First Guaranty slashes dividend to just 1 cent a share

First Guaranty Bancshares

First Guaranty Bancshares in Hammond, Louisiana, cut its dividend from 8 cents a share to just a penny, its second reduction this year as the bank struggles to lower its costs and increase capital.

Shareholders started the year with dividends of 16 cents a share. The new payout, equal to 4 cents a year, represents an annual yield of about 0.3% based on Thursday's share price of $12.28. 

The new dividend is expected to be paid on Dec. 31 to shareholders of record as of Dec. 27, according to a filing with the Securities and Exchange Commission.

The company did not respond to a request for comment.

The reduction comes about five months after the $3.9 billion-asset First Guaranty cut its dividend payment in half and eliminated 71 jobs, or roughly 15% of its workforce. At the time, the bank said the moves were part of an effort to lower costs while increasing capital and slowing asset growth.

Over the past 18 months, First Guaranty has shifted from a growth strategy to conservation. In July 2023, it scrapped its plans to acquire Lone Star Bank in Houston, citing a shift in market conditions compared to when the deal was announced earlier that year. 

In June of this year, Michael Mineer, who joined First Guaranty in 2021 as an area president, succeeded Alton Lewis as CEO and went to work cutting costs. 

A few weeks later, First Guaranty sold two branches and a portion of its headquarters building as part of a sale-leaseback deal. In July, it rolled out its new business strategy, which included the layoffs. The bank said the smaller workforce should reduce costs by about $12 million a year.

Meanwhile, asset quality is under pressure. During the third quarter, First Guaranty set aside $4.9 million in provisions for credit losses, a significant uptick from $600,000 during the same quarter in 2023, according to the bank's quarterly earnings report. 

Charge-offs for the third quarter totaled $2.6 million, up from $500,000 during the year-ago period, and were concentrated in both consumer and commercial loans, including consumer auto and consumer credit card loans.

Charge-offs for the first nine months of the year were $13.7 million, compared with $2 million during the same time frame in 2023, First Guaranty said in the quarterly report. Provisions for the first nine months totaled $14 million, compared with $1.5 million during the same period in 2023.

The latest dividend cut isn't surprising, analyst Chris Marinac of Janney Montgomery Scott said.

"We knew from third-quarter results and frankly from second-quarter results that there were elevated asset quality problems and the company was working through those," Marinac said.

Slashing the dividend "buys them more flexibility" in terms of capital, he added.

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"I think it is still a show-me story," Marinac said. "This is a company in turnaround mode."

First Guaranty isn't alone this year in making large cuts to its dividend. In January, Flagstar Bancorp — then known as New York Community Bancorp — shocked investors by reducing its dividend to 5 cents per share from 17 cents as it reported a sizable quarterly loss.

The Long Island-based company, which remains in reorganization mode following myriad issues with its commercial real estate loan portfolio, later reduced its dividend to a penny.

In another example, Eagle Bancorp of Bethesda, Maryland, cut its dividend this fall to 16 cents from 45 cents. The $11.3 billion-asset company, which has been struggling with its own commercial real estate headaches, has launched a new growth plan to improve risk management and diversify its commercial lending operations.