The First Bancshares, Inc.

Good morning, everybody, and welcome to the First Bank Chair's third quarter conference call. I'll give a few high-level highlights of the quarter and then turn it over to other members of our teams in their respective areas. This morning, I've got D.D. Lowry, our CFO, with us, George Newton, our Chief Credit Officer, and J.J. Fletcher, our Chief Lending Officer. Generally, the quarter we thought was a solid quarter given what everyone knows is a very difficult operating environment. We had talked last quarter about some of the seasonality of our deposits, some of the loan growth we expected, and some of that materialized this quarter. Our gap net income for the quarter increased 2.5% to $24.4 million. However, operating income decreased 2.8 million or 10% due to some one-time items that were associated with the gap net income increase. core net interest margin compressed about 16 basis points and we talked about that last quarter that we felt like there'd be some compression the back half of the year as many of you know we have a seasonal deposit portfolio in terms of our public monies and so part of that is that and also we felt like we have to be a bit more aggressive on deposits given what we thought would be our low growth profile for this quarter and that did materialize So loans grew 78.9 million or 6.3% on annualized basis for the quarter, and JJ will give us more color on that during this part of the presentation. Our credit metrics remain really strong with low past dues, low non-performers, low charge-offs. George will talk about some of the credit quality indicators and metrics and dig into some detail in the credit administration. We also, during the quarter, received a $6.2 million grant from CDFI Fund, an economic recovery program grant, and that's COVID relief money to further our CDFI and CRA investments in some of the more impacted markets from COVID around the Southeast. And then finally, if you look back over the last 12 months or so, we've been able to grow, well actually over the last 12 months, we've been able to grow our intangible book value by over 4%, but given the fact that we closed the largest acquisition we've ever done in January of this year, $1.7 billion of the Heritage Southeast merger, we also have had increased marks on the interest rate marks on the bond portfolio, which would deduct from tangible book value. But then we also increased our dividend 21% from 76 cents to 92 cents last quarter. So given all that, we're pretty pleased with the fact we were able to even continue to grow our tangible book value over the last 12 months. With that, again, we felt like it was a fairly solid quarter. We knew there would be some margin compression, some deposit headwinds due to the seasonality of our deposit book, some of the loan growth we experienced. With that, I'll come over to Dede for a little more color on our financials.

Great. Thanks, Hoppy. Yeah, as Hoppy mentioned, you know, we are pleased with the quarter, and I felt it was a solid quarter, and with the expectation of the increased deposit costs we could see coming, we feel good about it. We did have noise again, as he mentioned, a small amount of acquisition expenses, but with the grant, the ERP grant from the Treasury, a $6.2 million, and then the associated expenses, $5.2 million related to that, and that is in the form of advertising, consulting, and contributions that will be spent from that money to further our mission as a CDFI. And so those expenses are in the numbers as well. But for the quarter, we did report earnings of $24.4 million, 77 cents, That was at $600,000 from last quarter, or $0.02 per share. On an operating basis, when you exclude those acquisition charges of $400,000 net of tax and then the grant net of associated expenses, that's about $800,000. to that number. So earnings were 24 million on operating basis or 76 cents per share. And that compared to 26.8 million or 85 cents per share for the second quarter of 23. And that was a decrease of 2.8 million. And that decrease of 2.8 million in operating earnings compared to last quarter can be summed up in a couple of things. If you remember last quarter, we had the increase in accretion income related to the acquisition from Heritage and loading that on our system. 2.3 million and then our increase in our deposit cost specific well in our interest expense but specifically in our deposit cost of was 4.8 million um so those two items really are the big the drivers of uh our decrease in operating earnings for the quarter um expenses were 47.7 million for the quarter but when you back out those one-time expenses that brings that down to 41.9 million which is a lot more in line with where we talked about last uh last quarter And, you know, if you recall from our last quarter's call, we did expect margin to compress the third and fourth quarter this year, partially due to the seasonality of our deposit book, as well as we have runoff in our public funds, which we normally talk about that happens part of the year. and usually leads to additional borrowings, which is our typical behavior pattern because of the seasonality of those public funds that run out the last part of the year and then start coming back in late first quarter of next year. We also talked about the increase in deposit costs if we were to be more aggressive in our deposit gathering due to funding loan growth. um and and loans did increase as happy mentioned 78.9 million or 6.3 percent annualized um about 30 percent of those loans uh were booked too late in the quarter so our average loan growth a quarter was 56.6 million so you can see a big chunk went on right at the end of the quarter um that'll help and obviously go forward to next quarter We also initiated a deposit gathering campaign. We had talked a little bit about that last quarter that we were working on getting that together. And so we have that and as well as we're still playing some defense with some a little bit more aggressive deposit pricing in our markets. And so both of those actions are reflected in that increased deposit cost. Our core net interest margin decreased 16 basis points to 327. And we do expect, obviously, this kind of trend to continue into the fourth quarter, just with the increased deposit costs with the campaign and then still with the competitive pressures that we're seeing. I mean, we want to play defense and obviously keep our customers, our core customers safe. Our yield, a couple of notes due to the accretion, our yield on earning assets reflects in our release a two basis points decline. But if you back out that extra accretion that we talked about last quarter that was from Heritage, we actually had an increase of 16 basis points to $4.95 from $4.79 yesterday. In that same scenario, obviously, when you look at the loan yield, it actually increased 18 basis points up to 592 from 574. And that's, you know, when you just kind of go back and take that out of that last quarter's number. So good increases in both of those sections for the quarter. Our deposit cost, our cost of deposits, though, increased 30 basis points for the quarter. Our interest-bearing deposit cost increased 44 basis points to 176, and then our cumulative beta since the beginning of this cycle is 31%, and that was up from 22% last quarter. Our deposit cost increased from 91 basis points to 120 basis points, so it was a 30 basis point increase, but we still feel that's a pretty good number given our granular deposit base and happy right now with that number. Our loans, as I mentioned, did increase 78.9%, our 6.3 annualized. JJ will give you a little more information about that. Our deposit runoff declined this quarter from last with a decrease of 12.2 million. But when you look at that we actually acquired some brokerage CDs during the quarter of $110 million, the actual deposit decline was $122.2 million, or 1.9%, which that has been in line with our prior quarters when we have discussed each quarter and then taking out some of the broker deposits that we've had. So that's still kind of in line with where we've been. The public funds and some seasonality in some of our accounts accounted for $51.7 million. that decline, so leaving just about $70 million in runoff. Our non-interest-bearing deposit portfolio did decrease slightly from 32% to 30% from last quarter end, and part of that is due to some of the seasonality in our deposit base as well. Our liquidity position remains strong. Our ratios are well above our limits. Loan deposit ratio is right at 79%. Our borrowing capacity is $2.2 billion, and then we still have about 39% of our investment portfolio is unpledged, which is about $700 million. And out of our investment, our securities book, we have about $230 million that will cash flow in over the next four quarters. So that will be generated from our portfolio. And then the following ratios, we kind of highlighted in there for the quarter on an operating basis. Our ROA was 122. Our return on average tangible common equity was 17.7, and our efficiency ratio was 56%. Our capital ratios are all still in line from last quarter with a TCE of 7.3. Our common equity tier one was 12. Our leverage was 9.6, and our total risk base was 15.1. All in line with our quarter, so... I think I'll turn it back over to you, Hoppy.

Thank you, Dede. Thanks for that report. JJ, would you like to talk about the loan report a little bit?