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First Bancshares deal taps into Tallahassee, improves liquidity

First Bancshares Inc.'s acquisition of Sunshine Financial Inc. expands the franchise into a new market while improving the capitalization of the overall company, an executive said.

The 25% cash-75% stock deal, valued at $32.1 million, will allow Hattiesburg, Miss.-based First Bancshares to enter Tallahassee, Fla., with five branches. It also improves the company's tangible common equity ratio and significantly decreases its commercial real estate lending concentration.

On a Dec. 7 call to discuss the deal, Vice Chairman, President and CEO Milton Cole Jr. said that Tallahassee, Florida's capital and the home of two major universities, "fits perfectly" into the company's expansion plans, extending its footprint throughout the Gulf South region.

"It's a dynamic market. It's a growth-oriented market," Cole said. "It is accretive to our overall demographics in terms of population growth, in terms of income growth. ...Those tend to be significant, as you know, economic drivers, and they tend to smooth out cyclical variations in the economic cycle."

The company has been highly acquisitive in recent years and currently has 44 branches across Alabama, Florida, Louisiana and Mississippi. In January, it closed its acquisition of Pensacola, Fla.-based Gulf Coast Community Bank.

"We believe these transactions very much accomplish the same thing," Cole said.

In October, the company announced plans to acquire Mobile, Ala.-based Southwest Banc Shares Inc. The deal, valued at $60.0 million, is expected to close in the first quarter of 2018.

Following that deal announcement, First Bancshares closed a $55.2 million stock offering. Cole said the funding will be used to support both acquisitions.

Following the two deal closures, First Bancshares is expected to have about $2.4 billion in total assets, $2.0 billion in total deposits, $1.6 billion in total loans and a loan-to-deposit ratio of 81%. The combined company's commercial real estate concentration is projected to fall from 244% to 218%, and its tangible common equity ratio will spike from 8.0% to 8.9%. The company also improved its leverage and risk-based ratios.

Cole said Tallahassee is currently "dominated" by "big corporate banks." He said the area will provide ample opportunity for First Bancshares to grow its commercial business. Cole said that since Sunshine Financial was founded as a credit union, it has "good core funded" retail accounts. But he said the company does not have any business or commercial deposit relationships, which he called a "significant opportunity."

"We think we compete very effectively with the market leaders," he added.

He said the deal is an opportunity for increased earnings, scale, efficiencies and capitalization.