clients by implementing procedures and protocols concerning: social distancing, business travel, sanitation and disinfection, encouraged employees to work remotely, improved and upgraded electronic delivery and execution of documents to limit in person exposure.

Market Areas

As of December 31, ~~2021,~~2023, The First had 90116 locations across Mississippi, Louisiana, Alabama, Florida and Georgia.

Recent Developments

On January ~~15,~~1, 2023, we completed the acquisition of Heritage Southeast Bancorporation, Inc. ("HSBI"), pursuant to an Agreement and Plan of Merger dated July 7, 2022, ~~The First, then named The First, A National Banking Association, converted from a national banking association to a Mississippi state-chartered bank~~by and ~~changed its name to~~between the Company and HSBI. Upon completion of the merger of HSBI with and into the Company, Heritage Southeast Bank ("Heritage Bank"), HSBI's wholly-owned subsidiary, merged with and into The First Bank. The ~~First is now~~Company paid a ~~member~~total consideration of approximately $221.5 million to the former HSBI shareholders as consideration in the acquisition, which included approximately 6,920,909 shares of the ~~Federal Reserve System through the Federal Reserve Bank~~Company's common stock, and approximately $16 thousand in cash in lieu of ~~Atlanta.~~

On December 3, 2021, the Bank completed its acquisition of seven Cadence Bank, N.A. (“Cadence”) branches in Northeast Mississippi (the “Cadence Branches”). In connection with the acquisition of the Cadence Branches, the Bank assumed $410.2 million in deposits, acquired $40.3 million in loans at fair value, acquired certain assets associated with the Cadence Branches at their book value, and paid a deposit premium of $1.0 million to Cadence.

fractional shares.

Banking Services

We strive to provide our customers with the breadth of products and services offered by large regional banks, while maintaining the timely response and personal service of a locally owned and managed bank. In addition to offering a full range of deposit services and loan products, we have a mortgage and private banking division. The following is a description of the products and services we offer.

Deposit Services. We offer a full range of deposit services that are typically available in most banks and savings institutions, including checking accounts, NOW accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit. The transaction accounts and time certificates are tailored to our principal market areas at rates competitive to those offered by other banks in these areas. All deposit accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum amount allowed by law. We solicit these accounts from individuals, businesses, associations, organizations, and governmental authorities. In addition, we offer certain retirement account services, such as Individual Retirement Accounts (IRAs) and health savings accounts.

Loan Products. We offer a full range of commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including loans secured by inventory and accounts receivable), business expansion (including acquisition of real estate and improvements), ~~and~~ purchase of equipment and ~~machinery.~~machinery, and interest rate swap agreements to facilitate the risk management strategies of certain commercial customers. Consumer loans include equity lines of credit, secured and unsecured loans for financing automobiles, home improvements, education, and personal investments. We also make real estate construction and acquisition loans. Our lending activities are subject to a variety of lending limits imposed by federal law. While differing limits apply in certain circumstances based on the type of loan or the nature of the borrower (including the borrower’s relationship to the bank), in general we are subject to an aggregate loans-to-one-borrower limit of 15% of our unimpaired capital and surplus.

Mortgage Loan Division. We have a residential mortgage loan division which originates conventional, or government agency insured loans to purchase existing residential homes, construct new homes or refinance existing mortgages.

Private Banking Division. We have a private banking division, which offers financial and wealth management services to individuals who meet certain criteria.

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Other Services. Other bank services we offer include ~~on-line~~online internet banking services, automated teller machines, voice response telephone inquiry services, commercial sweep accounts, cash management services, safe deposit boxes, merchant services, mobile deposit, direct deposit of payroll and social security checks, and automatic drafts for various accounts. We network with other automated teller machines that may be used by our customers throughout our market area and other regions. The First also offers credit card services through a correspondent bank.

7

Competition

~~Table of Contents~~

~~Competition~~

The First generally competes with other financial institutions through the selection of banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. State law permits statewide branching by banks and savings institutions, and many financial institutions in our market area have branch networks. Consequently, commercial banking in Mississippi, Alabama, Louisiana, Florida, and Georgia is highly competitive. Many large banking organizations currently operate in our market area, several of which are controlled by out-of-state ownership. In addition, competition between commercial banks and thrift institutions (savings institutions and credit unions) has been intensified significantly by the elimination of many previous distinctions between the various types of financial institutions and the expanded powers and increased activity of thrift institutions in areas of banking which previously had been the sole domain of commercial banks. Federal legislation, together with other regulatory changes by the primary regulators of the various financial institutions, has resulted in the almost total elimination of practical distinctions between a commercial bank and a thrift institution. Consequently, competition among financial institutions of all types is largely unlimited with respect to legal ability and authority to provide most financial services. Currently there are numerous other commercial banks, savings institutions, and credit unions operating in The First’s primary service area.

We face increased competition from both federally-chartered and state-chartered financial and thrift institutions, as well as credit unions, consumer finance companies, insurance companies, and other institutions in the Company’s market area. Some of these competitors are not subject to the same degree of regulation and restriction imposed upon the Company. Many of these competitors also have broader geographic markets and substantially greater resources and lending limits than the Company and offer certain services such as trust banking that the Company does not currently provide. In addition, many of these competitors have numerous branch offices located throughout the extended market areas of the Company that may provide these competitors with an advantage in geographic convenience that the Company does not have at present.

We also compete with numerous financial and quasi-financial institutions for deposits and loans, including providers of financial services over the internet, and financial technology, or fintech companies. Recent technology advances and other changes have allowed parties to effect financial transactions that previously required the involvement of banks. For example, consumers can maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. These nontraditional financial service providers have been successful in developing digital and other products and services that effectively compete with traditional banking services, but are in some cases subject to fewer regulatory restrictions than banks and bank holding companies, allowing them to operate with greater flexibility and lower cost structures. Although digital products and services have been important competitive features of financial institutions for some time, the COVID-19 pandemic has accelerated the move toward digital financial services products and we expect that trend to continue.

Available Information

Pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) we are required to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and other filings pursuant to Section 13(a) or 15(d) of the Exchange Act, and amendments to such filings. The SEC maintains a website at www.sec.gov that contains the reports, proxy statements, and other filings we electronically file with the SEC. Such information is also available free of charge on or through our website www.thefirstbank.com as soon as reasonably practicable after each is electronically filed with, or furnished to, the SEC. Information appearing on the Company’s website is not part of any report that it files with the SEC.

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SUPERVISION AND REGULATION

We are extensively regulated under federal and state law. The following is a brief summary that does not purport to be a complete description of all regulations that affect us or all aspects of those regulations. This discussion is qualified in its entirety by reference to the particular statutory and regulatory provisions described below and is not intended to be an exhaustive description of the statutes or regulations applicable to the Company’s and The First’s business. In addition, proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on us and The First, are difficult to predict. In addition, bank regulatory agencies may issue enforcement actions, policy statements, interpretive letters and similar written guidance applicable to us

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or to The First. Changes in applicable laws, regulations or regulatory guidance, or their interpretation by regulatory agencies or courts may have a material adverse effect on our and The First’s business, operations, and earnings.

We, The First, and our nonbank affiliates must undergo regular on-site examinations by the appropriate regulatory agency, which will examine for adherence to a range of legal and regulatory compliance responsibilities. A bank regulator conducting an examination has complete access to the books and records of the examined institution. The results of the examination are confidential. Supervision and regulation of banks, their holding companies and affiliates is intended primarily for the protection of depositors and customers, the ~~DIF~~Deposit Insurance Fund ("DIF") of the FDIC, and the U.S. banking and financial system rather than holders of our capital stock.

Bank Holding Company Regulation

We are registered as a bank holding company with the Federal Reserve under the Bank Holding Company Act, as amended ("BHC Act"). As such, we are subject to comprehensive supervision, and regulation by the Federal Reserve and are subject to its regulatory reporting requirements. Federal law subjects bank holding companies, such as the Company, to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Violations of laws and regulations, or other unsafe and unsound practices, may result in regulatory agencies imposing fines or penalties, cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may enforce these remedies directly against officers, directors, employees, and other parties participating in the affairs of a bank or bank holding company. Like all bank holding companies, we are regulated extensively under federal and state law. Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, state banking regulators, the Federal Reserve, and separately the FDIC as the insurer of bank deposits, have the authority to compel or restrict certain actions on our part if they determine that we have insufficient capital or other resources, or are otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. Under this authority, our bank regulators can require us or our subsidiaries to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which we would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions.

If we become subject to and are unable to comply with the terms of any future regulatory actions or directives, supervisory agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders, possibly including consent orders, prompt corrective action restrictions and/or other regulatory actions, including prohibitions on the payment of dividends on our common ~~stock and preferred~~ stock. If our regulators were to take such additional supervisory actions, then we could, among other things, become subject to significant restrictions on our ability to develop any new business, as well as restrictions on our existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both. The terms of any such supervisory action could have a material negative effect on our business, reputation, operating flexibility, financial condition, and the value of our common ~~stock and preferred~~ stock.

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Activity Limitations

Bank holding companies are generally restricted to engaging in the business of banking, managing or controlling banks; and certain other activities determined by the Federal Reserve to be closely related to banking. In addition, the Federal Reserve has the power to order a bank holding company or its subsidiaries to terminate any nonbanking activity or terminate its ownership or control of any nonbank subsidiary, when it has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that bank holding company.

~~The BHC Act was substantially amended through the Financial Services Modernization Act~~

Source of 1999, commonly referred to as the Gramm-Leach Bliley Act, or the GLBA. The GLBA eliminated long-standing barriers to affiliations among banks, securities firms, insurance companies, and other financial services providers. Strength Obligations

A bank holding company, whose subsidiary deposit institutions are "well capitalized" and "well managed" may elect to become a "financial holding company" and thereby engage without prior Federal Reserve approval in certain banking and non-banking activities that are deemed to be financial in nature or incidental to financial activity. These "financial in nature" activities include securities underwriting, dealing, and market making; organizing, sponsoring, and managing mutual funds; insurance underwriting and agency; merchant banking activities; and other activities that the Federal Reserve has determined to be closely related to banking. Generally, no regulatory approval is required for a financial holding company to acquire a

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~~company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature,~~such as ~~determined by the Federal Reserve. The Company is not a financial holding company.~~

~~Source of Strength Obligations~~

~~A bank holding company~~us, is required to act as a source of financial and managerial strength to its subsidiary bank. The term "source of financial strength" means the ability of a company, such as us, that directly or indirectly owns or controls an insured depository institution, such as The First, to provide financial assistance to such insured depository institution in the event of financial distress. The appropriate federal banking agency for the depository institution (in the case of The First, this agency is the Federal Reserve) may require reports from us to assess our ability to serve as a source of strength and to enforce compliance with the source of strength requirements by requiring us to provide financial assistance to The First in the event of financial distress. If we were to enter bankruptcy or become subject to the orderly liquidation process established by the Dodd-Frank Act, any commitment by us to a federal bank regulatory agency to maintain the capital of The First would be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled to a priority of payment. In addition, the FDIC provides that any insured depository institution generally will be liable for any loss incurred by the FDIC in connection with the default of, or any assistance provided by the FDIC to, a commonly controlled insured depository institution. The First is an FDIC-insured depository institution and thus subject to these requirements.

Acquisitions

The BHC Act permits acquisitions of banks by bank holding companies, such that we and any other bank holding company, whether located in Mississippi or elsewhere, may acquire a bank located in any other state, subject to certain deposit-percentage, age of bank charter requirements, and other restrictions. The BHC Act requires that a bank holding company obtain the prior approval of the Federal Reserve before (i) acquiring direct or indirect ownership or control of more than 5% of the voting shares of any additional bank or bank holding company, (ii) taking any action that causes an additional bank or bank holding company to become a subsidiary of the bank holding company, or (iii) merging or consolidating with any other bank holding company. The Federal Reserve may not approve any such transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider: (1) the financial and managerial resources of the companies involved, including pro forma capital ratios; (2) the risk to the stability of the United States banking or financial system; (3) the convenience and needs of the communities to be served, including performance under the ~~CRA;~~Community Reinvestment Act ("CRA"); and (4) the effectiveness of the companies in ~~combatting~~combating money laundering.

Change in Control

Federal law restricts the amount of voting stock of a bank holding company or a bank that a person may acquire without the prior approval of banking regulators. Under the federal Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding company, such as the Company, or before acquiring control of any state member bank, such as The First. Upon receipt of such notice, the Federal Reserve may approve or disapprove the acquisition. The Change in Bank Control Act creates a rebuttable presumption of control if a member or group acquires a certain percentage or more of a bank holding company’s or bank’s voting stock. As a result, a person or entity generally must provide prior notice to the Federal Reserve before acquiring the power to vote 10% or more of our outstanding common stock. The overall effect of such laws is to make it more difficult to acquire a bank holding company and a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other companies. Investors should be aware of these requirements when acquiring shares of our stock.

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Governance and Financial Reporting Obligations

We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board ("PCAOB"), and NASDAQ. In particular, we are required to include management and independent registered public accounting firm reports on internal controls as part of our Annual Report on Form 10-K in order to comply with Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls,

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including compliance with the SEC rules on internal controls, and have and expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to comply with these internal control rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, and the values of our securities.

Corporate Governance

The Dodd-Frank Act addresses many investor protections, corporate governance, and executive compensation matters that will affect most U.S. publicly traded companies. The Dodd-Frank Act (1) grants shareholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhances independence requirements for Compensation Committee members; and (3) requires companies listed on national securities exchanges to adopt incentive-based compensation claw-back policies for executive officers.

Volcker Rule

Section 13 of the BHC Act, common referred to as the "Volcker Rule," generally prohibits banking organizations from (i) engaging in certain proprietary trading, and (ii) acquiring or retaining an ownership interest in or sponsoring a "covered fund," all subject to certain exceptions. The Volcker Rule also specifies certain limited activities in which banking organizations may continue to engage and requires us to maintain a compliance program. Banking, organizations, such as us, with $10 billion or less in total consolidated assets and with total trading assets and liabilities of less than 5% of total consolidated assets are exempt from the Volcker Rule.

Incentive Compensation

The Dodd-Frank Act required the banking agencies and the SEC to establish joint rules or guidelines for financial institutions with more than $1 billion in assets, such as us and The First, which prohibit incentive compensation arrangements that the agencies determine to encourage inappropriate risks by the institution. The banking agencies issued proposed rules in 2011 and previously issued guidance on sound incentive compensation policies. In 2016, the banking agencies also proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, ~~2021,~~2023, these rules have not been ~~implemented by the banking agencies.~~implemented. We have undertaken efforts to ensure that our incentive compensation plans do not encourage inappropriate risks, consistent with three key principles-that incentive compensation arrangements should appropriately balance risk and financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate governance.

In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including Nasdaq, to implement listing standards that require listed companies to adopt policies mandating the recovery or "clawback" of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Nasdaq's listing standards pursuant to the SEC's rule became effective on October 2, 2023. We adopted a compensation recovery policy pursuant to the Nasdaq listing standards effective as of October 2, 2023. The policy is included as Exhibit 97.1 to this Form 10-K.

Shareholder Say-On-Pay Votes

The Dodd-Frank Act requires public companies to take shareholders’ votes on proposals addressing compensation (known as say-on-pay), the frequency of a say-on-pay vote, and the golden parachutes available to executives in connection with change-in-control transactions. Public companies must give shareholders the opportunity to vote on the compensation at least every three years and the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay vote should be held annually, biennially, or triennially. The say-on-pay, the say-on-parachute and the say-on-frequency votes are explicitly nonbinding and cannot override a decision of our Board of Directors.

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Other Regulatory Matters

We are subject to oversight by the SEC, the PCAOB, NASDAQ and various state securities and insurance regulators. We and our subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state attorneys general, securities regulators and other regulatory authorities, concerning our business practices. Such requests are considered incidental to the normal conduct of business.

Capital Requirements

We and The First are each required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the Federal Reserve may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the institution’s exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s ability to manage those risks, are important factors that are to be taken into account by the federal banking agencies in assessing an institution’s overall capital adequacy.

The following is a brief description of the relevant provisions of these capital rules and their potential impact on our and The First’s capital levels.

We and The First are each subject to the following risk-based capital ratios: a CET1 risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital and a total capital ratio, which includes Tier 1 and Tier 2 capital. CET1

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is primarily comprised of the sum of common stock instruments and related surplus net of treasury stock and retained earnings less certain adjustments and deductions, including with respect to goodwill, intangible assets, mortgage servicing assets and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying subordinated debt and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria. The capital rules also define the risk-weights assigned to assets and off-balance sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for example, certain "high volatility" commercial real estate, past due assets, structured securities and equity holdings.

The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items. The required minimum leverage ratio for all banks and bank holding companies (unless exempt) is 4%.

In addition, effective January 1, 2019, the capital rules required a capital conservation buffer of CET1 of 2.5% above each of the minimum capital ratio requirements (CET1, Tier 1, and total risk-based capital), which is designed to absorb losses during periods of economic stress. These buffer requirements must be met for a bank or bank holding company to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction.

Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our operations or financial condition. Failure to be well-capitalized or to meet minimum capital requirements could also result in restrictions on the Company’s or The First’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, requires the federal bank regulatory agencies to take "prompt corrective action" regarding depository institutions that do not meet minimum capital requirements. FDICIA establishes five regulatory capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. The FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions, depending on the category in which an institution is classified. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations and are required to submit capital restoration plans for regulatory approval. A depository

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institution’s holding company must guarantee any required capital restoration plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. All of the federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutions.

To be well-capitalized, The First must maintain at least the following capital ratios:

●

~~6.5% CET1 to risk-weighted assets;~~

●

~~8.0% Tier 1 capital to risk-weighted assets;~~

●

~~10.0% Total capital to risk-weighted assets; and~~

●

~~5.0% leverage ratio.~~

•6.5% CET1 to risk-weighted assets;

•8.0% Tier 1 capital to risk-weighted assets;

•10.0% Total capital to risk-weighted assets; and

•5.0% leverage ratio.

The First was well capitalized at December 31, ~~2021,~~2023, and brokered deposits are not restricted.

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The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital requirements imposed under the current capital rules applicable to banks. For purposes of the Federal Reserve’s Regulation Y, bank holding companies, such as the Company, must maintain a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater to be well-capitalized. If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to The First, the Company’s capital ratios as of December 31, ~~2021~~2023 would exceed such revised well-capitalized standard. Also, the Federal Reserve may require bank holding companies, including the Company, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

On October 29, 2019, the federal banking agencies issued a final rule to simplify the regulatory capital requirements for eligible banks and holding companies with less than $10 billion in consolidated assets that opt into the Community Bank Leverage Ratio ("CBLR") framework, as required by Section 201 of the Economic Growth, Relief and Consumer Protection Act (the "Regulatory Relief Act"). A qualifying community banking organization that exceeds the CBLR threshold would be exempt from the agencies’ current capital framework, including the risk-based capital requirements and capital conservation buffer described above, and would be deemed well-capitalized under the agencies’ prompt corrective action regulations. The Regulatory Relief Act defines a "qualifying community banking organization" as a depository institution or depository institution holding company with total consolidated assets of less than $10 billion. Under the final rule, if a qualifying community banking organization elects to use the CBLR framework, it will be considered "well-capitalized" so long as its CBLR is greater than 9%. The First has chosen not to opt into the CBLR at this time.

In ~~2021,~~2023, our and The First’s regulatory capital ratios were above the applicable well-capitalized standards and met the capital conservation buffer. Based on current estimates, we believe that we and The First will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in ~~2022.~~2024. Certain regulatory capital ratios of the Company and The First, as of December 31, ~~2021,~~2023, are shown in the following table:

Capital Adequacy Ratios

Regulatory

Minimum

Minimums

Capital Required

Regulatory

to be Well

Basel III Fully

The First


Minimums

Capitalized

Phased-In

Bancshares, Inc.

The First

Common Equity Tier 1 risk-based capital ratio

4.5
%
6.5
%
7.0
%
13.7
%
16.6
%
Tier 1 risk-based capital ratio

6.0
%
8.0
%
8.5
%
14.1
%
16.6
%
Total risk-based capital ratio

8.0
%
10.0
%
10.5
%
18.6
%
17.4
%
Leverage ratio

4.0
%
5.0
%
4.0
%
9.2
%
10.8
%


	Capital Adequacy Ratios
	Regulatory Minimums		Regulatory Minimums to be Well Capitalized		Minimum Capital Required Basel III Fully Phased-In		The First Bancshares, Inc.		The First
Common Equity Tier 1 risk-based capital ratio	4.5	%	6.5	%	7.0	%	12.1	%	13.8	%
Tier 1 risk-based capital ratio	6.0	%	8.0	%	8.5	%	12.5	%	13.8	%
Total risk-based capital ratio	8.0	%	10.0	%	10.5	%	15.0	%	14.8	%
Leverage ratio	4.0	%	5.0	%	4.0	%	9.7	%	10.7	%

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Payment of Dividends

We are a legal entity separate and distinct from The First and our other subsidiaries. The primary sources of funds for our payment of dividends to our shareholders are cash on hand and dividends from The First. Various federal and state statutory provisions and regulations limit the amount of dividends that The First may pay.

In addition, in deciding whether or not to declare a dividend of any particular size, the Company’s board of directors must consider its and the Bank’s current and prospective capital, liquidity, and other needs. In addition to state law limitations on the Company’s ability to pay dividends, the Federal Reserve imposes limitations on the Company’s ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.

In addition, we and The First are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Federal Reserve has indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. The Federal Reserve has indicated that depository institutions and their holding companies should generally pay dividends only out of current operating earnings. Further, under Mississippi law, The First must obtain the non-objection of the Commissioner of the Mississippi Department of Banking and Consumer Finance prior to paying any dividend to the Company.

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Under a Federal Reserve policy adopted in 2009, the board of directors of a bank holding company must consider different factors to ensure that its dividend level is prudent relative to maintaining a strong financial position, and is not based on overly optimistic earnings scenarios, such as potential events that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:

●

~~its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;~~

●

~~its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or~~

●

~~it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.~~

•its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;

•its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or

•it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Regulation of the Bank

The First, which is a member of the Federal Reserve System, is subject to comprehensive supervision and regulation by the Federal Reserve, and is subject to its regulatory reporting requirements, as well as supervision and regulation by the Mississippi Department of Banking and Consumer Finance. As a member bank of the Federal Reserve System, The First is required to hold stock in its district Federal Reserve Bank in an amount equal to 6% of its capital stock and surplus (half paid to acquire stock with the remainder held as a cash reserve). Member banks do not have any control over the Federal Reserve System as a result of owning the stock and the stock cannot be sold or traded.

The deposits of The First are insured by the FDIC up to applicable limits, and, accordingly, The First is also subject to certain FDIC regulations and the FDIC has backup examination authority and some enforcement powers over The First.

In addition, as discussed in more detail below, The First and any other of our subsidiaries that offer consumer financial products and services are subject to regulation and potential supervision by the ~~CFPB.~~Consumer Financial Protection Bureau ("CFPB"). In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce certain federal consumer financial protection law.

Broadly, regulations applicable to The First include limitations on loans to a single borrower and to its directors, officers and employees; restrictions on the opening and closing of branch offices; the maintenance of required capital

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ratios; the granting of credit under equal and fair conditions; the disclosure of the costs and terms of such credit; requirements to maintain reserves against deposits and loans; limitations on the types of investment that may be made by The First; requirements governing risk management practices; restrictions on the ability of institutions to guarantee its debt; and certain specific accounting requirements on the Company that may be more restrictive and may result in greater or earlier charges to earnings or reductions in its capital than generally accepted accounting principles.

Transactions with Affiliates and Insiders

The First is subject to restrictions on extensions of credit and certain other transactions between The First and the Company or any nonbank affiliate. Generally, these covered transactions with either the Company or any affiliate are limited to 10% of The First’s capital and surplus, and all such transactions between The First Bank and the Company and all of its nonbank affiliates combined are limited to 20% of The First’s capital and surplus. Loans and other extensions of credit from The First to the Company or any affiliate generally are required to be secured by eligible collateral in specified amounts. In addition, any transaction between The First and the Company or any affiliate are required to be on an arm’s length basis.

Federal banking laws also place similar restrictions on certain extensions of credit by insured banks, such as The First, to their directors, executive officers and principal shareholders.

Reserves

Federal Reserve rules require depository institutions, such as The First, to maintain reserves against their transaction accounts, primarily NOW and regular checking accounts. Effective March 26, 2020, the Federal Reserve eliminated reserve requirements for all depository institutions. These reserve requirements are subject to annual adjustment by the Federal Reserve.

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FDIC Insurance Assessments and Depositor Preference

The First’s deposits are insured by the FDIC’s DIF up to the limits under applicable law, which currently are set at $250,000 per depositor, per insured bank, for each account ownership category. The First is subject to FDIC assessments for its deposit insurance. The FDIC calculates quarterly deposit insurance assessments based on an institution’s average total consolidated assets less its average tangible equity, and applies one of four risk categories determined by reference to its capital levels, supervisory ratings, and certain other factors. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits.

As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory minimum of 1.35%. The FDIC, as required under the Federal Deposit Insurance Act, established a plan on September 15, 2020 to restore the DIF reserve ration to meet or exceed the statutory minimum of 1.35% within eight years. On October 18, 2022, the FDIC adopted an amended restoration plan to increase the likelihood that the reserve ratio would be restored to at least 1.35% by September 30, 2028. The FDIC's amended restoration plan increases the initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC could further increase the deposit insurance assessments for certain insured depository institutions, including The First, if the DIF reserve ratio is not restored as projected.

In November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to DIF associated with several bank failures that occurred during early 2023. The assessment base for the special assessment is equal to estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, to be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods, beginning the first quarterly assessment period of 2024. The First did not have uninsured deposits in excess of $5 billion, and so is not subject to this special assessment.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by a bank’s federal regulatory agency. In addition, the Federal Deposit Insurance Act provides that, in the event of the liquidation or other resolution of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution, including those of the parent bank holding company.

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Standards for Safety and Soundness

The Federal Deposit Insurance Act requires the federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (1) internal controls; (2) information systems and audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate risk exposure; and (6) asset quality. The federal banking agencies have adopted regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.

Anti-Money Laundering

Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. The USA PATRIOT Act, and its implementing regulations adopted by the FinCEN, a bureau of the U.S. Department of the Treasury, requires financial institutions to establish anti-money laundering programs with minimum standards that include:

●

~~the development of internal policies, procedures, and controls;~~

●

~~the designation of a compliance officer;~~

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~~an ongoing employee training program;~~

●

~~an independent audit function to test the programs; and~~

●

~~identify and verify the identity of beneficial owners of legal entity customers.~~

•the development of internal policies, procedures, and controls;

•the designation of a compliance officer;

•an ongoing employee training program;

•an independent audit function to test the programs; and

•identify and verify the identity of beneficial owners of legal entity customers.

Banking regulators will consider compliance with the Act’s money laundering provisions in acting upon acquisition and merger proposals. Bank regulators routinely examine institutions for compliance with these obligations and have been active in imposing cease and desist and other regulatory orders and money penalty sanctions against institutions found to be violating these obligations. Sanctions for violations of the Act can be imposed in an amount equal to twice the sum involved in the violating transaction, up to $1 million. On January 1, 2021, Congress passed federal legislation that made sweeping changes to federal anti-money laundering laws, including changes that will be implemented in subsequent years.

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Economic Sanctions

The ~~OFAC~~Office of Foreign Assets Control ("OFAC") is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and acts of Congress. OFAC publishes, and routinely updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, including the Specially Designated Nationals and Blocked Persons List. If we find a name on any transaction, account or wire transfer that is on an OFAC list, we must undertake certain specified activities, which could include blocking or freezing the account or transaction requested, and we must notify the appropriate authorities.

Concentrations in Lending

During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) and advised financial institutions of the risks posed by CRE lending concentrations. The Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. Higher allowances for loan losses and capital levels may also be required. The Guidance is triggered when CRE loan concentrations exceed either:

●

~~Total reported loans for construction, land development, and other land of 100% or more of a bank’s total risk-based capital; or~~

●

~~Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land of 300% or more of a bank’s total risk-based capital.~~

•Total reported loans for construction, land development, and other land of 100% or more of a bank’s total risk-based capital; or

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•Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land of 300% or more of a bank’s total risk-based capital.

The Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a particular property type. We have always had exposures to loans secured by CRE due to the nature of our markets and the loan needs of both retail and commercial customers. We believe our long term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the Guidance.

Community Reinvestment Act

The First is subject to the provisions of the CRA, which imposes a continuing and affirmative obligation, consistent with their safe and sound operation, to help meet the credit needs of entire communities where the bank accepts deposits, including low- and moderate-income neighborhoods. The Federal Reserve’s assessment of The First’s CRA record is made available to the public. Further, a less than satisfactory CRA rating will slow, if not preclude, expansion of banking activities and prevent a company from becoming or remaining a financial holding company. Following the enactment of the Gramm-Leach-Bliley Act (“GLB”), CRA agreements with private parties must be disclosed and annual CRA reports must be made to a bank’s primary federal regulator. A bank holding company will not be permitted to become or remain a financial holding company and no new activities authorized under GLB may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a “satisfactory” CRA rating in its latest CRA examination. Federal CRA regulations require, among other things, that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered in the CRA evaluation. The First has a rating of “Satisfactory” in its most recent CRA evaluation.

On October 24, 2023, the OCC, the FRB, and FDIC issued a final rule to modernize their respective CRA regulations. The revised rules substantially alter the methodology for assessing compliance with the CRA, with material aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January 1, 2027. Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities. The final rules may make it more challenging and/or costly for the Bank to receive a rating of at least "satisfactory" on its CRA exam.

Privacy, Credit Reporting, and Data Security

The GLB generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to customers annually. Financial institutions, however, will be required to comply with state law if it is more protective of consumer privacy than the GLB. The GLB also directed federal regulators to prescribe standards for the security of consumer information. The First is subject to such standards, as well as standards for notifying customers in the event of a security breach. The First utilizes credit bureau data in underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act and Regulation V on a uniform, nationwide basis, including credit reporting, prescreening, and sharing of information between affiliates and the use of credit data. The Fair and Accurate Credit Transactions Act, which amended the Fair Credit Reporting Act, permits states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of that Act. We are also required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal.

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Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused. ~~On November 18, 2021, the~~The federal banking agencies ~~issued a new rule effective in 2022 that requires~~also require banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.”

Anti-Tying Restrictions

In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for them on the condition that (1) the customer obtain or provide some additional credit, property, or services from or to the bank or bank holding company or their subsidiaries or (2) the customer not obtain some other credit, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended. A bank may, however, offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products. The law also expressly permits banks to engage in other forms

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of tying and authorizes the Federal Reserve to grant additional exceptions by regulation or order. Also, certain foreign transactions are exempt from the general rule.

Consumer Regulation

Activities of The First are subject to a variety of statutes and regulations designed to protect consumers. These laws and regulations include, among numerous other things, provisions that:

●

~~limit the interest and other charges collected or contracted for by The First, including rules respecting the terms of credit cards and of debit card overdrafts;~~

●

~~govern The First’s disclosures of credit terms to consumer borrowers;~~

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~~require The First to provide information to enable the public and public officials to determine whether it is fulfilling its obligation to help meet the housing needs of the communities it serves;~~

●

~~prohibit The First from discriminating on the basis of race, creed or other prohibited factors when it makes decisions to extend credit;~~

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~~govern the manner in which The First may collect consumer debts; and~~

●

~~prohibit unfair, deceptive or abusive acts or practices in the provision of consumer financial products and services.~~

•limit the interest and other charges collected or contracted for by The First, including rules respecting the terms of credit cards and of debit card overdrafts;

•govern The First’s disclosures of credit terms to consumer borrowers;

•require The First to provide information to enable the public and public officials to determine whether it is fulfilling its obligation to help meet the housing needs of the communities it serves;

•prohibit The First from discriminating on the basis of race, creed or other prohibited factors when it makes decisions to extend credit;

•govern the manner in which The First may collect consumer debts; and

•prohibit unfair, deceptive or abusive acts or practices in the provision of consumer financial products and services.

Mortgage Regulation

The CFPB has issued rules to implement requirements of the Dodd-Frank Act pertaining to mortgage loan origination (including with respect to loan originator compensation and loan originator qualifications) as well as integrated mortgage disclosure rules. In addition, the CFPB has issued rules that require servicers to comply with new standards and practices with regard to: error correction; information disclosure; force-placement of insurance; information management policies and procedures; requiring information about mortgage loss mitigation options be provided to delinquent borrowers; providing delinquent borrowers access to servicer personnel with continuity of contact about the borrower’s mortgage loan account; and evaluating borrowers’ applications for available loss mitigation options. These rules also address initial rate adjustment notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgage loans, and prompt crediting of mortgage payments and response to requests for payoff amounts.

In 2020, the CARES Act granted certain forbearance rights and protection against foreclosure to borrowers with a “federally backed mortgage loan,” including certain first or subordinate lien loans designed principally for the occupancy of one to four families. These consumer protections continued during the COVID 19 pandemic emergency.

Non-Discrimination Policies

The First is also subject to, among other things, the provisions of the Equal Credit Opportunity Act (the “ECOA”) and the Fair Housing Act (the “FHA”), both of which prohibit discrimination based on race or color, religion, national origin, sex, and familial status

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in any aspect of a consumer or commercial credit or residential real estate transaction. The Department of Justice (the “DOJ”), and the federal bank regulatory agencies have issued an Interagency Policy Statement on Discrimination in Lending that provides guidance to financial institutions in determining whether discrimination exists, how the agencies will respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices. The DOJ has increased its efforts to prosecute what it regards as violations of the ECOA and FHA.

Effect of Governmental Monetary and Fiscal Policies

The difference between the interest rate paid on deposits and other borrowings and the interest rate received on loans and securities comprises most of a bank’s earnings. In order to mitigate the interest rate risk inherent in the industry, the banking business is becoming increasingly dependent on the generation of fee and service charge revenue.

The earnings and growth of a bank are affected by both general economic conditions and the monetary and fiscal policy of the U.S. government and its agencies, particularly the Federal Reserve. The Federal Reserve sets national monetary policy such as seeking to curb inflation and combat recession. This is accomplished by its open-market operations in U.S. government securities, adjustments in the amount of reserves that financial institutions are required to maintain and adjustments to the discount rates on borrowings and target rates for federal funds transactions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest

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rates on loans and deposits. The nature and timing of any future changes in monetary policies and their potential impact on the Company cannot be predicted.

ITEM 1A. RISK FACTORS

Our business is subject to risk. The following discussion, along with management’s discussion and analysis and our financial statements and footnotes, sets forth the most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also have a material adverse effect on our business, financial condition or results of operations. There is no assurance that this discussion covers all potential risks that we face. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made herein.

Risk Factors Associated with Our Business

General economic conditions in the areas where our operations or loans are concentrated may adversely affect our financial results or liquidity.

A sudden or severe downturn in the economy in the geographic markets we serve in the states of Mississippi, Louisiana, Alabama, Florida or Georgia may affect the ability of our customers to meet loan payment obligations on a timely basis. The local economic conditions in these areas have a significant impact on our commercial, real estate, and construction loans, the ability of borrowers to repay these loans and the value of the collateral securing such loans. Any deterioration in the economic conditions of these market areas could negatively impact the financial results of the Company’s banking operations, earnings, and profitability.

Our Bank requires liquidity in the form of available funds to meet its deposit, debt and other obligations as they come due, borrower requests to draw on committed credit facilities as well as unexpected demands for cash payments. Adverse economic changes may cause customers to withdraw deposit balances, thereby causing a strain on our liquidity. Moreover, customers with larger uninsured deposit account balances often are small-and mid-sized businesses that rely upon deposit funds for payment of operational expenses and, as a result, are more likely to closely monitor for financial condition and performance of their depository institutions. As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits. If a significant portion of our deposits were to be withdrawn within a short period of time, additional sources of liquidity may be required to meet withdrawal demands. We have historically had access to a number of alternative sources of liquidity, but if there is an increase in volatility in the credit and liquidity markets there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all.

We may be vulnerable to certain sectors of the economy, including real estate.

A significant portion of our loan portfolio is secured by real estate. ~~The~~Real estate values in our markets have experienced periods of fluctuation over the last several years, and the market value of real estate can fluctuate significantly in a relatively short period of ~~time as a result of market conditions in the geographic area in which the real estate is located.~~time. If the economy deteriorates and real estate values decline materially in one or more of our markets, the credit risk associated with our loan portfolio could increase, a significant part of our loan portfolio could become under-collateralized

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and losses incurred upon borrower defaults would increase. This could result in additional ~~loan~~credit loss accruals which would negatively impact our earnings. Our ability to dispose of foreclosed real estate at prices above the respective carrying values could also be impacted, which could cause our results of operations to be adversely affected.

Unpredictable market conditions may adversely affect the industry in which we operate.

The capital and credit markets are subject to volatility and disruption. Dramatic declines in the housing market in years past caused home prices to fall and increased foreclosures, unemployment and under-employment. These events, if they were to happen again, could negatively impact the credit performance of mortgage loans and result in significant write-downs of asset values, including government-sponsored entities as well as major commercial and investment banks. Market turmoil and tightening of credit could lead to an increased level of commercial and consumer delinquencies, lack of consumer confidence and widespread reduction of business activity. Generally, a worsening of these conditions would have

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an adverse effect on us and others in the financial institution industry, particularly in our real estate markets, as lower home prices and increased foreclosures would result in higher charge-offs and delinquencies.

The state of the economy and various economic factors, including inflation, recession, unemployment, interest rates and the level of U.S. debt, as well as governmental action and uncertainty resulting from U.S. and global political trends, may directly and indirectly, have a destabilizing effect on our financial condition and results of operations. In addition, the U.S. government's decisions regarding its debt ceiling and the possibility that the U.S. could default on its debt obligations could cause further interest rate increases, disrupt access to capital markets and deepen recessionary conditions. An unfavorable or uncertain national or regional political or economic environment could drive losses beyond those which are provided for in our allowance for ~~loan~~credit losses and could negatively impact our results of operations.

We must maintain an appropriate allowance for credit losses.

The First, as lender, is exposed to the risk that its customers will be unable to repay their loans in accordance with their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse effect on our operating results. Credit risk with respect to our real estate and construction loan portfolio relates principally to the creditworthiness of the borrower corporations and the value of the real estate serving as security for the repayment of loans. Credit risk with respect to our commercial and consumer loan portfolio will relate principally to the general creditworthiness of the borrower businesses and individuals within our local markets.

On January 1, 2021, the Company adopted ~~the~~ Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses ("ASC ~~326.~~326"). The ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued ASC 326 to replace the incurred loss model for loans and other financial assets with an expected loss model and requires consideration of a wider range of reasonable and supportable information to determine credit losses. In accordance with ASC 326, the Company has developed an allowance for credit losses (“ACL”) methodology effective January 1, 2021, which replaces its previous allowance for loan losses methodology. The ACL is a valuation account that is deducted from loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Management evaluates the adequacy of the ACL quarterly and makes provisions for credit losses based on this evaluation. See Note B – Summary of Significant Accounting Policies in the notes to consolidated financial statements.

Changes in economic conditions or individual business or personal circumstances affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the ACL. Further, if actual charge-offs in future periods exceed our estimation of charge-offs, we may need additional provision for loan losses to restore the adequacy of our ACL. If we are required to materially increase our level of ACL for any reason, such increases could have an adverse effect on our business, financial condition, and results of operations.

We are subject to risks related to changes in market interest rates.

Our assets and liabilities are primarily monetary in nature, and as a result we are subject to significant risks resulting from changes in interest rates. Our profitability is largely dependent upon net interest income. Unexpected movement in interest rates markedly changing the slope of the current yield curve could cause net interest margins to decrease, subsequently decreasing net interest income. In addition, such changes could adversely affect the valuation of our assets and liabilities.

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The fair market value of the securities portfolio and the investment income from these securities also fluctuates depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations.

~~At present~~

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Beginning in early 2022, in response to growing signs of inflation, the ~~Company’s one-year interest rate sensitivity position is asset sensitive. As with most financial institutions, the Company’s results of operations are affected by changes in~~FRB increased interest rates rapidly. Further, the FRB has increased the benchmark rapidly and has announced an intention to take further actions to mitigate rising inflationary pressures. Rising interest rates can have a negative impact on our business by reducing the ~~Company’s~~amount of money our clients borrow or by adversely affecting their ability to ~~manage this risk. The difference between~~repay outstanding loan balances that may increase due to adjustments in their variable rates. In addition, as interest rates ~~charged~~rise, so have competitive pressures on ~~interest-earning assets and~~the deposit cost of funds. We may have to offer more attractive interest rates ~~paid on interest-bearing liabilities may be affected by changes in market interest rates, changes in relationships between interest rate indices, and/~~to depositors to compete for deposits, or ~~changes in the relationships between long-term and short-term market interest rates. A change in this difference might~~pursue other sources of liquidity, such as wholesale funds, which could result in ~~an increase in interest expense relative to interest income, or a decrease in the Company’s interest rate spread.~~

We may be adversely affected by changes in the method of determining the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, for our variable rate loans and the interest expense paidnegative pressure on our ~~subordinated notes and our subordinated debentures.~~

In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the LIBOR administration after 2021. In November 2020, the FCA announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021; but the publication of the remaining LIBOR offered rates will continue until June 20, 2023. The Alternative Reference Rate Committee has announced secured overnight financing rate (“SOFR”) as its recommended alternative to LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by the U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. At this time, itnet interest income. It is not possible to predict ~~whether these specific recommendations~~the pace and ~~proposals~~magnitude of changes in interest rates, or the impact rate changes will ~~be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be~~have on the ~~markets for floating-rate financial instruments.~~

AsCompany’s results of December 31, 2021, approximately $55.3 million or 1.9% of our outstanding loans were indexed to 30-day, 90-day, and one-year LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. We are subject to litigation and reputational risks if we are unable to renegotiate and amend existing contracts with counterparties that are dependent on LIBOR, including contracts that do not have fallback language.

Uncertainty as to the nature of such potential changes, alternative reference rates, the replacement or disappearance of LIBOR or other reforms may adversely affect the value of and the return on our subordinated notes and our subordinated debentures, as well as the interest we pay on those securities.

operations.

Certain changes in interest rates, inflation, or the financial markets could affect demand for our products and our ability to deliver products efficiently.

Loan originations, and therefore loan revenues, could be adversely impacted by rising interest rates. Increases in market interest rates can have negative impacts on our business, including reducing our customers’ desire to borrow money from us or adversely affecting their ability to repay their outstanding loans by increasing their debt service obligations through the periodic reset of adjustable interest rate loans. If our borrowers’ ability to repay their loans is impaired by increasing interest payment obligations, our level of non-performing assets would increase, producing an adverse effect on operating results. Asset values, especially commercial real estate as collateral, securities or other fixed rate earning assets, can decline significantly with relatively minor changes in interest rates. If interest rates were to decrease, our yield on our variable rate loans and on our new loans would decrease, reducing our net interest income. In addition, lower interest rates may reduce our realized yields on investment securities, which would reduce our net interest income and cause downward pressure on net interest margin in future periods. A significant reduction in our net interest income could have a material adverse impact on our capital, financial condition and results of operations.

Continued increases in inflation could cause operating costs related to salaries and benefits, technology, and supplies to increase at a faster pace than revenues.

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Evaluation of investment securities for impairment involves subjective determinations and could materially impact our results of operations and financial condition.

The evaluation of impairments is a quantitative and qualitative process, which is subject to risks and uncertainties, and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings. The risks and uncertainties include changes in general economic conditions, the issuers’ financial condition or future recovery prospects, the effects of changes in interest rates or credit spreads and the expected recovery period. Estimating future cash flows involves incorporating information received from third-party sources and making internal assumptions and judgments regarding the future performance of the underlying collateral and assessing the probability that an adverse change in future cash flows has occurred. The determination of the amount of impairments is based upon the Company’s quarterly evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available.

Additionally, our management considers a wide range of factors about the security issuer and uses its reasonable judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Impairments to the carrying value of our investment securities may need to be taken in the future, which could have a material adverse effect on our results of operations and financial condition.

Changes in the policies of monetary authorities and other government action could adversely affect profitability.

The results of operations of the Company are affected by credit policies of monetary authorities, particularly the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board. The instruments of monetary policy employed by the Federal Reserve Board include open market operations in U.S. government securities, changes in the discount rate or the federal funds rate on bank borrowings and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and monetary policy, we cannot predict the impact of future changes in interest rates, deposit levels, loan demand or the Company’s business and earnings. Furthermore, the actions of the United States government and other governments in responding to developing situations or implementing new fiscal or trade policies may result in currency fluctuations, exchange controls, market disruption and other unanticipated economic effects. Such actions could have an adverse effect on our results of operations and profitability.

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We are subject to regulation by various Federal and State entities.

The Company and The First are subject to extensive regulation by various regulatory agencies, including the Federal Reserve Board, the FDIC, the Mississippi Department of Banking and Consumer Finance and the CFPB. See Supervision and Regulation above for more information. New regulations issued by these agencies may adversely affect our ability to carry on our business activities. The Company is subject to various Federal and state laws and certain changes in these laws and regulations may adversely affect operations.

The Company and The First are also subject to the accounting rules and regulations of the SEC and the ~~Financial Accounting Standards Board.~~FASB. Changes in accounting rules could adversely affect the reported financial statements or results of operations of the Company and may also require extraordinary efforts or additional costs to implement. Any of these laws or regulations may be modified or changed from time to time, and we cannot be assured that such modifications or changes will not adversely affect the Company.

~~The full impact~~

Tax law and regulatory changes could adversely affect our financial condition and results of operations.

Changes to tax laws, including a repeal of all or part of the Tax Cuts and Jobs Act ~~(the "Tax Act") on us~~ and ~~our customers is unknown at present, creating uncertainty and risk related to our customers’ future demand for credit and our future results.~~

~~Increased economic activity expected to result from~~ the decrease in tax rates on businesses generally could spur additional economic activity that would encourage additional borrowing. At the same time, some customers may elect to use their additional cash flow from lower taxes to fund their existing levels of activity, decreasing borrowing needs. The eliminationimplementation of the ~~federal~~Inflation Reduction Act of 2022 ("IRA"), could significantly impact our business in the form of greater than expected income tax ~~deductibility of business interest~~ expense ~~for a significant number~~and taxes payable. Such changes may also negatively impact the financial condition of our customers ~~effectively increases~~and/or overall economic conditions. Further, future regulatory reforms that could include a heightened focus and scrutiny on BSA/AML related compliance, expansion of consumer protections, the ~~cost~~regulation of ~~borrowing~~loan portfolios and ~~makes equity~~credit concentrations to borrows impacted by climate changes, increased capital and liquidity requirements and limitations or ~~hybrid funding relatively more attractive. This~~additional taxes on share repurchases and dividends, could increase our costs and impact our business.

On August 16, 2022, the IRA was signed into law in the United States. The IRA includes various tax provisions, including an excise tax on stock repurchases and a corporate alternative minimum tax that generally applies to U.S. corporations with average adjusted financial statement income over a three-year period in excess of $1 billion. We do not currently expect the IRA to have a ~~long-term negative~~material impact on ~~business customer borrowing. Some~~our financial results, including on our annual estimated effective tax rate or ~~all of this benefit could be lost to~~on our liquidity, the extent that the banks and financial services companies we compete with elect to lower interest rates and fees and we are forced to respond in order to remain competitive. Additionally, the tax benefits could be repealed as a result of future regulatory actions. There is no assurance that presently anticipated benefitseffects of the ~~Tax Act for the Company will be realized.~~

measures are unknown at this time.

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We may be required to pay additional insurance premiums to the FDIC, which could negatively impact earnings.

~~Pursuant to the Dodd-Frank Act, the limit on FDIC coverage has been permanently increased to $250,000, causing the premiums assessed to~~

The deposits of The First are insured by the FDIC up to ~~increase. Depending upon any future losses~~legal limits and, accordingly, subject it to the payment of FDIC deposit insurance assessments. The First's regular assessments are determined by the level of its assessment base and its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that is poses. Moreover, the FDIC has the unilateral power to change deposit insurance ~~fund may suffer, there can be no assurance that there will not be additional premium~~assessment rates and the manner in which deposit insurance is calculated and also to charge special assessments to FDIC-insured institutions. The FDIC utilized these powers during the financial crisis for the purpose of restoring the reserve ratios of the Deposit Insurance Fund. Beginning in the first quarterly assessment period of 2023, the FDIC deposit insurance premiums were increased by two basis points. Any future special assessments, increases in order to replenish the fund. The FDIC may need to set a higher base rate schedule or impose special assessments due to future financial institution failures and updated failure and loss projections. Potentially higher FDIC assessment rates ~~than those currently projected~~or premiums, or required prepayments in FDIC insurance premiums could ~~have an adverse impact on~~reduce our profitability or limit our ability to pursue certain business opportunities, which could materially and adversely affect our business, financial condition, and results of operations.

We are subject to industry competition which may have an adverse impact upon our success.

The profitability of the Company depends on its ability to compete successfully with other financial services companies. We operate in a highly competitive financial services environment. Certain competitors are larger and may have more resources than we do. We face competition in our regional market areas from other commercial banks, savings institutions, credit unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of the nonbank competitors are not subject to the same extensive regulations that govern the Company or The First and may have greater flexibility in competing for business.

Many of these competitors also have broader geographic markets and substantially greater resources and lending limits than The First and offer certain services such as trust banking that The First does not currently provide. In addition, many of these competitors have numerous branch offices located throughout the extended market areas of The First that may provide these competitors with an advantage in geographic convenience that The First does not have at present.

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Currently there are numerous other commercial banks, savings institutions, and credit unions operating in The First’s primary service area.

We also compete with numerous financial and quasi-financial institutions for deposits and loans, including providers of financial services over the internet. Recent technology advances and other changes have allowed parties to effectuate financial transactions that previously required the involvement of banks. For example, consumers can maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and access to lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Some of our competitors have reduced or eliminated certain service charges on deposit accounts, including overdraft fees, and additional competitors may be willing to reduce or eliminate service or other fees in order to attract additional customers. If the Company chooses to reduce or eliminate certain categories of fees, including those related to deposit accounts, fee income related to these products and services would be reduced. If the Company chooses not to take such actions, we may be at a competitive disadvantage in attracting customers for certain fee producing products.

Our information systems may experience an interruption or breach in security.

We necessarily collect, use and hold personal and financial information concerning individuals and businesses with which we have a banking relationship. This information includes non-public, personally identifiable information that is protected under applicable federal and state laws and regulations. As such, we rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that we can prevent any such failures, interruptions, cyber security breaches or other security breaches or, if they do occur, that they will be adequately addressed. We have been, and likely will continue to be, subject to various forms of external security breaches, which may include computer hacking, acts of vandalism or theft, malware, computer viruses or other malicious codes, phishing, employee error or malfeasance, catastrophes, unforeseen events or other cyber-attacks. To date, we have seen no material impact on our business or operations from these attacks or events. Any future significant compromise or breach of our data security, whether external or internal, or misuse of customer, associate, supplier or Company data could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with

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new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.

It is difficult or impossible to defend against every risk being posed by changing technologies or criminals intent on committing cyber-crime. In the last few years, there have been an increasing number of cyber incidents and cyber criminals continue to increase their sophistication, including several well-publicized cyber-attacks that targeted other companies in the United States, including financial services companies much larger than us. These cyber incidents have been initiated from a variety of sources, including terrorist organizations and hostile foreign governments. As technology advances, the ability to initiate transactions and access data has also become more widely distributed amount mobile devices, personal computers, automated teller machines, remote deposit capture sites and similar access points, some of which are not controlled or secured by us. It is possible that we could have exposure to liability and suffer losses as a result of a security breach or cyber-attack that occurred through no fault of our own. Further, the probability of a successful cyber-attack against us or one of our third-party services providers cannot be predicted, and in some cases, prevented.

Natural disasters, public health emergencies, acts of war or terrorism and other external events could affect our ability to operate.

Our market areas are susceptible to natural disasters such as hurricanes and tornados. Natural disasters can disrupt operations, result in damage to properties that may be serving as collateral for our loan assets and negatively affect the local economies in which we operate. Climate change may be increasing the nature, severity and frequency of adverse weather conditions, making the impact from these types of natural disasters on our customers or us worse. We cannot

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predict whether or to what extent damage caused by future hurricanes, tornados or other natural disasters will affect operations or the economies in our market areas, but such weather events could cause a decline in loan originations, a decline in the value or destruction of properties serving as collateral for our loans and an increase in the risk of delinquencies, foreclosures or loan losses.

In addition, health emergencies, disease pandemics, acts of war or terrorism, trade policies and sanctions, including the repercussions of the ~~attack by Russia on~~ongoing military conflicts in Ukraine and the Middle East, and other external events could cause disruption in our operations. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

Our business is susceptible to fraud.

Our business exposes us to fraud risk from our loan and deposit customers, the parties they do business with, as well as from our employees, contractors and vendors. We rely on financial and other data from new and existing customers which could turn out to be fraudulent when accepting such customers, executing their financial transactions and making and purchasing loans and other financial assets. In times of increased economic stress, we are at increased risk of fraud losses. We believe we have underwriting and operational controls in place to prevent or detect such fraud, but we cannot provide assurance that these controls will be effective in detecting fraud or that we will not experience fraud losses or incur costs or other damage related to such fraud, at levels that adversely affect our financial results or reputation. Our lending customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans or make use of our services. Our exposure and the exposure of our customers to fraud may increase our financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in our allowance for ~~loan~~credit losses.

We may not be able to attract and retain skilled personnel.

Our success depends, in large part, on our ability to attract and retain key personnel. Competition for the best personnel in most activities we engage in can be intense, and we may not be able to hire personnel or to retain them. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of the difficulty of promptly finding qualified replacement personnel with comparable skills, knowledge of our market, relationships in the communities we serve, and years of industry experience. Although we have employment agreements with certain of our executive officers, there is no guarantee that these officers and other key personnel will remain employed with the Company.

The ~~failure~~soundness of other financial institutions could adversely affect the Company.

Our ability to engage in routine funding transactions could be adversely affected by the actions and ~~potential failures~~commercial soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries. As a result, defaults by, declines in the financial condition of, or even rumors or concerns about, one or more financial institutions or the financial services industry generally could negatively impact market-wide liquidity and could lead to losses or defaults by the Company or by other institutions.

~~The novel coronavirus, COVID-19, has adversely affected our business, financial condition, results of operations~~

Recent negative developments affecting the banking industry, and ~~our liquidity, and~~resulting media coverage, have eroded customer confidence in the ultimate affect will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has created extensive disruptions to the global economy and to the lives of individuals throughout the world, and will likely continue to have an impact for at least the near term. The pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade, supply chains and the labor market. During the past two years, governments, businesses,

banking system.

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~~and the public have taken unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders,~~The closures of ~~businesses~~Silicon Valley Bank and ~~schools, fiscal stimulus packages, vaccine~~Signature Bank in March 2023 and ~~mask mandates,~~First Republic Bank in May 2023, and legislation designed to deliver monetary aid and other relief. At present, most restrictions on movement have been lifted and widely available vaccines have proved to be effective in improving the economic outlook. As of December 31, 2021, economic conditions in our market area have returned close to pre-pandemic levels. Commercial activity has improved to levels close to those existing prior to the outbreak of the pandemic. While the overall outlook has improved based on the availability of the vaccine, the emergence of new variants of the virus have impeded the ability to fully resolve the pandemic and, as such, the risk of further economic disruptions and the possible reimplementation of business restrictions remains. Until the pandemic is fully controlled, the potential for adverse impact on our customers and the markets in which we operate and on our business, operations and financial condition is expected to remain elevated.

Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by the COVID-19 pandemic. Legal and regulatory responses to concerns about similar future events, have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the ~~COVID-19 pandemic could result in additional regulation or restrictions affecting the conduct of our business~~Company. These market developments have negatively impacted customer confidence in the ~~future. In addition~~safety and soundness of regional banks. As a result, customers may choose to the potential affects from negative economic conditions noted above, the Company instituted a program to help COVID-19 impacted customers. This program includes waiving NSF fees, offering payment deferment and other loan relief, as appropriate, for customers impacted by COVID-19. During the first half 2021, we originated $111.5 million of additional PPP loans under the second round of PPP loans. Furthermore, there has been litigation against banks related to their participationmaintain deposits with larger financial institutions or invest in ~~the PPP and other government stimulus programs, the costs and effects~~higher yielding short-term fixed income securities, all of which could ~~be material to us.~~

~~COVID-19 continues to present risks to our~~materially adversely impact the Company's liquidity, loan ~~portfolio. Timely loan repayment~~funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the ~~value~~FDIC took action to ensure that depositors of collateral supporting the loans are affected by the strength of our borrower’s business. Concern about the spread of COVID-19 has caused business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property ownersthese failed banks had access to ~~make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to~~their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be ~~unable to make scheduled loan payments. If the effects of COVID-19 result~~successful in ~~widespread and sustained repayment shortfalls on loans~~restoring customer confidence in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services,regional banks and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation and collection actions, such as foreclosure. Approximately 16% of our loan portfolio also includes exposure to sectors that have been and may continue to be subject to increased risk from the economic impact of COVID-19, including hotels, restaurants, retail, and direct energy.

As a result of the adverse impact of COVID-19 on our customers, we have faced and may continue to face a decrease in demand for certain products and disruptions in the operations of our customers’ vendors. In addition, the Company will be required to evaluate the impact of COVID-19 on the carrying value of certain of its assets, including goodwill, and to conduct impairments tests on those assets, which may result in impairment charges on these assets in future periods that could be material.

The Federal Reserve lowered the primary credit rate by 50 and 100 basis points on March 3 and March 15, 2020, respectively, for a total of 150 basis points to a range of 0 percent to 0.25 percent to mitigate the economic effects of the COVID-19 pandemic and to support the liquidity and stability of banking institutions as they serve the increased demand for credit, which has continued into 2022. Prolonged duration of reduced interest rates could negatively impact our net interest income, margin and future profitability and have a material adverse effect on our financial results. In addition, increasing interest rates could negatively impact our cost of borrowing and reduce the amount of money our customers borrow or adversely affect their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates. The continued economic impact of COVID-19 may also impair the ability of our borrowers to make their monthly loan payments, which would result in increases in delinquencies, declining collateral values, defaults, foreclosures and other losses on our loans as well as impact our operations and business. A protracted COVID-19 pandemic could further negatively affect the carrying amount of our goodwill, indefinite-lived intangibles and long-lived assets and result in realized losses on our financial assets. In addition, a decline in consumer confidence also could result in lower loan originations and decreases in deposits. It is not possible to predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume.

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acquisitions. Although we expect that these benefits will offset the transaction expenses and implementation costs over time, the net benefit may not be achieved in the near term or at all, which could have a material adverse impact on our financial results.

We may incur impairment to goodwill.

We review our goodwill at least annually. Significant negative industry or economic trends, reduced estimates of future cash flows or disruptions to our business, could indicate that goodwill might be impaired. Our valuation methodology for assessing impairment requires management to make judgements and assumptions based on historical experience and to rely on projections of future operating performance. We operate in a competitive environment and projections of future operating results and cash flows may vary significantly from actual results. In addition, if our analysis results isin an impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such charge could have a material adverse effect on our results of operations.

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Risks Relating to Our Securities

The price of our common stock may fluctuate significantly, which may make it difficult for investors to resell shares of common stock at a time or price they find attractive.

Our stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond our control. In addition to those described in “Special Cautionary Notice Regarding Forward-Looking Statements,” these factors include, among others:

●

~~actual or anticipated quarterly fluctuations in our operating results, financial condition or asset quality;~~

●

~~changes in financial estimates or the publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institutions;~~

●

~~failure to declare dividends on our common stock from time to time;~~

●

~~failure to meet analysts’ revenue or earnings estimates;~~

●

~~failure to integrate acquisitions or realize anticipated benefits from acquisitions;~~

●

~~strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings;~~

●

~~fluctuations in the stock price and operating results of our competitors or other companies that investors deem comparable to us;~~

●

~~future sales of our common stock or other securities;~~

●

~~proposed or final regulatory changes or developments;~~

●

~~anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us;~~

●

~~reports in the press or investment community generally relating to our reputation or the financial services industry;~~

●

~~domestic and international economic and political factors unrelated to our performance;~~

●

~~general market conditions and, in particular, developments related to market conditions for the financial services industry;~~

●

~~adverse weather conditions, including floods, tornadoes and hurricanes;~~

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You may not receive dividends on our common stock.

Although we have historically declared quarterly cash dividends on our common stock, we are not required to do so and may reduce or cease to pay common stock dividends in the future. If we reduce or cease to pay common stock dividends, the market price of our common stock could be adversely affected.

The principal source of funds from which we pay cash dividends are the dividends received from The First. Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends we may declare and pay from The First. See “Item 1. Business – Regulation and Supervision” included herein for more information.

If we fail to pay dividends, capital appreciation, if any, of our common stock may be the sole opportunity for gains on an investment in our common stock. In addition, in the event The First becomes unable to pay dividends to us, we may not be able to service our debt or pay our other obligations or pay dividends on our common stock and preferred stock. Accordingly, our inability to receive dividends from The First could also have a material adverse effect on our business, financial condition and results of operations and the value of your investment in our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 1C. CYBERSECURITY

The Company’s information security program is designed to protect the security of our computer systems, networks, software and information assets, including customer information. The program is comprised of technical controls, policies, guidelines, and procedures. These technical controls, policies, guidelines, and procedures are intended to align with regulatory guidance, and common industry standard security practices.

The board of directors and our executives appreciate the severity of cybersecurity-related risks and support the continuous development of and investment in the information security program.

Commitment to Security and Confidentiality

At the Company, we expect each associate to be responsible for the security and confidentiality of customer information. We communicate this responsibility to associates during on-boarding and throughout their employment. Annually, training courses are assigned to each associate to complete on how to protect the confidentiality of customer information at the time of hire and during each year of employment.

We regularly provide associates with information security awareness training, including the recognition and appropriate handling of potential phishing emails, which can introduce malware to a bank’s network, result in the theft of user credentials and, ultimately, place customer information at risk.We regularly use phishing campaigns to train associates to determine their ability to recognize phishing emails. For associates who fail a phishing campaign, the associates are assigned additional training courses.

Associates must also follow established procedures for the safe storage and handling and secure disposal of customer information. Old or obsolete computer assets are subject to defined procedures and processes to ensure safe destruction of information contained on those devices. For paper-based information or documents, we dispose of paper using shred bins for destruction.

Cybersecurity Incident Response Plan

As part of our information security program, we have adopted an Information Security Incident Response Plan (Incident Response Plan), which is administered by the Company’s Chief Information Security Officer (CISO).The Incident Response Plan describes the Company’s processes, procedures, and responsibilities for responding to incidents including security and cybersecurity. The Incident Response Plan is intended to be followed in the event of a cybersecurity incident, including implementation of (i) forensic and containment, eradication, and remediation actions by information technology and security personnel and (ii) operational response actions by business units, communications, legal, and risk personnel. The Incident Response Plan includes an annual tabletop exercise to simulate responses to cybersecurity events. If applicable, each exercise may result in postmortem and discuss lessons learned to evaluate any improvements to the Incident Response Plan.

The Incident Response Plan includes processes for escalation and reporting of cybersecurity incidents to the Incident Response Team.

Network and Device Security

The Company employs a constantly evolving, defense-in-depth methodology to cybersecurity. Robust high-availability firewalls are in place at the perimeter.Remote workers are supported through the Company’s secure VPN and uses multifactor authentication. The Company has a vulnerability management program in place that includes a managed detect and response platform to ensure monitoring of the Company’s network, ensures the timely installation of software patches, and provides a risk-based approach to addresses vulnerabilities across the network.Network security controls are in place to prevent unauthorized access to the network or the Company’s IT resources. The Company employs controls over its managed workstations, servers, and other endpoints to prevent inappropriate access or damage to physical, virtual, or data assets.Data loss prevention programs are in place to prevent the inappropriate transmission or exposure of sensitive data assets or customer information.

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Cybersecurity training is provided to all employees as part of the overall cybersecurity program. The Company contracts with third party vendors to conduct internal and external penetration tests against the Company’s networks and IT assets to ensure controls are operating in an appropriate manner.

Impacts of Cybersecurity Incidents

To date, the Company has not experienced a cybersecurity incident that has materially impacted our business strategy, results of operations, or financial condition. Addressing cybersecurity risks is a priority for the Company, and the Company is committed to enhancing its systems of internal controls and business continuity and disaster recovery plans.

Third-Party Vendor Controls

Before engaging third-party service providers, the Company carries out a due diligence process. This process is led by the Enterprise Risk Management team and Information Security performs due diligence through the process. Risk assessments are reviewed using Service Organization Controls (SOC) reports, self- attestation questionnaires, and other tools.

Any third-party service provider or vendor utilized as part of the Company’s cybersecurity framework is required to comply with the Company’s policies regarding non-public personal information and information security. Third parties processing sensitive customer data are contractually required to meet all legal and regulatory obligations to protect customer data against security threats or unauthorized access. After contract executions, vendors undergo ongoing monitoring to ensure they continue to meet their security obligations.

Our Board of Directors’ Role in Oversight of Cybersecurity Threats

Our Board of Directors is responsible for overseeing the Company’s business and affairs, including risks associated with cybersecurity threats. The Board oversees the Company’s corporate risk governance processes primarily through its committees, and oversight of cybersecurity threats is delegated primarily to our Board Risk Committee.

The Board Risk Committee has primary responsibility for overseeing the Company’s comprehensive Enterprise Risk Management program. The Enterprise Risk Management program assists senior management in identifying, assessing, monitoring, and managing risk, including cybersecurity risk, in a rapidly changing environment. Cybersecurity matters and assessments are regularly included in Board Risk Committee meetings.

The Board’s oversight of cybersecurity risk is supported by our CISO and Cybersecurity Manager. The CISO and the Cybersecurity Manager attend Board Risk Committee meetings, periodically provides cybersecurity and other information security updates to the Board Risk Committee. The CISO also provides an annual information security program summary report to the Board, outlining the overall status of our information security program and the Company’s compliance with regulatory guidelines.

Our Management’s Role in Assessing and Managing Cybersecurity Matters

The Company’s CISO directs the Company’s information security program and our information technology risk management.The CISO and Cybersecurity Manager along with a team of dedicated security personnel examines risks to the Company’s information systems and assets, designs and implements security solutions, monitors the environment, and provides immediate responses to threats.

Role of the Chief Information Security Officer and Cybersecurity Manager

Our CISO is responsible for the Company’s information security program. In this role, the CISO manages the Company’s information security Program.

The CISO has experience with FDIC regulated financial institutions and holds the certification as a Certified Banking Chief Information Security Officer (CBISO) and participates in various Information Security peer groups and serves on the Mississippi Bankers Associations - Information Security Committee.

The Company’s Cybersecurity Manager oversees the day-to-day cybersecurity operations.

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The CISO and Cybersecurity Manager support the information security risk oversight responsibilities of the Board and its committees. The CISO reports to our Chief Information Officer, who in turn reports to our Chief Executive Officer and President. The Cybersecurity Manager reports to the Information Technology Director, who in turn reports to the Chief Information Officer.

Our Cybersecurity Manager has experience spanning multiple OCC and FDIC regulated financial institutions across the nation. He holds various cybersecurity related certifications and is currently registered with the International Information Systems Security Certification Consortium as a Certified Information Systems Security Professional (CISSP) member in good standing.

Role of the Enterprise Risk Manager

Our Enterprise Risk Manager is responsible for oversight of the Company’s information technology governance and risk program. In this role, the Enterprise Risk Manager provides independent oversight of information technology risk, promotes effective challenge to the Company’s information technology systems, and ensures that high level risks receive appropriate attention. The Enterprise Risk Manager is a member of the Company’s Risk Management Group and reports to the Chief Risk Officer, who in turn reports to the Board Risk Committee.

Role of the IT Risk Governance Subcommittee

Governance of the information security program begins with the IT Risk Governance Subcommittee, a management level subcommittee, whose objective is to protect the integrity, security, safety and resiliency of corporate information systems and assets. Together, our CISO leads the Company’s IT Risk Governance Committee. The IT Risk Governance Committee meets regularly to review the development of the program and develop recommendations and provides regular reports to management, and, ultimately, the Board Risk Committee through the CISO.

Role of Enterprise Risk Management

Enterprise Risk Management (ERM) is a holistic process to identify, assess/measure, mitigate/control, and aggregate/escalate/report organizational risks, both internal and external, in order to make decisions aimed at maximizing shareholder value and achieving strategic goals.The overarching ERM program shapes information security strategy and development. ERM works with information security management to facilitate performance of Risk Assessments, the results of which are used to identify opportunities to strengthen the program.

ITEM 2. PROPERTIES

Our Company’s main office, which is the holding company headquarters, is located at 6480 U.S. Highway 98 West in Hattiesburg, Mississippi. As of year-end, we had 87110 full service banking and financial service offices, one motor bank facility and ~~two~~five loan production offices across Mississippi, Alabama, Florida, Georgia and Louisiana. Management ensures that all properties, whether owned or leased, are maintained in suitable condition.

The following table sets forth banking office locations that are leased by the Company.


Alabama	Georgia
•Theodore - Bayley’s Corner	•Eagles Landing
· •~~Bayley~~’Dauphin Island~~s Corner~~	· •~~Ocean Springs~~ Jonesboro
· •~~Dauphin Island~~ Fairhope	· Mississippi~~Panama City Beach~~
· •~~Fairhope~~ Spanish Fort	· •~~Pascagoula~~ Columbus - Loan Production Office
· Florida	•Gulfport - Hardy Court	· ~~Pensacola Downtown~~
· •~~Killern~~ Pensacola - Garden Street	· •~~Spanish Fort~~ Pascagoula
· •~~Mary Esther~~ St. Petersburg - Loan Production Office	· •~~Starkville University~~ Petal
· •~~Metairie~~	· Tallahassee – Apalachee Parkway
· •~~Niceville~~Tallahassee – Thomasville Road ~~700 John Sims Parkway East~~	· ~~Petal~~
· •~~Niceville~~ –Tampa - Westshore ~~750 John Sims Parkway East~~

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ITEM 3. LEGAL PROCEEDINGS

From time to time the Company and/or The First may be named as defendants in various lawsuits arising out of the normal course of business. At present, with the exception of the matter described below, the Company is not aware of any legal proceedings that it anticipates may materially adversely affect its business.

Nancy Hall, et al. v. The First Bancshares, Inc.,

Case No. 2:23-cv-192, United States District Court, Southern District of Mississippi.

On December 7, 2023, Nancy Hall, individually and on behalf of all others similarly situated ("Plaintiff"), sued The First Bancshares, Inc., as successor in interest to Heritage Southeast Bank, in a putative class action complaint in federal district court for the Southern District of Mississippi. Plaintiff asserts claims based on the alleged improper assessment and collection of overdraft fees. Specifically, Plaintiff's claims relate to overdraft fees resulting from alleged "authorized positive, settle negative" or APSN debit card transactions. The complaint asserts causes of action of breach of contract, including the covenant of good faith and fair dealing, and unjust enrichment. The complaint also asserts a claim for alleged violations of Regulation E of the Electronic Funds Transfer Act. The complaint seeks an unspecified amount of damages, restitution, costs, attorney's fees, and interest, as well as injunctive relief.

On February 1, 2024, the Company filed its Answer and Affirmative Defenses, and the proceedings remain ongoing. At this stage of the proceedings, it is not feasible to predict the outcome or a range of loss, should a loss occur, from this proceeding. Accordingly, no accrual has been made and no estimated range of potential loss can be determined at this time.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

28

32

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Shares of our common stock are traded on the Nasdaq global market under the symbol “FBMS.”

There were approximately ~~3,362~~4,618 record holders of the Company’s common stock at ~~March 3, 2022~~February 21, 2024 and ~~20,485,830~~31,227,881 shares outstanding.

Subject to the approval of the Board of Directors and applicable regulatory requirements, the Company expects to continue its policy of paying regular cash dividends on a quarterly basis. A discussion of certain limitations on the ability of The ~~First’s~~Firsts to pay dividends to the Company and the ability of the Company to pay dividends on its common stock is set forth in Part 1 – Item 1. Business – Supervision and Regulation of this report.

Issuer Purchases of Equity Securities

The following table sets forth shares of our common stock we repurchased during the quarter ended December 31, ~~2021.~~

Total Number of


Total

Shares Purchased as

Maximum Number of

Number of

Average

Part of Publicly

Shares that May Yet

Shares

Price Paid

Announced Plans or

Be Purchased Under
Period

Purchased

Per Share

Programs

the Plans or Programs
October

—

$
—

—

628,914
November

188

40.25

—

600,472
December

6,672

38.64

—

640,266
Total

6,860
^(a)
$
39.04

—

~~(a)~~

~~The 6,860 shares purchased in the 4th quarter were withheld by the Company in order to satisfy employee tax obligations for vesting of restricted stock awards.~~

2023.


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (a)
October	—		$	—	—	$	50,000
November	—		—		—	50,000
December	856		26.91		—	50,000
Total	856	(b)	$	26.91	—

29

~~Table of Contents~~

The pandemic has had and in some cases is continuing to have an adverse impact on certain industries the Company serves, including hotels, restaurants, retail, and direct energy. As of December 31, 2021, the Company's aggregate outstanding exposure in these segments was $478.9 million, or 16.2% of total loans. While it is not yet possible to know the full effect that the pandemic will have on the economy, or to what extent this crisis will impact the Company, all available current industry statistics and internal monitoring of loan repayment ability and payment forgiveness across the portfolio has been analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration.

On March 27, 2020, the CARES Act was signed into law. The CARES Act is a $2 trillion stimulus package that is intended to provide relief to U.S businesses and consumers struggling as a result of the pandemic. A provision in the CARES Act includes a $349 billion fund for the creation of the PPP through the Small Business Administration ("SBA") and Treasury Department. The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll deductions evidencing their compliant use of funds and otherwise complying with the terms of the program. The PPP was amended in April of 2020 to include an additional $320 billion in funding. On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 ("PPPFA") that amends the CARES Act. The PPPFA extended the covered period in which to use PPP loans, extended the forgiveness period from eight weeks to a maximum of 24 weeks and increased flexibility for small businesses that have had issues with rehiring employees and attempting to fill vacant positions due to COVID-19. The program reduced the proportion of proceeds that must be spent on payroll costs from 75% to 60%. In addition, the PPPFA also extended the payment deferral period for the PPP loans until the date when the amount of loan forgiveness is determined and remitted to the lender.

Section 4013 of the CARES Act, "Temporary Relief from Troubled Debt Restructurings," provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings ("TDRs") for a limited period of time to account for the effects of COVID-19. To qualify for Section 4013 of the CARES Act, borrowers must have been current at December 31, 2019. All modifications are eligible as long as they are executed between March 1, 2020 and the earlier of (i) December 31, 2020, or (ii) the 60^th day after the end of the COVID-19 national emergency declared by the President of the U.S. Loans that were current as of December 31, 2019 are not TDRs. In addition, under guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40, "Troubled Debt Restructuring by Creditors." These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. We began receiving requests from our borrowers for loan and lease deferrals in March 2020. Payment modifications include the deferral of principal payments or the deferral of principal and interest payments for terms generally 90-180 days. Requests are evaluated individually and approved modifications are based on the unique circumstances of each borrower. For the year ended December 31, 2021, we have modified approximately 1,643 loans for $710.7 million, of which 1,391 loans for $582.3 million were modified to defer monthly principal and interest payments and 252 loans for $128.4 million were modified from monthly principal and interest payments to interest only. For the year ended December 31, 2021, we have approximately 419 PPP loans approved through the SBA for a balance of $41.1 million.

Effective January 1, 2021, the Company adopted ASU 2016-13, Financial Instruments – Measurement of Current Expected Credit Losses on Financial Instruments (“CECL”), which modified the accounting for the allowance for loan losses from an incurred loss model to an expected loss model, as discussed more fully under ~~“Part~~Part II – Item 8. Financial Statements and Supplementary Data – Note B – Summary of Significant Accounting Policies of this report.

~~Companies are required to perform periodic reviews of individual securities in their investment portfolios to determine whether decline in the value~~

Assets acquired and liabilities assumed as part of a ~~security is other than temporary. A review~~business combination are generally recorded at their fair value at the date of ~~other-than-temporary impairment requires companies to make certain judgments regarding the materiality~~acquisition. The excess of the decline, its effect on the financial statements and the probability, extent and timing of a valuation recovery and the company’s intent and ability to hold the security. Pursuant to these requirements, management assesses valuation declines to determine the extent to which such changes are attributable to fundamental factors specific to the issuer, such as financial condition, business prospects or other factors or market-related factors, such as interest rates. Declines inpurchase price over the fair value of ~~securities below their cost that~~assets acquired and liabilities assumed is recorded as goodwill. Determining the fair value of identifiable assets, particularly intangibles, and liabilities acquired also require management to make estimates, which are ~~deemed~~based on all available information and in some cases assumptions with respect to ~~be other-than-temporary~~the timing and amount of future revenues and expenses associated with an asset. Business combinations are ~~recorded in earnings as realized losses.~~

discussed more fully under Part II - Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant Accounting Policies and Note C Business Combinations of this report.

Goodwill is assessed for impairment both annually and when events or circumstances occur that make it more likely than not that impairment has occurred. As part of its testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines the fair value of a reporting

32

~~Table of Contents~~

unit is less than its carrying amount using these qualitative factors, the Company compares the fair value of goodwill with its carrying amount, and then measures impaired loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Other intangibles are also assessed for impairment, both annually and when events or circumstances occur, that make it more likely than not that impairment has occurred.

~~During the first quarter~~ Goodwill is discussed more fully under Part II - Item 8. Financial Statements and Supplementary Data - Note B - Summary of ~~2020, management determined that the deterioration in the general economic conditions as a result~~Significant Accounting Policies of the COVID-19 pandemic represented a triggering event prompting an evaluation of goodwill impairment. Based on the analyses performed in the first quarter of 2020, we determined that goodwill was not impaired. Due to the ongoing economic uncertainty present at the end of the second quarter, thethis report.

Overview

The Company prepared a Step 1 goodwill impairment analysis as of June 30, 2020. In testing goodwill for impairment, the Company compared the estimated fair value of its reporting unit to its carrying amount, including goodwill. The estimated fair value of the reporting unit exceeded its book value.

In 2021, the Company elected to perform qualitative assessments, on a quarterly basis, to determine if it was more likely than not that the fair value of the reporting unit exceeded their carrying values. The qualitative assessments indicated that is was more likely than not that the fair value of the reporting unit exceeded it carrying value, resulting in no impairment. As a result, we do not believe there exists any impairment to goodwill and intangible assets or long-lived assets due to the COVID-19 pandemic. In addition, in future periods the Company will be required to evaluate the impact of COVID-19 on the carrying value of certain of its assets, including goodwill, and to conduct impairments tests on those assets, which may result in impairment charges on these assets in future periods that could be material.

~~Overview~~

~~The First Bancshares, Inc. (the Company)~~ was incorporated on June 23, 1995, and serves as a bank holding company for The First, ~~Bank (“The First”),~~ formerly known as The First, A National Banking Association, located in Hattiesburg, Mississippi. The First began operations on August 5, 1996, from its main office in the Oak Grove community, which is now incorporated within the city of Hattiesburg. Currently, the First has 90116 locations in Mississippi, Alabama, Florida, Georgia and Louisiana. The Company and The First engage in a general commercial and retail banking business characterized by personalized service and local decision-making, emphasizing the banking needs of small to medium-sized businesses, professional concerns, and individuals.

35

Table of Contents

The Company’s primary source of revenue is interest income and fees, which it earns by lending and investing the funds which are held on deposit. Because loans generally earn higher rates of interest than investments, the Company seeks to employ as much of its deposit funds as possible in the form of loans to individuals, businesses, and other organizations. To ensure sufficient liquidity, the Company also maintains a portion of its deposits in cash, government securities, deposits with other financial institutions, and overnight loans of excess reserves (known as “Federal Funds Sold”) to correspondent banks. The revenue which the Company earns (prior to deducting its overhead expenses) is essentially a function of the amount of the Company’s loans and deposits, as well as the profit margin (“interest spread”) and fee income which can be generated on these amounts.

Highlights for the year:

•In the year-over-year comparison, net income available to common shareholders increased $12.5 million, or 19.9%, from $62.9 million for the year ended December 31, ~~2021 include:~~

●

~~During the first quarter of 2021, the Company adopted CECL methodology for estimating credit losses, effective January 1, 2021.~~2022 to $75.5 million for the same period ended December 31, 2023.

●

In year-over-year comparison, net income available to common shareholders increased $11.7 million, or 22.2%, from $52.5 million for the year ended December 31, 2020 to $64.2 million for the year ended December 31, 2021.

●

~~In year-over-year comparison, net interest income, excluding accretion income and PPP fee income increased $2.7 million, or 1.8%.~~

●

On December 3, 2021, the Company closed its acquisition of seven branches from Cadence Bank which included $40.5 million in loans and $410.2 million in deposits. The Company recorded a bargain purchase gain of $1.3 million related to this acquisition.

33

•Excluding the loans acquired from the Heritage Bank acquisition of $1.159 billion, total loans increased $236.9 million for the year ended December 31, 2023, representing net growth of 6.3%, as compared to the same period ended December 31, 2022.

~~Table of Contents~~

~~$4.548~~ $4.935 billion compared to ~~$3.902~~$3.944 billion for the year 2020. At December 31, 2021, the fully tax equivalent (“FTE”) net interest spread, which is the difference between the yield on earning assets and the rates paid on interest-bearing liabilities, was 3.18% compared to 3.59% at December 31, 2020.2022. Net interest margin, which is net interest income divided by average earning assets, was ~~3.21%~~3.59% for the year ~~2021~~2023 compared to ~~3.64%~~3.19% for the year ~~2020. At December 31, 2021, the FTE average yield on all earning assets decreased 66 basis points to 3.61% compared to 4.27% at December 31, 2020.~~2022. Rates paid on average interest-bearing liabilities ~~decreased~~increased to ~~0.43%~~1.86% for the year ~~2021~~2023 compared to ~~0.68%~~0.57% for the year ~~2020.~~2022. Interest earned on assets and interest accrued on liabilities is significantly influenced by market factors, specifically interest rates as set by ~~Federal~~federal agencies. Average loans comprised ~~60.8%~~71.4% of average earnings assets for the year ~~2021~~2023 compared to ~~71.0%~~58.0% for the year ~~2020.~~

2022.

Consolidated net interest income was approximately ~~$152.7~~$177.8 million for the year ended December 31, ~~2020,~~2022, as compared to ~~$121.8~~$157.1 million for the year ended December 31, ~~2019.~~2021. This increase was the direct result of higher volume of securities and loans and ~~securities~~increased interest rates during ~~2020~~2022 as compared to ~~2019.~~2021. Average interest-bearing liabilities for the year ~~2020~~2022 were ~~$3.902~~$3.944 billion compared to ~~$2.345~~$3.435 billion for the year 2019. At December 31, 2020, the fully tax equivalent (“FTE”) net interest spread, which is the difference between the yield on earning assets and the rates paid on interest-bearing liabilities, was 3.59% compared to 3.75% at December 31, 2019.2021. Net interest margin, which is net interest income divided by average earning assets, was ~~3.64%~~3.19% for the year ~~2020~~2022 compared to ~~4.02%~~3.21% for the year ~~2019. At December 31, 2020, the FTE average yield on all earning assets decreased 62 basis points to 4.27% compared to 4.89% at December 31, 2019.~~2021. Rates paid on average interest-bearing liabilities ~~decreased to 0.68%~~was 0.57% for the year ~~2020 compared to 1.14%~~2022 and remained unchanged for the year ~~2019.~~ended 2021. Interest earned on assets and interest accrued on liabilities is significantly influenced by market factors, specifically interest rates as set by ~~Federal~~federal agencies. Average loans comprised ~~71.0%~~58.0% of average earnings assets for the year ~~2020~~2022 compared to ~~76.5%~~60.8% for the year ~~2019.~~

2021.

38

Table of Contents

Average Balances, Income and Expenses, and Rates. The following tables depict, for the periods indicated, certain information related to the average balance sheet and average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.

Average Balances, Income and Expenses, and Rates


	Years Ended December 31,
	2023						2022						2021
($ in thousands)	Average Balance		Income/ Expenses		Yield/ Rate		Average Balance		Income/ Expenses		Yield/ Rate		Average Balance		Income/ Expenses		Yield/ Rate
Assets
Earning Assets
Loans (1)(2)	$	5,036,021	$	294,541	5.85	%	$	3,302,265	$	157,761	4.78	%	$	3,019,605	$	151,203	5.01	%
Securities (4)	1,918,575		47,913		2.50	%	2,023,214		46,305		2.29	%	1,305,262		28,035		2.15	%
Federal funds sold and interest bearing deposits with other banks (3)	97,183		2,453		2.52	%	366,465		50		0.01	%	642,042		121		0.02	%
Total earning assets	7,051,779		344,907		4.89	%	5,691,944		204,116		3.59	%	4,966,909		179,359		3.61	%
Other	866,869						584,164						526,877
Total assets	$	7,918,648					$	6,276,108					$	5,493,786

Liabilities
Interest-bearing liabilities	$	4,934,875	$	91,608	1.86	%	$	3,943,531	$	22,577	0.57	%	$	3,434,964	$	19,681	0.57	%
Demand deposits	2,012,129						1,660,696						1,366,529
Other liabilities	77,252						45,065						34,827
Stockholders’ equity	894,392						626,816						657,466
Total liabilities and stockholders’ equity	$	7,918,648					$	6,276,108					$	5,493,786

Net interest spread					3.03	%					3.02	%					3.04	%
Net yield on interest-earning assets			$	253,299	3.59	%			$	181,539	3.19	%			$	159,678	3.21	%

(1)

Years Ended December 31,

2021

2020

2019


Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

($ in thousands)

Balance

Expenses

Rate

Balance

Expenses

Rate

Balance

Expenses

Rate

Assets



















Earning Assets



















Loans (1)(2)

$
3,019,605

$
151,203

5.01
%
$
3,020,280

$
157,564

5.22
%
$
2,341,202

$
128,857

5.50
%
Securities (4)

1,305,262

28,035

2.15
%

917,858

23,747

2.59
%

635,967

20,616

3.24
%
Federal funds sold and interest bearing deposits with other banks (3)

642,042

121

0.02
%

317,848

378

0.12
%

84,171

264

0.31
%
Total earning assets

4,966,909

179,359

3.61
%

4,255,986

181,689

4.27
%

3,061,340

149,737

4.89
%
Other

526,877



523,412





401,614





Total assets

$
5,493,786





$
4,779,398





$
3,462,954





















Liabilities

















Interest-bearing liabilities

$
4,548,169

$
19,681

0.43
%
$
3,901,797

$
26,664

0.68
%
$
2,344,755

$
26,723

1.14
%
Demand deposits (1)

253,324





235,909





154,122





Other liabilities

34,827





34,582





505,376





Stockholders’ equity

657,466





607,110





458,701





Total liabilities and stockholders’ equity

$
5,493,786





$
4,779,398





$
3,462,954























Net interest spread





3.18
%





3.59
%





3.75
%
Net yield on interest-earning assets



$
159,678

3.21
%



$
155,025

3.64
%



$
123,014

4.02
%
Includes nonaccrual loans of $10,690, $12,591, and $28,013 for the years ended December 31, 2023, 2022, and 2021, respectively. Loans include held for sale loans.

(2)Includes loan fees of $7,665, $7,453, and $17,138 for the years ended December 31, 2023, 2022, and 2021, respectively.

(3)Includes Excess Balance Account-First National Banker’s Bank.

~~Table of Contents~~

The following tables depict, for the periods indicated, certain information related to interest rate sensitivity in net interest income and market value of equity:


December 31, 2023
	Net Interest Income at Risk				Market Value of Equity
Change in Interest Rates	% Change from Base		Bank Policy Limit		% Change from Base		Bank Policy Limit
Up 400 bps	(19.0)	%	(20.0)	%	(12.4)	%	(40.0)	%
Up 300 bps	(9.1)	%	(15.0)	%	(6.7)	%	(30.0)	%
Up 200 bps	(2.3)	%	(10.0)	%	(2.0)	%	(20.0)	%
Up 100 bps	0.7	%	(5.0)	%	0.6	%	(10.0)	%
Down 100 bps	0.5	%	(5.0)	%	(2.4)	%	(10.0)	%
Down 200 bps	2.3	%	(10.0)	%	(5.0)	%	(20.0)	%


December 31, 2022
	Net Interest Income at Risk				Market Value of Equity
Change in Interest Rates	% Change from Base		Bank Policy Limit		% Change from Base		Bank Policy Limit
Up 400 bps	(11.3)	%	(20.0)	%	(16.6)	%	(40.0)	%
Up 300 bps	(6.4)	%	(15.0)	%	(10.6)	%	(30.0)	%
Up 200 bps	(2.9)	%	(10.0)	%	(5.8)	%	(20.0)	%
Up 100 bps	(0.9)	%	(5.0)	%	(2.2)	%	(10.0)	%
Down 100 bps	1.1	%	(5.0)	%	0.9	%	(10.0)	%
Down 200 bps	(0.7)	%	(10.0)	%	(2.2)	%	(20.0)	%

43

~~December 31, 2021~~Table of Contents

Net Interest Income at Risk

Market Value of Equity

Change in Interest

% Change

Bank

% Change

Bank

Rates

from Base

Policy Limit

from Base

Policy Limit

Up 400 bps

11.3
%
(20.0)
%
20.0
%
(40.0)
%
Up 300 bps

10.2
%
(15.0)
%
18.9
%
(30.0)
%
Up 200 bps

8.1
%
(10.0)
%
15.5
%
(20.0)
%
Up 100 bps

4.7
%
(5.0)
%
9.4
%
(10.0)
%
Down 100 bps

(3.3)
%
(5.0)
%
(15.0)
%
(10.0)
%
Down 200 bps

(4.6)
%
(10.0)
%
(34.2)
%
(20.0)
%

~~December 31, 2020~~

Net Interest Income at Risk

Market Value of Equity

Change in Interest

% Change



% Change


Rates

from Base

Policy Limit

from Base

Policy Limit

Up 400 bps

14.7
%
(20.0)
%
36.5
%
(40.0)
%
Up 300 bps

12.4
%
(15.0)
%
31.9
%
(30.0)
%
Up 200 bps

9.2
%
(10.0)
%
24.6
%
(20.0)
%
Up 100 bps

5.1
%
(5.0)
%
14.1
%
(10.0)
%
Down 100 bps

(2.1)
%
(5.0)
%
(19.7)
%
(10.0)
%
Down 200 bps

(3.0)
%
(10.0)
%
(31.2)
%
(20.0)
%

~~December 31, 2019~~

Net Interest Income at Risk

Market Value of Equity

Change in Interest

% Change



% Change


Rates

from Base

Policy Limit

from Base

Policy Limit

Up 400 bps

0.7
%
(20.0)
%
21.3
%
(40.0)
%
Up 300 bps

2.1
%
(15.0)
%
19.9
%
(30.0)
%
Up 200 bps

2.3
%
(10.0)
%
16.3
%
(20.0)
%
Up 100 bps

1.6
%
(5.0)
%
9.8
%
(10.0)
%
Down 100 bps

(3.0)
%
(5.0)
%
(6.4)
%
(10.0)
%
Down 200 bps

(5.1)
%
(10.0)
%
0.1
%
(20.0)
%

December 31, 2021
Net Interest Income at Risk Market Value of Equity
Change in Interest
Rates % Change
from Base Bank
Policy Limit % Change
from Base Bank
Policy Limit
Up 400 bps 11.3% (20.0) % 20.0% (40.0) %
Up 300 bps 10.2% (15.0) % 18.9% (30.0) %
Up 200 bps 8.1% (10.0) % 15.5% (20.0) %
Up 100 bps 4.7% (5.0) % 9.4% (10.0) %
Down 100 bps (3.3) % (5.0) % (15.0) % (10.0) %
Down 200 bps (4.6) % (10.0) % (34.2) % (20.0) %

Allowance and Provision for Credit Losses

On January 1, 2021, the Company adopted the ASC 326. The FASB issued ASC 326 to replace the incurred loss model for loans and other financial assets with an expected loss model and requires consideration of a wider range of reasonable and supportable information to determine credit losses. In accordance with ASC 326, the Company has developed an ACL methodology effective January 1, 2021, which replaces its previous allowance for loan losses methodology.

The ACL is a valuation account that is deducted from loans’ amortized cost basis to present the net amount expected to be collected on the loans. It is comprised of a general allowance for loans that are collectively assessed in pools with similar risk characteristics and a specific allowance for individually assessed loans. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance is continuously monitored by management to maintain a level adequate to absorb expected credit losses in the loan portfolio.

40

~~Table of Contents~~

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Management evaluates the adequacy of the ACL quarterly and makes provisions for credit losses based on this evaluation. See Note B – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for a complete description of the Company’s methodology and the quantitative and qualitative factors included in the calculation.

~~Upon the adoption of ASC 326, the Company recorded a $397 thousand increase to the ACL.~~

At December 31, ~~2021,~~2023, the ACL was ~~$30.7~~$54.0 million, or ~~1.0%~~1.1% of LHFI, ~~a decrease~~an increase of ~~$5.1~~$15.1 million, or ~~14.2%~~38.8% when compared to December 31, ~~2020.~~2022. The ~~decrease~~2023 increase is ~~related~~attributable to ~~charge-offs taken~~loan growth and the acquisition of HSBI in January 2023. The Bank acquired loans totaling $1.159 billion, net of purchase accounting adjustments, and recorded initial ACL on ~~several~~PCD loans ~~during 2021 and was offset by a slight increase~~of $3.2 million related to the ~~ASC 326 transition entry.~~HSBI acquisition. In addition, the 2023 provision for credit losses includes $10.7 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments acquired in the HSBI acquisition. At December 31, ~~2020,~~2022, the allowance for ~~loan~~credit losses was approximately ~~$35.8~~$38.9 million, which was ~~1.2%~~1.0% of LHFI. The Company maintains the allowance at a level that management believes is adequate to absorb ~~probable incurred~~expected credit losses ~~inherent~~ in the loan portfolio. The 2022 provision for credit losses includes $3.9 million associated with a day one post-merger accounting provision recorded for non-PCD loans, unfunded commitments. A $1.3 million initial allowance was recorded on PCD loans acquired in the BBI merger. Specifically, identifiable and quantifiable losses are immediately charged-off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge-off.

The provision for credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of the collectability of the loan portfolio in light of current economic conditions and market trends. The Company’s provision for credit losses was a ~~negative $1.1~~$13.8 million for the year ended December 31, ~~2021~~2023 and ~~the provision for loan losses was $25.2~~$5.4 million for the year ended December 31, ~~2020,~~2022, and ~~$3.7~~a negative $1.5 million for the year ended December 31, ~~2019.~~2021. A majority of the 2023 and 2022 increase in the Company's provision for credit losses is attributed to the HSBI and BBI acquisitions detailed herein. The negative provision for 2021 is attributed to the improved macroeconomic outlook ~~for 2021~~ and the Company’s ACL calculation under ASC ~~326 resulted in a negative provision for 2021. The $21.4 million increase in 2020 was related to our estimates of probable incurred losses associated with COVID-19 pandemic.~~

326.

At December 31, ~~2021,~~2023, management believes the allowance is appropriate and has been derived from consistent application of our methodology. Should any of the factors considered by management in evaluating the appropriateness of the allowance for credit losses change, management’s estimate of ~~inherent~~expected credit losses in the portfolio could also change, which would affect the level of future provisions for ~~loan~~credit losses. ~~During the first quarter~~

44

Table of 2020, the World Health Organization declared the spread of the COVID-19 virus to be a global pandemic. That has caused significant disruptions to the U.S. economy across all industries. With the number of diagnosed cases of the virus rising throughout the year, it is still impossible to foresee how long the pandemic will last and what effect it will have on the economy, or to what extent this crisis will impact the Company. All available industry statistics and trends, as well as internal tracking of loan repayment ability and payment forgiveness across the portfolio is being analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration. This ongoing analysis of the possibility of increasing credit losses resulted in the need for additional provision expense in 2020. If economic conditions worsen, further funding to the allowance may be required in future periods.

Contents

Allowance for Credit Losses on Off Balance Sheet Credit Exposures

~~On January 1, 2021, the Company adopted ASC 326.~~

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on off-balance sheet credit (“OBSC”) exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. ~~Upon adoption of ASC 326, the~~The Company ~~recorded an~~maintains a separate ACL on OBSC exposures, including unfunded commitments and letters of ~~$718 thousand. For~~credit, which is included on the ~~year ended December 31, 2021, the Company recorded a $352 thousand~~accompanying consolidated balance sheet. The Company's provision for credit losses on OBSC ~~exposures.~~

exposures was $750 thousand for the year end December 31, 2023, $255 thousand for the year ended December 31, 2022, and $352 thousand for the year ended December 31, 2021. The increase in the ACL on OBSC exposures for the year ended December 31, 2023 compared to the same period in 2022 was due to the day one provision for unfunded commitments related to the HSBI acquisition and an increase in unfunded commitments.

41

~~Table of Contents~~

Non-Performing Assets

A loan is placed on ~~non-accrual~~nonaccrual and the accrual of interest discontinued, when based on all available information and events, it displays characteristics causing management to determine that the collection of all principal, interest, and other related fees due according to the contractual terms of the loan agreement is not probable. Also identified along with these loans in nonaccrual status, ~~are loans determined by management to be labelled as “troubled debt restructure” based on regulatory guidance,~~ as well as loans 90 days or greater past due and still accruing interest.

Once these loans are identified, they are evaluated to determine whether the ultimate repayment source will be liquidation of collateral or some future source of cash flow. If the only source of repayment will come from the liquidation of collateral, they are analyzed and documented as to whether any impairment exists. This method considers collateral exposure, as well as all expected expenses related to the disposal of the collateral. If there is any impairment, specific allowances for these loans are then accounted for on a per loan basis. Loans that are identified as criticized or classified based on unsatisfactory repayment performance, or other evidence of deteriorating credit quality, are not reviewed until they meet one of the three criteria described above.

Total nonaccrual loans at December 31, ~~2021,~~2023, were ~~$28.0~~$10.7 million, a decrease of ~~$5.8~~$1.9 million compared to ~~$33.8~~$12.6 million at December 31, ~~2020. A majority of the decrease is related to charge-offs of $4.8 million during 2021.~~2022. Management believes these relationships were adequately reserved at December 31, ~~2021. Restructured loans not reported as past due or nonaccrual at December 31, 2021 totaled $5.2 million.~~2023. See Note E – Loans in the accompanying notes to the consolidated financial statements included elsewhere in this report for a description of ~~restructured~~modified loans.

A potential problem loan is one in which management has serious doubts about the borrower’s future performance under the terms of the loan contract and does not meet the standard of a non-performing asset as outlined by regulatory guidance. These loans may or may not be current as to principal and interest repayment, but they still possess some asset quality characteristics that give management a reason to believe that repayment in full under the contractual terms of the agreement are possible. The level of potential problem loans is one factor used in the determination of the adequacy of the allowance for credit losses. At December 31, ~~2021~~2023 and ~~2020,~~2022, The First had potential problem loans of ~~$154.8~~$107.1 million and ~~$161.7~~$108.1 million, respectively. ~~The decrease~~

45

Table of ~~$6.9 million during 2021 was largely attributable to the related charge-offs mentioned above.~~

Contents

Summary of ~~Loan~~Credit Loss Experience

Consolidated Allowance for Credit Losses

Years Ended December 31,

($in thousands)

2021 (1)

2020

Average LHFI outstanding

$
3,019,605

$
3,020,280

Loans outstanding at year end, including LHFS

$
2,967,231

$
3,145,110

Total nonaccrual loans

$
28,013

$
33,774

Beginning balance of allowance

$
35,820

$
13,908

Impact of ASC 326 adoption on non-PCD loans

(718)

—

Impact of ASC 326 adoption on PCD loans

1,115

—

Loans charged-off

(6,213)

(4,479)

Total recoveries

2,194

1,240

Net loans (charged-off) recoveries

(4,019)

(3,239)

Provision for credit losses (2)

(1,456)

25,151

Balance at year end

$
30,742

$
35,820

Net charge-offs to average loans

0.13
%

0.11
%
Allowance as percent of total loans

1.04
%

1.14
%
Nonaccrual loans as a percentage of total loans

0.94
%

1.07
%
Allowance as a multiple of nonaccrual loans

1.10
X

1.06
X

~~(1)~~

~~Effective January 1, 2021, The Company adopted ASC 326 using the modified retrospective approach; therefore, prior period balances are presented under legacy GAAP.~~

~~(2)~~

The negative provision of $1.1 million for credit losses on the consolidated statements of income includes a $1.5 million negative loan loss provision and a $352 thousand provision for OBSC exposures for the year ended December 31, 2021.


	Years Ended December 31,
($ in thousands)	2023		2022		2021 (1)
Average LHFI outstanding	$	5,036,021	$	3,302,265	$	3,019,605
Loans outstanding at year end, including LHFS	$	5,172,956	$	3,778,630	$	2,967,231

Total nonaccrual loans	$	10,690	$	12,591	$	28,013

Beginning balance of allowance	$	38,917	$	30,742	$	35,820
Impact of ASC 326 adoption on non-PCD loans	—		—		(718)
Impact of ASC 326 adoption on PCD loans	—		—		1,115
Initial allowance on acquired PCD loans	3,176		1,303		—
Loans charged-off	(3,092)		(1,218)		(6,213)
Total recoveries	1,281		2,740		2,194
Net loans (charged-off) recoveries	(1,811)		1,522		(4,019)
Provision for credit losses (2)	13,750		5,350		(1,456)
Balance at year end	$	54,032	$	38,917	$	30,742

Net charge-offs to average loans	(0.04)%		0.05%		0.13%
Allowance as percent of total loans	1.04%		1.03%		1.04%
Nonaccrual loans as a percentage of total loans	0.21%		0.33%		0.94%
Allowance as a multiple of nonaccrual loans	5.05X		3.10X		1.10 X

42

~~Table of Contents~~

excluding mortgage loans held for sale, averaged $5.036 billion during 2023 and $3.302 billion during 2022, as compared to $3.020 billion during ~~2021 and $3.020 billion during 2020, as compared to $2.341 billion during 2019.~~

2021.

In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial institutions in the Company’s market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes it will reduce the risk elements of its loan portfolio through strategies that diversify the lending mix.

Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination.

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Table of Contents

The following table sets forth the Company’s ~~commercial and construction real estate loans~~loan portfolio maturing within specified intervals at December 31, ~~2021 ($ in thousands):~~

2023.

Loan Maturity Schedule and Sensitivity to Changes in Interest Rates

After One,

After Five but

After


Due in One

but Within

Within

Fifteen


Year or Less

Five Years

Fifteen Years

Years

Total
Commercial, financial and agricultural

$
71,956

$
214,425

$
98,085

$
13,050

$
397,516
Commercial real estate

201,862

691,530

740,376

49,928

1,683,696
Consumer real estate

116,171

216,431

158,409

347,644

838,655
Consumer installment

6,511

29,960

3,215

—

39,686
Total

$
396,500

$
1,152,346

$
1,000,085

$
410,622

$
2,959,553

Loans with fixed interest rates:

Commercial, financial and agricultural

$
33,758

$
185,175

$
86,898

$
10,074

$
315,905
Commercial real estate

166,961

608,138

531,056

2,943

1,309,098
Consumer real estate

82,769

136,788

98,521

70,407

388,485
Consumer installment

5,534

28,157

3,049

—

36,740
Total

$
289,022

$
958,258

$
719,524

$
83,424

$
2,050,228

Loans with floating interest rates:

Commercial, financial and agricultural

$
38,198

$
29,250

$
11,187

$
2,976

$
81,611
Commercial real estate

34,901

83,392

209,320

46,985

374,598
Consumer real estate

33,402

79,643

59,888

277,237

450,170
Consumer installment

977

1,803

166

—

2,946
Total

$
107,478

$
194,088

$
280,561

$
327,198

$
909,325


($ in thousands)	Due in One Year or Less		After One, but Within Five Years		After Five but Within Fifteen Years		After Fifteen Years		Total
Commercial, financial and agricultural	$	209,690	$	392,382	$	191,341	$	6,911	$	800,324
Commercial real estate	314,080		1,414,550		1,168,566		161,959		3,059,155
Consumer real estate	129,208		365,095		187,040		571,452		1,252,795
Consumer installment	13,285		39,110		5,125		248		57,768
Total	$	666,263	$	2,211,137	$	1,552,072	$	740,570	$	5,170,042

Loans with fixed interest rates:
Commercial, financial and agricultural	$	130,524	$	275,836	$	126,964	$	5,436	$	538,760
Commercial real estate	231,270		1,215,711		717,414		19,742		2,184,137
Consumer real estate	68,229		267,122		104,973		89,254		529,578
Consumer installment	11,987		36,252		4,386		239		52,864
Total	$	442,010	$	1,794,921	$	953,737	$	114,671	$	3,305,339

Loans with floating interest rates:
Commercial, financial and agricultural	$	79,166	$	116,546	$	64,377	$	1,475	$	261,564
Commercial real estate	82,810		198,839		451,152		142,217		875,018
Consumer real estate	60,979		97,973		82,067		482,198		723,217
Consumer installment	1,298		2,858		739		9		4,904
Total	$	224,253	$	416,216	$	598,335	$	625,899	$	1,864,703

The information presented in the above table is based on the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity.

Investment Securities. The investment securities portfolio is a significant component of the Company’s total earning assets. Total securities averaged $1.919 billion in 2023, as compared to $2.023 billion in 2022, and $1.305 billion in ~~2021, as compared to $917.9 million in 2020, and $636.0 million in 2019.~~2021. This represents ~~26.3%~~27.2%, ~~21.6%~~35.5%, and ~~20.8%~~26.3% of the average earning assets for the years ended December 31, ~~2021, 2020~~2023, 2022 and ~~2019,~~2021, respectively. At December 31, ~~2021,~~2023, investment securities, including equity securities, were ~~$1.774~~$1.735 billion and represented ~~29.6%~~28.5% of earning assets. The Company attempts to maintain a portfolio of high quality, highly liquid investments with returns competitive with short-term U.S. Treasury or agency obligations. This objective is particularly important as the Company focuses on growing its loan portfolio. The

46

~~Table of Contents~~

Company primarily invests in securities of U.S. Treasury, U.S. Government agencies, municipals, and corporate obligations with maturities up to ten years.

The following table details the weighted-average yield for each range of maturities of securities held-to-maturity using the amortized cost at December 31, 2023 (tax equivalent basis):

50

Table of Contents

Within One Year After One, But Within Five Years Maturing After Five But Within Ten Years After Ten Years Total
Securities held-to-maturity
U.S. Treasury 1.48 % 1.67 % — % — % 1.60 %
Obligations of U.S. government agencies and sponsored entities — % 3.49 % 3.30 % — % 3.34 %
Tax-exempt and taxable obligations of states and municipal subdivisions 1.91 % 2.04 % 3.96 % 4.83 % 4.57 %
Mortgage-backed securities - residential — % — % 1.61 % 2.45 % 2.34 %
Mortgage-backed securities - commercial — % 2.12 % 3.40 % 3.86 % 3.57 %
Corporate obligations — % — % — % 3.13 % 3.13 %
Total held-to-maturity 1.62 % 2.00 % 3.71 % 4.57 % 4.18 %
Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

Short-Term Investments. Short-term investments, consisting of Federal Funds Sold, funds due from banks and interest-bearing deposits with banks, averaged $97.2 million in 2023, $366.5 million in 2022, and $642.0 million in ~~2021, $317.8 million in 2020, and $84.2 million in 2019.~~2021. There were no federal funds sold at December 31, ~~2021, 2020,~~2023, 2022, and ~~2019.~~2021. These funds are a primary source of the Company's liquidity and are generally invested in an earning capacity on an overnight basis.

Deposits

Deposits. Average total deposits at December 31, ~~2021~~2023 were ~~$4.631~~$6.555 billion, an increase of ~~$713.7 thousand,~~$1.127 billion, or ~~18.2%~~20.8% compared to ~~2020.~~2022. Average total deposits at December 31, ~~2020~~2022 were ~~$3.918~~$5.428 billion, an increase of ~~$1.118 billion,~~$796.9 million, or ~~39.9%~~17.2% compared to ~~$2.799~~$4.631 billion in ~~2019.~~ 2021.

At December 31, ~~2021,~~2023, total deposits were ~~$5.227~~$6.463 billion, compared to ~~$4.215~~$5.494 billion at December 31, ~~2020,~~2022, an increase of ~~$1.012 billion,~~$968.5 million, or ~~24.0%~~17.6%, and ~~$3.077~~$5.227 billion at December 31, ~~2019. Deposits~~2021. During January 2023, deposits totaling $1.392 billion, net of purchase accounting adjustments, were acquired in the Heritage Bank acquisition. During August 2022, deposits totaling $490.6 million were acquired in the BBI acquisition. During December 2021, deposits totaling $410.2 million were acquired in ~~2021 with the acquisition of~~ the Cadence ~~branches. Deposits~~Bank branches acquisition.

As of ~~$476.1 million~~December 31, 2023 and 2022, the Company had estimated uninsured deposits of $2.145 billion and $2.076 billion, respectively. These estimates were ~~acquired in 2020 with~~derived using the ~~acquisition~~same methodologies and assumptions used for the Bank's regulatory reporting.

In the third quarter of ~~SWG. Deposits of $686.4 million were acquired in 2019 with~~2022, the ~~acquisitions of FPB and FFB.~~

~~The~~ Company ~~implemented~~ceased the Deposit Reclassification program it implemented at the beginning of 2020. ~~This~~The program ~~reclassifies non-interest-bearing deposits~~reclassified non-interest bearing and NOW deposit balances to money market accounts. This program reduces our reserve balance required at the Federal Reserve Bank of Atlanta and provides additional funds for liquidity or lending. At December 31, 2021, $794.3 million in non-interest deposit balances and $1.032 billion in NOW deposit accounts were reclassified as money market accounts. A distribution of the Company’s deposits ~~with reclassification~~ showing the year-to-date average ~~balances~~balance of deposits by type and weighted-average ~~rates paid during~~is presented for the ~~years presented ($~~noted periods in ~~thousands):~~

December 31,

2021

2020

2019

Average

Average

Average

Average

Rate

Average

Rate

Average

Rate


Balance

Paid

Balance

Paid

Balance

Paid

Non-interest-bearing accounts

$
253,324

$
235,909

$
154,122

Interest bearing deposits:

NOW accounts and other

1,529,293

0.48
%

1,261,264

0.70
%

958,226

0.85
%
Money market accounts

1,870,156

0.08
%

1,421,922

0.24
%

864,041

0.37
%
Savings accounts

440,977

0.03
%

346,612

0.05
%

268,426

0.06
%
Time deposits

537,538

0.57
%

651,887

1.08
%

554,543

1.43
%
Total interest-bearing deposits

4,377,964

0.27
%

3,681,685

0.53
%

2,645,236

0.74
%
Total deposits

$
4,631,288

0.26
%
$
3,917,594

0.50
%
$
2,799,358

0.70
%

~~Average deposits increased $738.4 million, or 18.7%, in~~the following table. Deposits at December 31, 2021 ~~compared to 2020.~~ are shown without reclassification for consistency with the current period presentation.

51

Table of Contents


	December 31,
($ in thousands)	2023				2022				2021
	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Non-interest-bearing accounts	$	2,012,935			$	1,660,301			$	1,366,529
Interest bearing deposits:
NOW accounts and other	2,017,154		1.41	%	1,810,575		0.44	%	1,529,293		0.48	%
Money market accounts	1,013,701		1.79	%	831,463		0.29	%	756,951		0.20	%
Savings accounts	606,421		0.18	%	535,449		0.04	%	440,977		0.03	%
Time deposits	904,629		2.61	%	590,385		0.58	%	537,538		0.59	%
Total interest-bearing deposits	4,541,905		1.57	%	3,767,872		0.37	%	3,264,759		0.37	%
Total deposits	$	6,554,840	1.09	%	$	5,428,173	0.26	%	$	4,631,288	0.26	%

The most significant growth during ~~2021~~2023 compared to ~~2020~~2022 was in ~~money market accounts.~~time deposits. The average cost of interest-bearing deposits and total deposits was ~~0.27%~~1.57% and 1.09% during 2023 compared to 0.37% and 0.26% ~~during 2021~~in 2022. Average cost of interest bearing deposits increased 120 basis points to 1.57% at December 31, 2023 compared to ~~0.53% and 0.49%~~0.37% during the same time period in ~~2020.~~2022. Average cost of total deposits increased 83 basis points to 1.09% at December 31, 2023 compared to 0.26% during the same time period in 2022. The ~~decrease~~increase in the average cost of ~~interest-bearing deposit during 2021 compared to 2020 was related to lower average interest rates~~deposits paid on ~~most of~~ our interest-bearing deposit products asin 2023 compared to 2022, is a result of ~~lower~~higher average market interest rates.

Average cost of interest-bearing deposits and total deposits remained unchanged at December 31, 2022 compared to 2021.

The Company’s loan-to-deposit ratio, which excludes mortgage loans held for sale, was 80.0% at December 31, 2023, 68.7% at December 31, 2022 and 56.6% at December 31, ~~2021, 74.1% at December 31, 2020 and 84.5% at December 31, 2019.~~2021. The loan-to-deposit ratio averaged ~~65.2%~~76.8% during ~~2021.~~2023. Core deposits, which exclude time deposits of $250,000 or more, ~~in 2021 and time deposits of $100,000 or more in 2020 and 2019,~~ provide a relatively stable funding source for the Company's loan portfolio and other earning assets. The Company's core deposits were $6.084 billion at December 31, 2023, $5.198 billion at December 31, 2022, and $4.504 billion at December 31, ~~2021, $3.853 billion at December 31, 2020, and $2.650 billion at December 31, 2019.~~ 2021.

Management anticipates that a stable base of deposits will be the Company's primary source of funding to meet both its short-term and long-term liquidity needs in the future. The Company has purchased brokered deposits from time to time to help fund loan growth. Brokered deposits and jumbo certificates of deposit generally carry a higher interest rate than traditional core deposits. Further, brokered deposit customers typically do not have loan or other relationships with the Company. The Company has adopted a policy not to permit brokered deposits to represent more than 10% of all of the Company’s deposits. ~~Transaction account balances~~The Company's brokered deposits were ~~above normal as~~1.8% of deposits at December 31, ~~2020, due to PPP loan proceeds.~~

2023.

47

~~Table of Contents~~

Maturities of Certificates of Deposit

of $250,000 or More

After Six




After Three

Through

Within Three

Through Six

Twelve

After Twelve

($ in thousands)

Months

Months

Months

Months

Total
December 31, 2021

$
29,695

$
34,282

$
40,104

$
37,399

$
141,480

($ in thousands) Within Three
Months After Three
Through Six
Months After Six
Through
Twelve
Months After Twelve
Months Total
December 31, 2023 $ 103,032 $ 122,629 $ 44,767 $ 22,443 $ 292,871

Borrowed Funds

Borrowed funds consist of advances from the Federal Home Loan Bank of Dallas (“FHLB”), loans from First Horizon Bank, loans from the Federal Reserve Bank, federal funds purchased and reverse repurchase agreements. At December 31, ~~2021,~~2023, advances from the FHLB totaled $0 compared to ~~$110.0~~$130.1 million at December 31, ~~2020~~2022 and ~~$206.3 million~~$0 at December 31, ~~2019.~~2021. The advances are collateralized by a blanket lien on the first mortgage loans in the amount of the outstanding borrowings, FHLB capital stock, and amounts on deposit with the FHLB. There were ~~$0, $0 and $2.7 million~~no federal funds purchased at December 31, 2023, 2022, and 2021, ~~2020,~~respectively.

On March 12, 2023, the Federal Reserve Board announced the Bank Term Funding Program ("BTFP"), which offers loans to banks with a term up to one year. The loans are secured by pledging the banks' U.S. treasuries, agency securities, agency mortgage-backed securities, and ~~2019, respectively. As part~~any other qualifying asset. These pledged securities will be valued at

52

Table of Contents

par for collateral purposes. The BTFP offers up to one year fixed-rate term borrowings that are prepayable without penalty.

In 2023, the ~~FFB acquisition, the Company assumed two loans~~Bank participated in the ~~amount~~BTFP and had outstanding debt of ~~$3.5~~$390.0 million and ~~$2.0~~pledged securities with a fair value of $362.4 million ~~with First Horizon Bank. Principal~~at December 31, 2023. The securities pledged have a par value of $398.1 million. The Bank's BTFP borrowings, which were drawn between March 15, 2023 and December 28, 2023, bear interest ~~are payable quarterly at~~ rates ranging from ~~3.80% - 4.10%. In 2021, the Company repaid the two loans acquired~~4.69% to 4.83% and are set to mature one year from ~~the FFB acquisition.~~

their issuance date.

Subordinated Debentures

In

On June 30, 2006, the Company issued ~~subordinated debentures of~~ $4.1 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares ~~Inc.~~ Statutory Trust 2 (“Trust 2”). The debentures are the sole asset of Trust 2, and the Company is the sole owner of the common equity of Trust 2. Trust 2 issued $4.0 million of Trust Preferred Securities to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the Trust 2.2’s obligations under the preferred securities. The ~~Trust 2 issued $4,000,000 of~~ preferred securities ~~to investors.~~are redeemable by the Company at its option. The ~~Company makes interest payments and will make principal payments on~~preferred securities must be redeemed upon maturity of the debentures ~~to the Trust 2. These payments will be the source of funds used to retire~~in 2036. Interest on the preferred securities ~~which~~is the three-month term Secured Overnight Financing Rate ("SOFR") plus 1.65% plus a tenor spread adjustment of 0.026161% and is payable quarterly. The terms of the subordinated debentures are ~~redeemable at any time beginning in 2011 and thereafter, and mature in 2036. The Company entered into this arrangement~~identical to ~~provide funding for expected growth.~~

Inthose of the preferred securities.

On July 27, 2007, the Company issued ~~subordinated debentures of~~ $6.2 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares ~~Inc.~~ Statutory Trust 3 (“Trust 3”). The Company isowns all of the common equity of Trust 3, and the debentures are the sole ~~owner~~asset of Trust 3. Trust 3 issued $6.0 million of Trust Preferred Securities to investors. The Company’s obligations under the ~~equity~~debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the Trust 3.3’s obligations under the preferred securities. The ~~Trust 3 issued $6,000,000 of~~ preferred securities ~~to investors.~~are redeemable by the Company at its option. The ~~Company makes interest payments and will make principal payments on~~preferred securities must be redeemed upon maturity of the debentures ~~to the Trust 3. These payments will be the source of funds used to retire~~in 2037. Interest on the preferred securities ~~which~~is the three-month term SOFR plus 1.40% plus a tenor spread adjustment of 0.026161% and is payable quarterly. The terms of the subordinated debentures are ~~redeemable at any time beginning in 2012 and thereafter, and mature in 2037. The Company entered into this arrangement~~identical to ~~provide funding for expected growth.~~

those of the preferred securities.

In 2018, as a result of the acquisition of FMB Banking Corporation ("FMB"), the Company ~~acquired FMB’s Capital Trust 1 (“Trust 1”), which consisted~~became the successor to FMB's obligations in respect of ~~$6.1~~$6.2 million of floating rate junior subordinated ~~deferrable interest~~ debentures ~~in which~~issued to FMB Capital Trust 1 ("FMB Trust"). The debentures are the ~~Company owns all~~sole asset of FMB Trust, and the ~~common equity. The~~ Company is the sole owner of the common equity of FMB Trust. FMB Trust 1.issued $6.0 million of Trust Preferred Securities to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of FMB Trust's obligations under the preferred securities. The preferred securities issued by the FMB Trust are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2033. Interest on the preferred securities is the three-month term SOFR plus 2.85% plus a tenor spread adjustment of 0.026161% and is payable quarterly.

On January 1, 2023, as a result of the acquisition of HSBI, the Company became the successor to HSBI's obligations in respect of $10.3 million of subordinated debentures issued ~~$6,000,000~~to Liberty Shares Statutory Trust II ("Liberty Trust"). The debentures are the sole asset of Liberty Trust, and the Company is the sole owner of the common equity of Liberty Trust. Liberty Trust issued $10.0 million of preferred securities to ~~investors.~~an investor. The ~~Company makes interest payments and will make principal payments on~~Company's obligations under the debentures toand related documents, taken together, constitute a full and unconditional guarantee by the Company of Liberty Trust's obligations under the preferred securities. The preferred securities issued by the Liberty Trust ~~1. These payments will~~are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the ~~source of funds used to retire~~debentures in 2036. Interest on the preferred securities ~~which~~is the three-month term SOFR plus 1.48% plus a tenor spread adjustment of 0.026161% and is payable quarterly.

In accordance with the provisions of ASC Topic 810, Consolidation, the Trust 2, Trust 3, FMB Trust, and Liberty Trust are ~~redeemable at any time beginning~~not included in ~~2008 and thereafter, and mature in 2033.~~

the consolidated financial statements.

53

Table of Contents

Subordinated Notes

On April 30, 2018, ~~the~~The Company entered into two Subordinated Note Purchase Agreements pursuant to which the Company sold and issued $24.0 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes due 2028 (the "Notes due 2028") and $42.0 million in aggregate principal amount of 6.40% fixed-to-floating rate subordinated notes due 2033 ~~(collectively,~~(the “Notes due 2033”). In May of 2023, the ~~“Notes”). Deferred issuance costs included in~~Company redeemed all $24.0 million of the outstanding 5.875% fixed-to-floating rate subordinated ~~debt were $961 thousand and $1.1 million at December 31, 2020 and December 31, 2019.~~

notes due 2028.

The Notes due 2033 are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes due 2033 are not subject to redemption at the option of the holder. Principal and interest on the Notes due 2033 are subject to acceleration only in limited circumstances. The Notes due 2033 are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is pari passu in right to payment with respect to the other Notes. The Notes due 2033 have a fifteen year term, maturing May 1, 2033, and will bear interest at a fixed annual rate of 6.40%, payable quarterly in arrears, for the first ten years of the term. Thereafter, the interest rate will re-set quarterly to an interest rate per annum equal to a benchmark rate (which is expected to be three-month term SOFR plus 3.39% plus a tenor spread adjustment of 0.026161%), payable quarterly in arrears. As provided in the Notes due 2033, under specified conditions the interest rate on the Notes due 2033 during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The Company ~~entered into this arrangement~~is entitled to ~~provide funding for expected growth.~~

redeem the Notes due 2033, in whole or in part, on any interest payment date on or after May 1, 2028, and to redeem the Notes due 2033 at any time in whole upon certain other specified events.

48

~~Table of Contents~~

On September 25, 2020, ~~the~~The Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers pursuant to which the Company sold and issued $65.0 million in aggregate principal amount of its 4.25% Fixed to Floating Rate Subordinated Notes due ~~2030.~~2030 (the "Notes due 2030"). The Notes due 2030 are unsecured and have a ten-year term, maturing October 1, 2030, and will bear interest at a fixed annual rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term ~~Secured Overnight Financing Rate ("SOFR")~~SOFR plus 412.6 basis ~~points,~~points), payable quarterly in arrears. As provided in the Notes due 2030, under specified conditions the interest rate on the Notes due 2030 during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The Company is entitled to redeem the Notes due 2030, in whole or in part, on any interest payment date on or after October 1, 2025, and to redeem the Notes due 2030 at any time in whole upon certain other specified events.

The Company had ~~$144.7~~$123.4 million of subordinated debt, net of deferred issuance costs ~~$2.1~~$1.6 million and unamortized fair value mark ~~$646 thousand,~~$2.1 million, at December 31, ~~2021,~~2023, compared to ~~$144.6~~$145.0 million, net of deferred issuance costs ~~$2.2~~$1.9 million and unamortized fair value mark ~~$700~~$593 thousand, at December 31, ~~2020.~~

2022. The decrease in subordinated debt was attributable to the Company's redemption of $24.0 million of its Notes due 2028 and the Company's repayment of $2.0 million of its Notes due 2030 in May of 2023, which resulted in the Company recording a $217 thousand gain on the repurchased debt. The decrease in subordinated debt was partially offset by the addition of $9.0 million, net purchase accounting adjustments, of subordinated debt that the Company acquired as part of the HSBI acquisition.

Capital

The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% for U.S government and agency securities, to 600% for certain equity exposures. In November 2019, the federal banking agencies adopted a rule revising the scope of commercial real estate mortgages subject to a 150% risk weight. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common stockholders’ equity, excluding the unrealized gain (loss) on available-for-sale securities, minus certain intangible assets. Tier 2 capital consists of the general reserve for loan losses, subject to certain limitations. An institution’s total risk-based capital for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The risk-based regulatory minimum requirements are 6% for Tier 1 and 8% for total risk-based capital.

Bank holding companies and banks are also required to maintain capital at a minimum level based on total assets, which is known as the leverage ratio. The minimum requirement for the leverage ratio is 4%. All but the highest rated institutions are required to maintain ratios 100 to 200 basis points above the minimum. The Company and The First exceeded their minimum regulatory capital ratios as of December 31, ~~2021, 2020~~2023, 2022 and ~~2019.~~

2021.

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Table of Contents

The Federal Reserve and the Federal Deposit Insurance Corporation approved final capital rules in July 2013, that substantially amended the existing capital rules for banks. These new rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act.

Under the Basel III capital rules, the Company is required to meet certain minimum capital requirements that differ from past capital requirements. The rules implement a new capital ratio of common equity Tier 1 capital to risk-weighted assets. Common equity Tier 1 capital generally consists of retained earnings and common stock (subject to certain adjustments) as well as accumulated other comprehensive income (“AOCI”), however, the Company exercised a one-time irrevocable option to exclude certain components of AOCI as of March 31, 2015. The Company is required to establish a “conservation buffer,” consisting of a common equity Tier 1 capital amount equal to 2.5% of risk-weighted assets effective January 2019. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases, and discretionary bonuses to executive officers.

The prompt corrective action rules have been modified to include the common equity Tier 1 capital ratio and to increase the Tier 1 capital ratio requirements for the various thresholds. For example, the requirements for the Company to be considered well-capitalized under the rules include a 5.0% leverage ratio, a 6.5% common equity Tier ~~1capital~~1 capital ratio, an 8.0% Tier 1 capital ratio, and a 10.0% total capital ratio.

The rules modify the manner in which certain capital elements are determined. The rules make changes to the methods of calculating the risk-weighting of certain assets, which in turn affects the calculation of the risk-weighted capital ratios. Higher risk weights are assigned to various categories of assets, including commercial real estate loans, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credit that are 90 days past due or are nonaccrual, securitization exposures, and in certain cases mortgage servicing rights and deferred tax assets.

49

~~Table of Contents~~

The Company was required to comply with the new capital rules on January 1, 2015, with a measurement date of March 31, 2015. The conservation buffer was phased-in beginning in 2016, and took full effect on January 1, 2019. Certain calculations under the rules will also have phase-in periods. Under this guidance banking institutions with a CETI, Tier 1 Capital Ratio and Total Risk Based Capital above the minimum regulatory adequate capital ratios but below the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall.

On December 14, 2021, the U.S. Department of Treasury informed the Company of its eligibility to receive $175.0 million of non-dilutive Tier 1 perpetual preferred capital under the ECIP. Established by the Consolidated Appropriations Act of 2021, the ECIP was created to encourage low-and moderate-income community financial institutions to augment their efforts to support small businesses and consumers in their communities.

Analysis of Capital

Minimum

Capital

Required

Basel III

Adequately

Well

Fully

The Company

The First

Capital Ratios

Capitalized

Capitalized

Phased In

December 31,

December 31,


2021

2020

2019

2021

2020

2019

Leverage

4.0
%
5.0
%
7.0
%
9.2
%
9.2
%
10.3
%
10.8
%
10.4
%
11.8
%
Risk-based capital:















Common equity Tier 1

4.5
%
6.5
%
7.0
%
13.7
%
13.5
%
12.5
%
16.6
%
15.8
%
15.1
%
Tier 1

6.0
%
8.0
%
8.5
%
14.1
%
14.0
%
13.0
%
16.6
%
15.8
%
15.1
%
Total

8.0
%
10.0
%
10.5
%
18.6
%
19.1
%
15.8
%
17.4
%
16.9
%
15.6
%

Capital Ratios Adequately
Capitalized Well
Capitalized Minimum
Capital
Required
Basel III
Fully
Phased In The Company
December 31, The First
December 31,
2023 2022 2021 2023 2022 2021
Leverage 4.0 % 5.0 % 7.0 % 9.7 % 9.3 % 9.2 % 10.7 % 11.1 % 10.8 %
Risk-based capital:
Common equity Tier 1 4.5 % 6.5 % 7.0 % 12.1 % 12.7 % 13.7 % 13.8 % 15.6 % 16.6 %
Tier 1 6.0 % 8.0 % 8.5 % 12.5 % 13.0 % 14.1 % 13.8 % 15.6 % 16.6 %
Total 8.0 % 10.0 % 10.5 % 15.0 % 16.7 % 18.6 % 14.8 % 16.4 % 17.4 %

Liquidity and Capital Resources

Liquidity management involves monitoring the Company’s sources and uses of funds in order to meet its day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made; however, net deposit inflows and outflows are far less

55

Table of Contents

predictable and are not subject to the same degree of control. Asset liquidity is provided by cash and assets which are readily marketable, which can be pledged, or which will mature in the near future. Liability liquidity is provided by access to core funding sources, principally the ability to generate customer deposits in the Company’s market area.

The Company’s federal funds sold position, which includes funds due from banks and interest-bearing deposits with banks, is typically its primary source of liquidity. Federal funds sold averaged ~~$642.0~~$97.2 million during the year ended December 31, ~~2021~~2023 and averaged ~~$317.8~~$366.5 million at December 31, ~~2020.~~2022. In addition, the Company has available advances from the FHLB. Advances available are generally based upon the amount of qualified first mortgage loans which can be used for collateral. At December 31, ~~2021,~~2023, advances available totaled approximately ~~$1.478~~$2.051 billion, of which ~~$5.2~~$355.2 million had been drawn, or used for letters of credit.

As of December 31, ~~2021,~~2023, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised ~~$985.4~~$661.8 million of the Company’s investment balances, compared to ~~$513.2 million~~$1.066 billion at December 31, ~~2020. The increase in unpledged debt securities from December 2021 compared to December 2020 is primarily due to an increase in acquired deposits.~~2022. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding federal funds sold and vault cash. Management believes that available investments and other potentially liquid assets, along with the standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.

50

~~Table of Contents~~

The Company’s liquidity ratio as of December 31, ~~2021~~2023 was ~~41.1%~~17.6%, as compared to internal liquidity policy guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines for the periods indicated:

December 31, 2021

Policy Maximum


Loans to Deposits (including FHLB advances)

55.8
%
90.0
%
In Policy
Net Non-core Funding Dependency Ratio

(14.6)
%
20.0
%
In Policy
Fed Funds Purchased / Total Assets

0.0
%
10.0
%
In Policy
FHLB Advances / Total Assets

0.0
%
20.0
%
In Policy
FRB Advances / Total Assets

0.0
%
10.0
%
In Policy
Pledged Securities to Total Securities

48.5
%
90.0
%
In Policy


December 31, 2020

Policy Maximum


Loans to Deposits (including FHLB advances)

70.9
%
90.0
%
In Policy
Net Non-core Funding Dependency Ratio

(4.4)
%
20.0
%
In Policy
Fed Funds Purchased / Total Assets

0.0
%
10.0
%
In Policy
FHLB Advances / Total Assets

2.1
%
20.0
%
In Policy
FRB Advances / Total Assets

0.0
%
10.0
%
In Policy
Pledged Securities to Total Securities

54.9
%
90.0
%
In Policy

December 31, 2019

Policy Maximum


Loans to Deposits (including FHLB advances)

79.2
%
90.0
%
In Policy
Net Non-core Funding Dependency Ratio

8.9
%
20.0
%
In Policy
Fed Funds Purchased / Total Assets

0.1
%
10.0
%
In Policy
FHLB Advances / Total Assets

5.2
%
20.0
%
In Policy
FRB Advances / Total Assets

0.0
%
10.0
%
In Policy
Pledged Securities to Total Securities

56.5
%
90.0
%
In Policy

Continued growth in core deposits and relatively high levels of potentially liquid investments have had a positive impact on our liquidity position in recent periods, but no assurance can be provided that our liquidity will continue at current robust levels.


	December 31, 2023		Policy Maximum
Loans to Deposits (including FHLB advances)	79.3	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	8.3	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	0.0	%	20.0	%	In Policy
FRB Advances / Total Assets	5.0	%	10.0	%	In Policy
Pledged Securities to Total Securities	58.6	%	90.0	%	In Policy

	December 31, 2022		Policy Maximum
Loans to Deposits (including FHLB advances)	67.9	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	4.4	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	2.0	%	20.0	%	In Policy
FRB Advances / Total Assets	0.0	%	10.0	%	In Policy
Pledged Securities to Total Securities	46.9	%	90.0	%	In Policy

	December 31, 2021		Policy Maximum
Loans to Deposits (including FHLB advances)	55.8	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	(14.6)	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	0.0	%	20.0	%	In Policy
FRB Advances / Total Assets	0.0	%	10.0	%	In Policy
Pledged Securities to Total Securities	48.5	%	90.0	%	In Policy

The holding company’s primary uses of funds are ordinary operating expenses and stockholder dividends, and its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. Management anticipates that the Bank will have sufficient earnings to provide dividends to the holding company to meet its funding requirements for the foreseeable future.

56

Table of Contents

Management regularly reviews the liquidity position of the Company and has implemented internal policies which establish guidelines for sources of asset-based liquidity and limit the total amount of purchased funds used to support the balance sheet and funding from non-core sources. During March 2020, in response to COVID-19, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent and extended terms to 90 days to enhance market liquidity and encourage use of the discount window. In addition, the Federal Reserve announced it would begin quantitative easing, or large-scale asset purchases, consisting primarily of Treasury securities and mortgage-backed securities to stem the effects of the pandemic on the financial markets. A prolonged outbreak of the COVID-19 pandemic could cause a widespread liquidity crisis, and the availability of these funds or the options to sell securities currently held could be hindered. The full impact and duration of COVID-19 on our business is unknown but if it continues to curtail economic activity, it could impact our ability to obtain funding and result in the reduction of or the cessation of dividends.

On March 28, 2019, the Company announced that its Board of Directors authorized a share repurchase program to purchase up to an aggregate of $20 million of the Company’s common stock (the “March 2019 program”). This share repurchase program had an expiration dateAs of December 31, 2019. Under the March 2019 program, the Company could repurchase shares of its common stock periodically in a manner determined by the Company’s management. The actual means and timing of purchase, target number of shares and maximum price or range of prices under the program was determined by management at its discretion and depended on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The Company repurchased 168,188 shares under the March 2019 program in 2019.

51

~~Table of Contents~~

On May 7, 2020, the Company announced the renewal of its share repurchase program that previously expired on December 31, 2019. Under the program, the Company could from time to time repurchase up to $15 million in shares of its common stock in any manner determined appropriate by the Company's management. The actual timing and method of any purchases,2023, the target ~~number of shares and the maximum price (or range of prices) under the program,~~federal funds rate was determined by management at its discretion and depended on a number of factors, including the market price of the Company's common stock, general market and economic conditions, and applicable legal and regulatory requirements. The renewed share repurchase program expired on December 31, 2020. The Company repurchased 289,302 shares in 2020 pursuant5.25% to ~~the program.~~

On December 16, 2020, the Company announced that its Board of Directors has authorized a share repurchase program (the “2021 Repurchase Program”), pursuant to which the Company may purchase up to an aggregate of $30 million in shares of the Company’s issued and outstanding common stock. Under the program, the Company could, but is not required to, from time to time repurchase up $30 million of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, was be determined by management at is discretion and depended on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2021 Repurchase Program expired on December 31, 2021. The Company repurchased 165,623 shares in 2021 pursuant to the 2021 Repurchase Program.

5.50%.

On February 8, 2022, the Company announced the renewal of the 2021 Repurchase Program that previously expired on December 31, 2021. Under the renewed 2021 Repurchase Program, the Company could ~~from time to time~~ repurchase up to an aggregate of ~~$30~~$30.0 million of the Company’s issued and outstanding common stock in any manner determined appropriate by the Company’s management, less the amount of prior purchases under the program during the 2021 calendar year. The renewed 2021 Repurchase Program was completed in February 2022 when the Company’s repurchases under the program approached the maximum authorized amount.

The Company repurchased 600,000 shares under the 2021 Repurchase Program in the first quarter of 2022.

On March 9, 2022, the Company announced that its Board of Directors authorized a new share repurchase program (the “2022 Repurchase Program”), pursuant to which the Company could purchase up to an aggregate of $30.0 million in shares of the Company’s issued and outstanding common stock during the 2022 calendar year. Under the program, the Company could, but was not required to, from time to time repurchase up $30.0 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, was determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2022 Repurchase Program expired on December 31, 2022.

The Inflation Reduction Act of 2022 signed into law in August 2022 includes a provision for an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits and provisions. The excise tax is effective beginning in fiscal year 2023. While we may complete transactions subject to the new excise tax, we do not expect a material impact to our statement of condition or result of operations.

On February 28, 2023, the Company announced that its Board of Directors has authorized a new share repurchase program (the ~~“2022~~"2023 Repurchase ~~Program”~~Program"), pursuant to which the Company may purchase up to an aggregate of ~~$30~~$50.0 million in shares of the ~~Company’s~~Company's issued and outstanding common stock during the ~~2020~~2023 calendar year. Under the program, the Company may, but is not required to, from time to time repurchase up ~~$30~~$50.0 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The ~~2022~~2023 Repurchase Program expired on December 31, 2023.

On February 28, 2024, the Company announced that its Board of Directors has authorized a new share repurchase program (the "2024 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50.0 million in shares of the Company's issued and outstanding common stock during the 2024 calendar year. Under the program, the Company may, but is not required to, from time to time repurchase up $50.0 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2024 Repurchase Program will ~~have an expiration date of~~expire on December 31, ~~2022.~~

2024.

57

Table of Contents

Commitments and Contractual Obligations

The following table presents, as of December 31, ~~2021,~~2023, fixed and determinable contractual obligations to third parties by payment date. Amounts in the table do not include accrued or accruing interest. Payments related to leases are based on actual payments specified in the underlying contracts. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements included elsewhere in this Form 10-K.

After One

After Three

Note

Within One

But Within

But Within

After Five

($ in thousands)

Reference

Year

Three Years

Five Years

Years

Total
Deposits without a stated maturity

G

$
4,642,175

$
—

$
—

$
—

$
4,642,175
Time deposits

G

444,983

105,481

23,840

10,305

584,609
Lease obligations

I

1,346

2,261

1,480

1,199

6,286
Trust preferred subordinated debentures

N

—

—

—

15,850

15,850
Subordinated note purchase agreement

N

—

—

—

128,876

128,876
Total Contractual obligations



$
5,088,504

$
107,742

$
25,320

$
156,230

$
5,377,796

($ in thousands) Note
Reference Within One
Year After One
But Within
Three Years After Three
But Within
Five Years After Five
Years Total
Deposits without a stated maturity G $ 5,387,116 $ — $ — $ — $ 5,387,116
Time deposits G 971,259 73,460 22,510 8,527 1,075,756
Borrowings H 390,000 — — — 390,000
Lease obligations I 1,240 2,225 1,825 2,999 8,289
Trust preferred subordinated debentures N — — — 25,016 25,016
Subordinated note purchase agreement N — — — 98,370 98,370
Total Contractual obligations $ 6,749,615 $ 75,685 $ 24,335 $ 134,912 $ 6,984,547

Subprime Assets

The Bank does not engage in subprime lending activities targeted towards borrowers in high risk categories.

52

~~Table of Contents~~

Accounting Matters

Information on new accounting matters is set forth in Note B – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report. This information is incorporated herein by reference.

~~Impact of Inflation~~

Unlike most industrial companies, the assets and liabilities of financial institutions such as the Company are primarily monetary in nature. Therefore, interest rates have a more significant effect on the Company’s performance than do the effects of changes in the general rate of inflation and change in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. As discussed previously, management seeks to manage the relationships between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management

Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.

To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios every month. The model imports relevant information for the Company’s financial instruments and incorporates management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).

58

Table of Contents

We use seven standard interest rate scenarios in conducting our 12-month net interest income simulations: “static,” upward shocks of 100, 200, 300 and 400 basis points, and downward shocks of 100, and 200 basis points. Pursuant to policy guidelines, we typically attempt to limit the projected decline in net interest income relative to the stable rate scenario to no more than 5% for a 100-basis point (bp) interest rate shock, 10% for a 200 bp shock, 15% for a 300 bp shock, and 20% for a 400 bp shock. As of December 31, ~~2021,~~2023, the Company had the following estimated net interest income, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:

December 31, 2021

Net Interest Income at Risk – Year 1

($ in thousands)

-200 bp

-100 bp

STATIC

+100 bp

+200 bp

+300 bp

+400 bp

Net Interest Income

137,418

139,280

144,009

150,739

155,719

158,649

160,275

Dollar Change

(6,591)

(4,729)

6,730

11,710

14,640

16,266

NII @ Year 1

(4.6)
%
(3.3)
%


4.7
%
8.1
%
10.2
%
11.3
%

53


December 31, 2023	Net Interest Income at Risk – Sensitivity Year 1
($ in thousands)	-200 bp		-100 bp		STATIC	+100 bp		+200 bp		+300 bp		+400 bp
Net Interest Income	236,936		232,589		231,521	233,208		226,151		210,556		187,595
Dollar Change	5,415		1,068			1,687		(5,370)		(20,965)		(43,926)
NII @ Risk - Sensitivity Year 1	2.3	%	0.5	%		0.7	%	(2.3)	%	(9.1)	%	(19.0)	%

~~Table of Contents~~

If there were an immediate and sustained downward adjustment of 200 basis points in interest rates, all else being equal, net interest income over the next twelve months would likely be approximately ~~$6.6~~$5.4 million ~~lower~~higher than in a stable interest rate scenario, for a ~~negative~~ variance of ~~4.6%~~2.3%. The unfavorable variance increases if rates were to drop below 200 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop. This effect is exacerbated by accelerated prepayments on fixed-rate loans and mortgage-backed securities when rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures. While we view further interest rate reductions as highly unlikely, the potential percentage drop in net interest income exceeds our internal policy guidelines in declining interest rate scenarios and we will continue to monitor our interest rate risk profile and take corrective action as deemed appropriate.

Net interest income would likely ~~increase~~decrease by ~~$11.7~~$5.4 million, or ~~8.1%~~(2.3)%, if interest rates were to increase by 200 basis points relative to a stable interest rate ~~scenario, with the favorable variance expanding the higher interest rates rise.~~scenario. The initial increase in rising rate scenarios will be limited to some extent by the fact that some of our variable-rate loans are currently at rate floors, resulting in a re-pricing lag while base rates are increasing to floored levels, but we believe the Company still would benefit from a material upward shift in the yield curve.

The Company’s one-year cumulative GAP ratio was approximately 118.0% at December 31, 2023, 180.0% at December 31, 2022 and 164.5% at December 31, ~~2021, 211.7% at December 31, 2020 and 151.9% at December 31, 2019.~~2021. The Company is considered “asset-sensitive” which means that there are more assets repricing than liabilities within the first year.

In addition to the net interest income simulations shown above, we run stress scenarios modeling the possibility of no balance sheet growth, the potential runoff of ~~“surge”~~ core deposits which flowed into the Company in the most recent economic cycle, and potential unfavorable movement in deposit rates relative to yields on earning assets. Even though net interest income will naturally be lower with no balance sheet growth, the rate-driven variances projected for net interest income in a static growth environment are similar to the changes noted above for our standard projections. When a greater level of non-maturity deposit runoff is assumed or unfavorable deposit rate changes are factored into the model, projected net interest income in declining rate and flat rate scenarios does not change materially relative to standard growth projections. However, the benefit we would otherwise experience in rising rate scenarios is minimized and net interest income remains relatively flat.

The economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed. The difference between the projected fair value of the Company’s financial assets and the fair value of its financial liabilities is referred to as the economic value of equity (“EVE”), and changes in EVE under different interest rate scenarios are effectively a gauge of the Company’s longer-term exposure to interest rate risk. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at projected replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios. An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change substantially over time as the characteristics of the Company’s balance sheet evolve and interest rate and yield curve assumptions are updated.

59

Table of Contents

The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and management’s best estimates. The table below shows estimated changes in the Company’s EVE as of the periods indicated under different interest rate scenarios relative to a base case of current interest rates:

December 31, 2021 - Balance Sheet Shock

STATIC

($ in thousands)

-200 bp

-100 bp

(Base)

+100 bp

+200 bp

+300 bp

+400 bp

Market Value of Equity

818,527

1,057,506

1,243,831

1,360,616

1,436,669

1,478,980

1,492,421

Change in EVE from base

(425,304)

(186,325)

116,785

192,838

235,149

248,590

% Change

(34.2)
%
(15.0)
%

9.4
%
15.5
%
18.9
%
20.0
%
Policy Limits

(20.0)
%
(10.0)
%

(10.0)
%
(20.0)
%
(30.0)
%
(40.0)
%

54


	December 31, 2023 - Balance Sheet Shock
($ in thousands)	-200 bp		-100 bp		STATIC (Base)	+100 bp		+200 bp		+300 bp		+400 bp
Market Value of Equity	1,286,790		1,321,286		1,354,363	1,362,597		1,327,813		1,263,361		1,187,080
Change in EVE from base	(67,573)		(33,077)			8,234		(26,550)		(91,002)		(167,283)
% Change	(5.0)	%	(2.4)	%		0.6	%	(2.0)	%	(6.7)	%	(12.4)	%
Policy Limits	(20.0)	%	(10.0)	%		(10.0)	%	(20.0)	%	(30.0)	%	(40.0)	%

~~Table of Contents~~

We conducted our ~~audit~~audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the ~~audit~~audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our ~~audit~~audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our ~~audit~~audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our ~~audit provides~~audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit ~~matter~~matters communicated below ~~is a matter~~are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

The Company’s loan portfolio totaled ~~$2.97~~$5.17 billion as of December 31, ~~2021~~2023, and the allowance for credit losses on loans was ~~$30.7~~$54 million. The Company’s unfunded loan commitments totaled ~~$537~~$866 million, with an allowance for credit loss of ~~$1.1~~$2.1 million. ~~The Company’s available-for-sale securities portfolio totaled $1.8 billion as of December 31, 2021, and the allowance for credit losses on securities was $0.~~ Together these amounts represent the allowance for credit losses (“ACL”).

As more fully described in Notes B, D, E and Q to the Company’s consolidated financial statements, the Company estimates its exposure to expected credit losses as of the balance sheet date, for existing financial instruments held at amortized cost, ~~securities classified as available for sale~~ and off-balance sheet exposures, such as unfunded loan commitments, letters of credit and other financial guarantees that are not unconditionally cancellable by the Company.

61

Table of Contents

The determination of the ACL requires management to exercise significant judgment and consider numerous subjective factors, including determining qualitative factors utilized to adjust historical loss rates, loan credit risk grading and identifying loans requiring individual evaluation among others. As disclosed by management, different assumptions and conditions could result in a materially different amount for the estimate of the ACL.

We identified the ~~ACL at December 31, 2021, as well as at~~valuation of the ~~January 1, 2021 adoption date of Topic 326,~~ACL as a critical audit matter. Auditing the ACL involved a high degree of subjectivity in evaluating management’s estimates, such as evaluating ~~management’s~~management's identification of credit quality indicators, grouping of loans determined to be similar into pools, estimating the remaining life of loans in a pool, assessment of economic conditions and other environmental factors, evaluating the adequacy of specific allowances associated with individually evaluated loans and assessing the appropriateness of loan credit risk grades.

The primary procedures we performed ~~at initial adoption of Topic 326 and~~ as of December 31, ~~2021,~~2023, to address this critical audit matter included:

●

Testing the design and operating effectiveness of controls, including those related to technology, over the allowance for credit losses including data completeness and accuracy, classifications of loans by loan segment, verification of historical net loss data and calculated net loss rates, the establishment of qualitative adjustments, credit ratings and risk classification of loans and establishment of specific reserves on individually evaluated loans and management’s review and disclosure controls over the allowance for credit losses;

●

~~Testing of completeness and accuracy of the information utilized in the allowance for credit losses;~~

●

~~Testing the allowance for credit losses model’s computational accuracy;~~

●

~~Evaluating the qualitative adjustments, including assessing the basis for the adjustments and the reasonableness of the significant assumptions;~~

56

~~Table of Contents~~

THE FIRST BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, ~~2021~~2023 AND ~~2020~~

2022

($ in thousands except per share data)


	2023		2022
ASSETS
Cash and due from banks	$	224,199	$	67,176
Interest-bearing deposits with banks	130,948		78,139
Total cash and cash equivalents	355,147		145,315
Securities available-for-sale, at fair value (amortized cost: $1,164,227 in 2023; $1,418,337 in 2022; allowance for credit losses: $0 in both 2023 and 2022)	1,042,365		1,257,101
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $615,944 - 2023; $642,097 - 2022)	654,539		691,484
Other securities	37,754		33,944
Total securities	1,734,658		1,982,529
Loans held for sale	2,914		4,443
Loans, net of ACL of $54,032 in 2023 and $38,917 in 2022	5,116,010		3,735,240
Interest receivable	33,300		27,723
Premises and equipment	174,309		143,518
Operating lease right-of-use assets	6,387		7,620
Finance lease right-of-use assets	1,466		1,930
Cash surrender value of life insurance	134,249		95,571
Goodwill	272,520		180,254
Other real estate owned	8,320		4,832
Other assets	160,065		132,742
Total assets	$	7,999,345	$	6,461,717
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	1,849,013	$	1,630,203
Interest-bearing	4,613,859		3,864,201
Total deposits	6,462,872		5,494,404
Interest payable	22,702		3,324
Borrowed funds	390,000		130,100
Subordinated debentures	123,386		145,027
Operating lease liabilities	6,550		7,810
Finance lease liabilities	1,739		1,918
Allowance for credit losses on off-balance sheet credit exposures	2,075		1,325
Other liabilities	40,987		31,146
Total liabilities	7,050,311		5,815,054
Stockholders’ Equity:
Common stock, par value $1 per share: 80,000,000 shares authorized; 32,338,983 shares issued in 2023, 40,000,000 shares authorized, and 25,275,369 shares issued in 2022, respectively	32,339		25,275
Additional paid-in capital	775,232		558,833
Retained earnings	300,150		252,623
Accumulated other comprehensive (loss) income	(117,576)		(148,957)
Treasury stock, at cost (1,249,607 shares - 2023; 1,249,607 shares - 2022)	(41,111)		(41,111)
Total stockholders' equity	949,034		646,663
Total liabilities and stockholders' equity	$	7,999,345	$	6,461,717

2021

2020
ASSETS

Cash and due from banks

$
115,232

$
137,684
Interest-bearing deposits with banks

804,481

424,870
Total cash and cash equivalents

919,713

562,554
Debt securities available-for-sale securities, at fair value

1,751,832

1,022,182
Other securities

22,226

27,475
Total securities

1,774,058

1,049,657
Loans held for sale

7,678

21,432
Loans, net of ACL of $30,742 in 2021 and ALLL $35,820 in 2020 (1)

2,928,811

3,087,858
Interest receivable

23,256

26,344
Premises and equipment

125,959

114,823
Operating lease right-of-use assets

4,095

5,969
Finance lease right-of-use assets

2,394

2,658
Cash surrender value of life insurance

87,420

73,732
Goodwill

156,663

156,944
Other real estate owned

2,565

5,802
Other assets

44,802

44,987
Total assets

$
6,077,414

$
5,152,760
LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:

Non-interest-bearing

$
756,118

$
571,079
Interest-bearing

4,470,666

3,644,201
Total deposits

5,226,784

4,215,280
Interest payable

1,711

2,134
Borrowed funds

—

114,647
Subordinated debentures

144,726

144,592
Operating lease liabilities

4,192

6,031
Finance lease liabilities

2,094

2,281
Allowance for credit losses on off-balance sheet credit exposures (1)

1,070

—
Other liabilities

20,665

22,980
Total liabilities

5,401,242

4,507,945
Stockholders’ Equity:


��


Common stock, par value $1 per share: 40,000,000 shares authorized;21,668,644 shares issued in 2021, 40,000,000 shares authorized and 21,598,993 shares issued in 2020, respectively

21,669

21,599
Additional paid-in capital

459,228

456,919
Retained earnings

206,228

154,241
Accumulated other comprehensive income

7,978

25,816
Treasury stock, at cost (649,607 shares - 2021; 483,984 shares - 2020)

(18,931)

(13,760)
Total stockholders' equity

676,172

644,815
Total liabilities and stockholders' equity

$
6,077,414

$
5,152,760

~~(1)~~

~~– Beginning January 1, 2022, ACL is based on current expected credit loss methodology. Prior to January 1, 2021, ALLL was based on incurred loss methodology.~~

The accompanying notes are an integral part of these statements.

~~Table of Contents~~

~~THE FIRST BANCSHARES, INC.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021~~

~~($ In Thousands except per share amount)~~

Accumulated

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Treasury Stock


Shares

Amount

Capital

Earnings

Income (Loss)

Shares

Amount

Total
Net income, 2020

—

—

—

52,505

—

52,505
Common stock repurchased

—

—

—

—

—

(289,302)

(8,067)

(8,067)
Other comprehensive income

—

—

—

—

15,727

—

—

15,727
Dividend on common stock, $.42 per common share

—

—

—

(8,724)

—

—

—

(8,724)
Issuance of shares for SWG acquisition

2,546,967

2,547

45,311

—

—

—

—

47,858
Issuance restricted stock grant

78,189

78

(78)

—

—

—

—

—
Restricted stock grant forfeited

(7,421)

(7)

7

—

—

—

—

—
Compensation expense

—

—

2,352

—

—

—

—

2,352
Repurchase of restricted stock for payment of taxes

(15,690)

(16)

(478)

—

—

—

—

(494)
Balance, December 31, 2020

21,598,993

$
21,599

$
456,919

$
154,241

$
25,816

(483,984)

$
(13,760)

$
644,815

64

~~Table of Contents~~

~~THE FIRST BANCSHARES, INC.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021~~

~~($ In Thousands except per share amount)~~

Accumulated






Other

Additional

Comprehensive

Common Stock

Paid-in

Retained

Income

Treasury Stock

Shares

Amount

Capital

Earnings

(Loss)

Shares

Amount

Total
Net income, 2021

—

—

—

64,167

—

—

—

64,167
Common stock repurchased

—

—

—

—

—

(165,623)

(5,171)

(5,171)
Other comprehensive loss

—

—

—

—

(17,838)

—

—

(17,838)
Dividend on common stock, $.58 per common share

—

—

—

(12,180)

—

—

—

(12,180)
Issuance restricted stock grant

93,578

94

(94)

—

—

—

—

—
Restricted stock grant forfeited

(2,021)

(2)

2

—

—

—

—

—
Compensation expense

—

—

3,100

—

—

—

—

3,100
Repurchase of restricted stock for payment of taxes

(21,906)

(22)

(699)

—

—

—

—

(721)
Balance, December 31, 2021

21,668,644

$
21,669

$
459,228

$
206,228

$
7,978

(649,607)

$
(18,931)

$
676,172

See Notes to Consolidated Financial Statements

65

68

~~Table of Contents~~

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, ~~2021, 2020~~2023, 2022 AND ~~2019~~

2021


($ in thousands)	2023		2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	75,457	$	62,919	$	64,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,099		12,173		13,792
FHLB stock dividends	(355)		(28)		(27)
Provision for credit losses	14,500		5,605		(1,104)
Deferred income taxes	7,006		940		1,739
Restricted stock expense	2,302		2,425		3,100
Increase in cash value of life insurance	(3,319)		(2,101)		(1,955)
Amortization and accretion, net, related to acquisitions	(4,432)		1,706		(30)
Bank premises and equipment loss/(gain)	(35)		116		264
Acquisition gain	—		(281)		(1,300)
Securities loss (gain)	9,716		82		(143)
Loss on sale/writedown of other real estate	774		159		815
Residential loans originated and held for sale	(91,786)		(152,776)		(230,456)
Proceeds from sale of residential loans held for sale	93,315		156,011		244,210
Changes in:
Interest receivable	(1,228)		(2,987)		3,218
Other assets	16,086		(45,692)		(1,056)
Interest payable	19,378		1,613		(463)
Operating lease liability	(1,260)		(1,306)		(1,839)
Other liabilities	(39,710)		51,449		2,783
Net cash provided by operating activities	108,508		90,027		95,715

CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Sales	285,793		21,069		—
Maturities, prepayments, and calls	132,919		197,417		229,091
Purchases	(8,473)		(6,500)		(988,536)
Held-to-maturity securities:
Maturities, prepayments, and calls	40,469		474		—
Purchases	—		(602,718)		—
Purchases of other securities	(17,094)		(11,444)		—
Proceeds from redemption of other securities	14,466		1,237		5,276
Net (increase)/decrease in loans	(227,896)		(326,113)		202,194
Net changes to premises and equipment	(3,688)		(15,522)		(7,125)
Bank-owned life insurance - death proceeds	221		1,630		—
Purchase of bank owned life insurance	—		—		(11,733)
Proceeds from sale of other real estate owned	3,069		8,930		4,562
Proceeds from sale of land	1,416		712		—
Cash received in excess of cash paid for acquisition	106,793		23,939		358,916
Net cash provided by (used in) investing activities	327,995		(706,889)		(207,355)

69

($ in thousands)

2021

2020

2019
CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$
64,167

$
52,505

$
43,745
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

13,792

12,354

5,314
FHLB Stock dividends

(27)

(133)

(171)
Provision for credit losses

(1,104)

25,151

3,738
Deferred income taxes

1,739

(3,015)

912
Restricted stock expense

3,100

2,352

1,661
Increase in cash value of life insurance

(1,955)

(1,514)

(1,414)
Amortization and accretion, net, related to acquisitions

(30)

(3,945)

(1,791)
Bank premises and equipment loss/(gain)

264

(443)

(13)
Acquisition gain

(1,300)

(7,835)

—
Securities gains

(143)

(281)

(122)
Loss on sale/writedown of other real estate

815

1,352

680
Residential loans originated and held for sale

(230,456)

(318,969)

(186,132)
Proceeds from sale of residential loans held for sale

244,210

308,347

180,120
Changes in:

Interest receivable

3,218

(9,185)

(1,203)
Other assets

(1,056)

(5,313)

1,157
Interest payable

(463)

(374)

914
Operating lease liability

(1,839)

(1,545)

(898)
Other liabilities

2,783

1,676

(1,797)
Net cash provided by operating activities

95,715

51,185

44,700

CASH FLOWS FROM INVESTING ACTIVITIES






Purchases of available-for-sale securities

(988,536)

(356,755)

(180,502)
Purchases of other securities

—

(3,056)

(11,085)
Proceeds from maturities and calls of available-for-sale securities

229,091

203,670

109,189
Proceeds from sales of securities available-for-sale

—

579

32,976
Proceeds from redemption of other securities

5,276

3,407

2,712
Decrease/(increase) in loans

202,194

(131,589)

(44,102)
Net additions to premises and equipment

(7,125)

(4,398)

(7,892)
Purchase of bank owned life insurance

(11,733)

(5,683)

—
Proceeds from sale of other real estate owned

4,562

4,036

5,097
Proceeds from sale of land

—

1,416

—
Proceeds from sale of other assets

—

—

65
Cash received in excess of cash paid for acquisition

358,916

29,245

30,860
Net cash used in investing activities

(207,355)

(259,128)

(62,682)

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021


Continued:
	2023		2022		2021
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in deposits	(427,481)		(223,322)		601,575
Proceeds from borrowed funds	7,600,043		2,055,401		—
Repayment of borrowed funds	(7,340,143)		(1,950,301)		(114,647)
Dividends paid on common stock	(27,550)		(16,275)		(11,991)
Cash paid to repurchase common stock	—		(22,180)		(5,171)
Repurchase of restricted stock for payment of taxes	(361)		(683)		(721)
Principal payment on finance lease liabilities	(179)		(176)		(187)
Payment on subordinated debt issuance costs	—		—		(59)
Called/repayment of subordinated debt	(31,000)		—		—
Net cash (used in) provided by financing activities	(226,671)		(157,536)		468,799

Net change in cash and cash equivalents	209,832		(774,398)		357,159
Cash and cash equivalents at beginning of year	145,315		919,713		562,554
Cash and cash equivalents at end of year	$	355,147	$	145,315	$	919,713

Supplemental disclosures:

Cash paid during the year for:
Interest	$	51,101	$	16,932	$	16,368
Income taxes, net of refunds	16,084		7,194		15,717

Non-cash activities:
Transfers of loans to other real estate	6,602		2,560		2,143
Transfer of securities available-for-sale to held-to-maturity	—		139,598		—
Issuance of restricted stock grants	168		130		94
Stock issued in connection with BBI acquisition	—		101,469		—
Stock issued in connection with HSBI acquisition	221,522		—		—
Dividends on restricted stock grants	380		249		189
Right-of-use assets obtained in exchange for operating lease liabilities	817		2,698		168
Lease liabilities arising from BBI acquisition	—		3,390		—
Lease liabilities arising from HSBI acquisition	184		—		—

The accompanying notes are an integral part of these statements.

66

70

~~Table of Contents~~

THE FIRST BANCSHARES, INC.

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019~~

Continued:


2021

2020

2019
CASH FLOWS FROM FINANCING ACTIVITIES






Increase/(decrease) in deposits

601,575

664,413

(67,821)
Proceeds from borrowed funds

0

212,000

364,715
Repayment of borrowed funds

(114,647)

(321,172)

(258,673)
Dividends paid on common stock

(11,991)

(8,589)

(5,190)
Cash paid to repurchase common stock

(5,171)

(8,067)

(5,229)
Repurchase of restricted stock for payment of taxes

(721)

(494)

(63)
Principal payment on finance lease liabilities

(187)

(183)

0
Issuance of subordinated debt, net

0

63,725

0
Payment on subordinated debt issuance costs

(59)

0

0
Net cash provided by financing activities

468,799

601,633

27,739

Net increase in cash and cash equivalents

357,159

393,690

9,757
Cash and cash equivalents at beginning of year

562,554

168,864

159,107
Cash and cash equivalents at end of year

$
919,713

$
562,554

$
168,864

Supplemental disclosures:







Cash paid during the year for:






Interest

$
16,368

$
22,476

$
20,673
Income taxes, net of refunds

15,717

13,971

11,102

Non-cash activities:






Transfers of loans to other real estate

2,143

3,595

1,706
Issuance of restricted stock grants

94

78

89
Stock issued in connection with FPB acquisition

0

0

78,220
Stock issued in connection with FFB acquisition

0

0

55,468
Stock issued in connection with SWG acquisition

0

47,858

0
Dividends on restricted stock grants

189

135

93
Right-of-use assets obtained in exchange for operating lease liabilities

168

3,162

6,717

~~The accompanying notes are an integral part of these statements.~~

67

~~Table of Contents~~

~~THE FIRST BANCSHARES, INC.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - NATURE OF BUSINESS

The First Bancshares, Inc. (the “Company”) is a bank holding company whose business is primarily conducted by its wholly-owned subsidiary, The First Bank (the “Bank”), formerly known as The First, A National Banking Association. The Bank provides a full range of banking services in its primary market area of Mississippi, Louisiana, Alabama, Florida, and Georgia. The Company is regulated by the Federal Reserve Bank. Its subsidiary bank is currently subject to the regulation of the Federal Reserve Bank and the Mississippi Department of Banking and Consumer Finance, and was previously subject to the regulation of the ~~Office of the Comptroller of the Currency (OCC).~~

OCC.

On January 15, 2022, the Bank, then named The First, A National Banking Association, converted from a national banking association to a Mississippi state-chartered bank and changed its name to The First Bank. The First Bank is a member of the Federal Reserve System through the Federal Reserve Bank of Atlanta. The charter conversion and name change are expected to have only a minimal impact on the Bank’s clients, and deposits will continue to be insured by the Federal Deposit Insurance Corporation up to the applicable limits.

The principal products produced, and services rendered by the Company and are as follows:

Commercial Banking - The Company provides a full range of commercial banking services to corporations and other business customers. Loans are provided for a variety of general corporate purposes, including financing for commercial and industrial projects, income producing commercial real estate, owner-occupied real estate and construction and land development. The Company also provides deposit services, including checking, savings and money market accounts and certificate of deposit as well as treasury management services.

Consumer Banking - The Company provides banking services to consumers, including checking, savings, and money market accounts as well as certificate of deposit and individual retirement accounts. In addition, the Company provides consumers with installment and real estate loans and lines of credit.

Mortgage Banking - The Company provides residential mortgage banking services, including construction financing, for conventional and government insured home loans to be sold in the secondary market.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company and the Bank follow accounting principles generally accepted in the United States of America including, where applicable, general practices within the banking industry.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, acquisition accounting, intangible assets, deferred tax assets, and fair value of financial instruments. It is reasonably possible the Company’s estimate of the allowance for credit losses and determination of impairment of goodwill or intangible assets could change as a result of the continued impact of the COVID-19 pandemic on the economy. The resulting change in these estimates could be material to the Company’s consolidated financial statements.

68

~~Table of Contents~~

Debt Securities

Investments in debt securities are accounted for as follows:

71

Available-for-Sale Securities

Debt securities classified as available-for-sale ("AFS") are those securities that are intended to be held for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including movements in interest rates, liquidity needs, security risk assessments, changes in the mix of assets and liabilities and other similar factors. These securities are carried at their estimated fair value, and the net unrealized gain or loss is reported ~~net of tax,~~ as component of accumulated other comprehensive income (loss), net of tax, in stockholders’ equity, until realized. Premiums and discounts are recognized in interest income using the interest method. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. Gains and losses on the sale of available-for-sale securities are determined using the adjusted cost of the specific security sold.

AFS securities are placed on nonaccrual status at the time any principal to interest payments become 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to AFS securities reversed against interest income for the years ended December 31, 2023, 2022, and 2021.

Allowance for Credit Losses – Available-for-Sale Securities

~~On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2016-13,~~ ~~Financial Instruments - Credit Losses (“~~~~ASC 326~~~~”),~~ ~~which introduces guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities (“AFS”).~~

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable is excluded from the estimate of credit losses for securities AFS.

Securities to be Held-to-Maturity

Debt securities classified as held-to-maturity ("HTM") are those securities for which there is a positive intent and ability to hold to maturity. These securities are carried at cost adjusted for amortization of premiums and accretion of discounts, computed by the interest method. Gain and losses on the sales are determined using the adjusted cost of the specific security sold. HTM securities are placed on nonaccrual status at the time any principal to interest payments become 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There ~~were~~was no ~~held-to-maturity~~accrued interest related to HTM securities atreversed against interest income for the years ended December 31, ~~2021~~2023, 2022, and ~~2020.~~

2021.

Allowance for Credit Losses – Held-to-Maturity Securities

Management measures expected credit losses on HTM debt securities on a pooled basis. That is, for pools of such securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities.

Expected credit losses on each security in the HTM portfolio that does not share common risk characteristics with any of the identified pools of debt securities are individually measured based on net realizable value, of the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the security.

72

Loss forecasts for HTM debt securities utilize Moody's municipal and corporate database, based on a scenario-conditioned probability of default and loss rate platform. The core of the stressed default probabilities and loss rates is based on the methodological relationship between key macroeconomic risk factors and historical defaults over nearly 50 years. Loss forecasts for structured HTM securities utilize VeriBanc's Estimated CAMELS Rating and the Modified Texas Ratio for each piece of underlying collateral and are applied to Intex models for the underlying assets cashflow resulting in collateral cashflow forecasts. These securities are assumed not to share similar risk characteristics due to the heterogeneous nature of the underlying collateral. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized during the years ended December 31, 2023 and 2022.

Accrued interest receivable is excluded from the estimate of credit losses for securities HTM.

Trading Account Securities

Trading account securities are those securities which are held for the purpose of selling them at a profit. There were 0no trading account securities at December 31, ~~2021~~2023 and ~~2020.~~

2022.

Equity Securities

Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. There were 0no equity securities at December 31, ~~2021~~2023 and ~~2020.~~

2022.

69

~~Table of Contents~~

Other Securities

Other securities are carried at cost and are restricted in marketability. Other securities consist of investments in the FHLB, Federal Reserve Bank and First National Bankers’ Bankshares, Inc. Management reviews for impairment based on the ultimate recoverability of the cost basis.

Shares of FHLB, Federal Reserve Bank and First National Bankers’ Bankshares, Inc. common stock are equity securities that do not have a readily determinable fair value because their ownership is restricted and lacks marketability. The common stock is carried at cost and evaluated for impairment. The Company’s investment in member bank stock is included in other securities in the accompanying consolidated balance sheets. Management reviews for impairment based on the ultimate recoverability of the cost basis. ~~NaN other-than-temporary~~No impairment was noted for the years ended December 31, ~~2021, 2020~~2023, 2022 and ~~2019.~~

2021.

Interest Income

Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time any principal or interest payments become ~~ninety~~90 days past due. Interest accrued but not received for a security placed in nonaccrual is reversed against interest income.

Loans ~~held~~Held for ~~sale~~

Sale (LHFS)

The Bank originates fixed rate single family, residential first mortgage loans on a presold basis. The Bank issues a rate lock commitment to a customer and concurrently “locks in” with a secondary market investor under a best efforts delivery mechanism. Such loans are sold without the mortgage servicing rights being retained by the Bank. The terms of the loan are dictated by the secondary investors and are transferred within several weeks of the Bank initially funding the loan. The Bank recognizes certain origination fees and service release fees upon the sale, which are included in other income on loans in the consolidated statements of income. Between the initial funding of the loans by the Bank and the subsequent purchase by the investor, the Bank carries the loans held for sale at ~~the lower of cost or~~ fair value in the aggregate as determined by the outstanding commitments from investors.

73

Loans Held for Investment (LHFI)

LHFI that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at the principal amount outstanding, net of the allowance for credit losses, unearned income, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income on loans is recognized based on the principal balance outstanding and the stated rate of the loan and is excluded from the estimate of credit losses. Interest income is accrued in the unpaid principal balance. Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment of the related loan yield using the interest method. Premiums and discounts on purchased loans not deemed purchase credit ~~impaired~~deteriorated are deferred and amortized as a level yield adjustment over the respective term of the loan.

~~The new standard under CECL removes the notion of impairment as previously defined under~~

Under ASC ~~310-10-35 and replaces it with less prescriptive guidance under ASC 326-20-30-2. If~~326-20-30-2, if the Bank determines that a loan does not share risk characteristics with its other financial assets, the Bank shall evaluate the financial asset for expected credit losses on an individual basis. Factors considered by management in determining impairment include payment status, collateral values, and the probability of collecting scheduled payments of principal and interest when due. Generally, impairment is measured on a loan by loan basis using the fair value of the supporting collateral.

70

~~Table of Contents~~

Loans are generally placed on a nonaccrual status, and the accrual of interest on such loan is discontinued, when principal or interest is past due ~~ninety~~90 days or when specifically determined to be impaired unless the loan is well-secured and in the process of collection. When a loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income. If collectability is in doubt, cash receipts on nonaccrual loans are used to reduce principal rather than recorded in interest income. Past due status is determined based upon contractual terms. Loans are returned to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Allowance for Credit Losses (ACL)

The ACL represents the estimated losses for financial assets accounted for on an amortized cost basis. Expected losses are calculated using relevant information, from internal and external sources, about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Expected losses are estimated over the contractual term of the loans, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals, and modifications. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed and recoveries are credited to the allowance when received. Expected recoveries amounts may not exceed the aggregate of amounts previously charged-off.

The ACL is measured on a collective basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call code (segments). Segmenting loans by call code will group loans that contain similar types of collateral, purposes, and are usually structured with similar terms making each loan’s risk profile very similar to the rest in that segment. Each of these segments then flows up into one of the four bands (bands), Commercial, Financial, and Agriculture, Commercial Real Estate, Consumer Real Estate, and Consumer Installment. In accordance with the guidance in ASC 326, the Company redefined its LHFI portfolio segments and related loan classes based on the level at which risk is monitored within the ACL methodology. Construction loans for 1-4 family residential properties with a call code 1A1, and other construction, all land development and other land loans with a call code 1A2 were previously separated between the Commercial Real Estate or Consumer Real Estate bands based on loan type code. Under our ASC 326 methodology 1A1 loans are all defined as part of the Consumer Real Estate band and 1A2 loans are all defined as part of the Commercial Real Estate Band.

74

The probability of default (“PD”) calculation analyzes the historical loan portfolio over the given lookback period to identify, by segment, loans that have defaulted. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. The model observes loans over a 12-month window, detecting any events previously defined. This information is then used by the model to calculate annual iterative count-based PD rates for each segment. This process is then repeated for all dates within the historical data range. These averaged ~~PD’s~~PDs are used for an immediate reversion back to the historical mean. The historical data used to calculate this input was captured by the Company from 2009 through the most recent quarter end.

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model’s calculation also includes a 24-month forecasted PD based on a regression model that calculated a comparison of the Company’s historical loan data to various national economic metrics during the same periods. The results showed the Company’s past losses having a high rate of correlation to unemployment, both regionally and nationally. Using this information, along with the most recently published Wall Street Journal survey of sixty economists’ forecasts predicting unemployment rates out over the next eight quarters, a corresponding future PD can be calculated for the forward-looking 24-month period. This data can also be used to predict loan losses at different levels of stress, including a baseline, adverse and severely adverse economic condition. After the forecast period, PD rates revert to the historical mean of the entire data set.

71

~~Table of Contents~~

The loss given default (“LGD”) calculation is based on actual losses (charge-offs, net recoveries) at a loan level experienced over the entire lookback period aggregated to get a total for each segment of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. Defaults occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event. If there is not a minimum of five past defaults in a loan segment, or less than 15.0% calculated LGD rate, or the total balance at default is less than 1% of the balance in the respective call code as of the model run date, a proxy index is used. This index is proprietary to the Company’s ACL modeling vendor derived from loss data of other client institutions similar in organization structure to the Company. The vendor also provides a “crisis” index derived from loss data between the post-recessionary years of 2008-2013 that the Company uses.

The model then uses these inputs in a non-discounted version of discounted cash flow (“DCF”) methodology to calculate the quantitative portion of estimated losses. The model creates loan level amortization schedules that detail out the expected monthly payments for a loan including estimated prepayments and payoffs. These expected cash flows are discounted back to present value using the loan’s coupon rate instead of the effective interest rate. On a quarterly basis, the Company uses internal credit portfolio data, such as changes in portfolio volume and composition, underwriting practices, and levels of past due loans, nonaccruals and classified assets along with other external information not used in the quantitative calculation to determine if any subjective qualitative adjustments are required so that all significant risks are incorporated to form a sufficient basis to estimate credit losses.

ASC 326 requires that a loan be evaluated for losses individually and reserved for separately, if the loan does not share similar risk characteristics to any other loan segments. The Company’s process for determining which loans require specific evaluation follows the standard and is two-fold. All non-performing loans, including nonaccrual loans and loans considered to be ~~TDRs or~~ purchased credit deteriorated (“PCD”), are evaluated to determine if they meet the definition of collateral dependent under the new standard. These are loans where no more payments are expected from the borrower, and foreclosure or some other collection action is probable. Secondly, all non-performing loans that are not considered to be collateral dependent but are 90 days or greater past due and/or have a balance of $500 thousand or greater, will be individually reviewed to determine if the loan displays similar risk characteristic to substandard loans in the related segment.

The Company adopted ASU No. 2022-02 effective January 1, 2023. These amendments eliminate the TDR recognition and measurement guidance and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

Prior to the adoption of ASU 2022-02, TDRs are loans for which the contractual terms on the loan have been modified and both of the following conditions exist: (1) the borrower is experiencing financial difficulty and (2) the restructuring constitutes a concession. Concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The Company assesses all loan modifications to determine whether they constitute a TDR.

75

Purchased Credit Deteriorated Loans

The Company purchases individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These PCD loans are recorded at the amount paid. It is the Company’s policy that a loan meets this definition if it is adversely risk rated as Non-Pass (Special Mention, Substandard, Doubtful or Loss) including ~~nonaccrual as well as loans identified as TDR’s.~~nonaccrual. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

~~Upon adoption of ASC 326, the~~

The Company ~~elected~~continues to maintain segments of loans that were previously accounted for under ASC 310-30 Accounting for Purchased Loans with Deteriorated Credit Qualityand will continue to account for these segments as a unit of account unless the loan is collateral dependent. PCD loans that are collateral dependent will be assessed individually. Loans are only removed from the existing segments if they are written off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for each segment and added to the band’s carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the segment and the new amortized cost basis is the noncredit premium or discount, which will be amortized into interest income over the remaining life of the segment. Changes to the allowance for credit losses after adoption are recorded through provision expense.

72

~~Table of Contents~~

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. The depreciation policy is to provide for depreciation over the estimated useful lives of the assets using the straight-line method. Repairs and maintenance expenditures are charged to operating expenses; major expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon retirement, sale, or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts, and any gains or losses are included in operations. Building and related components are depreciated using the straight-line method with useful lives ranging from 10 to 39 years. Furniture, fixtures, and equipment are depreciated using the straight-line (or accelerated) method with useful lives ranging from 3 to 10 years.

Other Real Estate Owned

Other real estate owned consists of properties acquired through foreclosure and as held for sale property, are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operation costs after acquisition are expensed. Any write-down to fair value required at the time of foreclosure is charged to the allowance for ~~loan~~credit losses. Subsequent gains or losses on other real estate are reported in other operating income or expenses. At December 31, ~~2021~~2023 and ~~2020,~~2022, other real estate owned totaled ~~$2.6~~$8.3 million and ~~$5.8~~$4.8 million, respectively.

Goodwill and Other Intangible Assets

Goodwill arises from business combinations and is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of any net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company will perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. The goodwill impairment loss, if any, is measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeds its fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. The Commercial/Retail Bank segment of the Company is the only reporting unit for

76

which the goodwill analysis is prepared. Intangible assets with a finite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible assets with an indefinite life on our balance sheet.

The change in goodwill during the year is as ~~follows ($ in thousands):~~

2021

2020

2019
Beginning of year

$
156,944

$
158,572

$
89,750
Acquired goodwill

(281)

(1,628)

68,822
End of year

$
156,663

$
156,944

$
158,572

follows:


($ in thousands)	2023		2022		2021
Beginning of year	$	180,254	$	156,663	$	156,944
Acquired goodwill and provisional adjustments	92,266		23,591		(281)
End of year	$	272,520	$	180,254	$	156,663

Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank and branch acquisitions and are amortized on a straight-line basis over a 10-year average life. Such assets are periodically evaluated as to the recoverability of carrying values. The definite-lived intangible assets had the following carrying values at December 31, ~~2021~~2023 and ~~2020:~~

2022:

73


($ in thousands)
2023	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core deposit intangibles	$	99,071	$	(30,259)	$	68,812

2022
Core deposit intangibles	$	55,332	$	(20,696)	$	34,636

~~Table of Contents~~

($ in thousands)

Gross

Net

Carrying

Accumulated

Carrying
2021

Amount

Amortization

Amount
Core deposit intangibles

$
45,541

$
(16,032)

$
29,509

2020






Core deposit intangibles

$
42,651

$
(11,895)

$
30,756

The related amortization expense of business combination related intangible assets is as follows:

($ in thousands)

Amount
Aggregate amortization expense for the year ended December 31:

2019

$
3,216
2020

4,093
2021

4,137

Amount
Estimated amortization expense for the year ending December 31:

2022

$
4,256
2023

4,210
2024

4,180
2025

4,165
2026

4,165
Thereafter

8,533

$
29,509


($ in thousands)	Amount
Aggregate amortization expense for the year ended December 31:
2021	$	4,137
2022	4,664
2023	9,563


	Amount
Estimated amortization expense for the year ending December 31:
2024	$	9,533
2025	9,518
2026	9,518
2027	9,185
2028	8,193
Thereafter	22,865
Total amortization expense	$	68,812

Cash Surrender Value of Life Insurance

The Company invests in bank owned life insurance (“BOLI”). BOLI involves the purchase of life insurance by the Company on a chosen group of employees. The Company is the owner of the policies and, accordingly, the cash surrender value of the policies is reported as an asset, and increases in cash surrender values are reported as income.

Deferred Financing Costs

Financing costs related to the issuance of junior subordinated debentures are being amortized over the life of the instruments and are included in other liabilities.

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Restricted Stock

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation. Compensation cost is recognized for all restricted stock granted based on the weighted average fair value stock price at the grant date.

Treasury Stock

Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the first-in, first-out method.

Income Taxes

The Company and its subsidiary file consolidated income tax returns. The subsidiary provides for income taxes on a separate return basis and remits to the Company amounts determined to be payable.

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~~Table of Contents~~

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes related primarily to differences between the bases of assets and liabilities as measured by income tax laws and their bases as reported in the financial statements. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.

ASC Topic 740, Income Taxes, provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. ASC Topic 740 requires an evaluation of tax positions to determine if the tax positions will more likely than not be sustainable upon examination by the appropriate taxing authority. The Company, at December 31, ~~2021~~2023 and ~~2020,~~2022, had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

Advertising Costs

Advertising costs are expensed in the period in which they are incurred. Advertising expense for the years ended December 31, 2023, 2022 and 2021, ~~2020~~was $833 thousand, $393 thousand, and ~~2019, was~~ $391 thousand, ~~$333 thousand, and $648 thousand,~~ respectively.

Statements of Cash Flows

Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days, ~~and~~ federal funds ~~sold.~~sold, and collateral identified as "restricted cash" related to the Company's back-to-back SWAP transactions. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased and repurchase agreements.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the subsidiary bank enters into off-balance sheet financial instruments consisting of commitments to extend credit, credit card lines and standby letters of credit. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded in the financial statements when they are funded.

ACL on Off-Balance Sheet Credit (OBSC) Exposures

Under ASC 326, the Company is required to estimate expected credit losses for OBSC which are not unconditionally cancellable. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected credit losses related to OBSC exposures are presented as a liability.

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Earnings Available to Common Stockholders

Per share amounts are presented in accordance with ASC Topic 260, Earnings Per Share. Under ASC Topic 260, two per share amounts are considered and presented, if applicable. Basic per share data is calculated based on the weighted-average number of common shares outstanding during the reporting period. Diluted per share data includes any dilution from securities that may be converted into common stock, such as outstanding restricted stock. There were no anti-dilutive common stock equivalents excluded in the calculations.

75

~~Table of Contents~~

The following tables disclose the reconciliation of the numerators and denominators of the basic and diluted computations available to common ~~stockholders ($ in thousands, except per share amount):~~

Net

Weighted Average


Income

Shares

Per Share
December 31, 2021

(Numerator)

(Denominator)

Amount
Basic per common share

$
64,167

21,017,189

$
3.05
Effect of dilutive shares:

Restricted Stock

—

149,520

$
64,167

21,166,709

$
3.03

December 31, 2020

Basic per common share

$
52,505

20,718,544

$
2.53
Effect of dilutive shares:

Restricted Stock

—

104,106

$
52,505

20,822,650

$
2.52

December 31, 2019

Basic per common share

$
43,745

17,050,095

$
2.57
Effect of dilutive shares:

Restricted Stock

—

133,990

$
43,745

17,184,085

$
2.55

stockholders.


($ in thousands, except per share amount)
December 31, 2023	Net Income (Numerator)		Weighted Average Shares (Denominator)	Per Share Amount
Basic per common share	$	75,457	31,373,718	$	2.41
Effect of dilutive shares:
Restricted Stock	—		192,073
	$	75,457	31,565,791	$	2.39

December 31, 2022
Basic per common share	$	62,919	22,023,595	$	2.86
Effect of dilutive shares:
Restricted Stock	—		141,930
	$	62,919	22,165,525	$	2.84

December 31, 2021
Basic per common share	$	64,167	21,017,189	$	3.05
Effect of dilutive shares:
Restricted Stock	—		149,520
	$	64,167	21,166,709	$	3.03

The diluted per share amounts were computed by applying the treasury stock method.

Mergers and Acquisitions

Business combinations are accounted for under ASC 805, “Business Combinations”, using the acquisition method of accounting. The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. To determine the fair values, the Company relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. Under the acquisition method of accounting, the Company identifies the acquirer and the closing date and applies applicable recognition principles and conditions. Acquisition-related costs are costs the Company incurs to ~~effect~~affect a business combination. Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Some other examples of costs to the Company include systems conversion, integration planning consultants and advertising costs. The Company accounts for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities is recognized in accordance with other applicable GAAP. These acquisition-related costs have been and will be included within the Consolidated Statements of Income classified within the non-interest expense caption.

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Derivative Financial Instruments

The Company enters into interest rate swap agreements primarily to facilitate the risk management strategies of certain commercial customers. The interest rate swap agreements entered into by the Company are all entered into under what is referred to as a back-to-back interest rate swap, as such, the net positions are offsetting assets and liabilities, as well as income and expenses. All derivative instruments are recorded in the consolidated statement of financial condition at their respective fair values, as components of other assets and other liabilities. Under a back-to-back interest rate swap program, the Company enters into an interest rate swap with the customer and another offsetting swap with a counterparty. The result is two mirrored interest rate swaps, absent a credit event, which will offset in the financial statements. These swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. The change in fair value is recognized in the income statement as other income and fees.

In addition, the Company will enter into risk participation agreements that are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting period. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other bank.

Entering into derivative contracts potentially exposes the Company to the risk of counterparties' failure to fulfill their legal obligations, including, but not limited to, potential amounts due or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. The Company assesses the credit risk of its dealer counterparties by regularly monitoring publicly available credit rating information, evaluating other market indicators, and periodically reviewing detailed financials.

The Company records the fair value of its interest rate swap contracts separately within other assets and other liabilities as current accounting rules do not permit the netting of customer and counterparty fair value amounts in the consolidated statement of financial condition.

Investment in Limited Partnership

The Company invested $4.4 million in a limited partnership that provides low-income housing. The Company is not the general partner and does not have controlling ownership. The carrying value of the Company’s investment in the limited partnership was ~~$2.1~~$1.2 million at December 31, ~~2021~~2023 and ~~$2.5~~$1.6 million at December 31, ~~2020,~~2022, net of amortization, using the proportional method and is reported in other assets on the Consolidated Balance Sheets. The Company’s maximum exposure to loss is limited to the carrying value of its investment. The Company received $481 thousand in low-income housing tax credits during ~~2021, 2020~~2023, 2022 and ~~2019.~~

2021.

Reclassifications

Certain reclassifications have been made to the ~~2020~~2022 and ~~2019~~2021 financial statements to conform with the classifications used in ~~2021.~~2023. These reclassifications did not impact the Company’s consolidated financial condition or results of operations.

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~~Table of Contents~~

Accounting Standards

Effect of Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) ~~2016-13,~~ No. 2020-04, Reference Rate Reform (ASC 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offer Rate ("LIBOR") or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The Company adopted ASU 2020-04 effective January 1, 2023. Adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.

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In October 2021, the FASB issued ASU No. 2021-08, Business Combination (Topic 805): “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendment improves comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The Company adopted ASU 2021-08 effective January 1, 2023. Adoption of ASU 2021-08 did not have a material impact on the Company's consolidated financial statements.
In March 2022, FASB issued ASU No. 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” These amendments eliminate the TDR recognition and measurement guidance and instead require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The Company adopted ASU 2022-02 effective January 1, 2023. Adoption of ASU 2022-02 did not have a material impact on the Company's consolidated financial statements.
In July 2023, FASB issued ASU No. 2023-03, "Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraph Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock." This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were effective immediately and did not have a material impact on the Company's consolidated financial statements.
New Accounting Standards That Have Not Yet Been Adopted
In March 2023, FASB issued ASU No. 2023-01, Leases (Topic 842) - "Common Control Arrangements." This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party. The ASU requires all entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. This guidance is effective for the Company January 1, 2024, and is not expected to have a material impact on the Company's consolidated financial statements.
In March 2023, FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Venture (Topic 323): "Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for the Company January 1, 2024, and is not expected to have a material impact on the Company's consolidated financial statements.
In October 2023, FASB issued ASU No. 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative." This ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-K becomes effective, with early adoption prohibited. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
In November 2023, FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This ASU amends the ASC to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments: 1. Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss. 2. Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the
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significant expenses disclosed and each reported measure of segment profit or loss. 3. Require that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by FASB ASU Topic 280, Segment Reporting, in interim periods. 4. Clarify that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity's consolidated financial statements. 5. Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. 6. Require that a public entity has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
In December 2023, FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This ASU amendments require that a public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: 1. The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes. 2. The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: 1. Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign. 2. Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
NOTE C - BUSINESS COMBINATIONS
The Company accounts for its business combinations using the acquisition method. Acquisition accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the acquisition method. Core deposit intangibles and other identified intangibles with finite useful lives are amortized using the straight-line method over their estimated useful lives of up to 10 years.
Financial assets acquired in a business combination after January 1, 2021, are recorded in accordance with ASC 326. Loans that the Company acquires in connection with acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. PCD loans that have experienced more than insignificant credit deterioration since origination are recorded at the amount paid. The ACL is determined on a collective basis and is allocated to the individual loans. The sum of the loan’s purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Non-PCD loans are acquired that have experienced no or insignificant deterioration in credit quality since origination. The difference between the fair value and outstanding balance of the non-PCD loans is recognized as an adjustment to interest income over the lives of the loan.
Acquisitions
Heritage Southeast Bank
On January 1, 2023, the Company completed its acquisition of HSBI, pursuant to an Agreement and Plan of Merger dated July 27, 2022, by and between the Company and HSBI (the "HSBI Merger Agreement"). Upon the completion of the merger of HSBI with and into the Company, Heritage Bank, HSBI's wholly-owned subsidiary, was merged with and into The First Bank. Under the terms of the HSBI Merger Agreement, each share of HSBI common stock was converted into the right to receive 0.965 of share of Company common stock. The Company paid a total consideration of $221.5 million to the former HSBI shareholders as consideration in the acquisition, which included 6,920,422 shares of the Company's common stock, and $16 thousand in cash in lieu of fractional shares. The HSBI acquisition provided the opportunity for the Company to expand its operations in Georgia and the Florida panhandle.
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In connection with the acquisition of HSBI, the Company recorded approximately $91.9 million of goodwill, of which $3.2 million funded the ACL for estimated losses on the acquired PCD loans, and $43.7 million core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.
Expenses associated with the HSBI acquisition were $388 thousand and $4.9 million for the three months and twelve months period ended December 31, 2023, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the goodwill generated from the transaction on January 1, 2023, along with valuation adjustments that have been made since initially reported.
($ in thousands) As Initially
Reported Measurement
Period
Adjustments As Adjusted
Identifiable assets:
Cash and due from banks $ 106,973 $ (180) $ 106,793
Investments 172,775 — 172,775
Loans 1,155,712 — 1,155,712
Core deposit intangible 43,739 — 43,739
Personal and real property 35,963 — 35,963
Other real estate owned 857 332 1,189
Bank owned life insurance 35,579 — 35,579
Deferred taxes 6,761 (632) 6,129
Interest receivable 4,349 — 4,349
Other assets 3,103 — 3,103
Total assets 1,565,811 (480) 1,565,331
Liabilities and equity:
Deposits 1,392,432 — 1,392,432
Trust Preferred 9,015 — 9,015
Other liabilities 34,271 — 34,271
Total liabilities 1,435,718 — 1,435,718
Net assets acquired 130,093 (480) 129,613
Consideration paid 221,538 — 221,538
Goodwill $ 91,445 $ 480 $ 91,925
During the fourth quarter of 2023, the Company finalized its analysis and valuation adjustments have been made to cash and due from banks, other real estate owned, and deferred taxes since initially reported.
Beach Bancorp, Inc.
On August 1, 2022, the Company completed its acquisition of BBI, pursuant to an Agreement and Plan of Merger dated April 26, 2022 by and between the Company and BBI (the "BBI Merger Agreement"). Upon the completion of the merger of BBI with and into the Company, Beach Bank, BBI's wholly-owned subsidiary, was merged with and into The First Bank. Under the terms of the BBI Merger Agreement, each share of BBI common stock and each share of BBI preferred stock was converted into the right to receive 0.1711 of a share of Company common stock (the "BBI Exchange Ratio"), and all stock options awarded under the BBI equity plans were converted automatically into an option to purchase shares of Company common stock on the same terms and conditions as applicable to each such BBI option as in effect immediately prior to the effective time, with the number of shares underlying each such option and the applicable exercise price adjusted based on the BBI Exchange Ratio. The BBI merger provides the opportunity for the Company to expand its operations in the Florida panhandle and enter the Tampa market. The Company paid consideration of approximately $101.5 million to the former BBI shareholders including 3,498,936 shares of the Company's common stock and
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approximately $1 thousand in cash in lieu of fractional shares, and also assumed options entitling the owners thereof to purchase an additional 310,427 shares of the Company's common stock.
In connection with the acquisition of BBI, the Company recorded approximately $23.7 million of goodwill and $9.8 million core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years. The Company also incurred $1.3 million of provision for credit losses on credit marks from the loans acquired from Beach Bank.
Expenses associated with the BBI acquisition were $4.0 thousand and $1.4 million for the three months and twelve months period ended December 31, 2023, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the goodwill generated from the transaction on August 1, 2022, along with valuation adjustments that have been made since initially reported.
($ in thousands) As Initially Reported Measurement Period Adjustments As Adjusted
Purchase price:
Cash and stock $ 101,470 $ — $ 101,470
Total purchase price 101,470 — 101,470
Identifiable assets:
Cash $ 23,939 $ — $ 23,939
Investments 22,907 (264) 22,643
Loans 482,903 2,268 485,171
Other real estate 8,797 (580) 8,217
Bank owned life insurance 10,092 — 10,092
Core deposit intangible 9,791 — 9,791
Personal and real property 13,825 (1,868) 11,957
Deferred tax asset 28,105 (970) 27,135
Other assets 9,649 (414) 9,235
Total assets 610,008 (1,828) 608,180
Liabilities and equity:
Deposits 490,588 3 490,591
Borrowings 25,000 — 25,000
Other liabilities 14,772 — 14,772
Total liabilities 530,360 3 530,363
Net assets acquired 79,648 (1,831) 77,817
Goodwill $ 21,822 $ 1,831 $ 23,653
During the third quarter of 2023, the Company finalized its analysis and valuation adjustments that were made to investments, loans, other real estate, personal and real property, deferred tax asset, other assets, and deposits.
Cadence Bank Branches
On December 03, 2021, The First completed its acquisition of seven Cadence Bank, N.A. (“Cadence”) branches in Northeast Mississippi (the “Cadence Branches”). In connection with the acquisition of the Cadence Branches, The First assumed $410.2 million in deposits, acquired $40.3 million in loans at fair value, acquired certain assets associated with the Cadence Branches at their book value, and paid a deposit premium of $1.0 million to Cadence. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.
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In connection with the acquisition of the Cadence Branches, the Company recorded a $1.6 million bargain purchase gain and $2.9 million core deposit intangible. The bargain purchase gain was generated as a result of the estimated fair value of net assets acquired exceeding the merger consideration, based on provisional fair values. The bargain purchase gain is considered non-taxable for income taxes purposes. The core deposit intangible will be amortized to expense over 10 years.
Expenses associated with the branch acquisition of the Cadence Branches were $81 thousand and $189 thousand for the three months and twelve months period ended December 31, 2023. These costs included charges associated with due diligence as well as legal and consulting expenses, which have been expensed as incurred. The Company also incurred $370 thousand of provision for credit losses on credit marks from the loans acquired.
The following table summarizes the provisional fair values of the assets acquired and liabilities assumed and the goodwill (bargain purchase gain) generated from the transaction:
($ in thousands) As Initially
Reported Measurement
Period
Adjustments As Adjusted
Identifiable assets:
Cash and due from banks $ 359,916 $ — $ 359,916
Loans 40,262 — 40,262
Core deposit intangible 2,890 — 2,890
Personal and real property 9,675 — 9,675
Other assets 135 — 135
Total assets 412,878 — 412,878
Liabilities and equity:
Deposits 410,171 — 410,171
Other liabilities 407 (281) 126
Total liabilities 410,578 (281) 410,297
Net assets acquired 2,300 281 2,581
Consideration paid 1,000 — 1,000
Bargain purchase gain $ (1,300) $ (281) $ (1,581)
During the fourth quarter of 2022, the Company finalized its analysis and valuation adjustments were made to other liabilities since initially reported.
Supplemental Pro Forma Information
The following table presents certain supplemental pro forma information, for illustrative purposes only, for the years December 31, 2023 and 2022 as if the BBI and HSBI acquisitions had occurred on January 1, 2022. The pro forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of this date.
($ in thousands)
Pro Forma for the Year Ended
December 31,
2023 2022
(unaudited) (unaudited)
Net interest income $ 249,325 $ 248,639
Non-interest income 46,705 58,645
Total revenue 296,030 307,284
Income before income taxes 105,879 118,465
Supplemental pro-forma earnings were adjusted to exclude acquisition costs incurred.
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NOTE D - SECURITIES
The following table summarizes the amortized cost, gross unrealized gains, and losses, and estimated fair values of AFS securities and securities HTM at December 31, 2023 and 2022:
($ in thousands) December 31, 2023
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Available-for-sale:
U.S. Treasury $ 16,985 $ — $ 310 $ 16,675
Obligations of U.S. government agencies and sponsored entities 119,868 1 14,946 104,923
Tax-exempt and taxable obligations of states and municipal subdivisions 486,293 449 48,276 438,466
Mortgage-backed securities - residential 297,735 11 34,430 263,316
Mortgage-backed securities - commercial 198,944 76 20,675 178,345
Corporate obligations 41,347 — 3,750 37,597
Other 3,055 — 12 3,043
Total available-for-sale $ 1,164,227 $ 537 $ 122,399 $ 1,042,365
Held-to-maturity:
U.S. Treasury $ 89,688 $ — $ 2,804 $ 86,884
Obligations of U.S. government agencies and sponsored entities 33,659 — 1,803 31,856
Tax-exempt and taxable obligations of states and municipal subdivisions 246,908 9,566 14,697 241,777
Mortgage-backed securities - residential 141,573 — 14,237 127,336
Mortgage-backed securities - commercial 132,711 — 12,334 120,377
Corporate obligations 10,000 — 2,286 7,714
Total held-to-maturity $ 654,539 $ 9,566 $ 48,161 $ 615,944
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($ in thousands) December 31, 2022
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Available-for-sale:
U.S. Treasury $ 135,752 $ — $ 11,898 $ 123,854
Obligations of U.S. government agencies and sponsored entities 163,054 3 18,688 144,369
Tax-exempt and taxable obligations of states and municipal subdivisions 519,190 598 61,931 457,857
Mortgage-backed securities - residential 341,272 11 42,041 299,242
Mortgage-backed securities - commercial 215,200 60 24,363 190,897
Corporate obligations 43,869 — 2,987 40,882
Total available-for-sale $ 1,418,337 $ 672 $ 161,908 $ 1,257,101
Held-to-maturity:
U.S. Treasury $ 109,631 $ — $ 5,175 $ 104,456
Obligations of U.S. government agencies and sponsored entities 33,789 — 2,153 31,636
Tax-exempt and taxable obligations of states and municipal subdivisions 247,467 4,525 13,699 238,293
Mortgage-backed securities - residential 156,119 — 17,479 138,640
Mortgage-backed securities - commercial 134,478 7 13,798 120,687
Corporate obligations 10,000 — 1,615 8,385
Total held-to-maturity $ 691,484 $ 4,532 $ 53,919 $ 642,097
The Company reassessed classification of certain investments and effective October 2022, the Company transferred $863 thousand of obligations of U.S. government agencies and sponsored entities, $1.2 million of mortgage -backed securities - commercial, and $137.5 million of tax-exempt and taxable obligations of states and municipal subdivisions from AFS to HTM securities. The securities were transferred at their amortized costs basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income. The related unrealized loss of $36.8 million included in other comprehensive income remained in other comprehensive income, to be amortized out of other comprehensive income with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. There was no allowance for credit loss associated with the AFS securities that were transferred to HTM.
ACL on Securities
Securities Available-for-Sale
Quarterly, the Company evaluates if a security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, the Company performs further analysis as outlined below:
•Review the extent to which the fair value is less than the amortized cost and determine if the decline is indicative of credit loss or other factors.
•The securities that violate the credit loss trigger above would be subjected to additional analysis.
•If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using the DCF analysis using the effective interest rate. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value. The allowance for the calculated credit loss will be monitored going forward for further credit deterioration or improvement.
87

At December 31, 2023 and 2022, the results of the analysis did not identify any securities where the decline was indicative of credit loss factors; therefore, no DCF analysis was performed, and no credit loss was recognized on any of the securities AFS.
Accrued interest receivable is excluded from the estimate of credit losses for securities AFS. Accrued interest receivable totaled $5.2 million and $6.2 million at December 31, 2023 and 2022, respectively and was reported in interest receivable on the accompanying Consolidated Balance Sheet.
All AFS securities were current with no securities past due or on nonaccrual as of December 31, 2023.
Securities Held to Maturity
At December 31, 2023, the potential credit loss exposure totaled $205 thousand and $242 thousand at December 31, 2023 and 2022, respectively and consisted of tax-exempt and taxable obligations of states and municipal subdivisions and corporate obligations securities. After applying appropriate probability of default (“PD”) and loss given default (“LGD”) assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded for the years ended December 31, 2023 and 2022.
Accrued interest receivable is excluded from the estimate of credit losses for securities held-to-maturity. Accrued interest receivable totaled $3.4 million and $3.6 million at December 31, 2023 and 2022, respectively and was reported in interest receivable on the accompanying Consolidated Balance Sheet.
At December 31, 2023, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual for the years ended December 31, 2023 and 2022.
The Company monitors the credit quality of the debt securities held-to-maturity through the use of credit ratings. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at December 31, 2023, aggregated by credit quality indicators.
($ in thousands) December 31, 2023 December 31, 2022
Aaa $ 431,527 $ 467,736
Aa1/Aa2/Aa3 129,751 110,854
A1/A2 13,902 13,757
BBB 10,000 10,000
Not rated 69,359 89,137
Total $ 654,539 $ 691,484
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The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
($ in thousands) December 31, 2023
Available-for-Sale Amortized
Cost Fair
Value
Within one year $ 45,559 $ 45,246
One to five years 150,165 143,592
Five to ten years 306,927 270,342
Beyond ten years 164,897 141,524
Mortgage-backed securities: residential 297,735 263,316
Mortgage-backed securities: commercial 198,944 178,345
Total $ 1,164,227 $ 1,042,365
Held-to-maturity
Within one year $ 39,082 $ 38,725
One to five years 72,333 69,387
Five to ten years 54,428 49,697
Beyond ten years 214,412 210,422
Mortgage-backed securities: residential 141,573 127,336
Mortgage-backed securities: commercial 132,711 120,377
Total $ 654,539 $ 615,944
The proceeds from sales and calls of securities and the associated gains and losses are listed below:
($ in thousands) 2023 2022 2021
Gross gains $ 65 $ 82 $ 202
Gross losses 9,781 164 59
Realized net (loss) gain $ (9,716) $ (82) $ 143
The amortized costs of securities pledged as collateral, to secure public deposits and for other purposes, was $1.095 billion and $1.031 billion at December 31, 2023 and 2022, respectively.
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The following table summarizes securities in an unrealized losses position for which an allowance for credit losses has not been recorded at December 31, 2023 and 2022. The securities are aggregated by major security type and length of time in a continuous unrealized loss position:
2023
($ in thousands) Less than 12 Months 12 Months or Longer Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Available-for-sale:
U.S. Treasury $ — $ — $ 16,675 $ 310 $ 16,675 $ 310
Obligations of U.S. government agencies and sponsored entities 123 — 104,495 14,946 104,618 14,946
Tax-exempt and taxable obligations of states and municipal subdivisions 20,879 1,479 389,113 46,797 409,992 48,276
Mortgage-backed securities - residential 222 2 262,012 34,428 262,234 34,430
Mortgage-backed securities - commercial 2,896 52 170,256 20,623 173,152 20,675
Corporate obligations — — 37,597 3,750 37,597 3,750
Other 3,055 12 — — 3,055 12
Total available-for-sale $ 27,175 $ 1,545 $ 980,148 $ 120,854 $ 1,007,323 $ 122,399
Held-to-maturity:
U.S. Treasury $ — $ — $ 86,884 $ 2,804 $ 86,884 $ 2,804
Obligations of U.S. government agencies and sponsored entities 747 5 31,109 1,798 31,856 1,803
Tax-exempt and taxable obligations of states and municipal subdivisions 10,472 3,949 91,480 10,748 101,952 14,697
Mortgage-backed securities - residential — — 127,336 14,237 127,336 14,237
Mortgage-backed securities - commercial 920 2 119,457 12,332 120,377 12,334
Corporate obligations — — 7,714 2,286 7,714 2,286
Total held-to-maturity $ 12,139 $ 3,956 $ 463,980 $ 44,205 $ 476,119 $ 48,161
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2022
Less than 12 Months 12 Months or Longer Total
($ in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Available-for-sale:
U.S. Treasury $ 4,563 $ 419 $ 119,292 $ 11,479 $ 123,855 $ 11,898
Obligations of U.S. government agencies and sponsored entities 34,254 2,293 109,431 16,395 143,685 18,688
Tax-exempt and taxable obligations of states and municipal subdivisions 275,202 31,152 159,508 30,779 434,710 61,931
Mortgage-backed securities: residential 76,125 4,970 222,274 37,071 298,399 42,041
Mortgage-backed securities: commercial 50,193 3,025 136,062 21,338 186,255 24,363
Corporate obligations 35,142 1,995 5,739 992 40,881 2,987
Total available-for-sale $ 475,479 $ 43,854 $ 752,306 $ 118,054 $ 1,227,785 $ 161,908
Held-to-maturity:
U.S. Treasury $ 104,457 $ 5,175 $ — $ — $ 104,457 $ 5,175
Obligations of U.S. government agencies and sponsored entities 31,636 2,153 — — 31,636 2,153
Tax-exempt and taxable obligations of states and municipal subdivisions 127,628 13,583 15,303 116 142,931 13,699
Mortgage-backed securities - residential 138,639 17,479 — — 138,639 17,479
Mortgage-backed securities - commercial 119,758 13,798 — — 119,758 13,798
Corporate obligations 8,385 1,615 — — 8,385 1,615
Total held-to-maturity $ 530,503 $ 53,803 $ 15,303 $ 116 $ 545,806 $ 53,919
At December 31, 2023 and December 31, 2022, the Company’s securities portfolio consisted of 1,125 and 1,265 securities, respectively, which were in an unrealized loss position. AFS securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis. No allowance for credit losses was needed at December 31, 2023 or 2022.
NOTE E - LOANS
The Company uses four different categories to classify loans in its portfolio based on the underlying collateral securing each loan. The loans grouped together in each category have been determined to share similar risk characteristics with respect to credit quality. Those four categories are commercial, financial and agriculture, commercial real estate, consumer real estate, consumer installment;
Commercial, financial and agriculture - Commercial, financial and agriculture loans include loans to business entities issued for commercial, industrial, or other business purposes. This type of commercial loan shares a similar risk characteristic in that unlike commercial real estate loans, repayment is largely dependent on cash flow generated from the operation of the business.
Commercial real estate - Commercial real estate loans are grouped as such because repayment is mainly dependent upon either the sale of the real estate, operation of the business occupying the real estate, or refinance of the debt obligation. This includes both owner-occupied and non-owner occupied CRE secured loans, because they share similar risk characteristics related to these variables.
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Consumer real estate - Consumer real estate loans consist primarily of loans secured by 1-4 family residential properties and/or residential lots. This includes loans for the purpose of constructing improvements on the residential property, as well as home equity lines of credit.
Consumer installment - Installment and other loans are all loans issued to individuals that are not for any purpose related to operation of a business, and not secured by real estate. Repayment on these loans is mostly dependent on personal income, which may be impacted by general economic conditions.
The composition of the loan portfolio as of December 31, 2023 and December 31, 2022, is summarized below:
($ in thousands) December 31, 2023 December 31, 2022
Loans held for sale
Mortgage loans held for sale $ 2,914 $ 4,443
Total LHFS $ 2,914 $ 4,443

Loans held for investment
Commercial, financial, and agriculture (1) $ 800,324 $ 536,192
Commercial real estate 3,059,155 2,135,263
Consumer real estate 1,252,795 1,058,999
Consumer installment 57,768 43,703
Total loans 5,170,042 3,774,157
Less allowance for credit losses (54,032) (38,917)
Net LHFI $ 5,116,010 $ 3,735,240
(1)Loan balance includes $386 thousand and $710 thousand in PPP loans as of December 31, 2023 and 2022, respectively.
Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination.
Accrued interest receivable is not included in the amortized cost basis of the Company’s LHFI. At December 31, 2023 and 2022, accrued interest receivable for LHFI totaled $24.7 million and $18.0 million, respectively, with no related ACL and was reported in interest receivable on the accompanying consolidated balance sheet.
Nonaccrual and Past Due LHFI
Past due LHFI are loans contractually past due 30 days or more as to principal or interest payments. Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.
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The following tables presents the aging of the amortized cost basis in past due loans in addition to those loans classified as nonaccrual including PCD loans:
December 31, 2023
($ in thousands) Past Due
30 to 89
Days Past Due 90
Days or More
and
Still Accruing Nonaccrual PCD Total
Past Due,
Nonaccrual
and PCD Total
LHFI Nonaccrual
and PCD
with No
ACL
Commercial, financial, and agriculture (1) $ 2,043 $ 313 $ 353 $ 965 $ 3,674 $ 800,324 $ 465
Commercial real estate 1,698 630 3,790 647 6,765 3,059,155 410
Consumer real estate 3,992 220 1,806 3,098 9,116 1,252,795 680
Consumer installment 180 — 31 — 211 57,768 —
Total $ 7,913 $ 1,163 $ 5,980 $ 4,710 $ 19,766 $ 5,170,042 $ 1,555
(1)Total loan balance includes $386 thousand in PPP loans as of December 31, 2023.
December 31, 2022
($ in thousands) Past Due
30 to 89
Days Past Due 90
Days or More
and
Still Accruing Nonaccrual PCD Total
Past Due,
Nonaccrual
and PCD Total
LHFI Nonaccrual
and PCD
with No
ACL
Commercial, financial, and agriculture (1) $ 220 $ — $ 19 $ — $ 239 $ 536,192 $ —
Commercial real estate 1,984 — 7,445 1,129 10,558 2,135,263 4,560
Consumer real estate 3,386 289 2,965 1,032 7,672 1,058,999 791
Consumer installment 173 — 1 — 174 43,703 —
Total $ 5,763 $ 289 $ 10,430 $ 2,161 $ 18,643 $ 3,774,157 $ 5,351
(1)Total loan balance includes $710 thousand in PPP loans as of December 31, 2022.
Acquired Loans

In connection with the acquisitions of BBI and HSBI, the Company acquired loans both with and without evidence of credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no carryover from the acquired institution's previously recorded allowance for credit losses. Acquired loans are accounted for under ASC 326, Financial Instruments - Credit ~~Losses (“ASC 326~~”) ~~introduces guidance on reporting~~Losses.

The fair value for acquired loans recorded at the time of acquisition is based upon several factors including the timing and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash flows using comparable market rates. The resulting fair value adjustment is recorded in the form of premium or discount to the unpaid principal balance of each acquired loan. As it relates to acquired PCD loans, the net premium or net discount is adjusted to reflect the Company's allowance for ~~assets held~~credit losses ("ACL") recorded for PCD loans at the time of acquisition, and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the loan. As it relates to acquired loans not classified as PCD ("non-PCD") loans, the credit loss and yield components of the fair value adjustments are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the average remaining life of those loans. The Company records an ACL for non-PCD loans at the time of acquisition through provision expense, and therefore, no further adjustments are made to the net premium or net discount for non-PCD loans.

The estimated fair value of the non-PCD loans acquired in the BBI acquisition was $460.0 million, which is net of a $8.8 million discount. The gross contractual amounts receivable of the acquired non-PCD loans at acquisition was approximately $468.8 million, of which $6.4 million is the amount of contractual cash flows not expected to be collected.

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The estimated fair value of the non-PCD acquired in the HSBI acquisition was $1.091 billion, which is net of a $33.7 million discount. The gross contractual amounts receivable of the acquired non-PCD loans at acquisition was approximately $1.125 billion, of which $16.5 million is the amount of contractual cash flows not expected to be collected.

The following table shows the carrying amount of loans acquired in the BBI and HSBI acquisition transaction for which there was, at the date of acquisition, more than insignificant deterioration of credit quality since origination:


($ in thousands)	BBI		HSBI
Purchase price of loans at acquisition	$	27,669	$	52,356
Allowance for credit losses at acquisition	1,303		3,176
Non-credit discount (premium) at acquisition	530		2,325
Par value of acquired loans at acquisition	$	29,502	$	57,857

As of December 31, 2023 and 2022, the amortized cost of the Company’s PCD loans totaled $57.8 million and $24.0 million, respectively, which had an estimated ACL of $3.7 million and $1.7 million, respectively.

Loan Modifications

The Company adopted ASU No. 2022-02 effective January 1, 2023. These amendments eliminate the TDR recognition and measurement guidance and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, and other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and ~~available for sale debt securities (“AFS”). For assets held at~~modified during 2023, by class and by type of modification. The percentage of the amortized cost basis ~~Accounting Standards Codification (“ASC”) 326 eliminates~~of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:


($ in thousands)	Term Extension		Percentage of Total Loans Held for Investment
Commercial real estate	$	581	0.02	%
Total	$	581	0.02	%

The Company has not committed to lend additional amounts to the borrowers included in the previous table.

Debt Restructurings Prior to the Adoption of ASU 2022-02

If the Company grants a concession to a borrower for economic or legal reasons related to a borrower’s financial difficulties that it would not otherwise consider, the loan is classified as TDRs.

As of December 31, 2022 and 2021 the Company had TDRs totaling $21.8 million and $24.2 million, respectively. As of December 31, 2022, the Company had no additional amount committed on any loan classified as TDR. As of December 31, 2022 and 2021 TDRs had a related ACL of $841 thousand and $4.3 million, respectively.

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The following table presents LHFI by class modified as TDRs that occurred during the twelve months ended December 31, 2022 and 2021.


($ in thousands, except for number of loans)
December 31, 2022	Number of Loans	Outstanding Recorded Investment Pre-Modification		Outstanding Recorded Investment Post-Modification		Interest Income Recognized
Consumer real estate	1	$	134	$	135	$	7
Total	1	$	134	$	135	$	7


December 31, 2021
Commercial, financial, and agriculture	1	$	38	$	37	$	4
Commercial real estate	5	5,151		4,890		230
Consumer real estate	4	222		187		5
Consumer installment	1	13		1		—
Total	11	$	5,424	$	5,115	$	239

The TDRs presented above increased the ACL $22 thousand and $1.6 million and resulted in no charge-offs for the years ended December 31, 2022, and 2021, respectively.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the year ending December 31, 2022 and 2021.


($ in thousands, except for number of loans)	2022			2021
Troubled Debt Restructurings That Subsequently Defaulted:	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial real estate	—	$	—	—	$	—
Consumer real estate	1	134		2	55
Total	1	$	134	2	$	55

The modifications described above included one of the following or a combination of the following: maturity date extensions, interest only payments, amortizations were extended beyond what would be available on similar type loans, and payment waiver. No interest rate concessions were given on these loans nor were any of these loans written down. A loan is considered to be in a payment default once it is 30 days contractually past due under the modified terms. The TDRs presented above increased the ACL $22 thousand and $21 thousand resulted in no charge-offs for the years ended December 31, 2022, and 2021, respectively.

The following tables represents the Company’s TDRs at December 31, 2022:


December 31, 2022
($ in thousands)	Current Loans		Past Due 30-89		Past Due 90 days and still accruing		Nonaccrual		Total
Commercial, financial, and agriculture	$	49	$	—	$	—	$	—	$	49
Commercial real estate	13,561		—		—		6,121		19,682
Consumer real estate	1,077		—		—		929		2,006
Consumer installment	14		—		—		—		14
Total	$	14,701	$	—	$	—	$	7,050	$	21,751
Allowance for credit losses	$	350	$	—	$	—	$	491	$	841

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Collateral Dependent Loans

The following table presents the amortized cost basis of collateral dependent individually evaluated loans by class of loans as of December 31, 2023 and 2022:


December 31, 2023
($ in thousands)	Real Property		Equipment		Miscellaneous		Total
Commercial financial, and agriculture	$	—	$	496	$	918	$	1,414
Commercial real estate	710		—		—		710
Consumer real estate	778		—		—		778
Total	$	1,488	$	496	$	918	$	2,902


December 31, 2022
($ in thousands)	Real Property		Total
Commercial real estate	$	4,560	$	4,560
Consumer real estate	998		998
Total	$	5,558	$	5,558

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The following provides a qualitative description by class of loan of the collateral that secures the Company’s collateral dependent LHFI:

•Commercial, financial and agriculture – Loans within these loan classes are secured by equipment, inventory accounts, and other non-real estate collateral.

•Commercial real estate – Loans within these loan classes are secured by commercial real property.

•Consumer real estate - Loans within these loan classes are secured by consumer real property.

•Consumer installment - Loans within these loan classes are secured by consumer goods, equipment, and non-real estate collateral.

There have been no significant changes to the collateral that secures these financial assets during the period.

Loan Participations

The Company has loan participations, which qualify as participating interest, with other financial institutions. As of December 31, 2023, these loans totaled $304.0 million, of which $165.9 million had been sold to other financial institutions and $138.1 million was purchased by the Company. As of December 31, 2022, these loans totaled $202.6 million, of which $100.1 million had been sold to other financial institutions and $102.5 million was purchased by the company. The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involving no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided among the participating interest holders in proportion to each holder’s share of ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. The Company uses the following definitions for risk ratings:

Pass: Loan classified as pass are deemed to possess average to superior credit quality, requiring no more than normal attention.

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Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current ~~incurred~~net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss ~~approach~~if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and ~~instead requires an entity~~values, highly questionable and improbable.

These above classifications were the most current available as of December 31, 2023, and were generally updated within the prior year.

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed at year ends December 31, 2023 and 2022. Revolving loans converted to ~~reflect its current estimate~~term as of ~~all expected credit losses.~~ year ended December 31, 2023 and 2022 were not material to the total loan portfolio.

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($ in thousands)	Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Commercial, financial and agriculture:
Risk Rating
Pass	$	102,263	$	150,420	$	113,487	$	47,313	$	36,065	$	64,020	$	281,646	$	795,214
Special mention	—		—		—		141		797		3		10		951
Substandard	451		330		121		185		550		1,894		628		4,159
Doubtful	—		—		—		—		—		—		—		—
Total commercial, financial and agriculture	$	102,714	$	150,750	$	113,608	$	47,639	$	37,412	$	65,917	$	282,284	$	800,324
Current period gross write offs	$	14	$	51	$	225	$	139	$	206	$	110	$	—	$	745

Commercial real estate:
Risk Rating
Pass	$	385,954	$	825,505	$	558,742	$	377,085	$	253,746	$	569,428	$	6,397	$	2,976,857
Special mention	—		660		6,118		3,111		9,545		22,648		—		42,082
Substandard	136		7,293		393		566		5,427		26,401		—		40,216
Doubtful	—		—		—		—		—		—		—		—
Total commercial real estate	$	386,090	$	833,458	$	565,253	$	380,762	$	268,718	$	618,477	$	6,397	$	3,059,155
Current period gross write offs	$	—	$	—	$	193	$	—	$	—	$	57	$	—	$	250

Consumer real estate:
Risk Rating
Pass	$	176,144	$	334,056	$	219,071	$	127,539	$	59,615	$	163,464	$	153,821	$	1,233,710
Special mention	—		1,081		—		—		643		3,246		412		5,382
Substandard	502		404		511		1,559		514		6,988		3,225		13,703
Doubtful	—		—		—		—		—		—		—		—
Total consumer real estate	$	176,646	$	335,541	$	219,582	$	129,098	$	60,772	$	173,698	$	157,458	$	1,252,795
Current period gross write offs	$	5	$	19	$	—	$	—	$	—	$	25	$	—	$	49

Consumer installment:
Risk Rating
Pass	$	24,482	$	12,408	$	7,316	$	2,919	$	1,213	$	1,195	$	8,156	$	57,689
Special mention	—		—		—		—		—		—		—		—
Substandard	—		8		17		42		11		—		1		79
Doubtful	—		—		—		—		—		—		—		—
Total consumer installment	$	24,482	$	12,416	$	7,333	$	2,961	$	1,224	$	1,195	$	8,157	$	57,768
Current period gross write offs	$	226	$	567	$	223	$	179	$	156	$	576	$	121	$	2,048

Total
Pass	$	688,843	$	1,322,389	$	898,616	$	554,856	$	350,639	$	798,107	$	450,020	$	5,063,470
Special mention	—		1,741		6,118		3,252		10,985		25,897		422		48,415
Substandard	1,089		8,035		1,042		2,352		6,502		35,283		3,854		58,157
Doubtful	—		—		—		—		—		—		—		—
Total	$	689,932	$	1,332,165	$	905,776	$	560,460	$	368,126	$	859,287	$	454,296	$	5,170,042
Current period gross write offs	$	245	$	637	$	641	$	318	$	362	$	768	$	121	$	3,092

98


($ in thousands)	Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Commercial, financial and agriculture:
Risk Rating
Pass	$	181,761	$	141,174	$	55,690	$	53,954	$	43,441	$	52,038	$	181	$	528,239
Special mention	380		5,188		1,664		—		—		412		—		7,644
Substandard	50		—		—		34		33		192		—		309
Doubtful	—		—		—		—		—		—		—		—
Total commercial, financial and agriculture	$	182,191	$	146,362	$	57,354	$	53,988	$	43,474	$	52,642	$	181	$	536,192
Commercial real estate:
Risk Rating
Pass	$	582,895	$	436,661	$	305,140	$	217,626	$	140,682	$	368,185	$	1,765	$	2,052,954
Special mention	672		1,345		3,938		11,643		9,885		16,612		—		44,095
Substandard	50		2,830		908		1,694		4,797		27,935		—		38,214
Doubtful	—		—		—		—		—		—		—		—
Total commercial real estate	$	583,617	$	440,836	$	309,986	$	230,963	$	155,364	$	412,732	$	1,765	$	2,135,263
Consumer real estate:
Risk Rating
Pass	$	325,853	$	226,355	$	136,052	$	59,376	$	51,515	$	129,923	$	112,278	$	1,041,352
Special mention	—		—		—		—		823		3,846		—		4,669
Substandard	519		554		1,481		648		1,706		6,894		1,176		12,978
Doubtful	—		—		—		—		—		—		—		—
Total consumer real estate	$	326,372	$	226,909	$	137,533	$	60,024	$	54,044	$	140,663	$	113,454	$	1,058,999
Consumer installment:
Risk Rating
Pass	$	18,925	$	11,618	$	5,031	$	2,078	$	832	$	1,445	$	3,725	$	43,654
Special mention	—		—		—		—		—		—		—		—
Substandard	4		13		24		—		3		5		—		49
Doubtful	—		—		—		—		—		—		—		—
Total consumer installment	$	18,929	$	11,631	$	5,055	$	2,078	$	835	$	1,450	$	3,725	$	43,703
Total
Pass	$	1,109,434	$	815,808	$	501,913	$	333,034	$	236,470	$	551,591	$	117,949	$	3,666,199
Special mention	1,052		6,533		5,602		11,643		10,708		20,870		—		56,408
Substandard	623		3,397		2,413		2,376		6,539		35,026		1,176		51,550
Doubtful	—		—		—		—		—		—		—		—
Total	$	1,111,109	$	825,738	$	509,928	$	347,053	$	253,717	$	607,487	$	119,125	$	3,774,157

Allowance for Credit Losses (ACL)

The ~~allowance for credit losses~~ACL is a valuation account that is deducted from ~~the~~loans’ amortized cost basis ~~of the financial assets~~ to present the net amount expected to be ~~collected. This guidance also changes~~collected on the ~~accounting~~loans. It is comprised of a general allowance for ~~purchased~~ loans ~~and debt securities with credit deterioration.~~

~~ASC 326 also applies to off-balance sheet credit (“OBSC”) exposures such as unfunded loan commitments, letters of credit and other financial guarantees~~ that are ~~not unconditionally cancellable~~collectively assessed in pools with similar risk characteristics and a specific allowance for individually assessed loans. The allowance is continuously monitored by ~~the Company. The Company estimates~~management to maintain a level adequate to absorb expected credit losses ~~over~~in the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected credit losses related to OBSC exposures are presented as a liability.

loan portfolio.

The ACL represents the estimated losses for financial assets accounted for on an amortized cost basis. Expected losses are calculated using relevant information, from internal and external sources, about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Expected losses are estimated over the contractual term of the loans, adjusted for expected prepayments. The contractual term excludes

99

expected extensions, renewals, and modifications. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed and recoveries are credited to the allowance when received. Expected ~~recoveries~~recovery amounts may not exceed the aggregate of amounts previously charged-off.

The ACL is measured on a collective basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call code (segments). Segmenting loans by call code will group loans that contain similar types of collateral, purposes, and are usually structured with similar terms making each loan’s risk profile very similar to the rest in that segment. Each of these segments then flows up into one of the four bands (bands), Commercial, Financial, and Agriculture, Commercial Real Estate, Consumer Real Estate, and Consumer Installment. In accordance with the guidance in ASC 326, the Company redefined its LHFI portfolio segments and related loan classes based on the level at which risk is monitored within the ACL methodology. Construction loans for 1-4 family residential properties with a call code 1A1, and other construction, all land development and other land loans with a call code 1A2 were previously separated between the Commercial Real Estate or Consumer Real Estate bands based on loan type code. Under our ASC 326 methodology 1A1 loans are all defined as part of the Consumer Real Estate band and 1A2 loans are all defined as part of the Commercial Real Estate Band.

The ~~probability of default (“PD”)~~PD calculation analyzes the historical loan portfolio over the given lookback period to identify, by segment, loans that have defaulted. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. The model observes loans over a 12-month window, detecting any events previously defined. This information is then used by the model to calculate annual iterative count-based PD rates for each segment. This process is then repeated for all dates within the historical data range. These averaged ~~PD’s~~PDs are used for an immediate reversion back to the historical mean. The historical data used to calculate this input was captured by the Company from 2009 through the most recent quarter end.

77

~~Table of Contents~~

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model’s calculation also includes a 24-month forecasted PD based on a regression model that calculated a comparison of the Company’s historical loan data to various national economic metrics during the same periods. The results showed the Company’s past losses having a high rate of correlation to unemployment, both regionally and nationally. Using this information, along with the most recently published Wall Street Journal survey of sixty economists’ forecasts predicting unemployment rates out over the next eight quarters, a corresponding future PD can be calculated for the forward-looking 24-month period. This data can also be used to predict loan losses at different levels of stress, including a baseline, adverse and severely adverse economic condition. After the forecast period, PD rates revert to the historical mean of the entire data set.

The LGD calculation is based on actual losses (charge-offs, net recoveries) at a loan level experienced over the entire lookback period aggregated to get a total for each segment of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. Defaults occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event. If there is not a minimum of five past defaults in a loan segment, or less than 15.0% calculated LGD rate, or the total balance at default is less than 1%1.0% of the balance in the respective call code as of the model run date, a proxy index is used. This index is proprietary to the Company’s ACL modeling vendor derived from loss data of other client institutions similar in organization structure to the Company. The vendor also provides a “crisis” index derived from loss data between the post-recessionary years of 2008-2013 that the Company uses.

The model then uses these inputs in a non-discounted version of DCF methodology to calculate the quantitative portion of estimated losses. The model creates loan level amortization schedules that detail out the expected monthly payments for a loan including estimated prepayments and payoffs. These expected cash flows are discounted back to present value using the loan’s coupon rate instead of the effective interest rate. On a quarterly basis, the Company uses internal credit portfolio data, such as changes in portfolio volume and composition, underwriting practices, and levels of past due loans, nonaccruals and classified assets along with other external information not used in the quantitative calculation to determine if any subjective qualitative adjustments are required so that all significant risks are incorporated to form a sufficient basis to estimate credit losses.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. These PCD loans are recorded at the amount paid. It is the Company’s policy that a loan meets this definition if it is adversely risk rated as Non-Pass (Special Mention, Substandard, Doubtful or Loss) including non-accrual loans, as well as loans identified as TDR’s. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

~~Upon adoption of ASC 326, the Company elected to maintain segments of loans that were previously accounted for under ASC 310-30~~ ~~Accounting for Purchased Loans with Deteriorated Credit Quality~~ and will continue to account for these segments as a unit of account unless the loan is collateral dependent. PCD loans that are collateral dependent will be assessed individually. Loans are only removed from the existing segments if they are written off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for each segment and added to the band’s carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the segment and the new amortized cost basis is the noncredit premium or discount, which will be amortized into interest income over the remaining life of the segment. Changes to the allowance for credit losses after adoption are recorded through provision expense.

The Company adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. Upon adoption of ASC 326, the Company increased the ACL by $1.1 million and adjusted the amortized cost basis of the PCD assets. The remaining noncredit discount of approximately $685 thousand (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2021. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. Loans classified as nonaccrual, TDRs, greater than 90 days past due and still accruing interest, and PCD loans that are collateral dependent will be reviewed quarterly for potential individual assessment. Any loan classified as nonaccrual, TDR, or PCD that is not determined to need individual assessment will be evaluated collectively within its respective segment.

78

100

~~Table of Contents~~

ASC 326 requires that a loan be evaluated for losses individually and reserved for separately, if the loan does not share similar risk characteristics to any other loan segments. The Company’s process for determining which loans require specific evaluation follows the standard and is two-fold. All non-performing loans, including nonaccrual loans, loans considered to be TDRs or PCDs, are evaluated to determine if they meet the definition of collateral dependent under the new standard. These are loans where no more payments are expected from the borrower, and foreclosure or some other collection action is probable. Secondly, all non-performing loans that are not considered to be collateral dependent, but are 90 days or greater past due and/or have a balance of $500 thousand or greater, will be individually reviewed to determine if the loan displays similar risk characteristic to substandard loans in the related segment.

TDRs are loans for which the contractual terms on the loan have been modified and both of the following conditions exist: (1) the borrower is experiencing financial difficulty and (2) the restructuring constitutes a concession. Concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The Company assesses all loan modifications to determine whether they constitute a TDR.

~~The allowance for OBSC exposures was determined using the same methodology that is applied to LHFI. Utilization rates are determined based on historical usage.~~

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2021. As of December 31, 2020, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed material.

Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, ~~Measurement of Credit Losses on Financial Instruments~~. The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

~~Accrued interest receivable on available-for-sale debt securities totaled $5.7 million at December 31, 2020 and is excluded from the estimate of credit losses.~~

~~The Company made the following policy elections related to the adoption of the guidance in ASC 326:~~

●

Accrued interest will be written off against interest income when the related financial asset is charged off. Therefore, accrued interest will be excluded from the amortized cost basis for purposes of calculating the allowance for credit losses. Accrued interest receivable is presented with other assets in a separate line item in the consolidated balance sheet.

●

The fair value of collateral practical expedient has been elected on certain loans, in determining the allowance for credit losses, for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty.

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~~Table of Contents~~

The adoption of ASC 326 increased the allowance for credit losses on loans by approximately $397 thousand and OBSC exposures by approximately $718 thousand at January 1, 2021, as shown below. The increase in the allowance for credit losses on loans includes the $1.1 million increase for PCD loans as discussed above, less a decrease in ACL for certain pooled loans:

($ in thousands)






January 1,

December 31,

2021

2020

As Reported

Pre-ASC 326

Transition

Under
Assets:

Adoption

Adjustment

ASC 326
Loans






Commercial, financial, and agriculture

$
6,214

$
(1,153)

$
5,061
Commercial real estate

24,319

(4,032)

20,287
Consumer real estate

4,736

5,629

10,365
Consumer installment

551

(47)

504
Allowance for credit losses on loans

$
35,820

$
397

$
36,217
Liabilities:






Allowance for credit losses on OBSC exposures

0

718

718
Total allowance for credit losses

$
35,820

$
1,115

$
36,935

~~The transition had no net impact to retained earnings because the allowance for OBSC exposures was offset by decrease in the allowance for certain pooled loans.~~

~~New Accounting Standards That Have Not Yet Been Adopted~~

~~In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04,~~ ~~Reference Rate Reform (ASC 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”~~ This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

~~In October 2021, FASB issued ASU No. 2021-08,~~ ~~Business Combination (Topic 805):~~~~“Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.”~~ This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendment improves comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. This ASU is effective for the Company after December 15, 2022. The Company is assessing ASU 2021-08 and its impact on the Company’s consolidated financial statements.

~~In November 2021, FASB issued ASU No. 2021-10,~~ ~~Government Assistance (Topic 832):~~~~“Disclosures by Business Entities about Government Assistance.”~~ These amendments are expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. This ASU is effective for the Company’s financial statements after December 31, 2021. The Company is assessing ASU 2021-10 and its impact on the Company’s consolidated financial statements.

~~NOTE C - BUSINESS COMBINATIONS~~

The Company accounts for its business combinations using the acquisition method. Acquisition accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the acquisition method. Core deposit intangibles and other identified intangibles with finite useful lives are amortized using the straight-line method over their estimated useful lives of up to ten years.

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~~Table of Contents~~

Financial assets acquired in a business combination after January 1, 2021, are recorded in accordance with ASC 326. Loans that the Company acquires in connection with acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. PCD loans that have experienced more than insignificant credit deterioration since origination are recorded at the amount paid. The ACL is determined on a collective basis and is allocated to the individual loans. The sum of the loan’s purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Non-PCD loans are acquired that have experienced no or insignificant deterioration in credit quality since origination. The difference between the fair value and outstanding balance of the non-PCD loans is recognized as an adjustment to interest income over the lives of the loan.

~~Acquisitions~~

~~Cadence Bank Branches~~

On December 3, 2021, The First completed its acquisition of seven Cadence Bank, N.A. (“Cadence”) branches in Northeast Mississippi (the “Cadence Branches”). In connection with the acquisition of the Cadence Branches, The First assumed $410.2 million in deposits, acquired $40.3 million in loans at fair value, acquired certain assets associated with the Cadence Branches at their book value, and paid a deposit premium of $1.0 million to Cadence. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

In connection with the acquisition of the Cadence Branches, the Company recorded a $1.3 million bargain purchase gain and $2.9 million core deposit intangible. The bargain purchase gain was generated as a result of the estimated fair value of net assets acquired exceeding the merger consideration, based on provisional fair values. The bargain purchase gain is considered non-taxable for income taxes purposes.

~~The core deposit intangible will be amortized to expense over 10 years.~~

Expenses associated with the branch acquisition of the Cadence Branches were $1.4 million for the twelve-month period ended December 31, 2021. These costs included charges associated with due diligence as well as legal and consulting expenses, which have been expensed as incurred. The Company also incurred $370 thousand of provision for credit losses on credit marks from the loans acquired.

The assets acquired and liabilities assumed and consideration paid in the acquisition of the Cadence Branches were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which will run through December 3, 2022 in respect of the Cadence Branches, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.

81

~~Table of Contents~~

~~The following table summarizes the provisional fair values of the assets acquired and liabilities assumed and the goodwill (bargain purchase gain) generated from the transaction ($ in thousands):~~

Purchase price:



Cash

$
1,000
Total purchase price

1,000

Identifiable assets:


Cash

$
359,916
Loans

40,262
Core deposit intangible

2,890
Personal and real property

9,675
Other assets

135
Total assets

412,878

Liabilities and equity:


Deposits

410,171
Other liabilities

407
Total liabilities

410,578
Net assets acquired

2,300
Bargain purchase gain

$
(1,300)

~~Southwest Georgia Financial Corporation~~

On April 3, 2020, the Company completed its acquisition of Southwest Georgia Financial Corporation (“SWG”), and immediately thereafter merged its wholly-owned subsidiary, Southwest Georgia Bank with and into The First. The Company paid a total consideration of $47.9 million to the SWG shareholders as consideration in the merger, which included 2,546,967 shares of Company common stock and approximately $2 thousand in cash. As a result of the acquisition, the Company was able to increase its loan and deposit base and reduce costs through economies of scale. The merger strengthened the Company’s market share and brought forth additional opportunities by adding a new market area in the Company’s footprint.

~~In connection with the acquisition, the Company recorded a~~ ~~$7.8~~ million bargain purchase gain and $4.6 million core deposit intangible. The bargain purchase gain was generated as a result of the estimated fair value of net assets acquired exceeding the merger consideration, based on fair values, which is reflected as an adjustment to retained earnings. The bargain purchase gain is considered non-taxable for income taxes purposes. The core deposit intangible will be amortized to expense over 10 years.

The Company acquired the $394.6 million loan portfolio at an estimated fair value discount of $2.3 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the SWG acquisition were $0 and $2.5 million for the twelve months period ended December 31, 2021 and 2020. These costs included system conversion and integrating operations charges and legal and consulting expenses, which have been expensed as incurred.

82

~~Table of Contents~~

The following table summarizes the finalized fair values of the assets acquired, liabilities assumed and the bargain purchase gain assumed in the SWG transaction, as of the acquisition date ($ in thousands):

Measurement

As Initially

Period

Reported

Adjustments

As Adjusted
Identifiable assets:

Cash and due from banks

$
29,247

—

$
29,247
Investments

89,737

—

89,737
Loans

392,292

—

392,292
Core deposit intangible

4,556

—

4,556
Personal and real property

18,558

—

18,558
Bank owned life insurance

6,963

—

6,963
Other assets

2,589

813

3,402
Total assets

543,942

813

544,755

Liabilities and equity:

Deposits

476,099

—

476,099
Borrowed funds

9,500

—

9,500
Other liabilities

3,461

—

3,461
Total liabilities

489,060

—

489,060
Net assets acquired

54,882

813

55,695
Consideration paid

47,859

(1)

47,858
Bargain purchase gain

$
(7,023)

812

$
(7,835)

~~During the second quarter of 2021, the Company finalized its analysis and valuation adjustments have been made to other assets since initially reported.~~

~~The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at December 31,2020, are as follows ($ in thousands):~~

December 31,

2020
Outstanding principal balance

$
297,528
Carrying amount

295,772

~~Supplemental Pro Forma Information~~

The following table presents certain supplemental pro forma information, for illustrative purposes only, for the years December 31, 2021 and 2020 as if the SWG and Cadence Branches acquisitions had occurred on January 1, 2020. The pro forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of this date.

($ in thousands)

Pro Forma for the Year Ended

December 31,

2021

2020

(unaudited)

(unaudited)
Net interest income

$
157,064

$
158,241
Non-interest income

37,473

43,077
Total revenue

194,537

201,318
Income before income taxes

82,456

66,283

Supplemental pro-forma earnings were adjusted to exclude acquisition costs incurred. The Company’s operating results for the year ended December 31, 2021, include the operating results of the acquired assets and assumed liabilities of the Cadence Branches subsequent to the acquisition date. Due to the timing of the data conversion and the integration of operations of the branches onto the

83

~~Table of Contents~~

Company’s existing operations, historical reporting of the acquired branches is impracticable, and therefore, disclosure of the amounts of revenue and expenses attributable to the acquired branches since the acquisition date are not available.

~~Non-credit impaired loans acquired in the acquisitions were accounted for in accordance with ASC 310-20,~~ ~~Receivables-Nonrefundable Fees and Other Costs.~~ ~~Purchased credit impaired loans acquired in the SWG acquisition were accounted for in accordance with ASC 310-30~~ ~~Accounting for Purchased Loans with Deteriorated Credit Quality.~~

~~NOTE D - SECURITIES~~

On January 1, 2021, the Company adopted ASC 326, which made changes to the accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity. In addition, ASC 326 requires financial assets measured at amortized cost, including held-to-maturity debt securities, to measure an expected credit loss under CECL methodology that requires consideration of a broader range of reasonable and supportable information to inform credit losses estimates. For further discussion on the Company’s accounting policies and policy elections related to the accounting standard update refer to Note B “Summary of Significant Accounting Policies” to the Consolidated Financial Statements for additional information.

All securities information presented as of December 31, 2021 is in accordance with ASC 326. All securities information presented prior to January 1, 2021 is in accordance with previous applicable GAAP. See Company’s prior accounting policies in Note B “Summary of Significant Accounting Policies” of the 2020 Form 10-K.

~~Available-for-sale~~

ASC 326 makes targeted improvements to the accounting for credit losses on securities AFS. The concept of other-than-temporarily impaired has been replaced with the allowance for credit losses. Unlike securities held-to-maturity, securities available-for-sale are evaluated on an individual level and pooling of securities is not allowed.

Quarterly, the Company evaluates if a security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, the Company performs further analysis as outlined below:

●

~~Review the extent to which the fair value is less than the amortized cost and determine if the decline is indicative of credit loss or other factors.~~

●

~~The securities that violate the credit loss trigger above would be subjected to additional analysis.~~

●

If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using the DCF analysis using the effective interest rate. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value. The allowance for the calculated credit loss will be monitored going forward for further credit deterioration or improvement.

At December 31, 2021, the results of the analysis did not identify any securities where the decline was indicative of credit loss factors; therefore, no DCF analysis was performed and no credit loss was recognized on any of the securities AFS.

Accrued interest receivable is excluded from the estimate of credit losses for securities AFS. At December 31, 2021, accrued interest receivable totaled $6.8 million for securities AFS and was reported in interest receivable on the accompanying Consolidated Balance Sheet.

~~All AFS securities were current with no securities past due or on nonaccrual as of December 31, 2021.~~

84

~~Table of Contents~~

~~The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities at December 31, 2021 and 2020:~~

($ in thousands)

December 31, 2021




Gross

Gross


Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value
Available-for-sale securities:








U.S Treasury

$
135,889

$
83

$
814

$
135,158
Obligations of U.S. government agencies and sponsored entities

182,877

1,238

1,094

183,021
Tax-exempt and taxable obligations of states and municipal subdivisions

698,861

12,452

2,811

708,502
Mortgage-backed securities - residential

410,269

4,123

3,425

410,967
Mortgage-backed securities - commercial

277,353

2,917

2,939

277,331
Corporate obligations

35,904

962

13

36,853
Total available-for-sale

$
1,741,153

$
21,775

$
11,096

$
1,751,832

($ in thousands)

December 31, 2020




Gross

Gross


Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value
Available-for-sale securities:








U.S Treasury

$
9,063

$
320

$
0

$
9,383
Obligations of U.S. government agencies and sponsored entities

97,107

3,130

67

100,170
Tax-exempt and taxable obligations of states and municipal subdivisions

464,348

16,326

300

480,374
Mortgage-backed securities - residential

228,257

8,206

42

236,421
Mortgage-backed securities - commercial

158,784

6,087

60

164,811
Corporate obligations

30,063

976

16

31,023
Total available-for-sale

$
987,622

$
35,045

$
485

$
1,022,182

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

($ in thousands)

December 31, 2021

Amortized

Fair
Available-for-Sale

Cost

Value
Within one year

$
33,767

$
33,972
One to five years

248,751

251,747
Five to ten years

406,890

408,579
Beyond ten years

364,123

369,236
Mortgage-backed securities: residential

410,269

410,967
Mortgage-backed securities: commercial

277,353

277,331
Total

$
1,741,153

$
1,751,832

~~The proceeds from sales and calls of securities and the associated gains and losses are listed below ($ in thousands):~~

2021

2020

2019
Gross gains

$
202

$
289

$
147
Gross losses

59

8

25
Realized net gain

$
143

$
281

$
122

The amortized costs of securities pledged as collateral, to secure public deposits and for other purposes, was $889.5 million and $576.0 million at December 31, 2021 and December 31,2020, respectively.

85

~~Table of Contents~~

The following table summarizes available-for-sale securities with unrealized losses position for which an allowance for credit losses has not been recorded at December 31, 2021 and that are not deemed to be other than temporarily impaired as of December 31, 2020. The securities are aggregated by major security type and length of time in a continuous unrealized loss position:

2021
($ in thousands)

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized


Value

Losses

Value

Losses

Value

Losses
U.S. Treasury

$
130,098

$
814

$
0

$
0

$
130,098

$
814
Obligations of U.S. government agencies and sponsored entities

121,402

933

5,254

161

126,656

1,094
Tax-exempt and taxable obligations of states and municipal subdivisions

249,430

2,692

3,692

119

253,122

2,811
Mortgage-backed securities: residential

284,183

3,228

8,912

197

293,095

3,425
Mortgage-backed securities: commercial

174,697

2,836

3,038

103

177,735

2,939
Corporate obligations

6,692

8

42

5

6,734

13
Total available-for-sale

$
966,502

$
10,511

$
20,938

$
585

$
987,440

$
11,096

2020

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized
($in thousands)

Value

Losses

Value

Losses

Value

Losses
U.S. Treasury

$
0

$
0

$
0

$
0

$
—

$
—
Obligations of U.S. government agencies and sponsored entities

6,593

65

326

2

6,919

67
Tax-exempt and taxable obligations of states and municipal subdivisions

10,193

300

0

0

10,193

300
Mortgage-backed securities: residential

30,202

42

11

0

30,213

42
Mortgage-backed securities: commercial

10,134

29

3,596

31

13,730

60
Corporate obligations

5,217

8

40

8

5,257

16
Total available-for-sale

$
62,339

$
444

$
3,973

$
41

$
66,312

$
485

At December 31, 2021 and December 31, 2020, the Company’s securities portfolio consisted of 304 and 71 securities, respectively, which were in an unrealized loss position. AFS securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis. NaN allowance for credit losses was needed at December 31, 2021. The Company did not consider these investments to be other-than-temporarily impaired at December 31, 2020.

~~NOTE E - LOANS~~

On January 1, 2021, the Company adopted ASU 326. The FASB issued ASU 326 to replace the incurred loss model for loans and other financial assets with an expected loss model and requires consideration of a wider range of reasonable and supportable information to determine credit losses. In accordance with ASC 326, the Company has developed an ACL methodology, which replaces its previous allowance for loan losses methodology. All loan information presented as of December 31, 2021 is in accordance with ASC 326. All loan information presented prior to January 1, 2021 is in accordance with previous applicable GAAP. See the Company’s prior accounting policies in Note B “Summary of Significant Accounting Policies” of the 2020 Form 10-K.

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~~Table of Contents~~

The Company uses four different categories to classify loans in its portfolio based on the underlying collateral securing each loan. The loans grouped together in each category have been determined to share similar risk characteristics with respect to credit quality. Those four categories are commercial, financial and agriculture, commercial real estate, consumer real estate, consumer installment;

~~Commercial, financial and agriculture~~ - Commercial, financial and agriculture loans include loans to business entities issued for commercial, industrial, or other business purposes. This type of commercial loan shares a similar risk characteristic in that unlike commercial real estate loans, repayment is largely dependent on cash flow generated from the operation of the business.

~~Commercial real estate~~ - Commercial real estate loans are grouped as such because repayment is mainly dependent upon either the sale of the real estate, operation of the business occupying the real estate, or refinance of the debt obligation. This includes both owner-~~occupied and non-owner occupied CRE secured loans, because they share similar risk characteristics related to these variables.~~

~~Consumer real estate~~ - Consumer real estate loans consist primarily of loans secured by 1-4 family residential properties and/or residential lots. This includes loans for the purpose of constructing improvements on the residential property, as well as home equity lines of credit.

~~Consumer installment~~ – Installment and other loans are all loans issued to individuals that are not for any purpose related to operation of a business, and not secured by real estate. Repayment on these loans is mostly dependent on personal income, which may be impacted by general economic conditions.

~~The composition of the loan portfolio as of December 31, 2021 and December 31, 2020, is summarized below:~~

($ in thousands)

December 31, 2021

December 31, 2020
Loans held for sale

Mortgage loans held for sale

$
7,678

$
21,432
Total LHFS

$
7,678

$
21,432

Loans held for investment

Commercial, financial and agriculture (1)

$
397,516

$
579,443
Commercial real estate

1,683,698

1,652,993
Consumer real estate

838,654

850,206
Consumer installment

39,685

41,036
Total loans

2,959,553

3,123,678
Less allowance for credit losses

(30,742)

(35,820)
Net LHFI

$
2,928,811

$
3,087,858

~~(1)~~

~~Loan balance includes $41.1 million and $239.7 million in PPP loans as of December 31,2021 and 2020, respectively~~

~~Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination.~~

Accrued interest receivable is not included in the amortized cost basis of the Company’s LHFI. At December 31, 2021, accrued interest receivable for LHFI totaled $16.4 million with no related ACL and was reported in interest receivable on the accompanying consolidated balance sheet.

~~Nonaccrual and Past Due LHFI~~

Past due LHFI are loans contractually past due 30 days or more as to principal or interest payments. Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

87

~~Table of Contents~~

~~The following tables presents the aging of the amortized cost basis in past due loans in addition to those loans classified as nonaccrual including PCD loans:~~

December 31, 2021

Past Due 90

Total

Nonaccural

Past Due

Days or More

Past Due,

and PCD

30 to 89

and

Nonaccrual

Total

with No
($in thousands)

Days

Still Accruing

Nonaccrual

PCD

and PCD

LHFI

ACL
Commercial, financial and agriculture (1)

$
246

$
—

$
190

$
—

$
436

$
397,516

$
—
Commercial real estate

453

—

19,445

2,082

21,980

1,683,698

1,661
Consumer real estate

2,140

45

3,776

2,512

8,473

838,654

1,488
Consumer installment

121

—

7

1

129

39,685

—
Total

$
2,960

$
45

$
23,418

$
4,595

$
31,018

$
2,959,553

$
3,149

~~(1)Total loan balance includes $41.1 million in PPP loans as of December 31, 2021.~~

December 31, 2020

Past Due 90

Total

Past Due

Days or More

Past Due,

30 to 89

and

Nonaccrual

Total
($in thousands)

Days

Still Accruing

Nonaccrual

PCI

and PCI

LHFI
Commercial, financial and agriculture (1)

$
1,007

$
244

$
2,197

$
221

$
3,669

$
579,443
Commercial real estate

2,116

1,553

19,499

3,388

26,556

1,652,993
Consumer real estate

5,389

895

2,480

5,954

14,718

850,206
Consumer installment

419

—

32

3

454

41,036
Total

$
8,931

$
2,692

$
24,208

$
9,566

$
45,397

$
3,123,678

~~(1)Total loan balance includes $239.7 million in PPP loans as of December 31, 2020.~~

~~Acquired Loans~~

On January 1, 2021, the Company adopted ASC 326 and elected to account for its existing acquired PCI loans as PCD loans included within the LHFI portfolio. The Company elected to maintain segments of loans that were previously accounted for under ASC 310-30 and will continue to account for these segments as a unit of account unless the loan is collateral dependent. PCD loans that are collateral dependent will be assessed individually. Loans are only removed from the existing segments if they are written off, paid off, or sold. Upon adoption of ASC 326, the ACL was determined for each segment and added to the band’s carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the segment and the new amortized cost basis was the noncredit discount of approximately $685 thousand, which will be accreted into interest income over the remaining life of the segment. Changes to the ACL after adoption are recorded through provision expense. As of December 31, 2021, the amortized cost of the Company’s PCD loans totaled $8.6 million, which had an estimated ACL of $855 thousand.

Prior to the adoption of FASB ASC 326, the Company acquired loans with deteriorated credit quality in 2014, 2017, 2018, 2019 and 2020. These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated as of the acquisition date between those considered to be performing (acquired non-impaired loans) and those with evidence of credit deterioration (PCI loans). Acquired loans are considered to be impaired if it is probable, based on current available information, that the Company will be unable to collect all cash flows as expected. If expected cash flows cannot reasonably be estimated as to what will be collected, there will not be any interest income recognized on these loans.

88

~~Table of Contents~~

~~Impaired LHFI~~

Prior to the adoption of FASB ASC 326, the Company individually evaluated impaired LHFI. The following table provides a detail of impaired loans broken out according to class as of December 31, 2020 and 2019. The following table does not include PCI loans. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. Recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.

December 31, 2020

Average

Interest
($ in thousands)

Recorded

Income

Recorded

Unpaid

Related

Investment

Recognized


Investment

Balance

Allowance

YTD

YTD
Impaired loans with no related allowance:










Commercial, financial and agriculture

$
0

$
0

$
0

$
198

$
0
Commercial real estate

5,884

6,087

0

11,433

47
Consumer real estate

712

758

0

790

5
Consumer installment

23

24

0

17

0
Total

$
6,619

$
6,869

$
0

$
12,438

$
52

Impaired loans with a related allowance:

Commercial, financial and agriculture

$
2,241

$
2,254

$
1,235

$
2,186

$
58
Commercial real estate

17,973

18,248

4,244

13,687

36
Consumer real estate

536

544

176

734

4
Consumer installment

26

26

14

86

0
Total

$
20,776

$
21,072

$
5,669

$
16,693

$
98

Total impaired loans:

Commercial, financial and agriculture

$
2,241

$
2,254

$
1,235

$
2,384

$
58
Commercial real estate

23,857

24,335

4,244

25,120

83
Consumer real estate

1,248

1,302

176

1,524

9
Consumer installment

49

50

14

103

0
Total Impaired Loans

$
27,395

$
27,941

$
5,669

$
29,131

$
150

89

~~Table of Contents~~

Average

Interest

Recorded

Income
December 31, 2019

Recorded

Unpaid

Related

Investment

Recognized
($ in thousands)

Investment

Balance

Allowance

YTD

YTD
Impaired loans with no related allowance:










Commercial, financial and agriculture

$
59

$
62

$
—

$
294

$
7
Commercial real estate

13,556

13,671

—

10,473

591
Consumer real estate

542

594

—

2,173

—
Consumer installment

21

21

—

23

—
Total

$
14,178

$
14,348

$
—

$
12,963

$
598

Impaired loans with a related allowance:










Commercial, financial and agriculture

$
2,434

$
2,434

$
1,182

$
2,039

$
13
Commercial real estate

12,428

12,563

3,021

10,026

49
Consumer real estate

639

657

141

560

3
Consumer installment

260

260

80

164

2
Total

$
15,761

$
15,914

$
4,424

$
12,789

$
67

Total impaired loans:










Commercial, financial and agriculture

$
2,493

$
2,496

$
1,182

$
2,333

$
20
Commercial real estate

25,984

26,234

3,021

20,499

640
Consumer real estate

1,181

1,251

141

2,733

3
Consumer installment

281

281

80

187

2
Total Impaired Loans

$
29,939

$
30,262

$
4,424

$
25,752

$
665

~~The cash basis interest earned in the chart above is materially the same as the interest recognized during impairment for the years ended December 31, 2020 and 2019.~~

The gross interest income that would have been recorded in the period that ended if the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of twelve months for the years ended December 31, 2020 and 2019, was $1.5 million and $348 thousand, respectively. The Company had 0 loan commitments to borrowers in nonaccrual status at December 31, 2020 and 2019.

~~Troubled Debt Restructurings~~

~~If the Company grants a concession to a borrower for economic or legal reasons related to a borrower’s financial difficulties that it would not otherwise consider, the loan is classified as TDRs.~~

In response to the COVID-19 pandemic and its economic impact to its customers, the Company implemented a short-term modification program in accordance with interagency regulatory guidance to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due at the time of the modification. This program allowed for a deferral of payments for up two successive 90-day periods for a cumulative maximum of 180 days. Pursuant to interagency guidance, such short-term deferrals are not deemed to meet the criteria for reporting as TDRs. For borrowers requiring a longer-term modification following the short-term loan modification program the Company worked with these borrowers whose loans were not more 30 days past due at December 31, 2019 and who required modification as a result of COVID-19 to modify such loans under Section 4013 of the CARES Act.

As of December 31, 2021, 2020, and 2019 the Company had TDRs totaling $24.2 million, $27.5 million, and $32.0 million, respectively. As of December 31, 2021, the Company had 0 additional amount committed on any loan classified as TDR. As of December 31, 2021, TDRs had a related ACL of $4.3 million, compared to a related allowance for loan loss of $4.1 million and $2.1 million at December 31, 2020 and 2019, respectively.

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~~Table of Contents~~

~~The following table presents LHFI by class modified as TDRs that occurred during the twelve months ended December 31, 2021, 2020, and 2019 ($ in thousands, except for number of loans).~~

Outstanding

Outstanding


Recorded

Recorded

Interest

Number of

Investment

Investment

Income
December 31, 2021

Loans

Pre-Modification

Post-Modification

Recognized
Commercial, financial and agriculture

1

$
38

$
37

$
4
Commercial real estate

5

5,151

4,890

230
Consumer real estate

4

222

187

5
Consumer installment

1

13

1

0
Total

11

$
5,424

$
5,115

$
239

December 31, 2020

Commercial, financial and agriculture

1

$
12

$
9

$
2
Commercial real estate

7

2,067

2,042

40
Consumer installment

1

1

1

—
Total

9

$
2,080

$
2,052

$
42

December 31, 2019

Commercial, financial and agriculture

7

$
979

$
1,023

$
19
Commercial real estate

14

15,953

16,122

137
Consumer real estate

3

551

553

12
Consumer installment

2

10

11

—
Total

26

$
17,493

$
17,709

$
168

The TDRs presented above increased the ACL $1.6 million and increased the allowance for loan losses $127 thousand and $1.4 million and resulted in 0 charge-offs for the years ended December 31, 2021, 2020, and 2019, respectively.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the year ending December 31, 2021, 2020, and 2019 ($ in thousands, except for number of loans).

2021

2020

2019
Troubled Debt Restructurings

Number of

Recorded

Number of

Recorded

Number of

Recorded
That Subsequently Defaulted:

Loans

Investment

Loans

Investment

Loans

Investment
Commercial, financial and agriculture

—

$
—

—

$
—

10

$
458
Commercial real estate

—

—

4

1,121

4

15,423
Consumer real estate

2

55

—

—

—

—
Total

2

$
55

4

$
1,121

14

$
15,881

The modifications described above included one of the following or a combination of the following: maturity date extensions, interest only payments, amortizations were extended beyond what would be available on similar type loans, and payment waiver. No interest rate concessions were given on these loans nor were any of these loans written down. A loan is considered to be in a payment default once it is 30 days contractually past due under the modified terms. The TDRs presented above increased the ACL $21 thousand and the allowance for loan losses $81 thousand and $1.3 million and resulted in no charge-offs for the years ended December 31, 2021, 2020, and 2019 respectively.

91

~~Table of Contents~~

~~The following tables represents the Company’s TDRs at December 31, 2021 and 2020:~~

December 31, 2021

Past Due 90

Current

Past Due

days and still

Loans

30-89

accruing

Nonaccrual

Total
($ in thousands)

Commercial, financial and agriculture

$
63

$
—

$
—

$
107

$
170
Commercial real estate

3,367

—

—

16,858

20,225
Consumer real estate

1,772

—

—

1,973

3,745
Consumer installment

18

—

—

—

18
Total

$
5,220

$
—

$
—

$
18,938

$
24,158
Allowance for credit losses

$
90

$
—

$
—

$
4,217

$
4,307

December 31, 2020

Past Due 90

Current

Past Due

days and still

($ in thousands)

Loans

30-89

accruing

Nonaccrual

Total
Commercial, financial and agriculture

$
59

$
—

$
—

$
765

$
824
Commercial real estate

4,560

49

—

18,076

22,685
Consumer real estate

1,559

269

—

2,161

3,989
Consumer installment

23

3

—

—

26
Total

$
6,201

$
321

$
—

$
21,002

$
27,524
Allowance for loan losses

$
163

$
29

$
—

$
3,936

$
4,128

For the year ended December 31, 2021, we have modified approximately 1,643 loans for $710.7 million, of which 1,391 loans for $582.3 million were modified to defer monthly principal and interest payments and 252 loans for $128.4 million were modified from monthly principal and interest payments to interest only. As of December 31, 2021, we have approximately 419 PPP loans approved through the SBA for a balance of $41.1 million outstanding. PPP loans were excluded from the allowance for credit losses.

~~Collateral Dependent Loans~~

~~The following table presents the amortized cost basis of collateral dependent individually evaluated loans by class of loans as of December 31, 2021:~~

($ in thousands)

Real Property

Total
Commercial real estate

$
1,712

$
1,712
Consumer real estate

1,858

1,858
Total

$
3,570

$
3,570

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The following provides a qualitative description by class of loan of the collateral that secures the Company’s collateral-dependent LHFI:

●

~~Commercial, financial and agriculture – Loans within these loan classes are secured by equipment, inventory accounts, and other non-real estate collateral.~~

●

~~Commercial real estate – Loans within these loan classes are secured by commercial real property.~~

●

~~Consumer real estate - Loans within these loan classes are secured by consumer real property.~~

●

~~Consumer installment - Loans within these loan classes are secured by consumer goods, equipment, and non-real estate collateral.~~

~~There have been no significant changes to the collateral that secures these financial assets during the period.~~

92

~~Table of Contents~~

~~Loan Participations~~

The Company has loan participations, which qualify as participating interest, with other financial institutions. As of December 31, 2021, these loans totaled $118.4 million, of which $77.8 million had been sold to other financial institutions and $40.6 million was purchased by the Company. As of December 31, 2020, these loans totaled $127.7 million, of which $80.3 million had been sold to other financial institutions and $47.4 million was purchased by the company. The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involving no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided among the participating interest holders in proportion to each holder’s share of ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree.

~~Credit Quality Indicators~~

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. The Company uses the following definitions for risk ratings:

~~Pass:~~ ~~Loan classified as pass are deemed to possess average to superior credit quality, requiring no more than normal attention.~~

~~Special Mention~~: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

~~Substandard~~: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

~~Doubtful~~: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

~~These above classifications were the most current available as of December 31, 2021, and were generally updated within the prior year.~~

93

~~Table of Contents~~

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed. Revolving loans converted to term as of year ended December 31, 2021 were not material to the total loan portfolio.

($ in thousands)

Term Loans Amortized Cost Basis by Origination Year

Revolving

As of December 31, 2021

2021

2020

2019

2018

2017

Prior

Loans

Total
Commercial, financial and:

agriculture

Risk Rating

Pass

$
152,798

$
60,106

$
52,802

$
47,988

$
22,083

$
43,773

$
178

$
379,728
Special mention

—

255

749

90

481

29

—

1,604
Substandard

—

—

1,398

6,184

360

8,242

—

16,184
Doubtful

—

—

—

—

—

—

—

—
Total commercial, financial and agriculture

$
152,798

$
60,361

$
54,949

$
54,262

$
22,924

$
52,044

$
178

$
397,516

Commercial real estate:

Risk Rating

Pass

$
402,284

$
313,288

$
207,879

$
177,943

$
134,234

$
332,588

$
—

$
1,568,216
Special mention

1,326

2,259

1,782

15,076

2,779

15,519

—

38,741
Substandard

3,904

3,189

1,931

17,147

18,814

31,756

—

76,741
Doubtful

—

—

—

—

—

—

—

—
Total commercial real estate

$
407,514

$
318,736

$
211,592

$
210,166

$
155,827

$
379,863

$
—

$
1,683,698

Consumer real estate:

Risk Rating

Pass

$
243,340

$
164,359

$
70,465

$
66,940

$
51,988

$
121,238

$
98,444

$
816,774
Special mention

—

—

331

26

1,746

1,949

—

4,052
Substandard

444

532

1,280

3,410

1,288

9,241

1,633

17,828
Doubtful

—

—

—

—

—

—

—

—
Total consumer real estate

$
243,784

$
164,891

$
72,076

$
70,376

$
55,022

$
132,428

$
100,077

$
838,654

Consumer installment:

Risk Rating

Pass

$
17,980

$
9,245

$
4,222

$
1,645

$
1,088

$
1,758

$
3,697

$
39,635
Special mention

—

—

—

—

1

—

—

1
Substandard

—

26

3

5

8

7

—

49
Doubtful

—

—

—

—

—

—

—

—
Total consumer installment

$
17,980

$
9,271

$
4,225

$
1,650

$
1,097

$
1,765

$
3,697

$
39,685

Total

Pass

$
816,402

$
546,998

$
335,368

$
294,516

$
209,393

$
499,357

$
102,319

$
2,804,353
Special mention

1,326

2,514

2,862

15,192

5,007

17,497

—

44,398
Substandard

4,348

3,747

4,612

26,746

20,470

49,246

1,633

110,802
Doubtful

0

0

0

0

0

0

0

0
Total

$
822,076

$
553,259

$
342,842

$
336,454

$
234,870

$
566,100

$
103,952

$
2,959,553

94

~~Table of Contents~~

~~At December 31, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans (excluding mortgage loans held for sale) was as follows:~~

Commercial,

December 31, 2020

Financial and

Commercial

Consumer

Consumer

($ in thousands)

Agriculture

Real Estate

Real Estate

Installment

Total
Pass

$
563,772

$
1,530,366

$
834,920

$
40,884

$
2,969,942
Special Mention

2,143

64,012

1,889

20

68,064
Substandard

11,875

66,535

13,397

132

91,939
Doubtful

1,653

23

-

-

1,676
Subtotal

$
579,443

$
1,660,936

$
850,206

$
41,036

$
3,131,621
Less: Unearned discount

-

7,943

-

-

7,943
LHFI, net of unearned discount

$
579,443

$
1,652,993

$
850,206

$
41,036

$
3,123,678

~~Allowance for Credit Losses (ACL)~~

The ACL is a valuation account that is deducted from loans’ amortized cost basis to present the net amount expected to be collected on the loans. It is comprised of a general allowance for loans that are collectively assessed in pools with similar risk characteristics and a specific allowance for individually assessed loans. The allowance is continuously monitored by management to maintain a level adequate to absorb expected losses inherent in the loan portfolio. See Note 3. “Accounting Standards” to the Consolidated Financial Statements for additional information.

The following table presents the activity in the allowance for credit losses by portfolio segment for the ~~year~~years ended December 31, ~~2021~~2023, 2022, and ~~the allowance for loan losses for the year ended December 31, 2020:~~

December 31, 2021

Commercial,

Financial and

Commercial

Consumer

Consumer

($ in thousands)

Agriculture

Real Estate

Real Estate

Installment

Total
Allowance for credit losses:










Beginning balance

$
6,214

$
24,319

$
4,736

$
551

$
35,820
Impact of ASC 326 adoption on










non-PCD loans

(1,319)

(4,607)

5,257

(49)

(718)
Impact of ASC 326 adoption on










PCD loans

166

575

372

2

1,115
Provision for credit losses (1)

1,041

(100)

(2,314)

(83)

(1,456)
Loans charged-off

(1,662)

(3,523)

(473)

(555)

(6,213)
Recoveries

433

888

311

562

2,194
Total ending allowance balance

$
4,873

$
17,552

$
7,889

$
428

$
30,742

2021.


	December 31, 2023
($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
Allowance for credit losses:
Beginning balance	$	6,349	$	20,389	$	11,599	$	580	$	38,917
Initial allowance on PCD loans	727		2,260		182		7		3,176
Provision for credit losses	2,164		6,610		3,279		1,697		13,750
Loans charged-off	(745)		(250)		(49)		(2,048)		(3,092)
Recoveries	349		116		249		567		1,281
Total ending allowance balance	$	8,844	$	29,125	$	15,260	$	803	$	54,032


	December 31, 2022
($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
Allowance for credit losses:
Beginning balance	$	4,873	$	17,552	$	7,889	$	428	$	30,742
Initial allowance on PCD loans	614		576		113		—		1,303
Provision for credit losses	688		1,742		2,786		134		5,350
Loans charged-off	(259)		(72)		(204)		(683)		(1,218)
Recoveries	433		591		1,015		701		2,740
Total ending allowance balance	$	6,349	$	20,389	$	11,599	$	580	$	38,917


	December 31, 2021
($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
Allowance for credit losses:
Beginning balance	$	6,214	$	24,319	$	4,736	$	551	$	35,820
Impact of ASC 326 adoption on
non-PCD loans	(1,319)		(4,607)		5,257		(49)		(718)
Impact of ASC 326 adoption on
PCD loans	166		575		372		2		1,115
Provision for credit losses (1)	1,041		(100)		(2,314)		(83)		(1,456)
Loans charged-off	(1,662)		(3,523)		(473)		(555)		(6,213)
Recoveries	433		888		311		562		2,194
Total ending allowance balance	$	4,873	$	17,552	$	7,889	$	428	$	30,742


(1)			The negative provision of $~~1.1~~$1.5 million for credit losses on the consolidated statements of income ~~includes a~~ ~~$1.5~~ ~~million negative loan loss provision,~~is net of a $370 thousand provision for credit marks in the Cadence Bank Branches loans acquired ~~and a $352 thousand provision for OBSC exposures~~ for the year ended December 31, ~~2021.~~2022.

December 31, 2020

Commercial,

Financial and

Commercial

Consumer

Consumer

($in thousands)

Agriculture

Real Estate

Real Estate

Installment

Unallocated

Total
Allowance for loan losses:












Beginning balance

$
3,043

$
8,836

$
1,694

$
296

$
39

$
13,908
Provision for loan losses

4,498

17,321

3,071

300

(39)

25,151
Loans charged-off

(1,496)

(2,256)

(280)

(447)

—

(4,479)
Recoveries

169

418

251

402

—

1,240
Total ending allowance balance

$
6,214

$
24,319

$
4,736

$
551

$
—

$
35,820

95

~~Table of Contents~~

The Company recorded a $$13.8 million, provision for credit losses for the year ended December 31, 2023, compared to $5.4 million for the year ended December 31, 2022. The 2023 provision for credit losses increase is attributable to loan growth and the acquisition of HSBI in January 2023. Total loans were $5.116 billion at December 31, 2023, compared to $3.735 billion at December 31, 2022, representing an increase of $1.381 billion, or 37.0%. During January 2023, loans totaling $1.159 billion, net of purchase accounting adjustments, were acquired as part of the HSBI

101

~~1.1~~

acquisition. The initial ACL on PCD loans recorded in March 2023, of $3.2 million was related to the HSBI acquisition. In addition, the 2023 provision for credit losses includes $10.7 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments acquired in the HSBI acquisition. The 2022 provision includes $3.9 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments and a $1.3 million initial allowance recorded on PCD loans acquired as part of the BBI merger.

The Company recorded a $5.4 million, provision for credit losses for the year ended December 31, 2022, compared to $1.5 million, negative provision for credit losses for the year ended December 31, ~~2021, compared to $25.2~~2021. The 2022 provision for credit losses includes $3.9 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments. A $1.3 million initial allowance was recorded on PCD loans acquired in the ~~year ended December 31, 2020.~~BBI merger. The negative provision for 2021 was composed of a $~~1.5~~$1.5 million decrease in the ACL for LHFI, net of $370 thousand provision for credit marks on the Cadence Bank Branches loans ~~acquired, and a $352 thousand increase in the reserve for OBSC exposures.~~acquired. The negative provision for credit losses in 2021 was primarily due to the improved macroeconomic outlook for 2021. ~~The higher provision in 2020 was related to our estimates of probable incurred losses associated with COVID-19.~~

The following table provides the ending balance in the Company’s LHFI and the ACL, broken down by portfolio segment as of December 31, ~~2021.~~2023 and 2022. The table also provides additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment ~~evaluation ($ in thousands).~~

December 31, 2021

Commercial,












Financial and

Commercial

Consumer

Consumer

Agriculture

Real Estate

Real Estate

Installment

Total
LHFI










Individually evaluated

$
—

$
1,712

$
1,858

$
—

$
3,570
Collectively evaluated

397,516

1,681,986

836,796

39,685

2,955,983
Total

$
397,516

$
1,683,698

$
838,654

$
39,685

$
2,959,553

Allowance for Credit Losses










Individually evaluated

$
—

$
4

$
2

$
—

$
6
Collectively evaluated

4,873

17,548

7,887

428

30,736
Total

$
4,873

$
17,552

$
7,889

$
428

$
30,742

The following table provides the ending balance in the Company’s LHFI and the allowance for loan losses, broken down by portfolio segment as of December 31, 2020. The table also provides additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation. ~~The impairment evaluation corresponds to the Company’s systematic methodology for estimating it Allowance for Loan Losses ($ in thousands).~~

December 31, 2020

Commercial,












Financial and

Commercial

Consumer

Consumer

Agriculture

Real Estate

Real Estate

Installment

Total
LHFI










Individually evaluated

$
2,241

$
23,857

$
1,248

$
49

$
27,395
Collectively evaluated

574,152

1,971,292

494,833

41,498

3,081,775
PCI Loans

244

9,056

5,185

23

14,508
Total

$
576,637

$
2,004,205

$
501,266

$
41,570

$
3,123,678

Allowance for Loan Losses










Individually evaluated

$
1,235

$
4,244

$
176

$
14

$
5,669
Collectively evaluated

4,979

20,075

4,560

537

30,151
Total

$
6,214

$
24,319

$
4,736

$
551

$
35,820

96


($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
December 31, 2023
LHFI
Individually evaluated	$	1,414	$	710	$	778	$	—	$	2,902
Collectively evaluated	798,910		3,058,445		1,252,017		57,768		5,167,140
Total	$	800,324	$	3,059,155	$	1,252,795	$	57,768	$	5,170,042

Allowance for Credit Losses
Individually evaluated	$	408	$	—	$	—	$	—	$	408
Collectively evaluated	8,436		29,125		15,260		803		53,624
Total	$	8,844	$	29,125	$	15,260	$	803	$	54,032


($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
December 31, 2022
LHFI
Individually evaluated	$	—	$	4,560	$	998	$	—	$	5,558
Collectively evaluated	536,192		2,130,703		1,058,001		43,703		3,768,599
Total	$	536,192	$	2,135,263	$	1,058,999	$	43,703	$	3,774,157

Allowance for Credit Losses
Individually evaluated	$	—	$	—	$	5	$	—	$	5
Collectively evaluated	6,349		20,389		11,594		580		38,912
Total	$	6,349	$	20,389	$	11,599	$	580	$	38,917

102

~~Table of Contents~~

NOTE F - PREMISES AND EQUIPMENT

Premises and equipment owned and utilized in the operations of the Company are stated at cost, less accumulated depreciation and amortization as follows:

($ in thousands)

2021

2020
Premises:




Land

$
37,939

$
34,976
Buildings and improvements

89,165

78,490
Equipment

28,978

26,992
Construction in progress

1,357

521

157,439

140,979
Less accumulated depreciation and amortization

31,480

26,156
Total

$
125,959

$
114,823


($ in thousands)	2023		2022
Premises:
Land	$	48,460	$	40,846
Buildings and improvements	126,013		100,830
Equipment	41,788		32,486
Construction in progress	1,808		6,447
	218,069		180,609
Less accumulated depreciation and amortization	43,760		37,091
Total	$	174,309	$	143,518

The amounts charged to operating expense for depreciation were $7.4 million, $5.7 million, and $5.4 million ~~$4.9 million~~in 2023, 2022 and ~~$3.8 million in~~ 2021, ~~2020 and 2019,~~ respectively.

NOTE G - DEPOSITS

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at December 31, ~~2021~~2023 and ~~2020,~~2022, were ~~$141.5~~$292.9 million and ~~$149.4~~$146.6 million, respectively.

At December 31, ~~2021,~~2023, the scheduled maturities of time deposits included in interest-bearing deposits were as ~~follows ($ in thousands):~~

Year

Amount
2021

$
444,983
2022

81,276
2023

24,205
2024

10,801
2025

13,039
Thereafter

10,305
Total

$
584,609

follows:


($ in thousands)
Year	Amount
2024	$	971,259
2025	59,867
2026	13,593
2027	7,575
2028	14,935
Thereafter	8,527
Total	$	1,075,756

NOTE H - BORROWED FUNDS

At December 31, ~~2021~~2023 and ~~2020,~~2022, borrowed funds consisted of the ~~following ($~~following:


($ in thousands)	2023		2022
Bank Term Funding Program	$	390,000	$	—
FHLB advances	—		130,100
Total	$	390,000	$	130,100

On March 12, 2023, the Federal Reserve Board announced the Bank Term Funding Program ("BTFP"), which offers loans to banks with a term up to one year. The loans are secured by pledging the banks' U.S. treasuries, agency securities, agency securities, agency mortgage-backed securities, and any other qualifying asset. These pledged securities will be valued at par for collateral purposes. The BTFP offers up to one year fixed-rate term borrowings that are prepayable without penalty.

103

In 2023, the Bank participated in ~~thousands):~~

2021

2020
FHLB advances

$
—

$
110,000
First Horizon Bank

—

4,647
Total

$
—

$
114,647

the BTFP and had outstanding debt of $390.0 million, pledged securities totaling a fair value for $362.4 million at December 31, 2023. The securities pledged have a par value of $398.1 million. The Bank's BTFP borrowings, which were drawn between March 15, 2023 and December 28, 2023, bear interest rates ranging from 4.69% to 4.83% and are set to mature one year from their issuance date.

In ~~2021, the Company repaid $110.0 million in FHLB advances and $4.6 million in borrowings from First Horizon Bank. In 2020,~~2022, each advance from the FHLB was payable at its maturity date, with a prepayment penalty for fixed rate advances. Interest was payable monthly at rates ranging from ~~0.72%~~4.55% to ~~0.77%~~4.58%. Advances due to the FHLB are collateralized by a blanket lien on first mortgage loans in the amount of the outstanding borrowings, FHLB capital stock, and amounts on deposit with the FHLB. In ~~2020,~~2022, advances due to the FHLB were collateralized by ~~$3.120~~$3.651 billion in loans. Based on this collateral and holdings of FHLB stock, the Company is eligible to borrow up to a total of ~~$1.478~~$2.051 billion and ~~$1.421~~$1.679 billion at December 31, ~~2021~~2023 and ~~2020,~~2022, respectively.

~~On November 1, 2019,~~

Payments over the Company acquired First Florida Bancorp and assumed two borrowings in the amount of $3.5 million and $2.0 million with First Horizon Bank. Principal and interest were payable quarterly at rates ranging from 3.80% - 4.10%.

next five years are as follows:

97


($ in thousands)
2024	$	390,000
2025	—
2026	—
2027	—
2028	—

~~Table of Contents~~

NOTE I – LEASE OBLIGATIONS

The Company enters into leases in the normal course of business primarily for financial centers, ~~back office~~back-office operations locations and business development offices. The Company’s leases have remaining terms ranging from 1 to 108 years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term and is recorded in net occupancy and equipment expense in the consolidated statements of income and other comprehensive income. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date and based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB amortizing advance rate, adjusted for the lease term and other factors.

104

The following table details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at December 31, ~~2021~~2023 and ~~2020 ($ in thousands):~~

December 31,

December 31,

2021

2020

Right-of-use assets:

Operating leases

$
4,095

$
5,969

Finance leases, net of accumulated depreciation

2,394

2,658

Total right-of-use assets

$
6,489

$
8,627

Lease liabilities:





Operating lease

$
4,192

$
6,031

Finance lease

2,094

2,281

Total lease liabilities

$
6,286

$
8,312

Weighted average remaining lease term





Operating leases

4.0 years

4.4 years

Finance leases

9.9 years

11.2 years

Weighted average discount rate





Operating leases

2.4
%

2.3
%
Finance leases

2.2
%

2.0
%

2022.

98


($ in thousands)	December 31, 2023		December 31, 2022
Right-of-use assets:
Operating leases	$	6,387	$	7,620
Finance leases, net of accumulated depreciation	1,466		1,930
Total right-of-use assets	$	7,853	$	9,550

Lease liabilities:
Operating lease	$	6,550	$	7,810
Finance lease	1,739		1,918
Total lease liabilities	$	8,289	$	9,728

Weighted average remaining lease term
Operating leases	7.2 years		7.5 years
Finance leases	7.9 years		8.9 years

Weighted average discount rate
Operating leases	2.0%		1.8%
Finance leases	2.2%		2.2%

~~Table of Contents~~

The table below summarizes our net lease ~~costs ($ in thousands):~~

December 31,


2021

2020

2019
Operating lease cost

$
1,657

$
1,763

$
898
Finance lease cost:

Interest on lease liabilities

7

7

—
Amortization of right-of-use

263

183

—
Net lease cost

$
1,927

$
1,953

$
898

costs.


($ in thousands)	December 31,
	2023		2022		2021
Operating lease cost	$	1,504	$	1,464	$	1,657
Finance lease cost:
Interest on lease liabilities	40		44		7
Amortization of right-of-use	464		464		263
Net lease cost	$	2,008	$	1,972	$	1,927

The table below summarizes the maturity of remaining lease liabilities at December 31, ~~2021 ($ in thousands):~~

2023.


($ in thousands)	December 31, 2023
	Operating Leases		Finance Leases

2024	$	1,144	$	220
2025	1,043		220
2026	945		222
2027	777		252
2028	691		252
Thereafter	2,439		735
Total lease payments	7,039		1,901
Less: Interest	(489)		(162)
Present value of lease liabilities	$	6,550	$	1,739

105

December 31, 2021

Operating Leases

Finance Leases

2022

$
1,260

$
220
2023

1,124

220
2024

865

220
2025

666

220
2026

454

222
Thereafter

24

1,238
Total lease payments

4,393

2,340
Less: Interest

(201)

(246)
Present value of lease liabilities

$
4,192

$
2,094

NOTE J - REGULATORY MATTERS

On January 15, 2022, The First, A National Banking Association, a subsidiary of the Company, converted from a national banking association to a Mississippi state-chartered bank and changed its name to The First Bank. The First Bank is a member of the Federal Reserve System through the Federal Reserve Bank of Atlanta.

The Company and its subsidiary bank are subject to regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiary bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgment by regulators about components, risk weightings, and other related factors.

To ensure capital adequacy, quantitative measures have been established by regulators, and these require the Company and its subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), Tier 1 capital to adjusted total assets (leverage) and common equity Tier 1.

Management believes, as of December 31, ~~2021,~~2023, that the Company met all capital adequacy requirements to which they are subject. Under Basel III requirements, a financial institution is considered to be well-capitalized if it has a total risk-based capital ratio of 10% or more, has a Tier 1 risk-based capital ratio of 8% or more, has a common equity Tier 1 of 6.5%, and has a Tier 1 leverage

99

~~Table of Contents~~

capital ratio of 5% or more.

The actual capital amounts and ratios, excluding unrealized losses, at December 31, ~~2021~~2023 and ~~2020~~2022 are presented in the following table. No amount was deducted from capital for interest-rate risk ~~exposure ($ in thousands).~~

exposure.


($ in thousands)
December 31, 2023	Company (Consolidated)				Subsidiary The First
	Amount		Ratio		Amount		Ratio

Total risk-based	$	892,310	15.0	%	$	875,071	14.8	%
Common equity Tier 1	715,858		12.1	%	821,246		13.8	%
Tier 1 risk-based	740,113		12.5	%	821,246		13.8	%
Tier 1 leverage	740,113		9.7	%	821,246		10.7	%

December 31, 2022	Amount		Ratio		Amount		Ratio
Total risk-based	$	753,708	16.7	%	$	739,616	16.4	%
Common equity Tier 1	570,660		12.7	%	701,099		15.6	%
Tier 1 risk-based	586,068		13.0	%	701,099		15.6	%
Tier 1 leverage	586,068		9.3	%	701,099		11.1	%

106

Company

Subsidiary

December 31, 2021

(Consolidated)

The First


Amount

Ratio

Amount

Ratio









Total risk-based

$
662,658

18.6
%
$
618,472

17.4
%
Common equity Tier 1

488,290

13.7
%

588,334

16.6
%
Tier 1 risk-based

503,644

14.1
%

588,334

16.6
%
Tier 1 leverage

503,644

9.2
%

588,334

10.8
%

December 31, 2020










Amount

Ratio

Amount

Ratio

Total risk-based

$
618,025

19.1
%
$
549,273

16.9
%
Common equity Tier 1

438,109

13.5
%

513,453

15.8
%
Tier 1 risk-based

453,409

14.0
%

513,453

15.8
%
Tier 1 leverage

453,409

9.2
%

513,453

10.4
%

The minimum amounts of capital and ratios, not including Accumulated Other Comprehensive Income, as established by banking regulators at December 31, ~~2021,~~2023, and ~~2020,~~2022, were as ~~follows ($ in thousands):~~

Company

Subsidiary

December 31, 2021

(Consolidated)

The First


Amount

Ratio

Amount

Ratio









Total risk-based

$
285,049

8.0
%
$
284,209

8.0
%
Common equity Tier 1

160,340

4.5
%

159,868

4.5
%
Tier 1 risk-based

213,787

6.0
%

213,157

6.0
%
Tier 1 leverage

142,524

4.0
%

142,105

4.0
%

December 31, 2020

Amount

Ratio

Amount

Ratio

Total risk-based

$
258,896

8.0
%
$
259,136

8.0
%
Common equity Tier 1

145,629

4.5
%

145,764

4.5
%
Tier 1 risk-based

194,172

6.0
%

194,352

6.0
%
Tier 1 leverage

129,448

4.0
%

129,568

4.0
%

follows:


($ in thousands)
December 31, 2023	Company (Consolidated)				Subsidiary The First
	Amount		Ratio		Amount		Ratio

Total risk-based	$	475,183	8.0	%	$	474,679	8.0	%
Common equity Tier 1	267,291		4.5	%	267,007		4.5	%
Tier 1 risk-based	356,387		6.0	%	356,009		6.0	%
Tier 1 leverage	237,592		4.0	%	237,339		4.0	%


December 31, 2022	Amount		Ratio		Amount		Ratio
Total risk-based	$	360,597	8.0	%	$	360,071	8.0	%
Common equity Tier 1	202,836		4.5	%	202,540		4.5	%
Tier 1 risk-based	270,447		6.0	%	270,053		6.0	%
Tier 1 leverage	180,298		4.0	%	180,035		4.0	%

The principal sources of funds to the Company to pay dividends are the dividends received from the Bank. Consequently, dividends are dependent upon The First’s earnings, capital needs, regulatory policies, as well as statutory and regulatory limitations. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer. Federal and state banking laws and regulations restrict the amount of dividends and loans a bank may make to its parent company. Approval by the Company’s regulators is required if the total of all dividends declared in any calendar year exceed the total of its net income for that year combined with its retained net income of the preceding two years. In ~~2021,~~2023, the Bank had available ~~$116.0~~$147.3 million to pay dividends.

On December 14, 2021, the U.S. Department of Treasury informed the Company of its eligibility to receive $175.0 million of non-dilutive Tier 1 perpetual preferred capital under the ECIP. Established by the Consolidated Appropriations Act of 2021, the ECIP was created to encourage low-and moderate-income community financial institutions to augment their efforts to support small businesses and consumers in their communities. The Company has not accepted any capital from the ECIP, and any subsequent acceptance will be subject to approval by the Company’s board of directors and acceptance of the terms governing the ECIP established by the U.S. Department of Treasury.

~~100~~

~~Table of Contents~~

NOTE K - INCOME TAXES

The components of income tax expense are as ~~follows ($ in thousands):~~

follows:


($ in thousands)	Years Ended December 31,
	2023		2022		2021
Current:
Federal	$	11,754	$	12,071	$	12,546
State	2,587		2,759		2,630
Deferred	7,006		940		1,739
Total income tax expense	$	21,347	$	15,770	$	16,915

107

Years Ended December 31,


2021

2020

2019
Current:






Federal

$
12,546

$
11,270

$
9,477
State

2,630

2,308

2,312
Deferred

1,739

(3,015)

912
Total income tax expense

$
16,915

$
10,563

$
12,701

The Company's income tax expense differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as ~~follows ($ in thousands):~~

Years Ended December 31,

2021

2020

2019


Amount

%

Amount

%

Amount

%

Income taxes at statutory rate

$
17,027

21
%
$
13,244

21
%
$
11,854

21
%
Tax-exempt income, net

(1,692)

(2)
%

(1,868)

(2)
%

(1,176)

(2)
%
Bargain purchase gain

0

0
%

(1,645)

(3)
%

0

0

Nondeductible expenses

29

0
%

188

0
%

348

1
%
State income tax, net of federal tax effect

2,299

3
%

1,600

3
%

1,969

4
%
Federal tax credits, net

(715)

(1)
%

(715)

(1)
%

(334)

(1)
%
Other, net

(33)

0
%

(241)

(1)
%

40

0
%

$
16,915

17
%
$
10,563

17
%
$
12,701

23
%

follows:


($ in thousands)	Years Ended December 31,
	2023				2022				2021
	Amount		%		Amount		%		Amount		%
Income taxes at statutory rate	$	20,289	21	%	$	16,525	21	%	$	17,027	21	%
Tax-exempt income, net	(1,696)		(2)	%	(2,369)		(3)	%	(1,692)		(2)	%
Nondeductible expenses	144		—	%	391		—	%	29		—	%
State income tax, net of federal tax effect	3,064		4	%	2,251		3	%	2,299		3	%
Federal tax credits, net	(715)		(1)	%	(715)		(1)	%	(715)		(1)	%
Other, net	261		—	%	(313)		—	%	(33)		—	%
	$	21,347	22	%	$	15,770	20	%	$	16,915	21	%

The components of deferred income taxes included in the consolidated financial statements were as ~~follows ($ in thousands):~~

December 31,


2021

2020
Deferred tax assets:




Allowance for loan losses

$
7,566

$
9,062
Net operating loss carryover

2,109

2,147
Nonaccrual loan interest

1,447

1,356
Other real estate

247

252
Deferred compensation

1,267

1,285
Loan purchase accounting

966

2,268
Lease liability

1,547

2,103
Other

2,421

2,046

17,570

20,519
Deferred tax liabilities:


Unrealized gain on available-for-sale securities

(2,702)

(8,743)
Securities

(778)

(880)
Premises and equipment

(7,637)

(7,698)
Core deposit intangible

(6,255)

(7,051)
Goodwill

(2,121)

(1,906)
Right-of-use asset

(1,702)

(2,103)
Other

(485)

(550)

(21,680)

(28,931)
Net deferred tax liability, included in other liabilities

$
(4,110)

$
(8,412)

follows:

~~101~~


($ in thousands)	December 31,
	2023		2022
Deferred tax assets:
Allowance for credit losses	$	13,276	$	9,581
Net operating loss carryover	27,256		24,531
Nonaccrual loan interest	826		600
Other real estate	1,092		894
Deferred compensation	1,161		1,205
Loan purchase accounting	6,438		2,554
Unrealized loss on available-for-sale securities	38,776		48,738
Lease liability	2,037		2,395
Other	5,014		3,299
	95,876		93,797
Deferred tax liabilities:
Securities	(560)		(627)
Premises and equipment	(9,017)		(6,588)
Core deposit intangible	(16,094)		(7,628)
Goodwill	(2,651)		(2,388)
Right-of-use asset	(1,929)		(2,517)
Other	(1,461)		(596)
	(31,712)		(20,344)
Net deferred tax asset/(liability), included in other assets/(liabilities)	$	64,164	$	73,453

~~Table of Contents~~

During 2020, the Company assumed a deferred tax liability of $2.5 million in its acquisition of SWG as well as utilized provisions of the CARES Act to carryback $712 thousand of net operating losses acquired as part of its 2019 acquisition of Florida Parishes Bank.

With the acquisition of Baldwin Bancshares, Inc. in 2013, ~~Bay~~BCB Holding Company, Inc. in 2014, Gulf Coast Community Bank in 2017, Sunshine Financial, Inc. in 2018, and ~~Florida Parishes Bank~~FPB Financial Corp. in 2019, ~~and~~ SWG in 2020, BBI in 2022, and HSBI in 2023, the Company assumed federal tax net operating loss carryovers. ~~$18.5~~$228.9 million of net operating losses remain available to the Company and begin to expire in 2026. The Company expects to fully utilize the net operating losses.

The Company follows the guidance of ASC Topic 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As of December 31, ~~2021,~~2023, the Company had no uncertain tax

108

positions that it believes should be recognized in the financial statements. The tax years still subject to examination by taxing authorities are years subsequent to ~~2017.~~

2019.

NOTE L - EMPLOYEE BENEFITS

The Company and the Bank provide a deferred compensation arrangement (401k plan) whereby employees contribute a percentage of their compensation. For employee contributions of six percent or less, the Company and its subsidiary bank provide a 50% matching contribution. Contributions totaled $1.5 million in 2023, $1.2 million in 2022, and $1.1 million in ~~2021, $990 thousand in 2020, and $771 thousand in 2019.~~

2021.

The Company sponsors an Employee Stock Ownership Plan (ESOP) for employees who have completed one year of service for the Company and attained age 21. Employees become fully vested after five years of service. Contributions to the plan are at the discretion of the Board of Directors. At December 31, ~~2021,~~2023, the ESOP held 5,728 shares valued at ~~$221~~$168 thousand of Company common stock and had no debt obligation. All shares held by the plan were considered outstanding for net income per share purposes. Total ESOP expense was ~~$ 3~~$24 thousand for ~~2021, $26~~2023, $33 thousand for ~~2020,~~2022, and ~~$11~~$3 thousand for ~~2019.~~

2021.

In 2014, the Company established a Supplemental Executive Retirement Plan (“SERP”) for three active key executives. During 2016, the Company established a SERP for eight additional active key executives. Pursuant to the SERP, these officers are entitled to receive 180 equal monthly payments commencing at the later of obtaining age 65 or separation from service. The costs of such benefits, assuming a retirement date at age 65, are accrued by the Company and included in other liabilities in the Consolidated Balance Sheets. The SERP balance at December 31, ~~2021~~2023 and ~~2020~~2022 was ~~$2.7~~$4.6 million and ~~$1.8~~$3.7 million, respectively. The Company accrued to expense $951 thousand for 2023, $945 thousand for 2022, and $945 thousand for 2021 ~~$676 thousand for 2020, and $257 thousand for 2019~~ for future benefits payable under the SERP. The SERP is an unfunded plan and is considered a general contractual obligation of the Company.

Upon the acquisition of Iberville Bank, Southwest Banc Shares, Inc., FMB Banking Corporation, and SWG, the Bank assumed deferred compensation agreements with directors and employees. At December 31, ~~2021,~~2023, the total liability of the deferred compensation agreements was ~~$907~~$763 thousand, $1.1 million, ~~$3.0~~$2.6 million, and ~~$433~~$273 thousand, respectively. Deferred compensation expense totaled ~~$21~~$24 thousand, ~~$138~~$152 thousand, ~~$189~~$112 thousand, and ~~$40~~$19 thousand, respectively for ~~2021.~~

2023.

NOTE M - STOCK PLANS

In 2007, the Company adopted the 2007 Stock Incentive Plan. The 2007 Plan provided for the issuance of up to 315,000 shares of Company Common Stock, $1.00 par value per share. In 2015, the Company adopted an amendment to the 2007 Stock Incentive Plan which provided for the issuance of an additional 300,000 shares of Company Common Stock, $1.00 par value per share, for a total of 615,000 shares. In ~~2020,~~2021, the Company adopted an amendment to the 2007 Stock Incentive Plan which provided for the issuance of an additional 500,000 shares of Company Common Stock, $1.00 par value per share, for a total of 1,115,000 shares. Shares issued under the 2007 Plan may consist in whole or in part of authorized but unissued shares or treasury shares. Total shares issuable under the plan are ~~493,579~~239,964 at year-end ~~2021,~~2023, and ~~93,578~~167,173 and ~~78,189~~129,950 shares were issued in ~~2021~~2023 and ~~2020,~~2022, respectively.

~~102~~

~~Table of Contents~~

A summary of changes in the Company’s nonvested shares for the year follows:

Weighted-

Average

Grant-Date
Nonvested shares

Shares

Fair Value
Nonvested at January 1, 2021

315,331

$
28.13
Granted

93,578

Vested

(92,578)

Forfeited

(2,021)

Nonvested at December 31, 2021

314,310

$
30.58


Nonvested shares	Shares	Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2023	364,056	$	31.88
Granted	167,173
Vested	(54,094)
Forfeited	(12,194)
Nonvested at December 31, 2023	464,941	$	31.08

As of December 31, ~~2021,~~2023, there was ~~$4.8~~$8.5 million of total unrecognized compensation cost related to nonvested shares granted under the Plan. The costs isare expected to be recognized over the remaining term of the vesting period ~~(approximately~~

109

(approximately 5 years). The total fair value of shares vested during the years ended December 31, 2023, 2022 and 2021 ~~2020 and 2019~~ was ~~$3.2~~$1.7 million, ~~$3.2~~$2.5 million, and ~~$240 thousand.~~

$3.2 million.

Compensation cost in the amount of ~~$3.1 million was recognized for the year ended December 31, 2021,~~ $2.3 million was recognized for the year ended December 31, ~~2020~~2023, $2.4 million was recognized for the year ended December 31, 2022 and ~~$1.7~~$3.1 million for the year ended December 31, ~~2019.~~2021. Shares of restricted stock granted to employees under this stock plan are subject to restrictions as to the vesting period. The restricted stock award becomes 100% vested on the earliest of 1) the vesting period provided the Grantee has not incurred a termination of employment prior to that date, 2) the Grantee’s retirement, or 3) the Grantee’s death. During this period, the holder is entitled to full voting rights and dividends. The dividends are held by the Company and only paid if and when the grants are vested. The 2007 Plan also contains a double trigger change-in-control provision pursuant to which unvested shares of stock granted through the plan will be accelerated upon a change in control if the executive is terminated without cause as a result of the transaction (as long as the shares granted remain part of the Company or are transferred into the shares of the new company).

In 2022, as part of the BBI acquisition, the Company assumed outstanding options previously granted by BBI under the BBI 2018 Stock Option Plan ("legacy BBI options"). In connection with the assumption of the legacy BBI options, the Company reserved for issuance 310,427 shares of common stock to be issued upon exercise of such options. These options had a weighted average exercise price of $29.23 and were fully vested upon acquisition.

NOTE N - SUBORDINATED DEBT

Debentures

On June 30, 2006, the Company issued $4.1 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 2 ~~in which the Company owns all of the common equity.~~(“Trust 2”). The debentures are the sole asset of Trust 2, and the Company is the sole owner of the common equity of Trust 2. ~~The~~ Trust 2 issued ~~$4,000,000~~$4.0 million of Trust Preferred Securities to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the ~~Trust’s~~Trust 2’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2036. Interest on the preferred securities is the ~~three month London Interbank Offer~~three-month term Secured Overnight Financing Rate ~~(LIBOR)~~("SOFR") plus 1.65% plus a tenor spread adjustment of 0.026161% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

On July 27, 2007, the Company issued $6.2 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 3 ~~in which the~~(“Trust 3”). The Company owns all of the common ~~equity. The~~equity of Trust 3, and the debentures are the sole asset of Trust 3. ~~The~~ Trust 3 issued ~~$6,000,000~~$6.0 million of Trust Preferred Securities to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the ~~Trust’s~~Trust 3’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2037. Interest on the preferred securities is the ~~three month LIBOR~~three-month term SOFR plus 1.40% plus a tenor spread adjustment of 0.026161% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

In 2018, as a result of the acquisition of FMB Banking Corporation ("FMB"), the Company ~~acquired FMB’s Capital Trust 1, which consisted~~became the successor to FMB's obligations in respect of ~~$6.1~~$6.2 million of floating rate junior subordinated ~~deferrable interest~~ debentures ~~in which the Company owns all of the common equity.~~issued to FMB Capital Trust 1 ("FMB Trust"). The debentures are the sole asset of FMB Trust, ~~1. The~~and the Company is the sole owner of the common equity of FMB Trust. FMB Trust issued ~~$6,000,000~~$6.0 million of Trust Preferred Securities to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of ~~the Trust’s~~FMB Trust's obligations under the preferred securities. The preferred securities issued by the FMB Trust are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2033. Interest on the preferred securities is the ~~three month LIBOR~~three-month term SOFR plus 2.85% plus a tenor spread adjustment of 0.026161% and is payable quarterly. ~~The terms~~

On January 1, 2023, as a result of the acquisition of HSBI, the Company became the successor to HSBI's obligations in respect of $10.3 million of subordinated debentures issued to Liberty Shares Statutory Trust II ("Liberty Trust"). The debentures are ~~identical~~the sole asset of Liberty Trust, and the Company is the sole owner of the common equity of Liberty Trust. Liberty Trust issued $10.0 million of preferred securities to ~~those~~an investor. The Company's obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of

110

Liberty Trust's obligations under the preferred securities. The preferred securities issued by the Liberty Trust are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2036. Interest on the preferred securities is the three-month term SOFR plus 1.48% plus a tenor spread adjustment of 0.026161% and is payable quarterly.

In accordance with the provisions of ASC Topic 810, Consolidation, the ~~trusts~~Trust 2, Trust 3, FMB Trust, and Liberty Trust are not included in the consolidated financial statements.

~~103~~

Notes

~~Table of Contents~~

~~Notes~~

On April 30, 2018, The Company entered into two Subordinated Note Purchase Agreements pursuant to which the Company sold and issued $24.0 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes due 2028 (the "Notes due 2028") and $42.0 million in aggregate principal amount of 6.40% fixed-to-floating rate subordinated notes due 2033 ~~(collectively,~~(the “Notes due 2033”). In May of 2023, the ~~“Notes”).~~

Company redeemed all $24.0 million of the outstanding 5.875% fixed-to-floating rate subordinated notes due 2028.

The Notes due 2033 are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes due 2033 are not subject to redemption at the option of the holder. Principal and interest on the Notes due 2033 are subject to acceleration only in limited circumstances. The Notes due 2033 are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is pari passu in right to payment with respect to the other Notes.

The Notes due 2033 have a fifteen year term, maturing May 1, 2033, and will bear interest at a fixed annual rate of 6.40%, payable quarterly in arrears, for the first ten years of the term. Thereafter, the interest rate will re-set quarterly to an interest rate per annum equal to a benchmark rate (which is expected to be three-month term SOFR plus 3.39% plus a tenor spread adjustment of 0.026161%), payable quarterly in arrears. As provided in the Notes due 2033, under specified conditions the interest rate on the Notes due 2033 during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The Company is entitled to redeem the Notes due 2033, in whole or in part, on any interest payment date on or after May 1, 2028, and to redeem the Notes due 2033 at any time in whole upon certain other specified events.

On September 25, 2020, The Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers pursuant to which the Company sold and issued $65.0 million in aggregate principal amount of its 4.25% Fixed to Floating Rate Subordinated Notes due ~~2030.~~2030 (the "Notes due 2030"). The Notes due 2030 are unsecured and have a ten-year term, maturing October 1, 2030, and will bear interest at a fixed annual rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term SOFR plus 412.6 basis ~~points,~~points), payable quarterly in arrears. As provided in the Notes due 2030, under specified conditions the interest rate on the Notes due 2030 during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The Company is entitled to redeem the Notes due 2030, in whole or in part, on any interest payment date on or after October 1, 2025, and to redeem the Notes due 2030 at any time in whole upon certain other specified events.

The Company had ~~$144.7~~$123.4 million of subordinated debt, net of deferred issuance costs ~~$2.1~~$1.6 million and unamortized fair value mark ~~$646 thousand,~~$2.1 million, at December 31, ~~2021,~~2023, compared to ~~$144.6~~$145.0 million, net of deferred issuance costs ~~$2.2~~$1.9 million and unamortized fair value mark ~~$700~~$593 thousand, at December 31, ~~2020.~~

2022. The decrease in subordinated debt was attributable to the Company's redemption of $24.0 million of its Notes due 2028 and the Company's repayment of $2.0 million of its Notes due 2030 in May of 2023, which resulted in the Company recording a $217 thousand gain on the repurchased debt. The decrease in subordinated debt was partially offset by the addition of $9.0 million, net purchase accounting adjustments, of subordinated debt that the Company acquired as part of the HSBI acquisition.

NOTE O - TREASURY STOCK

Shares held in treasury totaled 1,249,607 at December 31, 2023, 1,249,607 at December 31, 2022 and 649,607 at December 31, ~~2021, 483,984 at December 31, 2020 and 194,682 at December 31, 2019.~~

On March 28, 2019, the Company announced that its Board of Directors authorized a share repurchase program to purchase up to an aggregate of $20 million of the Company’s common stock (the “March 2019 program”). This share repurchase program had an expiration date of December 31, 2019. Under the March 2019 program, the Company could repurchase shares of its common stock periodically in a manner determined by the Company’s management. The actual means and timing of purchase, target number of shares and maximum price or range of prices under the program was determined by management at its discretion and depended on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The Company repurchased 168,188 shares under the March 2019 program during 2019.

On May 7, 2020, the Company announced the renewal of its share repurchase program that previously expired on December 31, 2019. Under the program, the Company could from time to time repurchase up to $15 million of shares of its common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, was determined by management at its discretion and depended on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The renewed share repurchase program expired on December 31, 2020. The Company repurchased 289,302 shares in 2020 pursuant to the program.

On December 16, 2020, the Company announced that its Board of Directors has authorized a share repurchase program (the “2021 Repurchase Program”), pursuant to which the Company may purchase up to an aggregate of $30 million in shares of the Company’s issued and outstanding common stock. Under the program, the Company could, but is not required to, from time to time repurchase up $30 million of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, was be determined by management at is discretion and depended on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2021 Repurchase Program expired on December 31, 2021. ~~The Company repurchased 165,623 shares in 2021 pursuant to the 2021 Repurchase Program.~~

~~104~~

~~Table of Contents~~

On February 8, 2022, the Company announced the renewal of the 2021 Repurchase Program that previously expired on December 31, 2021. Under the renewed 2021 Repurchase Program, the Company could repurchase up to an aggregate of ~~$30~~$30.0 million of the Company’s issued and outstanding common stock in any manner determined appropriate by the Company’s management, less the amount of prior purchases under the program during the 2021 calendar year. The renewed 2021 Repurchase Program was completed in February 2022 when the Company’s repurchases under the program

111

approached the maximum authorized amount.

The Company repurchased 600,000 shares under the 2021 Repurchase Program in the first quarter of 2022.

On March 9, 2022, the Company announced that its Board of Directors authorized a new share repurchase program (the “2022 Repurchase Program”), pursuant to which the Company could purchase up to an aggregate of $30.0 million in shares of the Company’s issued and outstanding common stock during the 2022 calendar year. Under the program, the Company could, but was not required to, from time to time repurchase up $30.0 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, was determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2022 Repurchase Program expired on December 31, 2022.

The Inflation Reduction Act of 2022 signed into law in August 2022 includes a provision for an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits and provisions. The excise tax is effective beginning in fiscal year 2023. While we may complete transactions subject to the new excise tax, we do not expect a material impact to our statement of condition or result of operations.

On February 28, 2023, the Company announced that its Board of Directors has authorized a new share repurchase program (the ~~“2022~~"2023 Repurchase ~~Program”~~Program"), pursuant to which the Company may purchase up to an aggregate of ~~$30~~$50.0 million in shares of the ~~Company’s~~Company's issued and outstanding common stock during the ~~2020~~2023 calendar year. Under the program, the Company may, but is not required to, from time to time repurchase up ~~$30~~$50.0 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The ~~2022~~2023 Repurchase Program expired on December 31, 2023.

On February 28, 2024, the Company announced that its Board of Directors has authorized a new share repurchase program (the "2024 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50.0 million in shares of the Company's issued and outstanding common stock during the 2024 calendar year. Under the program, the Company may, but is not required to, from time to time repurchase up $50.0 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2024 Repurchase Program will ~~have an expiration date of~~expire on December 31, ~~2022.~~

2024.

NOTE P - RELATED PARTY TRANSACTIONS

In the normal course of business, the Bank makes loans to its directors and executive officers and to companies in which they have a significant ownership interest. Such loans amounted to approximately ~~$21.9~~$23.7 million and ~~$22.7~~$28.3 million at December 31, ~~2021~~2023 and ~~2020,~~2022, respectively. The activity in loans to current directors, executive officers, and their affiliates during the year ended December 31, ~~2021,~~2023, is summarized as ~~follows ($ in thousands):~~

Loans outstanding at beginning of year

$
22,685
New loans

650
Repayments

(1,480)
Loans outstanding at end of year

$
21,855

follows:


($ in thousands)
Loans outstanding at beginning of year	$	28,338
Advances/new loans	725
Removed/payments	(5,383)
Loans outstanding at end of year	$	23,680

Deposits from principal officers, directors, and their affiliates at year-end ~~2021~~2023 and ~~2020~~2022 were ~~$14.8~~$15.6 million and ~~$10.5~~$16.8 million.

112

NOTE Q - COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS OF CREDIT RISK

In the normal course of business, there are outstanding various commitments and contingent liabilities, such as guaranties, commitments to extend credit, overdraft protection, etc., which are not reflected in the accompanying financial statements. Commitments to extend credit and letters of credit include some exposure to credit loss in the event of nonperformance of the customer. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit policies and procedures for such commitments are the same as those used for lending activities. Because these instruments have fixed maturity dates and because a number expire without being drawn upon, they generally do not present any significant liquidity risk. No significant losses on commitments were incurred during the ~~two~~ years ended December 31, ~~2021,~~2023 and 2022, nor are any significant losses as a result of these transactions anticipated.

The contractual amounts of financial instruments with off-balance-sheet risk at year-end were as follows:

2021

2020
($ in thousands)

Fixed Rate

Variable Rate

Fixed Rate

Variable Rate
Commitments to make loans

$
80,760

$
23,946

$
97,738

$
16,203
Unused lines of credit

213,332

309,791

157,006

195,221
Standby letters of credit

2,586

9,737

4,182

11,486


	2023				2022
($ in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	34,380	$	50,226	$	43,227	$	15,758
Unused lines of credit	231,335		605,646		243,043		404,025
Standby letters of credit	15,573		13,114		4,260		9,909

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 1.0% to 18.0% and maturities ranging from 1 year to 30 years.

ALLOWANCE FOR CREDIT LOSSES (“ACL”) ON OFF BALANCE SHEET CREDIT (“OBSC”) Exposures

The Company adopted ASC 326, effective January 1, 2021, which requires the Company to estimate expected credit losses for OBSC exposures which are not unconditionally cancellable. The Company maintains a separate ACL on OBSC exposures, including

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~~Table of Contents~~

unfunded commitments and letters of credit, which is included on the accompanying consolidated balance sheet ~~as of~~for the years ended December 31, ~~2021.~~2023 and 2022. The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. ~~Upon adoption of ASC 326,~~

Changes in the ~~Company recorded an~~ ACL on ~~unfunded commitments of $718 thousand.~~OBSC exposures were as follows for the presented periods:


($ in thousands)	2023		2022		2021
Balance at beginning of period	$	1,325	$	1,070	$	—
Adoption of ASU 326	—		—		718
Credit loss expense related to OBSC exposures	750		255		352
Balance at end of period	$	2,075	$	1,325	$	1,070

Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses OBSC exposures. The Company recorded ~~a $353~~$750 thousand, $255 thousand, and $352 thousand to the provision for credit losses OBSC exposures for the years ended December 31, 2023, 2022, and 2021 respectively. The increase in the ACL on OBSC exposures for the year ended December 31, ~~2021.~~

2023 compared to the same period in 2022 was due to the day one provision for unfunded commitments related to the HSBI acquisition and an increase in unfunded commitments.

No credit loss estimate is reported for OBSC exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation on the arrangement.

The Company currently has ~~87 full service~~110 full-service banking and financial service offices, one motor bank facility and ~~two~~five loan production offices across Mississippi, Alabama, Florida, Georgia, and Louisiana. Management closely monitors its credit concentrations and attempts to diversify the portfolio within its primary market area. As of December 31, ~~2021,~~2023, management does not consider there to be any significant credit concentrations within the loan portfolio. Although the

113

Bank’s loan portfolio, as well as existing commitments, reflects the diversity of its primary market area, a substantial portion of a borrower's ability to repay a loan is dependent upon the economic stability of the area.

In the normal course of business, the Company and its subsidiary are subject to pending and threatened legal actions. Although the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial statements.

NOTE R - FAIR VALUES OF ASSETS AND LIABILITIES

The Company follows the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, ~~that~~ which establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The guidance defines the fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

In accordance with the guidance, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. These levels are:

Level 1:Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2:Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities.

Level 3:Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

~~Following~~

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:

Cash and Cash Equivalents – For such short-term instruments, the carrying amount is a ~~description~~reasonable estimate of ~~the valuation methodologies used for instruments measured at~~ fair ~~value on a recurring basis and recognized in the accompanying consolidated balance sheets.~~

value.

Debt Securities

-The fair value of available-for-sale securities is determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. If quoted market prices are not available, then fair values are

~~106~~

~~Table of Contents~~

estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities include obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, mortgage-backed securities, and collateralized mortgage obligations. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using the discounted cash flow or other market indicators (Level 3).

Loans – The fair value of loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities, in accordance with the exit price notion as defined by FASB ASC 820, Fair Value Measurement ("ASC 820"). Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments and as a result of the adoption of ASU 2016-01, which also included credit risk and other market factors to calculate the exit price fair value in accordance with ASC 820.

114

Loans Held for Sale - Loans held for sale are carried at fair value in the aggregate as determined by the outstanding commitments from investors. As, such we classify those loans subjected to nonrecurring fair value adjustments as Level 2 of the fair value hierarchy.

Interest Rate Swaps - The Company offers interest rate swaps to certain commercial loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable to fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing the contract or fixed interest payments for the customer. In addition, the Company will enter into risk participation agreements ("RPA"). Under an RPA-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other bank. Under an RPA-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank. RPAs are derivative financial instruments recorded at fair value. Although we have determined that a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit assumptions associated with our risk participation agreements utilize Level 3 inputs.

Accrued Interest Receivable – The carrying amount of accrued interest receivable approximates fair value and is classified as level 2 for accrued interest receivable related to investments securities and Level 3 for accrued interest receivable related to loans.

Deposits – The fair values of demand deposits are, as required by ASC Topic 825, equal to the carrying value of such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts, and money market demand accounts. The fair value of variable rate term deposits, those repricing within six months or less, approximates the carrying value of these deposits. Discounted cash flows have been used to value fixed rate term deposits and variable rate term deposits repricing after six months. The discount rate used is based on interest rates currently being offered on comparable deposits as to amount and term.

Short-Term Borrowings – The carrying value of any federal funds purchased and other short-term borrowings approximates their fair values.

FHLB and Other Borrowings – The fair value of the fixed rate borrowings is estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of any variable rate borrowing approximates its fair value.

Subordinated Debentures – Fair values are determined based on the current market value of like instruments of a similar maturity and structure.

Accrued Interest Payable – The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.

Off-Balance Sheet Instruments – Fair values of off-balance sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value until such commitments are funded or closed. Management has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned.

115

The following table presents the Company’s securities that are measured at fair value on a recurring basis and the level within the hierarchy in which the fair value measurements fell as of December 31, ~~2021~~2023 and ~~2020 ($ in thousands):~~

December 31, 2021

Fair Value Measurements
($ in thousands)

Quoted Prices in

Significant

Active Markets

Other

Significant

For

Observable

Unobservable

Identical Assets

Inputs

Inputs


Fair Value

(Level 1)

(Level 2)

(Level 3)
Available-for-sale

U.S. Treasury

$
135,158

$
135,158

$
0

$
0
Obligations of U.S. government agencies and sponsored entities

183,021

0

183,021

0
Municipal securities

708,502

0

688,379

20,123
Mortgage-backed Securities

688,298

0

688,298

0
Corporate obligations

36,853

0

36,810

43
Total available for sale

$
1,751,832

$
135,158

$
1,596,508

$
20,166

December 31, 2020

Fair Value Measurements
($ in thousands)

Quoted Prices in

Significant

Active Markets

Other

Significant

For

Observable

Unobservable

Identical Assets

Inputs

Inputs


Fair Value

(Level 1)

(Level 2)

(Level 3)
Available-for-sale








U.S. Treasury

$
9,383

$
9,383

$
0

$
0
Obligations of U.S. government agencies and sponsored entities

100,170

0

100,170

0
Municipal securities

480,374

0

460,248

20,126
Mortgage-backed securities

401,232

0

401,232

0
Corporate obligations

31,023

0

30,788

235
Total available for sale

$
1,022,182

$
9,383

$
992,438

$
20,361

2022:


December 31, 2023	Fair Value Measurements
($ in thousands)	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available-for-sale
U.S. Treasury	$	16,675	$	16,675	$	—	$	—
Obligations of U.S. government agencies and sponsored entities	104,923		—		104,923		—
Municipal securities	438,466		—		420,283		18,183
Mortgage-backed Securities	441,661		—		441,661		—
Corporate obligations	37,597		—		37,567		30
Other	3,043		—		3,043		—
Total investment securities available-for-sale	$	1,042,365	$	16,675	$	1,007,477	$	18,213
Loans held for sale	2,914		—		2,914		—
Interest rate swaps	$	12,170	$	—	$	12,129	$	41
Liabilities:
Interest rate swaps	$	12,175	$	—	$	12,129	$	46


December 31, 2022	Fair Value Measurements
($ in thousands)	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available-for-sale
U.S. Treasury	$	123,854	$	123,854	$	—	$	—
Obligations of U.S. government agencies and sponsored entities	144,369		—		144,369		—
Municipal securities	457,857		—		442,740		15,117
Mortgage-backed securities	490,139		—		490,139		—
Corporate obligations	40,882		—		40,851		31
Total investment securities available-for-sale	$	1,257,101	$	123,854	$	1,118,099	$	15,148
Loans held for sale	$	4,443	$	—	$	4,443	$	—
Interest rate swaps	$	12,825	$	—	$	12,825	$	—
Liabilities:
Interest rate swaps	$	12,825	$	—	$	12,825	$	—

The following is a reconciliation of activity for assets measured at fair value based on significant unobservable (Level 3) information:

Bank-Issued Trust

Preferred Securities
($ in thousands)

2021

2020
Balance, January 1

$
235

$
408
Paydowns

(215)

(162)
Gain included in income

27

—
Unrealized (loss) included in comprehensive income

(4)

(11)
Balance, December 31

$
43

$
235

Municipal Securities
($ in thousands)

2021

2020
Balance, January 1

$
20,126

$
10,345
Purchases

6,019

19,397
Maturities, calls and paydowns

(5,457)

(3,334)
Transfer to level 2

—

(6,294)
Unrealized (loss) gain included in comprehensive income

(565)

12

~~107~~

116


	Bank-Issued Trust Preferred Securities
($ in thousands)	2023		2022
Balance, January 1	$	31	$	43
Paydowns	(1)		(12)
Balance, December 31	$	30	$	31

~~Table of Contents~~


	Municipal Securities
($ in thousands)	2023		2022
Balance, January 1	$	15,117	$	20,123
Maturities, calls and paydowns	(2,639)		(2,328)
Transfer from level 2 to level 3	6,085		—
Unrealized (loss) gain included in comprehensive income	(380)		(2,678)
Balance, December 31	$	18,183	$	15,117


	Interest Rate Swaps - Risk Participations
($ in thousands)	2023
Balance, January 1	$	—
RPA-in	(46)
RPA-out	41
Balance at December 31	$	$ (5)	~~20,123~~	$	~~20,126~~

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at December 31, ~~2021~~2023 and ~~2020.~~2022. The following tables present quantitative information about recurring Level 3 fair value ~~measurements ($ in thousands):~~

Significant Unobservable

Trust Preferred Securities

Fair Value

Valuation Technique

Inputs

Range of Inputs
December 31, 2021

$
43

Discounted cash flow

Discount rate

2.35% - 2.47%
December 31, 2020

$
235

Discounted cash flow

Discount rate

1.08% - 2.48%

Significant Unobservable

Municipal Securities

Fair Value

Valuation Technique

Inputs

Range of Inputs
December 31, 2021

$
20,123

Discounted cash flow

Discount rate

0.50% - 1.90%
December 31, 2020

$
20,126

Discounted cash flow

Discount rate

0.50% - 2.45%

measurements:

($ in thousands)

Bank-Issued Trust Preferred Securities

Fair Value

Valuation Technique

Significant Unobservable
Inputs

Range of Inputs

December 31, 2023

$

30

Discounted cash flow

Discount rate

7.81% - 7.89%

December 31, 2022

$

31

Discounted cash flow

Discount rate

6.98% - 7.19%

Municipal Securities

Fair Value

Valuation Technique

Significant Unobservable
Inputs

Range of Inputs

December 31, 2023

$

18,183

Discounted cash flow

Discount rate

2.34% - 5.50%

December 31, 2022

$

15,117

Discounted cash flow

Discount rate

3.00% - 4.00%

Interest Rate Swaps - Risk Participations

Fair Value

Valuation Technique

Significant Unobservable
Inputs

Range of Inputs

December 31, 2023

$

(5)

Credit Value Adjustment

Credit Spread

225 bps - 300 bps

Recovery Rate

70%

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

117

Collateral Dependent Loans

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income date available for similar loans and collateral underlying such loans. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. The Company adjusts the appraisal for cost associated with litigation and collections. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment.

Other Real Estate Owned

Other real estate owned consists of properties obtained through foreclosure. The adjustment at the time of foreclosure is recorded through the allowance for ~~loan~~credit losses. Fair value of other real estate owned is based on current independent appraisals of the collateral less costs to sell when acquired, establishing a new costs basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals, which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated in the appraisals. The Company adjust the appraisal 10 percent for carrying costs. Periodic revaluations are classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through other income. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and recorded in other income. Other real estate measured at fair value on a non-recurring basis at December 31, ~~2021,~~2023, amounted to ~~$2.6~~$8.3 million. Other real estate owned is classified within Level 3 of the fair value hierarchy.

~~108~~

~~Table of Contents~~

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements were reported at December 31, ~~2021~~2023 and ~~2020:~~

2022:


	Fair Value Measurements Using
($ in thousands)	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2023
Collateral dependent loans	$	2,494	$	—	$	—	$	2,494
Other real estate owned	8,320		—		—		8,320

December 31, 2022
Collateral dependent loans	$	5,552	$	—	$	—	$	5,552
Other real estate owned	4,832		—		—		4,832

118

Fair Value Measurements Using

Quoted Prices in

Significant

Active Markets

Other

Significant

For

Observable

Unobservable

Identical Assets

Inputs

Inputs
($ in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)
December 31, 2021








Collateral dependent loans

$
3,564

$
0

$
0

$
3,564
Other real estate owned

2,565

0

0

2,565

December 31, 2020








Impaired loans

$
15,107

$
0

$
0

$
15,107
Other real estate owned

5,802

0

0

5,802

~~The following methods and assumptions were used to estimate the~~

Estimated fair ~~value of each class of financial instrument for which it is practicable to estimate that value:~~

~~Cash and Cash Equivalents~~ ~~– For such short-term instruments, the carrying amount is a reasonable estimate of fair value.~~

~~Investment in securities available-for-sale and held-to-maturity~~ ~~– The fair value measurement for securities available-for-sale was discussed earlier. The same measurement approach was used for securities held-to-maturity and other securities.~~

~~Loans~~ ~~– The fair value of loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made~~values for the ~~same remaining maturities, in accordance with the exit price notion as defined by FASB ASC 820,~~ ~~Fair Value Measurement~~ ("ASC 820"). Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments and as a result of the adoption of ASU 2016-01, which also included credit risk and other market factors to calculate the exit price fair value in accordance with ASC 820.

~~Bank-owned Life Insurance~~ – The fair value of bank-owned life insurance approximates the carrying amount, because upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

~~Accrued Interest Receivable –~~ The carrying amount of accrued interest receivable approximates fair value and is classified as level 2 for accrued interest receivable related to investments securities and Level 3 for accrued interest receivable related to loans.

~~Deposits~~ – The fair values of demand deposits are, as required by ASC Topic 825, equal to the carrying value of such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts, and money market demand accounts. The fair value of variable rate term deposits, those repricing within six months or less, approximates the carrying value of these deposits. Discounted cash flows have been used to value fixed rate term deposits and variable rate term deposits repricing after six months. The discount rate used is based on interest rates currently being offered on comparable deposits as to amount and term.

~~Short-Term Borrowings~~ ~~– The carrying value of any federal funds purchased and other short-term borrowings approximates their fair values.~~

~~FHLB and Other Borrowings~~ – The fair value of the fixed rate borrowings is estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of any variable rate borrowing approximates its fair value.

~~Subordinated Debentures –~~ ~~Fair values are determined based on the current market value of like instruments of a similar maturity and structure.~~

~~109~~

~~Table of Contents~~

~~Accrued Interest Payable –~~ ~~The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.~~

~~Off-Balance Sheet Instruments –~~ ~~Fair values of off-balance sheet~~Company's financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value until such commitments are funded or closed. Management has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned.

as follows, as of the dated noted:


	Fair Value Measurements
December 31, 2023	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
($ in thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	355,147	$	355,147	$	355,147	$	—	$	—
Securities available-for-sale	1,042,365		1,042,365		16,675		1,007,477		18,213
Securities held-to-maturity	654,539		615,944		—		615,944		—
Loans held for sale	2,914		2,914		—		2,914		—
Loans, net	5,116,010		4,877,935		—		—		4,877,935
Accrued interest receivable	33,300		33,300		—		8,632		24,668
Interest rate swaps	12,170		12,170		—		12,129		41

Liabilities:
Non-interest-bearing deposits	$	1,849,013	$	1,849,013	$	—	$	1,849,013	$	—
Interest-bearing deposits	4,613,859		4,430,227		—		4,430,227		—
Subordinated debentures	123,386		109,426		—		—		109,426
FHLB and other borrowings	390,000		390,000		—		390,000		—
Accrued interest payable	22,702		22,702		—		22,702		—
Interest rate swaps	12,175		12,175		—		12,129		46


	Fair Value Measurements
December 31, 2022	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
($ in thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	145,315	$	145,315	$	145,315	$	—	$	—
Securities available-for-sale	1,257,101		1,257,101		123,854		1,118,099		15,148
Securities held-to-maturity	691,484		642,097		—		642,097		—
Loans held for sale	4,443		4,443		—		4,443		—
Loans, net	3,735,240		3,681,313		—		—		3,681,313
Accrued interest receivable	27,723		27,723		—		9,757		17,966
Interest rate swaps	12,825		12,825		—		12,825		—

Liabilities:
Non-interest-bearing deposits	$	1,630,203	$	1,630,203	$	—	$	1,630,203	$	—
Interest-bearing deposits	3,864,201		3,505,990		—		3,505,990		—
Subordinated debentures	145,027		133,816		—		—		133,816
FHLB and other borrowings	130,100		130,100		—		130,100		—
Accrued interest payable	3,324		3,324		—		3,324		—
Interest rate swaps	12,825		12,825		—		12,825		—

119

Fair Value Measurements

Significant

Significant

Quoted

Other  Observable

Unobservable
December 31, 2021

Carrying

Estimated

Prices

Inputs

Inputs
($ in thousands)

Amount

Fair Value

(Level 1)

(Level 2)

(Level 3)
Financial Instruments:










Assets:










Cash and cash equivalents

$
919,713

$
919,713

$
919,713

$
0

$
0
Securities available-for-sale

1,751,832

1,751,832

135,158

1,596,508

20,166
Loans, net

2,928,811

2,956,297

0

0

2,956,297
Accrued interest receivable

23,256

23,256

0

6,838

16,418

Liabilities:










Non-interest-bearing deposits

$
756,118

$
756,118

$
0

$
756,118

$
0
Interest-bearing deposits

4,470,666

4,431,771

0

4,431,771

0
Subordinated debentures

144,726

156,952

0

0

156,952
Accrued interest payable

1,711

1,711

0

1,711

0

Fair Value Measurements

Significant

Significant

Quoted

Other  Observable

Unobservable
December 31, 2020

Carrying

Estimated

Prices

Inputs

Inputs
($ in thousands)

Amount

Fair Value

(Level 1)

(Level 2)

(Level 3)
Financial Instruments:










Assets:










Cash and cash equivalents

$
562,554

$
562,554

$
562,554

$
0

$
0
Securities available-for-sale

1,022,182

1,022,182

9,383

992,438

20,361
Loans, net

3,087,858

3,089,318

0

0

3,089,318
Accrued interest receivable

26,344

26,344

0

5,690

20,654

Liabilities:

Non-interest-bearing deposits

$
571,079

$
571,079

$
0

$
571,079

$
0
Interest-bearing deposits

3,644,201

3,647,845

0

3,647,845

0
Subordinated debentures

144,592

145,289

0

0

145,289
FHLB and other borrowings

114,647

114,647

0

114,647

0
Accrued interest payable

2,134

2,134

0

2,134

0

NOTE S - REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within non-interest income. The guidance does not apply to revenue associated with financial instruments, including loans and investment securities that are accounted for under other GAAP, which comprise a significant portion of our revenue stream. A description of the Company’s revenue streams accounted for under ASC 606 is as follows:

Service Charges on Deposit Accounts: The Company earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in the time the Company fulfills the

~~110~~

~~Table of Contents~~

customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Interchange Income: The Company earns interchange fees from debit and credit card holder transaction conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided by the cardholder.

Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether the collectability of the transaction prices is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Company’s sources of non-interest income for December 31, ~~2021, 2020,~~2023, 2022, and ~~2019.~~2021. Items outside the scope of ASC 606 are noted as such.

Year Ended December 31, 2021

Commercial/

Mortgage

Revenue by Operating Segments

Retail

Banking

Holding

($ in thousands)

Bank

Division

Company

Total
Non-interest income








Service charges on deposits








Overdraft fees

$
3,122

$
0

$
0

$
3,122
Other

4,140

2

0

4,142
Interchange income

11,562

0

0

11,562
Investment brokerage fees

1,349

0

0

1,349
Net (losses) on OREO

(300)

0

0

(300)
Net gains on sales of securities (a)

143

0

0

143
Gain on acquisition

1,300

0

0

1,300
Loss on premises and equipment

(264)

0

0

(264)
Other

7,487

8,821

111

16,419
Total non-interest income

$
28,539

$
8,823

$
111

$
37,473

Year Ended December 31, 2020

Commercial/

Mortgage

Revenue by Operating Segments

Retail

Banking

Holding

($ in thousands)

Bank

Division

Company

Total
Non-interest income








Service charges on deposits








Overdraft fees

$
3,218

$
0

$
0

$
3,218
Other

3,993

2

0

3,995
Interchange income

9,433

0

0

9,433
Investment brokerage fees

932

0

0

932
Net (losses) on OREO

(537)

0

0

(537)
Net gains on sales of securities (a)

281

0

0

281
Gain on acquisition

7,835

0

0

7,835
Gain on premises and equipment

443

0

0

443
Other

4,940

10,444

892

16,276
Total non-interest income

$
30,538

$
10,446

$
892

$
41,876


($ in thousands)	Year Ended December 31, 2023
	Commercial/ Retail Bank		Mortgage Banking Division		Holding Company		Total
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees	$	8,154	$	—	$	—	$	8,154
Other	6,021		—		—		6,021
Interchange income	18,914		—		—		18,914
Investment brokerage fees	1,623		—		—		1,623
Net gains on OREO	6		—		—		6
Net losses on sales of securities (1)	(9,716)		—		—		(9,716)
Gain on premises and equipment	35		—		—		35
Gain on sale of loans	1,512		—		—		1,512
Other	10,307		2,866		6,983		20,156
Total non-interest income	$	36,856	$	2,866	$	6,983	$	46,705

120


($ in thousands)	Year Ended December 31, 2022
	Commercial/ Retail Bank		Mortgage Banking Division		Holding Company		Total
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees	$	4,023	$	93	$	—	$	4,116
Other	8,679		—		—		8,679
Interchange income	12,702		—		—		12,702
Investment brokerage fees	1,566		—		—		1,566
Net gains on OREO	214		—		—		214
Net losses on sales of securities (1)	(82)		—		—		(82)
Gain on acquisition (1)	281		—		—		281
Loss on premises and equipment	(116)		—		—		(116)
Other	2,724		4,210		2,667		9,601
Total non-interest income	$	29,991	$	4,303	$	2,667	$	36,961


($ in thousands)	Year Ended December 31, 2021
	Commercial/ Retail Bank		Mortgage Banking Division		Holding Company		Total
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees	$	3,122	$	—	$	—	$	3,122
Other	4,140		2		—		4,142
Interchange income	11,562		—		—		11,562
Investment brokerage fees	1,349		—		—		1,349
Net (losses) on OREO	(300)		—		—		(300)
Net gains on sales of securities (1)	143		—		—		143
Gain on acquisition (1)	1,300		—		—		1,300
Loss on premises and equipment	(264)		—		—		(264)
Other	7,487		8,821		111		16,419
Total non-interest income	$	28,539	$	8,823	$	111	$	37,473

~~111~~

(1)Not within scope of ASC 606.

121

~~Table of Contents~~

Year Ended December 31, 2019
Revenue by Operating Segments

Commercial/

Mortgage

Retail

Banking

Holding


Bank

Division

Company

Total
($ in thousands)








Non-interest income

Service charges on deposits








Overdraft fees

$
4,277

$
1

$
—

$
4,278
Other

3,558

2

—

3,560
Interchange income

8,024

—

—

8,024
Investment brokerage fees

83

—

—

83
Net gains (losses) on OREO

(144)

—

—

(144)
Net gains (losses) on sales of

—

—




securities (a)

122

—

—

122
Other

3,977

5,985

1,062

11,024
Total non-interest income

$
19,897

$
5,988

$
1,062

$
26,947

~~(a)~~

~~Not within scope of ASC 606~~

NOTE T - PARENT COMPANY FINANCIAL INFORMATION

The balance sheets, statements of income and cash flows for The First Bancshares, Inc. (parent company only) follows:

Condensed Balance Sheets

December 31,
($ in thousands)

2021

2020
Assets:




Cash and cash equivalents

$
34,731

$
67,231
Investment in subsidiary bank

776,215

720,159
Investments in statutory trusts

496

496
Bank owned life insurance

3,818

4,202
Other

6,187

2,659

$
821,447

$
794,747
Liabilities and Stockholders’ Equity:




Subordinated debentures

$
144,726

$
144,592
Borrowed funds

0

4,647
Other

549

693
Stockholders’ equity

676,172

644,815

$
821,447

$
794,747

~~112~~


	December 31,
($ in thousands)	2023		2022
Assets:
Cash and cash equivalents	$	13,485	$	9,843
Investment in subsidiary bank	1,056,369		778,885
Investments in statutory trusts	806		496
Bank owned life insurance	348		333
Other	3,275		3,962
	$	1,074,283	$	793,519
Liabilities and Stockholders’ Equity:
Subordinated debentures	$	123,386	$	145,027
Other	1,863		1,830
Stockholders’ equity	949,034		646,663
	$	1,074,283	$	793,519

~~Table of Contents~~

Condensed Statements of Income


	Years Ended December 31,
($ in thousands)	2023		2022		2021
Income:
Interest and dividends	$	36	$	17	$	10
Dividend income	65,000		16,000		—
Other	6,983		2,667		111
	72,019		18,684		121
Expenses:
Interest on borrowed funds	7,970		7,492		7,375
Legal and professional	1,136		593		941
Other	6,266		7,498		4,828
	15,372		15,583		13,144
Income (loss) before income taxes and equity in undistributed income of subsidiary	56,647		3,101		(13,023)
Income tax benefit	2,005		3,263		3,295
Income (loss) before equity in undistributed income of subsidiary	58,652		6,364		(9,728)
Equity in undistributed income of subsidiary	16,805		56,555		73,895

Net income	$	75,457	$	62,919	$	64,167

122

Years Ended December 31,
($ in thousands)

2021

2020

2019
Income:






Interest and dividends

$
10

$
20

$
26
Dividend income

0

18,526

50,390
Other

111

892

1,062

121

19,438

51,478
Expenses:






Interest on borrowed funds

7,375

5,593

4,918
Legal and professional

941

1,014

3,401
Other

4,828

4,361

2,418

13,144

10,968

10,737
(Loss) income before income taxes and equity in undistributed income of subsidiary

(13,023)

8,470

40,741
Income tax benefit

3,295

2,545

2,291
(Loss) income before equity in undistributed income of Subsidiary

(9,728)

11,015

43,032
Equity in undistributed income of subsidiary

73,895

41,490

713

Net income

$
64,167

$
52,505

$
43,745

Condensed Statements of Cash Flows

Years Ended December 31,
($ in thousands)

2021

2020

2019
Cash flows from operating activities:






Net income

$
64,167

$
52,505

$
43,745
Adjustments to reconcile net income to net cash used in operating activities:






Equity in undistributed income of Subsidiary

(73,895)

(41,490)

(713)
Restricted stock expense

3,100

2,352

1,661
Other, net

(3,343)

329

1,185
Net cash (used in) provided by operating activities

(9,970)

13,696

45,878

Cash flows from investing activities:






Net outlays for acquisitions

0

1,726

(32,363)
Net cash ( used in) provided by investing activities

0

1,726

(32,363)

Cash flows from financing activities:






Dividends paid on common stock

(11,991)

(8,589)

(5,190)
Repurchase of restricted stock for payment of taxes

(721)

(494)

(63)
Common stock repurchased

(5,171)

(8,067)

(5,229)
Repayment of borrowed funds

(4,647)

(707)

(173)
Issuance of subordinated debt

0

63,725

0
Net cash (used in) provided by financing Activities

(22,530)

45,868

(10,655)

Net (decrease) increase in cash and cash equivalents

(32,500)

61,290

2,860
Cash and cash equivalents at beginning of year

67,231

5,941

3,081

Cash and cash equivalents at end of year

$
34,731

$
67,231

$
5,941

~~113~~


	Years Ended December 31,
($ in thousands)	2023		2022		2021
Cash flows from operating activities:
Net income	$	75,457	$	62,919	$	64,167
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed income of Subsidiary	(16,805)		(56,555)		(73,895)
Restricted stock expense	2,302		2,425		3,100
Other, net	9,263		6,255		(3,343)
Net cash provided by (used in) operating activities	70,217		15,044		(9,970)

Cash flows from investing activities:
Investment in bank	—		(1,300)		—
Other, net	—		290		—
Net cash (used in) investing activities	—		(1,010)		—

Cash flows from financing activities:
Dividends paid on common stock	(27,550)		(16,275)		(11,991)
Repurchase of restricted stock for payment of taxes	(361)		(683)		(721)
Common stock repurchased	—		(22,180)		(5,171)
Repayment of borrowed funds	—		—		(4,647)
Called/repayment of subordinated debt	(31,000)		—		—
Other, net	(7,664)		216		—
Net cash (used in) financing activities	(66,575)		(38,922)		(22,530)

Net increase (decrease) in cash and cash equivalents	3,642		(24,888)		(32,500)
Cash and cash equivalents at beginning of year	9,843		34,731		67,231

Cash and cash equivalents at end of year	$	13,485	$	9,843	$	34,731

123

~~Table of Contents~~

NOTE U - OPERATING SEGMENTS

The Company is considered to have three principal business segments in ~~2021, 2020,~~2023, 2022, and ~~2019,~~2021, the Commercial/Retail Bank, the Mortgage Banking Division, and the Holding Company.

Year Ended December 31, 2021

Commercial/

Mortgage

Retail

Banking

Holding

($ in thousands)

Bank

Division

Company

Total
Interest income

$
176,153

$
582

$
10

$
176,745
Interest expense

12,166

140

7,375

19,681
Net interest income (loss)

163,987

442

(7,365)

157,064
Provision (credit) for credit losses

(1,104)

0

0

(1,104)
Net interest income (loss) after provision for loan losses

165,091

442

(7,365)

158,168
Non-interest income

28,539

8,823

111

37,473
Non-interest expense

103,430

5,361

5,768

114,559
Income (loss) before income taxes

90,200

3,904

(13,022)

81,082
Income tax (benefit) expense

19,222

988

(3,295)

16,915
Net income (loss)

$
70,978

$
2,916

$
(9,727)

$
64,167

Total Assets

$
6,015,664

$
16,519

$
45,231

$
6,077,414
Net Loans

2,929,995

6,494

0

2,936,489

Year Ended December 31, 2020

Commercial/

Mortgage

Retail

Banking

Holding

($ in thousands)

Bank

Division

Company

Total
Interest income

$
178,462

$
866

$
20

$
179,348
Interest expense

20,801

270

5,593

26,664
Net interest income (loss)

157,661

596

(5,573)

152,684
Provision (credit) for loan losses

25,076

75

0

25,151
Net interest income (loss) after provision for loan losses

132,585

521

(5,573)

127,533
Non-interest income

30,538

10,446

892

41,876
Non-interest expense

95,370

5,596

5,375

106,341
Income (loss) before income taxes

67,753

5,371

(10,056)

63,068
Income tax (benefit) expense

11,749

1,359

(2,545)

10,563
Net income (loss)

$
56,004

$
4,012

$
(7,511)

$
52,505

Total Assets

$
5,044,647

$
33,525

$
74,588

$
5,152,760
Net Loans

3,099,675

9,615

0

3,109,290

Year Ended December 31, 2019

Commercial/

Mortgage

Retail

Banking

Holding

($ in thousands)

Bank

Division

Company

Total
Interest income

$
147,500

$
1,003

$
26

$
148,529
Interest expense

21,388

417

4,918

26,723
Net interest income (loss)

126,112

586

(4,892)

121,806
Provision (credit) for loan losses

3,781

(43)

0

3,738
Net interest income (loss) after provision for loan losses

122,331

629

(4,892)

118,068
Non-interest income

19,897

5,988

1,062

26,947
Non-interest expense

78,440

4,310

5,819

88,569
Income (loss) before income taxes

63,914

2,181

(9,649)

56,446
Income tax (benefit) expense

14,595

490

(2,384)

12,701
Net income (loss)

$
49,319

$
1,691

$
(7,265)

$
43,745

Total Assets

$
3,902,703

$
26,231

$
12,929

$
3,941,863
Net Loans

2,584,385

12,875

0

2,597,260

~~114~~


($ in thousands)	Year Ended December 31, 2023
	Commercial/ Retail Bank		Mortgage Banking Division		Holding Company		Total
Interest income	$	340,566	$	331	$	36	$	340,933
Interest expense	83,497		141		7,970		91,608
Net interest income (loss)	257,069		190		(7,934)		249,325
Provision (credit) for credit losses	14,500		—		—		14,500
Net interest income (loss) after provision for loan losses	242,569		190		(7,934)		234,825
Non-interest income	36,856		2,866		6,983		46,705
Non-interest expense	172,133		5,191		7,402		184,726
Income (loss) before income taxes	107,292		(2,135)		(8,353)		96,804
Income tax (benefit) expense	23,892		(540)		(2,005)		21,347
Net income (loss)	$	83,400	$	(1,595)	$	(6,348)	$	75,457

Total Assets	$	7,971,373	$	10,058	$	17,914	$	7,999,345
Net Loans	5,114,434		4,490		—		5,118,924


($ in thousands)	Year Ended December 31, 2022
	Commercial/ Retail Bank		Mortgage Banking Division		Holding Company		Total
Interest income	$	199,937	$	439	$	17	$	200,393
Interest expense	14,979		106		7,492		22,577
Net interest income (loss)	184,958		333		(7,475)		177,816
Provision (credit) for loan losses	5,605		—		—		5,605
Net interest income (loss) after provision for loan losses	179,353		333		(7,475)		172,211
Non-interest income	29,991		4,303		2,667		36,961
Non-interest expense	116,899		5,493		8,091		130,483
Income (loss) before income taxes	92,445		(857)		(12,899)		78,689
Income tax (benefit) expense	19,250		(217)		(3,263)		15,770
Net income (loss)	$	73,195	$	(640)	$	(9,636)	$	62,919

Total Assets	$	6,428,889	$	18,194	$	14,634	$	6,461,717
Net Loans	3,734,659		5,024		—		3,739,683

124


($ in thousands)	Year Ended December 31, 2021
	Commercial/ Retail Bank		Mortgage Banking Division		Holding Company		Total
Interest income	$	176,153	$	582	$	10	$	176,745
Interest expense	12,166		140		7,375		19,681
Net interest income (loss)	163,987		442		(7,365)		157,064
Provision (credit) for loan losses	(1,104)		—		—		(1,104)
Net interest income (loss) after provision for loan losses	165,091		442		(7,365)		158,168
Non-interest income	28,539		8,823		111		37,473
Non-interest expense	103,430		5,361		5,768		114,559
Income (loss) before income taxes	90,200		3,904		(13,022)		81,082
Income tax (benefit) expense	19,222		988		(3,295)		16,915
Net income (loss)	$	70,978	$	2,916	$	(9,727)	$	64,167

Total Assets	$	6,015,664	$	16,519	$	45,231	$	6,077,414
Net Loans	2,929,995		6,494		—		2,936,489

125

~~Table of Contents~~

NOTE V - SUMMARY OF QUARTERLY RESULTS OF OPERATIONS AND PER SHARE AMOUNTS (UNAUDITED)

($ in thousands, except per share amounts)

March 31

June 30

Sept. 30

Dec. 31
2021








Total interest income

$
45,187

$
43,238

$
44,435

$
43,885
Total interest expense

5,958

5,188

4,407

4,128
Net interest income

$
39,229

$
38,050

$
40,028

$
39,757
Provision for credit losses

0

0

0

(1,104)
Net interest income after provision for credit losses

39,229

38,050

40,028

40,861
Total non-interest income

9,472

8,822

9,586

9,593
Total non-interest expense

27,264

27,452

29,053

30,790
Income tax expense

4,793

3,820

4,429

3,873
Net income available to common stockholders

$
16,644

$
15,600

$
16,132

$
15,791
Per common share:

Net income, basic

$
0.79

$
0.74

$
0.77

$
0.75
Net income, diluted

0.79

0.74

0.76

0.75
Cash dividends declared

0.13

0.14

0.15

0.16

2020

Total interest income

$
41,598

$
45,799

$
46,338

$
45,613
Total interest expense

7,533

6,619

6,365

6,147
Net interest income

$
34,065

$
39,180

$
39,973

$
39,466
Provision for loan losses

7,102

7,606

6,921

3,522
Net interest income after provision for loan losses

26,963

31,574

33,052

35,944
Total non-interest income

6,474

15,680

8,794

10,928
Total non-interest expense

23,439

28,070

26,936

27,896
Income tax expense

1,687

2,241

2,993

3,642
Net income available to common stockholders

$
8,311

$
16,943

$
11,917

$
15,334
Per common share:








Net income, basic

$
0.44

$
0.79

$
0.56

$
0.72
Net income, diluted

0.44

0.79

0.55

0.72
Cash dividends declared

0.10

0.10

0.10

0.12

2019








Total interest income

$
33,273

$
37,571

$
37,241

$
40,444
Total interest expense

6,142

6,799

6,782

7,000
Net interest income

$
27,131

$
30,772

$
30,459

$
33,444
Provision for loan losses

1,123

791

974

850
Net interest income after provision for loan losses

26,008

29,981

29,485

32,594
Total non-interest income

5,554

6,716

7,103

7,574
Total non-interest expense

21,893

20,891

20,825

24,960
Income tax expense

2,034

3,823

3,491

3,353
Net income available to common stockholders

$
7,635

$
11,983

$
12,272

$
11,855
Per common share:

Net income, basic

$
0.48

$
0.69

$
0.71

$
0.64
Net income, diluted

0.63

0.70

0.74

0.72
Cash dividends declared

0.07

0.08

0.08

0.08

~~115~~


($ in thousands, except per share amounts)	March 31		June 30		Sept. 30		Dec. 31
2023
Total interest income	$	80,338	$	86,194	$	85,681	$	88,720
Total interest expense	15,412		20,164		24,977		31,055
Net interest income	$	64,926	$	66,030	$	60,704	$	57,665
Provision for credit losses	11,000		1,250		1,000		1,250
Net interest income after provision for credit losses	53,926		64,780		59,704		56,415
Total non-interest income	12,612		12,423		19,324		2,346
Total non-interest expense	45,670		46,899		47,724		44,433
Income tax expense	4,597		6,525		6,944		3,281
Net income available to common stockholders	$	16,271	$	23,779	$	24,360	$	11,047
Per common share:
Net income, basic	$	0.52	$	0.76	$	0.78	$	0.35
Net income, diluted	0.52		0.75		0.77		0.35
Cash dividends declared	0.21		0.22		0.23		0.24

2022
Total interest income	$	42,741	$	45,847	$	53,874	$	57,931
Total interest expense	4,102		3,746		4,726		10,003
Net interest income	$	38,639	$	42,101	$	49,148	$	47,928
Provision for credit losses	—		600		4,300		705
Net interest income after provision for credit losses	38,639		41,501		44,848		47,223
Total non-interest income	11,157		8,664		9,022		8,118
Total non-interest expense	28,590		30,955		35,903		35,035
Income tax expense	4,377		3,457		3,924		4,012
Net income available to common stockholders	$	16,829	$	15,753	$	14,043	$	16,294
Per common share:
Net income, basic	$	0.81	$	0.77	$	0.61	$	0.68
Net income, diluted	0.81		0.76		0.61		0.67
Cash dividends declared	0.17		0.18		0.19		0.20

2021
Total interest income	$	45,187	$	43,238	$	44,435	$	43,885
Total interest expense	5,958		5,188		4,407		4,128
Net interest income	$	39,229	$	38,050	$	40,028	$	39,757
Provision for loan losses	—		—		—		(1,104)
Net interest income after provision for loan losses	39,229		38,050		40,028		40,861
Total non-interest income	9,472		8,822		9,586		9,593
Total non-interest expense	27,264		27,452		29,053		30,790
Income tax expense	4,793		3,820		4,429		3,873
Net income available to common stockholders	$	16,644	$	15,600	$	16,132	$	15,791
Per common share:
Net income, basic	$	0.79	$	0.74	$	0.77	$	0.75
Net income, diluted	0.79		0.74		0.76		0.75
Cash dividends declared	0.13		0.14		0.15		0.16

126

~~Table of Contents~~

NOTE W - ~~COVID-19 UPDATE~~

DERIVATIVE FINANCIAL INSTRUMENTS

The ~~COVID-19 pandemic continues~~Company enters into interest rate swap agreements primarily to ~~have significant effects on global markets, supply chains, businesses~~facilitate the risk management strategies of certain commercial customers. The interest rate swap agreements entered into by the Company are all entered into under what is referred to as a back-to-back interest rate swap, as such, the net positions are offsetting assets and ~~communities. COVID-19 could potentially impact~~liabilities, as well as income and expenses and risk participation. All derivative instruments are recorded in the ~~Company’s future~~consolidated statement of financial condition at their respective fair values, as components of other assets and ~~results~~other liabilities.

Under a back-to-back interest rate swap program, the Company enters into an interest rate swap with the customer and another offsetting swap with a counterparty. The result is two mirrored interest rate swaps, absent a credit event, which will offset in the financial statements. These swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. The change in fair value is recognized in the income statement as other income and fees.

Risk participation agreements are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting period. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of ~~operations~~the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other bank. The Company has two risk participation-in swaps and one risk participation-out swap at December 31, 2023.

The following table provides outstanding interest rate swaps at December 31, 2023 and December 31, 2022.


($ in thousands)	December 31, 2023			December 31, 2022
Notional amount	$	493,290		$	328,756
Weighted average pay rate	5.2		%	4.6		%
Weighted average receive rate	5.2		%	4.3		%
Weighted average maturity in years	5.39			6.11

The following table provides the fair value of interest rate swap contracts at December 31, 2023 and December 31, 2022 included in other assets and other liabilities.

($ in thousands)

December 31, 2023

December 31, 2022

Derivative Assets

Derivative Liabilities

Derivative Assets

Derivative Liabilities

Interest rate swap contracts

$

12,170

12,175

12,825

The Company also enters into a collateral agreement with the counterparty requiring the Company to post cash or

cash equivalent collateral to mitigate the credit risk in the transaction. At December 31, 2023 and December 31, 2022, the Company had $500 thousand of collateral posted with its counterparties, which is included in the consolidated statement of financial condition as cash and cash equivalents as "restricted cash". The Company also receives a swap spread to compensate it for the credit exposure it takes on the customer-facing portion of the transaction and this upfront cash payment from the counterparty is recorded in other income, net of any transaction execution expenses, in the consolidated statement of operations. For the year ended December 31, 2023 and December 31, 2022, net swap spread income included in other income was $1.3 million and $193 thousand, respectively.

Entering into derivative contracts potentially exposes the Company to the risk of counterparties' failure to fulfill their legal obligations, including, but not limited to, ~~additional credit loss reserves, additional collateral and/~~potential amounts due or ~~modifications~~payable under each derivative contract. Notional principal amounts are often used to ~~debt obligations, liquidity, limited dividend payouts or potential shortages of personnel.~~

~~The pandemic is having an adverse impact on certain industries~~express the Company serves, including hotels, restaurants, retail, and direct energy. As of December 31, 2021, the Company’s aggregate outstanding exposure in these segments was $478.9 million, and total loan modifications resulting from COVID-19 were approximately $710.7 million. While it is still not yet possible to know the full effect that the pandemic will have on the economy, or to what extent this crisis will impact the Company, all available current industry statistics and internal monitoring of loan repayment ability and payment forgiveness across the portfolio has been analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration.

Despite recent improvements in certain economic indicators, significant constraints to commerce remain in place, and significant uncertainty remains over the timing and scope of additional government stimulus packages. The duration and extent of the downturn and speed of the related recovery on our business, customers, and the economy as a whole remains uncertain. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a resultvolume of these ~~conditions, including~~transactions, but the ~~determination~~amounts potentially subject to credit risk are much smaller. The Company assesses the credit risk of ~~the allowance for~~its dealer counterparties by regularly monitoring publicly available credit ~~losses,~~rating information, evaluating other market indicators, and periodically reviewing detailed financials.

The Company records the fair value of ~~financial instruments, impairment of goodwill~~its interest rate swap contracts separately within other assets and other ~~intangible assets~~liabilities as current accounting rules do not permit the netting of customer and ~~income taxes.~~

counterparty fair value amounts in the consolidated statement of financial condition.

127

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, ~~2021.~~2023. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. No changes were made to the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The First Bancshares, Inc.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of the Chief Executive Officer and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

~~116~~

~~Table of Contents~~

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, ~~2021~~2023 based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, our management believes that, as of December 31, ~~2021,~~2023, the Company’s internal control over financial reporting was effective based on those criteria.

As permitted by SEC guidance, management has excluded the operations of the ~~Cadence Branches~~HSBI acquisition from the scope of management’s report on internal control over financial reporting. ~~The Cadence Branches were~~HSBI was acquired during the year ended December 31, ~~2021.~~2023. For the year ended December 31, ~~2021, the Cadence Branches~~2023, HSBI represented approximately ~~6.8%~~19.6% of total consolidated assets. Due to the timing of the data conversion and the integration of operations of the branches onto the Company’s existing operations, historical reporting of the acquired branches is impracticable, and therefore, disclosure of the amounts of revenue and expenses attributable to the acquired branches since the acquisition date are not available.

This Annual Report on Form 10-K contains an audit report of ~~BKD~~FORVIS, LLP, our independent registered public accounting firm, regarding internal control over financial reporting for the fiscal year ended December 31, ~~2021~~2023 pursuant to the rules of the SEC. Their report appears in the section captioned “Report of Independent Registered Public Accounting Firm” included in Part II. Item 8 – Financial Statements and Supplementary Data of this report.

Effective January 1, 2021, the Company adopted ASC 326. The Company designed new controls and modified existing controls as part of the adoption. Management revised previous internal controls used under legacy GAAP and incorporated new internal controls related to the methodology of the new allowance for credit losses. There were no other changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

128

Report of Independent Registered Public Accounting Firm

To the Stockholders, Board of Directors and Audit Committee

The First Bancshares, Inc.

Hattiesburg, Mississippi

Opinion on the Internal Control over Financial Reporting

We have audited The First Bancshares, Inc.’s (the “Company”) internal control over financial reporting as of December 31, ~~2021,~~2023, based on criteria established in Internal Control – Integrated Framework: (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2021,~~2023, based on criteria established in Internal Control – Integrated Framework: (2013)issued by ~~the Committee of Sponsoring Organizations of the Treadway Commission (COSO).~~

As described in management’s report on internal control over financial reporting, the scope of management’s assessment of internal control over financial reporting as of December 31, 2021, has excluded the operations of the Cadence Branches acquired on December 3, 2021. We have also excluded the Cadence Branches from the scope of our audit of internal control over financial reporting, which represented approximately 7% of consolidated total assets and less than 1% of revenues and for the year ended December 31, 2021.

COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2023 and 2022 and for each of the years in the three-year period ended December 31, 2023, and our report dated ~~March 11, 2022,~~February 29, 2024 expressed an unqualified opinion ~~thereon.~~

on those consolidated financial statements.

~~117~~

~~Table of Contents~~

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ~~[title of management’s report]~~Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

As described in Management’s Annual Report on Internal Control over Financial Reporting, the scope of management’s assessment of internal control over financial reporting as of December 31, 2023, has excluded Heritage Southeast Bancorporation, Inc. which was acquired during the year ended December 31, 2023. We have also excluded Heritage Southeast Bancorporation, Inc. from the scope of our audit of internal control over financial reporting. Heritage Southeast Bancorporation, Inc. represented approximately 22.4 percent of consolidated revenues for the year ended December 31, 2023, and approximately 19.6 percent of consolidated total assets as of December 31, 2023.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with ~~accounting principles~~ generally accepted in the United States of America. Because management’s assessment and our audit also were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), our audit of the Company’s internal control over financial reporting included controls over the preparation of financial statements in accordance with accounting ~~principles generally accepted in the United States of America and with the Federal Financial Institutions Examination Council Instructions for Consolidated Reports of Condition and Income.~~principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with ~~accounting principles~~ generally accepted ~~in the United States of America,~~accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ~~and correction~~ of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

/s/ ~~BKD,~~FORVIS, LLP

Jackson, Mississippi

~~March 11, 2022~~

February 29, 2024

129

ITEM 9B. OTHER INFORMATION

~~Not applicable.~~

SERP Amendments

On November 16, 2023, the Board approved amendments to the Supplemental Executive Retirement Plan Agreement dated January 1, 2020 with M. Ray (Hoppy) Cole, Jr. (the "Cole 2020 SERP Amendment") and the Supplemental Executive Retirement Plan Agreement dated January 1, 2021 with Donna T. (Dee Dee) Lowery (the "2021 Lowery SERP Amendment"). The 2020 Cole SERP Amendment and the 2021 Lowery SERP Amendment were executed on February 26, 2024. The material terms of the agreements are summarized below.

Mr. Cole's 2020 SERP, as amended. Mr. Cole's 2020 SERP, as amended, provides for a lifetime benefit equal to 50% of "compensation" (as defined in the 2020 SERP), less any amounts payable under his 2014 SERP, which will be payable in equal monthly installments upon Mr. Cole's separation from service following attainment of age 65 while in the employment of the Bank (except in the case of Mr. Cole's death, in which case the death benefit will be paid in a lump sum).

•If Mr. Cole separates from service prior to age 65, other than by reason of his death or a termination for cause other than in connection with a change in control, then he will receive an annual benefit equal to the "early termination benefit" (as defined in the 2020 SERP).

•If Mr. Cole separates from service following a change in control prior to age 65, then he will receive 100% of the "change in control benefit" (as defined in the 2020 SERP).

•In the event of Mr. Cole's death, his beneficiary will receive a lump sum payment equal to 50% of Mr. Cole's compensation multiplied by a factor of 17, less any amounts already paid under the 2021 or 2014 SERPs, plus an additional lump sum death benefit payment determined by Mr. Cole's age at death.

Ms. Lowery's 2021 SERP. Ms. Lowery's 2021 SERP, as amended, provides for a lifetime benefit equal to 50% of "compensation" (as defined in the 2021 SERP), less any amounts payable under her 2014 SERP, which will be payable in equal monthly installments upon Ms. Lowery's separation from service following attainment of age 65 while in the employment of the Bank (except in the case of Ms. Lowery's death, in which case the death will be paid in a lump sum).

•If Ms. Lowery separates from service prior to age 65, other than by reason of her death or a termination for cause other than in connection with a change in control, then she will receive an annual benefit equal to the "early termination benefit" (as defined in the 2021 SERP).

•If Ms. Lowery separates from service following a change in control prior to age 65, then she will receive 100% of the "change in control benefit" (as defined in the 2021 SERP).

•In the event of Ms. Lowery's death, her beneficiary will receive a lump sum payment equal to 50% of Ms. Lowery's compensation multiplied by a factor of 21, less any amounts already paid under the 2021 or 2014 SERPs.

On November 16, 2023, the Board also approved amendments to the Supplemental Executive Retirement Plan Agreement dated May 15, 2014 with Mr. Cole (the "2014 Cole SERP Amendment") and the Supplemental Executive Retirement Plan Agreement dated May 19, 2014 with Ms. Lowery (the "2014 Lowery SERP Amendment"), to remove the death benefit provided under each agreement. The 2014 Cole SERP Amendment and the 2014 Lowery SERP Amendment were executed on February 26, 2024.

The summary provided herein is qualified in its entirety by reference to the full text of the 2020 Cole SERP Amendment, the 2021 Lowery SERP Amendment, the 2014 Cole SERP Amendment and the 2014 Lowery SERP Amendment, which are attached hereto as Exhibits 10.13, 10.17, 10.11 and 10.15, respectively.

Rule 10b5-1 Trading Arrangements

During the quarter ended December 31, 2023, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-(c) or any "non-Rule 10b5-1 trading arrangement.

130

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of Shareholders to be held May ~~19, 2022,~~23, 2024, which proxy materials will be filed with the SEC on or about April ~~6, 2022.~~

~~118~~

10, 2024.

~~Table of Contents~~

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of Shareholders to be held May ~~19, 2022,~~23, 2024, which proxy materials will be filed with the SEC on or about April ~~6, 2022.~~

10, 2024.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of Shareholders to be held May ~~19, 2022,~~23, 2024, which proxy materials will be filed with the SEC on or about April ~~6, 2022.~~

10, 2024.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of Shareholders to be held May ~~19, 2022,~~23, 2024, which proxy materials will be filed with the SEC on or about April ~~6, 2022.~~

10, 2024.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of Shareholders to be held May ~~19, 2022,~~23, 2024, which proxy materials will be filed with the SEC on or about April ~~6, 2021.~~

10, 2024.

~~119~~

131

~~Table of Contents~~

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	~~The following documents are filed as part of this Report:~~

1.

The following documents are filed as part of this Report:

1.The following consolidated financial statements of The First Bancshares, Inc. and subsidiaries are incorporated as part of this Report under Item 8 – Financial Statements and Supplementary Data.

2.Consolidated ~~balance sheets – December 31, 2021 and 2020~~Financial Statement Schedules:

~~Consolidated statements of income – Years ended December 31, 2021, 2020, and 2019~~

~~Consolidated statements of other comprehensive income – Years ended December 31, 2021, 2020, and 2019~~

~~Consolidated statements of changes in stockholders’ equity– Years ended December 31, 2021, 2020 and 2019~~

~~Consolidated statements of cash flows –Years ended December 31, 2021, 2020, and 2019~~

~~Notes to consolidated financial statements – December 31, 2021, 2020, and 2019~~

2.

~~Consolidated Financial Statement Schedules:~~

All schedules have been omitted, as the required information is either inapplicable or included in the Notes to Consolidated Financial Statements.

3.

~~Exhibits required to be filed by Item 601 of Regulation S-K, by Item 15(b) are listed below.~~

3.Exhibits required to be filed by Item 601 of Regulation S-K, by Item 15(b) are listed below.

~~(b)~~

~~Exhibits:~~

(b)Exhibits:

All other financial statements and schedules are omitted as the required information is inapplicable or the required information is presented in the consolidated financial statements or related notes.

(a)

3. Exhibits:

~~(a)~~
Exhibit No.			~~3. Exhibits:~~


~~Exhibit No.~~	Description of Exhibit

2.1		Agreement and Plan of Merger, dated October 12, 2016, by and among The First Bancshares, Inc., The First, A National Banking Association, and Gulf Coast Community Bank (incorporated herein by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on October 14, 2016).

2.2		Stock Purchase Agreement, dated October 12, 2016, by and between The First Bancshares, Inc. and A. Wilbert’s Sons Lumber and Shingle Co. (incorporated herein by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on October 14, 2016).

~~2.3~~	Agreement and Plan of Merger by and between The First Bancshares, Inc. and Southwest Banc Shares, Inc., dated October 24, 2017 (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 9, 2017).

~~2.4~~ 2.3		Agreement and Plan of Merger by and between The First Bancshares, Inc. and Sunshine Financial, Inc., dated December 6, 2017 (incorporated herein by reference to Exhibit 2.4 to the Company’s Annual Report on Form 10-K filed on March 16, 2018).

~~120~~

~~Table of Contents~~


~~2.5~~
2.4		Agreement and Plan of Merger by and between The First Bancshares, Inc. and FMB Banking Corporation, dated July 23, 2018 (incorporated by reference to Exhibit 2.1 of the Company’s Registration Statement on Form S-4 filed on September 13, 2018).

~~2.6~~ 2.5		Agreement and Plan of Merger by and between The First Bancshares, Inc. and FPB Financial Corp., dated November 6, 2018 (incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2018).

~~2.7~~ 2.6		Agreement and Plan of Merger by and between The First Bancshares, Inc. and First Florida Bancshares, Inc., dated July 22, 2019 (incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 8-K filed on July 23, 2019).

~~2.8~~	Agreement and Plan of Merger by and between The First Bancshares, Inc. and Southwest Georgia Financial Corp., dated December 18, 2019 (incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 8-K filed on December 18, 2019).

132



2.7	Agreement and Plan of Merger, dated as of April 26, 2022, by and between The Fi r st Bancshares, Inc. and Beach Bancorp, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on May 2, 2022).

2.8		Agreement and Plan of Merger, dated as of July 27, 2022, by and between The First Bancshares, Inc. and Heritage Southeast Bancorporation, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on August 1, 2022).

3.1		Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 29, 2016).

3.2		Amendment to Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 10-Q filed on August 9, 2018).

3.3		Amendment to Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated herein by reference to 3.1 to the Company's Current Report on Form 8-K filed on May 26, 2023.
~~3.3~~
3.4		Amended and Restated Bylaws of The First Bancshares, Inc., effective as of March 17, 2016 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 18, 2016).

~~3.4~~ 3.5		Amendment No. 1 to the Amended and Restated Bylaws of The First Bancshares, Inc. effective as of May 7, 2020 (incorporated by reference to Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2020).

4.1		Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement No. 333-220491 on Form S-3 filed on September 15, 2017).

4.2		Form of Global Subordinated Note for The First Bancshares, Inc. 5.875% Fixed-to-Floating Rate Subordinated Notes Due 2028 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 1, 2018).

4.3		Form of Global Subordinated Note for The First Bancshares, Inc. 6.4% Fixed-to-Floating Rate Subordinated Notes Due 2023 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 1, 2018).

4.4		Indenture by and between The First Bancshares, Inc. and U.S. Bank National Association, dated September 25, 2020 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on September 25, 2020).

4.5		Form of Global Subordinated Note for The First Bancshares, Inc. 4.25% Fixed-to-Floating Rate Subordinated Notes Due 2030 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on September 25, 2020).

4.6	Description of Securities	.
~~4.6~~		Description of Securities*
10.1

~~121~~

~~Table of Contents~~

~~10.1~~	Note Purchase Agreement between the Company and the several purchasers of the Subordinated Notes, dated April 30, 2018 (incorporated herein by reference to Exhibit 10.1 to The Company’s Current Report on Form 8-K filed on May 1, 2018).

10.2		Subordinated Note Purchase Agreement between the Company and the several purchasers of the Subordinated Notes, dated April 30, 2018 (incorporated herein by reference to Exhibit 10.2 to The Company’s Current Report on Form 8-K filed on May 1, 2018).

10.3		Loan Agreement, dated as of December 5, 2016, by and between the Company, as Borrower, and First Tennessee Bank National Association, as Lender (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 9, 2016).

10.4		Employment Agreement dated May 31, 2011, between The First, A National Banking Association, and M. Ray Cole, Jr. (incorporated herein by reference to Exhibit 10.5 of The First Bancshares’ Annual Report on Form 10-K filed on March 29, 2012).+

133


10.5		Amendment to Employment Agreement dated January 16, 2020, between The First, A National Banking Association, and M. Ray Cole, Jr. (incorporated herein by reference to Exhibit 10.3 to The First Bancshares Quarterly Report on Form 10-Q filed on May 11, 2020).+

10.6		Employment Agreement, dated as of October 17, 2019, by and between The First, A National Banking Association and Donna T. (Dee Dee) Lowery (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 21, 2019).+

10.7		Amendment to Employment Agreement dated January 16, 2020, between The First, A National Banking Association, and Donna T. (Dee Dee) Lowery (incorporated herein by reference to Exhibit 10.3 to The First Bancshares Quarterly Report on Form 10-Q filed on May 11, 2020).+

10.8		The First Bancshares, Inc. 2007 Stock Incentive Plan (incorporated herein by reference to Exhibit 4.3 to The First Bancshares’ Registration Statement No. 333-171996 on Form S-8 filed on February 1, 2011).+

10.9		Amendment to 2007 Stock Incentive Plan effective May 28, 2015 (incorporated herein by reference to Exhibit 10.6 to The First Bancshares Annual Report on Form 10-K filed on March 30, 2016).+

10.10		Supplemental Executive Retirement Agreement between The First, A National Banking Association and M. Ray (Hoppy) Cole, Jr., as amended (incorporated herein by reference to Exhibit 10.9 to The First Bancshares Annual Report on Form 10-K filed on March 16, 2017).+

10.11		Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First Bank and Milton R. Cole, Jr.*
~~10.11~~
10.12		Supplemental Executive Retirement Agreement effective January 1, 2020 between The First, A National Banking Association and Milton R. Cole, Jr. (incorporated herein by reference to Exhibit 10.3 to The First Bancshares Quarterly Report on Form 10-Q filed on May 11, 2020).+

10.13		Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First Bank and Milton R. Cole, Jr.*
~~10.12~~
10.14		Supplemental Executive Retirement Agreement between The First, A National Banking Association and Donna T. Lowery, as amended (incorporated herein by reference to Exhibit 10.10 to The First Bancshares Annual Report on Form 10-K filed on March 16, 2017).+

10.15	Amendment to Supplemental Executive Retirement Agreement dated February 2 6 , 2024 between The First Bank and Donna T. Lowery*
~~10.13~~
10.16		Supplemental Executive Retirement Agreement between The First, A National Banking Association and Donna T. Lowery (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report in Form 10-K filed in March 12,2021).+

10.17	Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First Bank and Donna T. Lowery*

10.18

~~122~~

~~Table of Contents~~

~~10.14~~	Form of Supplemental Executive Retirement Agreements for Executives of The First, A National Banking Association (incorporated herein by reference to Exhibit 10.11 to The First Bancshares Annual Report on Form 10-K filed on March 16, 2017).+

~~10.15~~ 10.19		Form of Stock Incentive Agreement for Restricted Stock Award pursuant to The First Bancshares, Inc. 2007 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on March 16, 2018).+

~~10.16~~ 10.20		Amendment to Stock Incentive Agreement for Outstanding Shares of Restricted Stock, dated as of October 15, 2019 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on October 21, 2019). +

~~10.17~~ 10.21		Subordinated Note Purchase Agreement between The First Bancshares, Inc. and the several purchasers of the Subordinated Notes, dated September 25, 2020 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 25, 2020).

134


~~10.18~~ 10.22		Registration Rights Agreement between The First Bancshares, Inc. and the several purchasers of the Subordinated Notes, dated September 25, 2020 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on September 25, 2020).

10.23		Beach Community Bank 2018 Stock Option Plan (incorporated by reference to Exhibit 99.1 of The First Bancshares' Registration Statement No. 333-266436 on Form S-8 filed on August 1, 2022).
21.1		Subsidiaries of The First Bancshares, Inc.*

23.1		Consent of FORVIS, LLP .*
~~23.1~~		Consent of BKD LLP.*
31.1
~~23.2~~	Consent of Crowe LLP.*

~~31.1~~	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*

32.1		Section 1350 Certifications.**

97.1		Clawback Policy.*

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

________________________

*Filed herewith.

**Furnished herewith.

+ Denotes management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY

~~None.~~

~~123~~

None.

135

~~Table of Contents~~

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			THE FIRST BANCSHARES, INC.

Date: ~~March 11, 2022~~ February 29, 2024		By:	/s/ M. Ray (Hoppy) Cole, Jr.
			M. Ray (Hoppy) Cole, Jr.
			Chief Executive Officer and President (Principal Executive Officer) , Chairman of the Board

Date: ~~March 11, 2022~~ February 29, 2024		By:	/s/ Dee Dee Lowery
			Dee Dee Lowery
			Executive VP and Chief Financial Officer
	(Principal Financial and Principal Accounting Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints M. Ray (Hoppy) Cole, Jr. and Donna T. (Dee Dee) Lowery, with full power to act without the other, his or her true and lawful attorney-in-fact and agent, with full and several powers of substitution and resubsititution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully as to all intents and purposes as each of the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURES

CAPACITIES

~~CAPACITIES~~

DATE

~~DATE~~

/s/ E. Ricky Gibson

Director

~~Director and Chairman of the Board~~

February 29, 2024

~~March 11, 2022~~

~~/s/ Rodney D. Bennett~~

~~Director~~

~~March 11, 2022~~

/s/ David W. Bomboy

Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ Jonathan A. Levy

Director

February 29, 2024

/s/ Charles R. Lightsey

Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ Fred McMurry

Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ Thomas E. Mitchell

Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ Renee Moore

Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ Ted E. Parker

Lead Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ J. Douglas Seidenburg

Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ Andrew D. Stetelman

Director

~~Director~~

February 29, 2024

~~March 11, 2022~~

/s/ Valencia M. Williamson

Director

February 29, 2024

/s/ M. Ray (Hoppy) Cole, Jr.

CEO, President, Director, and ~~Director~~

Chairman of

February 29, 2024

~~March 11, 2022~~

~~(Principal~~the Board (Principal Executive Officer)

/s/ Donna T. (Dee Dee) Lowery

Executive VP & Chief Financial Officer

February 29, 2024

(Principal Financial and Accounting Officer)

~~March 11, 2022~~

~~124~~

136


Mississippi		64-0862173
~~Mississippi~~	~~64-0862173~~
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
~~Incorporation or Organization)~~

6480 U.S. Hwy. 98 West, Suite A
Hattiesburg, Mississippi		39402
~~Hattiesburg, Mississippi~~	~~39402~~
(Address of principal executive offices)	(Zip Code)


Legend

	Symbol	Total Returns Index For:	2018	2019	2020	2021	2022	2023

		First Bancshares, Inc.	100.00	118.55	104.82	133.07	112.80	106.66
		NASDAQ Composite-Total Returns	100.00	136.69	198.10	242.03	163.28	236.17
		NASDAQ OMX Banks Index	100.00	124.38	115.04	164.41	137.65	132.91


	Notes:

	A.	The lines represent monthly index levels derived from compounded daily returns that include all dividends.
	B.	The indexes are reweighted daily, using the market capitalization on the previous trading day.
	C.	If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
	D.	The index level for all series was set to $100.00 on 12/31/2018.


	2021		2020		2019
Interest income	$	176,735	$	179,328	$	148,503
Interest expense		12,306		21,071		21,805
Net interest income		164,429		158,257		126,698

Provision for credit losses		(1,104)		25,151		3,738

Net interest income after provision for loan losses		165,533		133,106		122,960

Non-interest income		37,362		40,984		25,885
Non-interest expense		108,791		100,966		82,750

Income tax expense		20,210		13,108		15,085

Net income	$	73,894	$	60,016	$	51,010


($ in thousands)	2023		2022		2021
Interest income	$	340,897	$	200,375	$	176,735
Interest expense	83,638		15,085		12,306
Net interest income	257,259		185,290		164,429
Provision for credit losses	14,500		5,605		(1,104)
Net interest income after provision for loan losses	242,759		179,685		165,533
Non-interest income	39,722		34,288		37,362
Non-interest expense	177,324		122,373		108,791
Income tax expense	23,352		19,033		20,210
Net income	$	81,805	$	72,567	$	73,894


	Year Ended December 31, 2023 versus 2022 Increase (decrease) due to						Year Ended December 31, 2022 versus 2021 Increase (decrease) due to
($ in thousands)	Volume		Rate		Net		Volume		Rate		Net
Earning Assets
Loans	$	82,887	$	53,893	$	136,780	$	14,176	$	(7,595)	$	6,581
Securities (1)	(2,405)		4,013		1,608		15,436		2,832		18,268
Federal funds sold and interest bearing deposits with other banks	(28)		2,431		2,403		(55)		(37)		(92)
Total interest income	80,454		60,337		140,791		29,557		(4,800)		24,757
Interest-Bearing Liabilities
Interest-bearing transaction accounts	903		19,659		20,562		1,278		(745)		533
Money market accounts and savings	491		16,071		16,562		226		819		1,045
Time deposits	2,078		18,160		20,238		294		(52)		242
Borrowed funds	10,642		1,027		11,669		241		835		1,076
Total interest expense	14,114		54,917		69,031		2,039		857		2,896
Net interest income	$	66,340	$	5,420	$	71,760	$	27,518	$	(5,657)	$	21,861


x			☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Auditor Firm PCAOB ID: 686			Auditor Name: ~~BKD,~~FORVIS, LLP			Auditor Location: Jackson, MS


					Page

			PART I

ITEM 1.			BUSINESS		7
ITEM 1A.			RISK FACTORS		~~Page~~ 20

	~~PART I~~

~~ITEM 1.~~	~~BUSINESS~~	6
~~ITEM 1A.~~	~~RISK FACTORS~~	18
ITEM 1B.	UNRESOLVED STAFF COMMENTS			28 29
ITEM 2.1 C.			~~PROPERTIES~~CYBERSECURITY		28 29
ITEM 3.2.			~~LEGAL PROCEEDINGS~~PROPERTIES		28 31
ITEM 3.			LEGAL PROCEEDINGS		32
ITEM 4.			MINE SAFETY DISCLOSURES		28 32

			PART II

ITEM 5.			MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		29 33
ITEM 6.			RESERVED		31 34
ITEM 7.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		31 35
ITEM 7A.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		53 58
ITEM 8.			FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		55 61
ITEM 9.			CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		~~116~~ 128
ITEM 9A.			CONTROLS AND PROCEDURES		~~116~~ 128
ITEM 9B.			OTHER INFORMATION		~~118~~ 130

			PART III

ITEM 10.			DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		~~118~~ 131
ITEM 11.			EXECUTIVE COMPENSATION		~~119~~ 131
ITEM 12.			SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		~~119~~ 131
ITEM 13.			CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		~~119~~ 131
ITEM 14.			PRINCIPAL ACCOUNTANT FEES AND SERVICES		~~119~~ 131

			PART IV

ITEM 15.			EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		~~120~~ 132
ITEM 16.			FORM 10-K SUMMARY		~~123~~ 135
SIGNATURES					~~124~~ 136


	Capital Adequacy Ratios
			Regulatory		Minimum
			Minimums		Capital Required
	Regulatory		to be Well		Basel III Fully		The First
	Minimums		Capitalized		Phased-In		Bancshares, Inc.		The First
Common Equity Tier 1 risk-based capital ratio	4.5	%	6.5	%	7.0	%	13.7	%	16.6	%
Tier 1 risk-based capital ratio	6.0	%	8.0	%	8.5	%	14.1	%	16.6	%
Total risk-based capital ratio	8.0	%	10.0	%	10.5	%	18.6	%	17.4	%
Leverage ratio	4.0	%	5.0	%	4.0	%	9.2	%	10.8	%


					Total Number of
	Total				Shares Purchased as	Maximum Number of
	Number of		Average		Part of Publicly	Shares that May Yet
	Shares		Price Paid		Announced Plans or	Be Purchased Under
Period	Purchased		Per Share		Programs	the Plans or Programs
October	—		$	—	—	628,914
November	188			40.25	—	600,472
December	6,672			38.64	—	640,266
Total	6,860	^(a)	$	39.04	—


	Years Ended December 31,
	2021						2020						2019
	Average		Income/		Yield/		Average		Income/		Yield/		Average		Income/		Yield/
($ in thousands)	Balance		Expenses		Rate		Balance		Expenses		Rate		Balance		Expenses		Rate
Assets
Earning Assets
Loans (1)(2)	$	3,019,605	$	151,203	5.01	%	$	3,020,280	$	157,564	5.22	%	$	2,341,202	$	128,857	5.50	%
Securities (4)		1,305,262		28,035	2.15	%		917,858		23,747	2.59	%		635,967		20,616	3.24	%
Federal funds sold and interest bearing deposits with other banks (3)		642,042		121	0.02	%		317,848		378	0.12	%		84,171		264	0.31	%
Total earning assets		4,966,909		179,359	3.61	%		4,255,986		181,689	4.27	%		3,061,340		149,737	4.89	%
Other		526,877						523,412						401,614
Total assets	$	5,493,786					$	4,779,398					$	3,462,954

Liabilities
Interest-bearing liabilities	$	4,548,169	$	19,681	0.43	%	$	3,901,797	$	26,664	0.68	%	$	2,344,755	$	26,723	1.14	%
Demand deposits (1)		253,324						235,909						154,122
Other liabilities		34,827						34,582						505,376
Stockholders’ equity		657,466						607,110						458,701
Total liabilities and stockholders’ equity	$	5,493,786					$	4,779,398					$	3,462,954

Net interest spread					3.18	%					3.59	%					3.75	%
Net yield on interest-earning assets			$	159,678	3.21	%			$	155,025	3.64	%			$	123,014	4.02	%


	Year Ended December 31,						Year Ended December 31,
	2021 versus 2020						2020 versus 2019
	Increase (decrease) due to						Increase (decrease) due to
($ in thousands)	Volume		Rate		Net		Volume		Rate		Net
Earning Assets
Loans	$	(35)	$	(6,246)	$	(6,281)	$	37,283	$	(8,576)	$	28,707
Securities (1)		9,949		(5,749)		4,200		9,122		(5,991)		3,131

Federal funds sold and interest bearing deposits with other banks		386		(635)		(249)		721		(607)		114
Total interest income		10,300		(12,630)		(2,330)		47,126		(15,174)		31,952
Interest-Bearing Liabilities
Interest-bearing transaction accounts		2,100		(3,746)		(1,646)		(1,202)		1,835		633
Money market accounts and savings		950		(2,757)		(1,807)		1,992		(1,901)		91
Time deposits		(1,267)		(2,836)		(4,103)		1,487		(2,345)		(858)
Borrowed funds		1,251		(678)		573		1,443		(1,368)		75
Total interest expense		3,034		(10,017)		(6,983)		3,720		(3,779)		(59)
Net interest income	$	7,266	$	(2,613)	$	4,653	$	43,406	$	(11,395)	$	32,011


	December 31, 2021
				After Three
	Within			Through			Within			Greater Than
	Three			Twelve			One			One Year or
	Months			Months			Year			Nonsensitive			Total
Assets
Earning Assets:
Loans	$	147,728		$	256,450		$	404,178		$	2,563,053		$	2,967,231
Securities (2)		8,959			51,457			60,416			1,713,642			1,774,058
Funds sold and other		—			804,481			804,481			—			804,481
Total earning assets	$	156,687		$	1,112,388		$	1,269,075		$	4,276,695		$	5,545,770
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)	$	—		$	1,771,510		$	1,771,510		$	—		$	1,771,510
Money market accounts		817,476			—			817,476			—			817,476
Savings deposits (1)		—			502,808			502,808			—			502,808
Time deposits		132,025			312,958			444,983			139,626			584,609
Total interest-bearing deposits		949,501			2,587,276			3,536,777			139,626			3,676,403
Total interest-bearing liabilities		949,501			2,587,276			3,536,777			139,626			3,676,403
Interest-sensitivity gap per period	$	(792,814)		$	(1,474,888)		$	(2,267,702)		$	4,137,069		$	1,869,367
Cumulative gap at December 31, 2021	$	(792,814)		$	(2,267,702)		$	(2,267,702)		$	1,869,367		$	1,867,367
Ratio of cumulative gap to total earning assets at December 31, 2021		(14.3)	%		(40.9)	%		(40.9)	%		33.7	%


	December 31, 2020
				After Three
	Within			Through			Within			Greater Than
	Three			Twelve			One			One Year or
	Months			Months			Year			Nonsensitive			Total
Assets
Earning Assets:
Loans	$	220,572		$	222,176		$	442,748		$	2,702,362		$	3,145,110
Securities (2)		9,211			24,012			33,223			1,016,434			1,049,657
Funds sold and other		—			424,870			424,870			—			424,870
Total earning assets	$	229,783		$	671,058		$	900,841		$	3,718,796		$	4,619,637
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)	$	—		$	1,347,778		$	1,347,778		$	—		$	1,347,778
Money market accounts		705,357			—			705,357			—			705,357
Savings deposits (1)		—			395,116			395,116			—			395,116
Time deposits		116,796			303,571			420,367			160,682			581,049
Total interest-bearing deposits		822,153			2,046,465			2,868,618			160,682			3,029,300
Borrowed funds (3)		110,182			554			110,736			3,911			114,647
Total interest-bearing liabilities		932,335			2,047,019			2,979,354			164,593			3,143,947
Interest-sensitivity gap per period	$	(702,552)		$	(1,375,961)		$	(2,078,513)		$	3,554,203		$	1,475,690
Cumulative gap at December 31, 2020	$	(702,552)		$	(2,078,513)		$	(2,078,513)		$	1,475,690		$	860,789
Ratio of cumulative gap to total earning assets at December 31, 2020		(15.2)	%		(45.0)	%		(45.0)	%		31.9	%


Issuer’s telephone number:			(601) 268-8998


$ in thousands	December 31, 2023
	Within Three Months			After Three Through Twelve Months			Within One Year			Greater Than One Year or Nonsensitive			Total
Assets
Earning assets:
Loans	$	262,916		$	406,261		$	669,177		$	4,503,779		$	5,172,956
Securities (2)	51,735			35,679			87,414			1,609,490			1,696,904
Funds sold and other	—			130,948			130,948			—			130,948
Total earning assets	$	314,651		$	572,888		$	887,539		$	6,113,269		$	7,000,808
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)	$	—		$	1,914,792		$	1,914,792		$	—		$	1,914,792
Money market accounts	1,090,484			—			1,090,484			—			1,090,484
Savings deposits (1)	—			532,827			532,827			—			532,827
Time deposits	361,342			618,134			979,476			96,280			1,075,756
Total interest-bearing deposits	1,451,826			3,065,753			4,517,579			96,280			$	4,613,859
Borrowed funds (3)	250,000			140,000			390,000			—			390,000
Total interest-bearing liabilities	1,701,826			3,205,753			4,907,579			96,280			5,003,859
Interest-sensitivity gap per period	$	(1,387,175)		$	(2,492,865)		$	(4,020,040)		$	6,016,989		$	1,996,949
Cumulative gap at December 31, 2023	$	(1,387,175)		$	(3,880,040)		$	(4,020,040)		$	1,996,949		$	1,996,949
Ratio of cumulative gap to total earning assets at December 31, 2023	(19.8)		%	(55.4)		%	(57.4)		%	28.5		%


	December 31, 2019
				After Three
	Within			Through			Within			Greater Than
	Three			Twelve			One			One Year or
	Months			Months			Year			Nonsensitive			Total
Assets
Earning Assets:
Loans	$	179,998		$	272,741		$	452,739		$	2,158,429		$	2,611,168
Securities (2)		9,125			25,282			34,407			757,370			791,777
Funds sold and other		—			79,128			79,128			—			79,128
Total earning assets	$	189,123		$	377,151		$	566,274		$	2,915,799		$	3,482,073
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)	$	—		$	941,597		$	941,597		$	—		$	941,597
Money market accounts		462,810			—			462,810			—			462,810
Savings deposits (1)		—			287,200			287,200			—			287,200
Time deposits		123,978			378,170			502,148			159,570			661,718
Total interest-bearing deposits		586,788			1,606,967			2,193,755			159,570			2,353,325
Borrowed funds (3)		207,965			1,000			208,965			5,354			214,319
Total interest-bearing liabilities		794,753			1,607,967			2,402,720			164,924			2,567,644
Interest-sensitivity gap per period	$	(605,630)		$	(1,230,816)		$	(1,836,446)		$	2,750,875		$	914,429
Cumulative gap at December 31, 2019	$	(605,630)		$	(1,836,466)		$	(1,836,446)		$	914,429		$	914,429
Ratio of cumulative gap to total earning assets at December 31, 2019		(17.4)	%		(52.7)	%		(52.7)	%		26.3	%


$ in thousand	December 31, 2021
	Within Three Months			After Three Through Twelve Months			Within One Year			Greater Than One Year or Nonsensitive			Total
Assets
Earning assets:
Loans	$	147,728		$	256,450		$	404,178		$	2,563,053		$	2,967,231
Securities (2)	8,959			51,457			60,416			1,713,642			1,774,058
Funds sold and other	—			804,481			804,481			—			804,481
Total earning assets	$	156,687		$	1,112,388		$	1,269,075		$	4,276,695		$	5,545,770
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)	$	—		$	1,771,510		$	1,771,510		$	—		$	1,771,510
Money market accounts	817,476			—			817,476			—			817,476
Savings deposits (1)	—			502,808			502,808			—			502,808
Time deposits	132,025			312,958			444,983			139,626			584,609
Total interest-bearing deposits	949,501			2,587,276			3,536,777			139,626			3,676,403
Total interest-bearing liabilities	949,501			2,587,276			3,536,777			139,626			3,676,403
Interest-sensitivity gap per period	$	(792,814)		$	(1,474,888)		$	(2,267,702)		$	4,137,069		$	1,869,367
Cumulative gap at December 31, 2021	$	(792,814)		$	(2,267,702)		$	(2,267,702)		$	1,869,367		$	1,869,367
Ratio of cumulative gap to total earning assets at December 31, 2021	(14.3)		%	(40.9)		%	(40.9)		%	33.7		%


	Net Interest Income at Risk				Market Value of Equity
Change in Interest	% Change		Bank		% Change		Bank
Rates	from Base		Policy Limit		from Base		Policy Limit
Up 400 bps	11.3	%	(20.0)	%	20.0	%	(40.0)	%
Up 300 bps	10.2	%	(15.0)	%	18.9	%	(30.0)	%
Up 200 bps	8.1	%	(10.0)	%	15.5	%	(20.0)	%
Up 100 bps	4.7	%	(5.0)	%	9.4	%	(10.0)	%
Down 100 bps	(3.3)	%	(5.0)	%	(15.0)	%	(10.0)	%
Down 200 bps	(4.6)	%	(10.0)	%	(34.2)	%	(20.0)	%


	Years Ended December 31,
($in thousands)	2021 (1)			2020
Average LHFI outstanding	$	3,019,605		$	3,020,280
Loans outstanding at year end, including LHFS	$	2,967,231		$	3,145,110

Total nonaccrual loans	$	28,013		$	33,774

Beginning balance of allowance	$	35,820		$	13,908
Impact of ASC 326 adoption on non-PCD loans		(718)			—
Impact of ASC 326 adoption on PCD loans		1,115			—
Loans charged-off		(6,213)			(4,479)
Total recoveries		2,194			1,240
Net loans (charged-off) recoveries		(4,019)			(3,239)
Provision for credit losses (2)		(1,456)			25,151
Balance at year end	$	30,742		$	35,820

Net charge-offs to average loans		0.13	%		0.11	%
Allowance as percent of total loans		1.04	%		1.14	%
Nonaccrual loans as a percentage of total loans		0.94	%		1.07	%
Allowance as a multiple of nonaccrual loans		1.10	X		1.06	X


	Allowance
Allocated:
Collateral dependent loans	$	6
Loans collectively evaluated		30,736
Total	$	30,742


	Analysis of the Allowance for Credit Losses
	2021 (1)		2020
Balance at beginning of period	$	35,820	$	13,908
Impact of ASC 326 adoption on non-PCD loans		(718)		—
Impact of ASC 326 adoption on PCD loans		1,115		—
Loans charged-off:
Commercial, financial and agriculture		(1,662)		(1,496)
Commercial real estate		(3,523)		(2,256)
Consumer real estate		(473)		(280)
Consumer installment		(555)		(447)
Total		(6,213)		(4,479)
Recoveries on loans previously charged-off:
Commercial, financial and agriculture		433		169
Commercial real estate		888		418
Consumer real estate		311		251
Consumer installment		562		402
Total		2,194		1,240
Net (charge-offs) recoveries		(4,019)		(3,239)
Provision for credit losses (2)		(1,456)		25,151
Balance at end of period	$	30,742	$	35,820


($ in thousands)	Analysis of the Allowance for Credit Losses
	2023		2022		2021 (1)
Balance at beginning of period	$	38,917	$	30,742	$	35,820
Impact of ASC 326 adoption on non-PCD loans	—		—		(718)
Impact of ASC 326 adoption on PCD loans	—		—		1,115
Initial allowance on acquired PCD loans	3,176		1,303		—
Loans charged-off:
Commercial, financial and agriculture	(745)		(259)		(1,662)
Commercial real estate	(250)		(72)		(3,523)
Consumer real estate	(49)		(204)		(473)
Consumer installment	(2,048)		(683)		(555)
Total	(3,092)		(1,218)		(6,213)
Recoveries on loans previously charged-off:
Commercial, financial and agriculture	349		433		433
Commercial real estate	116		591		888
Consumer real estate	249		1,015		311
Consumer installment	567		701		562
Total	1,281		2,740		2,194
Net (charge-offs) recoveries	(1,811)		1,522		(4,019)
Provision:
Initial provision for acquired non-PCD loans	10,719		3,855		—
Provision for credit losses charged to expense (2)	3,031		1,495		(1,456)
Balance at end of period	$	54,032	$	38,917	$	30,742


	December 31, 2021 (1)				December 31, 2020

			% of loans in				% of loans in
			each category to				each category to
	Amount		total gross loans		Amount		total gross loans
Commercial, financial and agriculture	$	4,873	13.4	%	$	6,214	18.6	%
Commercial real estate		17,552	57.0	%		24,319	52.9	%
Consumer real estate		7,889	28.3	%		4,736	27.2	%
Consumer installment		428	1.3	%		551	1.3	%
Total loans	$	30,742	100	%	$	35,820	100	%


			After One,		After Five but		After
	Due in One		but Within		Within		Fifteen
	Year or Less		Five Years		Fifteen Years		Years		Total
Commercial, financial and agricultural	$	71,956	$	214,425	$	98,085	$	13,050	$	397,516
Commercial real estate		201,862		691,530		740,376		49,928		1,683,696
Consumer real estate		116,171		216,431		158,409		347,644		838,655
Consumer installment		6,511		29,960		3,215		—		39,686
Total	$	396,500	$	1,152,346	$	1,000,085	$	410,622	$	2,959,553

Loans with fixed interest rates:
Commercial, financial and agricultural	$	33,758	$	185,175	$	86,898	$	10,074	$	315,905
Commercial real estate		166,961		608,138		531,056		2,943		1,309,098
Consumer real estate		82,769		136,788		98,521		70,407		388,485
Consumer installment		5,534		28,157		3,049		—		36,740
Total	$	289,022	$	958,258	$	719,524	$	83,424	$	2,050,228

Loans with floating interest rates:
Commercial, financial and agricultural	$	38,198	$	29,250	$	11,187	$	2,976	$	81,611
Commercial real estate		34,901		83,392		209,320		46,985		374,598
Consumer real estate		33,402		79,643		59,888		277,237		450,170
Consumer installment		977		1,803		166		—		2,946
Total	$	107,478	$	194,088	$	280,561	$	327,198	$	909,325


	Within One Year		After One, But Within Five Years		Maturing After Five But Within Ten Years		After Ten Years		Total
Securities held-to-maturity
U.S. Treasury	1.48	%	1.67	%	—	%	—	%	1.60	%
Obligations of U.S. government agencies and sponsored entities	—	%	3.49	%	3.30	%	—	%	3.34	%
Tax-exempt and taxable obligations of states and municipal subdivisions	1.91	%	2.04	%	3.96	%	4.83	%	4.57	%
Mortgage-backed securities - residential	—	%	—	%	1.61	%	2.45	%	2.34	%
Mortgage-backed securities - commercial	—	%	2.12	%	3.40	%	3.86	%	3.57	%
Corporate obligations	—	%	—	%	—	%	3.13	%	3.13	%
Total held-to-maturity	1.62	%	2.00	%	3.71	%	4.57	%	4.18	%


	December 31,
	2021				2020				2019
			Average				Average				Average
	Average		Rate		Average		Rate		Average		Rate
	Balance		Paid		Balance		Paid		Balance		Paid
Non-interest-bearing accounts	$	253,324			$	235,909			$	154,122
Interest bearing deposits:
NOW accounts and other		1,529,293	0.48	%		1,261,264	0.70	%		958,226	0.85	%
Money market accounts		1,870,156	0.08	%		1,421,922	0.24	%		864,041	0.37	%
Savings accounts		440,977	0.03	%		346,612	0.05	%		268,426	0.06	%
Time deposits		537,538	0.57	%		651,887	1.08	%		554,543	1.43	%
Total interest-bearing deposits		4,377,964	0.27	%		3,681,685	0.53	%		2,645,236	0.74	%
Total deposits	$	4,631,288	0.26	%	$	3,917,594	0.50	%	$	2,799,358	0.70	%


					After Six
			After Three		Through
	Within Three		Through Six		Twelve		After Twelve
($ in thousands)	Months		Months		Months		Months		Total
December 31, 2021	$	29,695	$	34,282	$	40,104	$	37,399	$	141,480


($ in thousands)	Within Three Months		After Three Through Six Months		After Six Through Twelve Months		After Twelve Months		Total
December 31, 2023	$	103,032	$	122,629	$	44,767	$	22,443	$	292,871


					Minimum
					Capital
					Required
					Basel III
	Adequately		Well		Fully		The Company						The First
Capital Ratios	Capitalized		Capitalized		Phased In		December 31,						December 31,
							2021		2020		2019		2021		2020		2019
Leverage	4.0	%	5.0	%	7.0	%	9.2	%	9.2	%	10.3	%	10.8	%	10.4	%	11.8	%
Risk-based capital:
Common equity Tier 1	4.5	%	6.5	%	7.0	%	13.7	%	13.5	%	12.5	%	16.6	%	15.8	%	15.1	%
Tier 1	6.0	%	8.0	%	8.5	%	14.1	%	14.0	%	13.0	%	16.6	%	15.8	%	15.1	%
Total	8.0	%	10.0	%	10.5	%	18.6	%	19.1	%	15.8	%	17.4	%	16.9	%	15.6	%


Capital Ratios	Adequately Capitalized		Well Capitalized		Minimum Capital Required Basel III Fully Phased In		The Company December 31,						The First December 31,
							2023		2022		2021		2023		2022		2021
Leverage	4.0	%	5.0	%	7.0	%	9.7	%	9.3	%	9.2	%	10.7	%	11.1	%	10.8	%
Risk-based capital:
Common equity Tier 1	4.5	%	6.5	%	7.0	%	12.1	%	12.7	%	13.7	%	13.8	%	15.6	%	16.6	%
Tier 1	6.0	%	8.0	%	8.5	%	12.5	%	13.0	%	14.1	%	13.8	%	15.6	%	16.6	%
Total	8.0	%	10.0	%	10.5	%	15.0	%	16.7	%	18.6	%	14.8	%	16.4	%	17.4	%


	December 31, 2021		Policy Maximum
Loans to Deposits (including FHLB advances)	55.8	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	(14.6)	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	0.0	%	20.0	%	In Policy
FRB Advances / Total Assets	0.0	%	10.0	%	In Policy
Pledged Securities to Total Securities	48.5	%	90.0	%	In Policy

	December 31, 2020		Policy Maximum
Loans to Deposits (including FHLB advances)	70.9	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	(4.4)	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	2.1	%	20.0	%	In Policy
FRB Advances / Total Assets	0.0	%	10.0	%	In Policy
Pledged Securities to Total Securities	54.9	%	90.0	%	In Policy


				After One		After Three
	Note	Within One		But Within		But Within		After Five
($ in thousands)	Reference	Year		Three Years		Five Years		Years		Total
Deposits without a stated maturity	G	$	4,642,175	$	—	$	—	$	—	$	4,642,175
Time deposits	G		444,983		105,481		23,840		10,305		584,609
Lease obligations	I		1,346		2,261		1,480		1,199		6,286
Trust preferred subordinated debentures	N		—		—		—		15,850		15,850
Subordinated note purchase agreement	N		—		—		—		128,876		128,876
Total Contractual obligations		$	5,088,504	$	107,742	$	25,320	$	156,230	$	5,377,796


($ in thousands)	Note Reference	Within One Year		After One But Within Three Years		After Three But Within Five Years		After Five Years		Total
Deposits without a stated maturity	G	$	5,387,116	$	—	$	—	$	—	$	5,387,116
Time deposits	G	971,259		73,460		22,510		8,527		1,075,756
Borrowings	H	390,000		—		—		—		390,000
Lease obligations	I	1,240		2,225		1,825		2,999		8,289
Trust preferred subordinated debentures	N	—		—		—		25,016		25,016
Subordinated note purchase agreement	N	—		—		—		98,370		98,370
Total Contractual obligations		$	6,749,615	$	75,685	$	24,335	$	134,912	$	6,984,547


December 31, 2021	Net Interest Income at Risk – Year 1
($ in thousands)	-200 bp		-100 bp		STATIC	+100 bp		+200 bp		+300 bp		+400 bp
Net Interest Income	137,418		139,280		144,009	150,739		155,719		158,649		160,275
Dollar Change	(6,591)		(4,729)			6,730		11,710		14,640		16,266
NII @ Year 1	(4.6)	%	(3.3)	%		4.7	%	8.1	%	10.2	%	11.3	%