Market volatility undoes First Guaranty-Lone Star deal

First Guaranty Bancshares

First Guaranty Bancshares in Hammond, Louisiana, will no longer acquire Lone Star Bank in Houston.

The two companies said in a Monday press release that they had mutually agreed to terminate the deal, citing market conditions that have changed since the start of the year.

The $3.2 billion-asset First Guaranty announced the all-stock acquisition of the $155 million-asset Lone Star Bank in Houston in January as part of an effort to expand its footprint in the burgeoning Texas market. 

The initial deal announcement did not indicate when the acquisition might close. At that time, First Guaranty said it would issue shares of its common stock to Lone Star's shareholders with an aggregate value of 1.5 times of Lone Star's tangible book value at the end of the month prior to the closing date.

However, since the deal was announced, bank stocks have plunged as three large regional banks failed and rising interest rates have made deposits more expensive for banks to attract and retain. The KBW Nasdaq Bank Index is down about 19% year to date. First Guaranty's shares closed on Tuesday at $11.92, down about 49% from the beginning of the year. 

There were earlier signs that First Guaranty's purchase of Lone Star could be in trouble. In May, First Guaranty insiders purchased about $10 million worth of the company's shares in a show of confidence in its performance and to bolster the sagging stock price. That led to a short-lived rally.

Then in June, Lone Star announced that it would delay its shareholder vote on the transaction by a month. 

Alton B. Lewis, CEO of First Guaranty, and Dennis Harrington, CEO of Lone Star, called the combination not "prudent" in Monday's press release.  

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"We are confident this is the right decision for our shareholders, our customers and our employees," the statement said. "This decision will allow each of First Guaranty and Lone Star to dedicate resources and focus on our individual growth strategies in the currently challenging banking industry environment."

Overall, it's been a difficult year for bank M&A. Through the first five months of the year, only 32 bank deals have been announced. That's down from 66 for the same period in 2022. 

Other banks have also had recent trouble closing their acquisitions, either because of concerns regarding market conditions — such as MVB Financial in Fairmont, West Virginia, and Integrated Financial Holdings in North Carolina canceling their planned combination  — or trouble clearing regulatory hurdles — such as TD Bank's doomed attempt to buy First Horizon.