unusual Items
- The filing provides no quantified earnings or growth guidance. Management said it did not expect inflation to be a significant factor in 2013 and described continued uncertainty in financial markets and the economy.
- Interest-rate exposure remains important: the filing reports a negative cumulative one-year gap of $492.2 million, or 35.9% of earning assets, while modeled net interest income changes were modestly positive under +100 and +200 basis-point shocks and slightly negative under a -100 basis-point shock. Management cautions that actual results may differ from model assumptions.
- Credit risk is concentrated in real estate and Louisiana. Non-farm, non-residential real estate represented 49.6% of loans; 74.7% of loans were secured by real estate. Management also highlighted borrowers’ balloon maturities and the possibility of further losses or allowance increases.
- Public funds were $470.5 million, or 37.6% of deposits; five public entities accounted for $395.3 million of those balances. Their withdrawal could pressure liquidity. Time deposits due within one year totaled $394.0 million.
- The company had $39.4 million of Treasury SBLF Series C preferred stock outstanding, carrying a 5.0% dividend rate at year-end. The rate may rise under program terms, including to 9.0% if the preferred stock remains outstanding beyond 4.5 years; common dividends are subject to restrictions.
- The company reported $4.9 million of net securities gains, $1.4 million of other-real-estate write-downs, and $16.6 million of troubled debt restructurings at year-end. Two previously restructured loans totaling $1.8 million subsequently defaulted, according to the filing’s detailed disclosures.
- Off-balance-sheet commitments included $26.8 million to extend credit, $71.4 million in unfunded lines, and $5.5 million of letters of credit. Management reported no losses on commitments in 2012.
- The filing identifies regulatory and compliance costs, competition, dependence on net interest income, hurricane exposure, operational and cyber risks, and the illiquidity of the company’s unlisted common stock as risks. Management reported no material-adverse-effect legal proceedings. The independent auditor gave an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.
Important Facts for Investors to Verify
- Whether the lower 2012 loan-loss provision and improved asset-quality measures are sustainable, particularly given $20.7 million of nonaccrual loans and $48.6 million of impaired loans.
- The performance, collateral values and concentration of commercial real estate exposures, along with upcoming loan maturities and balloon-payment refinancing risk.
- The stability and pricing of municipal deposits, including the five large public-fund depositors, and the availability of stated contingent borrowing capacity.
- The quality and sustainability of earnings excluding $4.9 million of securities gains, and the trajectory of net interest margin, operating expenses and efficiency.
- The cost and dividend terms of SBLF preferred stock, applicable restrictions on common dividends, and the company’s ability to maintain capital while funding growth.
- The valuation and interest-rate sensitivity of the securities portfolio, including unrealized losses and the effect of any securities sales on earnings, equity or regulatory capital.