Business Overview and History
The First Bancshares, Inc. (FBMS) is a bank holding company headquartered in Hattiesburg, Mississippi, with a rich history and a commitment to serving its local communities. Established in 1996, The First Bank, the company's wholly-owned subsidiary, has grown to become a prominent financial institution with a presence across Mississippi, Louisiana, Alabama, Florida, and Georgia.
The First Bancshares' journey began when it was incorporated on June 23, 2000, under the laws of the State of Mississippi, with the purpose of operating as a bank holding company. The company's primary asset is its interest in its wholly-owned subsidiary, The First Bank, which was founded in 1996. Over the years, The First Bancshares has strategically expanded its footprint through a series of acquisitions, including the notable acquisitions of Heritage Southeast Bancorporation, Inc. in 2023 and Beach Bancorp, Inc. in 2022.
In 2018, The First Bancshares made another significant move by acquiring FMB Banking Corporation, which expanded the company's footprint into additional markets. The integration of these acquisitions allowed The First Bancshares to leverage operational efficiencies and increase market share in its key regions.
Despite facing challenges such as the COVID-19 pandemic, The First Bancshares has maintained a focus on prudent risk management and delivering strong financial performance. The company has continued to invest in technology and talent to enhance the customer experience and drive growth.
These strategic moves have allowed The First Bancshares to strengthen its presence in existing markets and enter new, high-growth regions. As of September 30, 2024, the company reported total assets of $7.97 billion, a loan portfolio of $5.32 billion, and total deposits of $6.57 billion. The company's diverse loan mix includes commercial, financial, and agricultural loans (14.1% of total loans), commercial real estate loans (60.8%), consumer real estate loans (24.2%), and consumer installment loans (0.9%).
Financials
Financial Performance and Ratios
The First Bancshares has demonstrated consistent financial performance, with net income available to common shareholders reaching $58.90 million for the nine months ended September 30, 2024. This represents a decrease of 8.6% compared to the same period in 2023, primarily due to a decrease in non-interest income and an increase in interest expense.
For the fiscal year 2023, The First Bancshares reported revenue of $290.17 million, net income of $75.46 million, operating cash flow of $108.51 million, and free cash flow of $104.82 million. In the most recent quarter (Q3 2024), the company reported revenue of $93.56 million, net income of $18.57 million, operating cash flow of $30.95 million, and free cash flow of $32.28 million.
Year-over-year, revenue increased by 9.1%, while net income decreased by 23.8%. The decrease in net income was largely attributable to a decrease in a U.S. Treasury award of $6.2 million and a decrease in other non-interest expense of $5.2 million, offset by a decrease in net interest income of $1.7 million and increases in salaries and acquisition charges of $2.3 million and $2.0 million, respectively.
The company's key financial ratios remain strong, with a return on average assets (ROAA) of 1.01%, a return on average tangible common equity (ROATCE) of 12.76%, and an efficiency ratio of 60.65% for the quarter ended September 30, 2024. These ratios showcase The First Bancshares' ability to generate profitability and effectively manage its operations.
Loan Portfolio and Asset Quality
The First Bancshares' loan portfolio has experienced steady growth, with net loans held for investment increasing by 2.9% to $5.26 billion as of September 30, 2024, compared to $5.12 billion at the end of 2023. The company's loan mix remains diversified, with commercial real estate loans comprising the largest segment at 60.8% of the total loan portfolio.
The company's asset quality metrics have remained stable, with nonperforming assets (NPAs) at 0.40% of total loans and leases as of September 30, 2024, compared to 0.40% at the end of 2023. The allowance for credit losses (ACL) stood at 1.05% of total loans at the end of the third quarter of 2024, unchanged from the end of 2023.
Investment Securities and Deposits
The First Bancshares' investment portfolio totaled $1.72 billion, or 21.5% of total assets, as of September 30, 2024. The portfolio is primarily composed of available-for-sale securities, with a smaller allocation to held-to-maturity securities. The available-for-sale securities had a net unrealized loss of $91.60 million at quarter-end.
Total deposits grew to $6.57 billion as of September 30, 2024, an increase of 1.4% from the end of 2023. The deposit base is comprised of 27.3% in noninterest-bearing demand deposits, 31.3% in interest-bearing transaction accounts, 7.9% in savings deposits, and 33.5% in time deposits. The average cost of total deposits was 1.80% for the third quarter of 2024, up from 1.09% at the end of 2023, reflecting the rising interest rate environment.
Net Interest Income and Margin
Net interest income for the third quarter of 2024 was $59.01 million, a decrease of 2.8% compared to the prior year quarter. The net interest margin was 3.33% for the third quarter, including 11 basis points of accretion from purchase accounting adjustments. Excluding these purchase accounting impacts, the core net interest margin was 3.26% in the third quarter, down slightly from 3.27% in the prior year period.
Non-Interest Income and Expense
Non-interest income totaled $12.24 million in the third quarter, down 36.6% year-over-year, primarily due to a decrease in U.S. Treasury awards. Non-interest expense was $46.39 million, a 2.8% decrease from the prior year quarter, driven by lower acquisition costs and other expenses, partially offset by higher salaries and benefits.
Liquidity
Liquidity and Capital Adequacy
The First Bancshares maintains a strong liquidity position, with a loan-to-deposit ratio of 80.10% and a net non-core funding dependency ratio of 7.80% as of September 30, 2024. The company's capital ratios also remain robust, with a common equity Tier 1 (CET1) ratio of 12.50%, a Tier 1 capital ratio of 12.90%, and a total risk-based capital ratio of 15.40% as of the same date.
As of September 30, 2024, The First Bancshares reported cash and cash equivalents of $214.13 million. The company had $2.06 billion in net availability on lines of credit from the Federal Home Loan Bank (FHLB) as of the same date, providing additional liquidity support.
The company's debt-to-equity ratio stood at 0.14x as of September 30, 2024, indicating a conservative approach to leverage. The current ratio and quick ratio were both 1.18x, reflecting the company's ability to meet its short-term obligations.
These solid liquidity and capital metrics provide The First Bancshares with the flexibility to support its growth initiatives and navigate potential economic challenges.
Growth Strategies
Acquisition and Growth Strategies
The First Bancshares has demonstrated a strategic and disciplined approach to growth, both organically and through targeted acquisitions. The company's most recent acquisition of Heritage Southeast Bancorporation, Inc. in 2023 and Beach Bancorp, Inc. in 2022 have expanded its footprint and enhanced its market position in Georgia, Florida, and Alabama.
The integration of these acquired entities has been seamless, allowing The First Bancshares to capitalize on synergies and cross-selling opportunities. The company's management team has a proven track record of successfully identifying, evaluating, and integrating acquisition targets, contributing to its continued growth and expansion.
Future Outlook
Outlook and Guidance
The First Bancshares has provided guidance for the near-term future based on its recent performance and market conditions. For loan growth, the company expects a mid-single digit annualized pace in the back half of 2024, similar to the 8.6% growth seen in Q2 2024. On the deposit cost side, FBMS anticipates relatively stable deposit costs, with some potential decreases due to runoff of public funds and brokered CDs.
The company expects the net interest margin to remain relatively flat, with the potential impact of deposit changes offsetting some improvements in earning asset yields. For expenses, FBMS provided guidance of around $176-177 million for the full year 2024, with a 3-4% expected increase in expenses for 2025.
The First Bancshares reported strong performance in Q2 2024, with loans growing by $111 million or 8.6% on an annualized basis. Net income was down slightly from Q1 2024 due to a $1.7 million provision taken for the loan growth, but pre-tax pre-provision income was up $800,000 or 2.9%. The core net interest margin expanded by 9 basis points to 3.19%, and credit quality remained strong with only 4 basis points of net charge-offs and 3 basis points migration in non-performing assets.
Risks and Challenges
Like any financial institution, The First Bancshares faces a range of risks and challenges that could impact its future performance. These include, but are not limited to, interest rate risk, credit risk, regulatory changes, and competition from larger regional and national banks.
The company's management team actively monitors these risks and has implemented robust risk management practices to mitigate potential threats. Ongoing investments in technology, talent, and risk management processes further strengthen The First Bancshares' resilience.
Conclusion
The First Bancshares, with its strong community banking roots, diversified loan portfolio, and prudent growth strategies, has established itself as a resilient and adaptable financial institution. The company's consistent financial performance, solid liquidity and capital positions, and strategic acquisitions position it well to navigate the evolving banking landscape and continue delivering value to its shareholders.
As The First Bancshares embarks on its next phase of growth, investors should closely monitor the company's ability to capitalize on emerging opportunities, manage risks, and maintain its strong market presence across the Southeastern United States. The company's focus on organic loan growth, disciplined cost management, and strategic acquisitions suggests that The First Bancshares is well-positioned to deliver consistent financial performance and create value for its shareholders in the coming years.