Company Overview

First Guaranty Bancshares, Inc. (NASDAQ:FGBI) is a Louisiana-based bank holding company that has weathered economic storms and emerged as a resilient community banking institution. With a history spanning over a century, the company has navigated through various market cycles, adapting its strategies to meet the evolving needs of its customer base.

Founded in 1934 as First Guaranty Bank, the company has since grown to become a prominent financial services provider in Louisiana and Texas, offering a range of commercial and personal banking solutions. First Guaranty Bancshares, Inc. is a Louisiana corporation and a financial holding company headquartered in Hammond, Louisiana. The company's wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana and Texas customers through 35 banking facilities.

Growth and Expansion

Through strategic acquisitions and organic growth, First Guaranty has expanded its footprint, maintaining a strong presence in various markets. In 2007, First Guaranty Bancshares acquired Homestead Bancorp, expanding its presence in Louisiana. This was followed by the acquisitions of Premier Bancshares, Inc. in 2017 and Union Bancshares, Incorporated in 2019, which further strengthened the company's footprint in Louisiana and expanded into new markets in Texas, Kentucky, and West Virginia.

Community Banking Focus

The company's unwavering commitment to community banking is evidenced by its personalized approach to customer service, emphasis on relationship-building, and focus on understanding the unique needs of its local markets. This dedication has allowed First Guaranty to foster deep-rooted connections with its clients, cultivating a loyal customer base that has weathered economic challenges alongside the bank. The company's emphasis on personal service and access to its officers and directors has been a key factor in its ability to compete successfully in its markets.

Challenges and Legal Matters

Over the years, First Guaranty has faced various challenges, including navigating changing economic conditions and regulatory environments. In 2021, the company settled a lawsuit for $1.1 million, which resulted in a $0.9 million receivable from its insurer. During the second quarter of 2024, First Guaranty received $0.5 million of the $0.9 million receivable, with the remaining $0.4 million being written off.

Financials

As of September 30, 2024, First Guaranty reported total assets of $3.9 billion, a significant increase from the $3.6 billion reported at the end of 2023. This growth is largely attributed to the bank's strategic expansion and its ability to capitalize on emerging opportunities within its diverse geographic footprint. The company's loan portfolio has also experienced steady growth, reaching $2.8 billion at the end of the third quarter of 2024, up from $2.75 billion at the close of 2023, a 0.8% increase.

The bank's deposit base has also seen substantial expansion, with total deposits reaching $3.4 billion as of September 30, 2024, a notable 14.0% increase from the $3.01 billion reported at the end of 2023. This growth in deposits is a testament to the trust and confidence that First Guaranty's customers have placed in the institution, underscoring the bank's strong reputation and ability to attract and retain a diverse funding base.

For the full fiscal year 2023, First Guaranty reported revenue of $183.01 million and net income of $9.22 million. The company generated operating cash flow of $21.71 million and free cash flow of $6.76 million. In the most recent quarter (Q3 2024), the bank reported revenue of $26.679 million, representing a year-over-year growth of 12.32%. Net income for the quarter stood at $1.927 million, with operating cash flow of $4.854 million and free cash flow of $7.746 million.

The increase in revenue for the third quarter was primarily due to growth in the loan portfolio and higher yields on interest-earning assets. The increase in net income was driven by the increase in revenue, partially offset by higher interest expense and provision for credit losses.

Liquidity

Despite the challenges posed by the evolving interest rate environment, First Guaranty has demonstrated its adaptability and prudent risk management practices. The bank's net interest margin, a key metric that measures the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities, was 2.52% for the nine months ended September 30, 2024, a decrease of 23 basis points from the 2.75% reported for the same period in the prior year. This contraction in net interest margin was primarily driven by the rising cost of interest-bearing liabilities as market interest rates increased.

To mitigate the impact of the changing interest rate landscape, First Guaranty has strategically adjusted its asset-liability management strategies. The bank has enhanced its deposit pricing and product mix to better align with the prevailing market conditions, while also optimizing its investment portfolio to generate improved returns. These proactive measures have enabled the institution to maintain its profitability and continue supporting its community-focused initiatives.

First Guaranty maintains a strong liquidity position, with a debt-to-equity ratio of 0.76 and cash reserves of $367.62 million as of September 30, 2024. The bank has access to $100.5 million in federal funds lines of credit, a $20 million revolving line of credit, and a $242.8 million discount window with the Federal Reserve. The current ratio and quick ratio both stand at 2.56, indicating a healthy short-term liquidity position.

Profitability and Asset Quality

In terms of profitability, First Guaranty reported net income of $11.4 million for the nine months ended September 30, 2024, a significant increase of 44.5% compared to the $7.9 million generated during the same period in the prior year. This strong performance was driven by the bank's ability to grow its interest-earning assets, maintain disciplined expense management, and capitalize on strategic initiatives. Earnings per common share for the nine-month period stood at $0.78, up from $0.56 in the corresponding period of 2023.

The bank's asset quality metrics have also been a point of focus, with the allowance for credit losses standing at $33.3 million, or 1.20% of total loans, as of September 30, 2024. This compares to $30.9 million, or 1.13% of total loans, at the end of 2023. The increase in the allowance for credit losses reflects First Guaranty's proactive approach to managing potential risks in its loan portfolio, underscoring the institution's commitment to maintaining a prudent and conservative risk profile.

Nonperforming assets, consisting of nonperforming loans and other real estate owned, increased to $67.0 million, or 1.71% of total assets, as of September 30, 2024, compared to $41.7 million, or 1.17% of total assets, as of December 31, 2023. This increase was primarily due to a $40.6 million rise in nonaccrual loans, concentrated in various loan categories including non-farm non-residential, 1-4 family residential, and construction and land development.

Loan Portfolio and Investment Securities

First Guaranty's loan portfolio is diverse, with real estate loans making up 77.8% of the total loan portfolio as of September 30, 2024. The remaining 22.2% consists of non-real estate loans including agricultural, commercial and industrial, commercial leases, and consumer loans. The bank experienced growth in its loan portfolio during the first nine months of 2024, with total loans increasing by $20.9 million, or 0.8%, compared to December 31, 2023.

The investment securities portfolio totaled $664.0 million as of September 30, 2024, an increase of $259.9 million from December 31, 2023. This increase was primarily due to the purchase of U.S. Treasury securities, which are part of the bank's available-for-sale securities portfolio that grew to $342.6 million. The held-to-maturity securities portfolio remained relatively stable, increasing slightly to $321.4 million.

Deposits and Borrowings

Total deposits increased by $420.8 million, or 14.0%, to $3.43 billion as of September 30, 2024, compared to December 31, 2023. This growth was driven by a $471.8 million, or 57.5%, increase in time deposits, partially offset by a $40.8 million, or 9.2%, decrease in noninterest-bearing demand deposits.

First Guaranty's borrowings consisted of short-term repurchase agreements of $7.0 million and long-term advances from the Federal Home Loan Bank of $135.0 million as of September 30, 2024, compared to short-term FHLB advances of $50.0 million and long-term FHLB advances of $155.0 million as of December 31, 2023.

Future Outlook

Looking ahead, First Guaranty remains focused on executing its strategic initiatives, which include continued geographic expansion, enhancement of its digital banking capabilities, and further diversification of its revenue streams. The bank's management team is keenly aware of the evolving landscape and is positioning the institution to capitalize on emerging opportunities while navigating potential challenges.

Conclusion

Despite the headwinds facing the banking industry, First Guaranty Bancshares, Inc. has demonstrated its ability to adapt and thrive. With a strong foundation, a commitment to its communities, and a talented management team, the company is well-positioned to navigate the road ahead and maintain its status as a trusted, reliable, and community-focused financial institution. The bank's focus on personal relationships, localized decision-making, and competitive products and services continues to be a key differentiator in its markets. As First Guaranty moves forward, it will continue to leverage its strengths in commercial banking while expanding its presence in both its core Louisiana and Texas markets, as well as its newer Mideast markets in Kentucky and West Virginia.