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No one has done what The First Bancshares have been able to do in ten
yearsgrow a $330 million dollar bank from scratch in Mississippi, historically a
slower growth area than most of the country
The First Bancshares, Inc.
6480 US Highway 98 West
Hattiesburg, MS 39404-5549
David E. Johnson
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
September 28, 2006
Biography on David E. Johnson
David E. Johnson, 53, is the Chief Executive Officer and Chairman of the Board of The
First Bancshares, Inc. Mr. Johnson, a native of Laurel, Mississippi, received a B.S.
degree in Agricultural Economics and an M.B.A. degree, with emphasis in Finance, from
Mississippi State University. In 1990, he graduated from the University of Oklahoma
Commercial Lending and Graduate School. Mr. Johnson has taught a course at the University
of Mississippi School of Banking. Johnson served as chairman of the Southern Mississippi
Group of Robert Morris & Associates, then spent nearly a decade with Sunburst Bank,
first as senior lender for the Hattiesburg, MS branch, then as senior lender and credit
administrator for southern Mississippi.
In addition to leading the de
novo bank, Johnson is a Director of the New Orleans Branch of the Atlanta Federal Reserve
Bank and is on the Advisory Board for the Business School at the University of Southern
Mississippi. He is a National Director of the Independent Community Bankers of America.
Active in the community, Johnson has been a director of the Company since 1995 and is also
a director of the bank.
The First Bancshares, Inc. -- the parent company of The First, A National Banking
Association -- has assets of $330 million. Founded in 1996, The First operates 8 offices
with locations in Hattiesburg, Laurel, Purvis, Picayune, Pascagoula and Bay St. Louis,
CEOCFO: Mr. Johnson, what was your vision when started the
company and where are you today?
Mr. Johnson: When we started the organization over
eleven years ago, we noted that we had an MSA for about 250,000 people in the Hattiesburg
area, and no bank headquartered there. We saw a business opportunity to grow a bank
organically within the Hattiesburg marketto be able to give answers, and be
responsive without having to go out of state to get permission to do something. Many of
the areas local banks had been sold, and it was difficult for managers to operate
and difficult for customers to be served. We knew we could be more responsive. We had a
vision that we could be $50 million in five years, making the venture worthwhile. In five
years, however, we were at $150 million in assets. Now we are $330 million in assets. It
has been a great run. In Mississippi, which is a slower growth area than most of the
country, nobody has done what we have been able to do in ten years, and that is to grow a
$330 million dollar bank. We were the hundredth in size when we started out of a hundred
in the state, and now we are in the top 25 in size in our state.
CEOCFO: What are you
doing at First Bancshares that has allowed you to be so successful?
Mr. Johnson: We made decisions to grow with de novo
branching, and we have been careful about those decisions; our site selection has awaited
selection of key personnel. We have avoided the temptation of many community banks, of
going into all the towns in their footprint. Our recent expansion has been in the areas
that we felt would yield profitability of a new branch within 12 months, and a branch
thatwithin three to five yearswould be above $50 million. Our plan was
expedited some by Hurricane Katrina, so some of the areas where the branches are located
have experienced tremendous population growth. Our bank went from new branches that were
just starting to become profitable to what are now very profitable branches; therefore,
this year we have seen a doubling of our profits with these new branches. Within six
months, we have made as much as we did a year ago due to the maturing process and some
other factors; the hurricane kind of hastened our progress.
CEOCFO: Has Katrina
affected any other part of the bank?
Mr. Johnson: Initially we were all hurt and all of our
branches were closed. The storm happened on a Monday and we were closed Tuesday and
Wednesday. We opened some branches on Thursday, Saturday, and Monday after the storm.
Within a week we had reopened all of our offices. Our office in Pascagoula took 4
feet of water during the surge, so our great employees there opened outside on the
sidewalk. Despite their personal hardship, many Pascagoula employees had lost their own
homes, we put in a temporary office there and now we are back full force.
Due to the character of the people that we bank and
the character of the people in general in Mississippi, our customers, our employees and
everybody rolled up their sleeves and got to work. We did not wait for a government
handout. Last year, after the hurricane, we put up some reserves for loan losses; but we
have yet to take the first loan loss as a result of the hurricane. We have experienced
excellent deposit growthparticularly in core deposits. Therefore, we have ended up
with an $80 million dollar increase in deposits year-over-year, and we are at $330 million
now in total assets. We have seen money turned over that started out as insurance proceeds
and FEMA Checks, etc., and now government grants. All of that money has turned over in
profits that are now in contractors and suppliers accounts. Our local economy
is very strong. Hotels, restaurants and many businesses are doing well. It is a credit to
the people just going back to workto what they do best, and we are rapidly
rebuilding. Further, beyond just rebuilding what we had, there is new construction, a new
interest in our area of the state. There is a lot of outside money coming into the state,
new investment in real estate, and it is an exciting place to be, in both the recovery,
and the discovery of our area.
CEOCFO: Do you have to
go out and seek the new customers or are they coming to you?
Mr. Johnson: Our footprint was down already. We had
already located in Pascagoula, Picayune and the Hattiesburg area, Purvis, and Laurel.
Since the storm, we have opened in Bay St. Louis, which is an area where the worst of the
storm came through. Before the storm, we were already planning for Bay St. Louis, and we
had already recruited the key banker, so we opened there in March 2006. In looking for
business, we have always been proactive going out asking for business. We have also
attracted community bankers, and experienced people in the markets we enter. We are
recognized as having a high level of experience in construction lending and mortgage
lending. We were already successful, and now with the recognition that we have and the
knowledge of the builders, realtors, lenders and general public, we are continuing to get
more than our share of the new business, deposits, and loan requests, mortgages and
CEOCFO: How much of the
business is consumer, how much commercial and would you like to see that change?
Mr. Johnson: We are real estate lenders. We pride
ourselves in start to finish. With us, customers can finance their lot loan, construction
loan, and then permanent mortgage. They deal with one person throughout the whole process,
rather than shuffling from a construction lender to a mortgage lender. We are heavy in
one-to-four family construction, and we are the biggest secondary market lender in our
area (where we originate the loans and sell them in secondary market). By doing that, we
tie to the customer and we are able to do other retail requests. However, most of our
portfolio is real estate and a high percentage of it is properly margined. We have retail
credit, but it is in the ten to twelve percent of our loan portfolio. Certainly, we
would like to see that grow over time.
CEOCFO: Are there new
products or services that you are planning to add?
Mr. Johnson: No. We have a variety, and we see
ourselves as doing some things very well. In a book that I love, Good To Great, the
author describes a guy who is on the diving board in a diving contest. He is not doing
triple flips with back spins. He is doing a swan dive over and over because he does it
very well. That is us, it is simple, and we do it well, and we feel we are the best in our
market. We will keep doing that and doing it right. We will be handling some
wealth-management as we go forward, but our primary focus is doing what we have been
doing, and doing it well.
CEOCFO: Your numbers
speak for themselves!
Mr. Johnson: We are very proud of that. We know we
would have gotten there a bit later with these kinds of earnings, but it was hastened some
by the hurricane. We still are doing the same thing; we are just getting to do more of it
right now. We will be investing some of our future profits into some things we need to do
in the back room to facilitate us growing to the next level. We are beefing up on the
credit administration side, audit, and compliance as we grow. Eighteen months ago, we were
roughly $212 million in assets, and now we are $330 million. We know we have to
spend some of our earnings to go to the next level.
CEOCFO: Will you tell us
about the acquisition of First National Bank of Wiggins, Mississippi?
Mr. Johnson: We have been flirting with the Stone
County market for about three years. Since the storm, we were approached by the bank and
looked at it again. We currently have locations in the counties just north of Stone
County, and Stone County is one county up from the coastal counties. They are 21 miles
from Interstate 10. Since the storm, people are moving from the coast to the acreage above
the Gulfport-Biloxi area; they are coming into what is Stone County. We are seeing what we
did not see two or three years agogood growth in that county. Therefore, the
acquisition is only about a $45 million asset bite. The bank has had some of the same
growth in deposits that we have seen. We are excited about going into Stone County; it is
our first purchase and our preliminary analysis is that it will be very profitable for us
CEOCFO: You are also
seeing opportunity in the Go zone, will you tell us about that?
Mr. Johnson: For an example, right now the federal
government has allotted to Mississippi homeowners $4 billion in grants for people that
were flooded, but not in the flood zone so they did not have flood insurance. That much
money is coming into a population of about a million and a half people, and those funds
will not only go into their deposit accounts in various banks, but also turn over into
personal construction projects, and to the businesses that support those projects. We
excel in the residential construction area.
There are also some tax incentives for people to rebuild or build in our area. We are
seeing other monies come into the area from outside in order to take advantage of those
incentives. The Go Zone will help our companys profitability because; as we build in
Bay St. Louis and look for other opportunities, there will be good tax advantage for us,
as well. In addition there is a tax credit for new hires. We are not going to make bad
business decisions to get tax reductions or credits but we are going to take advantage of
these tax incentives.
CEOCFO: Are there any
other challenges as you move forward and grow more quickly than you anticipated?
Mr. Johnson: There is always the regulatory end; that
is what we are focusing on. You go into a risk-based audit system to look at each of our
systems and departments. We look at how to mitigate the risks and build policies and
procedures around them. We currently have a good process of review taking place in our
organization. It requires expense, but, for our size, we are proud that we have a risk
management area. Under that risk-management umbrella comes audit, loan review and
compliance. We have more regulations coming down from regulators all the time, so staying
on top of that, and protecting the bank from potential lawsuits that could come from that
realm, is always a challenge for all banks because all banks are highly regulated.
Therefore, that is a challenge that we are addressing head on. When you go through
different levels of growth, banks become more highly regulated. We just went through a
level where the bank reached $250 million as a national bank, where instead of an 18-month
exam cycle; you go through a 12-month exam cycle. It is a challenge because there are
other eyes on us, but you have to look at it as an opportunity to do well.
CEOCFO: On your website,
you say you are still a group of friends taking care of business one customer at a time.
How do you continue that as you continue to grow and expand?
Mr. Johnson: That is a challenge, but it is a matter of
the people we have in place. As we plan our growth, we study personnel longer than we
study site. For example, we wanted to go to Picayune, Mississippi six years ago. However,
we did not find the right person to do that for 2½ years, so we waited. We want the
person who has the intelligence and the ability to grow the market, and you do that, as we
say, one customer at a time. You have to find the person that is willing to
make the commitment and sacrifice, because in our office you are a banker 24 hours a day.
It is about community involvement, and being involved in this because you are an owner and
entrepreneur, not because it is a job.
CEOCFO: Why should
investors be interested?
Mr. Johnson: A lot about where we are going is about
where we have been. When I came to work with the group and this was just an idea, the
first challenge was to raise money, and we had two offerings. Regarding the first
offering, an investment made eleven years ago of $5 is now worth $24 at the last trade.
While markets have been up, down, and mostly down since we opened, we have returned a good
investment. We have outperformed our personal goals and our corporate goals. We see this
as still a new venture with new opportunities. We look back to 1969 when one of our
competitors Hancock Bank (Hancock Holding Company NASDAQ: HBHC) on the coast,
during the Camille hurricane challenge was an $80 million dollar bank. Almost forty years
later they are a $5 to $6 billion bank, and we have all grown since the hurricane.
Therefore, we see ourselves on the brink of a new day in south Mississippi. We are not
looking to expand outside the state right now; we see a tremendous amount of activity in
the next 4 or 5 years of rebuilding and rediscovery of our state and our area of the
state. We are excited to be in this position. Our numbers both recently and from our
beginning show tremendous trends. We have struck a good balance between both growth and
earnings growth, and we will continue to strive for that balance. We know growth is
important but also the return for investors is important as well. Just looking at our
history, I think we can be equally as excited about our future.
CEOCFO: Any final
thoughts for our readers?
Mr. Johnson: We are excited about where we are going,
and we will try to moderate our growth to meet our internal earnings goals.
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