Q3 2023 First Bancshares Inc Earnings Call

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Speaker 2: say last quarter, but I think you're right. I think there's pretty still pretty significant headwinds out there in the M&A space. I think there's a lot of deals that probably like to get done, but it's just...

Speaker 3: Yeah, and without M&A, Hoppy, is there potential to...

Speaker 3: you know, do liftouts in strategic markets. Is that something you're looking at?

Speaker 2: I think there absolutely is that, and that's a very good point. We've seen an increase in that opportunity as of late, particularly some of the larger banks are looking at cost-cutting features or cost-cutting programs, and in some of our markets that we've expanded in, Atlanta, Tampa, Jacksonville, we're hopeful we'll be able to do, add to some of our bench strength there through some of the maybe larger banks, cost-cutting, cost reductions. Okay.

Speaker 4: Thank you so much. One moment for our next question.

Speaker 4: All right, our next question comes from the line of Brett. Sorry if I said that incorrect. Your line is now open.

Speaker 5: Thanks. Good morning, everyone.

Speaker 5: Wanted to go back to the margin for a second and just make sure I understand. You know, so it sounds like in the fourth quarter, you know, the narrative is you've got some public funds that you have to replace and so or that come in and so you margins down a little bit in the fourth quarter but it should.

Speaker 5: should rise through 24 with loan portfolio repricings. Can you guys give us a little more color on the quarterly progression of loan portfolio repricings in 24?

Speaker 6: I don't, let me, JJ do you happen to have that win here with you? I didn't bring my ALM reporting here I believe. Yeah, I've got this one attorney scheduled for 24. I got you, okay. Yeah. About half a million.

Speaker 6: Yeah, this looks like a little over 100 million a quarter that's maturing.

Speaker 2: to potentially be re-pricing. That's maturity. It doesn't count cash flows coming up. None count cash flows, it's just maturing. If you look back, the home portfolio is about 20% re-pricing during the pandemic.

Speaker 2: whole year in terms of cash flow coming off that plus maturity distribution.

Speaker 5: Okay, and then one is to go back to loan demand and just get maybe a little more color around what you're seeing in the different markets, you know, borrowers, are they pulling back some? Are you seeing deals because others have pulled back? Maybe just a little more color around loan demand and how that might shape out for 24 in terms of loan growth potential.

Speaker 7: So this is JJ. I think, you know, pipelines, I said, were down a little bit, but from a historical perspective, they're still pretty much in line. So.

Speaker 7: I have not seen George and I were talking about that this morning. I have not really felt a lot of deals being shelved or put on the sideline. I do think it's becoming a little more challenging with the more equity requirements. We're wondering when that does become a hindrance because, you know, if developers are putting in another 10 or 20%, we've seen them doing that, but how many times are they going to do that on the next deal and the next deal? So I'm not sure.

Speaker 7: George, if you have any commentary on that, I think the jury's still out. But as of today,

Speaker 7: Our client base is still, you know, doing deals and the man seems to be pretty good. We're picking up some in Atlanta. Tampa had a good quarter. We mentioned New Orleans. That team, they've got a really strong pipeline for this quarter. So, you know, overall things appear to be still fairly strong.

Speaker 7: Yeah, I concur. Jay and we've seen some instances in recent months where maybe a traditional group of investors that have done projects with us in the past may have brought some additional equity partners into their groups to find some of that equity requirement. So that has served us several times. That's a good point. There's still cash out there. I think some of our guys might be diluting themselves a little bit of ownership, but they're finding the equity to do it. you.

Speaker 5: Okay. That's helpful. Maybe one last one for me. You know, the expense, I think it's kind of like the expense run rate will be slightly higher. In four, you have heard that right. But you've done a pretty good job holding the expenses. Flotish and beginning of the year. Was just curious if there was anything out there that you were thinking about investing in. Given the environment for the longer term in 24 that might raise the expense run rate.

Speaker 5: I think you'll kind of run the same kind of strategy in 24 of keeping expenses as wide as you can.

Speaker 6: Yeah, I think the same strategy in regards to that just because of the compressed margin and hopefully we'll see as we talked about a little bit of expansion in that next year, but overall.

Speaker 6: I think our focus is going to be on the expense of something that we can hopefully we can try to control on our side. We are we have talked about the last couple quarters.

Speaker 6: kind of our can be initiative. And so we have hired some new folks, actually this last quarter and third quarter.

Speaker 6: a chief compliance officer, a fair lending officer, which mentioned before the last quarter, I believe our chief legal counsel. So we have, you know, we are, and we hired a crow to come in and do our 10-B gap analysis.

Speaker 6: So, you know, we do have expenses kind of associated with that as we build up a little bit and to, you know, get processes and procedures in place for Tembee. But that's probably the only real initiative. We're kind of in the middle of that right now. But otherwise.

Speaker 4: I'm going to keep trying to get the hammer down on them. All right. Thanks. Thanks for all the color. All right. Thank you so much for your.

Speaker 4: All right, our next question comes from a line of Matt only with Stephens, your line is now open.

Speaker 5: I want to go back to the deposit gathering campaign that was mentioned earlier. Any more color you can provide on that campaign, what products you're leading with, and what are some of the costs on some of the promotional products?

Speaker 6: Yes, sir. What we came out with and what we're doing is two things. One is just a CD special. We have a lot of city specials in our market. We are doing a six month at five and a quarter.

Speaker 6: And then we also, on the deposit gather inside kind of for a money market, as well, it's a 5% money market guaranteed for six months, but you know, with that is a non-intersparing deposit. So we've opened up a separate product for that. So hopefully we can gather some non-intersparing while we're doing this money market special.

Speaker 5: Okay, that's how it plan. Any more call on when those specials are introduced to the market and have there been any changes to those rates more recently?

Speaker 2: No, we started that rise at the beginning of September , kind of just internally. We just recently started with a little bit of advertising on social media. So we kind of had it in place to raise some funds to the end of the year. So kind of right now we're looking at keeping it to the end of the year, but. Yeah, it's really just to replace some of those seasonal seasonality in the public fund, Monies and the support of the loan group.

Speaker 5: Yep. And it's certainly, I guess, in a campaign, but how would you characterize the volume you're receiving in that versus your initial expectation?

Speaker 6: We are, we will under half, there's so far for these two months. So I think that's, I think that's good. Yeah, I think it's been good. Yeah.

Speaker 8: Okay, appreciate the color there. And then I guess changing gears on the credit front, I think there was a report in the, that they keep it out there, that criticized class 5s had a nice decline, a quarter if I read that right. Any more color on that decline?

Speaker 7: You know, about 60% of it, I guess, was a result of actual payoffs. The rest of it was attributable to some upward migration, maybe in reclassifying some grades.

Speaker 7: Frankly, I don't expect to see the level of payoffs continue at the pace that we've seen in the last couple of quarters.

Speaker 7: But in going through our quarterly rounds of criticized classified reporting with our loan officers and regional credit officers, we do see some

Speaker 7: potential opportunities to maybe now that, particularly now that we're receiving financials with the tax filing deadline pass in us now. We're getting updated financials that may give some opportunities to do some additional upgraded risk rates. So I think more of it will come from that direction maybe as proportion of what we call the investing fund.

Speaker 8: Okay, appreciate that George. And then maybe just one more uh DD. I think that the fees were strong this quarter. Any color on the fees or in the Alex from here?

Speaker 6: I think the time that long phase are you talking about the non-interesting company? Non-interesting company?

Speaker 6: Right. The non-interesting. Okay, non-interesting come. Yeah, I think this was, we had a little bit of increase there in our interchange free income that I think will be.

Speaker 6: not recurring in the next quarter.

Speaker 6: So that could be down just a little bit in the next quarter.

Speaker 6: Psycho, well, our one time annual kind of payment we receive. So it's probably a little higher this quarter, but I don't think it'll be that going forward.

Speaker 9: OK. OK, guys. Thank you.

Speaker 4: All right, thank you so much for your question. One moment for.

Speaker 4: All right, our final question comes from the line of Christopher Marnie, NAC, sorry, with Janie Montgomery Scott LLC. Your line is now open.

Speaker 5: Thank you very much. Happy to wanted to ask a question about the CDFI and from a strategic standpoint. What does it mean to you to be a CDFI this next couple of years? And how do you see it kind of continuing to build franchise value for the first?

Speaker 2: Well, there's a lot of unknowns around the CDFI. We're across right now, Chris, they're talking about changing what qualifications. So, you know, where we've always qualified, I don't know what those new qualifications are gonna be in order to be a CDFI, but it means us.

Speaker 2: you know, it goes in lockstep with our CRA requirements.

Speaker 2: and serving underserved markets. And so there's grant programs that go on that we talked about, which is a couple million dollars a year, but it's also growing the franchise across the Southeast. There's a lot of underserved markets. So it gives us an opportunity to invest in those markets and lend in those markets.

Speaker 2: as we move forward. I don't know on the grant side, it's hard to predict, you know, those are typically appropriated by Congress, so it's hard to tell how much grant money comes and when, with the exception of those sort of reoccurring grants that we talked about. And even the BA award, which is the Bank Enterprise Award, and the

Speaker 2: FA financial assistance or subject to congressional.

Speaker 2: appropriations. So, you know, we think those will continue on. But again, it's an important part of our mission.

Speaker 5: Got it. Thanks for that. And then back to the office real estate discussion from the earlier in the call. You have a predominant amount of sort of low story buildings on presuming two story buildings dominate the portfolio, which means under an adverse scenario where you had to take one back. You really could repurpose that and probably have a lot different loss experience better than you peers.

Speaker 7: I think that's a fair statement. It would be much more difficult to repurpose a mid rise or high rise tower for residential or any other use otherwise.

Speaker 7: A two-story or maybe even a three, I think you'd have a lot more optionality to be able to do that.

Speaker 10: I would say even in our non-owner-occupied segment, a fair amount of square footage in many of those properties.

Speaker 10: is from an owner occupying at least part of the building so

Speaker 10: There's that also in consideration as well, but yeah, I think your statement is right on to that point.

Speaker 5: Great, thanks for that. And Dede, just a quick one for you on the accretion income. Does that level out as we get deeper into 2024, just kind of trying to think, you know, beyond the next few quarters, kind of how that will proceed?

Speaker 6: Yeah, I think that's a fair statement. You know, we had that big increase last quarter because we basically, you know, got all the loans from Heritage on the system and it's just a function of getting them loaded on an individual basis. So now, you know, this quarter we had from all of our acquisitions, they're all on the system and accreting as they pay down or pay off. So I think that's a fair statement to hopefully level out right here where we are, you know, going through next year.

Speaker 5: Great. Thank you all for the background and information this morning. It's very helpful. Thanks, Chris.

Speaker 4: All right, thank you so much for your question.

Speaker 4: As a reminder, everyone, if you would like to ask a question, please press star one, one on your telephone and wait for your name to be announced. Please stand by.

Speaker 4: All right. I'm showing no further questions at this time. I would now like to turn it back to Hapiko for closing remarks.

Speaker 2: Well, thanks everyone for your participation this morning.

Speaker 2: Thanks for your reports. We'll look forward to visiting again after next quarter's results. Thank you.

Speaker 4: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.