The First Bancshares, Inc.

Good day, and thank you for standing by. Welcome to the review of fourth quarter 2023 financial results conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Hoppy Cole, CEO. Please go ahead.

Good morning, everyone, and welcome. I've got several team members with us today in the room. We've got Didi Lowry, our CFO. We've got George Noonan, our Chief Credit Officer, and JJ Fetcher, our Chief Lending Officer. I'll cover a few high-level items for the quarter and the year, and then turn it over to each of the respective team members for more color in their respective areas. The fourth quarter of 2023 operating earnings were lower than the third quarter. We expected some margin compression during the quarter, and we experienced that about 13 basis points of core margin compression, primarily due to the deposit campaign that we talked about in a previous earnings call associated with being a bit more aggressive toward the end of the year to support our loan growth and stem deposit outflow. Credit was solid, again, for the quarter. We had $80 million of debt loan growth. It's on 6.3% on an annualized basis. Credit quality metrics remained strong. We had six basis points of charge-offs, $2 million reduction in MPAs, and past dues at a pretty low point of 23 basis points. Danielle also talked about in her presentation, we did a bond restructure during the quarter in order to reposition a portion of the portfolio to improve our yield, improve our EPS. For the full year of 2043, the company performed extremely well. As you remember, we closed our acquisition of Heritage Southeast Bank on January 1st of last year and had about $1.7 billion in assets to the overall organization. Through the year, our operating income increased 41.6% to $96 million, gave us an ROA for the year of 122 and a return on tangible common equity of 17.5%. We grew our tangible book value about 7% during the year to $19.35 a year in. And we increased our dividends 21%, 74 cents a share to 90 cents a share for our shareholders. So all in all, a good year, a good growth year, a good year in terms of profitability. And with that, I'll turn it over to DeeDee Lowry for a financial presentation.

Great. Thanks, Hoppy. And welcome, everyone. And I'd just like to say, kind of reiterate as well, that I think we did have a very solid quarter, you know, despite the increased costs on our deposits that we, you know, knew were coming. We had great loan growth, as Hoppy mentioned, 6.3% annualized, which was the same as the third quarter, both consistent there. And then also our deposits were basically flat when you back out the public funds. So this is the first quarter. I guess, in the past four that we basically maintained our deposits. And that obviously is due to the deposit special, and we'll talk a little bit more about that. But we did have a couple of obviously non-operating items this quarter, acquisition charges, as well as the loss on the securities from the restructure, and we'll talk about that in a minute. But when you look at our reported earnings, it was $11 million, or 35 cents, which was down $13.3 million from – last quarter. But on an operating basis, we back out the acquisition charges that were about 400,000 net of tax. And then the loss on the sale of the securities was 7.3 million net of tax. Earnings were 18.7 million or 59 cents per share. and this compared to 24 million or 76 cents per share for the quarter ended september which was a decrease of about 5.3 million dollars and you know when you look at that 5.3 million dollar decrease um compared to last quarter, it can really be summed up from basically interest expense and obviously increasing more than our interest income. Interest income did increase $3 million for the quarter, but our interest expense increased 6.1 million. with about a million in non-deposit-related interest expense. But excluding the securities loss, our non-interest income was basically flat down a million dollars, mostly related to interchange fee income, which was elevated last quarter with a one-time fee income. But it's in line with the first and second quarters of the year, so non-interest income looked very comparable. Expenses were up from, they were, I'm sorry, $44 million. They were up $1.8 million from the previous quarter. If you back out all the expenses that we mentioned last quarter related to the grant money, that was expense last quarter. So that $1.8 million is represented by a million dollars related to salary expense, and that is our year-end accrual, and also solo vacation expense as well, which is a one-time item at the end of the year. I had given estimates basically last quarter about where expenses might fall. And these are a little bit more than that. I believe I'd say that could be up to 43 million. So this was just a little over that for the fourth quarter. And as Hoppy mentioned, and as you recall from our call last quarter, we did expect our margin to compress for the fourth quarter, obviously, due to a couple of things. The runoff in our public funds, it normally happens in the fall, and especially in the fourth quarter, which usually leads to additional borrowings. And then as well as our increased deposit costs related to the deposit gathering campaign, and also as well as market competition, we still have Competition for deposits in our markets. Some banks still running some higher price CD specials. So we're still facing that competition as well. Our specials ended at the end of the year. And to remind you, we had a 5.25 six-month CD. and a 5% six-month rate guarantee on a money market account. And you had to have non-interest-bearing accounts with us as well to have those specials. But we did bring in about $183 million in new money over the course of, I guess, four months or so when we ran the campaign. And then, obviously, both of those items we've talked about, it led to the increased deposit cost for the quarter. And as we talked about that last quarter, we would be on the aggressive side with the campaigns due to the loan growth, which we had both quarters, I believe, was $150 to $60 million in loan growth for the two quarters combined. So our core margin did decrease 13 basis points down to 314. I expect to see compression again in the first quarter. And then, you know, looking at hopefully that stabilizing in the second quarter of the year, we've got, you know, still with these market competition on these specials, we're still repricing some deposits, but then obviously all these specials will be coming due throughout the next six months. We had a lot of folks got on those specials in September and October, and then again in December, right before we ended. So we could see all of that pricing through, I guess, really through the second quarter. But as those come in and reprice, obviously hoping to reprice those down because we're not running those same specials and be able to. So that's kind of what we're looking at as far as hopefully the stabilization will be in the second quarter due to that. We did have a yield on our interest-bearing assets did increase 15 basis points for the quarter, but our rate on interest-bearing liabilities increased 42 basis points. Our cost of deposits increased 33 basis points for the quarter to 154 basis points. Still a very respectable number, you know, due to our granular deposit portfolio and compared to some of our peers. Our interest rate deposit cost did increase 42 basis points to 218, and that drove our beta to 38%, which was up from 31% through last quarter. As I mentioned, the deposit runoff obviously declined this quarter from our previous quarters to basically almost flat. It was down $17 million, but public funds was right at $15 million of that, so just a couple million dollars. So that was a very good number for us for the fourth quarter. Our non-interest-bearing deposit portfolio changed one basis point. We were 29 basis points to total deposits, down from 30 last month. So overall, still very happy with those numbers as well. On a year-to-date basis, a couple of just highlights, I think, to point out. Operating earnings for the year increased $28.4 million. That was right at 42%, up to $96.7 million. Our loans, excluding the acquisition of Heritage on 1-1, increased 6.3% for the entire year, which was right at $237 million. Assets overall grew $1.5 billion, up to $8 billion. And our cost of our deposits averaged 109 basis points for the year. And then our net interest margin on a fully tax-equivalent basis on a year-over-year basis, actually increased 40 basis points. Just a couple of notes on the bond sale. We did put on that, Kay, in case you didn't see that. I'll go over them really quick for you. But we did have a $9.7 million loss on $123 million in bonds that we sold. They had a weighted average book yield of 1.12%. and an average life of three years. So 92 million of that was reinvested, yielding estimated 5.33%, and then we paid off 30 million of our bank term funding program that had a rate of 482. So overall, with that shifting of the balance sheet, the earned back will take 2.1 years. That's expected a $4.7 million increase in our net interest income, and then about eight basis points related to margin improvement. A couple of notes just in general and other. Our liquidity position remains strong. Loan deposit ratio is 80%. We still have about $2.2 billion in our borrowing capacity, and 40% of our securities are unpledged, which is about $680 million. Over the next year, really 2024, we have about $205 million in cash flows that we'll generate out of our bond portfolio. And then our capital ratios were in line, TCE 7.9, leveraging of a 9.7, and total risk base 15%, all in line basically with the last quarter. Our return on average assets operating was 95 basis points, and efficiency ratio was 62 basis points. So all in all, overall, I think it was solid. It's just, you know, deposit increase, deposit costs, you know, we're up as expected and moving forward.