10-K: The First Bancshares Amends Executive Retirement Plans, Reports Strong 2023 Results

The First Bancshares, Inc. files amendments to executive retirement plans and reports a significant increase in net income for 2023, alongside growth in assets, loans, and deposits.

Summary

• The First Bancshares, Inc. amended several executive retirement plans, removing death benefits from some and increasing benefits in others.
• The company reported a net income available to common shareholders of $75.5 million for 2023, a 19.9% increase from $62.9 million in 2022.
• Total assets reached $7.999 billion, a $1.538 billion increase year-over-year.
• Loans increased to $5.119 billion, and deposits grew to $6.463 billion.
• The company completed the acquisition of Heritage Southeast Bancorporation, Inc. on January 1, 2023, adding $1.159 billion in loans and $1.392 billion in deposits.
• The cost of deposits averaged 109 basis points for 2023, compared to 26 basis points in 2022.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and strategic growth, but also highlights some challenges such as increased deposit costs and competitive pressures. The overall sentiment is positive, but with some caution.

Positives

• The company experienced significant growth in net income, assets, loans, and deposits.
• The successful acquisition of Heritage Southeast Bancorporation, Inc. expanded the company's footprint and financial base.
• The company maintains strong capital ratios, exceeding regulatory requirements.
• The company's employees donated over 3,500 volunteer hours to more than 700 organizations in 2023.

Negatives

• The cost of deposits increased significantly, impacting net interest margin.
• Non-interest expenses increased by $54.2 million, partially due to acquisition-related costs and increased operating expenses.
• The company experienced a $9.8 million loss on the sale of available-for-sale securities.

Risks

• The company is exposed to risks related to changes in market interest rates, which could impact net interest income and asset values.
• Economic conditions in the company's operating areas could affect borrowers' ability to repay loans.
• The company faces competition from other financial institutions and fintech companies.
• Cybersecurity breaches and data security risks could disrupt operations and damage the company's reputation.
• The company may not realize the anticipated cost savings and other financial benefits of recent acquisitions.
• The company is subject to extensive regulation by various federal and state entities.

Future Outlook

The company believes that the markets acquired through recent acquisitions will continue to contribute to future growth and success, and that organic loan growth will continue through strengthening existing client relationships and creating new ones. The company also believes that it will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2024.

Management Comments

• The company has benefited from historically strong asset quality metrics compared to most of our peers, which we believe illustrates our historically disciplined underwriting and credit culture.
• We have also focused on growing earnings per share and increasing our tangible common equity and tangible book value per share.
• We believe the conversion and integration of these acquisitions have been successful to date, and we are optimistic that these markets will continue to contribute to our future growth and success.

Industry Context

The company operates in a highly competitive financial services environment, facing competition from other commercial banks, savings institutions, credit unions, internet banks, finance companies, and fintech companies. The move towards digital financial services is accelerating, and the company expects this trend to continue.

Comparison to Industry Standards

• The company's loan growth of 6.3% (excluding acquired loans) is a positive sign, indicating a strong demand for its lending products, however, the increase in cost of deposits from 26 basis points to 109 basis points is a significant increase and may be higher than some of its peers.
• The company's net interest margin of 3.59% for 2023 is a good result, but the increase in cost of deposits may put pressure on this metric in the future.
• The company's past due loans of 0.23% of total loans is a good result, indicating strong credit quality, and is better than some of its peers.
• The company's capital ratios are above the well-capitalized standards, which is a positive sign for its financial health and stability.
• The company's acquisition strategy is similar to other regional banks seeking to expand their footprint and market share, however, the integration of these acquisitions will be key to their success.

Corporate Governance

Legal Proceedings

• The company is involved in a putative class action lawsuit related to alleged improper assessment and collection of overdraft fees, but the outcome is not yet predictable.

Related Party Transactions

• The company has loans outstanding to its directors and executive officers and to companies in which they have a significant ownership interest, totaling approximately $23.7 million at December 31, 2023.

Stakeholder Impact

• Shareholders will benefit from the increased net income and growth in assets, loans, and deposits.
• Employees will benefit from the company's commitment to providing competitive compensation and benefits programs.
• Customers will benefit from the company's expanded footprint and continued focus on providing a full range of financial services.
• The company's community involvement and volunteer efforts will benefit the communities it serves.

Next Steps

• The company will continue to monitor and manage the pricing and maturity of its assets and liabilities to mitigate interest rate risk.
• The company will continue to evaluate the adequacy of the allowance for credit losses quarterly.
• The company will continue to integrate the acquired businesses and realize the anticipated cost savings and financial benefits.
• The company will continue to enhance its systems of internal controls and business continuity and disaster recovery plans.

Key Dates

Keywords

financial results, executive retirement plans, bank acquisition, loan growth, deposit growth, net income, interest rates, regulatory capital, cybersecurity, financial services