First Guaranty's Stock Downgraded: Sluggish Profitability And TCE Ratio Decline Raise Alarms

Piper Sandler analyst Graham Dick downgraded First Guaranty Bancshares Inc FGBI to Underweight from Neutral at a lowered price target of $9.50 (from $12.00).

The analyst attributed the price target revision to continued pressure on the company's fundamentals.

Last month, the company reported Q3 FY23 revenue of $22.934 million, beating the consensus of $20.689 million and EPS of $0.10, missing the consensus of $0.16.

The analyst notes that FGBI's profitability profile has taken a substantial hit, given core revenues down 18% Y/Y and core expenses up 12% Y/Y in Q3. 

Also, the analyst is not expecting much improvement in return on assets until mid/late 2025, as the net interest margin (NIM) expansion benefit is projected to be offset by normalization in the provision line.

NIM is projected to be 2.44% for Q4 FY23, 2.71% for Q4 FY24, and 2.97% for Q4 FY25, according to the analyst.

Also, loan growth is estimated at ~10.5% in FY24 and ~11.5% in FY25, writes the analyst.

The analyst is worried about the perception of late-cycle growth and incremental pressure on the tangible common equity (TCE) ratio, which is projected to decline to ~5% by FY24 and 4.75% by FY25.

Consequently, the analyst lowered EPS estimates to $0.74 (from $0.75) for FY23 and $0.36 (from 0.72) for FY24 and expects EPS of $0.90 in FY25 as earnings are anticipated to start recovering on FFR relief. 

Price Action: FGBI shares are trading lower by 0.91% at $9.80 on the last check Wednesday.