U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2022~~2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission file number: 000-22507

THE FIRST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Mississippi			64-0862173
(State of Incorporation)			(IRS Employer Identification No)


6480 U.S. Highway 98 West, Suite A, Hattiesburg, Mississippi			39402
(Address of principal executive offices)			(Zip Code)

(601) 268-8998

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00	FBMS	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑☐	Accelerated filer	☐☑
Non-accelerated filer	☐	Smaller Reporting Company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $1.00 par value, ~~25,277,502~~32,339,839 shares issued and ~~24,027,895~~31,090,232 outstanding as of November ~~2, 2022.~~1, 2023.


Auditor Firm PCAOB ID: 686			Auditor Name: FORVIS, LLP			Auditor Location: Jackson, MS

Table of Contents

The First Bancshares, Inc.

Form 10-Q

Quarter Ended September 30, ~~2022~~2023

Index


Part I. Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets—Unaudited at September 30, ~~2022~~2023	3
	Consolidated Statements of Income—Unaudited	4
	Consolidated Statements of Comprehensive Income (Loss)—Unaudited	5
	Consolidated Statements of Changes in Shareholders’ Equity —Unaudited	6
	Consolidated Statements of Cash Flows—Unaudited	8
	Notes to Consolidated Financial Statements—Unaudited	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3740
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5863
Item 4.	Controls and Procedures	6065

Part II. Other Information

Item 1.	Legal Proceedings	6266
Item 1A.	Risk Factors	6266
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6266
Item 3.	Defaults Upon Senior Securities	6266
Item 4.	Mine Safety Disclosures	6266
Item 5.	Other Information	6266
Item 6.	Exhibits	6367
Signatures		6468

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE FIRST BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

($ in thousands)


		(Unaudited)					(Unaudited)
		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	71,555	$	115,232	Cash and due from banks	$	121,876	$	67,176
Interest-bearing deposits with banks	Interest-bearing deposits with banks	92,286		804,481		Interest-bearing deposits with banks	75,756		78,139
Total cash and cash equivalents	Total cash and cash equivalents	163,841		919,713		Total cash and cash equivalents	197,632		145,315
Securities available-for-sale, at fair value (amortized cost: $1,596,290 - 2022; $1,741,153 - 2021; allowance for credit losses: $0)		1,379,410		1,751,832
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $532,688 - 2022; $0 - 2021)		593,553		—
Securities available-for-sale, at fair value (amortized cost: $1,326,894 - 2023; $1,418,337 - 2022; allowance for credit losses: $0)						Securities available-for-sale, at fair value (amortized cost: $1,326,894 - 2023; $1,418,337 - 2022; allowance for credit losses: $0)	1,141,971		1,257,101
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $582,592 - 2023; $642,097 - 2022)						Securities held to maturity, net of allowance for credit losses of $0 (fair value: $582,592 - 2023; $642,097 - 2022)	658,524		691,484
Other securities	Other securities	31,060		22,226		Other securities	35,872		33,944
Total securities	Total securities	2,004,023		1,774,058		Total securities	1,836,367		1,982,529
Loans held for sale	Loans held for sale	2,225		7,678		Loans held for sale	5,960		4,443
Loans held for investment	Loans held for investment	3,719,388		2,959,553		Loans held for investment	5,089,800		3,774,157
Allowance for credit losses	Allowance for credit losses	(38,356)		(30,742)		Allowance for credit losses	(53,565)		(38,917)
Net loans held for investment	Net loans held for investment	3,681,032		2,928,811		Net loans held for investment	5,036,235		3,735,240
Interest receivable	Interest receivable	24,570		23,256		Interest receivable	30,542		27,723
Premises and equipment	Premises and equipment	140,533		125,959		Premises and equipment	175,716		143,518
Operating lease right-of-use assets	Operating lease right-of-use assets	7,901		4,095		Operating lease right-of-use assets	6,442		7,620
Finance lease right-of-use assets	Finance lease right-of-use assets	2,046		2,394		Finance lease right-of-use assets	1,582		1,930
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	95,351		87,420		Cash surrender value of bank-owned life insurance	133,540		95,571
Goodwill	Goodwill	178,764		156,663		Goodwill	272,672		180,254
Other real estate owned	Other real estate owned	10,328		2,565		Other real estate owned	4,920		4,832
Other assets	Other assets	144,234		44,802		Other assets	182,677		132,742
Total assets	Total assets	$	6,454,848	$	6,077,414	Total assets	$	7,884,285	$	6,461,717
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	1,770,848	$	1,550,381	Noninterest-bearing	$	1,967,661	$	1,630,203
Interest-bearing	Interest-bearing	3,780,450		3,676,403		Interest-bearing	4,512,364		3,864,201
Total deposits	Total deposits	5,551,298		5,226,784		Total deposits	6,480,025		5,494,404
Interest payable	Interest payable	1,365		1,711		Interest payable	13,800		3,324
Borrowed funds	Borrowed funds	90,000		—		Borrowed funds	302,000		130,100
Subordinated debentures	Subordinated debentures	144,952		144,726		Subordinated debentures	128,300		145,027
Operating lease liabilities	Operating lease liabilities	8,092		4,192		Operating lease liabilities	6,602		7,810
Finance lease liabilities	Finance lease liabilities	1,962		2,094		Finance lease liabilities	1,784		1,918
Allowance for credit losses on off-balance sheet credit exposures	Allowance for credit losses on off-balance sheet credit exposures	1,220		1,070		Allowance for credit losses on off-balance sheet credit exposures	2,075		1,325
Other liabilities	Other liabilities	34,488		20,665		Other liabilities	52,478		31,146
Total liabilities	Total liabilities	5,833,377		5,401,242		Total liabilities	6,987,064		5,815,054
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, par value $1 per share, 40,000,000 shares authorized; 25,277,727 shares issued at September 30, 2022, and 21,668,644 shares issued at December 31, 2021, respectively		25,278		21,669
Common stock, par value $1 per share, 80,000,000 shares authorized shares authorized; 32,343,411 shares issued at September 30, 2023, and par value $1 per share, 40,000,000 shares authorized; 25,275,369 shares issued at December 31, 2022						Common stock, par value $1 per share, 80,000,000 shares authorized shares authorized; 32,343,411 shares issued at September 30, 2023, and par value $1 per share, 40,000,000 shares authorized; 25,275,369 shares issued at December 31, 2022	32,343		25,275
Additional paid-in capital	Additional paid-in capital	558,181		459,228		Additional paid-in capital	774,598		558,833
Retained earnings	Retained earnings	241,132		206,228		Retained earnings	296,559		252,623
Accumulated other comprehensive (loss) income	Accumulated other comprehensive (loss) income	(162,009)		7,978		Accumulated other comprehensive (loss) income	(165,168)		(148,957)
Treasury stock, at cost, 1,249,607 shares at September 30, 2022 and 649,607 shares at December 31, 2021		(41,111)		(18,931)
Treasury stock, at cost, 1,249,607 shares at September 30, 2023 and at December 31, 2022						Treasury stock, at cost, 1,249,607 shares at September 30, 2023 and at December 31, 2022	(41,111)		(41,111)
Total shareholders’ equity	Total shareholders’ equity	621,471		676,172		Total shareholders’ equity	897,221		646,663
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	6,454,848	$	6,077,414	Total liabilities and shareholders’ equity	$	7,884,285	$	6,461,717

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except earnings and dividends per share)


		(Unaudited)				(Unaudited)					(Unaudited)				(Unaudited)
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Interest and dividend income:	Interest and dividend income:									Interest and dividend income:
Interest and fees on loans	Interest and fees on loans	$	42,274	$	37,480	$	111,091	$	114,368	Interest and fees on loans	$	74,626	$	42,274	$	216,949	$	111,091
Interest and dividends on securities:	Interest and dividends on securities:									Interest and dividends on securities:
Taxable interest and dividends	Taxable interest and dividends	8,723		5,033		23,247		12,641		Taxable interest and dividends	7,685		8,723		24,311		23,247
Tax exempt interest	Tax exempt interest	2,875		1,905		8,077		5,748		Tax exempt interest	2,929		2,875		8,825		8,077
Interest on federal funds sold and interest-bearing deposits in other banks	Interest on federal funds sold and interest-bearing deposits in other banks	2		17		47		103		Interest on federal funds sold and interest-bearing deposits in other banks	441		2		2,128		47
Total interest income	Total interest income	53,874		44,435		142,462		132,860		Total interest income	85,681		53,874		252,213		142,462
Interest expense:	Interest expense:									Interest expense:
Interest on deposits	Interest on deposits	2,748		2,588		6,937		9,752		Interest on deposits	19,572		2,748		46,611		6,937
Interest on borrowed funds	Interest on borrowed funds	1,978		1,819		5,638		5,801		Interest on borrowed funds	5,405		1,978		13,942		5,638
Total interest expense	Total interest expense	4,726		4,407		12,575		15,553		Total interest expense	24,977		4,726		60,553		12,575
Net interest income	Net interest income	49,148		40,028		129,887		117,307		Net interest income	60,704		49,148		191,660		129,887
Provision for credit losses, LHFI	Provision for credit losses, LHFI	4,300		—		4,750		—		Provision for credit losses, LHFI	1,000		4,300		12,500		4,750
Provision for credit losses, OBSC exposures	Provision for credit losses, OBSC exposures	—		—		150		—		Provision for credit losses, OBSC exposures	—		—		750		150
Net interest income after provision for credit losses	Net interest income after provision for credit losses	44,848		40,028		124,987		117,307		Net interest income after provision for credit losses	59,704		44,848		178,410		124,987
Non-interest income:	Non-interest income:									Non-interest income:
Service charges on deposit accounts	Service charges on deposit accounts	2,219		1,846		6,297		5,363		Service charges on deposit accounts	3,646		2,219		10,728		6,297
(Loss) gain on securities	(Loss) gain on securities	1		11		(82)		107		(Loss) gain on securities	2		1		(46)		(82)
Gain on acquisition	Gain on acquisition	—		—		281		—		Gain on acquisition	—		—		—		281
Government awards/grants	Government awards/grants	—		1,826		873		1,826		Government awards/grants	6,197		—		6,197		873
BOLI death proceeds	BOLI death proceeds	—		—		1,630		—		BOLI death proceeds	—		—		—		1,630
(Loss) gain on sale of premises and equipment	(Loss) gain on sale of premises and equipment	—		(397)		(114)		(383)		(Loss) gain on sale of premises and equipment	(104)		—		559		(114)
Other	Other	6,802		6,300		19,958		20,968		Other	9,583		6,802		26,921		19,958
Total non-interest income	Total non-interest income	9,022		9,586		28,843		27,881		Total non-interest income	19,324		9,022		44,359		28,843
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and employee benefits	Salaries and employee benefits	19,099		16,246		53,135		48,337		Salaries and employee benefits	22,807		19,099		69,695		53,135
Occupancy and equipment	Occupancy and equipment	3,826		3,922		11,530		11,614		Occupancy and equipment	5,343		3,826		15,680		11,530
Acquisition expense/charter conversion	Acquisition expense/charter conversion	3,640		5		5,220		5		Acquisition expense/charter conversion	588		3,640		8,482		5,220
Other	Other	9,338		8,880		25,563		23,814		Other	18,986		9,338		46,436		25,563
Total non-interest expense	Total non-interest expense	35,903		29,053		95,448		83,770		Total non-interest expense	47,724		35,903		140,293		95,448
Income before income taxes	Income before income taxes	17,967		20,561		58,382		61,418		Income before income taxes	31,304		17,967		82,476		58,382
Income tax expense	Income tax expense	3,924		4,429		11,758		13,042		Income tax expense	6,944		3,924		18,066		11,758
Net income	Net income	$	14,043	$	16,132	$	46,624	$	48,376	Net income	$	24,360	$	14,043	$	64,410	$	46,624

Basic earnings per share	Basic earnings per share	$	0.61	$	0.77	$	2.18	$	2.30	Basic earnings per share	$	0.78	$	0.61	$	2.05	$	2.18
Diluted earnings per share	Diluted earnings per share	0.61		0.76		2.17		2.28		Diluted earnings per share	0.77		0.61		2.04		2.17

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($ in thousands)


		(Unaudited)				(Unaudited)					(Unaudited)
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income	Net income	$	14,043	$	16,132	$	46,624	$	48,376	Net income	$	24,360	$	14,043	$	64,410	$	46,624
Other comprehensive income (loss):
Other comprehensive (loss) income:										Other comprehensive (loss) income:
Unrealized holding (losses) gains arising during the period on available-for-sale securities	Unrealized holding (losses) gains arising during the period on available-for-sale securities	(67,785)		(7,306)		(227,641)		(16,204)		Unrealized holding (losses) gains arising during the period on available-for-sale securities	(26,770)		(67,785)		(22,025)		(227,641)
Reclassification adjustment for (accretion) amortization of unrealized holdings gain/(loss) included in accumulated other comprehensive income from the transfer of securities available-for-sale to held-to-maturity										Reclassification adjustment for (accretion) amortization of unrealized holdings gain/(loss) included in accumulated other comprehensive income from the transfer of securities available-for-sale to held-to-maturity	93		—		277		—
Reclassification adjustment for losses (gains) included in net income	Reclassification adjustment for losses (gains) included in net income	(1)		(11)		82		(107)		Reclassification adjustment for losses (gains) included in net income	(2)		(1)		46		82
Unrealized holding (losses) gains arising during the period on available-for-sale securities	Unrealized holding (losses) gains arising during the period on available-for-sale securities	(67,786)		(7,317)		(227,559)		(16,311)		Unrealized holding (losses) gains arising during the period on available-for-sale securities	(26,679)		(67,786)		(21,702)		(227,559)
Income tax (expense) benefit	Income tax (expense) benefit	17,150		1,852		57,572		4,127		Income tax (expense) benefit	6,750		17,150		5,491		57,572
Other comprehensive income (loss)		(50,636)		(5,465)		(169,987)		(12,184)
Other comprehensive (loss) income										Other comprehensive (loss) income	(19,929)		(50,636)		(16,211)		(169,987)
Comprehensive income (loss)	Comprehensive income (loss)	$	(36,593)	$	10,667	$	(123,363)	$	36,192	Comprehensive income (loss)	$	4,431	$	(36,593)	$	48,199	$	(123,363)

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ in thousands except per share data, unaudited)


		Common Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock					Total				Common Stock					Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Treasury Stock					Total
		Shares	Amount								Shares			Amount				Shares				Amount									Shares							Amount
Balance, January 1, 2021		21,598,993	$	21,599			$	456,919				$	154,241	$	25,816	(483,984)					$	(13,760)		$	644,815
Balance, January 1, 2022																						Balance, January 1, 2022	21,668,644			$	21,669		$	459,228			$	206,228		$	7,978			(649,607)		$	(18,931)		$	676,172
Net income	Net income	—	—		—				16,644			—		—		—			16,644			Net income	—			—		—				16,829			—				—		—			16,829
Common stock repurchased	Common stock repurchased	—	—		—				—			—		(165,623)		(5,171)			(5,171)			Common stock repurchased	—			—		—				—			—				(600,000)		(22,180)			(22,180)
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(9,615)		—		—			(9,615)			Other comprehensive loss	—			—		—				—			(76,825)				—		—			(76,825)
Dividends on common stock, $0.13 per share		—	—		—				(2,723)			—		—		—			(2,723)
Dividends on common stock, $0.17 per share																						Dividends on common stock, $0.17 per share	—			—		—				(3,468)			—				—		—			(3,468)
Issuance of restricted stock grants	Issuance of restricted stock grants	84,578	85		(85)				—			—		—		—			—			Issuance of restricted stock grants	82,123			82		(82)				—			—				—		—			—
Restricted stock grants forfeited	Restricted stock grants forfeited	(500)	(1)		1				—			—		—		—			—			Restricted stock grants forfeited	(1,000)			(1)		1				—			—				—		—			—
Repurchase of restricted stock for payment of taxes	Repurchase of restricted stock for payment of taxes	(14,720)	(15)		(426)				—			—		—		—			(441)			Repurchase of restricted stock for payment of taxes	(15,330)			(16)		(538)				—			—				—		—			(554)
Compensation expense	Compensation expense	—	—		440				—			—		—		—			440			Compensation expense	—			—		466				—			—				—		—			466
Balance, March 31, 2021		21,668,351	21,668		456,849				168,162			16,201		(649,607)		(18,931)			643,949
Balance, March 31, 2022																						Balance, March 31, 2022	21,734,437			21,734		459,075				219,589			(68,847)				(1,249,607)		(41,111)			590,440
Net income	Net income	—	—		—				15,600			—		—		—			15,600			Net income	—			—		—				15,753			—				—		—			15,753
Other comprehensive income		—	—		—				—			2,896		—		—			2,896
Dividends on common stock, $0.14 per share		—	—		—				(2,942)			—		—		—			(2,942)
Other comprehensive loss																						Other comprehensive loss	—			—		—				—			(42,526)				—		—			(42,526)
Dividends on common stock, $0.18 per share																						Dividends on common stock, $0.18 per share	—			—		—				(3,688)			—				—		—			(3,688)
Issuance of restricted stock grants	Issuance of restricted stock grants	3,000	3		(3)				—			—		—		—			—			Issuance of restricted stock grants	47,767			48		(48)				—			—				—		—			—
Restricted stock grants forfeited		(1,021)	(1)		1				—			—		—		—			—
Compensation expense		—	—		549				—			—		—		—			549
Balance, June 30, 2021		21,670,330	21,670		457,396				180,820			19,097		(649,607)		(18,931)			660,052
Net income		—	—		—				16,132			—		—		—			16,132
Other comprehensive income		—	—		—				—			(5,465)		—		—			(5,465)
Dividends on common stock, $0.15 per share		—	—		—				(3,152)			—		—		—			(3,152)
Restricted stock grants forfeited	Restricted stock grants forfeited	(500)	—		—				—			—		—		—			—			Restricted stock grants forfeited	(1,000)			(1)		1				—			—				—		—			—
Repurchase of restricted stock for payment of taxes	Repurchase of restricted stock for payment of taxes	(326)	—		(12)				—			—		—		—			(12)			Repurchase of restricted stock for payment of taxes	(2,473)			(2)		(71)				—			—				—		—			(73)
Compensation expense	Compensation expense	—	—		1,128				—			—		—		—			1,128			Compensation expense	—			—		546				—			—				—		—			546
Balance, September 30, 2021		21,669,504	$	21,670	$	458,512			$	193,800		$	13,632	(649,607)		$	(18,931)		$	668,683
Balance, June 30, 2022																						Balance, June 30, 2022	21,778,731			21,779		459,503				231,654			(111,373)				(1,249,607)		(41,111)			560,452
Net income																						Net income	—			—		—				14,043			—				—		—			14,043
Other comprehensive loss																						Other comprehensive loss	—			—		—				—			(50,636)				—		—			(50,636)
Dividends on common stock, $0.19 per share																						Dividends on common stock, $0.19 per share	—			—		—				(4,565)			—				—		—			(4,565)
Issuance of common shares for BBI acquisition																						Issuance of common shares for BBI acquisition	3,498,936			3,499		97,970				—			—				—		—			101,469
Compensation expense																						Compensation expense	—			—		708				—			—				—		—			708
Balance, September 30, 2022																						Balance, September 30, 2022	25,277,667			$	25,278	$	558,181			$	241,132		$	(162,009)			(1,249,607)		$	(41,111)		$	621,471

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THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY CONTINUED

($ in thousands except per share data, unaudited)


		Common Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock					Total				Common Stock					Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Treasury Stock					Total
		Shares	Amount								Shares			Amount				Shares				Amount									Shares							Amount
Balance, January 1, 2022		21,668,644	$	21,669			$	459,228				$	206,228	$	7,978	(649,607)					$	(18,931)		$	676,172
Balance, January 1, 2023																						Balance, January 1, 2023	25,275,369			$	25,275		$	558,833			$	252,623		$	(148,957)			(1,249,607)		$	(41,111)		$	646,663
Net income	Net income	—	—		—				16,829			—		—		—			16,829			Net income	—			—		—				16,271			—				—		—			16,271
Common stock repurchased		—	—		—				—			—		(600,000)		(22,180)			(22,180)
Other comprehensive loss		—	—		—				—			(76,825)		—		—			(76,825)
Dividends on common stock, $0.17 per share		—	—		—				(3,468)			—		—		—			(3,468)
Other comprehensive income																						Other comprehensive income	—			—		—				—			18,183				—		—			18,183
Dividends on common stock, $0.21 per share																						Dividends on common stock, $0.21 per share	—			—		—				(6,498)			—				—		—			(6,498)
Issuance of common shares for HSBI acquisition																						Issuance of common shares for HSBI acquisition	6,920,422			6,920		214,602				—			—				—		—			221,522
Issuance of restricted stock grants	Issuance of restricted stock grants	82,123	82		(82)				—			—		—		—			—			Issuance of restricted stock grants	118,689			119		(119)				—			—				—		—			—
Restricted stock grants forfeited	Restricted stock grants forfeited	(1,000)	(1)		1				—			—		—		—			—			Restricted stock grants forfeited	(500)			(1)		1				—			—				—		—			—
Repurchase of restricted stock for payment of taxes	Repurchase of restricted stock for payment of taxes	(15,330)	(16)		(538)				—			—		—		—			(554)			Repurchase of restricted stock for payment of taxes	(9,827)			(9)		(298)				—			—				—		—			(307)
Compensation expense	Compensation expense	—	—		466				—			—		—		—			466			Compensation expense	—			—		593				—			—				—		—			593
Balance, March 31, 2022		21,734,437	21,734		459,075				219,589			(68,847)		(1,249,607)		(41,111)			590,440
Balance, March 31, 2023																						Balance, March 31, 2023	32,304,153			32,304		773,612				262,396			(130,774)				(1,249,607)		(41,111)			896,427
Net income	Net income	—	—		—				15,753			—		—		—			15,753			Net income	—			—		—				23,779			—				—		—			23,779
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(42,526)		—		—			(42,526)			Other comprehensive loss	—			—		—				—			(14,465)				—		—			(14,465)
Dividends on common stock, $0.18 per share		—	—		—				(3,688)			—		—		—			(3,688)
Dividends on common stock, $0.22 per share																						Dividends on common stock, $0.22 per share	—			—		—				(6,825)			—				—		—			(6,825)
Issuance of restricted stock grants																						Issuance of restricted stock grants	45,773			46		(46)				—			—				—		—			—
Restricted stock grants forfeited																						Restricted stock grants forfeited	(4,526)			(5)		5				—			—				—		—			—
Compensation expense																						Compensation expense	—			—		530				—			—				—		—			530
Balance, June 30, 2023																						Balance, June 30, 2023	32,345,400			32,345		774,101				279,350			(145,239)				(1,249,607)		(41,111)			899,446
Net income																						Net income	—			—		—				24,360			—				—		—			24,360
Other comprehensive loss																						Other comprehensive loss	—			—		—				—			(19,929)				—		—			(19,929)
Dividends on common stock, $0.23 per share																						Dividends on common stock, $0.23 per share	—			—		—				(7,151)			—				—		—			(7,151)
Issuance of restricted stock grants	Issuance of restricted stock grants	47,827	48		(48)				—			—		—		—			—			Issuance of restricted stock grants	2,711			3		(3)				—			—				—		—			—
Restricted stock grants forfeited	Restricted stock grants forfeited	(1,000)	(1)		1				—			—		—		—			—			Restricted stock grants forfeited	(3,596)			(4)		4				—			—				—		—			—
Repurchase of restricted stock for payment of taxes	Repurchase of restricted stock for payment of taxes	(2,533)	(2)		(71)				—			—		—		—			(73)			Repurchase of restricted stock for payment of taxes	(1,104)			(1)		(31)				—			—				—		—			(32)
Compensation expense	Compensation expense	—	—		546				—			—		—		—			546			Compensation expense	—			—		527				—			—				—		—			527
Balance, June 30, 2022		21,778,731	21,779		459,503				231,654			(111,373)		(1,249,607)		(41,111)			560,452
Net income		—	—		—				14,043			—		—		—			14,043
Other comprehensive loss		—	—		—				—			(50,636)		—		—			(50,636)
Dividends on common stock, $0.19 per share		—	—		—				(4,565)			—		—		—			(4,565)
Issuance of common shares for BBI acquisition		3,498,936	3,499		97,970				—			—		—		—			101,469
Issuance of restricted stock grants		60	—		—				—			—		—		—			—
Compensation expense		—	—		708				—			—		—		—			708
Balance, September 30, 2022		25,277,727	$	25,278	$	558,181			$	241,132		$	(162,009)	(1,249,607)		$	(41,111)		$	621,471
Balance, September 30, 2023																						Balance, September 30, 2023	32,343,411			$	32,343	$	774,598			$	296,559		$	(165,168)			(1,249,607)		$	(41,111)		$	897,221

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)


		(Unaudited)					(Unaudited)
		Nine Months Ended September 30,					Nine Months Ended September 30,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	46,624	$	48,376	Net income	$	64,410	$	46,624
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		5,549		10,453
Depreciation, amortization, and accretion						Depreciation, amortization, and accretion	3,969		8,939
Provision for credit loss	Provision for credit loss	4,900		—		Provision for credit loss	13,250		4,900
Loss on sale or writedown of ORE	Loss on sale or writedown of ORE	252		778		Loss on sale or writedown of ORE	753		252
Securities loss (gain)		82		(107)
Securities loss						Securities loss	46		82
Acquisition gain	Acquisition gain	(281)		—		Acquisition gain	—		(281)
Loss (gain) on disposal of premises and equipment		114		383
Loss (gain) on loss of premises and equipment						Loss (gain) on loss of premises and equipment	(559)		114
Restricted stock expense	Restricted stock expense	1,720		2,117		Restricted stock expense	1,650		1,720
Increase in cash value of life insurance	Increase in cash value of life insurance	(1,576)		(1,407)		Increase in cash value of life insurance	(2,390)		(1,576)
Federal Home Loan Bank stock dividends	Federal Home Loan Bank stock dividends	(8)		(26)		Federal Home Loan Bank stock dividends	(279)		(8)
Residential loans originated and held for sale	Residential loans originated and held for sale	(113,058)		(182,371)		Residential loans originated and held for sale	(76,169)		(113,058)
Proceeds from sale of residential loans held for sale	Proceeds from sale of residential loans held for sale	118,511		195,263		Proceeds from sale of residential loans held for sale	74,652		118,511
Changes in:	Changes in:					Changes in:
Interest receivable	Interest receivable	166		3,200		Interest receivable	1,530		166
Interest payable	Interest payable	(346)		(758)		Interest payable	10,476		(346)
Operating lease liability	Operating lease liability	3,900		(1,696)		Operating lease liability	(1,208)		3,900
Other, net	Other, net	1,844		2,667		Other, net	(9,774)		1,844
Net cash provided by operating activities	Net cash provided by operating activities	68,393		76,872		Net cash provided by operating activities	80,357		71,783
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Maturities, calls and paydowns of available-for-sale and held-to-maturity securities		157,181		174,987
Proceeds from sales of securities available-for-sale		21,069		—
Purchases of available-for-sale and held-to-maturity securities		(609,218)		(636,825)
Available-for-sale securities:						Available-for-sale securities:
Sales						Sales	171,150		21,069
Maturities, prepayments, and calls						Maturities, prepayments, and calls	88,490		148,168
Purchases						Purchases	(1,000)		(7,000)
Held-to-maturity securities:						Held-to-maturity securities:
Maturities, prepayments, and calls						Maturities, prepayments, and calls	35,827		9,013
Purchases						Purchases	—		(602,218)
Purchases of other securities	Purchases of other securities	(8,580)		5,276		Purchases of other securities	(9,563)		(8,580)
Proceeds from other securities	Proceeds from other securities	1,237		—		Proceeds from other securities	8,741		1,237
Net (increase) decrease in loans		(273,335)		160,700
Net increase in loans						Net increase in loans	(145,047)		(273,335)
Net changes in premises and equipment	Net changes in premises and equipment	(5,756)		(6,448)		Net changes in premises and equipment	(2,749)		(9,146)
Proceeds from sale of other real estate owned	Proceeds from sale of other real estate owned	2,260		4,221		Proceeds from sale of other real estate owned	1,098		2,260
Proceeds from the sale of land		712		—
Proceeds from the sale of premises and equipment						Proceeds from the sale of premises and equipment	1,416		712
Bank-owned life insurance – death proceeds	Bank-owned life insurance – death proceeds	1,630		—		Bank-owned life insurance – death proceeds	—		1,630
Purchase of bank-owned life insurance		—		(12,330)
Cash received in excess of cash paid for acquisitions	Cash received in excess of cash paid for acquisitions	23,939		—		Cash received in excess of cash paid for acquisitions	106,973		23,939
Net cash used in investing activities		(688,861)		(310,419)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	255,336		(692,251)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
(Decrease) increase in deposits		(165,921)		457,443
Proceeds from borrowed funds		270,001		24,025
Repayments of borrowed funds		(205,001)		(138,672)
Decrease in deposits						Decrease in deposits	(408,603)		(165,921)
Net change in borrowed funds						Net change in borrowed funds	171,900		65,000
Principal payments on finance lease liabilities	Principal payments on finance lease liabilities	(132)		(141)		Principal payments on finance lease liabilities	(134)		(132)
Dividends paid on common stock	Dividends paid on common stock	(11,544)		(8,682)		Dividends paid on common stock	(20,200)		(11,544)
Cash paid to repurchase common stock	Cash paid to repurchase common stock	(22,180)		(5,171)		Cash paid to repurchase common stock	—		(22,180)
Payment of subordinated debt issuance costs		—		(60)
Called/repayment of subordinated debt						Called/repayment of subordinated debt	(26,000)		—
Repurchase of restricted stock for payment of taxes	Repurchase of restricted stock for payment of taxes	(627)		(453)		Repurchase of restricted stock for payment of taxes	(339)		(627)
Net cash provided by (used in) financing activities		(135,404)		328,289
Net change in cash and cash equivalents		(755,872)		94,742
Beginning cash and cash equivalents		919,713		562,554
Ending cash and cash equivalents		$	163,841	$	657,296
Net cash used in financing activities						Net cash used in financing activities	(283,376)		(135,404)

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THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

($ in thousands)


		(Unaudited)			(Unaudited)
		Nine Months Ended September 30,			Nine Months Ended September 30,
		2022	2021		2023		2022
Net change in cash and cash equivalents				Net change in cash and cash equivalents	52,317		(755,872)
Beginning cash and cash equivalents				Beginning cash and cash equivalents	145,315		919,713
Ending cash and cash equivalents				Ending cash and cash equivalents	$	197,632	$	163,841
Supplemental disclosures:	Supplemental disclosures:			Supplemental disclosures:
Loans transferred to other real estate	Loans transferred to other real estate	1,490	1,780	Loans transferred to other real estate	$	1,543	$	1,490
Issuance of restricted stock grants	Issuance of restricted stock grants	130	86	Issuance of restricted stock grants	$	168	$	130
Dividends on restricted stock grants	Dividends on restricted stock grants	176	135	Dividends on restricted stock grants	$	273	$	176
Stock issued in connection with BBI acquisition	Stock issued in connection with BBI acquisition	101,469	—	Stock issued in connection with BBI acquisition	$	—	$	101,469
Stock issued in connection with HSBI acquisition				Stock issued in connection with HSBI acquisition	$	6,920,422	$	—
Lease liabilities arising from obtaining right-of-use assets	Lease liabilities arising from obtaining right-of-use assets	600	14	Lease liabilities arising from obtaining right-of-use assets	$	560	$	2,647
Lease liabilities arising from BBI acquisition	Lease liabilities arising from BBI acquisition	5,437	—	Lease liabilities arising from BBI acquisition	$	—	$	3,390
Lease liabilities arising from HSBI acquisition				Lease liabilities arising from HSBI acquisition	$	184	$	—

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2022~~2023

NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and the instructions to Form 10-Q of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, ~~2022,~~2023, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~2023. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, ~~2021.~~2022.

NOTE 2 – SUMMARY OF ORGANIZATION

The First Bancshares, Inc., Hattiesburg, Mississippi (the “Company”), was incorporated June 23, 1995, under the laws of the State of Mississippi for the purpose of operating as a bank holding company. The Company’s primary asset is its interest in its wholly-owned subsidiary, The First Bank (the “Bank” or “The First”).

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.

At September 30, ~~2022,~~2023, the Company had approximately ~~$6.455~~$7.884 billion in assets, ~~$3.681~~$5.036 billion in net loans held for investment (“LHFI”), ~~$5.551~~$6.480 billion in deposits, and ~~$621.5~~$897.2 million in shareholders' equity. For the nine months ended September 30, ~~2022,~~2023, the Company reported net income of ~~$46.6~~$64.4 million.

On February ~~25, 2022,~~24, 2023, the Company paid a cash dividend in the amount of ~~$0.17~~$0.21 per share to shareholders of record as of the close of business on February ~~10, 2022.~~8, 2023. On May ~~25, 2022,~~24, 2023, the Company paid a cash dividend ~~in the amount~~ of ~~$0.18~~$0.22 per share to shareholders of record as of the close of business on May ~~10, 2022.~~8, 2023. On ~~July 27, 2022,~~August 24, 2023, the Company ~~announced that its Board of Directors declared~~paid a cash dividend of ~~$0.19~~$0.23 per share ~~to be paid on its common stock on August 25, 2022~~ to shareholders of record as of the close of business on August 8, 2022. On August 25, 2022, the Company announced that its Board of Directors declared a cash dividend of $0.20 per share to be paid on its common stock on November 25, 2022 to shareholders of record as of the close of business on November 8, 2022.2023.

NOTE 3 – ACCOUNTING STANDARDS

Effect of Recently Adopted Accounting Standards

In ~~November 2021, FASB issued Accounting Standard Update (“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. The Company adopted ASU 2021-10 effective January 1, 2022. Adoption of ASU 2021-10 did not have a material impact to the Company’s consolidated financial statements.

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

In March 2020, the Financial Accounting Standards Board ~~(“FASB”~~("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~~London Interbank Offer Rate ("LIBOR") or

~~Table of Contents~~

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~~adopted ASU 2020-04 ~~and its~~effective January 1, 2023. Adoption of ASU 2020-04 did not have a material impact on the ~~Company’s transition away from LIBOR for its loan and other~~Company's consolidated financial ~~instruments.~~statements.

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. ~~This ASU is effective for the Company after December 15, 2022.~~ The Company ~~is assessing~~adopted ASU 2021-08 ~~and its~~effective January 1, 2023. Adoption of ASU 2022-02 did not have a material impact on the ~~Company’s~~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

Table of Contents

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 ~~after December 15, 2022. The Company~~January 1, 2024, and is ~~assessing ASU 2022-02 and its~~not expected to have a material impact on the ~~Company’s~~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.

NOTE 4 – BUSINESS COMBINATIONS

Acquisitions

Heritage Southeast Bank

On January 1, 2023, the Company completed its acquisition of Heritage Southeast Bancorporation, Inc. ("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 Southeast Bank ("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 a 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 $92.1 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 $312 thousand and $4.5 million for the three months and nine months period ended September 30, 2023, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.

The assets acquired and liabilities assumed, and consideration paid in the acquisition 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 January 1, 2024, in respect of the acquisition, 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.

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed, and the goodwill generated from the transaction.


($ in thousands)
Purchase price:
Cash and stock	$	221,538
Total purchase price	221,538
Identifiable assets:
Cash	$	106,973
Investments	172,775
Loans	1,155,712
Core deposit intangible	43,739
Personal and real property	35,963
Other real estate owned	857
Bank owned life insurance	35,579
Deferred taxes	6,129
Interest receivable	4,349
Other assets	3,103
Total assets	1,565,179
Liabilities and equity:
Deposits	1,392,432
Trust Preferred	9,015
Other liabilities	34,271
Total liabilities	1,435,718
Net assets acquired	129,461
Goodwill	$	92,077

Beach Bancorp, Inc.

On August 1, 2022, the Company completed its acquisition of Beach Bancorp, Inc. ("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

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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 ~~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 $21.8~~$23.7 million of goodwill, of which $1.3 million funded the ACL for estimated losses on the acquired PCD loans, 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 ~~$2.3 million~~$78 thousand and ~~$2.9~~$1.4 million for the three months and nine months period ended September 30, ~~2022,~~2023, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.

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provisional amounts that are identified during the measurement period, which will run through August 1, 2023, in respect of the acquisition, 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.

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


~~Purchase price:~~
~~Cash and stock~~	$	~~101,470~~
~~Total purchase price~~	~~101,470~~
~~Identifiable assets:~~
~~Cash~~	$	~~23,939~~
~~Investments~~	~~22,907~~
~~Loans~~	~~482,903~~
~~Other real estate~~	~~8,797~~
~~Bank owned life insurance~~	~~10,092~~
~~Core deposit intangible~~	~~9,791~~
~~Personal and real property~~	~~13,825~~
~~Deferred tax asset~~	~~28,105~~
~~Other assets~~	~~9,649~~
~~Total assets~~	~~610,008~~
~~Liabilities and equity:~~
~~Deposits~~	~~490,588~~
~~Borrowings~~	~~25,000~~
~~Other liabilities~~	~~14,772~~
~~Total liabilities~~	~~530,360~~
~~Net assets acquired~~	~~79,648~~
~~Goodwill~~	$	~~21,822~~

~~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 $1.6 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. The Company also incurred $370 thousand of provision for credit losses on credit marks from the loans acquired.

Expenses associated with the branch acquisition of the Cadence Branches were $142 thousand and $604 thousand for the three months and nine months period ended September 30, 2022, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.

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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.

~~The~~ following table summarizes the ~~provisional~~finalized fair values of the assets acquired and liabilities assumed ~~and~~including the goodwill ~~(bargain purchase gain)~~ generated from the transaction ~~($ in thousands):~~on August 1, 2022, along with valuation adjustments that have been made since initially reported.


~~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~~	~~126~~
~~Total liabilities~~	~~410,297~~
~~Net assets acquired~~	~~2,581~~
~~Bargain purchase gain~~	$	~~(1,581)~~


($ 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 have been made to investments, loans, other real estate, personal and real property, deferred tax asset, other assets, and deposits.

Supplemental Pro Forma Information

The following table presents certain supplemental pro forma information, for illustrative purposes only, for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 as if the ~~Cadence~~BBI and ~~BBI~~HSBI acquisitions had occurred on January 1, ~~2021.~~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)	($ in thousands)	(unaudited)		(unaudited)		($ in thousands)	(unaudited)		(unaudited)
		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2023		Nine Months Ended September 30, 2022
Net interest income	Net interest income	$	140,551	$	129,439	Net interest income	$	191,660	$	183,008
Non-interest income	Non-interest income	33,710		45,114		Non-interest income	44,359		46,466
Total revenue	Total revenue	174,261		174,553		Total revenue	236,019		229,474
Income before income taxes	Income before income taxes	69,123		63,787		Income before income taxes	90,958		87,860

Supplemental pro-forma earnings were adjusted to exclude acquisition costs incurred. The Company’s operating results for the nine months ended September 30, ~~2022,~~2023, include the operating results of the acquired assets and assumed liabilities of the above mentioned acquisitions subsequent to the acquisition date.

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NOTE 5 – EARNINGS APPLICABLE TO COMMON SHAREHOLDERS

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 potential common stock outstanding, such as restricted stock grants. There were no anti-dilutive common stock equivalents excluded in the calculations.

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


		Three Months Ended September 30, 2022					Three Months Ended September 30, 2021
($ in thousands, except per share amount)												($ in thousands, except per share amount)	Three Months Ended September 30, 2023					Three Months Ended September 30, 2022
		Net Income (Numerator)		Shares (Denominator)	Per Share Data		Net Income (Numerator)		Shares (Denominator)	Per Share Data			Net Income (Numerator)		Shares (Denominator)	Per Share Data		Net Income (Numerator)		Shares (Denominator)	Per Share Data
Basic earnings per share	Basic earnings per share	$	14,043	22,861,795	$	0.61	$	16,132	21,020,128	$	0.77	Basic earnings per share	$	24,360	31,405,439	$	0.78	$	14,043	22,861,795	$	0.61
Effect of dilutive shares:	Effect of dilutive shares:											Effect of dilutive shares:
Restricted stock grants	Restricted stock grants			117,734					190,763			Restricted stock grants			204,125					117,734
Diluted earnings per share	Diluted earnings per share	$	14,043	22,979,529	$	0.61	$	16,132	21,210,891	$	0.76	Diluted earnings per share	$	24,360	31,609,564	$	0.77	$	14,043	22,979,529	$	0.61

		For the Nine Months Ended September 30, 2022					For the Nine Months Ended September 30, 2021
		Net Income (Numerator)		Shares (Denominator)	Per Share Data		Net Income (Numerator)		Shares (Denominator)	Per Share Data
Basic earnings per share		$	46,624	21,355,731	$	2.18	$	48,376	21,015,996	$	2.30
Effect of dilutive shares:
Restricted stock grants				111,397					186,661
Diluted earnings per share		$	46,624	21,467,128	$	2.17	$	48,376	21,202,657	$	2.28


($ in thousands, except per share amount)	For the Nine Months Ended September 30, 2023					For the Nine Months Ended September 30, 2022
	Net Income (Numerator)		Shares (Denominator)	Per Share Data		Net Income (Numerator)		Shares (Denominator)	Per Share Data
Basic earnings per share	$	64,410	31,364,420	$	2.05	$	46,624	21,355,731	$	2.18
Effect of dilutive shares:
Restricted stock grants			199,862					111,397
Diluted earnings per share	$	64,410	31,564,282	$	2.04	$	46,624	21,467,128	$	2.17

The Company granted ~~82,123~~118,689 shares and ~~84,578~~82,123 shares of restricted stock in the first quarter of ~~2022~~2023 and ~~2021,~~2022, respectively. The Company granted ~~47,827~~45,773 shares and ~~3,000~~47,827 shares of restricted stock in the second quarter of ~~2022~~2023 and ~~2021,~~2022, respectively. The Company granted 602,711 shares and 0 shares of restricted stock in the third quarter of ~~2022~~2023 and ~~2021,~~2022, respectively.

NOTE 6 – COMPREHENSIVE INCOME

As presented in the Consolidated Statements of Comprehensive Income (Loss), comprehensive income includes net income and other comprehensive income. The Company’s sources of other comprehensive income are unrealized gains and losses on available-for-sale securities, which are also recognized as separate components of equity.

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NOTE 7 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. At September 30, ~~2022,~~2023, and December 31, ~~2021~~2022, these financial instruments consisted of the following:


($ in thousands)	($ in thousands)	September 30, 2022				December 31, 2021				($ in thousands)	September 30, 2023				December 31, 2022
		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate			Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	Commitments to make loans	$	85,066	$	11,113	$	80,760	$	23,946	Commitments to make loans	$	54,323	$	31,508	$	43,227	$	15,758
Unused lines of credit	Unused lines of credit	219,118		314,864		213,332		309,791		Unused lines of credit	259,705		641,896		243,043		404,025
Standby letters of credit	Standby letters of credit	4,470		10,079		2,586		9,737		Standby letters of credit	15,975		12,556		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 approximately 1 year to 30 years.

ALLOWANCE FOR CREDIT LOSSES (“ACL”) ON OFF BALANCE SHEET CREDIT (“OBSC”) ~~Exposures~~EXPOSURES

The Company maintains a separate ACL on OBSC exposures, including unfunded commitments and letters of credit, which is included on the accompanying consolidated balance sheet as of September 30, ~~2022~~2023 and December 31, ~~2021.~~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.

Changes in the ACL on OBSC exposures were as follows for the presented periods:


($ in thousands)	($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Balance at beginning of period	Balance at beginning of period	$	1,220	$	718	$	1,070	$	—	Balance at beginning of period	$	2,075	$	1,220	$	1,325	$	1,070
Adoption of ASU 326		—		—		—		718
Credit loss expense related to OBSC exposures	Credit loss expense related to OBSC exposures	—		—		150		—		Credit loss expense related to OBSC exposures	—		—		750		150
Balance at end of period	Balance at end of period	$	1,220	$	718	$	1,220	$	718	Balance at end of period	$	2,075	$	1,220	$	2,075	$	1,220

Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses related to OBSC exposures. The Company recorded no provision ~~and $150 thousand~~ for the three months period ended September 30, 2023 and 2022, respectively. For the nine months period ended September 30, ~~2022.~~2023 and 2022, the Company recorded $750 thousand and $150 thousand provision to the ACL on OBSC exposures, respectively. The increase in the ACL on OBSC exposures for the nine months ended September 30, 2023 compared to the same period in 2022 was ~~primarily~~ 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.

NOTE 8 – FAIR VALUE DISCLOSURES AND REPORTING, THE FAIR VALUE OPTION AND FAIR VALUE MEASUREMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the assets or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

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Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability.

The following methods and assumptions were used by the Company to estimate its financial instrument fair values disclosed at September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

•Investment Securities: The fair value for investment securities ~~are~~is determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, valuing debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

•Loans Held for Sale~~: Since loans designated~~ - Loans held for sale are carried at fair value in the aggregate as determined by the ~~Company~~outstanding commitments from investors. As, such we classify those loans subjected to recurring fair value adjustments as available-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and fluctuations in fair values are not relevant for reporting purposes. If available-for-sale loans are held on our books for an extended periodLevel 2 of ~~time,~~ the fair value ~~of those loans is determined using quoted secondary-market prices.~~hierarchy.

•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 independent appraisers to adjust for differences between the comparable sales and income data 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 generally adjusts the appraisal down by approximately 10 percent to account for cost associated with litigation and collection. 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 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 cost 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 generally adjusts the appraisal down by approximately 10 percent to account 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 non-interest 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 non-interest income. Other real estate owned is classified within Level 3 of the fair value hierarchy.

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•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

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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. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest ~~rates~~rate swaps is classified within Level 2 of the fair value hierarchy.

Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:


September 30, 2022		Carrying Amount			Estimated Fair Value			Fair Value Measurements
September 30, 2023														September 30, 2023			Carrying Amount					Estimated Fair Value				Fair Value Measurements
($ in thousands)	($ in thousands)														($ in thousands)
				Carrying Amount			Estimated Fair Value	Quoted Prices (Level 1)				Significant Other Observable Inputs (Level 2)								Significant Unobservable Inputs (Level 3)						Carrying Amount		Estimated Fair Value	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Instruments:	Financial Instruments:													Financial Instruments:
Assets:	Assets:																							Assets:
Cash and cash equivalents	Cash and cash equivalents									$	163,841							$	163,841					$	163,841						$	—	$	—	Cash and cash equivalents		$	197,632	$	197,632	$	197,632	$	—	$	—
Securities available-for-sale:
U.S. Treasury					122,918					122,918				122,918				—					—
Obligations of U.S. government agencies and sponsored entities		144,926						144,926				—			144,926						—
Municipal securities		550,891			550,891			—				533,933			16,958
Mortgage-backed securities		517,432			517,432			—				517,432			—
Corporate obligations		43,243			43,243			—				43,211			32
Securities available-for-sale																		Securities available-for-sale				1,141,971							1,141,971		124,694		997,753			19,524
Securities held-to-maturity	Securities held-to-maturity	593,553			593,553			—				593,553			—			Securities held-to-maturity				658,524							582,592		—		582,592			—
Loans held for sale																		Loans held for sale				5,960				5,960			—		5,960		—
Loans, net	Loans, net	3,681,032			3,684,489			—				—			3,684,489			Loans, net				5,036,235				4,851,597			—		—		4,851,597
Accrued interest receivable	Accrued interest receivable	24,570			23,317			—				8,495			14,822			Accrued interest receivable				30,542				30,542			—		8,112		22,430
Interest rate swaps	Interest rate swaps	13,258			13,258			—				13,258			—			Interest rate swaps				14,869				14,869			—		14,869		—
Liabilities:	Liabilities:																	Liabilities:
Noninterest-bearing deposits	Noninterest-bearing deposits	$	1,770,848		$	1,770,848		$	—			$	1,770,848		$	—		Noninterest-bearing deposits				$	1,967,661			$	1,967,661		$	—	$	1,967,661	$	—
Interest-bearing deposits	Interest-bearing deposits	3,780,450			3,614,886			—				3,614,886			—			Interest-bearing deposits				4,512,364				4,225,829			—		4,225,829		—
Subordinated debentures	Subordinated debentures	144,952			137,418			—				—			137,418			Subordinated debentures				128,300				106,391			—		—		106,391
FHLB advances and other borrowings		90,000			90,000			—				90,000			—
FHLB and other borrowings																		FHLB and other borrowings				302,000				302,000			—		302,000		—
Accrued interest payable	Accrued interest payable	1,365			1,365			—				1,365			—			Accrued interest payable				13,800				13,800			—		13,800		—
Interest rate swaps	Interest rate swaps	13,258			13,258			—				13,258			—			Interest rate swaps				14,880				14,880			—		14,869		11

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December 31, 2021		Carrying Amount			Estimated Fair Value			Fair Value Measurements
December 31, 2022														December 31, 2022			Carrying Amount					Estimated Fair Value				Fair Value Measurements
($ in thousands)	($ in thousands)														($ in thousands)
				Carrying Amount			Estimated Fair Value	Quoted Prices (Level 1)				Significant Other Observable Inputs (Level 2)								Significant Unobservable Inputs (Level 3)						Carrying Amount		Estimated Fair Value	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Instruments:	Financial Instruments:													Financial Instruments:
Assets:	Assets:																							Assets:
Cash and cash equivalents	Cash and cash equivalents									$	919,713							$	919,713					$	919,713						$	—	$	—	Cash and cash equivalents		$	145,315	$	145,315	$	145,315	$	—	$	—
Securities available-for-sale:
U.S. Treasury					135,158					135,158				135,158				—					—
Obligations of U.S. government agencies and sponsored entities		183,021						183,021				—			183,021						—
Municipal securities		708,502			708,502			—				688,379			20,123
Mortgage-backed securities		688,298			688,298			—				688,298			—
Corporate obligations		36,853			36,853			—				36,810			43
Securities available-for-sale																		Securities available-for-sale				1,257,101							1,257,101		123,854		1,118,099			15,148
Securities held-to-maturity																		Securities held-to-maturity				691,484							642,097		—		642,097			—
Loans held for sale																		Loans held for sale				4,443				4,443			—		4,443		—
Loans, net	Loans, net	2,928,811			2,956,297			—				—			2,956,297			Loans, net				3,735,240				3,681,313			—		—		3,681,313
Accrued interest receivable	Accrued interest receivable	23,256			23,256			—				6,838			16,418			Accrued interest receivable				27,723				27,723			—		9,757		17,966
Interest rate swaps																		Interest rate swaps				12,825				12,825			—		12,825		—
Liabilities:	Liabilities:																	Liabilities:
Non-interest-bearing deposits	Non-interest-bearing deposits	$	1,550,381		$	1,550,381		$	—			$	1,550,381		$	—		Non-interest-bearing deposits				$	1,630,203			$	1,630,203		$	—	$	1,630,203	$	—
Interest-bearing deposits	Interest-bearing deposits	3,676,403			3,644,418			—				3,644,418			—			Interest-bearing deposits				3,864,201				3,505,990			—		3,505,990		—
Subordinated debentures	Subordinated debentures	144,726			156,952			—				—			156,952			Subordinated debentures				145,027				133,816			—		—		133,816
FHLB and other borrowings																		FHLB and other borrowings				130,100				130,100			—		130,100		—
Accrued interest payable	Accrued interest payable	1,711			1,711			—				1,711			—			Accrued interest payable				3,324				3,324			—		3,324		—
Interest rate swaps																		Interest rate swaps				12,825				12,825			—		12,825		—

Assets measured at fair value on a recurring basis are summarized below:


September 30, 2022
September 30, 2023													September 30, 2023
($ in thousands)	($ in thousands)	Fair Value			Fair Value Measurements Using								($ in thousands)		Fair Value			Fair Value Measurements Using
				Quoted Prices in Active Markets For Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)							Quoted Prices in Active Markets For Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:	Assets:													Assets:
Available-for-sale	Available-for-sale												Available-for-sale
U.S. Treasury	U.S. Treasury	$	122,918		$	122,918		$	—		$	—	U.S. Treasury		$	124,694		$	124,694		$	—		$	—
Obligations of U.S. Government agencies and sponsored entities	Obligations of U.S. Government agencies and sponsored entities	144,926			—			144,926			—		Obligations of U.S. Government agencies and sponsored entities		125,364			—			125,364			—
Municipal securities	Municipal securities	550,891			—			533,933			16,958		Municipal securities		419,678			—			400,185			19,493
Mortgage-backed securities	Mortgage-backed securities	517,432			—			517,432			—		Mortgage-backed securities		433,956			—			433,956			—
Corporate obligations	Corporate obligations	43,243			—			43,211			32		Corporate obligations		37,279			—			37,248			31
Other													Other		1,000			—			1,000			—
Total available-for-sale	Total available-for-sale	$	1,379,410		$	122,918		$	1,239,502		$	16,990	Total available-for-sale		$	1,141,971		$	124,694		$	997,753		$	19,524
Loans held for sale													Loans held for sale		$	5,960		$	—		$	5,960		$	—
Interest rate swaps	Interest rate swaps	$	13,258		$	—		$	13,258		$	—	Interest rate swaps		$	14,869		$	—		$	14,869		$	—
Liabilities
Liabilities:													Liabilities:
Interest rate swaps	Interest rate swaps	$	13,258		$	—		$	13,258		$	—	Interest rate swaps		$	14,880		$	—		$	14,869		$	11

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December 31, 2021
December 31, 2022													December 31, 2022
($ in thousands)	($ in thousands)	Fair Value			Fair Value Measurements Using								($ in thousands)		Fair Value			Fair Value Measurements Using
				Quoted Prices in Active Markets For Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)							Quoted Prices in Active Markets For Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Available-for-sale	Available-for-sale													Available-for-sale
U.S. Treasury	U.S. Treasury	$	135,158		$	135,158		$	—		$	—	U.S. Treasury		$	123,854		$	123,854		$	—		$	—
Obligations of U.S. Government agencies and sponsored entities	Obligations of U.S. Government agencies and sponsored entities	183,021			—			183,021			—		Obligations of U.S. Government agencies and sponsored entities		144,369			—			144,369			—
Municipal securities	Municipal securities	708,502			—			688,379			20,123		Municipal securities		457,857			—			442,740			15,117
Mortgage-backed securities	Mortgage-backed securities	688,298			—			688,298			—		Mortgage-backed securities		490,139			—			490,139			—
Corporate obligations	Corporate obligations	36,853			—			36,810			43		Corporate obligations		40,882			—			40,851			31
Total available-for-sale	Total available-for-sale	$	1,751,832		$	135,158		$	1,596,508		$	20,166	Total available-for-sale		$	1,257,101		$	123,854		$	1,118,099		$	15,148
Loans held for sale													Loans held for sale		$	4,443		$	—		$	4,443		$	—
Interest rate swaps													Interest rate swaps		$	12,825		$	—		$	12,825		$	—
Liabilities:													Liabilities:
Interest rate swaps													Interest rate swaps		$	12,825		$	—		$	12,825		$	—

The following is a reconciliation of activity for assets measured at fair value based on significant unobservable inputs (Level 3) information.


		Bank-Issued Trust Preferred Securities					Bank-Issued Trust Preferred Securities
($ in thousands)	($ in thousands)	2022		2021		($ in thousands)	2023		2022
Balance, January 1	Balance, January 1	$	43	$	235	Balance, January 1	$	31	$	43
Paydowns	Paydowns	(11)		(64)		Paydowns	—		(11)
Unrealized gain included in comprehensive income		—		55
Balance at September 30	Balance at September 30	$	32	$	226	Balance at September 30	$	31	$	32


		Municipal Securities					Municipal Securities
($ in thousands)	($ in thousands)	2022		2021		($ in thousands)	2023		2022
Balance, January 1	Balance, January 1	$	20,123	$	20,126	Balance, January 1	$	15,117	$	20,123
Purchases	Purchases	—		4,209		Purchases	—		—
Maturities, calls and paydowns	Maturities, calls and paydowns	(524)		(4,474)		Maturities, calls and paydowns	(532)		(524)
Unrealized loss included in comprehensive income		(2,641)		(496)
Transfer from level 2 to level 3						Transfer from level 2 to level 3	6,085		—
Unrealized gain (loss) included in comprehensive income						Unrealized gain (loss) included in comprehensive income	(1,177)		(2,641)
Balance at September 30	Balance at September 30	$	16,958	$	19,365	Balance at September 30	$	19,493	$	16,958

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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The following tables present quantitative information about recurring Level 3 fair value measurements ($ in thousands):

Trust Preferred Securities

Fair Value

Valuation Technique

Significant Unobservable
Inputs

Range of Inputs

September 30, ~~2022~~2023

3231

Discounted cash flow

Probability of default

~~5.78%~~7.91% - ~~6.11%~~7.93%

December 31, ~~2021~~2022

4331

Discounted cash flow

Probability of default

~~2.35%~~6.98% - ~~2.47%~~7.19%

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Municipal Securities

Fair Value

Valuation Technique

Significant
Unobservable Inputs

Range of Inputs

September 30, ~~2022~~2023

~~16,958~~19,493

Discounted cash flow

Discount Rate

~~1.10%~~4.50% - ~~4.62%~~6.77%

December 31, ~~2021~~2022

~~20,123~~15,117

Discounted cash flow

Discount Rate

~~0.50%~~3.00% - ~~1.90%~~4.00%

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The following table presents the fair value measurement of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements were classified at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


September 30, 2022
September 30, 2023										September 30, 2023
($ in thousands)	($ in thousands)			Fair Value Measurements Using						($ in thousands)			Fair Value Measurements Using
		Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans	Collateral dependent loans	$	6,633	$	—	$	—	$	6,633	Collateral dependent loans	$	7,406	$	—	$	—	$	7,406
Other real estate owned	Other real estate owned	10,328		—		—		10,328		Other real estate owned	4,920		—		—		4,920


December 31, 2021
December 31, 2022										December 31, 2022
($ in thousands)	($ in thousands)			Fair Value Measurements Using						($ in thousands)			Fair Value Measurements Using
		Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans	Collateral dependent loans	$	3,564	$	—	$	—	$	3,564	Collateral dependent loans	$	5,552	$	—	$	—	$	5,552
Other real estate owned	Other real estate owned	2,565		—		—		2,565		Other real estate owned	4,832		—		—		4,832

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NOTE 9 - SECURITIES

The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale (“AFS”) and securities held-to-maturity at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


($ in thousands)	($ in thousands)	September 30, 2022								($ in thousands)	September 30, 2023
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
U.S. Treasury	U.S. Treasury	$	135,786	$	—	$	12,868	$	122,918	U.S. Treasury	$	135,648	$	—	$	10,954	$	124,694
Obligations of U.S. government agencies and sponsored entities	Obligations of U.S. government agencies and sponsored entities	164,486		4		19,564		144,926		Obligations of U.S. government agencies and sponsored entities	147,347		1		21,984		125,364
Tax-exempt and taxable obligations of states and municipal subdivisions	Tax-exempt and taxable obligations of states and municipal subdivisions	661,260		546		110,915		550,891		Tax-exempt and taxable obligations of states and municipal subdivisions	494,334		168		74,824		419,678
Mortgage-backed securities - residential	Mortgage-backed securities - residential	353,965		15		46,071		307,909		Mortgage-backed securities - residential	307,867		4		46,914		260,957
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	234,860		71		25,408		209,523		Mortgage-backed securities - commercial	199,065		48		26,114		172,999
Corporate obligations	Corporate obligations	45,933		—		2,690		43,243		Corporate obligations	41,633		—		4,354		37,279
Other										Other	1,000		—		—		1,000
Total available-for-sale	Total available-for-sale	$	1,596,290	$	636	$	217,516	$	1,379,410	Total available-for-sale	$	1,326,894	$	221	$	185,144	$	1,141,971
Held-to-maturity:	Held-to-maturity:									Held-to-maturity:
U.S. Treasury	U.S. Treasury	$	109,578	$	—	$	5,670	$	103,908	U.S. Treasury	$	89,687	$	—	$	4,256	$	85,431
Obligations of U.S. government agencies and sponsored entities	Obligations of U.S. government agencies and sponsored entities	33,074		—		2,164		30,910		Obligations of U.S. government agencies and sponsored entities	33,656		—		2,781		30,875
Tax-exempt and taxable obligations of states and municipal subdivisions	Tax-exempt and taxable obligations of states and municipal subdivisions	146,789		—		18,975		127,814		Tax-exempt and taxable obligations of states and municipal subdivisions	246,611		96		28,288		218,419
Mortgage-backed securities - residential	Mortgage-backed securities - residential	159,844		—		19,253		140,591		Mortgage-backed securities - residential	144,991		—		21,971		123,020
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	134,268		—		13,350		120,918		Mortgage-backed securities - commercial	133,579		—		17,028		116,551
Corporate obligations	Corporate obligations	10,000		—		1,453		8,547		Corporate obligations	10,000		—		1,704		8,296
Total held-to-maturity	Total held-to-maturity	$	593,553	$	—	$	60,865	$	532,688	Total held-to-maturity	$	658,524	$	96	$	76,028	$	582,592

2022

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($ in thousands)	($ in thousands)	December 31, 2021								($ in thousands)	December 31, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
U.S. Treasury	U.S. Treasury	$	135,889	$	83	$	814	$	135,158	U.S. Treasury	$	135,752	$	—	$	11,898	$	123,854
Obligations of U.S. government agencies sponsored entities	Obligations of U.S. government agencies sponsored entities	182,877		1,238		1,094		183,021		Obligations of U.S. government agencies sponsored entities	163,054		3		18,688		144,369
Tax-exempt and taxable obligations of states and municipal subdivisions	Tax-exempt and taxable obligations of states and municipal subdivisions	698,861		12,452		2,811		708,502		Tax-exempt and taxable obligations of states and municipal subdivisions	519,190		598		61,931		457,857
Mortgage-backed securities - residential	Mortgage-backed securities - residential	410,269		4,123		3,425		410,967		Mortgage-backed securities - residential	341,272		11		42,041		299,242
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	277,353		2,917		2,939		277,331		Mortgage-backed securities - commercial	215,200		60		24,363		190,897
Corporate obligations	Corporate obligations	35,904		962		13		36,853		Corporate obligations	43,869		—		2,987		40,882
Total available-for-sale	Total available-for-sale	$	1,741,153	$	21,775	$	11,096	$	1,751,832	Total available-for-sale	$	1,418,337	$	672	$	161,908	$	1,257,101
Held-to-maturity:										Held-to-maturity:
U.S. Treasury										U.S. Treasury	$	109,631	$	—	$	5,175	$	104,456
Obligations of U.S. government agencies and sponsored entities										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										Tax-exempt and taxable obligations of states and municipal subdivisions	247,467		4,525		13,699		238,293
Mortgage-backed securities - residential										Mortgage-backed securities - residential	156,119		—		17,479		138,640
Mortgage-backed securities - commercial										Mortgage-backed securities - commercial	134,478		7		13,798		120,687
Corporate obligations										Corporate obligations	10,000		—		1,615		8,385
Total held-to-maturity										Total held-to-maturity	$	691,484	$	4,532	$	53,919	$	642,097

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. Securities not due at a single maturity date are shown separately.

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 state and municipal subdivisions from AFS to HTM securities. The securities were transferred at their amortized cost 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 discounted cash flow (“DCF”) analysis using the effective interest rate. The amount of credit loss the Company

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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 both September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the results of the analysis did not identify any securities where the decline was indicative of credit loss factors; therefore, 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 ~~$6.2~~$5.2 million and ~~$6.8~~$6.2 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

Securities Held to Maturity

At September 30, 2023 and December 31, 2022, the potential credit loss exposure was ~~$402~~$216 thousand and $242 thousand, 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 at September 30, ~~2022.~~

~~Table of Contents~~

2023.

Accrued interest receivable is excluded from the estimate of credit losses for securities held-to-maturity. Accrued interest receivable totaled ~~$2.0~~$2.7 million and $0$3.6 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively and was reported in interest receivable on the accompanying Consolidated Balance Sheet.

At both September 30, 2023 and December 31, 2022, 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 at both September 30, 2023 and December 31, 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 September 30, 2023 and December 31, 2022, aggregated by credit quality indicators.


~~($ in thousands)~~	~~September 30, 2022~~
~~Aaa~~	$	~~452,516~~
~~Aa1/Aa2/Aa3~~	~~66,260~~
~~A1/A2~~	~~21,092~~
~~BBB~~	~~10,000~~
~~Not rated~~	~~43,685~~
~~Total~~	$	~~593,553~~


($ in thousands)	September 30, 2023		December 31, 2022
Aaa	$	435,761	$	467,736
Aa1/Aa2/Aa3	137,230		110,854
A1/A2	33,326		13,757
BBB	10,000		10,000
Not rated	42,207		89,137
Total	$	658,524	$	691,484

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($ in thousands)	($ in thousands)	September 30, 2022				($ in thousands)	September 30, 2023
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Available-for-sale:	Available-for-sale:					Available-for-sale:
Due less than one year	Due less than one year	$	26,758	$	26,432	Due less than one year	$	64,589	$	63,710
Due after one year through five years	Due after one year through five years	276,821		256,948		Due after one year through five years	258,766		238,230
Due after five years through ten years	Due after five years through ten years	376,584		324,364		Due after five years through ten years	329,028		274,301
Due greater than ten years	Due greater than ten years	327,302		254,234		Due greater than ten years	167,579		131,774
Mortgage-backed securities - residential	Mortgage-backed securities - residential	353,965		307,909		Mortgage-backed securities - residential	307,867		260,957
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	234,860		209,523		Mortgage-backed securities - commercial	199,065		172,999
Total	Total	$	1,596,290	$	1,379,410	Total	$	1,326,894	$	1,141,971

Held-to-maturity:	Held-to-maturity:					Held-to-maturity:
Due less than one year	Due less than one year	$	20,850	$	20,558	Due less than one year	$	38,482	$	37,742
Due after one year through five years	Due after one year through five years	109,905		103,568		Due after one year through five years	72,433		68,066
Due after five years through ten years	Due after five years through ten years	41,211		36,786		Due after five years through ten years	53,952		47,856
Due greater than ten years	Due greater than ten years	127,475		110,267		Due greater than ten years	215,087		189,357
Mortgage-backed securities - residential	Mortgage-backed securities - residential	159,844		140,591		Mortgage-backed securities - residential	144,991		123,020
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	134,268		120,918		Mortgage-backed securities - commercial	133,579		116,551
Total	Total	$	593,553	$	532,688	Total	$	658,524	$	582,592

~~The amortized costs of~~Total securities pledged as collateral, to secure public deposits and for other purposes, was ~~$1.053~~$1.203 billion ~~and $889.5 million~~ at September 30, ~~2022~~2023 and $1.031 billion at December 31, ~~2021,~~2022, respectively.

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The following table summarizes securities in an unrealized loss position for which an allowance for credit losses has not been recorded at September 30, ~~2022~~2023 and December 31, ~~2021. There were no held-to-maturity securities at December 31, 2021.~~2022. The securities are aggregated by major security type and length of time in a continuous unrealized loss position:


($ in thousands)	($ in thousands)	September 30, 2022												($ in thousands)	September 30, 2023
		Losses < 12 Months				Losses 12 Months or >				Total					Losses < 12 Months				Losses 12 Months or >				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:	Available-for-sale:													Available-for-sale:
U.S. Treasury	U.S. Treasury	$	104,630	$	10,570	$	18,288	$	2,298	$	122,918	$	12,868	U.S. Treasury	$	—	$	—	$	124,694	$	10,954	$	124,694	$	10,954
Obligations of U.S. government agencies and sponsored entities	Obligations of U.S. government agencies and sponsored entities	78,456		9,317		65,383		10,247		143,839		19,564		Obligations of U.S. government agencies and sponsored entities	187		—		124,848		21,984		125,035		21,984
Tax-exempt and taxable obligations of state and municipal subdivisions	Tax-exempt and taxable obligations of state and municipal subdivisions	411,023		80,247		125,582		30,668		536,605		110,915		Tax-exempt and taxable obligations of state and municipal subdivisions	35,198		3,215		373,596		71,609		408,794		74,824
Mortgage-backed securities - residential	Mortgage-backed securities - residential	129,058		14,720		177,053		31,351		306,111		46,071		Mortgage-backed securities - residential	749		10		259,613		46,904		260,362		46,914
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	113,360		10,431		91,036		14,977		204,396		25,408		Mortgage-backed securities - commercial	306		—		169,023		26,114		169,329		26,114
Corporate obligations	Corporate obligations	43,215		2,686		28		4		43,243		2,690		Corporate obligations	—		—		37,279		4,354		37,279		4,354
Total	Total	$	879,742	$	127,971	$	477,370	$	89,545	$	1,357,112	$	217,516	Total	$	36,440	$	3,225	$	1,089,053	$	181,919	$	1,125,493	$	185,144

Held-to-maturity:	Held-to-maturity:													Held-to-maturity:
U.S. Treasury	U.S. Treasury	$	103,908	$	5,670	$	—	$	—	$	103,908	$	5,670	U.S. Treasury	$	—	$	—	$	85,431	$	4,256	$	85,431	$	4,256
Obligations of U.S. government agencies and sponsored entities	Obligations of U.S. government agencies and sponsored entities	30,910		2,164		—		—		30,910		2,164		Obligations of U.S. government agencies and sponsored entities	708		36		30,166		2,745		30,874		2,781
Tax-exempt and taxable obligations of state and municipal subdivisions	Tax-exempt and taxable obligations of state and municipal subdivisions	120,472		18,975		—		—		120,472		18,975		Tax-exempt and taxable obligations of state and municipal subdivisions	119,396		10,885		87,466		17,403		206,862		28,288
Mortgage-backed securities - residential	Mortgage-backed securities - residential	140,591		19,253		—		—		140,591		19,253		Mortgage-backed securities - residential	—		—		123,020		21,971		123,020		21,971
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	120,918		13,350		—		—		120,918		13,350		Mortgage-backed securities - commercial	870		52		115,680		16,976		116,550		17,028
Corporate obligations	Corporate obligations	8,547		1,453		—		—		8,547		1,453		Corporate obligations	—		—		8,296		1,704		8,296		1,704
Total	Total	$	525,346	$	60,865	$	—	$	—	$	525,346	$	60,865	Total	$	120,974	$	10,973	$	450,059	$	65,055	$	571,033	$	76,028

2326

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($ in thousands)	($ in thousands)	December 31, 2021												($ in thousands)	December 31, 2022
		Losses < 12 Months				Losses 12 Months or >				Total					Losses < 12 Months				Losses 12 Months or >				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:														Available-for-sale:
U.S. Treasury	U.S. Treasury	$	130,098	$	814	$	—	$	—	$	130,098	$	814	U.S. Treasury	$	4,563	$	419	$	119,292	$	11,479	$	123,855	$	11,898
Obligations of U.S. government agencies and sponsored entities	Obligations of U.S. government agencies and sponsored entities	121,402		933		5,254		161		126,656		1,094		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 state and municipal subdivisions	Tax-exempt and taxable obligations of state and municipal subdivisions	249,430		2,692		3,692		119		253,122		2,811		Tax-exempt and taxable obligations of state and municipal subdivisions	275,202		31,152		159,508		30,779		434,710		61,931
Mortgage-backed securities - residential	Mortgage-backed securities - residential	284,183		3,228		8,912		197		293,095		3,425		Mortgage-backed securities - residential	76,125		4,970		222,274		37,071		298,399		42,041
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	174,697		2,836		3,038		103		177,735		2,939		Mortgage-backed securities - commercial	50,193		3,025		136,062		21,338		186,255		24,363
Corporate obligations	Corporate obligations	6,692		8		42		5		6,734		13		Corporate obligations	35,142		1,995		5,739		992		40,881		2,987
Total	Total	$	966,502	$	10,511	$	20,938	$	585	$	987,440	$	11,096	Total	$	475,479	$	43,854	$	752,306	$	118,054	$	1,227,785	$	161,908

Held-to-maturity:														Held-to-maturity:
U.S. Treasury														U.S. Treasury	$	104,457	$	5,175	$	—	$	—	$	104,457	$	5,175
Obligations of U.S. government agencies and sponsored entities														Obligations of U.S. government agencies and sponsored entities	31,636		2,153		—		—		31,636		2,153
Tax-exempt and taxable obligations of state and municipal subdivisions														Tax-exempt and taxable obligations of state and municipal subdivisions	127,628		13,583		15,303		116		142,931		13,699
Mortgage-backed securities - residential														Mortgage-backed securities - residential	138,639		17,479		—		—		138,639		17,479
Mortgage-backed securities - commercial														Mortgage-backed securities - commercial	119,758		13,798		—		—		119,758		13,798
Corporate obligations														Corporate obligations	8,385		1,615		—		—		8,385		1,615
Total														Total	$	530,503	$	53,803	$	15,303	$	116	$	545,806	$	53,919

At September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s securities portfolio consisted of ~~1,392~~1,318 and ~~304~~1,265 securities, respectively, which were in an unrealized loss position. 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~~As of September 30, 2023 and December 31, 2022, the Company determined that it does not intend to sell ~~these securities~~ and it is ~~more likely than~~ not ~~that the Company~~currently aware of any circumstances which will ~~not be required~~require it to sell any of the ~~investments before~~securities that are in an unrealized loss position prior to recovery of their amortized cost basis. NoAs such, no allowance for credit losses was needed at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

NOTE 10 – 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.

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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.

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The following table shows the composition of the loan portfolio:


($ in thousands)	($ in thousands)	September 30, 2022		December 31, 2021		($ in thousands)	September 30, 2023		December 31, 2022
Loans held for sale	Loans held for sale					Loans held for sale
Mortgage loans held for sale	Mortgage loans held for sale	$	2,225	$	7,678	Mortgage loans held for sale	$	5,960	$	4,443
Total LHFS	Total LHFS	$	2,225	$	7,678	Total LHFS	$	5,960	$	4,443

Loans held for investment	Loans held for investment					Loans held for investment
Commercial, financial and agriculture (1)	Commercial, financial and agriculture (1)	$	517,197	$	397,516	Commercial, financial and agriculture (1)	$	788,598	$	536,192
Commercial real estate	Commercial real estate	2,125,471		1,683,698		Commercial real estate	2,995,803		2,135,263
Consumer real estate	Consumer real estate	1,032,343		838,654		Consumer real estate	1,247,568		1,058,999
Consumer installment	Consumer installment	44,377		39,685		Consumer installment	57,831		43,703
Total loans	Total loans	3,719,388		2,959,553		Total loans	5,089,800		3,774,157
Less allowance for credit losses	Less allowance for credit losses	(38,356)		(30,742)		Less allowance for credit losses	(53,565)		(38,917)
Net LHFI	Net LHFI	$	3,681,032	$	2,928,811	Net LHFI	$	5,036,235	$	3,735,240


(1)			Loan balance includes ~~$1.5 million~~$450 thousand and ~~$41.1 million~~$710 thousand in Paycheck Protection Program (“PPP”) loans as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Accrued interest receivable is not included in the amortized cost basis of the Company’s LHFI. At September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, accrued interest receivable for LHFI totaled ~~$16.1~~$22.4 million and ~~$16.4~~$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~~present the aging of the amortized cost basis in past due loans in addition to those loans classified as nonaccrual including purchase credit deteriorated (“PCD”) loans:


($ in thousands)	($ in thousands)	September 30, 2022														($ in thousands)	September 30, 2023
		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			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)	Commercial, financial and agriculture (1)	$	293	$	—	$	29	$	—	$	322	$	517,197	$	—	Commercial, financial and agriculture (1)	$	909	$	32	$	315	$	1,020	$	2,276	$	788,598	$	830
Commercial real estate	Commercial real estate	121		—		10,253		1,198		11,572		2,125,471		5,265		Commercial real estate	1,279		21		8,985		705		10,990		2,995,803		5,063
Consumer real estate	Consumer real estate	1,452		571		3,282		1,079		6,384		1,032,343		1,339		Consumer real estate	2,706		—		3,135		3,209		9,050		1,247,568		1,366
Consumer installment	Consumer installment	144		—		3		—		147		44,377		—		Consumer installment	126		—		54		—		180		57,831		15
Total	Total	$	2,010	$	571	$	13,567	$	2,277	$	18,425	$	3,719,388	$	6,604	Total	$	5,020	$	53	$	12,489	$	4,934	$	22,496	$	5,089,800	$	7,274


(1)			Total loan balance includes ~~$1.5 million~~$450 thousand in PPP loans as of September 30, ~~2022.~~2023.

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		December 31, 2021															December 31, 2022
($ in thousands)	($ 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		($ 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)	Commercial, financial and agriculture (1)	$	246	$	—	$	190	$	—	$	436	$	397,516	$	—	Commercial, financial and agriculture (1)	$	220	$	—	$	19	$	—	$	239	$	536,192	$	—
Commercial real estate	Commercial real estate	453		—		19,445		2,082		21,980		1,683,698		1,661		Commercial real estate	1,984		—		7,445		1,129		10,558		2,135,263		4,560
Consumer real estate	Consumer real estate	2,140		45		3,776		2,512		8,473		838,654		1,488		Consumer real estate	3,386		289		2,965		1,032		7,672		1,058,999		791
Consumer installment	Consumer installment	121		—		7		1		129		39,685		—		Consumer installment	173		—		1		—		174		43,703		—
Total	Total	$	2,960	$	45	$	23,418	$	4,595	$	31,018	$	2,959,553	$	3,149	Total	$	5,763	$	289	$	10,430	$	2,161	$	18,643	$	3,774,157	$	5,351


(1)			Total loan balance includes ~~$41.1 million~~$710 thousand in PPP loans as of December 31, ~~2021.~~2022.

Acquired Loans

In connection with the acquisitions of HSBI and BBI, 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 the~~ following ~~accounting pronouncements:~~ ASC 326, Financial Instruments - Credit 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 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 ~~acquisition transaction~~and HSBI acquisitions for which there was, at the date of acquisition, more than insignificant deterioration of credit quality since origination:


~~($ in thousands)~~	~~Carrying Amount~~
~~Purchase price of loans at acquisition~~	$	~~27,669~~
~~Allowance for credit losses at acquisition~~	~~1,303~~
~~Non-credit discount (premium) at acquisition~~	~~530~~
~~Par value of acquired loans at acquisition~~	$	~~29,502~~


($ 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 September 30, ~~2022,~~2023, and December 31, ~~2021~~2022 the amortized cost of the Company’s PCD loans totaled ~~$27.1~~$60.6 million and ~~$8.6~~$24.0 million, respectively, which had an estimated ACL of $3.8 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 ~~$855 thousand, respectively.~~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 September 30, 2023 that were both experiencing financial difficulty and modified during 2023, by class and by type of modification. The percentage of the amortized cost basis 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	$	413	0.01	%
Total	$	413	0.01	%

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

Troubled Debt Restructurings ~~("TDRs")~~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.~~

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a TDR.

As of ~~September 30, 2022, and~~ December 31, ~~2021,~~2022, the Company had TDRs totaling ~~$23.4 million and $24.2 million, respectively.~~$21.8 million. The Company acquired three TDRs totaling $1.5 million as part of the BBI acquisition. As of ~~September 30,~~December 31, 2022, the Company had no additional amount committed on any loan classified as TDR. As of ~~September 30, 2022, and~~ December 31, ~~2021,~~2022, TDRs had a related ACL of ~~$704 thousand and $4.3 million, respectively.~~$841 thousand.

~~The following table presents LHFI by class modified as TDRs that occurred during the three and nine months ended September~~

30 ~~2021.~~

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There were no TDRs added during the three and nine months ended September 30, 2022.

($ in thousands) Three Months Ended September 30,
2021 Number of
Loans Outstanding
Recorded
Investment
Pre-Modification Outstanding
Recorded
Investment
Post-Modification
Commercial, financial and agriculture 3 $ 4,914 $ 4,914
Commercial real estate 1 $ 38 $ 38
Consumer installment 2 $ 113 $ 151
Total 6 $ 5,065 $ 5,103

~~The TDRs presented above increased the ACL $0 and $91 thousand and resulted in no charge-offs for the three months period ended September 30, 2022 and 2021, respectively.~~

($ in thousands) Nine Months Ended September 30,
2021 Number of
Loans Outstanding
Recorded
Investment
Pre-Modification Outstanding
Recorded
Investment
Post-Modification
Commercial, financial and agriculture 5 $ 5,151 $ 5,151
Commercial real estate 1 38 38
Consumer real estate 1 13 2
Consumer installment 3 168 194
Total 10 $ 5,370 $ 5,385

~~The TDRs presented above increased the ACL $0 and $112 thousand and resulted in no charge-offs for the nine months period ended September 30, 2022 and 2021, respectively.~~

There were no TDRs for which there was a payment default within ~~tweleve~~twelve months for the nine months ended September 30, 2022. The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification for the nine months ended September 30, 2021 ($ in thousands).

Troubled Debt Restructurings
That Subsequently Defaulted:
Nine Months Ended September 30,
2021
Number of
Loans Recorded
Investment
Commercial real estate 1 $ 165
Consumer real estate 2 355
Total 3 $ 520

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 $0 and $101 thousand and resulted in no charge-offs for the nine months period ended September 30, 2022 and 2021, respectively.

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The following tables represents the Company’s TDRs at ~~September 30, 2022 and~~ December 31, ~~2021:~~2022:

September 30, 2022 Current
Loans Past Due
30-89 Past Due 90
days and still
accruing Nonaccrual Total
($ in thousands)
Commercial, financial and agriculture $ 681 $ — $ — $ — $ 681
Commercial real estate 13,661 — — 6,847 20,508
Consumer real estate 1,411 51 — 778 2,240
Consumer installment 15 — — — 15
Total $ 15,768 $ 51 $ — $ 7,625 $ 23,444
Allowance for credit losses $ 223 $ — $ — $ 481 $ 704


December 31, 2021		Current Loans			Past Due 30-89			Past Due 90 days and still accruing			Nonaccrual					Total
December 31, 2022										December 31, 2022				Current Loans						Past Due 30-89				Past Due 90 days and still accruing				Nonaccrual					Total
($ in thousands)	($ in thousands)			Current Loans				Past Due 30-89					Past Due 90 days and still accruing					Nonaccrual									Total				($ in thousands)
Commercial, financial and agriculture	Commercial, financial and agriculture									Commercial, financial and agriculture					$	49				$	—			$	—						$	—					$	49
Commercial real estate	Commercial real estate	3,367					—			—				16,858					20,225			Commercial real estate			13,561				—					—				6,121			19,682
Consumer real estate	Consumer real estate	1,772			—			—			1,973					3,745		Consumer real estate				1,077				—				—					929				2,006
Consumer installment	Consumer installment	18			—			—			—					18		Consumer installment				14				—				—					—				14
Total	Total	$	5,220		$	—		$	—		$	18,938				$	24,158	Total				$	14,701			$	—			$	—				$	7,050			$	21,751
Allowance for credit losses	Allowance for credit losses	$	90		$	—		$	—		$	4,217				$	4,307	Allowance for credit losses				$	350			$	—			$	—				$	491			$	841

Collateral Dependent Loans

The following table presents the amortized cost basis of collateral dependent individually evaluated loans by class of loans as of September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


September 30, 2022
September 30, 2023						September 30, 2023
($ in thousands)	($ in thousands)	Real Property		Total		($ in thousands)	Real Property		Miscellaneous		Total
Commercial, financial and agriculture						Commercial, financial and agriculture	$	—	$	1,081	$	1,081
Commercial real estate	Commercial real estate	$	5,265	$	5,265	Commercial real estate	5,251		—		5,251
Consumer real estate	Consumer real estate	1,374		1,374		Consumer real estate	1,366		—		1,366
Consumer installment						Consumer installment	—		15		15
Total	Total	$	6,639	$	6,639	Total	$	6,617	$	1,096	$	7,713


December 31, 2021
December 31, 2022						December 31, 2022
($ in thousands)	($ in thousands)	Real Property		Total		($ in thousands)	Real Property		Total
Commercial real estate	Commercial real estate	$	1,712	$	1,712	Commercial real estate	$	4,560	$	4,560
Consumer real estate	Consumer real estate	1,858		1,858		Consumer real estate	998		998
Total	Total	$	3,570	$	3,570	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~~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.

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Loan Participations

The Company has loan participations, which qualify as participating interest, with other financial institutions. As of September 30, ~~2022,~~2023, these loans totaled ~~$202.5~~$286.9 million, of which ~~$93.2~~$165.6 million had been sold to other financial

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institutions and ~~$109.3~~$121.3 million was purchased by the Company. As of December 31, ~~2021,~~2022, these loans totaled ~~$118.4~~$202.6 million, of which ~~$77.8~~$100.1 million had been sold to other financial institutions and ~~$40.6~~$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.

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 September 30, ~~2022,~~2023, and were generally updated within the prior year.

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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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Revolving loans converted to term as of the nine months ended September 30, ~~2022~~2023 and December 31, ~~2021~~2022 were not material to the total loan portfolio.


As of September 30, 2022		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans			Total
As of September 30, 2023																As of September 30, 2023			Term Loans Amortized Cost Basis by Origination Year																		Revolving Loans			Total
($ in thousands)	($ in thousands)	2022		2021		2020		2019		2018		Prior				Revolving Loans				Total	($ in thousands)		2023			2022			2021			2020			2019							Prior
Commercial, financial and	Commercial, financial and																Commercial, financial and
agriculture:	agriculture:																		agriculture:
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	139,969	$	151,211	$	58,425	$	58,055	$	46,316	$	53,783	$	115		$	507,874	Pass		$	84,614		$	144,691		$	112,186		$	51,364		$	39,635		$		68,845		$	282,705			$	784,040
Special mention	Special mention	389		5,655		1,690		204		—		1,032		—			8,970		Special mention		—			—			—			159			1,081			966			10				2,216
Substandard	Substandard	—		17		—		54		35		247		—			353		Substandard		7			411			172			302			588			828			34				2,342
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total commercial, financial and agriculture	Total commercial, financial and agriculture	$	140,358	$	156,883	$	60,115	$	58,313	$	46,351	$	55,062	$	115		$	517,197	Total commercial, financial and agriculture		$	84,621		$	145,102		$	112,358		$	51,825		$	41,304		$	70,639		$	282,749			$	788,598
Current period gross write offs																			Current period gross write offs		$	2		$	11		$	141		$	2		$	206		$	110		$	—			$	472

Commercial real estate:	Commercial real estate:																		Commercial real estate:
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	458,767	$	458,929	$	320,224	$	228,481	$	147,199	$	411,604	$	—		$	2,025,204	Pass		$	251,872		$	817,602		$	577,364		$	389,861		$	265,386		$	594,553		$	5,193			$	2,901,831
Special mention	Special mention	676		1,389		2,315		11,763		7,184		20,665		—			43,992		Special mention		—			662			7,283			3,194			10,084			15,061			—				36,284
Substandard	Substandard	51		5,159		2,705		3,514		15,394		28,777		—			55,600		Substandard		139			7,009			2,194			810			5,472			42,064			—				57,688
Doubtful	Doubtful	—		—		—		—		—		675		—			675		Doubtful		—			—			—			—			—			—			—				—
Total commercial real estate	Total commercial real estate	$	459,494	$	465,477	$	325,244	$	243,758	$	169,777	$	461,721	$	—		$	2,125,471	Total commercial real estate		$	252,011		$	825,273		$	586,841		$	393,865		$	280,942		$	651,678		$	5,193			$	2,995,803
Current period gross write offs																			Current period gross write offs		$	—		$	—		$	27		$	—		$	—		$	—		$	—			$	27

Consumer real estate:	Consumer real estate:																		Consumer real estate:
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	264,641	$	240,464	$	144,526	$	62,785	$	58,092	$	141,643	$	103,853		$	1,016,004	Pass		$	133,794		$	349,656		$	225,167		$	134,661		$	61,472		$	172,799		$	150,975			$	1,228,524
Special mention	Special mention	—		—		—		—		837		4,256		—			5,093		Special mention		—			711			—			—			650			3,321			411				5,093
Substandard	Substandard	116		1,003		220		640		1,726		6,515		1,026			11,246		Substandard		502			116			519			1,565			524			7,675			3,050				13,951
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total consumer real estate	Total consumer real estate	$	264,757	$	241,467	$	144,746	$	63,425	$	60,655	$	152,414	$	104,879		$	1,032,343	Total consumer real estate		$	134,296		$	350,483		$	225,686		$	136,226		$	62,646		$	183,795		$	154,436			$	1,247,568
Current period gross write offs																			Current period gross write offs		$	1		$	19		$	—		$	—		$	—		$	25		$	—			$	45

Consumer installment:	Consumer installment:																		Consumer installment:
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	15,513	$	13,840	$	5,858	$	2,597	$	986	$	1,669	$	3,867		$	44,330	Pass		$	20,928		$	14,667		$	8,629		$	3,607		$	1,654		$	1,475		$	6,763			$	57,723
Special mention	Special mention	—		—		—		—		—		—		—			—		Special mention		—			—			—			—			—			—			—				—
Substandard	Substandard	—		4		25		9		1		8		—			47		Substandard		—			8			20			64			15			—			1				108
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total consumer installment	Total consumer installment	$	15,513	$	13,844	$	5,883	$	2,606	$	987	$	1,677	$	3,867		$	44,377	Total consumer installment		$	20,928		$	14,675		$	8,649		$	3,671		$	1,669		$	1,475		$	6,764			$	57,831
Current period gross write offs																			Current period gross write offs		$	123		$	487		$	161		$	164		$	103		$	393		$	120			$	1,551

Total	Total																		Total
Pass	Pass	$	878,890	$	864,444	$	529,033	$	351,918	$	252,593	$	608,699	$	107,835		$	3,593,412	Pass		$	491,208		$	1,326,616		$	923,346		$	579,493		$	368,147		$	837,672		$	445,636			$	4,972,118
Special mention	Special mention	1,065		7,044		4,005		11,967		8,021		25,953		—			58,055		Special mention		—			1,373			7,283			3,353			11,815			19,348			421				43,593
Substandard	Substandard	167		6,183		2,950		4,217		17,156		35,547		1,026			67,246		Substandard		648			7,544			2,905			2,741			6,599			50,567			3,085				74,089
Doubtful	Doubtful	—		—		—		—		—		675		—			675		Doubtful		—			—			—			—			—			—			—				—
Total	Total	$	880,122	$	877,671	$	535,988	$	368,102	$	277,770	$	670,874	$	108,861		$	3,719,388	Total		$	491,856		$	1,335,533		$	933,534		$	585,587		$	386,561		$	907,587		$	449,142			$	5,089,800
Current period gross write offs																			Current period gross write offs		$	126		$	517		$	329		$	166		$	309		$	528		$	120			$	2,095

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As of December 31, 2021		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans			Total
As of December 31, 2022																As of December 31, 2022			Term Loans Amortized Cost Basis by Origination Year																		Revolving Loans			Total
($ in thousands)	($ in thousands)	2021		2020		2019		2018		2017		Prior				Revolving Loans				Total	($ in thousands)		2022			2021			2020			2019			2018							Prior
Commercial, financial and:	Commercial, financial and:																Commercial, financial and:
agriculture	agriculture																		agriculture
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	152,798	$	60,106	$	52,802	$	47,988	$	22,083	$	43,773	$	178		$	379,728	Pass		$	181,761		$	141,174		$	55,690		$	53,954		$	43,441		$		52,038		$	181			$	528,239
Special mention	Special mention	—		255		749		90		481		29		—			1,604		Special mention		380			5,188			1,664			—			—			412			—				7,644
Substandard	Substandard	—		—		1,398		6,184		360		8,242		—			16,184		Substandard		50			—			—			34			33			192			—				309
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total commercial, financial and agriculture	Total commercial, financial and agriculture	$	152,798	$	60,361	$	54,949	$	54,262	$	22,924	$	52,044	$	178		$	397,516	Total commercial, financial and agriculture		$	182,191		$	146,362		$	57,354		$	53,988		$	43,474		$	52,642		$	181			$	536,192

Commercial real estate:	Commercial real estate:																		Commercial real estate:
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	402,284	$	313,288	$	207,879	$	177,943	$	134,234	$	332,588	$	—		$	1,568,216	Pass		$	582,895		$	436,661		$	305,140		$	217,626		$	140,682		$	368,185		$	1,765			$	2,052,954
Special mention	Special mention	1,326		2,259		1,782		15,076		2,779		15,519		—			38,741		Special mention		672			1,345			3,938			11,643			9,885			16,612			—				44,095
Substandard	Substandard	3,904		3,189		1,931		17,147		18,814		31,756		—			76,741		Substandard		50			2,830			908			1,694			4,797			27,935			—				38,214
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total commercial real estate	Total commercial real estate	$	407,514	$	318,736	$	211,592	$	210,166	$	155,827	$	379,863	$	—		$	1,683,698	Total commercial real estate		$	583,617		$	440,836		$	309,986		$	230,963		$	155,364		$	412,732		$	1,765			$	2,135,263

Consumer real estate:	Consumer real estate:																		Consumer real estate:
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	243,340	$	164,359	$	70,465	$	66,940	$	51,988	$	121,238	$	98,444		$	816,774	Pass		$	325,853		$	226,355		$	136,052		$	59,376		$	51,515		$	129,923		$	112,278			$	1,041,352
Special mention	Special mention	—		—		331		26		1,746		1,949		—			4,052		Special mention		—			—			—			—			823			3,846			—				4,669
Substandard	Substandard	444		532		1,280		3,410		1,288		9,241		1,633			17,828		Substandard		519			554			1,481			648			1,706			6,894			1,176				12,978
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total consumer real estate	Total consumer real estate	$	243,784	$	164,891	$	72,076	$	70,376	$	55,022	$	132,428	$	100,077		$	838,654	Total consumer real estate		$	326,372		$	226,909		$	137,533		$	60,024		$	54,044		$	140,663		$	113,454			$	1,058,999

Consumer installment:	Consumer installment:																		Consumer installment:
Risk Rating	Risk Rating																		Risk Rating
Pass	Pass	$	17,980	$	9,245	$	4,222	$	1,645	$	1,088	$	1,758	$	3,697		$	39,635	Pass		$	18,925		$	11,618		$	5,031		$	2,078		$	832		$	1,445		$	3,725			$	43,654
Special mention	Special mention	—		—		—		—		1		—		—			1		Special mention		—			—			—			—			—			—			—				—
Substandard	Substandard	—		26		3		5		8		7		—			49		Substandard		4			13			24			—			3			5			—				49
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total consumer installment	Total consumer installment	$	17,980	$	9,271	$	4,225	$	1,650	$	1,097	$	1,765	$	3,697		$	39,685	Total consumer installment		$	18,929		$	11,631		$	5,055		$	2,078		$	835		$	1,450		$	3,725			$	43,703

Total	Total																		Total
Pass	Pass	$	816,402	$	546,998	$	335,368	$	294,516	$	209,393	$	499,357	$	102,319		$	2,804,353	Pass		$	1,109,434		$	815,808		$	501,913		$	333,034		$	236,470		$	551,591		$	117,949			$	3,666,199
Special mention	Special mention	1,326		2,514		2,862		15,192		5,007		17,497		—			44,398		Special mention		1,052			6,533			5,602			11,643			10,708			20,870			—				56,408
Substandard	Substandard	4,348		3,747		4,612		26,746		20,470		49,246		1,633			110,802		Substandard		623			3,397			2,413			2,376			6,539			35,026			1,176				51,550
Doubtful	Doubtful	—		—		—		—		—		—		—			—		Doubtful		—			—			—			—			—			—			—				—
Total	Total	$	822,076	$	553,259	$	342,842	$	336,454	$	234,870	$	566,100	$	103,952		$	2,959,553	Total		$	1,111,109		$	825,738		$	509,928		$	347,053		$	253,717		$	607,487		$	119,125			$	3,774,157

Allowance for Credit Losses

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.

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

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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 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 and 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 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 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.

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% 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.

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The following table presents the activity in the allowance for credit losses by portfolio segment for the three ~~and nine~~ months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


($ in thousands)	Three Months Ended September 30, 2023
	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
Allowance for credit losses:
Beginning balance	$	8,972	$	28,726	$	14,123	$	793	$	52,614
Provision for credit losses	(709)		389		919		401		1,000
Loans charged-off	(48)		(27)		(21)		(533)		(629)
Recoveries	277		15		142		146		580
Total ending allowance balance	$	8,492	$	29,103	$	15,163	$	807	$	53,565


($ in thousands)	Nine Months Ended September 30, 2023
	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	1,554		6,380		3,203		1,363		12,500
Loans charged-off	(472)		(27)		(45)		(1,551)		(2,095)
Recoveries	334		101		224		408		1,067
Total ending allowance balance	$	8,492	$	29,103	$	15,163	$	807	$	53,565


($ in thousands)	Three Months Ended September 30, 2022
	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
Allowance for credit losses:
Beginning balance	$	4,511	$	18,668	$	8,752	$	469	$	32,400
Initial allowance on PCD loans	614		576		113		—		1,303
Provision for credit losses	483		1,663		2,135		19		4,300
Loans charged-off	—		—		(55)		(186)		(241)
Recoveries	292		18		39		245		594
Total ending allowance balance	$	5,900	$	20,925	$	10,984	$	547	$	38,356


($ in thousands)	Nine Months Ended September 30, 2022
	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	171		2,292		2,197		90		4,750
Loans charged-off	(146)		(27)		(202)		(523)		(898)
Recoveries	388		532		987		552		2,459
Total ending allowance balance	$	5,900	$	20,925	$	10,984	$	547	$	38,356

($ in thousands) Three Months Ended September 30, 2021
Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Consumer
Installment Total
Allowance for credit losses:
Beginning balance $ 3,910 $ 17,573 $ 10,339 $ 635 $ 32,457
Provision for credit losses — — — — —
Loans charged-off (142) (59) (19) (166) (386)
Recoveries 57 180 39 71 347
Total ending allowance balance $ 3,825 $ 17,694 $ 10,359 $ 540 $ 32,418

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($ in thousands) Nine Months Ended September 30, 2021
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 — — — — —
Loans charged-off (1,618) (3,066) (282) (431) (5,397)
Recoveries 382 473 276 467 1,598
Total ending allowance balance $ 3,825 $ 17,694 $ 10,359 $ 540 $ 32,418

The Company recorded a $12.5 million provision for credit losses for the nine months ended September 30, 2023, compared to $4.8 million provision for the same period in 2022. The increase in the provision for credit losses is related to loan growth across all loan categories. Total loans were $5.090 billion at September 30, 2023, compared to $3.719 billion at September 30, 2022, representing an increase of $1.370 billion, or 36.8%. During January 2023, loans totaling $1.159 billion, net of purchase accounting adjustments, were acquired in the HSBI acquisition. The initial ACL on PCD loans recorded in ~~September 30, 2022,~~March 2023, of ~~$1.3~~$3.2 million ~~were~~was related to the ~~BBI~~HSBI acquisition. The ~~2022~~2023 provision for credit losses includes ~~$3.9~~$10.7 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments acquired in the HSBI acquisition. In 2022, the Company's provision for credit losses includes $3.9 million associated with a day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments and a $1.3 million initial allowance on PCD loans acquired in the BBI ~~merger.~~ acquisition.

The Company recorded a ~~$4.3~~$1.0 million provision for credit losses for the three months ended September 30, ~~2022,~~2023, compared to no$4.3 million provision for the same periods in ~~2021.~~2022. The increase in the provision ~~is related to the BBI acquisition. The provision for credit losses was $4.9 million~~ for the ~~nine~~three months ended September 30, ~~2022, compared with no provision for credit losses for the same period in 2021.~~2023 is attributed to loan growth.

The following table provides the ending balance in the Company’s LHFI and the ACL, broken down by portfolio segment as of September 30, ~~2022~~2023 and December 31, ~~2021 ($ in thousands).~~2022.


September 30, 2022		Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
($ in thousands)												($ in thousands)
September 30, 2023												September 30, 2023	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
LHFI	LHFI											LHFI
Individually evaluated	Individually evaluated	$	—	$	5,265	$	1,374	$	—	$	6,639	Individually evaluated	$	1,081	$	5,251	$	1,366	$	15	$	7,713
Collectively evaluated	Collectively evaluated	517,197		2,120,206		1,030,969		44,377		3,712,749		Collectively evaluated	787,517		2,990,552		1,246,202		57,816		5,082,087
Total	Total	$	517,197	$	2,125,471	$	1,032,343	$	44,377	$	3,719,388	Total	$	788,598	$	2,995,803	$	1,247,568	$	57,831	$	5,089,800

Allowance for Credit Losses	Allowance for Credit Losses											Allowance for Credit Losses
Individually evaluated	Individually evaluated	$	—	$	—	$	5	$	—	$	5	Individually evaluated	$	217	$	90	$	—	$	—	$	307
Collectively evaluated	Collectively evaluated	5,900		20,925		10,979		547		38,351		Collectively evaluated	8,275		29,013		15,163		807		53,258
Total	Total	$	5,900	$	20,925	$	10,984	$	547	$	38,356	Total	$	8,492	$	29,103	$	15,163	$	807	$	53,565

December 31, 2021 Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Consumer
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


($ in thousands)
December 31, 2022	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
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

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NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Swaps

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~~expenses and risk participation.

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Under a back-to-back interest rate swap program, 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~~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, ~~that~~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. ~~As part~~

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 the ~~BBI acquisition,~~credit risk associated with the ~~Bank acquired 33 loans with related~~ interest rate ~~swaps.~~

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 currently has one risk participation-in swap.

The following table provides outstanding interest rate swaps atas of September 30, 2023 and December 31, 2022.


~~($ in thousands)~~
	~~September 30, 2022~~
~~Notional amount~~	$	~~326,156~~
~~Weighted average pay rate~~	~~4.3~~		%
~~Weighted average receive rate~~	~~4.3~~		%
~~Weighted average maturity in years~~	~~6.34~~


($ in thousands)
	September 30, 2023			December 31, 2022
Notional amount	$	411,450		$	328,756
Weighted average pay rate	4.8		%	4.6		%
Weighted average receive rate	4.8		%	4.3		%
Weighted average maturity in years	5.49			6.11

The following table provides the fair value of interest rate swap contracts at September 30, 2023 and December 31, 2022 included in other assets and other liabilities.


($ in thousands)	($ in thousands)				($ in thousands)
		September 30, 2022				September 30, 2023				December 31, 2022
		Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities		Derivative Assets	Derivative Liabilities
Interest rate swap contracts	Interest rate swap contracts	$	13,258	13,258	Interest rate swap contracts	$	14,869	$	14,880	12,825	$	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 September 30, 2023 and December 31, 2022, the Company had ~~$1.0 million~~$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 three ~~and nine~~ months ended September 30, ~~2022,~~2023, net swap spread income included in other income was $344 thousand compared to $20 ~~thousand.~~thousand for the same period in 2022. For the nine months ended September 30, 2023, net swap spread income included in other income was $839 thousand compared to $20 thousand for the same period in 2022.

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.

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NOTE 12 – RECLASSIFICATION

Certain amounts in the ~~2021~~2022 financial statements have been reclassified for comparative purposes to conform to the current period financial statement presentation.

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~~NOTE 13 – SUBSEQUENT EVENTS/OTHER~~

~~Heritage Southeast Bank~~

On July 27, 2022, the Company entered into an Agreement and Plan of Merger (the "HSBI Merger Agreement") with Heritage Southeast Bancorporation, Inc., a Georgia corporation ("HSBI"), whereby HSBI will be merged with and into the Company. Pursuant to and simultaneously with entering into the HSBI Merger Agreement, The First Bank and HSBI's wholly owned subsidiary bank, Heritage Southeast Bank, entered into a Plan of Bank Merger whereby Heritage Southeast Bank will be merged with and into The First immediately following the merger of HSBI with and into the Company. Each share of HSBI common stock will, at the effective time of the transaction, be converted into 0.965 of a share of Company common stock, representing a purchase price, as of the announcement date, of approximately $207.0 million. At September 30, 2022, HSBI had approximately $1.7 billion in assets, $1.1 billion in loans, and $1.5 billion in deposits. The closing of the transactions contemplated by the HSBI Merger Agreement is subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of each of the Company and HSBI.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

Certain statements made or incorporated by reference in this Quarterly Report on Form 10-Q of the Company (the “Report”) which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Report, constitute forward-looking statements within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, many of which are beyond the Company’s control and which may cause the Company’s actual results, performance or achievements or the financial services industry or economy generally, to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are forward-looking statements. You can identify these forward-looking statements through the Company’s use of words such as “believes,” “anticipates,” “expects,” “may,” “will,” “assumes,” “predicts,” “could,” “should,” “would,” “intends,” “targets,” “estimates,” “projects,” “seek,” “plans,” “potential,” “aim,” and other similar words and expressions of the future or otherwise regarding the outlook for the Company’s future business and financial performance and/or the performance of the financial services industry and economy in general. Forward-looking statements are based on the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements in this document. Many of these factors are beyond the Company’s ability to control or predict. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following:

•~~the ongoing impact of COVID-19 pandemic on the economy and our operations;~~

•negative impacts on our business, profitability and our stock price that could result from prolonged periods of inflation;

•risks and uncertainties relating to recent, pending or potential future mergers or acquisitions, including risks related to the completion of such acquisitions within expected timeframes and the successful integration of the business that we acquire into our operations;

•the risk that a future economic downturn and contraction, including a recession, could have a material adverse effect on our capital, financial condition, credit quality, results of operations and future growth, including the risk that the strength of the current economic environment could be weakened by the continued impact of rising interest rates, ~~supply chain challenges~~ and inflation;

•disruptions to the financial markets as a result of the current or anticipated impact of military conflict, including Russia’s military action in Ukraine, the conflict in Israel and surrounding areas, terrorism or other geopolitical events;

•governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal ~~Reserve, as well as legislative, tax and regulatory changes, including those that impact the money supply and inflation;~~Reserve;

•the costs and effects of litigation, investigations, inquiries or similar matters, or adverse facts and developments related ~~thereto, including the costs and effects of litigation related to our participation in government stimulus programs associated with the COVID-19 pandemic;~~thereto;

•reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including declining residential and commercial real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other ~~factors;~~factors occurring in those areas;

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•general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;

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•adverse changes in asset quality and resulting credit risk-related losses and expenses;

•ability of borrowers to repay loans, which can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, natural disasters, public health emergencies and international instability;

•developments in our mortgage banking business, including loan modifications, general demand, and the effects of judicial or regulatory requirements or guidance;

•~~current or future legislation, regulatory changes or~~ changes in laws and regulations affecting our businesses, including governmental monetary ~~tax~~and fiscal policies, legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or ~~fiscal policy that adversely~~otherwise negatively affect our businesses;

•the ~~businesses in which we or our customers or our borrowers are engaged, including the~~financial impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Federal Reserve’s actions with respect to interest rates, the capital requirements promulgated by the Basel Committee on Banking Supervision (“Basel Committee”), potential impacts from the Tax Cuts and Jobs Act, the CARES Act of 2020, and other COVID-19 relief measures, uncertainty relating to calculation of LIBOR and other regulatory responses to economic conditions;future tax legislation;

•changes in political conditions or the legislative or regulatory ~~environment;~~environment, including the possibility that the U.S. could default on its debt obligations;

•the adequacy of the level of our allowance for credit losses and the amount of credit loss provisions required to replenish the allowance in future periods;

•reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral;

•changes in the interest rate environment which could reduce anticipated or actual margins;

•increased funding costs due to market illiquidity, increased competition for funding, higher interest rates, and increased regulatory requirements with regard to funding;

•results of examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses through additional credit loss provisions or write-down of our assets;

•the rate of delinquencies and amount of loans charged-off;

•the impact of our efforts to raise capital on our financial position, liquidity, capital, and profitability;

•significant increases in competition in the banking and financial services industries;

•changes in the securities markets;

•significant turbulence or a disruption in the capital or financial markets and the effect of a fall in stock market prices on our investment securities;

•loss of consumer confidence and economic disruptions resulting from national disasters or terrorist activities;

•a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget;

•the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and may reduce the anticipated benefit;

•our ability to retain our existing customers, including our deposit relationships;

•changes occurring in business conditions and inflation;

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•changes in technology or risks to cybersecurity;

•changes in deposit flows;

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•changes in accounting principles, policies, or guidelines, including the impact of the Current Expected Credit Losses (“CECL”) standard;

•our ability to maintain adequate internal control over financial reporting;

•~~risks related to the continued use, availability and reliability of LIBOR and other “benchmark” rates;~~ and

•other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (“SEC”).

We have based our forward-looking statements on our current expectations about future events. Although we believe that the expectations reflected in and the assumptions underlying our forward-looking statements are reasonable, we cannot guarantee that these expectations will be achieved, or the assumptions will be accurate. The Company disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Additional information concerning these risks and uncertainties is contained in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2021 the "Company's 2021~~2022 "the Company's 2022 Form 10-K" and in our other filings with the Securities and Exchange Commission, available at the SEC’s website, http://www.sec.gov.

~~ECONOMIC CONDITIONS~~

The economic conditions and growth prospects for our markets, even against the headwinds of inflation and recessionary concerns, continue to reflect a solid and positive overall outlook with economic activity close to pre-pandemic levels. Increasing interest rates and rising building costs have caused some slowing of the highly robust single family housing market, however, there continues to be a shortage of housing in several markets in the southeast. Worker shortages especially in the restaurant, hospitality and retail industries combined with supply chain disruptions impacting numerous industries and inflationary conditions has had some impact on the level of economic growth. Ongoing higher inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers. Overall, the southeast continues to experience economic growth due to company relocations and expansions combined with overall population growth.

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues, and expenses. Accounting policies considered critical to our financial results include the allowance for credit losses and related provision, income taxes, goodwill, and business combinations. The most critical of these is the accounting policy related to the allowance for credit losses. The allowance is based in large measure upon management’s evaluation of borrowers’ abilities to make loan payments, local and national economic conditions, and other subjective factors. If any of these factors were to deteriorate, management would update its estimates and judgments which may require additional loss provisions. The Company’s critical accounting policies are discussed in detail in Note B “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s ~~2021~~2022 Form 10-K.

On January 1, 2023, the Company adopted FASB ASU 2022-02, which eliminates the TDR recognition and measurement guidance and instead requires 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.

OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS SUMMARY

Third quarter ~~2022~~2023 compared to third quarter ~~2021~~2022

~~The Company reported net~~Net income available to common shareholders of $14.0 million for the three months ended September 30, 2022, compared with net income available to common shareholders of $16.1 million for the same period last year, a decrease of $2.1 million or 12.9%. For the third quarter of 2022, fully diluted earnings per share were $0.61, compared to $0.76 for the third quarter of ~~2021.~~

~~Operating net earnings, a non-GAAP financial measure,~~2023 totaled $24.4 million compared to $14.0 million for the third quarter of 2022, ~~totaled $19.6 million compared to $16.1 million for the third quarter of 2021,~~ an increase of ~~$3.5~~$10.3 million or ~~21.9%~~73.5%. ~~Operating~~

Excluding one-time items detailed in the reconciliation of non-GAAP financial measures provided below, net earnings available to common shareholders, operating (non-GAAP) increased $4.4 million, or 22.4%, to $24.0 million for

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~~which is a non-GAAP financial measure,~~quarter ended September 30, 2023, as compared to $19.6 million for the ~~third~~ quarter ended September 30, 2022. This increase is attributable to net income associated from the acquisitions of ~~2022 excludes merger~~Heritage Bank and conversion related costs of $2.7 million, net of tax, initial provision for acquired loans of $2.9 million, net of tax. Operating net earnings, a non-GAAP financial measure, for the third quarter of 2021 excludes merger and conversion related costs of $4 thousand, net of tax, loss on sale of fixed assets, net of tax, $297 thousand, $1.4 million, net of tax, related to the U.S. Treasury Rapid Response Program ("RRP"), and $1.0 million, net of tax, in contributions as a result of the RRP grant. Diluted operating earnings per share, a non-GAAP financial measure, was $0.85 on a fully diluted basis for the third quarter 2022, compared to $0.76 for the same period in 2021, excluding the costs and income described above. See reconciliation of non-GAAP financial measures provided below.Beach Bank.

Net interest income for the third quarter ~~2022~~of 2023 was ~~$49.1~~$60.7 million, an increase of ~~$9.1~~$11.6 million or ~~22.8%,~~23.5% when compared to ~~$40.0 million for~~ the ~~same period in 2021.~~third quarter of 2022. Fully tax equivalent (“FTE”) net interest income ~~which is a non-GAAP measure,~~(non-GAAP) totaled ~~$50.1~~$61.7 million and ~~$40.7~~$50.1 million for the third quarter of ~~2022~~2023 and ~~2021,~~2022, respectively. Purchase accounting adjustments ~~decreased $349 thousand~~increased $3.1 million for the third quarter comparisons. The increase was largely due to increased interest rates as well as the acquisitions of Beach Bank and Heritage Bank.

Third quarter ~~2022 FTE~~of 2023 net interest margin was 3.47%, which ~~is a non-GAAP measure, increased 3.50% including 6~~included 25 basis points related to purchase accounting adjustments compared to ~~3.25%~~3.43% for the same quarter in ~~2021,~~2022, which included 105 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the core net interest margin ~~increased 29~~(non-GAAP) decreased 16 basis points in prior year quarterly ~~comparison. See reconciliation of non-GAAP financial measures provided below.~~comparison primarily due to an increase in rates on interest bearing liabilities.

Non-interest income for the three months ended September 30, 2022 was $9.0 million compared to $9.6 million for the same period in 2021, reflecting a decrease of $564 thousand or 5.9%. This decrease consisted of $511 thousand decrease in mortgage income.

~~Pre-tax, pre-provision operating earnings, a non-GAAP measure,~~ increased ~~26.2% to $25.9 million for the quarter-ended September 30, 2022 as compared to $20.5~~$10.3 million for the third quarter of 2021. Pre-tax, pre-provision operating earnings, a non-GAAP measure, for the third quarter 2022 excludes merger and conversion related costs of $3.6 million, $4.3 million provision for loan losses. Pre-tax, pre-provision operating earnings, a non-GAAP measure, for2023 as compared to the third quarter of ~~2021 excludes merger~~2022. This increase was attributed to increases in service charges on deposit accounts and ~~conversion related costs~~interchange fee income of ~~$5 thousand, $397 thousand bargain purchase gain and loss on sale of fixed assets, $1.8~~$3.4 million ~~in government grants~~as well as the $6.2 million award from the U.S. ~~Treasury offset by $1.4~~Treasury.

Third quarter 2023 non-interest expense was $47.7 million, an increase of $11.8 million, or 32.9% as compared to the third quarter of 2022. This increase was attributed to an increase of $6.3 million in ~~charitable contributions~~charges related to the ongoing operations of Beach Bank and Heritage Bank, increased FDIC premiums of $662 thousands, increased amortization of core deposit intangibles of $1.2 million, and $5.2 million related to the U.S. Treasury awards. ~~See reconciliation of non-GAAP financial measures provided below.~~

Non-interest expense was $35.9 million for the three months ended September 30, 2022, an increase of $6.9 million or 23.6%, when compared with the same period in 2021. Charges related to the acquisition of the Cadence Branches and Beach Bank as well as charter conversion accounted for $3.6 million of the increase. Charges related to the ongoing operations of the Cadence Branches totaled $834 thousand and Beach Bank totaled $2.1 million for the third quarter of 2022.

Investment securities totaled $1.836 billion, or 23.3% of total assets at September 30, 2023, compared to $2.004 billion, or 31.0% of total assets at September 30, ~~2022,~~2022. For the third quarter of 2023 compared to ~~$1.485 billion, or 27.0%~~the third quarter of ~~total assets at September 30, 2021. The~~2022, the average balance of investment securities ~~increased $727.3 million in prior year quarterly comparison.~~decreased $208.6 million. The average tax equivalent yield on investment securities ~~which is a non-GAAP measure,~~(non-GAAP) increased 184 basis points to ~~2.40%~~2.26% from 2.22% in the prior year quarterly comparison. The investment portfolio had a net unrealized loss of ~~$216.9~~$184.9 million at September 30, ~~2022~~2023 as compared to a net unrealized ~~gain~~loss of ~~$18.2~~$216.9 million at September 30, ~~2021. See reconciliation of non-GAAP financial measures provided below.~~2022.

The ~~FTE~~ average yield on all earning assets ~~a non-GAAP measure,~~ increased 23114 basis points in prior year quarterly comparison, from ~~3.60%~~3.76% for the third quarter of ~~2021~~2022 to ~~3.83%~~4.90% for the third quarter of ~~2022.~~2023. Interest expense on average ~~interest-bearing~~interest bearing liabilities ~~decreased 4~~increased 157 basis points from ~~0.52% for the third quarter of 2021 to~~ 0.48% for the third quarter of ~~2022.~~ 2022 to 2.05% for the third quarter of 2023.

Cost of all deposits averaged 121 basis points for the third quarter of 2023 compared to 19 basis points for the third quarter of ~~2022 compared to 22 basis points for the third quarter of 2021. See reconciliation of non-GAAP financial measures provided below.~~

2022.

First nine months ~~2022~~2023 compared to first nine months ~~2021~~2022

~~The Company reported~~In the year-over-year comparison, net income available to common shareholders ofincreased $17.8 million, or 38.1%, from $46.6 million for the nine months ended September 30, 2022, ~~compared~~ to ~~$48.4~~$64.4 million for the same period last year. Provision for credit losses increased $4.9 million for the year-over-year comparison. Operating net earnings, a non-GAAP financial measure, increased $2.8 million, or 5.7%, from $48.4 million atended September 30, ~~2021 to $51.1~~2023.

Net interest income was $191.7 million ~~at September 30, 2022. Operating net earnings, a non-GAAP measure,~~ for the nine months ended September 30, 2023, an increase of $61.8 million as compared to the same period ended September 30, 2022, ~~excludes merger~~primarily due to interest income earned on a higher volume of loans (including loans acquired from Heritage Bank and ~~conversion related costs~~Beach Bank).

Non-interest income was $44.4 million for the nine months ended September 30, 2023, an increase of ~~$3.9~~$15.5 million ~~net~~as compared to the same period ended September 30, 2022. Service charges on deposit accounts accounted for $4.4 million of ~~tax, government grants~~the increase as well as $4.7 million in interchange fee income and $5.3 million increase in awards from the U.S. ~~Treasury~~Treasury.

Non-interest expense was $140.3 million for the nine months ended September 30, 2023, an increase of ~~$652 thousand, net of tax, offset by $123 thousand~~$44.8 million as compared to the same period ended September 30, 2022. The increase was partially attributable to $3.3 million in ~~contributions~~acquisition and charter conversion charges and $27.2 million in increased operating expenses related to the ~~government grants from~~acquisitions of Beach Bank and Heritage Bank as well as $5.2 million in expenses associated with the U.S. Treasury awards and ~~bargain purchase gain and loss on sale of fixed assets, net of tax, $123 thousand for the year-to-date period ending September 30, 2022. Operating net earnings, a non-~~

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~~GAAP financial measure,~~increases in FDIC premiums of $1.0 million and a $3.8 million increase in core deposit amortization for the nine months ended September 30, 2021, excludes merger and conversion related costs of $4 thousand, net of tax, loss on sale of fixed assets, net of tax, $297 thousand, $1.4 million, net of tax, related to the RRP grant, and $1.0 million, net of tax, in contributions as a result of the RRP grant. Operating earnings per share, a non-GAAP measure, were $2.38 on a fully diluted basis for nine-month period ending September 30, 2022, compared to $2.28 for the same period in 2021, excluding the merger-related costs and income described above. See reconciliation of non-GAAP financial measures provided below.

Net interest income increased by $12.6 million, or 10.7%, to $129.9 million for the nine months ended September 30, 2022, compared to $117.3 million for the same period in 2021. This increase was primarily due to interest earned on a high volume of securities. Average earning assets at September 30, 2022, increased $752.1 million, or 15.3%, and average interest-bearing liabilities decreased $597.5 million, or 13.3%, when compared to September 30, 2021.

Non-interest income for the nine months ended September 30, 2022, was $28.8 million compared to $27.9 million for the same period in 2021, reflecting an increase of $1.0 million or 3.5%. The increase can be attributed to $2.0 million in services charges on deposit accounts and interchange fee income coupled with a decrease of $3.6 million in mortgage income.

The provision for credit losses was $4.9 million for the nine months ended September 30, 2022, compared with $0 provision for credit losses for the same period in 2021. The allowance for credit losses of $38.4 million at September 30, 2022 (approximately 1.0% of total loans) is considered by management to be adequate to cover losses inherent in the loan portfolio. See “Allowance for Credit Losses” in Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for more information on this evaluation.

Non-interest expense was $95.4 million for the nine months ended September 30, 2022, an increase of $11.7 million or 13.9%, when compared with the same period in 2021. The increase is primarily attributable to an increase of $5.2 million in acquisition and charter conversion expenses and $2.5 million related to the ongoing charges associated with the Cadence Branches and $2.1 million related to the Beach Bank branch operations.2023.

FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE FIRST

The First represents the primary asset of the Company. The First reported total assets of ~~$6.443~~$7.875 billion at September 30, ~~2022~~2023 compared to ~~$6.067~~$6.462 billion at December 31, ~~2021,~~2022, an increase of ~~$376.5 million.~~$1.413 billion. Loans, including loans held for sale, increased ~~$754.4 million~~$1.317 billion to ~~$3.722~~$5.096 billion, or ~~25.4%~~34.9%, during the first nine months of ~~2022.~~2023. Deposits at September 30, ~~2022~~2023 totaled ~~$5.558~~$6.495 billion compared to ~~$5.262~~$5.494 billion at December 31, ~~2021.~~2022. The majority of the increase in assets, loans, and deposits is attributed to the HSBI acquisition.

For the nine months period ended September 30, ~~2022,~~2023, The First reported net income of ~~$53.6~~$68.7 million compared to ~~$55.2~~$53.6 million for the nine months ended September 30, ~~2021.~~2022. Merger and conversion charges equaled $6.3 million, net of tax, for the first nine months of 2023 as compared to $3.9 million, net of tax, for the first nine months of ~~2022 as compared to $0 for the first nine months of 2021.~~2022.

EARNINGS PERFORMANCE

The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money. The second is non-interest income, which primarily consists of customer service charges and fees as well as mortgage income but also comes from non-customer sources such as bank-owned life insurance. The majority of the Company’s non-interest expense is comprised of operating costs that facilitate offering a full range of banking services to our customers.

NET INTEREST INCOME AND NET INTEREST MARGIN

For the three months ended September 30, ~~2022,~~2023, net interest income increased by ~~$9.1~~$11.6 million, or ~~22.8%~~23.5%, when compared with the same period in ~~2021. Net interest income increased by $12.6 million, or 10.7%, to $129.9 million for the nine month period ending September 30, 2022 compared to the same period in 2021.~~2022. The increase ~~is primarily related~~was largely due to increased interest ~~income earned on a higher volume~~rates as well as the acquisitions of ~~loans~~BBI and ~~securities.~~HSBI. PPP loans totaled ~~$1.5 million~~$450 thousand as of September 30, ~~2022,~~2023, a decrease of ~~$156.3~~$5.9 million or ~~99.0%~~92.9% when compared to the same period last year due to loan forgiveness under the PPP program. The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income is also impacted by the reversal of interest for loans placed on nonaccrual status during the reporting period, and the recovery of interest on loans that had been on nonaccrual and were paid off, sold or returned to accrual status.

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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, Tax Equivalent Interest and Yields/Rates~~

($ in thousands) Three Months Ended
September 30, 2022 September 30, 2021
Avg.
Balance Tax
Equivalent
Interest Yield/
Rate Avg.
Balance Tax
Equivalent
Interest Yield/
Rate
Earning Assets:
Taxable securities $ 1,612,066 $ 8,723 2.16 % $ 986,821 $ 5,033 2.04 %
Tax exempt securities 479,168 3,849 3.21 % 377,610 2,550 2.70 %
Total investment securities 2,091,234 12,572 2.40 % 1,364,431 7,583 2.22 %
Interest bearing deposits in other banks 143,867 2 0.01 % 656,891 17 0.01 %
Loans 3,492,110 42,274 4.84 % 2,983,771 37,480 5.02 %
Total earning assets 5,727,211 54,848 3.83 % 5,005,093 45,080 3.60 %
Other assets 645,661 506,134
Total assets $ 6,372,872 $ 5,511,227
Interest-bearing liabilities:
Deposits $ 3,777,059 $ 2,748 0.29 % $ 3,274,257 $ 2,588 0.32 %
Borrowed funds 13,261 92 2.78 % 206 — — %
Subordinated debentures 144,910 1,886 5.21 % 144,630 1,819 5.03 %
Total interest-bearing liabilities 3,935,230 4,726 0.48 % 3,419,093 4,407 0.52 %
Other liabilities 1,806,898 1,427,540
Shareholders’ equity 630,744 664,594
Total liabilities and shareholders’ equity $ 6,372,872 $ 5,511,227
Net interest income $ 49,148 $ 40,028
Net interest margin 3.43 % 3.20 %
Net interest income (FTE)* $ 50,122 3.35 % $ 40,673 3.22 %
Net interest margin (FTE)* 3.50 % 3.25 %

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($ in thousands) Nine Months Ended
September 30, 2022 September 30, 2021
Avg.
Balance Tax
Equivalent
Interest Yield/
Rate Avg.
Balance Tax
Equivalent
Interest Yield/
Rate
Earning Assets:
Taxable securities $ 1,553,820 $ 23,247 1.99 % $ 847,745 $ 12,641 1.99 %
Tax exempt securities 485,101 10,812 2.97 % 370,706 7,693 2.77 %
Total investment securities 2,038,921 34,059 2.23 % 1,218,451 20,334 2.23 %
Interest bearing deposits in other banks 465,312 47 0.01 % 644,074 103 0.02 %
Loans 3,151,197 111,091 4.70 % 3,040,818 114,368 5.01 %
Total earning assets 5,655,430 145,197 3.42 % 4,903,343 134,805 3.67 %
Other assets 572,623 532,968
Total assets $ 6,228,053 $ 5,436,311
Interest-bearing liabilities:
Deposits $ 3,756,077 $ 6,936 0.25 % $ 4,324,047 $ 9,752 0.30 %
Borrowed funds 4,469 92 2.74 % 34,202 339 1.32 %
Subordinated debentures 144,835 5,546 5.11 % 144,604 5,462 5.04 %
Total interest-bearing liabilities 3,905,381 12,574 0.43 % 4,502,853 15,553 0.46 %
Other liabilities 1,692,565 280,930
Shareholders’ equity 630,107 652,528
Total liabilities and shareholders’ equity $ 6,228,053 $ 5,436,311
Net interest income $ 129,887 $ 117,307
Net interest margin 3.06 % 3.19 %
Net interest income (FTE)* $ 132,623 2.99 % $ 119,253 3.21 %
Net interest margin (FTE)* 3.13 % 3.24 %
Average Balances, Tax Equivalent Interest and Yields/Rates


($ in thousands)	Three Months Ended
	September 30, 2023						September 30, 2022
	Avg. Balance		Tax Equivalent Interest		Yield/ Rate		Avg. Balance		Tax Equivalent Interest		Yield/ Rate
Earning Assets:
Taxable securities	$	1,419,343	$	7,685	2.17	%	$	1,612,066	$	8,723	2.16	%
Tax exempt securities	463,329		3,921		3.39	%	479,168		3,849		3.21	%
Total investment securities	1,882,672		11,606		2.47	%	2,091,234		12,572		2.40	%
Interest bearing deposits in other banks	79,448		441		2.22	%	143,867		2		0.01	%
Loans	5,038,928		74,626		5.92	%	3,492,110		42,274		4.84	%
Total earning assets	7,001,048		86,673		4.95	%	5,727,211		54,848		3.83	%
Other assets	872,297						645,661
Total assets	$	7,873,345					$	6,372,872

Interest-bearing liabilities:
Deposits	$	4,459,869	$	19,572	1.76	%	$	3,777,059	$	2,748	0.29	%
Borrowed funds	296,963		3,556		4.79	%	13,261		92		2.78	%
Subordinated debentures	128,251		1,849		5.77	%	144,910		1,886		5.21	%
Total interest-bearing liabilities	4,885,083		24,977		2.05	%	3,935,230		4,726		0.48	%
Other liabilities	2,083,192						1,806,898
Shareholders’ equity	905,070						630,744
Total liabilities and shareholders’ equity	$	7,873,345					$	6,372,872

Net interest income			$	60,704					$	49,148
Net interest margin					3.47	%					3.43	%
Net interest income (FTE)*			$	61,696	2.91	%			$	50,122	3.35	%
Net interest margin (FTE)*					3.52	%					3.50	%

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($ in thousands)	Nine Months Ended
	September 30, 2023						September 30, 2022
	Avg. Balance		Tax Equivalent Interest		Yield/ Rate		Avg. Balance		Tax Equivalent Interest		Yield/ Rate
Earning Assets:
Taxable securities	$	1,485,511	$	24,310	2.18	%	$	1,553,820	$	23,247	1.99	%
Tax exempt securities	465,598		11,813		3.38	%	485,101		10,812		2.97	%
Total investment securities	1,951,109		36,123		2.47	%	2,038,921		34,059		2.23	%
Interest bearing deposits in other banks	106,279		2,128		2.67	%	465,312		47		0.01	%
Loans	4,999,218		216,950		5.79	%	3,151,197		111,091		4.70	%
Total earning assets	7,056,606		255,201		4.82	%	5,655,430		145,197		3.42	%
Other assets	862,495						572,623
Total assets	$	7,919,101					$	6,228,053

Interest-bearing liabilities:
Deposits	$	4,544,775	$	46,611	1.37	%	$	3,756,077	$	6,936	0.25	%
Borrowed funds	218,002		7,779		4.76	%	4,469		92		2.74	%
Subordinated debentures	142,820		6,163		5.75	%	144,835		5,546		5.11	%
Total interest-bearing liabilities	4,905,597		60,553		1.65	%	3,905,381		12,574		0.43	%
Other liabilities	2,121,519						1,692,565
Shareholders’ equity	891,985						630,107
Total liabilities and shareholders’ equity	$	7,919,101					$	6,228,053

Net interest income			$	191,660					$	129,887
Net interest margin					3.62	%					3.06	%
Net interest income (FTE)*			$	194,648	3.18	%			$	132,623	2.99	%
Net interest margin (FTE)*					3.68	%					3.13	%

*N~~Non-GAAP~~on-GAAP measure. See reconciliation of ~~Non-GAAP~~non-GAAP financial measures.

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NON-INTEREST INCOME AND NON-INTEREST EXPENSE

The following table provides details on the Company’s non-interest income and non-interest expense for the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


($ in thousands)	($ in thousands)	Three Months Ended								($ in thousands)	Three Months Ended
EARNINGS STATEMENT	EARNINGS STATEMENT	September 30, 2022		% of Total		September 30, 2021		% of Total		EARNINGS STATEMENT	September 30, 2023		% of Total		September 30, 2022		% of Total
Non-interest income:	Non-interest income:									Non-interest income:
Service charges on deposit accounts	Service charges on deposit accounts	$	2,219	24.6	%	$	1,846	19.3	%	Service charges on deposit accounts	$	3,646	18.9	%	$	2,219	24.6	%
Mortgage fee income	Mortgage fee income	1,221		13.5	%	1,732		18.1	%	Mortgage fee income	878		4.5	%	1,221		13.5	%
Interchange fee income	Interchange fee income	3,310		36.7	%	2,744		28.6	%	Interchange fee income	5,280		27.3	%	3,310		36.7	%
(Loss) gain on securities, net		1		—	%	11		0.1	%
Gain (loss) on sale of premises and equipment		—		0.0	%	(397)		(4.1)	%
Gain (loss) on securities, net										Gain (loss) on securities, net	2		—	%	1		—	%
(Loss) gain on sale of premises and equipment										(Loss) gain on sale of premises and equipment	(104)		(0.5)	%	—		—	%
Government awards/grants	Government awards/grants	—		0.0	%	1,826		19.0	%	Government awards/grants	6,197		32.1	%	—		—	%
Other	Other	2,271		25.2	%	1,824		19.0	%	Other	3,425		17.7	%	2,271		25.2	%
Total non-interest income	Total non-interest income	$	9,022	100	%	$	9,586	100	%	Total non-interest income	$	19,324	100	%	$	9,022	100	%

Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and employee benefits	Salaries and employee benefits	$	19,099	53.2	%	$	16,246	56.0	%	Salaries and employee benefits	$	22,807	47.9	%	$	19,099	53.2	%
Occupancy expense	Occupancy expense	3,826		10.7	%	3,922		13.5	%	Occupancy expense	5,343		11.2	%	3,826		10.7	%
FDIC/OCC premiums	FDIC/OCC premiums	496		1.4	%	532		1.8	%	FDIC/OCC premiums	1,158		2.4	%	496		1.4	%
Marketing	Marketing	50		0.1	%	78		0.3	%	Marketing	559		1.2	%	50		0.1	%
Amortization of core deposit intangibles	Amortization of core deposit intangibles	1,227		3.4	%	1,052		3.6	%	Amortization of core deposit intangibles	2,385		5.0	%	1,227		3.4	%
Other professional services	Other professional services	1,256		3.5	%	934		3.2	%	Other professional services	1,499		3.1	%	1,256		3.5	%
Other non-interest expense	Other non-interest expense	6,309		17.6	%	6,284		21.6	%	Other non-interest expense	13,385		28.0	%	6,309		17.6	%
Acquisition and charter conversion charges	Acquisition and charter conversion charges	3,640		10.1	%	5		0.0	%	Acquisition and charter conversion charges	588		1.2	%	3,640		10.1	%
Total non-interest expense	Total non-interest expense	$	35,903	100	%	$	29,053	100	%	Total non-interest expense	$	47,724	100	%	$	35,903	100	%

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($ in thousands)	($ in thousands)	Nine Months Ended								($ in thousands)	Nine Months Ended
EARNINGS STATEMENT	EARNINGS STATEMENT	September 30, 2022		% of Total		September 30, 2021		% of Total		EARNINGS STATEMENT	September 30, 2023		% of Total		September 30, 2022		% of Total
Non-interest income:	Non-interest income:									Non-interest income:
Service charges on deposit accounts	Service charges on deposit accounts	$	6,297	21.8	%	$	3,516	19.2	%	Service charges on deposit accounts	$	10,728	24.1	%	$	6,297	21.8	%
Mortgage fee income	Mortgage fee income	3,678		12.8	%	5,534		30.2	%	Mortgage fee income	2,284		5.1	%	3,678		12.8	%
Interchange fee income	Interchange fee income	9,609		33.3	%	5,789		31.7	%	Interchange fee income	14,321		32.3	%	9,609		33.3	%
(Loss) gain on securities, net	(Loss) gain on securities, net	(82)		(0.3)	%	97		0.5	%	(Loss) gain on securities, net	(46)		(0.1)	%	(82)		(0.3)	%
Gain (loss) on sale of premises and equipment	Gain (loss) on sale of premises and equipment	(114)		(0.4)	%	—		0.0	%	Gain (loss) on sale of premises and equipment	559		1.3	%	(114)		(0.4)	%
Gain on acquisition	Gain on acquisition	281		1.0	%	—		0.0	%	Gain on acquisition	—		—	%	281		1.0	%
Government awards/grants	Government awards/grants	873		3.0	%	—		0.0	%	Government awards/grants	6,197		14.0	%	873		3.0	%
BOLI income from death proceeds	BOLI income from death proceeds	1,630		5.7	%	—		0.0	%	BOLI income from death proceeds	—		0.0	%	1,630		5.7	%
Other	Other	6,671		23.1	%	3,359		18.4	%	Other	10,316		23.3	%	6,671		23.1	%
Total non-interest income	Total non-interest income	$	28,843	100	%	$	18,295	100	%	Total non-interest income	$	44,359	100	%	$	28,843	100	%

Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and employee benefits	Salaries and employee benefits	$	53,135	55.6	%	$	32,091	58.7	%	Salaries and employee benefits	$	69,695	49.9	%	$	53,135	55.6	%
Occupancy expense	Occupancy expense	11,530		12.1	%	7,692		14.1	%	Occupancy expense	15,680		11.2	%	11,530		12.1	%
FDIC/OCC premiums	FDIC/OCC premiums	1,608		1.7	%	993		1.8	%	FDIC/OCC premiums	2,586		1.8	%	1,608		1.7	%
Marketing	Marketing	258		0.3	%	199		0.4	%	Marketing	762		0.5	%	258		0.3	%
Amortization of core deposit intangibles	Amortization of core deposit intangibles	3,355		3.5	%	2,104		3.8	%	Amortization of core deposit intangibles	7,178		5.1	%	3,355		3.5	%
Other professional services	Other professional services	2,587		2.7	%	1,983		3.6	%	Other professional services	4,137		2.9	%	2,587		2.7	%
Other non-interest expense	Other non-interest expense	17,755		18.6	%	9,655		17.6	%	Other non-interest expense	31,773		22.6	%	17,755		18.6	%
Acquisition and charter conversion charges	Acquisition and charter conversion charges	5,220		5.5	%	—		0.0	%	Acquisition and charter conversion charges	8,482		6.0	%	5,220		5.5	%
Total non-interest expense	Total non-interest expense	$	95,448	100	%	$	54,717	100	%	Total non-interest expense	$	140,293	100	%	$	95,448	100	%

PROVISION FOR INCOME TAXES

The Company sets aside a provision for income taxes on a monthly basis. The amount of the provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits if applicable. Permanent differences include but are not limited to tax-exempt interest income, bank-owned life insurance cash surrender value income, and certain book expenses that are not allowed as tax deductions.

The Company’s provision for income taxes was $6.9 million or 22.2% of earnings before income taxes for the third quarter 2023, compared to $3.9 million or 21.8% of earnings before income taxes for the ~~third quarter 2022, compared to $4.4 million or 21.5% of earnings before income taxes for the~~ same period in ~~2021.~~2022. The provision for the nine months ended September 30, ~~2022~~2023 was ~~$11.8~~$18.1 million or ~~20.1%~~21.9% of earnings before income taxes compared to ~~$13.0~~$11.8 million or ~~21.2%~~20.1% for the same period in ~~2021.~~2022.

BALANCE SHEET ANALYSIS

EARNING ASSETS

The Company’s interest-earning assets are comprised of investments and loans, and the composition, growth characteristics, and credit quality of both are significant determinants of the Company’s financial condition. Investments are analyzed in the section immediately below, while the loan and lease portfolio and other factors affecting earning assets are discussed in the sections following investments.

INVESTMENTS

The Company’s investments can at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in

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our Federal Reserve Bank (“FRB”) account, and overnight fed funds sold. Surplus FRB balances and federal funds sold to correspondent banks represent the temporary investment of excess liquidity. The Company’s investments serve several purposes: 1) they provide liquidity to even out cash flows from the loan and deposit activities of customers; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with maturity and interest rate characteristics that can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; 4) they are another interest-earning option for surplus funds when loan demand is light; and 5) they can provide partially tax exempt income. Total securities, excluding other securities, totaled ~~$1.973~~$1.800 billion, or ~~30.6%~~22.8% of total assets at September 30, ~~2022~~2023 compared to ~~$1.752~~$1.949 billion, or ~~28.8%~~30.2% of total assets at December 31, ~~2021.~~2022.

There were ~~$10.0 million~~no federal funds sold at September 30, ~~2022~~2023 and ~~$0 at~~ December 31, ~~2021;~~2022; and interest-bearing balances at other banks decreased to ~~$92.3~~$75.8 million at September 30, ~~2022~~2023 from ~~$804.5~~$78.1 million at December 31, 2021. The decrease in interest-bearing balances is primarily related to a $721.7 million decrease in the Federal Reserve Bank deposits and was partially offset by an increase of $609.8 million in investment securities that were purchased due to deployment of excess liquidity and $273.3 million increase in loans.2022. The Company’s investment portfolio ~~increased $230.0~~decreased $146.2 million, or ~~13.0%~~7.4%, to ~~$2.004~~$1.836 billion at September 30, ~~2022~~2023 compared to December 31, ~~2021.~~2022. The ~~increase~~decrease is attributed to $124.3 million in ~~the portfolio is related to purchases~~securities that matured, prepaid, or were ~~made in the first nine months of 2022~~called offset by a ~~decrease~~$23.7 million change in the ~~fair market value~~net unrealized loss of ~~$227.6 million.~~the security portfolio. The Company sold approximately $171.2 million in securities that were acquired in the HSBI acquisition. The investment portfolio had a net unrealized loss of $184.9 million at September 30, 2023 as compared to a net unrealized loss of $161.2 million at December 31, 2022. The Company carries available-for-sale investments at their fair market values and held-to-maturity investments at their amortized costs. The fair value of available-for-sale securities totaled ~~$1.379~~$1.142 billion at September 30, ~~2022~~2023 compared to ~~$1.752~~$1.257 billion at December 31, ~~2021.~~2022. The fair value of held-to-maturity investments totaled ~~$532.7~~$582.6 million and $0$642.1 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. All other investment securities are classified as “available-for-sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.

Refer to the tables shown in Note 9 – ~~Securities~~"Securities" to the Consolidated Financial Statements for information on the Company’s amortized cost and fair market value of its investment portfolio by investment type.

LOAN PORTFOLIO

Loans Held for 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. Associated servicing rights are not retained. At September 30, ~~2022,~~2023, LHFS totaled ~~$2.2~~$6.0 million, compared to ~~$7.7~~$4.4 million at December 31, ~~2021.~~2022.

Loans Held for Investment (“LHFI”)

LHFI, net of deferred fees and costs, were ~~$3.681~~$5.036 billion at September 30, ~~2022,~~2023, an increase of ~~$752.2 million,~~$1.301 billion, or ~~25.7%~~34.8%, from ~~$2.929~~$3.735 billion at December 31, ~~2021.~~2022. The acquisition of ~~BBI~~HSBI accounted for approximately ~~$502.3 million~~$1.159 billion, net of purchase accounting adjustments, of the increase. PPP loans were ~~$1.5 million~~$450 thousand at September 30, ~~2022,~~2023, a decrease of ~~$39.6 million,~~$260 thousand, or ~~96.3%~~36.6%, from ~~$41.1 million~~$710 thousand at December 31, ~~2021.~~2022.

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The following table presents the Company’s composition of LHFI, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans ($ in thousands):


		September 30, 2022				December 31, 2021					September 30, 2023				December 31, 2022
		Amount		Percent of Total		Amount		Percent of Total			Amount		Percent of Total		Amount		Percent of Total
Commercial, financial and agriculture (1)	Commercial, financial and agriculture (1)	$	517,197	13.9	%	$	397,516	13.4	%	Commercial, financial and agriculture (1)	$	788,598	15.5	%	$	536,192	14.2	%
Commercial real estate	Commercial real estate	2,125,471		57.1	%	1,683,698		57.0	%	Commercial real estate	2,995,803		58.9	%	2,135,263		56.5	%
Consumer real estate	Consumer real estate	1,032,343		27.8	%	838,654		28.3	%	Consumer real estate	1,247,568		24.5	%	1,058,999		28.1	%
Consumer installment	Consumer installment	44,377		1.2	%	39,685		1.3	%	Consumer installment	57,831		1.1	%	43,703		1.2	%
Total loans	Total loans	3,719,388		100	%	2,959,553		100	%	Total loans	5,089,800		100	%	3,774,157		100	%
Allowance for credit losses	Allowance for credit losses	(38,356)				(30,742)				Allowance for credit losses	(53,565)				(38,917)
Net loans	Net loans	$	3,681,032			$	2,928,811			Net loans	$	5,036,235			$	3,735,240

(1)Loan amount includes ~~$1.5 million~~$450 thousand and ~~$41.1 million~~$710 thousand in PPP loans at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes that the risk elements of its loan portfolio have been reduced through strategies that diversify the lending mix.

LOAN CONCENTRATIONS

Diversification within the loan portfolio is an important means of reducing inherent lending risk. As of September 30, ~~2022,~~2023, management does not consider there to be any significant credit concentrations within the loan portfolio. Although the 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.

NON-PERFORMING ASSETS

Non-performing assets (“NPAs”) are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets including mobile homes and other real estate owned. Loans are placed on nonaccrual status when they become ninety days past due (principal and/or interest), unless the loans are adequately secured and in the process of collection. Nonaccrual loans totaled ~~$15.8~~$17.4 million at September 30, ~~2022, a decrease~~2023, an increase of ~~$12.2~~$4.8 million from December 31, ~~2021.~~2022.

Other real estate owned is carried at fair value, determined by an appraisal, less estimated costs to sell. Other real estate owned totaled ~~$10.3~~$4.9 million at September 30, ~~2022,~~2023, an increase of ~~$7.8 million~~$88 thousand as compared to ~~$2.6~~$4.8 million at December 31, ~~2021.~~2022. The acquisition of ~~BBI~~HSBI accounted for approximately ~~$8.1 million~~$857 thousand of the ~~increase.~~increase and was offset by sales and write-downs during 2023.

A loan is classified as a restructured loan when the following two conditions are present: first, the borrower is experiencing financial difficulty and second, the creditor grants a concession it would not otherwise consider but for the borrower’s financial difficulty. At September 30, 2022, the Bank had $23.4 million in loans that were classified as TDRs, of which $15.8 million were performing as agreed with modified terms. At December 31, 2021, the Bank had $24.2 million in loans that were classified as TDRs of which $5.2 million were performing as agreed with modified terms. TDRs may be classified as either non-performing or performing loans depending on their accrual status. As of September 30, 2022, $7.7 million in loans categorized as TDRs were classified as non-performing as compared to $18.9 million at December 31, 2021.

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The following table presents comparative data for the Company’s non-performing assets ~~and performing TDRs~~ as of the dates noted.


($ in thousands)	($ in thousands)	September 30, 2022			December 31, 2021			($ in thousands)	September 30, 2023			December 31, 2022
Nonaccrual Loans	Nonaccrual Loans							Nonaccrual Loans
Commercial, financial and agriculture	Commercial, financial and agriculture	$	29		$	190		Commercial, financial and agriculture	$	1,335		$	19
Commercial real estate	Commercial real estate	11,452			21,527			Commercial real estate	9,690			8,574
Consumer real estate	Consumer real estate	4,361			6,288			Consumer real estate	6,344			3,997
Consumer installment	Consumer installment	2			8			Consumer installment	54			1
Total Nonaccrual Loans	Total Nonaccrual Loans	15,844			28,013			Total Nonaccrual Loans	17,423			12,591

Other real-estate owned	Other real-estate owned	10,328			2,565			Other real-estate owned	4,920			4,832

Total NPAs	Total NPAs	$	26,172		$	30,578		Total NPAs	$	22,343		$	17,423
Performing TDRs		$	15,767		$	5,220
Past due 90 days or more and still accruing	Past due 90 days or more and still accruing	$	571		$	45		Past due 90 days or more and still accruing	$	53		$	289
Total NPAs as a % of total loans & leases net of unearned income	Total NPAs as a % of total loans & leases net of unearned income	0.7		%	1.0		%	Total NPAs as a % of total loans & leases net of unearned income	0.4		%	0.5		%
Total nonaccrual loans as a % of total loans & leases net of unearned income	Total nonaccrual loans as a % of total loans & leases net of unearned income	0.4		%	0.9		%	Total nonaccrual loans as a % of total loans & leases net of unearned income	0.3		%	0.3		%

NPAs totaled ~~$26.2~~$22.3 million at September 30, ~~2022,~~2023, compared to ~~$30.6~~$17.4 million at December 31, ~~2021, a decrease~~2022, an increase of ~~$4.4~~$4.9 million. The ACL/total loans ratio was ~~1.03%~~1.05% at September 30, ~~2022,~~2023, and ~~1.04%~~1.03% at December 31, ~~2021.~~2022. Total valuation accounting adjustments were ~~$11.5~~$29.3 million on acquired loans at September 30, ~~2022.~~2023. The Company recorded a $9.5 million credit loss and yield mark related to the BBI ~~acquisition.~~acquisition in 2022 and a $33.2 million credit loss and yield mark related to the HSBI acquisition in 2023. The ratio of annualized net charge-offs (recoveries) to total loans was ~~(0.04)%~~0.004% for the quarter ended September 30, ~~2022~~2023 compared to ~~0.03%~~0.004% for the ~~year~~quarter ended December 31, ~~2021.~~2022.

ALLOWANCE 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. 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 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. Management evaluates the adequacy of the ACL quarterly and makes provisions for credit losses based on this evaluation. See Note 10 - “Loans” for a description of the Company’s methodology and the quantitative and qualitative factors included in the calculation.

At September 30, ~~2022,~~2023, the ACL was ~~$38.4~~$53.6 million, or ~~1.0%~~1.05% of LHFI, an increase of ~~$7.6~~$14.6 million, or ~~24.8%~~37.6% when compared to December 31, ~~2021.~~2022. The 2023 provision for credit losses includes $10.7 million associated with a day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments and a $3.2 million initial allowance on PCD loans related to the HSBI acquisition. At December 31, 2022, provision for credit losses includes $3.9 million associated with a day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments and a $1.3 million initial allowance on PCD loans acquired in the BBI ~~merger.~~acquisition. At December 31, ~~2021,~~2022, the allowance for ~~loan~~credit losses was approximately ~~$30.7~~$38.9 million, which was ~~1.0%~~1.03% of LHFI.

At September 30, ~~2022,~~2023, management believes the allowance is appropriate and should any of the factors considered by management in evaluating the appropriateness of the allowance for credit losses change, management’s

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estimate of inherent losses in the portfolio could also change, which would affect the level of future provisions for credit losses.

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The table that follows summarizes the activity in the allowance for credit losses for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 ($ in thousands):


Allowance for Credit Losses	Allowance for Credit Losses													Allowance for Credit Losses
Balances:	Balances:	Three Months Ended September 30, 2022			Three Months Ended September 30, 2021			Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021			Balances:	Three Months Ended September 30, 2023			Three Months Ended September 30, 2022			Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022
Average LHFI outstanding during period:	Average LHFI outstanding during period:	$	3,162,310		$	2,983,771		$	3,041,337		$	3,040,818		Average LHFI outstanding during period:	$	5,038,928		$	3,162,310		$	4,999,218		$	3,041,337
LHFI outstanding at end of period:	LHFI outstanding at end of period:	3,719,388			2,960,919			3,719,388			2,960,919			LHFI outstanding at end of period:	$	5,089,800		$	3,719,388		5,089,800			3,719,388
Allowance for Credit Losses:	Allowance for Credit Losses:													Allowance for Credit Losses:
Balance at beginning of period	Balance at beginning of period	$	32,400		$	32,457		$	30,742		$	35,820		Balance at beginning of period	$	52,614		$	32,400		$	38,917		$	30,742
ASC 326 adoption adjustment		—			—			—			397
Initial allowance on PCD loans	Initial allowance on PCD loans	1,303			—			1,303			—			Initial allowance on PCD loans	—			1,303			3,176			1,303
Provision:	Provision:													Provision:
Initial provision for acquired non-PCD loans	Initial provision for acquired non-PCD loans	3,855			—			3,855			—			Initial provision for acquired non-PCD loans	—			3,855			10,219			3,855
Provision for credit losses charged to expense	Provision for credit losses charged to expense	445			—			895			—			Provision for credit losses charged to expense	1,000			445			2,281			895
Charge-offs:	Charge-offs:													Charge-offs:
Commercial, financial and agriculture	Commercial, financial and agriculture	—			142			146			1,618			Commercial, financial and agriculture	48			—			472			146
Commercial real estate	Commercial real estate	—			59			27			3,066			Commercial real estate	27			—			27			27
Consumer real estate	Consumer real estate	55			19			202			282			Consumer real estate	21			55			45			202
Consumer installment	Consumer installment	186			166			523			431			Consumer installment	533			186			1,551			523
Total Charge-offs	Total Charge-offs	241			386			898			5,397			Total Charge-offs	629			241			2,095			898
Recoveries:	Recoveries:													Recoveries:
Commercial, financial and agriculture	Commercial, financial and agriculture	292			57			388			382			Commercial, financial and agriculture	277			292			334			388
Commercial real estate	Commercial real estate	18			180			532			473			Commercial real estate	15			18			101			532
Consumer real estate	Consumer real estate	39			39			987			276			Consumer real estate	142			39			224			987
Consumer installment	Consumer installment	245			71			552			467			Consumer installment	146			245			408			552
Total Recoveries	Total Recoveries	594			347			2,459			1,598			Total Recoveries	580			594			1,067			2,459
Net loan charge offs (recoveries)	Net loan charge offs (recoveries)	(353)			39			(1,561)			3,799			Net loan charge offs (recoveries)	49			(353)			1,028			(1,561)
Balance at end of period	Balance at end of period	$	38,356		$	32,418		$	38,356		$	32,418		Balance at end of period	$	53,565		$	38,356		$	53,565		$	38,356
RATIOS	RATIOS													RATIOS
Net Charge-offs (recoveries) to average LHFI (annualized)	Net Charge-offs (recoveries) to average LHFI (annualized)	0.0		%	0.0		%	(0.1)		%	0.2		%	Net Charge-offs (recoveries) to average LHFI (annualized)	—		%	(0.04)		%	0.03		%	(0.06)		%
ACL to LHFI at end of period	ACL to LHFI at end of period	1.0		%	1.1		%	1.0		%	1.1		%	ACL to LHFI at end of period	1.05		%	1.03		%	1.05		%	1.03		%
Net Loan Charge-offs (recoveries) to PCL	Net Loan Charge-offs (recoveries) to PCL	(79.3)		%	0.0		%	(174.4)		%	0.0		%	Net Loan Charge-offs (recoveries) to PCL	4.90		%	(79.33)		%	45.07		%	(174.41)		%

The Company recorded a ~~$4.3 million and $4.8~~$1.0 million provision for credit losses for the three months ended September 30, 2023 and $12.5 million for the nine months ended September 30, 2023, compared to $4.3 million for the three months ended September 30, 2022 and $0$4.8 million for the ~~three and~~ nine months ended September 30, ~~2021, respectively. An initial~~2022. The increase in the provision for credit losses is related to loan growth across all loan categories. Total loans were $5.090 billion at September 30, 2023, compared to $3.719 billion at September 30, 2022, representing an increase of $1.370 billion, or 36.8%. During January 2023, loans totaling $1.159 billion, net of purchase accounting adjustments, were acquired in the HSBI acquisition. The initial ACL on PCD loans recorded in March 2023, of $3.2 million was related to the HSBI acquisition. The 2023 provision for credit losses includes $10.7 million associated with day one post-merger accounting provision recorded for non-PCD loans ofand unfunded commitments acquired in the HSBI acquisition. In 2022, the Company's provision for credit losses includes $3.9 million associated with a day one post-merger accounting provision recorded for non-PCD loans and anunfunded commitments and a $1.3 million initial allowance on PCD loans ~~of $1.3 million was recorded as of September 30, 2022 due to~~acquired in the ~~acquisition of BBI.~~BBI acquisition.

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The following ~~tables~~table summarizes the ACL at September 30, ~~2022~~2023 and at December 31, ~~2021.~~2022.


($ in thousands)	($ in thousands)	September 30, 2022		December 31, 2021		($ in thousands)	September 30, 2023		December 31, 2022
Commercial, financial and agriculture	Commercial, financial and agriculture	$	5,900	$	4,873	Commercial, financial and agriculture	$	8,492	$	6,349
Commercial real estate	Commercial real estate	20,925		17,552		Commercial real estate	29,103		20,389
Consumer real estate	Consumer real estate	10,984		7,889		Consumer real estate	15,163		11,599
Consumer installment	Consumer installment	547		428		Consumer installment	807		580
Total	Total	$	38,356	$	30,742	Total	$	53,565	$	38,917

ALLOWANCE FOR CREDIT LOSSES ON OBSC EXPOSURES

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. The Company recorded ~~$150~~$0 and $750 thousand provision for credit losses on OBSC exposures for the three and nine month ~~period~~periods ended September 30, ~~2022~~2023, respectively, compared to $0 and $0$150 thousand for the ~~same period~~three and nine month periods ended in ~~2021.~~September 30, 2022. The increase in the ACL on OBSC exposures for the nine months ended September 30, ~~2022~~2023 was primarily due to ~~an increase in~~the day one provision for unfunded ~~commitments.~~commitments related to the HSBI acquisition.

OTHER ASSETS

The Company’s balance of non-interest earning cash and due from banks was ~~$71.6~~$121.9 million at September 30, ~~2022~~2023 and ~~$115.2~~$67.2 million at December 31, ~~2021.~~2022. The balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the level of cash maintained on hand at our branches, and our reserve requirement among other things, and is subject to significant fluctuation in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to and borrowings from correspondent banks, including the Federal Reserve Bank and the Federal Home Loan Bank (“FHLB”). Should a large “short” overnight position persist for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits. If a “long” position is prevalent, the Company will let brokered deposits or other wholesale borrowings roll off as they mature, or might invest excess liquidity in higher-yielding, longer-term bonds.

Total other securities increased ~~$8.8~~$1.9 million to ~~$31.1~~$35.9 million at September 30, ~~2022~~2023 compared to ~~$22.2~~$33.9 million at December 31, ~~2021. A majority of the~~2022. The increase in other securities is related to an increase in stock held at the ~~FHLB.~~Federal Reserve Bank. The Company’s net premises and equipment at September 30, ~~2022~~2023 was ~~$140.5~~$175.7 million and ~~$126.0~~$143.5 million at December 31, ~~2021;~~2022; anincreaseof ~~$14.6~~$32.2 million, or ~~12%~~22.4% for the first nine months of ~~2022. The~~2023. A majority of the increase in premises and equipment is attributed to approximately $35.8 million of premises and equipment added through the ~~BBI~~HSBI acquisition. Operating right-of-use assets at September 30, ~~2022~~2023 totaled ~~$7.9~~$6.4 million compared to ~~$4.1~~$7.6 million at December 31, ~~2021, an~~ ~~increase~~2022, a decrease of ~~$3.8~~$1.2 million. The ~~increase~~decrease in operating right-of-use assets is attributed to several lease cancellations in the ~~acquisition~~first quarter of ~~BBI.~~2023. Financing right-of-use assets at September 30, ~~2022~~2023 totaled ~~$2.0~~$1.6 million compared to ~~$2.4~~$1.9 million at December 31, ~~2021,~~2022, a decrease of $348 thousand. Bank-owned life insurance at September 30, ~~2022~~2023 totaled ~~$95.4~~$133.5 million compared to ~~$87.4~~$95.6 million at December 31, ~~2021,~~2022, an increase of ~~$7.9~~$38.0 million. ~~The~~A majority of the increase in bank-owned life insurance is attributed to ~~$10.1~~$35.6 million of insurance included in the acquisition of ~~BBI offset by a decrease in death benefits received in the first quarter of 2022.~~HSBI. Goodwill at September 30, ~~2022~~2023 increased ~~$22.1~~$92.4 million to ~~$178.8~~$272.7 million compared to ~~$156.7~~$180.3 million at December 31, ~~2021 as a result of the BBI acquisition.~~2022. The HSBI acquisition added approximately $92.1 million in goodwill. Other intangible assets, consisting primarily of the Company’s core deposit intangible (“CDI”), increased by ~~$6.4~~$36.6 million to ~~$35.9~~$71.2 million as of September 30, ~~2022,~~2023, compared to ~~$29.5~~$34.6 million at December 31, ~~2021, due to the BBI acquisition.~~2022. The HSBI acquisition added approximately $43.7 million in CDI.

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. At September 30, ~~2022,~~2023, management has determined that no impairment exists.

Other real estate owned increased by $7.8 million, or 303%, to $10.3 million at September 30, 2022 as compared to December 31, 2021. The acquisition of BBI accounted for approximately $8.1 million of the increase.

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Other real estate owned increased by $88 thousand, or 1.8%, to $4.9 million at September 30, 2023 as compared to December 31, 2022. The acquisition of HSBI accounted for approximately $857 thousand of the increase.

OFF-BALANCE SHEET ARRANGEMENTS

The Company maintains commitments to extend credit in the normal course of business, as long as there are no violations of conditions established in the outstanding contractual arrangements. Unused commitments to extend credit totaled ~~$630.2~~$987.4 million at September 30, ~~2022~~2023 and ~~$627.8~~$706.1 million at December 31, ~~2021,~~2022, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately ~~16.9%~~19.4% of gross loans at September 30, ~~2022~~2023 and ~~21.2%~~18.7% at December 31, ~~2021.~~2022. The Company also had undrawn similar standby letters of credit to customers totaling ~~$14.5~~$28.5 million at September 30, ~~2022~~2023 and ~~$12.3~~$14.2 million at December 31, ~~2021.~~2022. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should we be required to fund a significant portion of unused commitments. For more information regarding the Company’s off-balance sheet arrangements, see Note 7 "Financial Instruments with Off-Balance Risk" to the Consolidated Financial Statements.

In addition to unused commitments to provide credit, the Company is utilizing a ~~$5.0~~$255.0 million letter of credit issued by the FHLB on the Company’s behalf as of September 30, ~~2022.~~2023. That letter of credit is backed by loans which are pledged to the FHLB by the Company.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by management on a monthly basis, with various scenarios applied to assess its ability to meet liquidity needs under adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored, and we are focused on maintaining adequate liquidity resources to draw upon should unexpected needs arise.

The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments. To meet short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances through FHLB lines of credit, utilize the bank term funding program, or solicit brokered deposits if deposits are not immediately obtainable from local sources. The net availability on lines of credit from the FHLB totaled ~~$1.494~~$2.085 billion at September 30, ~~2022.~~2023. Furthermore, funds can be obtained by drawing down the Company’s correspondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets. In addition, the Company can raise immediate cash for temporary needs by selling under agreement to repurchase those investments in its portfolio which are not pledged as collateral. As of September 30, ~~2022,~~2023, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised ~~$1.097 billion~~$795.6 million of the Company’s investment balances, compared to ~~$985.4 million~~$1.066 billion at December 31, ~~2021.~~2022. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding federal funds sold and vault cash. The Company has a higher level of actual balance sheet liquidity than might otherwise be the case since it utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements.

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The Company’s liquidity ratio as of September 30, ~~2022~~2023 was ~~25.8%~~15.8%, as compared to internal liquidity policy guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:

September 30, 2022 Policy Maximum Policy Compliance
Loans to Deposits (including FHLB advances) 66.4 % 90.0 % In Policy
Net Non-core Funding Dependency Ratio 1.3 % 20.0 % In Policy
Fed Funds Purchased / Total Assets 0.2 % 10.0 % In Policy
FHLB Advances / Total Assets 1.2 % 20.0 % In Policy
FRB Advances / Total Assets 0.0 % 10.0 % In Policy
Pledged Securities to Total Securities 45.6 % 90.0 % In Policy

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	September 30, 2023		Policy Maximum		Policy Compliance
Loans to Deposits (including FHLB advances)	78.0	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	7.4	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	0.3	%	20.0	%	In Policy
Bank Term Funding Program / Total Assets	3.6	%	10.0	%	In Policy
Pledged Securities to Total Securities	59.6	%	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.

As of September 30, ~~2022,~~2023, cash and cash equivalents were ~~$163.8~~$197.6 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately ~~$915.0 million~~$1.397 billion at September 30, ~~2022.~~2023. Approximately ~~$630.2~~$987.4 million in loan commitments could fund within the next three months and includes other commitments, primarily commercial and ~~$14.5~~$28.5 million similar letters of credit, at September 30, ~~2022.~~2023.

Management continually evaluates our liquidity position and currently believes the Company has adequate funding to meet our financial needs.

The Company’s primary uses of funds are ordinary operating expenses and shareholder dividends, and its primary source of funds is dividends from the Bank since the Company does not conduct regular banking operations. Both the Company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 1. Business "Supervision and Regulation" in the Company’s ~~2021~~2022 Form 10-K.

DEPOSITS

Deposits are another key balance sheet component impacting the Company’s net interest margin and other profitability metrics. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity deposits such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates for the ~~nine month~~nine-month periods ended September 30, 2023 and 2022 ~~and 2021 is~~are included in the Average Balances, Tax Equivalent Interest and Yield/Rates tables appearing above, under the heading “Net Interest Income and Net Interest Margin.”

In the third quarter of 2022, the Company ceased the Deposit Reclassification program it implemented at the beginning of 2020. The program reclassified non-interest bearing and NOW deposit balances to money market accounts. A distribution of the Company’s deposits showing the year-to-date average balance and percentage of total deposits by type is presented for the noted periods in the following table. Deposits at December 31, 2021 are shown without reclassification for consistency with the current period presentation.


Deposit Distribution	Deposit Distribution	September 30, 2022				December 31, 2021				Deposit Distribution	September 30, 2023				December 31, 2022
($ in thousands)	($ in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		($ in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	$	1,647,205	—		$	1,366,529	—		Non-interest-bearing demand deposits	$	2,048,539	—		$	1,660,301	—
Interest bearing deposits:	Interest bearing deposits:									Interest bearing deposits:
NOW accounts and other	NOW accounts and other	1,836,462		0.34	%	1,529,293		0.48	%	NOW accounts and other	2,056,113		1.31	%	1,810,575		0.44	%
Money market accounts	Money market accounts	825,400		0.11	%	756,951		0.20	%	Money market accounts	1,007,532		1.47	%	831,463		0.29	%
Savings accounts	Savings accounts	531,304		0.02	%	440,977		0.03	%	Savings accounts	625,505		0.17	%	535,449		0.04	%
Time deposits	Time deposits	562,912		0.35	%	537,538		0.59	%	Time deposits	855,626		2.26	%	590,385		0.58	%
Total interest-bearing deposits	Total interest-bearing deposits	3,756,078		0.25	%	3,264,759		0.37	%	Total interest-bearing deposits	4,544,776		1.37	%	3,767,872		0.37	%
Total deposits	Total deposits	$	5,403,283	0.17	%	$	4,631,288	0.26	%	Total deposits	$	6,593,315	0.94	%	$	5,428,173	0.26	%

As of September 30, ~~2022,~~2023, average deposits increased by ~~$772.0 million,~~$1.165 billion, or ~~16.7%~~21.5% to ~~$5.403~~$6.593 billion from ~~$4.631~~$5.428 billion at December 31, ~~2021. The most significant growth during 2022 compared to 2021 was~~2022. During January 2023, deposits totaling $1.392 billion, net of purchase accounting

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adjustments were acquired in ~~NOW accounts.~~the HSBI merger. The average cost of interest-bearing deposits and total deposits was ~~0.25%~~1.37% and ~~0.17%~~0.94% during at September 30, ~~2022~~2023 compared to 0.37% and 0.26% at December 31, ~~2021.~~2022. The ~~decrease~~increase in the average cost of interest-bearing deposit during the first nine months of ~~2022~~2023 compared to December 31, ~~2021 was related~~2022 is attributed to the ~~Bank gradually reducing interest~~increase in volume due to the HSBI acquisition coupled with an increase in rates ~~during 2021. In addition~~attributable to ~~reducing rates, several larger public fund relationships renewed into lower rates during~~ the ~~first quarter~~higher rate environment.

The Company's estimated uninsured deposits totaled $2.141 billion at September 30, 2023, compared to $2.076 billion at December 31, 2022, representing 33.0% and 37.8% of ~~2022.~~

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total deposits at September 30, 2023, and December 31, 2022, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's regulatory reporting.

OTHER INTEREST-BEARING LIABILITIES

The Company’s non-deposit borrowings may, at any given time, include federal funds purchased from correspondent banks, borrowings from the FHLB, advances from the Federal Reserve Bank, securities sold under agreements to repurchase, and/or junior subordinated debentures. The Company uses short-term FHLB advances, and federal funds purchased on uncommitted lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line is committed, but the amount of available credit depends on the level of pledged collateral.

Total noninterest-bearing deposit liabilities increased by ~~$220.5~~$337.5 million, or ~~14.2%~~20.7%, in the first nine months of 2022. In the third quarter of 2022, the Company ceased the Deposit Reclassification program it implemented at the beginning of 2020. The program reclassified non-interest bearing and NOW deposit balances to money market accounts.2023. The increase in noninterest-bearing deposits is ~~related~~attributed to the ~~ending of the Deposit Reclassification program coupled with the BBI~~HSBI acquisition. As of September 30, ~~2022,~~2023, junior subordinated debentures ~~increased $226 thousand,~~decreased $16.7 million, net of issuance costs, to ~~$145.0~~$128.3 million. The decrease in subordinated debentures was attributable to the Company's redemption of $24.0 million of its 5.875% fixed-to-floating rate subordinated note due 2028, and the Company's repayment of $2.0 million of its 4.25% fixed-to-floating rate subordinated notes due 2030. The decrease in junior subordinated debentures was partially offset by the addition of $9.0 million, net of purchase accounting adjustments, of subordinated debt that the Company acquired as part of the HSBI acquisition. Subordinated debt is discussed more fully in the below Capital section of this report.

BANK TERM FUNDING PROGRAM BORROWINGS

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 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.

The Bank participated in the BTFP and had outstanding debt of $280.0 million, pledged securities totaling a fair value of $288.4 million at September 30, 2023. The securities pledged have a par value of $319.2 million. The Bank's BTFP borrowings, which were drawn between March 15, 2023 and May 2, 2023, bear interest rates ranging from 4.69% to 4.82% and are set to mature one year from their issuance date.

LEASE LIABILITIES

As of September 30, ~~2022,~~2023, operating lease liabilities ~~increased $3.9~~decreased $1.2 million, or ~~93.0%~~15.5% to ~~$8.1~~$6.6 million from ~~$4.2~~$7.8 million at December 31, ~~2021.~~2022. The ~~increase~~decrease in operating lease liabilities is attributed to several leases that were cancelled in the ~~acquisition~~first quarter of ~~BBI.~~2023. Finance lease liabilities decreased ~~$132~~$134 thousand, or ~~6.3%~~7.0% to ~~$2.0~~$1.8 million from ~~$2.1~~$1.9 million at December 31, ~~2021.~~2022.

OTHER LIABILITIES

Other liabilities are principally comprised of accrued interest payable and other accrued but unpaid expenses. Other liabilities increased by ~~$13.6~~$32.6 million, or ~~58.1%~~91.0%, during the first nine months of 2023. The increase is primarily related to the HSBI acquisition which included increases of $4.9 million in federal income taxes, $4.7 million in other expense payable, $1.3 million in escrow payable and $1.4 million in property taxes payable. As of September 30, 2023, accrued interest payable increased $10.5 million, or 315.2% to $13.8 million from $3.3 million at December 31, 2022. The increase is primarily related to a $7.0 million increase in interest accrued on BTFP borrowings from the ~~acquisition of BBI. As of September 30, 2022,~~FRB and a $2.8 million increase in accrued interest payable ~~decreased $346 thousand, or 20.2% to $1.4 million from $1.7 million at December 31, 2021.~~on certificate of deposits less than $250 thousand. The ACL on OBSC

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exposures increased ~~$150~~$750 thousand to ~~$1.2~~$2.1 million at September 30, ~~2022~~2023 when compared to December 31, ~~2021.~~2022. The increase in the ACL on OBSC exposures for the nine months ended September 30, 2023, was due to the day one provision for unfunded commitments related to the HSBI acquisition and loan growth.

CAPITAL

At September 30, ~~2022,~~2023, the Company had total shareholders’ equity of ~~$621.5~~$897.2 million, comprised of ~~$25.3~~$32.3 million in common stock, $41.1 million in treasury stock, ~~$558.2~~$774.6 million in surplus, ~~$241.1~~$296.6 million in undivided profits, and ~~$162.0~~$165.2 million in accumulated comprehensive loss on available-for-sale securities. Total shareholders’ equity at the end of ~~2021~~2022 was ~~$676.2~~$646.7 million. The ~~decrease~~increase of ~~$54.7~~$250.6 million, or ~~8.1%~~38.7%, in shareholders’ equity during the first nine months of ~~2022~~2023 is primarily attributable to ~~$170.0~~capital added through net earnings of $64.4 million, ~~decrease~~and $221.5 million added through the HSBI acquisition offset by $16.2 million increase in accumulated comprehensive loss related to the effect of rising interest rates on the market value of our available-for-sale securities ~~treasury stock acquired of $22.2 million,~~ and ~~$11.7~~$20.5 million in cash dividends ~~paid, these decreases in total shareholders’ equity were offset by capital added through net earnings of $46.6 million.~~

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.paid.

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 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 for $22.2 million under the 2021 Repurchase Program in the first quarter of 2022.~~

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On March 9, 2022, the Company announced that its Board of Directors ~~has~~ authorized a new share repurchase program (the “2022 Repurchase Program”), pursuant to which the Company ~~may~~could purchase up to an aggregate of $30 million in shares of the Company’s issued and outstanding common stock during the 2022 calendar year. Under the program, the Company ~~may,~~could, but iswas not required to, ~~from time to time~~ repurchase up to $30 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~~was determined by management at isits discretion and ~~will depend~~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 2022 Repurchase Program ~~will have an expiration date of~~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 authorized a new share repurchase program (the "2023 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50 million in shares of the Company's issued and outstanding common stock during the 2023 calendar year. Under the program, the Company may, but is not required to, from time to time, repurchase up to $50 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 2023 Repurchase Program has an expiration date of December 31, 2023.

The Company uses a variety of measures to evaluate its capital adequacy, including risk-based capital and leverage ratios that are calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to ensure that they meet or surpass established internal and external guidelines. As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the requirement of the standards initially adopted by the Basal Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) to

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include accumulated other comprehensive income in risk-based capital. The following table sets forth the ~~Company’s~~Bank's and the ~~Bank’s~~Company’s regulatory capital ratios as of the dates indicated.


Regulatory Capital Ratios The First Bank	Regulatory Capital Ratios The First Bank	September 30, 2022		December 31, 2021		Minimum Required to be Well Capitalized		Minimum Capital Required Basel III Fully Phased In		Regulatory Capital Ratios The First Bank	September 30, 2023		December 31, 2022		Minimum Required to be Well Capitalized		Minimum Capital Required Basel III Fully Phased In
Common Equity Tier 1 Capital Ratio	Common Equity Tier 1 Capital Ratio	15.5	%	16.6	%	6.5	%	7.0	%	Common Equity Tier 1 Capital Ratio	13.8	%	15.6	%	6.5	%	7.0	%
Tier 1 Capital Ratio	Tier 1 Capital Ratio	15.5	%	16.6	%	8.0	%	8.5	%	Tier 1 Capital Ratio	13.8	%	15.6	%	8.0	%	8.5	%
Total Capital Ratio	Total Capital Ratio	16.4	%	17.4	%	10.0	%	10.5	%	Total Capital Ratio	14.8	%	16.4	%	10.0	%	10.5	%
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	10.6	%	10.8	%	5.0	%	7.0	%	Tier 1 Leverage Ratio	10.7	%	11.1	%	5.0	%	7.0	%


Regulatory Capital Ratios The First Bancshares, Inc.	Regulatory Capital Ratios The First Bancshares, Inc.	September 30, 2022		December 31, 2021		Minimum Required to be Well Capitalized	Minimum Capital Required Basel III Fully Phased In	Regulatory Capital Ratios The First Bancshares, Inc.	September 30, 2023		December 31, 2022		Minimum Required to be Well Capitalized	Minimum Capital Required Basel III Fully Phased In
Common Equity Tier 1 Capital Ratio*	Common Equity Tier 1 Capital Ratio*	12.6	%	13.7	%	N/A	N/A	Common Equity Tier 1 Capital Ratio*	12.0	%	12.7	%	N/A	N/A
Tier 1 Capital Ratio**	Tier 1 Capital Ratio**	12.9	%	14.1	%	N/A	N/A	Tier 1 Capital Ratio**	12.4	%	13.0	%	N/A	N/A
Total Capital Ratio	Total Capital Ratio	16.7	%	18.6	%	N/A	N/A	Total Capital Ratio	15.1	%	16.7	%	N/A	N/A
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	9.3	%	9.2	%	N/A	N/A	Tier 1 Leverage Ratio	9.6	%	9.3	%	N/A	N/A

*The numerator does not include Preferred Stock and Trust Preferred.

**The numerator includes Trust Preferred.

Our capital ratios remain very strong relative to the median for peer financial institutions, and at September 30, ~~2022~~2023 were well above the threshold for the Company and the Bank to be classified as “well capitalized,” the highest rating of the categories defined under the Bank Holding Company Act and the Federal Deposit Insurance Corporation Improvement Act of 1991. Basel III rules require a “capital conservation buffer” for both the Company and the Bank. The capital conservation buffer is subject to a three-year phase-in period that began January 1, 2016 and was fully phased-in on January 1, 2019 at 2.5%. 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.

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As of September 30, ~~2022,~~2023, management believes that each of the Bank and the Company met all capital adequacy requirements to which they are subject. We do not foresee any circumstances that would cause the Company or the Bank to be less than well capitalized, although no assurance can be given that this will not occur.

Total consolidated equity capital at September 30, ~~2022~~2023 was ~~$621.5~~$897.2 million, or approximately ~~9.6%~~11.4% of total assets. The Company currently has adequate capital to meet the minimum capital requirements for all regulatory agencies.

On June 30, 2006, ~~The~~the Company issued $4.1 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 2 (“Trust 2”) ~~in which the Company owns all of the common equity.~~. The debentures are the sole asset of Trust 2, and the ~~Trust.~~Company is the sole owner of the common equity of Trust 2. Trust 2 issued $4.0 million of Trust Preferred Securities ~~(“TPSs”)~~ 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’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 .026161% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

On July 27, 2007, ~~The~~the Company issued $6.2 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 3 (“Trust 3”) ~~in which the~~. 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 $6.0 million of ~~TPSs~~Trust Preferred Securities to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional

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guarantee by the Company of the 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 .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 (“Trust 1”), which consisted~~became the successor to FMB's obligations in respect of $6.1 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.and the Company is the sole owner of the common equity of FMB Trust. FMB Trust 1 issued $6.0 million of ~~TPSs~~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 1’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~~term SOFR plus 2.85% plus a tenor spread adjustment of .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 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 .026161% and is payable quarterly.

In accordance with the provisions of ASC 810, Consolidation, the trusts are not included in the consolidated financial statements.

Subordinated Notes

On April 30, 2018, the Company entered into two Subordinated Note Purchase Agreements pursuant to which the Company sold and issued ~~$24~~$24.0 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes due 2028 (the "Notes due 2028") and ~~$42~~$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 are not subject to redemption at the option of the holder. Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes due 2023 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 2023 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 .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~~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), 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.~~

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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 ~~$145.0~~$128.3 million of subordinated debt, net of $1.7 million deferred issuance costs ~~$1.9~~and $2.1 million ~~and~~ unamortized fair value mark, ~~$606 thousand,~~ at September 30, ~~2022,~~2023, compared to ~~$144.7~~$145.0 million, net of $1.9 million deferred issuance costs ~~$2.1 million~~ and $593 thousand unamortized fair value mark, ~~$646 thousand,~~ at December 31, ~~2021.~~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.

Reconciliation of Non-GAAP Financial Measures

Our accounting and reporting policies conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of our performance. This Quarterly Report on Form 10-Q includes operating net earnings; diluted operating earnings per share; net interest income, FTE; pre-tax, pre-provision operating earnings; total interest income, FTE; interest income investment securities, FTE and certain ratios derived from these non-GAAP financial measures. The Company believes that the non-GAAP financial measures included in this Quarterly Report on Form 10-Q allow management and investors to understand and compare results in a more consistent manner for the periods presented herein. The tax equivalent adjustment to net interest income, total interest income, and interest income investment securities recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 25.3% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and believes it enhances the comparability of income and expenses arising from taxable and nontaxable sources. Operating net earnings and diluted operating earnings per share exclude acquisition and charter conversion charges, initial provision for acquired loans, bargain purchase gain and loss on sale of fixed assets, Treasury awards, BOLI income from death proceeds, and contributions related to the Treasury awards. Pre-tax, pre-provision operating earnings excludes acquisition and charter conversion charges, provision for credit losses, bargain purchase gain and loss on sale of fixed assets, Treasury awards, BOLI income from death proceeds, and charitable contributions related to Treasury awards. Non-GAAP financial measures should be considered supplemental and not a substitute for the Company’s results reported in accordance with GAAP for the periods presented, and other bank holding companies may define or calculate these measures differently. The most comparable GAAP measures to these measures are earnings per share, net interest income, earnings, total interest income, and average yield on investment securities, respectively. These non-GAAP financial measures should not be considered in isolation and do not purport to be an alternative to the efficiency ratio, net income, earnings per share, net interest income, net interest margin, average yield on investment securities, average yield on all earning assets, common equity, book value per common share or other GAAP financial measures as a measure of operating performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided below.

~~Operating Net Earnings~~

($ in thousands) Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Net income available to common shareholders $ 14,043 $ 16,132 $ 46,624 $ 48,376
Acquisition and charter conversion charges 3,640 5 5,220 5
Tax on acquisition and charter conversion charges (919) (1) (1,318) (1)
Initial provision for acquired loans 3,855 — 3,855 —
Tax on initial provision for acquired loans (976) — (976) —
Bargain purchase gain and loss on sale of fixed assets — 397 (165) 397
Tax on bargain purchase gain and loss on sale of fixed assets — (100) 42 (100)
Treasury awards — (1,826) (872) (1,826)
Tax on Treasury awards — 462 220 462
BOLI income from death proceeds — — (1,630) —
Contributions related to Treasury awards — 1,400 165 1,400
Tax on contributions related to Treasury awards — (354) (42) (354)
Net earnings available to common shareholders, operating $ 19,643 $ 16,115 $ 51,123 $ 48,359

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Operating Net Earnings


($ in thousands)	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		Nine Months Ended September 30, 2023		Nine Months Ended September 30, 2022

Net income available to common shareholders	$	24,360	$	14,043	$	64,410	$	46,624
Acquisition and charter conversion charges	588		3,640		8,482		5,220
Tax on acquisition and charter conversion charges	(149)		(919)		(2,146)		(1,318)
Initial provision for acquired loans	—		3,855		10,727		3,855
Tax on initial provision for acquired loans	—		(976)		(2,714)		(976)
Bargain purchase gain and loss on sale of fixed assets	—		—		—		(165)
Tax on bargain purchase gain and loss on sale of fixed assets	—		—		—		42
Treasury awards	(6,197)		—		(6,197)		(872)
Tax on Treasury awards	1,568		—		1,568		220
BOLI income from death proceeds	—		—		—		(1,630)
Contributions/consulting/advertising related to Treasury awards	5,190		—		5,190		165
Tax on contributions/consulting/advertising related to Treasury awards	(1,313)		—		(1,313)		(42)
Net earnings available to common shareholders, operating	$	24,047	$	19,643	$	78,007	$	51,123

Diluted Operating Earnings per Share

($ in thousands) Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Diluted earnings per share $ 0.61 $ 0.76 $ 2.17 $ 2.28
Acquisition and charter conversion charges 0.16 — 0.24 —
Tax on acquisition and charter conversion charges (0.05) — (0.06) —
Initial provision for acquired loans 0.17 — 0.18 —
Tax on initial provision for acquired loans (0.04) — (0.04) —
Bargain purchase gain and loss on sale of fixed assets — 0.02 (0.01) 0.02
Effect of Treasury awards — (0.09) (0.04) (0.09)
Tax on Treasury awards — 0.02 0.01 0.02
BOLI income from death proceeds — — (0.08) —
Contributions related to Treasury awards — 0.07 0.01 0.07
Tax on contributions related to Treasury awards — (0.02) — (0.02)
Diluted earnings per share, operating $ 0.85 $ 0.76 $ 2.38 $ 2.28

~~Net Interest Income, Fully Tax Equivalent~~

($ in thousands) Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Net interest income $ 49,148 $ 40,028 $ 129,887 $ 117,307
Tax exempt investment income (2,875) (1,905) (8,077) (5,748)
Taxable investment income 3,849 2,550 10,812 7,694
Net interest income, FTE $ 50,122 $ 40,673 $ 132,622 $ 119,253
Average earning assets $ 5,727,211 $ 5,005,093 $ 5,655,430 $ 4,903,343
Net interest margin, FTE 3.50 % 3.25 % 3.13 % 3.24 %

~~Pre-Tax Pre-Provision Operating Earnings~~

($ in thousands) Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Earnings before income taxes $ 17,967 $ 20,561 $ 58,382 $ 61,418
Acquisition and charter conversion charges 3,640 5 5,220 5
Provision for credit loss 4,300 — 4,900 —
Bargain purchase gain and loss on sale of fixed assets — 397 (165) 397
Treasury awards — (1,826) (872) (1,826)
BOLI income from death proceeds — — (1,630) —
Contributions related to Treasury awards — 1,400 165 1,400
Pre-Tax, Pre-Provision Operating Earnings $ 25,907 $ 20,537 $ 66,000 $ 61,394


($ in thousands)	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		Nine Months Ended September 30, 2023		Nine Months Ended September 30, 2022

Diluted earnings per share	$	0.77	$	0.61	$	2.04	$	2.17
Acquisition and charter conversion charges	0.02		0.16		0.27		0.24
Tax on acquisition and charter conversion charges	(0.01)		(0.05)		(0.07)		(0.06)
Initial provision for acquired loans	—		0.17		0.34		0.18
Tax on initial provision for acquired loans	—		(0.04)		(0.09)		(0.04)
Bargain purchase gain and loss on sale of fixed assets	—		—		—		(0.01)
Effect of Treasury awards	(0.20)		—		(0.20)		(0.04)
Tax on Treasury awards	0.05		—		0.05		0.01
BOLI income from death proceeds	—		—		—		(0.08)
Contributions/consulting/advertising related to Treasury awards	0.17		—		0.17		0.01
Tax on contributions/consulting/advertising related to Treasury awards	(0.04)		—		(0.04)		—
Diluted earnings per share, operating	$	0.76	$	0.85	$	2.47	$	2.38

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Net Interest Income, Fully Tax Equivalent


($ in thousands)	Three Months Ended September 30, 2023			Three Months Ended September 30, 2022			Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022

Net interest income	$	60,704		$	49,148		$	191,660		$	129,887
Tax-exempt investment income	(2,929)			(2,875)			(8,825)			(8,077)
Taxable investment income	3,921			3,849			11,813			10,812
Net interest income, FTE	$	61,696		$	50,122		$	194,648		$	132,622

Average earning assets	$	7,001,048		$	5,727,211		$	7,056,606		$	5,655,430

Annualized net interest margin	3.47		%	3.43		%	3.62		%	3.06		%
Annualized net interest margin, FTE	3.52		%	3.50		%	3.68		%	3.13		%

Pre-Tax Pre-Provision Operating Earnings


($ in thousands)	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		Nine Months Ended September 30, 2023		Nine Months Ended September 30, 2022

Earnings before income taxes	$	31,304	$	17,967	$	82,476	$	58,382
Acquisition and charter conversion charges	588		3,640		8,482		5,220
Provision for credit loss	1,000		4,300		13,250		4,900
Bargain purchase gain and loss on sale of fixed assets	—		—		—		(165)
Treasury awards	(6,197)		—		(6,197)		(872)
BOLI income from death proceeds	—		—		—		(1,630)
Contributions/consulting/advertising related to Treasury awards	5,190		—		5,190		165
Pre-Tax, Pre-Provision Operating Earnings	$	31,885	$	25,907	$	103,201	$	66,000

Total Interest Income, Fully Tax Equivalent


($ in thousands)	($ in thousands)	Three Months Ended September 30, 2022			Three Months Ended September 30, 2021					Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021			($ in thousands)		Three Months Ended September 30, 2023					Three Months Ended September 30, 2022					Nine Months Ended September 30, 2023					Nine Months Ended September 30, 2022

Total interest income	Total interest income	$	53,874					$	44,435							$	142,462				$	132,860		Total interest income		$	85,681				$	53,874				$	252,213	$	142,462
Tax-exempt investment income	Tax-exempt investment income	(2,875)			(1,905)					(8,077)			(5,748)			Tax-exempt investment income		(2,929)					(2,875)					(8,825)					(8,077)
Taxable investment income	Taxable investment income	3,849			2,550					10,812			7,694			Taxable investment income		3,921					3,849					11,813					10,812
Total interest income, FTE	Total interest income, FTE	$	54,848		$	45,080				$	145,197		$	134,806		Total interest income, FTE		$	86,673				$	54,848				$	255,201				$	145,197

Yield on average earning assets, FTE	Yield on average earning assets, FTE	3.83		%	3.60		%			3.42		%	3.67		%	Yield on average earning assets, FTE		4.95		%			3.83		%			4.82		%			3.42		%

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Interest Income Investment Securities, Fully Tax Equivalent


($ in thousands)	($ in thousands)	Three Months Ended September 30, 2022			Three Months Ended September 30, 2021					Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021			($ in thousands)		Three Months Ended September 30, 2023					Three Months Ended September 30, 2022					Nine Months Ended September 30, 2023					Nine Months Ended September 30, 2022

Interest income investment securities	Interest income investment securities	$	11,598					$	6,938							$	31,324				$	18,389		Interest income investment securities		$	10,614				$	11,598				$	33,136	$	31,324
Tax-exempt investment income	Tax-exempt investment income	(2,875)			(1,905)					(8,077)			(5,748)			Tax-exempt investment income		(2,929)					(2,875)					(8,825)					(8,077)
Taxable investment income	Taxable investment income	3,849			2,550					10,812			7,694			Taxable investment income		3,921					3,849					11,813					10,812
Interest income investment securities, FTE	Interest income investment securities, FTE	$	12,572		$	7,583				$	34,059		$	20,335		Interest income investment securities, FTE		$	11,606				$	12,572				$	36,124				$	34,059

Average investment securities	Average investment securities	$	2,091,234		$	1,364,431				$	2,038,921		$	1,218,451		Average investment securities		$	1,882,672				$	2,091,234				$	1,951,109				$	2,038,921

Yield on Investment Securities																Yield on Investment Securities		2.26		%			2.22		%			2.26		%			2.05		%
Yield on investment securities, FTE	Yield on investment securities, FTE	2.40		%	2.15		%			2.23		%	2.23		%	Yield on investment securities, FTE		2.47		%			2.40		%			2.47		%			2.23		%

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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).

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The following table shows the estimated changes in net interest income at risk and market value of equity along with policy limits:


September 30, 2022		Net Interest Income at Risk				Market Value of Equity
September 30, 2023										September 30, 2023	Net Interest Income at Risk				Market Value of Equity
Change in Interest Rates	Change in Interest Rates	% Change from Base		Policy Limit		% Change from Base		Policy Limit		Change in Interest Rates	% Change from Base		Policy Limit		% Change from Base		Policy Limit
Up 400 bps	Up 400 bps	(1.8)	%	(20.0)	%	(11.6)	%	(40.0)	%	Up 400 bps	(5.9)	%	(20.0)	%	(8.5)	%	(40.0)	%
Up 300 bps	Up 300 bps	0.9	%	(15.0)	%	(6.3)	%	(30.0)	%	Up 300 bps	(2.5)	%	(15.0)	%	(4.1)	%	(30.0)	%
Up 200 bps	Up 200 bps	2.2	%	(10.0)	%	(2.5)	%	(20.0)	%	Up 200 bps	(0.3)	%	(10.0)	%	(1.0)	%	(20.0)	%
Up 100 bps	Up 100 bps	1.9	%	(5.0)	%	(0.4)	%	(10.0)	%	Up 100 bps	0.5	%	(5.0)	%	0.5	%	(10.0)	%
Down 100 bps	Down 100 bps	(4.3)	%	(5.0)	%	(2.4)	%	(10.0)	%	Down 100 bps	(0.7)	%	(5.0)	%	(2.0)	%	(10.0)	%
Down 200 bps	Down 200 bps	(10.3)	%	(10.0)	%	(7.3)	%	(20.0)	%	Down 200 bps	(1.7)	%	(10.0)	%	(5.1)	%	(20.0)	%

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 September 30, ~~2022,~~2023, the Company had the following estimated net interest

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income sensitivity profile, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:


September 30, 2022		Net Interest Income at Risk – Sensitivity Year 1
September 30, 2023															September 30, 2023	Net Interest Income at Risk – Sensitivity Year 1
($ in thousands)	($ in thousands)	-200 bp		-100 bp		STATIC	+100 bp		+200 bp		+300 bp		+400 bp		($ in thousands)	-200 bp		-100 bp		STATIC	+100 bp		+200 bp		+300 bp		+400 bp
Net Interest Income	Net Interest Income	193,088		205,914		215,168	219,276		219,795		217,136		211,335		Net Interest Income	240,042		242,523		244,252	245,547		243,528		238,255		229,946
Dollar Change	Dollar Change	(22,080)		(9,254)			4,108		4,627		1,968		(3,833)		Dollar Change	(4,210)		(1,729)			1,295		(724)		(5,997)		(14,306)
NII @ Risk - Sensitivity Y1	NII @ Risk - Sensitivity Y1	(10.3)	%	(4.3)	%		1.9	%	2.2	%	0.9	%	(1.8)	%	NII @ Risk - Sensitivity Y1	(1.7)	%	(0.7)	%		0.5	%	(0.3)	%	(2.5)	%	(5.9)	%
Policy Limits	Policy Limits	(10.0)	%	(5.0)	%		(5.0)	%	(10.0)	%	(15.0)	%	(20.0)	%	Policy Limits	(10.0)	%	(5.0)	%		(5.0)	%	(10.0)	%	(15.0)	%	(20.0)	%

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 ~~$22.1~~$4.2 million lower than in a stable interest rate scenario, for a negative variance of ~~10.3%~~1.7%. 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 would be 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.

Net interest income would likely ~~improve~~decline by ~~$4.6 million,~~$724 thousand, or ~~2.2%~~(0.3)%, if interest rates were to increase by 200 basis points relative to a stable interest rate scenario, with the ~~favorable~~unfavorable variance expanding the higher interest rates rise. 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 the Company would expect to benefit from a material upward shift in the yield curve.

The Company’s one-year cumulative GAP ratio is approximately ~~206.0%~~153.0%, which means that there are more assets repricing than liabilities within the first year. The Company is ~~“asset-sensitive.”~~asset sensitive. These results are based on cash flows from assumptions of assets and liabilities that reprice (maturities, likely calls, prepayments, etc.). Typically, the net interest income of asset-sensitive financial institutions should improve with rising rates and decrease with declining rates.

If interest rates change in the modeled amounts, our assets and liabilities may not perform as anticipated. Measuring interest rate risk has inherent limitations including model assumptions. For example, changes in market indices as modeled in conjunction with changes in the shapes of the yield curves could result in different net interest income. We consider many factors in monitoring our interest rate risk, and management adjusts strategies for the balance sheet and earnings as needed.

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

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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.

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

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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 September 30, ~~2022,~~2023, under different interest rate scenarios relative to a base case of current interest rates:


September 30, 2022		Balance Sheet Shock
September 30, 2023															September 30, 2023	Balance Sheet Shock
($ in thousands)	($ in thousands)	-200 bp		-100 bp		STATIC (Base)	+100 bp		+200 bp		+300 bp		+400 bp		($ in thousands)	-200 bp		-100 bp		STATIC (Base)	+100 bp		+200 bp		+300 bp		+400 bp
Market Value of Equity	Market Value of Equity	1,269,941		1,336,504		1,369,428	1,363,441		1,335,225		1,282,932		1,210,445		Market Value of Equity	1,457,921		1,506,306		1,536,980	1,544,327		1,521,479		1,473,702		1,406,674
Change in EVE from base	Change in EVE from base	(99,487)		(32,924)			(5,987)		(34,203)		(86,496)		(158,983)		Change in EVE from base	(79,059)		(30,674)			7,347		(15,501)		(63,278)		(130,306)
% Change	% Change	(7.3)	%	(2.4)	%		(0.4)	%	(2.5)	%	(6.3)	%	(11.6)	%	% Change	(5.1)	%	(2.0)	%		0.5	%	(1.0)	%	(4.1)	%	(8.5)	%
Policy Limits	Policy Limits	(20.0)	%	(10.0)	%		(10.0)	%	(20.0)	%	(30.0)	%	(40.0)	%	Policy Limits	(20.0)	%	(10.0)	%		(10.0)	%	(20.0)	%	(30.0)	%	(40.0)	%

~~The table shows that our EVE will generally deteriorate in declining rate scenarios, but should benefit from a parallel shift upward in the yield curve.~~ We also run stress scenarios for EVE to simulate the possibility of higher loan prepayment rates, unfavorable changes in deposit rates, and higher deposit decay rates. Model results are highly sensitive to changes in assumed decay rates for non-maturity deposits, in particular.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, ~~2022,~~2023, (the “Evaluation Date”), we carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us 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 this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under

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the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended September 30, ~~2022~~2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings in the normal course of business. Management does not believe, based on currently available information, that the outcome of any such proceedings will have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in "Part I - Item 1A - Risk Factors" of the Company's 2021 Form 10-K, which could materially affect its business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.

There have been no material changes ~~from~~in the ~~risk factors previously disclosed~~Risk Factors described in ~~our~~the Company's 2022 Annual Report on Form 10-K other than as set out in the Company's Quarterly Report on Form 10-Q for the ~~year~~quarter ended ~~December~~March 31, ~~2021.~~2023, in Item 1A of Part II.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

~~Not applicable~~


Period	Current Program
	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (a)
July 1 - July 31	—		$	—	—	$	50,000
August 1 - August 31	1,104		29.27		—	50,000
September 1 - September 30	—		—		—	50,000
Total	1,104	(b)	$	29.27	—

(a)On February 28, 2023, the Company announced that its Board of Directors authorized a new share repurchase program (the "2023 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50 million in shares of the Company's issued and outstanding common stock. The 2023 Repurchase Program expires on December 31, 2023.

(b)The 1,104 shares purchased in the third quarter were withheld by the Company in order to satisfy employee tax obligations for vesting of restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

~~Not applicable~~During the quarter ended September 30, 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 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."

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ITEM 6. EXHIBITS

(a)Exhibits


Exhibit No.						Description
2.1						Agreement and Plan of Merger, dated as of April 26, 2022, by and between The Fist 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).
2.2						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 by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on July 28, 2016).
3.2						Amendment to the Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2018).
3.3						Amendment to the Amended and Restated Articles of Incorporation of the First Bancshares, Inc. (as incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed on May 26, 2023).
3.4						Amended and Restated Bylaws of The First Bancshares, Inc. effective as of March 17, 2016 (incorporated 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 2033 (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).
31.1						Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2						Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1						Certification of principal executive officer pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2						Certification of principal financial officer pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
						101.INS XBRL Instance Document
						101.SCH XBRL Taxonomy Extension Schema
						101.CAL XBRL Taxonomy Extension Calculation Linkbase
						101.DEF XBRL Taxonomy Extension Definition Linkbase
						101.LAB XBRL Taxonomy Extension Label Linkbase
						101.PRE XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						THE FIRST BANCSHARES, INC.
						(Registrant)

November 9, ~~2022~~2023						/s/ M. RAY (HOPPY) COLE, JR. M. Ray (Hoppy) Cole, Jr. Chief Executive Officer and President (Principal Executive Officer), Chairman of the Board
(Date)


November 9, ~~2022~~2023						/s/ DONNA T. (DEE DEE) LOWERY Donna T. (Dee Dee) Lowery, Executive Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer)
(Date)

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