First Bancshares Inc. is building a Southeastern community bank with "scarcity value" following its two whole-bank deal announcements in a little over three months, Vice Chairman, President and CEO Hoppy Cole Jr. said on a call to discuss the company's second-quarter results and most recent deal announcement.
The Hattiesburg, Miss.-based company will expand its footprint in Georgia and Florida, particularly in the Atlanta-Sandy Springs-Alpharetta metropolitan statistical area, with its recently announced acquisition of Jonesboro, Ga.-based Heritage Southeast Bancorp. Inc. The July 27 deal announcement comes on the heels of its pending Beach Bancorp Inc. deal, which was announced at the end of April and will bolster the company's Florida footprint.
"What this creates is a Southeastern franchise with real scarcity value," Cole said of the two transactions.
Both Beach Bancorp and Heritage Southeast will bring expertise in Small Business Administration lending, a lending vertical First Bancshares does not currently have, Cole said. Combining the targets' SBA platforms will also provide synergies, the executive said.
The Heritage Southeast deal will add another new business line for First Bancshares — cash surrender value life insurance — helping it to further diversify.
"We believe strongly that's a line of business that can be very profitable and generate high returns with very little risk associated with it," Cole said. "In addition to that, it's a diversification away from traditional CRE, real estate-oriented lending."
First Bancshares is also bullish about bringing certain business lines it has expertise in to Heritage Southeast customers, such as private banking, Cole said.
Despite the strategic rationale, equity analysts questioned the purchase price of $28.64 per share at announcement.
"Our initial takeaway is the deal makes strategic sense but is not inexpensive," Hovde Group analyst Brett Rabatin wrote in a July 28 note. "We think the market will respond favorably to the deal given double-digit EPS accretion anticipated, but the [tangible book value per share] dilution and pricing is higher than some recent transactions."
Janney Montgomery Scott analyst Christopher Marinac asked about the price compared to VyStar CU's $27-per-share bid back when Heritage Southeast originally struck a deal with the credit union on March 31, 2021. The companies terminated the transaction on June 15 due to regulatory hurdles.
Cole justified the price by pointing to Heritage Southeast's performance metrics and footprint, which created scarcity value, he said.
Additionally, the excess liquidity First Bancshares will acquire through the Beach Bancorp acquisition allowed the company to be more competitive in the bidding process, Cole said.
"Beach put us in a very good position to win this transaction," Cole said. "We were looking at this transaction as an immediate deployment of their excess capital."
The Beach Bancorp deal is expected to close Aug. 1, just over three months after announcement. Heritage Southeast CEO Leonard Moreland said he hopes to close this transaction in about 90 days as well.
"I've been in 15 months of regulatory limbo," Moreland said.
Heritage Southeast and First Bancshares' relationship dates back to January 2021 when the companies' CEOs first met and discussed the prospect of a merger, but Heritage Southeast ultimately teamed up with VyStar CU in March 2021, leaving Cole "disappointed," he said.
When the companies terminated their merger agreement in June, Cole was "excited," he said on the call.
