10-K: First Guaranty Bancshares Reports Increased Net Income for 2024, Focuses on Strategic Adjustments

First Guaranty Bancshares, Inc. announced a rise in net income for 2024, driven by strategic shifts including controlled asset growth and expense reductions.

Summary

• First Guaranty Bancshares, Inc. reported a net income of $12.4 million for the year ended December 31, 2024, compared to $9.2 million in 2023.
• Total assets reached $4.0 billion, with deposits at $3.5 billion.
• The company is focusing on controlled asset growth, measured expense reductions, expanded balance sheet risk management, and enhanced credit risk management.
• A series of cost reduction measures were initiated in the third quarter of 2024, resulting in a 20% reduction in full-time equivalent employees.
• The company increased its allowance for credit losses and expanded its internal loan review function.
• Non-performing assets increased to $120.4 million, representing 3.03% of total assets.
• The net interest margin was 2.47% for 2024, compared to 2.69% for 2023.
• The company completed a sale-leaseback transaction in June 2024, resulting in a pre-tax gain of approximately $13.3 million.
• Three branches were closed and two were consolidated in the first quarter of 2025.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While net income increased, there are concerns about asset quality and declining margins. The strategic shift towards controlled growth and expense management is a positive sign, but the company faces significant challenges.

Positives

• Net income increased by $3.2 million year-over-year.
• Total assets and deposits showed significant growth.
• Expense reduction measures led to a decrease in noninterest expense.
• The company is actively managing its balance sheet risk and credit risk.
• The company has paid a quarterly dividend on its common stock for 126 consecutive quarters as of December 31, 2024.

Negatives

• Non-performing assets increased significantly, reaching $120.4 million.
• The net interest margin decreased from 2.69% to 2.47%.
• The company reduced its workforce by approximately 20% through cost reduction measures.
• Commercial and industrial loans decreased $77.5 million primarily due to paydowns.
• Commercial lease loan balances decreased $65.2 million primarily due to paydowns on the existing lease portfolio.

Risks

• The company faces intense competition in its market areas.
• Adverse economic conditions in Louisiana and Texas could negatively impact the company's performance.
• Material fluctuations in the price of oil and gas could adversely affect the company's business.
• The company has a significant number of loans secured by real estate, and a downturn in the local or national real estate market could negatively impact profitability.
• The level of concentrations in the commercial real estate loan portfolio subjects the company to additional regulatory scrutiny.
• The company is subject to regulatory enforcement risk, reputation risk and litigation risk regarding its participation in the PPP and Main Street Lending Program and is subject to the risk that the SBA may not fund some or all PPP loan guarantees.

Future Outlook

First Guaranty plans to moderate future asset growth, reduce exposure to commercial real estate loans, and continue to pursue residential mortgage lending, consumer lending, owner-occupied commercial real estate, commercial and industrial loans, and guaranteed lending.

Management Comments

• Our mission is to increase shareholder value while providing financial services for and contributing to the growth and welfare of the communities that we serve.
• We aim to become the preferred bank for small businesses and consumers in both metropolitan and rural markets.

Industry Context

The report reflects a challenging environment for community banks, with increased regulatory scrutiny on commercial real estate lending and the need to manage interest rate risk effectively. The company's strategic shift towards controlled growth and expense management aligns with industry trends focused on efficiency and risk mitigation.

Comparison to Industry Standards

• Assessing First Guaranty's performance requires comparing it to similar-sized community banks in Louisiana, Texas, Kentucky and West Virginia.
• Key competitors include regional banks like Hancock Whitney Corporation and Texas Capital Bancshares, Inc., as well as other community banks with a similar geographic footprint.
• Benchmarking against these peers would involve comparing metrics such as net interest margin, efficiency ratio, asset quality, and capital adequacy.
• For example, a typical community bank might aim for an efficiency ratio below 60%, while First Guaranty's is 68.16%.
• Similarly, a strong return on average assets (ROAA) for a community bank would be above 1%, while First Guaranty's is 0.34%.
• The increase in non-performing assets should be compared to industry averages to determine if it is an outlier or reflective of broader economic trends.

Legal Proceedings

• First Guaranty Bank is a defendant in a lawsuit alleging fault for a loss of funds by a customer related to fraud by a third party with a possible loss range of $0.0 million to $1.5 million.

Related Party Transactions

• First Guaranty has loans, deposits and other transactions with its executive officers, directors, affiliates and certain business organizations and individuals with which such persons are associated.
• During the years ended 2024 and 2023, First Guaranty paid approximately $0.3 million, respectively, for printing services and supplies and office furniture and equipment to Champion Industries, Inc., of which Mr. Marshall T. Reynolds, the Chairman of First Guaranty's Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors and a major shareholder of Champion.
• On June 21, 2022, First Guaranty issued a $15.0 million subordinated note (the 2022 Note) to Mr. Smith, and used the proceeds of such issuance to redeem the 2015 Note in full.
• On March 28, 2024, First Guaranty issued a $30.0 million subordinated note (the '2024 Note') to Smith & Tate Investment, L.L.C., a company controlled by Edgar Ray Smith III, a director of First Guaranty.
• During the years ended 2024 and 2023, First Guaranty paid approximately $63,000 and $0.1 million, respectively, for the purchase and maintenance of First Guaranty's automobiles to subsidiaries of Hood Automotive Group, of which William K. Hood, a director of First Guaranty, is President.
• During the years ended 2024 and 2023, First Guaranty paid approximately $9,300 and $0.7 million, respectively, for architectural services in relation to bank branches to Gasaway Gasaway Bankston Architects, of which bank subsidiary board member Andrew B. Gasaway is part owner.
• During the years ended 2024 and 2023, First Guaranty paid approximately $0.8 million, respectively, to Centurion Insurance, an insurance brokerage agency, to bind coverage at market terms for property casualty insurance and health insurance.

Stakeholder Impact

• Shareholders may be concerned about the increase in non-performing assets and the decrease in net interest margin.
• Employees may be affected by the cost reduction measures, including the reduction in staffing.
• Customers may benefit from the company's focus on personalized service and new digital offerings.
• The company's commitment to supporting local communities through charitable contributions and employee volunteerism benefits the broader community.

Next Steps

• The company intends to reduce exposure to construction and land development lending during 2025.
• Management will continue to evaluate and update our product mix and related technology in its efforts to attract additional customers.

Key Dates