The First Bancshares(US:FBMS)2023-02-28 16:00Interest Rate Risks - The company has approximately $140.7 million, or 3.8% of outstanding loans, indexed to LIBOR rates as of December 31, 2022[128]. - Rising interest rates have led to increased competitive pressures on deposit costs, potentially reducing net interest income[123]. - The transition from LIBOR to alternative reference rates may incur additional costs and risks for the company[126]. - The company is subject to significant risks from changes in interest rates, which could impact net interest margins and overall profitability[121]. - The company has established policies to monitor and limit earnings and balance sheet exposure to changes in interest rates, primarily focusing on interest rate risk management[310]. - As of December 31, 2022, the Company's one-year cumulative GAP ratio was approximately 180.0%, indicating a liability-sensitive position[315]. - If interest rates were to increase by 200 basis points, net interest income would likely decrease by $5.8 million, or 2.9%, relative to a stable interest rate scenario[314]. - In a scenario of an immediate and sustained downward adjustment of 200 basis points in interest rates, net interest income over the next twelve months would likely be approximately $1.5 million lower than in a stable interest rate scenario, reflecting a negative variance of 0.7%[313]. - The economic value of equity (EVE) is projected to deteriorate in declining rate scenarios, with a potential change of (2.2)% under a -200 basis points shock as of December 31, 2022[319]. Economic and Market Conditions - Economic downturns in key markets such as Mississippi, Louisiana, Alabama, Florida, and Georgia could adversely affect loan repayment capabilities[113]. - Continued inflation could increase operating costs faster than revenue growth, impacting profitability[131]. - The company operates in a highly competitive financial services environment, facing competition from larger institutions with more resources and broader geographic markets[142]. - Recent technology advances have allowed consumers to complete financial transactions without banks, increasing competition for deposits and loans[144]. - The company relies on the financial markets for capital, and adverse market conditions could limit access to funding and expansion opportunities[163]. Credit Losses and Allowances - The company must maintain an appropriate allowance for credit losses to mitigate risks associated with borrower defaults[118]. - The allowance for credit losses (ACL) increased to $38,917 thousand in 2022 from $30,742 thousand in 2021, indicating a rise of 26.6%[345]. - The provision for credit losses for loans held for investment (LHFI) was $5,350 thousand in 2022, compared to a negative provision of $(1,456) thousand in 2021[346]. - The Company recorded expected credit losses for off-balance sheet credit exposures, which are presented as a liability[417]. - The Allowance for Credit Losses (ACL) is estimated based on historical experience, current conditions, and reasonable forecasts, with adjustments for risk characteristics and environmental changes[389]. - The probability of default (PD) is calculated using historical loan data from 2009 to the most recent quarter, with a focus on loans that have defaulted, defined as being past due 90 days or more[392]. - The ACL model incorporates a 24-month forecasted PD based on regression analysis correlating historical loan data with national economic metrics, particularly unemployment rates[393]. - The loss given default (LGD) is calculated based on actual losses at the loan level, with a minimum of five past defaults required for accurate calculation; otherwise, a proxy index is used[394]. Regulatory and Compliance Issues - The company is subject to extensive regulation, which may affect its business operations and financial results[136]. - Changes in tax laws, including the Inflation Reduction Act, could significantly impact the company's financial condition and tax expenses[138]. - The company may face increased FDIC insurance premiums due to the permanent increase in coverage limits to $250,000, which could negatively impact earnings[141]. - Anti-takeover laws and certain provisions may make it more difficult for potential acquirers to gain control of the company, potentially affecting stock price[165]. Acquisitions and Mergers - The company completed the acquisition of Beach Bancorp, Inc. on August 1, 2022, and Heritage Southeast Bank on January 1, 2023, with integration challenges potentially impacting expected benefits[155]. - The company may incur significant transaction and merger-related costs associated with recent acquisitions, which could reduce anticipated efficiencies and strategic benefits[156]. - The company recognized goodwill of approximately $23.3 million from the acquisition of Beach Bancorp, Inc. on August 1, 2022[334]. - The Company completed the acquisition of Beach Bancorp, Inc. on August 1, 2022, for approximately $101.5 million, which included 3,498,936 shares of common stock and cash for fractional shares[434]. - The acquisition of Beach Bancorp resulted in the recognition of approximately $23.3 million in goodwill and a $9.8 million core deposit intangible, which will be amortized over 10 years[435]. - Expenses associated with the Beach Bancorp acquisition totaled $3.6 million for the twelve months ended December 31, 2022, primarily related to legal and consulting fees[436]. - The total purchase price for the acquisition of Cadence Branches was $101,470,000, with identifiable assets totaling $608,517,000 and liabilities of $530,363,000[438]. - The company assumed $410.2 million in deposits and acquired $40.3 million in loans at fair value from the Cadence Branches[440]. - A bargain purchase gain of $1.3 million was recorded, indicating that the fair value of net assets acquired exceeded the merger consideration[441]. - Expenses related to the branch acquisition amounted to $608,000 for the year ended December 31, 2022, compared to $1.4 million for 2021[442]. Financial Performance - Total assets increased to $6,461,717 thousand in 2022 from $6,077,414 thousand in 2021, representing a growth of 6.3%[345]. - Net interest income for 2022 was $177,816 thousand, up from $157,064 thousand in 2021, reflecting a year-over-year increase of 13.2%[346]. - Total deposits rose to $5,494,404 thousand in 2022, compared to $5,226,784 thousand in 2021, marking an increase of 5.1%[345]. - Non-interest income for 2022 was $36,961 thousand, slightly down from $37,473 thousand in 2021, a decrease of 1.4%[346]. - The company reported total liabilities of $5,815,054 thousand in 2022, an increase from $5,401,242 thousand in 2021, which is a growth of 7.7%[345]. - The total stockholders' equity decreased to $646,663 thousand in 2022 from $676,172 thousand in 2021, a decline of 4.4%[345]. - The company’s interest expense increased to $22,577 thousand in 2022 from $19,681 thousand in 2021, reflecting an increase of 9.6%[346]. - Net income for 2022 was $62,919,000, a decrease of 1.94% from $64,167,000 in 2021[351]. - Total non-interest expense increased to $130,483,000 in 2022, up 13.9% from $114,559,000 in 2021[348]. - Earnings per share (EPS) for 2022 was $2.86, down from $3.05 in 2021, reflecting a decrease of 6.23%[348]. - Comprehensive loss for 2022 was $(94,016,000), compared to a comprehensive income of $46,329,000 in 2021[351]. - Cash flows from operating activities for 2022 were $90,027,000, a decrease from $95,715,000 in 2021[356]. - The company reported a provision for credit losses of $5,605,000 in 2022, compared to a reversal of $1,104,000 in 2021[356]. - The company repurchased 600,000 shares of common stock in 2022, costing $22,180,000[354]. - The company issued 3,498,936 shares for the BBI acquisition, totaling $101,469,000[354]. - Unrealized holding losses on available-for-sale securities amounted to $(210,087,000) in 2022, compared to $(23,881,000) in 2021[351]. - Net cash used in investing activities was $(706,889,000) in 2022, significantly higher than $(207,355,000) in 2021[356]. - Net cash provided by financing activities decreased to $(157.536) million in 2022 from $468.799 million in 2021, reflecting a significant decline[358]. - Cash and cash equivalents at the end of 2022 were $145.315 million, down from $919.713 million at the end of 2021, indicating a cash outflow of $774.398 million during the year[358]. - Dividends paid on common stock increased to $(16.275) million in 2022, compared to $(11.991) million in 2021, representing a 35.4% increase[358]. - The net change in borrowed funds was $105.1 million in 2022, a reversal from $(114.647) million in 2021, indicating a positive shift in borrowing activities[358]. - Interest paid during the year was $16.932 million in 2022, slightly up from $16.368 million in 2021, showing a 3.4% increase[358]. - The company reported a transfer of securities available-for-sale to held-to-maturity amounting to $139.598 million in 2022, indicating a strategic shift in asset management[358]. - The company issued stock in connection with the BBI acquisition valued at $101.469 million in 2022, reflecting ongoing growth through acquisitions[358]. - The allowance for credit losses on held-to-maturity securities was not recognized during the year ended December 31, 2022, indicating a stable credit environment[376]. Other Financial Information - The company’s mortgage banking services include construction financing for conventional and government-insured home loans, contributing to its diversified revenue streams[364]. - The First Bancshares, Inc. operates primarily in Mississippi, Louisiana, Alabama, Florida, and Georgia, focusing on expanding its market presence in these regions[361]. - The Company invests in bank-owned life insurance (BOLI), with increases in cash surrender values reported as income[406]. - The Company had no uncertain tax positions that qualify for recognition or disclosure in the financial statements as of December 31, 2022, and 2021[412]. - Advertising expenses for the years ended December 31, 2022, 2021, and 2020 were $393 thousand, $391 thousand, and $333 thousand, respectively, indicating a slight increase in advertising costs[413]. - Basic earnings per common share for December 31, 2022, was $2.86, down from $3.05 in 2021, while diluted earnings per share decreased from $3.03 in 2021 to $2.84 in 2022[419]. - Goodwill increased from $156.663 million in 2021 to $180.254 million in 2022, with acquired goodwill of $23.591 million during the year[404]. - Other real estate owned totaled $4.8 million and $2.6 million at December 31, 2022, and 2021, respectively[401]. - Core deposit intangibles had a carrying amount of $34.636 million as of December 31, 2022, up from $29.509 million in 2021[405]. - The aggregate amortization expense for business combination-related intangible assets was $4.664 million for the year ended December 31, 2022[405]. - The Company adopted ASU 2021-10 effective January 1, 2022, which did not materially impact its consolidated financial statements[426]. - The Company is evaluating the impact of several new accounting standards, including ASU 2022-02, which addresses credit losses and requires enhanced disclosures[430]. - The total available-for-sale securities amounted to $1,418,337,000, with gross unrealized losses of $161,908,000[448]. - The total held-to-maturity securities were valued at $691,484,000, with gross unrealized losses of $53,919,000[448]. - The net assets acquired from the Cadence Branches were valued at $78,154,000, with goodwill generated from the transaction amounting to $23,316,000[438].