Q1 2022 First Bancshares Inc (Mississippi) Earnings and to Discuss the Acquisition of Beach Bancorp Inc Call
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Good day and thank you for standing by welcome to the first Bancshares first quarter 2022 earnings and proposed deal announcement.
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I would now like to hand, the conference over to your speaker today, Mr. Hoppe Cole with cole the floor is yours.
Thank you Sir good afternoon, everyone I'm happy Cole CEO and President of first Bancshares, we've got an awful lot of exciting things to talk about today.
But before we get started let me introduce the some folks from forest Bankshares and from beach by quarter will be joining us on the call and we have DD Lowery, our chief financial Officer.
J J Fletcher, our chief lending officer.
We have been mcelwain, our senior credit risk officer.
From a beach buying.
Our company, we have chip Reeves, CEO and President Richard Moss Scary Scary, there are chief financial Officer.
So we're excited to have everybody participate and I thought from an agenda standpoint that we would talk about the transaction that was announced yesterday.
And then follow that with some comments about our first quarter earnings results yesterday afternoon, we announced that our first bancshares had entered into a definitive agreement to acquire Beach Bank Corp, which is a holding company of Beach Bank.
Beach Spike because of $620 million bank headquartered in Fort Walton, Florida.
They operate seven biases six in the Pensacola, Fort Walton Destin, Florida.
Florida, MSA and one branch in Tampa, Florida.
This this transaction really goes back as far back as <unk> 'twenty.
<unk> 'twenty late 'twenty 17, early 'twenty 18, when Carl Chaney, and chip Reeves, Oh sponsor a raise of honest to put together a institutional group to raise capital to recapitalize, the big Beach by franchise or call. It reached out to us and said well if we were interested in taking the equity.
And the company, we passed all the equity position at that time, but we did talk about and Karl I talked at length about potentially this day coming about so gosh after four or five years here we are.
I would call core like every April and say, Hey call you or yesterday for finally, our last year I think chip in a ran into each other a couple of conferences got to know each other a bit and then in January invited me down and we began to talk about putting our two companies together, how they would complement each other.
Help us celebrate accelerate both of our growth plans and how much our cultures. We share similar cultures are similar visions about the community banking space.
<unk>.
This this transaction has elements of both the strategic and financial nature.
From a geographic standpoint, we currently have significant market share in the northwest, Florida market Beach has significant market share in the north West Florida market, it's contiguous.
Building density in a market that both of us already have a meaningful presence in and so from a financial standpoint, we will create a combined institution with a community banking institution with almost 7 billion assets approximately $6 8 billion in assets as I mentioned earlier it improves our market share.
In some very high growth markets in the Pensacola Fort Walton Destin M. S. As together, we will have over $900 million in deposits net flows.
Markets well over half a billion dollars of loans, two very complementary our banking teams both of which have a lot of knowledge of each other but also have a lot of customer knowledge and market knowledge.
Because of that density we project significant cost saves as five of the six branches that beach operates in the Florida Panhandle are very close to five of our branches. So we will have a significant consolidation opportunities, while the ability to generate cost saves and efficiencies and additional synergies by.
Combining those locations taking the best of the best which best serve the client are in which operate in the most efficiently.
It immediately improves upon closing of the transaction based on 331 numbers.
It immediately improves the combined or at least our BMS as a loan deposit ratio from 56% at 331, if you're modeling beach's current loans that moved us up to about 60%.
As you know beach has a 90 plus percent loan deposit ratio so the ability to combine those balance sheets.
Use up some of that soak up some of that excess liquidity and then opportunities to deploy the liquidity as we move forward.
Sure.
There are we also believe there are significant revenue synergies, we've not modeled but certainly identified mortgage by mortgage banking is one oh, we have a little bit more volume than beach, but very.
Oh very comparable mortgage volumes they have a very active mortgage division headquartered in Destin day, one by combining those will more than double essentially our mortgage volume.
And then the opportunity to lever that as we go forward and expand it across our footprint and their footprint, so, particularly in the Tampa Central Florida market.
And then on the.
The other opportunity that will have is that as you. All know we have an extremely low cost granular deposit base a diversified across the southeast there'll be an opportunity to remix the funding side of beach's balance sheet is that there are still some legacy high cost Cds left in additional funding pieces and as we move forward we will.
Able to supplement or remove those or reduce those costs by deploying a lot of our excess liquidity in their current balance.
Balance sheet mix.
And finally from a financial standpoint, and we will talk a little bit more detail later as we discussed the transaction, but very acceptable.
Pricing metric metrics in terms of dilution earn back and EPS accretion and internal rates of return.
From a strategic standpoint.
This beach bike is not your standard $600 million, Mike that we've seen the quality.
The banking of the bankers that they have here.
Their expertise their high level of performance.
The systems the platforms.
Our specialty lines of business or are commensurate with a much larger institution.
And then just simply a $600 million bike, so certainly $600 million of nice sauce for us, but really the story is about how do we take and how do they influence the overall company to elevate and accelerate our growth plans with some of the expertise that they have.
It certainly from a strategic standpoint.
Strengthens our northwest, Florida franchise, it moves us in the community banking space in terms of market share.
Number two in the Pensacola MSA number one in terms of deposit market share in the Crestview Fort Walton Destin, MSA again with over $900 million of policy will over half a billion dollars of loans. It opens a high growth market.
In terms of the Tampa, Tampa Metro market and the surrounding Central Florida area. We don't have another market in our company like that is a lot of you know we primarily our community where we are a community bank that primarily operates in the suburbs around a lot of metropolitan centers, but we don't have a market and we have a meaningful presence.
In a metropolitan sewer center, the size and with the growth opportunities at Tampa does.
So and so Tampa in itself will be its own region self contained it'll be a nice diversification to our book, which as you know it was mostly one to four family construction real estate oriented CRE oriented.
Hemp a piece of beaches operation is heavily.
C&I oriented that's a nice diversification.
In terms of our product lines in our portfolio mix and then they offer a high quality seasoned team of bankers, both in northwest, Florida, and I thought talk or complementary to our banking teams and so they know each other very well they've competed against each other have been very good competitors and competitors and now we get to join forces and really lever all.
That expert expertise and talent that we have in northwest, Florida, and then in Tampa, they've got an extremely accomplished.
Bank commercial banking team that is well entrenched in the market that come from a lot of different backgrounds.
But very sophisticated very well tied into the Tampa market.
And so.
This will bring to us will bring to our combined company expertise in areas that.
We currently don't have as a standalone business and platforms that they've built which we were trying to build but they they're already ahead of schedule ahead of us in that regard, particularly in terms of specialty lines and so a couple of areas that we are really excited about is that they have developed a government lending and SBA USDA platform.
And we tried to do that for a number of years and our bank. It's very difficult to do if you don't have the sort of self contained expertise it really I've learned that that is a.
Entirely different product line to try to take your general business bikers and.
And turned them into SBA government assistant lenders is very difficult you need a specialty division of that and so.
They have accomplished that and have that operational in the Tampa market.
They also have a health care practice specialties that works well.
Inside he has another a lot of business that we can marry up with our private banking division, where we offer a general banks.
Mike's hard products to our high net worth high and compliance. We also offer a wealth management line to those clients and then also this health care practice specialties will be complementary focusing on.
Health care practices veterinary practices dental practice podiatrist practice, so again another complementary.
Lot of business that will help lever market share again across the whole south east.
So.
We will bring to beach in order to get them to accelerate their strategic vision.
Capacity, a much larger balance sheet, a much larger legal lending limit.
We will bring a much more pricing power in terms of we have substantial excess liquidity.
We'll dig into that a little bit more when we talk about our earnings.
We have no wholesale funding.
And so we have the ability to to marry our excess liquidity our pricing power our capacity.
And some of the heart.
Our highest growth markets in the southeast in northwest, Florida, and again in Tampa with a seasoned group of bankers, who were very confident can make use of that capacity and deploy that excess liquidity.
As you all know the most important part of any.
Merger of any partnership.
To make sure that the teams were able to get the teams to work together to focus number one on the integration piece and making sure. There's a minimal amount of impact on the client. So they were successful in retaining all the business. We have and then two to work together to meet the.
And accelerate the growth plans that we have and so.
Your leadership teams with beach, all will be essentially participating in joining the resulting company.
Annuity of that leadership is very important so chip Reeves and currently serving as CEO or President of Beach will join our executive leadership team as director of corporate strategy.
The initial launch things that chip that I've talked about it he he would like to focus on for our mortgage banking division and that.
We've got a large market share we've got the opportunity to substantially increase our mortgage banking volumes and revenue. That's an area of expertise that he has in his background and their experience that we're really excited too to get all into.
And to join the company specialty lines platforms that they have built here in Tampa.
We will continue to report up through a chip Reeves again, the government USA SBA platform.
The.
Swap derivative business, which we don't have is a fee income source for us.
And then health care specialties will report up through.
The private banking division.
So those somehow 11, Palo will comments about where the transaction originated in some of the things that we see a while this transaction so exciting as we move forward. So chip would you like to add any any thoughts and observations okay. Great. Thanks, Avi and first ever and let me say just frankly from from our entire.
Team how excited we are to join the first we've looked at the first for the last four years and we cannot imagine frankly, a better partner to continue our.
Transformation of this organization and second just for any of our team members are on the line as well I just wanted to thank all of our team.
A view for the transformation and growth since our July 2018, recapitalization its been a herculean effort to get to the point, where we are today.
I'm extremely proud of what we have accomplished.
As we entered this journey in 2018 to build ultimately a multibillion dollar business centric institution in the state of Florida.
We entered 2022 with two main strategic priorities the first to become the dominant community bank market share wise in northwest, Florida, and the second was to accelerate our outstanding Tampa region growth.
And what we found in a partnership with the first is that we will able to accelerate and achieve those frankly overnight. The strategic rationale of this combination is just outstanding.
Taking a look a little bit further just at the Tampa MSA on page eight of your Investor presentation.
You'll see the economic momentum of the Tampa Bay region. It's frankly outstanding what has occurred over the last five years and that momentum only continues to increase now we see number one emerging tech city in the United States. According to Forbes then number five city in the U S for net inflow of residents in 2020 one.
We now have we have the team and the talent. We now have with the combination of the first is the scale and the balance sheet to take advantage of this region's opportunity and frankly, our team can't wait here, we only announced this in the last 48 hours, we had some more conversations the week prior with our team and we're all ready.
Seeing that the client impact as we continue to accelerate this this growth quick combination or a comments on loan growth a beach since the recapitalization is averaged about 18% loan growth CAGR.
That on a raw number ends up, especially the last three quarters being about $20 billion or $20 million I'm, sorry of net loan growth.
We believe we can accelerate that with this combination and Youll see is didi and hop you walked through the future numbers here is the first of the power that the additional lending capacity can provide beach, but the deployment of the excess deposits into the Florida marketplace.
Be an outstanding contributor to the future earnings of this corporation with that one hobby I'm going to turn it back to you.
Thanks, Chip gosh, great comments and again systemwide.
You guys have done a herculean job.
Uh huh.
Building Beach back to where this date as possible and we look forward to joining forces and really.
Get into work so before we move on to earnings just a couple of metrics regarding the pricing and structure of the transaction.
It's 100% stock the consideration mix of 100% stock. It's a fixed exchange ratio of <unk> 1711 shares of F BMS to beach.
The price to tangible book value was 142%.
Priced for 2022 estimated EPS is 36 and a half times. However, if you place on there the cost saves that we think will generate that some number more like about two and a half times earnings penetrated ratio very acceptable and 86% is less than 1% day, one tangible book dilution the earn back less than one and three quarter years.
Ours.
Internal rate of return essentially above our hurdle of 15% are really in the mid twenties high twenties, and the resulting corporation. In addition to having substantial liquidity potential low cost funding and access to low cost funding winds up with extremely good capital base from a tangible common equity.
Standpoint would be about seven 5% leverage will be 8.5% total risk based capital of 17, 5%.
In terms of impact to earnings.
We forecast EPS accretion of two 3% in 'twenty 'twenty, three but really the first full year with cost saves were fully realized would be in 2024, we believe thats approximately about 475% EPS accretion and again, that's based on cost saves of 50%. So we anticipate.
Closing in the third quarter with systems integration in the fourth quarter.
And so.
With that those are some comments relative to the the actual transaction and I think we'll transfer.
We will transfer over to talking about our results for the first quarter.
Some high level comments, and then Didi will pick up and do some give us some more color on the actual results of earnings.
J J Fletcher will give us some color on what our loan growth was for the quarter.
<unk> been mcelwain, our senior credit risk officer will talk about some of the credit metrics for the first quarter as well and then we'll open it up for questions.
Net income for the quarter totaled $16 8 million or 81 cents a share that's a 6% increase over the fourth quarter.
Of 2021 loans.
Loans X P. P. P grew about 32 million or four 4% on an annualized basis.
We continue to see a dip.
Posit growth $211 million for the quarter, 4% on actual basis quarter over quarter.
The our net interest margin contracted a bit 36 basis points during the quarter, but but you'll remember primarily the result of the cadence branch acquisition, which was closed December the third and that was a little more a little more than $400 million in new deposits that hit our balance sheet last month of last quarter. So are we.
Continue again that contributes to our excess liquidity on the balance sheet as well, but if you remember the pricing was very attractive for that dip.
Deposit base and were very excited to get it in again in the long run it puts.
Medium run short run it puts us in a great position to benefit substantially from the transaction we talked about earlier.
Earlier in the presentation, but then also.
The increasing interest rate environment to help improve our earnings and improve our returns.
We have currently during the quarter and Didi will dig into this a little more but we were an average cash excess cash balances around $800 million again back to the substantial liquidity Holly retail oriented low cost granular deposit.
Deposit base.
Our asset quality remains strong and our nonperforming assets decreased 10% quarter over quarter and 25% year over year.
We had net recoveries of 12 basis points during the quarter.
And we repurchased 600000 of our common shares under our repurchase plan that was approved.
Early in the first quarter.
We also we are so busy quarter, we converted.
Our charter from a national bank to a state chartered fed member buying so.
A lot of stuff going on during the quarter a lot of hard work from all our team members on both sides of the company Oh Gosh, what we think is a certainly a strong start to the year. So D. D would you like to dig into our earnings a little more.
Sure. Thanks Avi.
As Harvey mentioned on the net income for the quarter of 16.8 or 81.
I wanted to talk about our.
Operating earnings and that is where.
772 cents for the quarter, which was right on top of consensus and we had three items that were kind of one time items.
I hadn't mentioned that is because a couple of them on my comments later.
With far too those one time items and well go ahead and get those out of the way so.
Did have three items.
One was a grant that we received from the department of Treasury or financial assistance Award on.
If you recall, we think getting those every year for the last several years this quarter. It was 700.
103000.
So after tax it would be about $500000.
We did have.
On the corner some acquisition charges related to cadence and also some charter conversion expenses.
That's about 400000 in after tax it's a 300000.
Did have a one time income on our boldly related to I D.
That was $1 6 million.
So that net after taxes of $1 6 million. So those items are three kind of one time items.
That brought that operating earnings down to 72.
But one of the things that I wanted to niche and kind of what we've been talking about for those of you that you know.
The last really two years since we've had all this excess liquidity that.
We still have the excess liquidity.
But to kind of keep looking at our spread I think keep looking at our earnings not necessarily on margin just because of that excess liquidity and.
And we did.
For the last several quarters, you can see our net interest income.
X P. P P fees have increased.
The last year.
Also this past quarter was an increase of 500000.
11, 1% investment.
Come on our investment portfolio.
Waste over last quarter, and a half dollars about 20%.
And then also on our noninterest income minus those one time items that increased 500000 or about six 5% over the fourth quarter and that was particularly in two categories interchange fees and our service charges on accounts and part of that is due to the.
The additional cost that we.
Got to the cadence branches back in December So you can see the impact of that during this first quarter.
Also on our expenses they were down minus the one time items about a million dollars or 333 little over three and a half right at three 5%.
And if you recall last quarter as indicated in our press release, we did have some one time items about a million dollars that was in the fourth quarter.
That drives those expenses out during the fourth quarter and I believe that was about a million million one.
Last quarter Sun.
Kind of on par with last quarter, if you exclude those items out.
As <unk> mentioned on our balance sheet, our deposits did increase 4% a $211 million.
Generally in the past several years, we've talked about.
During this first quarter, we usually have a big tick up in our public fund portfolios.
That was about 60 million during the quarter, but the remaining balance of about $150 million.
Related to retail and business customers. So.
That's a little bit of a change in I know, it's kind of towards the end of the first quarter is when the public funds pick up so we should see some of that in the second quarter, but.
I'll, just say some of that in the retail and business customer during the quarter.
Another positive note was on our interest bearing deposits.
That cost decreased two basis points.
<unk> down to 18 basis points compared to the fourth quarter.
<unk> mentioned, the overall margin did decrease.
36 basis points compared to last quarter.
Two of those.
Part of that has been what we talked about was the excess liquidity we had.
Normally if you look at our average balances on our margin table, we've been running about $625 million or so and that's been for several quarters into last year, but this quarter. It was 825 million average and part of that was the.
They continued from the cadence acquisition, thus far.
Bonds being on there for the for the quarter, we did put about 350 million.
On average into the investment portfolio during the quarter.
But still.
And its 825 on average so that is a big driver in the decrease.
Part of that as well related to the differential from the fourth quarter was our P. P P fees.
So that was about 12 basis points of the decrease.
Well and then that 225 million that I mentioned kind of a baas, where we have been running in liquidity was about 12 basis points. So that's about 25 basis points of that decrease at those two items.
But overall as Hap you mentioned the excess liquidity that we talked about.
700 million of that.
It was about 40 basis points to the margin so.
We are.
Still putting some some of that to work in our investment portfolio.
Ben.
Purchasing theory.
Put bonds with very conservative structures and structured solid cash flows coming in.
Typically what we have been buying over the years nothing new but just putting in the same type things that we have then which has driven up our asset sensitivity a little bit or went into the into your two just because we have we still have so much excess liquidity and then what's anticipated in our cash flows.
And then one more thing I wanted to mention about the margin.
What is kind of.
Looking at where what the future rate hikes, you might do to our.
So our earnings into the 10 margin, but we have without modeling brine.
The company that does our modeling we they had four basis points for 25 hikes built in.
So we had some more runs dying to have six types.
Not in this year.
So for 2022.
Back in those taken that differential and looking at what just that 50 basis point increase would do.
Over that and then keeping our current deposit cost of saying, we feel like that we should be able to for 2022 keep our deposit costs, where they are and so that would impact about $5 million after tax which would be about 25 cents on our E. P. S.
So that's kind of where we're looking at for that.
I think that's all I have happy on my prepared comments, so I'll turn it back over to you.
Thanks, Steve again, a strong start to the quarter.
Our liquidity continues to build we expect margin expansion over the next several months due to interest rate increase and again continued growth in loan book and not only organically, but certainly the combination of our two companies and quite frankly, we've already started levering some of that and the ability to do participations between.
Our company so well.
We're getting a head start on that and are excited about what that will mean to us in terms of improved growth and profitability.
JJ when she likes to give us a little of a few.
Your comments about the loan growth for the quarter.
Yes. Thank you happy and you already mentioned, we were very pleased to have <unk>.
Both are about $32 million ex PPP for the quarter very excited that came from really all regions of the company, Mississippi was very strong.
Standout region force in the first quarter and really had a good blend of.
Existing <unk>.
Credit and new existing or new relationships to help drive that number March was a really outstanding month was about $200 million in new originations.
That was against about $3 six $3 60 for the entire quarter.
One thing we've been looking at closely as unfunded commitments.
It remains very strong about.
About $338 million a quarter in.
And pipelines.
As me.
Healthy about $645 million and our total approved pending close and collecting information.
<unk> were 587 in February and tableau seven in January so really strong at the end of the quarter.
And in the first three weeks of this quarter continue to look positive.
<unk> is very strong and a lot of the large credits are moving through the pipeline. So.
Really good quarter and a good start to this quarter.
Thanks for those comments J J been strong again strong credit metrics for the quarter, but if you give us a little color on credit performance. Please.
Yes, I would love to compare to about a year year and half ago.
A much easier conversation.
Let me touch on past dues real quick finished this quarter at 39 basis points.
Very strong start for the year up a little bit from the end of last quarter. We finished last year at 25 basis points.
I'd like to point out too that that was zero loans in any type of payment modification period.
Our P&I deferrals at the end of the year.
All loans had returned to the regular repayment terms.
So like you mentioned last year, we averaged under 54 basis points for past dues.
Lowest average since we've been tracking that metric in 2013 so.
Really good year last year.
And then with respect to for this quarter all three months of this quarter were below that four basis point average though.
Really good start here on Paas news classified loans.
Now this is one where we haven't been heartburn going into the pandemic.
We all know that the pandemic started in March of 2020.
And classified loans really didn't didn't increase a whole lot over 2020.
Increased 18% through the year of 2020.
$14 million.
Let me touch on this quarter real quick we finished this quarter at all.
$3 million or 16, 8% as a percent of capital.
That compares well and is down from last quarter.
We were at $110 5 million or 18.34% of capital and compared to first quarter of last year down.
From $107 million or 19, 5% of capital.
Started to give you some background, but let me let me now.
To give you some background platform alone.
The end of the third quarter of 2020, we implemented a review process on any loan.
That was in some type of payment modification period.
Or that was carrying a balance of deferred interest from the suspension of P&I payments.
We saw through the end of 2020, our third and fourth quarter going into the.
End of 2020.
Our criticized loans, our special mentioned loans increased significantly and the reason for that was in that review process.
Especially in.
Hospitality industry hotels restaurants, and in the retail sector.
If we didn't have any updated financials and we couldnt document the ability to repay.
All those loans, we went ahead and moved those loans, mostly special mentioned.
So you saw a huge increase there will go into the first half of 2021.
What can happen with nice criticized loans that you need to get out.
Downgrade.
In May of 2021, we had reached our peak of classified loans downgrading those criticized loans.
$121 5 million or 21 point.
3% of capital.
That trend turned around and I would say in large part to that review process and getting updated financial statements and really documenting where our borrowers were at.
By the end of the year like I said, we were back down to $103 million in classified loans from the one time 121 and a half.
66, 8%.
8.68%.
Is that it has been.
Since November of 2019, so we're real happy.
Those classified loans, we work those back now like Hap, you mentioned, a little bit ago NPA is down.
They finished we finished this quarter up to $27 5 million or 92.7 basis points.
Loans of Nomura.
That was down from last quarter 35 million or one point of 3% of total loans and the lorry and compared to the first quarter of last year down from $33 9 million or one 2% of total loans.
Hop you also mentioned.
Net charge offs.
Give you an annualized figure.
We were in a.
Net recovery position of $3 three basis points, which is the first time, we've been in a net recovery position.
The beginning of 2018, so hopefully that metric will continue trending that direction throughout this year throughout 2022.
Those are the highlights.
I think that kind of gives you a high level view.
Come through the pandemic.
Thanks, Peter and again strong performance in terms of credit quality and credit metrics. So I appreciate them.
Comments in regard to that.
That really concludes our prepared comments for the call today again we're.
A really strong start to the year not only in the posted results from forest bankshares, but the announcement of our combination with beach bike only accelerates.
What we think is going to be.
Good year in terms of growth and profitability, so with that I think we open it up for questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Standby as we compile the Q&A roster.
Our first question comes from Kevin Fitzsimmons of D. A Davidson.
Your line is open.
Hey, good afternoon, everyone.
Hey, Kevin.
Hey, happy.
Assuming.
This deal.
It's been announced or proposed in anticipation of the Treasury's E CIP program, which which you guys have been open about that you're eligible and you plan to participate.
Number one what's what's your latest thoughts on timing when that's actually going to happen and then a more broader question as you know.
Assuming that comes through you got plenty of regulatory capital and this is.
It gives you a boost.
Basically free capital.
Beyond this announcement with beach, which I know you're going to focus on it.
So it gets integrated but beyond that.
Do you intend to do yet.
See yourselves getting more active in additional deal opportunities.
Kind of when and where and what kind of size any kind of flavor you can give us on.
On that.
Particularly like does this deal change that dynamic like is it really all about Florida Board first now thanks.
Thanks, Kevin.
I'll answer a couple of.
Points in that number one the use of capital.
As you know were eligible and were eligible and are eligible for $175 million of debt capital from the U S Treasury.
The structure of that is contemplated to be a preferred issuance.
However, we continue to analyze that we continue to talk about some of the requirements around it so I'm not certain.
Not committed at this point to actually closing on the capital so.
That did not go into the modeling of this transaction and really that would be again, an extra four of extra capital for us extra low cost capital, but we're a bit concerned about some of the treasury. Some of the requirements Treasury has and some of the disclosures that would require us to make as a public company. So no certainty that we will actually.
Close on that.
Secondly, this transaction is certainly accretive and in line with our strategic plan as you know there is scarcity in Florida, but Florida remains a top priority in terms of expansion for us.
Not only in terms of acquisitions, but also in terms of organic growth in chip and his team.
Help us explain part of their role in part ships role will be to continue to look for expansion opportunities, particularly in the Florida area, particularly in the central Florida area and that can take the form of either if there are additional acquisition opportunities or if they're organic by organic means with team lift outs and the establishment of a loan production office.
And then potentially branches and some of the more attractive markets.
Eastern and Central Florida. So yes. This deal not only from a financial standpoint helps them immediately and scale pricing capacity, but then also we acquire folks and team that has knowledge of certainly a high growth area of the Florida market, which has been very important to us.
As you know we've done multiple deals we've done in fact, we closed transactions. Both on the same day, we've done a couple of years, where we've done three transactions in a year and so over.
Over the years, we've had the opportunity to.
Have a team that's dedicated dedicated to.
Acquisition integrations. So we hope this is the start to a very active year values.
Evaluations kind of all over the place and that can be a headwind as you know however, it seems like there's a lot of opportunity and we continue to have a lot of conversations.
Florida is a high priority because of the overall demographics.
Tennessee is a market that.
We've not historically.
Look being very hard, but then you know we've been pretty geographically disciplined about how we build out our franchise so with our expansion into the northeast Mississippi, then all of a sudden Tennessee begins to make a lot more sense.
In terms of geographic connectivity and Theres a lot of banks, we think in Tennessee that are buying like we like to partner with and that sort of 500 million to a 1 billion to 1 billion five range and so very nice markets again with overall good demographics and so.
And then finally with our presence in Baton Rouge, we begin to think about Texas a bit.
Again valuations are high there, but from a strategic standpoint, it would make a lot of sense, because the ability to collect connect Florida, and Texas and for all parts in between we think would be a unique franchise in the community bank space and we'd certainly hopefully drive a premium valuation so we're.
Cited about the year, we've got a lot of Optionality we've got.
We've got plenty of capital, particularly.
You mentioned, our T C being roughly seven 5% for us historically and there was a long time, we operated 6% or will honor that we certainly don't.
Oh.
Operator, 6% anymore. However, in the 7% to 8% range is a comfort level I think that.
Given the risk.
The pretty Ruth R.
On a risk adjusted basis thrilled of conservative balance sheet that we have.
Mid Sevens low eights is certainly a reasonable level of tangible common equity and then to be on the half hour total capital regulatory capital 17, 18% plenty of capital.
Married with the earnings accretion that we'll enjoy going forward in order to support our acquisitive.
Opportunities, we'd go forward again that size range 500 million or so.
On the low end.
<unk> to well over 1 billion on the high end is kind of a sweet spot we want to concentrate them.
Great. Thanks, Thanks copy and just you kind of alluded to it but I just wanted to I did want to get into Tampa and you would.
Kind of referred to it more broadly as central Florida. So is there is kind of a near term opportunity really it's getting.
More of a dense presence in northwest, Florida, and then putting the excess liquidity to work there you know.
Can be used but then the longer term opportunity is using this tampa presence as a springboard to a more broad.
Presence.
In and throughout Central Florida, It sounds like what you're talking about.
Yes, I think it definitely right Kevin shipment had that discussion last night.
We were a rotten around a bit talking about strategically.
His thoughts on our thoughts about where to go from here.
Would you typically like to spell out a little bit or just but yeah. We our thoughts are kind of both Kevin.
Build density in the Tampa market I mean, we've got a meaningful presence now, but certainly the capacity to increase that and then the market's up $95 75, some very attractive markets.
In Sarasota overly side as you go up to.
Fort Pierce and Fortunately it loosening up of that way and then in Central Florida.
So for Florida area like Lynden up towards Gainesville, Ocala, those are all high growth markets markets that we compete well in so we'll be opportunistic chip and I'll discuss this last night looking for if there are potential acquisition opportunities, but also in terms of organic growth opportunities there.
Okay, great. Thanks very much.
Thanks, Kevin.
Thank you.
Our next question comes from Catherine Mealor of <unk>. Your line is open.
Thanks, Good afternoon and congratulation.
Thanks Catherine.
I wanted to start on the growth I thought it was helpful to think about it in dollars and I thought it was pretty telling that hapi at BMS.
With yonker without <unk>.
$32 million this quarter and then you know it beats.
It looks like you're growing at about $20 million.
And it looks like that kind of quarterly growth rate is going to accelerate from here. So.
Although this is relatively a smaller deal for you in terms of asset size.
Fair to think about that this acquisition can more than double your current loan growth rate.
Am I being too optimistic on that.
No well that appeals Katherine you know, we like to under promise, but.
Yeah.
So we were talking and in fact modeling out we spent some time around this and what youre seeing there as Luke from our sort of historical.
Community Bank suburb suburb.
Total loan portfolio were in that sort of mid single digit growth rate and that's fairly consistent.
Accepting this last year were just payoffs have been crazy, particularly the CRE space, but I think that's right I think if you look at what beach can bring particularly in the Tampa area.
Together, we can definitely accelerate that growth rate so it.
It feels like we think theres an opportunity to do just that to essentially look at a high single digits growth rate on a combined basis as we move forward. We think that's reasonably achievable. We don't think it would be taken in order to Mount a risk, but we think the markets, particularly the Tampa area will help support that.
Okay, Great and then.
Thinking about the 5 million in asset sensitivity that you talked about I, just want to make sure I'm thinking about that right.
Yes.
Additional 5 million in after tax net income that you get just how much of that is that just kind of shock in your portfolio for <unk>.
Fixed rate hikes.
Or does it also include the deployment of the next at some of your excess capital excuse me excess liquidity into loans, how do we think about it there's two components of asset sensitivity.
So is the is.
Not necessarily deploying its kind of taken the you know the balance sheet, where we were at the end of February and then building on the two hikes because they.
Make your own model already had.
<unk>.
Four hikes in it so we added two more just to kind of say the dollar volume of that base kind of haven't done.
Our baseline.
Our golf off but it was really just maintaining the current deposit cost and then increasing that 50 basis point so.
Really not deploying it more into loans.
Bob what.
Our growth our normal growth because we budget.
4% so.
It's not going above that.
In the model.
Got it putting the 50 basis points on that that excess liquidity that cash is sitting there.
Got it okay.
And since then and Thats just 25 cents.
<unk>.
50 basis points of hikes, so, but the key point that doesn't include.
I guess zero deposit beta so as we kind of think about the impact of full hikes and as you kind of continue on.
Don.
Run rate or annualized 25 cents because deposit betas at some point well will catch up and start to nail.
Is that a fair way to think about that yes, that's fair.
Okay.
Okay, Great and then one last thing on just.
As we model also this.
This growth coming on how should we think about maybe between now and year end before the deal closes how active you'll be in deploying excess liquidity into the bond book person. It's just holding on to the liquidity that you can put it into loans as soon as the deal closes.
Hum.
We're not holding back to Tim for the loan growth as far as we have enough liquidity in that portfolio that bond portfolio and the cash flows coming off of it.
For that loan growth. So you know we're still.
We're still investing in the portfolio.
So I don't we're not going to sit back and wait for loan growth that we're going to continue at that kind of a moderate pace with band just putting them to work.
Now as we go.
Catherine outside of deploying the 400 million that we had that came to us from the cadence.
Branches and you saw our first quarter, where.
I think we've put about about that much in held to maturity Securities I think the way I think about it is as a percentage of assets and in terms of dollar size I don't know that the portfolio will grow materially over the rest of the year.
But the cash flows coming off of that portfolio, certainly will be reinvested and interest rates have been kind to us a bit here. So there are substantial and DD I think there's coming out of the bond portfolio in my right. There's about 252.
$200 million and $250 million of cash of maturities coming out of that portfolio.
Right.
So I don't know that materially we will increase the size of the.
Bond portfolio, but we will do some some investing and we will pick our spots. So there is some opportunity to take some of that excess liquidity and stay relatively short.
Given its magnitude and get some nice you'll pick up.
Great.
All very helpful. Thank you for all the commentary this afternoon.
It looks like a great deal so congratulations.
Thanks, Catherine appreciate it.
Thank you.
And next we have Matt Olney of Stephens. Your line is open.
Thanks, Hey, guys good afternoon.
Hey, Matt how are you great.
Congrats on the deal first off and I'd love to hear more about the.
Ownership on the beach side, it sounds like the pro forma ownership of that BMS is going to be around 15% when the deal closes.
It sounds like beaches, some retail some institutional.
Any more background you can give.
On the beach side and it sounds like there was a recap a few years ago. Thanks.
It was and we have theres a lot of commonality in our shareholder base. So I'm hopeful that we're going to really a proud. This applaud. This transaction shifts would you like to talk about the beach shareholder Basin sure. Matt This is chip Reeves.
Soup.
18 recap was completed in July of 2018 about $100 million was raised at that time, primarily from institutional shareholders.
So honestly, it's a little bit of the who's who of the of the bank space institutional investment community and with that I think we have approximately 40 shareholders. So.
Not very retail very institutional.
Got it okay.
And then.
The Tampa team loved to hear more about this team how long they've been with the bank where were they previously.
I guess what types of credits that are focused on and.
I assume they are locked up just any any deals because you can give on that.
Thanks, Matt This is chip Reeves again, so I'll give a little detail on the on the group.
We have hobby and the first did an amazing job over the last couple of weeks and.
What I'd call out socializing this combination and the benefits of that with our Tampa team as well as a number of folks in northwest Florida.
All of our team members that have been essentially offered agreements to AG to continue retention agreements have executed those so the team is intact and I mentioned in the prepared comments, we've actually already seen it just in the last week or so some <unk>.
Significant opportunities that frankly, we would not have been able to accomplish on our own but with the assistance in the first and this combination we've been able to to continue to handle the relationship and satisfy the client need.
Two main individuals that lead our Tampa market, one as Henry Gonzales.
Henry was a long time bank of Tampa team member and then also was the Florida region President for mutual of Omaha, before joining beach bank at recapitalization, essentially that three and a half years ago.
Another chip amazingly enough two chips in the bank, but chip Volk, who was formally <unk>.
<unk> commercial market precedent here in Tampa another longtime champignon.
Leads are middle market banking and all of our specialty lines of business and so those two individuals are frankly outstanding and compete at a level against regional institutions as well as the trillion are banks.
And so and then our treasury management capabilities.
Our lead Treasury management.
<unk> officer joined US from Valley Bank, approximately the same time three to three and a half years ago.
And as one of the best Treasury sales officers that are that I have worked with them in my career and so that group is all with US all staying are excited about the opportunity as I was just in the last 24 hours as our client base.
Okay.
That they have signed contracts.
Our retention agreements.
Very helpful. Thanks for the update there.
And then I guess looking at the disclosures in the deck it looks like beaches profitability Hasnt mediocre more recently what else can you tell us about the ROA and the efficiency levels that had been more depressed over the last few quarters. Thanks.
Yeah, Matt So I'll actually go ahead. This is chip Reeves again, sorry to grab this one and then I'll, let hobby hit in D. D hit the cost save piece of this.
But again when we go from a strategic standpoint, and what this transformation of beach was set out to accomplish from July 2018 until till now.
If you look at our board of directors and the institutional shareholders frankly, what we were looking to create what is a $2 billion to $3 billion business centric franchise in the state of Florida, especially as M&A activity had left what we thought a void and opportunity. So we have invested at the levels and scale both within team but also.
Even more significantly likely in platform.
To accomplish such so our efficiency ratio is obviously higher than frankly, even our board would I say is appropriate, but it's appropriate for the evolution of our company.
The significant operating leverage that we've created within this institution is outstanding we've taken the deposit franchise from 10% DDA to 27% we spoke about the loan CAGR as previously and so if you follow that and just add one more year frankly of the 20% loan growth and our expenses have stayed the same.
So.
And we have $100 million in cash that we did not put into the markets.
And so we had no essentially no a OCI at the end of the first quarter. So you put those together and then the 50% cost saves I think you can frankly easily begin to model a return here that is.
Probably even more than than conservatively modeled in our combined organization.
No Matt.
As I mentioned earlier.
Chip certainly alluded to in his comments beach banks not your average $600 million bike now it did have a little more overhead that certainly affected their earnings on their growth path, but again, they set the bank up with a group of bankers a group of systems are competing in some high growth markets. So the ability to scale that up.
It takes a little time as we talk and we talk about <unk>.
Better together and being able to accomplish our goals.
In a much shorter time period.
What either of us could have done alone so.
Like again combination will certainly accelerate that profitability as a combined company growth and profitability.
Yes.
Well I think I heard that the loan growth CAGR has been more in that 18% to 20% level.
The last few years in order to hit the EPS accretion you guys have outlined can we assume thats the expectation that it's a similar level over the next few years from the beach side.
We expect our loan growth to be consistent with what they've achieved in.
And that was what we use in our modeling but anecdotally.
Anecdotally.
I must tell you.
It will.
I'm pretty confident that given the increase in capacity.
Moving some of the restrictions of a smaller bank.
In both markets and together in northwest, Florida, and all the opportunities there, but the scale of capacity the pricing power combined with their market expertise in Tampa.
Certainly, we we did not model that but we certainly feel strongly.
And it would be very hopeful we could accelerate that that growth rate.
Okay.
Congrats on the deal thanks for taking my question.
Matt I appreciate it.
Thank you.
Our next question comes from Christopher Marlowe neck.
Your line is open.
Hey, good afternoon hobby.
Thank you for hosting the call today, just a quick one just to delve a little bit further into the.
The loans versus deposits at beach is the mix of loans a lot different than what we see on the mix of deposits and the presentation last night.
Not not.
Sure what you're asking Chris.
Well, if we look at the Pensacola, Crestview and Tampa on deposits would we see the long portfolio kind of split along the same lines. So would there be skewing towards Tampa.
There will be a skewing towards Tampa and a very different mix in terms of lines of business Tampa is heavily CNI oriented as like us in northwest, Florida, that's heavily oriented toward.
One to four family residential construction and CRE so.
Tampa has definitely been more.
The higher growth rate market and the lines of business here in Tampa and the portfolio mix is very different.
Chris just a little added color. This is chip Reeves and so in the northwest, Florida, Florida commercial loan size is approximately $200 million.
At the at $3 31.
And then also in northwest, Florida are our mortgage business, our on balance sheet, Rosie is $55 million ish or so and if you go to Tampa at $3 31, we were slightly over $200 million in loan Outstandings and against that that's been built into the three year time period since that since recapitalization sure.
So chip do you think that this mix will be more Tampa as you fast forward say 24 months just big picture.
What I'd say is.
I'm excited about both regions and I say that because.
And hobby and I were discussing this last night as were planning world domination.
With that yeah.
We said.
Target of dominance, Florida Dom.
Dominant community bank market share in northwest, Florida, and I think copy you had the same goal separately, we werent there and it was going to take us.
A few more years together, we're already there and so that the power of our teams there and we're strong on the retail side, we're strong on the mortgage side in a combined basis and on the commercial banking side in that region now far far better together.
Apart now.
Now what I'd say is that region will likely be slower growth than Tampa.
We've been growing Tampa at obviously its lower book.
The percentages are are high but I believe we can grow Tampa marketplace that.
That $100 million, a year and frankly with the combined.
Combination here and the increased balance sheet.
We may be able to exceed that.
Chris and that's one of the things that chip and I talked about just early on as we started looking at what this combination would mean and look and a $600 million bank your resource level.
Is more constrained in a $6 $8 billion bank so.
When when beachhead to allocate its resources, obviously, it had to pick and choose about where it could compete heavily where should point those resources now together.
Sort of with the resources that we have.
There is no limitation, where theres not much limitation that there we can certainly compete at a high level and hard dollar volume.
In Tampa, but again as we talked a dominant market share in northwest, Florida will have ample resources to continue to growth grow that market and both of those are recipients of post pandemic population relocation, we see it in both areas, we see accelerating a nice piece about Tampa as it has the C&I business.
It's something that we don't currently have.
No that all makes sense. Thank you both for the color I look forward to hearing more progress.
Thanks, Chris I appreciate it.
Thank you.
And we have Taylor.
Rick.
Have the group.
Your line is open.
Great just a couple for me.
Firstly on the credit quality review.
You all have done a lot of deals of last few years anything different when reviewing our beaches credit quality I know.
70% of the loan book was looked at I don't know if there's any other additional detail of note that would be interested to hear about.
Well number one we were certainly very pleased at the quality and depth of underwriting and so that's one of the things as you know as we've.
Gone across the southeast part of relatively smaller banks sometimes.
The credit the credit expectations in terms of level of detail of underwriting and then the expectation around compliance conformance and documentation is maybe a little different than what it would be at a larger organization here.
The quality of the depth of underwriting.
The quality of the customer base.
Very pleased with that very excited about that so so no and I'll tell you. This what we do to levels of loan bills as we look with our internal group and then we bring in CRM, who comes in and doesn't really deep dive into the portfolio and exactly what.
They confirmed the classifications and our low marks came out exactly what was originally modeled it was provided by us to beach independently from beats too independently CRM at the beginning so there was really no adjustment as we will do this only confirmed.
What we suspect it in.
We indeed saw so.
No we were very pleased with the loan diligence and the like.
Actually we got a little more in terms of percentage.
Penetration, we lots of around 60% range, but.
Here, we don't we delve a little deeper into the portfolio.
Oh, that's great and last one for me.
Having been a serial acquirer and probably just won't be the end for you all.
How does this change may be other sort of capital deployment thoughts like you've been a regular dividend hike or the overall shares have trended down does any of that get changed for the time being especially with you know industry wide seeing tangible books coming down over the last quarter or is it just steady from the last few quarters.
You know I think we think about continuing to be a steady grower.
Capital accrued and obviously with the our earnings continue to ramp and then with this combination.
We have a relatively low out payout low payout ratio.
In terms of.
Retained earnings retention, so we will be accreted capital pretty quickly plus we've got plenty of capital today. So it doesn't change our strategic plan of continuing to be opportunistic in deploying that capital when it makes sense either through organic means and or through acquisitive means so.
Again can't control the market valuations go where they go we never stay or we have not stopped.
We've not tried to necessarily step back and say, we're going to do this to do that we continue to be consistent we continue to be opportunistic and look for areas.
To grow our business.
Great. Thanks, very much congrats.
Thank you appreciate it.
Thank you.
And speakers I see no further questions in the queue I will turn the conference back over to Mr. Cola for closing.
<unk> remarks.
Well thanks, so much we appreciate.
Everybody's participations.
We appreciate the support that we receive from all of our stakeholders again exciting new we're so excited be combining with beach.
That means for us together as a company going forward.
And again, a great work by all our team members for those of you on the phone exceptional performance on both sides for beach and from first Bancshares, So with that we'll close the call out and are you guys.
Have a safe.
Happy weekend.
Okay.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
Yes.
Okay.
[music].