8-K: The First Bancshares Inc. Reports Mixed Q4 Results, Increases Dividend

The First Bancshares Inc. announced a decrease in net income for the fourth quarter of 2023, alongside a 4% increase in their quarterly dividend.

Summary

• The First Bancshares Inc. reported a net income of $11.0 million for the fourth quarter of 2023, a 54.7% decrease compared to the previous quarter.
• Operating net earnings, excluding one-time items, decreased by 22.1% to $18.7 million.
• Total loans increased by $80.2 million, or 6.3% annualized, during the quarter.
• The company sold $123.0 million in available-for-sale securities, resulting in a pre-tax loss of $9.7 million.
• Proceeds from the sale were reinvested into bonds and used to repay $30.0 million in borrowings.
• This repositioning is expected to increase net interest margin by 8 basis points and net interest income by $4.7 million annually.
• The company's net interest margin decreased by 19 basis points to 3.28% during the quarter.
• The cost of deposits averaged 154 basis points for the fourth quarter, up from 121 basis points in the third quarter.
• For the full year, net income available to common shareholders increased by 19.9% to $75.5 million.
• Operating net earnings for the year increased by 41.6% to $96.7 million.
• The company declared a $0.25 per share quarterly cash dividend, a 4% increase.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the significant decrease in quarterly net income and margin compression, despite positive full-year results and a dividend increase. The one-time loss on securities sales also contributes to the negative sentiment.

Positives

• Total loans increased by $80.2 million, or 6.3% annualized, during the quarter.
• The balance sheet repositioning is expected to increase net interest margin by 8 basis points and net interest income by $4.7 million annually.
• For the full year, net income available to common shareholders increased by 19.9% to $75.5 million.
• Operating net earnings for the year increased by 41.6% to $96.7 million.
• The company increased its quarterly cash dividend by 4% to $0.25 per share.
• Non-performing assets decreased for the quarter.

Negatives

• Net income available to common shareholders decreased by 54.7% in Q4 2023 compared to Q3 2023.
• Operating net earnings decreased by 22.1% in Q4 2023 compared to Q3 2023.
• A pre-tax loss of $9.7 million was recognized from the sale of available-for-sale securities.
• Net interest margin decreased by 19 basis points to 3.28% in Q4 2023.
• The cost of deposits increased to an average of 154 basis points in Q4 2023.
• Non-interest income decreased $17.0 million from $19.3 million in the third quarter of 2023 to $2.3 million in the fourth quarter of 2023.

Risks

• The company experienced margin compression during the fourth quarter due to increased interest costs and the seasonality of the deposit portfolio.
• Rising interest rates and increased competition for deposits are increasing the cost of deposits.
• The company's investment portfolio had a net unrealized loss of $121.9 million at December 31, 2023.
• The company's non-interest expense increased by $9.4 million, or 26.8%, compared to the fourth quarter of 2022.

Future Outlook

The company expects the balance sheet repositioning to result in increases in net interest margin of 8 basis points, net interest income of $4.7 million, and earnings per share of $0.11 with an estimated earn back period of 2.1 years.

Management Comments

• M. Ray Hoppy Cole, Jr., President, and Chief Executive Officer, commented, 'We continued to experience margin compression during the fourth quarter as non-GAAP core net interest margin decreased 13 basis points due to increased interest costs and the seasonality of our deposit portfolio.'
• M. Ray Hoppy Cole, Jr., President, and Chief Executive Officer, commented, 'Loan growth and credit remained strong with $80 million of net loan growth for the quarter, or 6.3% on an annualized basis.'
• M. Ray Hoppy Cole, Jr., President, and Chief Executive Officer, commented, 'Non-performing assets decreased for the quarter and past dues were low at 23 basis points.'
• M. Ray Hoppy Cole, Jr., President, and Chief Executive Officer, commented, 'For the full year of 2023, the Company produced strong results as average assets grew 22.5% from $6.5 billion to $7.9 billion, non-GAAP operating earnings grew $28.4 million to $96.7 million, a 41.6% increase, and dividends to common shareholders increased 21.6% to $0.90 per share.'
• M. Ray Hoppy Cole, Jr., President, and Chief Executive Officer, commented, 'Our team members performed extremely well in 2023, in a very difficult operating environment and we remain focused on increasing the returns to our shareholders.'

Industry Context

The results reflect the challenges faced by many banks in the current environment of rising interest rates, which are increasing the cost of deposits and impacting net interest margins. The company's actions to reposition its balance sheet are a common strategy to mitigate these pressures.

Comparison to Industry Standards

• The company's net interest margin of 3.28% is below the average for the banking industry, which has seen a slight increase in net interest margins due to the rising interest rate environment.
• The company's cost of deposits at 154 basis points is higher than the industry average, indicating a need to manage deposit costs more effectively.
• The company's loan growth of 6.3% annualized is in line with the industry average, but the decrease in net income is a concern.
• The company's non-performing assets to total assets ratio of 0.25% is better than the industry average, indicating good asset quality.
• The company's capital ratios are within regulatory requirements, but the impact of unrealized losses on securities needs to be monitored.

Stakeholder Impact

• Shareholders will experience a decrease in earnings per share for the quarter, but will receive an increased dividend.
• Employees may be impacted by the company's efforts to manage costs.
• Customers may see changes in deposit rates and loan offerings.
• Creditors will be impacted by the company's balance sheet repositioning.

Next Steps

• The company will host a conference call on January 25, 2024, to discuss the financial results.
• The company will pay a cash dividend of $0.25 per share on February 23, 2024.

Key Dates

Keywords

financial results, net income, loans, net interest margin, dividends, securities, deposits, operating earnings, asset quality, bank