The First Bancshares(FBMS) - 2020 Q3 - Quarterly Report

COVID-19 Impact - As of September 30, 2020, the company's aggregate outstanding exposure in adversely impacted industries due to COVID-19 was $452.5 million, representing 14.3% of total loans[169]. - The provision for loan and lease losses as of September 30, 2020 totaled $21.6 million, with $18.0 million specifically related to anticipated economic effects of COVID-19[169]. - Approximately 1,610 loans, totaling $709.6 million, were modified due to COVID-19, with 1,386 loans for $564.0 million deferring monthly principal and interest payments[171]. - The company has approximately 3,230 loans approved through the SBA for $260.2 million under the Paycheck Protection Program[171]. - The pandemic has resulted in significant disruptions in financial markets and a rapid increase in unemployment, impacting the company's operations[166]. - The company has implemented measures to protect employee health and assist customers affected by the pandemic[168]. - The company is actively working to adapt to the changing environment caused by COVID-19, including loan modifications and payment deferral programs[168]. - The provision for loan losses for the nine months ended September 30, 2020, was $21.6 million, significantly higher than $3.7 million for the year ended December 31, 2019[237]. Financial Performance - Net income available to common shareholders for Q3 2020 was $11.9 million, a decrease of 2.9% from $12.3 million in Q3 2019[175]. - Fully diluted earnings per share for Q3 2020 were $0.55, down from $0.71 in Q3 2019, primarily due to a $5.9 million provision for loan losses related to COVID-19[175]. - Net interest income increased to $40.0 million in Q3 2020, representing a 31.2% increase from $30.5 million in Q3 2019, driven by higher loan volumes[177]. - Non-interest income for Q3 2020 was $8.8 million, an increase of 23.8% from $7.1 million in Q3 2019, with mortgage income contributing significantly[178]. - Non-interest expense for Q3 2020 was $26.9 million, a 29.3% increase from $20.8 million in Q3 2019, with a significant portion attributed to acquisitions[181]. - Total assets increased to $5.155 billion as of September 30, 2020, up from $3.935 billion at December 31, 2019, reflecting a growth of $1.220 billion[190]. - Loans increased by $546.9 million, or 21.1%, to $3.144 billion during the first nine months of 2020[190]. - Non-interest income for the nine months ended September 30, 2020, was $30.9 million, a 59.7% increase from $19.4 million in the same period of 2019[187]. Loan Loss Provisions and Allowances - The allowance for loan losses was $34.3 million at September 30, 2020, representing approximately 1.09% of total loans, deemed adequate by management[188]. - The ALLL/total loans ratio was 1.09% at September 30, 2020, up from 0.53% at December 31, 2019, due to concerns about the economic effects of COVID-19[224]. - The average investment in impaired loans was $29.711 million for Q3 2020, compared to $26.195 million for Q4 2019[225]. - The allowance for loan losses is allocated as follows: $5.8 million (18.6%) for commercial, financial and agriculture; $23.1 million (62.3%) for commercial real estate; and $4.8 million (17.6%) for consumer real estate as of September 30, 2020[243]. - The Company maintains the allowance at a level deemed adequate to absorb probable incurred losses inherent in the loan portfolio[237]. Capital and Liquidity - Total deposits increased by $1.153 billion, or 37.5%, to $4.229 billion as of September 30, 2020, from $3.077 billion at December 31, 2019, with the SWG acquisition accounting for approximately $476.1 million, or 41.3% of the increase[263]. - The Company's liquidity ratio was 24.9% as of September 30, 2020, exceeding the internal liquidity policy guideline of a minimum of 10%[256]. - Total consolidated equity capital was $638.4 million, representing approximately 12.4% of total assets as of September 30, 2020, indicating adequate capital to meet regulatory requirements[276]. - The Company believes it met all capital adequacy requirements as of September 30, 2020, and does not foresee any circumstances that would cause it to be less than well capitalized[275]. Interest Rate Risk - The company expects a potential increase in net interest income of $13.5 million, or 10.0%, if interest rates rise by 200 basis points[302]. - Under a 200 basis point downward adjustment in interest rates, net interest income is projected to decrease by approximately $4.6 million, or 3.4%[301]. - The estimated changes in net interest income at risk show a 16.6% increase with a 400 basis point rise in interest rates[298]. - The economic value of equity (EVE) will vary under different interest rate scenarios, reflecting the company's longer-term exposure to interest rate risk[306]. - The average remaining time to maturity is considered in the assessment of financial instruments' value changes due to interest rate fluctuations[309]. Regulatory Compliance - The Company has opted to delay the adoption of ASU 2016-13 until the national emergency related to COVID-19 is terminated or December 31, 2020, whichever occurs first[274]. - The capital conservation buffer under Basel III rules was fully phased-in at 2.5% as of January 1, 2019, impacting the Company's ability to pay dividends and bonuses if capital ratios fall below certain thresholds[273]. - The Company has utilized a five-year transition period for the estimated impact of CECL on regulatory capital, following the interim final rule issued by U.S. federal regulatory authorities[274].