Common stock, $1.00 par value, ~~9,179,901~~25,277,502 shares issued and ~~11,192,401~~24,027,895 outstanding as of November ~~3, 2017.~~

2, 2022.


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

Index


Part I. Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets—Unaudited at September 30, 2022	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	37
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	60

Part II. Other Information

Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
Signatures		64

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM ~~NO. 1-~~1. FINANCIAL STATEMENTS

THE FIRST BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

($ ~~In Thousands)~~

(Unaudited) (Audited)
September 30, December 31,
2017 2016

ASSETS
Cash and due from banks $ 63,668 $ 31,719
Interest-bearing deposits with banks 29,649 29,975
Federal funds sold - 425

Total cash and cash equivalents 93,317 62,119

Securities held-to-maturity, at amortized cost 6,000 6,000
Securities available-for-sale, at fair value 353,035 243,206
Other securities 9,556 6,593

Total securities 368,591 255,799

Loans held for sale 4,588 5,880
Loans 1,198,193 867,054
Allowance for loan losses (8,175 ) (7,510 )

Loans, net 1,190,018 859,544

Premises and equipment 46,203 34,624
Interest receivable 5,787 4,358
Cash surrender value of bank-owned life insurance 26,367 21,250
Goodwill 20,443 13,776
Other real estate owned 7,855 6,008
Other assets 24,807 14,009

TOTAL ASSETS $ 1,787,976 $ 1,277,367

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing $ 308,050 $ 202,478
Interest-bearing 1,199,941 836,713

TOTAL DEPOSITS 1,507,991 1,039,191

Interest payable 274 306
Borrowed funds 94,321 69,000
Subordinated debentures 10,310 10,310
Other liabilities 8,100 4,033

TOTAL LIABILITIES 1,620,996 1,122,840

STOCKHOLDERS’ EQUITY:
Common stock, par value $1 per share, 20,000,000 shares authorized; 9,179,901 shares issued at September 30, 2017, and 9,017,891 shares issued at December 31, 2016, respectively 9,180 9,018
Additional paid-in capital 104,965 102,574
Retained earnings 51,649 44,477
Accumulated other comprehensive income (loss) 1,650 (1,078 )
Treasury stock, at cost, 26,494 shares at Sept. 30, 2017 and at December 31, 2016 (464 ) (464 )

TOTAL STOCKHOLDERS’ EQUITY 166,980 154,527

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,787,976 $ 1,277,367

in thousands)


	(Unaudited)
	September 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	71,555	$	115,232
Interest-bearing deposits with banks	92,286		804,481
Total cash and cash equivalents	163,841		919,713
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		—
Other securities	31,060		22,226
Total securities	2,004,023		1,774,058
Loans held for sale	2,225		7,678
Loans held for investment	3,719,388		2,959,553
Allowance for credit losses	(38,356)		(30,742)
Net loans held for investment	3,681,032		2,928,811
Interest receivable	24,570		23,256
Premises and equipment	140,533		125,959
Operating lease right-of-use assets	7,901		4,095
Finance lease right-of-use assets	2,046		2,394
Cash surrender value of bank-owned life insurance	95,351		87,420
Goodwill	178,764		156,663
Other real estate owned	10,328		2,565
Other assets	144,234		44,802
Total assets	$	6,454,848	$	6,077,414
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing	$	1,770,848	$	1,550,381
Interest-bearing	3,780,450		3,676,403
Total deposits	5,551,298		5,226,784
Interest payable	1,365		1,711
Borrowed funds	90,000		—
Subordinated debentures	144,952		144,726
Operating lease liabilities	8,092		4,192
Finance lease liabilities	1,962		2,094
Allowance for credit losses on off-balance sheet credit exposures	1,220		1,070
Other liabilities	34,488		20,665
Total liabilities	5,833,377		5,401,242
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
Additional paid-in capital	558,181		459,228
Retained earnings	241,132		206,228
Accumulated other comprehensive (loss) income	(162,009)		7,978
Treasury stock, at cost, 1,249,607 shares at September 30, 2022 and 649,607 shares at December 31, 2021	(41,111)		(18,931)
Total shareholders’ equity	621,471		676,172
Total liabilities and shareholders’ equity	$	6,454,848	$	6,077,414

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

INTEREST INCOME:
Interest and fees on loans $ 14,412 $ 9,798 $ 42,083 $ 28,146
Interest and dividends on securities:
Taxable interest and dividends 1,600 982 4,742 3,110
Tax exempt interest 579 464 1,764 1,398
Interest on federal funds sold 117 25 337 82

TOTAL INTEREST INCOME 16,708 11,269 48,926 32,736

INTEREST EXPENSE:
Interest on deposits 1,375 962 3,836 2,476
Interest on borrowed funds 398 240 1,151 663

TOTAL INTEREST EXPENSE 1,773 1,202 4,987 3,139

NET INTEREST INCOME 14,935 10,067 43,939 29,597

PROVISION FOR LOAN LOSSES 90 143 384 538

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,845 9,924 43,555 29,059

OTHER INCOME:
Service charges on deposit accounts 902 606 2,692 1,847
Other service charges and fees 2,756 2,493 8,115 6,695
TOTAL OTHER INCOME 3,658 3,099 10,807 8,542

OTHER EXPENSES:
Salaries and employee benefits 7,328 5,645 23,070 16,194
Occupancy and equipment 1,390 1,209 4,108 3,392
Acquisition and integration charges 48 - 6,327 -
Other 3,122 2,562 9,551 7,144

TOTAL OTHER EXPENSES 11,888 9,416 43,056 26,730

INCOME BEFORE INCOME TAXES 6,615 3,607 11,306 10,871

INCOME TAXES 1,901 1,049 3,104 3,060

NET INCOME 4,714 2,558 8,202 7,811

PREFERRED STOCK ACCRETION AND DIVIDENDS - 86 - 257

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 4,714 $ 2,472 $ 8,202 $ 7,554

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS:
BASIC $ 0.52 $ 0.46 $ 0.90 $ 1.39
DILUTED 0.51 0.45 0.89 1.38
DIVIDENDS PER SHARE – COMMON 0.0375 0.0375 0.1125 0.1125


	(Unaudited)				(Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest and dividend income:
Interest and fees on loans	$	42,274	$	37,480	$	111,091	$	114,368
Interest and dividends on securities:
Taxable interest and dividends	8,723		5,033		23,247		12,641
Tax exempt interest	2,875		1,905		8,077		5,748
Interest on federal funds sold and interest-bearing deposits in other banks	2		17		47		103
Total interest income	53,874		44,435		142,462		132,860
Interest expense:
Interest on deposits	2,748		2,588		6,937		9,752
Interest on borrowed funds	1,978		1,819		5,638		5,801
Total interest expense	4,726		4,407		12,575		15,553
Net interest income	49,148		40,028		129,887		117,307
Provision for credit losses, LHFI	4,300		—		4,750		—
Provision for credit losses, OBSC exposures	—		—		150		—
Net interest income after provision for credit losses	44,848		40,028		124,987		117,307
Non-interest income:
Service charges on deposit accounts	2,219		1,846		6,297		5,363
(Loss) gain on securities	1		11		(82)		107
Gain on acquisition	—		—		281		—
Government awards/grants	—		1,826		873		1,826
BOLI death proceeds	—		—		1,630		—
(Loss) gain on sale of premises and equipment	—		(397)		(114)		(383)
Other	6,802		6,300		19,958		20,968
Total non-interest income	9,022		9,586		28,843		27,881
Non-interest expense:
Salaries and employee benefits	19,099		16,246		53,135		48,337
Occupancy and equipment	3,826		3,922		11,530		11,614
Acquisition expense/charter conversion	3,640		5		5,220		5
Other	9,338		8,880		25,563		23,814
Total non-interest expense	35,903		29,053		95,448		83,770
Income before income taxes	17,967		20,561		58,382		61,418
Income tax expense	3,924		4,429		11,758		13,042
Net income	$	14,043	$	16,132	$	46,624	$	48,376

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

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)

($ ~~In Thousands)~~

(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Net income per consolidated statements of income $ 4,714 $ 2,558 $ 8,202 $ 7,811
Other Comprehensive Income:
Unrealized holding gains/ (losses) arising during period on available-for-sale securities (865 ) 189 4,391 3,016
Less reclassification adjustment for gains included in net income - (129 ) - (129 )
Unrealized holding gains/ (losses) arising during period on available- for-sale securities (865 ) 60 4,391 2,887
Unrealized holding gains/ (losses) on loans held for sale 42 (85 ) 45 1
Income tax benefit(expense) 322 13 (1,708 ) (982 )
Other comprehensive income (loss) (501 ) (12 ) 2,728 1,906
Comprehensive Income $ 4,213 $ 2,546 $ 10,930 $ 9,717

in thousands)


	(Unaudited)				(Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	14,043	$	16,132	$	46,624	$	48,376
Other comprehensive income (loss):
Unrealized holding (losses) gains arising during the period on available-for-sale securities	(67,785)		(7,306)		(227,641)		(16,204)
Reclassification adjustment for losses (gains) included in net income	(1)		(11)		82		(107)
Unrealized holding (losses) gains arising during the period on available-for-sale securities	(67,786)		(7,317)		(227,559)		(16,311)
Income tax (expense) benefit	17,150		1,852		57,572		4,127
Other comprehensive income (loss)	(50,636)		(5,465)		(169,987)		(12,184)
Comprehensive income (loss)	$	(36,593)	$	10,667	$	(123,363)	$	36,192

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

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

($ ~~In Thousands,~~in thousands except per share data, unaudited)

Common
Stock

Preferred
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income(Loss)

Treasury
Stock
Total

Balance, January 1, 2016 $ 5,403 $ 17,123 $ 44,650 $ 35,625 $ 1,099 $ (464 ) $ 103,436
Net income - - - 7,811 - - 7,811
Other comprehensive income - - - - 1,906 - 1,906
Dividends on preferred stock - - - (257 ) - - (257 )
Dividends on common stock, $0.1125 per share - - - (611 ) - - (611 )
Issuance of preferred shares (25 ) (25 )
Repurchase of restricted stock for payment of taxes (9 ) - (167 ) - - - (176 )
Restricted stock grant 61 - (61 ) - - - -
Compensation expense - - 574 - - - 574
Balance, Sept. 30, 2016 $ 5,455 $ 17,123 $ 44,996 $ 42,543 $ 3,005 $ (464 ) $ 112,658

Balance, January 1, 2017 $ 9,018 $ - $ 102,574 $ 44,477 $ (1,078 ) $ (464 ) $ 154,527
Net income - - - 8,202 - - 8,202
Other comprehensive income - - - - 2,728 - 2,728
Dividends on common stock, $0.1125 per share - - - (1,030 ) - - (1,030 )
Issuance of 89,591 common shares for GCCB acquisition 89 - 2,160 - - - 2,249
Repurchase of restricted stock for payment of taxes (12 ) - (318 ) - - - (330 )
Restricted stock grant 85 - (85 ) - - - -
Compensation expense - - 634 - - - 634
Balance, Sept. 30, 2017 $ 9,180 $ - $ 104,965 $ 51,649 $ 1,650 $ (464 ) $ 166,980


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total
	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
Net income	—	—		—		16,644		—		—	—		16,644
Common stock repurchased	—	—		—		—		—		(165,623)	(5,171)		(5,171)
Other comprehensive loss	—	—		—		—		(9,615)		—	—		(9,615)
Dividends on common stock, $0.13 per share	—	—		—		(2,723)		—		—	—		(2,723)
Issuance of restricted stock grants	84,578	85		(85)		—		—		—	—		—
Restricted stock grants forfeited	(500)	(1)		1		—		—		—	—		—
Repurchase of restricted stock for payment of taxes	(14,720)	(15)		(426)		—		—		—	—		(441)
Compensation expense	—	—		440		—		—		—	—		440
Balance, March 31, 2021	21,668,351	21,668		456,849		168,162		16,201		(649,607)	(18,931)		643,949
Net income	—	—		—		15,600		—		—	—		15,600
Other comprehensive income	—	—		—		—		2,896		—	—		2,896
Dividends on common stock, $0.14 per share	—	—		—		(2,942)		—		—	—		(2,942)
Issuance of restricted stock grants	3,000	3		(3)		—		—		—	—		—
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	(500)	—		—		—		—		—	—		—
Repurchase of restricted stock for payment of taxes	(326)	—		(12)		—		—		—	—		(12)
Compensation expense	—	—		1,128		—		—		—	—		1,128
Balance, September 30, 2021	21,669,504	$	21,670	$	458,512	$	193,800	$	13,632	(649,607)	$	(18,931)	$	668,683

Table of Contents

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
	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
Net income	—	—		—		16,829		—		—	—		16,829
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)
Issuance of restricted stock grants	82,123	82		(82)		—		—		—	—		—
Restricted stock grants forfeited	(1,000)	(1)		1		—		—		—	—		—
Repurchase of restricted stock for payment of taxes	(15,330)	(16)		(538)		—		—		—	—		(554)
Compensation expense	—	—		466		—		—		—	—		466
Balance, March 31, 2022	21,734,437	21,734		459,075		219,589		(68,847)		(1,249,607)	(41,111)		590,440
Net income	—	—		—		15,753		—		—	—		15,753
Other comprehensive loss	—	—		—		—		(42,526)		—	—		(42,526)
Dividends on common stock, $0.18 per share	—	—		—		(3,688)		—		—	—		(3,688)
Issuance of restricted stock grants	47,827	48		(48)		—		—		—	—		—
Restricted stock grants forfeited	(1,000)	(1)		1		—		—		—	—		—
Repurchase of restricted stock for payment of taxes	(2,533)	(2)		(71)		—		—		—	—		(73)
Compensation expense	—	—		546		—		—		—	—		546
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

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ ~~In Thousands)~~

(Unaudited)
Nine Months Ended
September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 8,202 $ 7,811
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of securities - (129 )
Depreciation, amortization and accretion 3,455 2,520
Provision for loan losses 384 538
Loss on sale/writedown of ORE 743 111
Restricted stock expense 634 573
Increase in cash value of life insurance (532 ) (384 )
Federal Home Loan Bank stock dividends (54 ) (27 )
Changes in:
Interest receivable 256 (61 )
Loans held for sale, net 1,336 (5,462 )
Interest payable (50 ) 29
Other, net 1,738 (2,882 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,112 2,637

CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities, calls and paydowns of available-for-sale and held-to-maturity securities 51,879 37,141
Purchases of available-for-sale securities (67,646 ) (30,294 )
Net purchases of other securities (1,796 ) (1,433 )
Net increase in loans (94,210 ) (84,019 )
Net increase in premises and equipment (4,237 ) (1,055 )
Purchase of bank-owned life insurance (469 ) (5,850 )
Proceeds from sale of other real estate owned 5,759 -
Cash received in excess of cash paid for acquisitions 3,413 -
NET CASH USED IN INVESTING ACTIVITIES (107,307 ) (85,510 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 113,313 155,094
Net increase (decrease) in borrowed funds 10,415 (42,321 )
Dividends paid on common stock (1,005 ) (587 )
Dividends paid on preferred stock - (257 )
Repurchase of restricted stock for payment of taxes (330 ) (176 )
Issuance of preferred shares - (25 )
NET CASH PROVIDED BY FINANCING ACTIVITIES 122,393 111,728

NET INCREASE IN CASH 31,198 28,855
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 62,119 41,259
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,317 $ 70,114

SUPPLEMENTAL DISCLOSURES:

CASH PAYMENTS FOR INTEREST 5,181 3,110
CASH PAYMENTS FOR INCOME TAXES 667 4,277
LOANS TRANSFERRED TO OTHER REAL ESTATE 836 2,498
ISSUANCE OF RESTRICTED STOCK GRANTS 85 61
STOCK ISSUED IN CONNECTION WITH GULF COAST COMMUNITY BANK ACQUISITION 2,249 -

in thousands)


	(Unaudited)
	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	46,624	$	48,376
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	5,549		10,453
Provision for credit loss	4,900		—
Loss on sale or writedown of ORE	252		778
Securities loss (gain)	82		(107)
Acquisition gain	(281)		—
Loss (gain) on disposal of premises and equipment	114		383
Restricted stock expense	1,720		2,117
Increase in cash value of life insurance	(1,576)		(1,407)
Federal Home Loan Bank stock dividends	(8)		(26)
Residential loans originated and held for sale	(113,058)		(182,371)
Proceeds from sale of residential loans held for sale	118,511		195,263
Changes in:
Interest receivable	166		3,200
Interest payable	(346)		(758)
Operating lease liability	3,900		(1,696)
Other, net	1,844		2,667
Net cash provided by operating activities	68,393		76,872
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)
Purchases of other securities	(8,580)		5,276
Proceeds from other securities	1,237		—
Net (increase) decrease in loans	(273,335)		160,700
Net changes in premises and equipment	(5,756)		(6,448)
Proceeds from sale of other real estate owned	2,260		4,221
Proceeds from the sale of land	712		—
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	23,939		—
Net cash used in investing activities	(688,861)		(310,419)
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)
Principal payments on finance lease liabilities	(132)		(141)
Dividends paid on common stock	(11,544)		(8,682)
Cash paid to repurchase common stock	(22,180)		(5,171)
Payment of subordinated debt issuance costs	—		(60)
Repurchase of restricted stock for payment of taxes	(627)		(453)
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

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THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

($ in thousands)


	(Unaudited)
	Nine Months Ended September 30,
	2022	2021
Supplemental disclosures:
Loans transferred to other real estate	1,490	1,780
Issuance of restricted stock grants	130	86
Dividends on restricted stock grants	176	135
Stock issued in connection with BBI acquisition	101,469	—
Lease liabilities arising from obtaining right-of-use assets	600	14
Lease liabilities arising from BBI acquisition	5,437	—

See Notes to Consolidated Financial Statements

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THE FIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2017~~

2022

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, ~~2017,~~2022, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2022. For further information, please refer to the consolidated financial statements and footnotes thereto included in the ~~Company's~~Company’s Form 10-K for the fiscal year ended December 31, ~~2016.~~

2021.

NOTE 2 —– SUMMARY OF ORGANIZATION

The First Bancshares, Inc., Hattiesburg, Mississippi (the ~~"Company"~~“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, ~~(the “Bank”).~~

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, ~~2017,~~2022, the Company had approximately ~~$1.8~~$6.455 billion in assets, ~~$1.2~~$3.681 billion in net loans ~~$1.5~~held for investment (“LHFI”), $5.551 billion in deposits, and ~~$167.0~~$621.5 million in ~~stockholders'~~shareholders' equity. For the nine months ended September 30, ~~2017,~~2022, the Company reported net income of ~~$8.2~~$46.6 million. ~~After tax merger related costs~~

On February 25, 2022, the Company paid a cash dividend in the amount of ~~$3.9 million were expensed during the nine months ended September 30, 2017.~~

~~In each~~$0.17 per share to shareholders of record as of the ~~first, second, and third quarters~~close of ~~2017,~~business on February 10, 2022. On May 25, 2022, the Company ~~declared and~~ paid a cash dividend in the amount of $0.18 per share to shareholders of record as of the close of business on May 10, 2022. On July 27, 2022, the Company announced that its Board of Directors declared a cash dividend of ~~$.0375~~$0.19 per share to be paid on its common ~~share.~~

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.

NOTE 3 ~~— RECENT~~– ACCOUNTING ~~PRONOUNCEMENTS~~

STANDARDS

Effect of Recently Adopted Accounting Standards

In ~~May 2017, the~~November 2021, FASB issued ~~ASU~~Accounting Standard Update (“ASU”) No. ~~2017-09, “Stock Compensation, Scope of Modification Accounting.~~2021-10, Government Assistance (Topic 832): “Disclosures by Business Entities about Government Assistance.” ASU 2017-09 clarifies when changes to the terms of conditions of a share-based payment award must be accounted for as modifications. Companies will apply the modification accounting guidance if any change in the value, vesting conditions or classification of the award occurs. The new guidance should reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications, as the guidance will allow companies to make certain non-substantive changes to awards without accounting for them as modifications. It does not change the accounting for modifications. ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASU 2017-09 is not 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 onto the Company’s ~~Consolidated Financial Statements.~~

consolidated financial statements.

New Accounting Standards That Have Not Yet Been Adopted

In March ~~2017, the FASB issued ASU No. 2017-08, “~~~~Premium Amortization on Purchased Callable Debt Securities.”~~ ASU 2017-08 shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Currently, entities generally amortize the premium as an adjustment of yield over the contractual life of the security. The ASU does not change the accounting for purchased callable debt securities held at a discount as the discount will continue to be accreted to maturity. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which ASU 2017-08 is adopted. The Company is currently evaluating the provisions of ASU 2017-08 to determine the potential impact the new standard will have on its Consolidated Financial Statements.

~~In January 2017, the FASB issued ASU No. 2017-04,~~~~“Simplifying the Test for Goodwill Impairment.”~~ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company is currently assessing the impact of ASU 2017-04 on its Consolidated Financial Statements.

~~In August 2016, the FASB issued ASU No. 2016-15,~~~~“Classification of Certain Cash Receipts and Cash Payments."~~ Current GAAP is unclear or does not include specific guidance on how to classify certain transactions in the statement of cash flows. ASU 2016-15 is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU 2016-15 is not expected to have a material impact on the Company's Consolidated Financial Statements.

~~In June 2016,~~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 or

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another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

In October 2021, FASB issued ASU No. ~~2016-13, “~~2021-08, Business Combination (Topic 805): “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendment improves comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. This ASU is effective for the Company after December 15, 2022. The Company is assessing ASU 2021-08 and its impact on the Company’s consolidated financial statements.

In March 2022, FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): ~~Measurement of Credit Losses on Financial Instruments”~~~~(ASU 2016-13). ASU 2016-13 requires~~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 ~~impairment model known as~~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 ~~current expected credit loss (“CECL”)~~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 ~~significantly changes~~requires that an entity disclose the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of financial instruments. The main provisions of ASU 2016-13 include (1) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at amortized cost ~~(2) requiring entities to record an allowance for~~basis of financing receivables by credit ~~losses related to available-for-sale debt securities rather than a direct write-down~~quality indicator and class of ~~the carrying amount~~financing receivable by year of ~~the investments, as is required by the other-than-temporary-impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans.~~origination. This ASU ~~2016-13~~ is effective for ~~interim and annual reporting periods beginning~~the Company after December 15, ~~2019, although early adoption is permitted. The Company is currently assessing the impact of the adoption of ASU 2016-13 on its Consolidated Financial Statements.~~

~~In February 2016, the FASB issued ASU NO. 2016-02 “~~~~Leases (Topic 842).”~~ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If neither risks and rewards nor control is conveyed, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted.2022. The Company is assessing ASU 2022-02 and its impact on the ~~impact of ASU 2016-02 on its accounting and disclosures.~~

Company’s consolidated financial statements.

NOTE 4 – BUSINESS COMBINATIONS

Acquisitions

~~Iberville Bank~~

Beach Bancorp, Inc.

On ~~January~~August 1, ~~2017,~~2022, the Company completed its acquisition of ~~100%~~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 ~~common stock~~merger of ~~Iberville~~BBI with and into the Company, Beach Bank, ~~Plaquemine, Louisiana, from A. Wilbert’s Sons Lumber and Shingle Co. (“Iberville Parent”), and immediately thereafter merged Iberville Bank (“Iberville”), the~~BBI's wholly-owned subsidiary, ~~of Iberville Parent,~~was merged with and into The ~~First.~~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 ~~a total~~consideration of ~~$31.1~~approximately $101.5 million ~~in cash. Approximately $2.5 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 ~~price is being held in escrow as contingency for flood-related losses in~~an additional 310,427 shares of the ~~loan portfolio that may be incurred due to flooding in Iberville’s market area in the fall of 2016.~~

Company's common stock.

In connection with the acquisition of BBI, the Company recorded approximately ~~$5.6~~$21.8 million of goodwill and ~~$2.7~~$9.8 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible iswill be amortized to ~~be expensed~~expense over 10 years.

The Company ~~acquired Iberville’s $149.4~~also incurred $1.3 million ~~loan portfolio at an estimated fair value discount~~ of ~~$0.8 million. The discount represents expected~~provision for credit losses ~~adjusted for market interest rates and liquidity adjustments.~~

on credit marks from the loans acquired from Beach Bank.

Expenses associated with the BBI acquisition were ~~$3.5~~$2.3 million and $2.9 million for the three months and nine ~~month~~months period ended September 30, ~~2017.~~2022, respectively. These costs included ~~system conversion and integrating operations~~ charges ~~as well as~~associated with legal and consulting expenses, which have been expensed as incurred.

The ~~preliminary amounts of the~~assets acquired ~~identifiable assets~~ and liabilities asassumed 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 ~~were~~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

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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 ~~follows:~~

($ In Thousands)
Purchase price:
Cash $ 31,100
Total purchase price 31,100

Identifiable assets:
Cash and due from banks 28,789
Investments 78,613
Loans 148,516
Core deposit intangible 2,688
Personal and real property 4,603
Other assets 9,330
Total assets 272,539

Liabilities and equity:
Deposits 243,656
Borrowed funds 456
Other liabilities 2,928
Total liabilities 247,040
Net assets acquired 25,499
Goodwill resulting from acquisition $ 5,601

~~Valuation~~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 ~~have been made to securities, personal and real property, and~~on loans, core deposit intangible ~~since initially reported.~~

~~The outstanding principal balance~~ and the ~~carrying amount of these loans included in~~deferred income tax assets resulting from the ~~consolidated balance sheet at September 30, 2017, are as follows ($ In Thousands):~~

Outstanding principal balance $ 132,277
Carrying amount 131,535

acquisition.

The following ~~unaudited supplemental pro forma information is presented to show~~table summarizes the ~~Company’s estimated results assuming Iberville was acquired as of January 1, 2016. These unaudited pro forma results are not necessarily indicative~~provisional fair values of the ~~operating results that~~assets acquired and liabilities assumed and the ~~Company would have achieved had it~~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 ~~the~~its acquisition as of ~~January 1, 2016 and should not be considered as representative of future operating results. Pro forma information for 2017 is not necessary because Iberville~~seven Cadence Bank, ~~is included~~N.A. (“Cadence”) branches in ~~the Company’s results for the entire nine and three months ended September 30, 2017.~~

For the Three For the Nine
($ In Thousands) Months Ended Months Ended
Performance Measures (pro forma, unaudited) Sept. 30, 2016 Sept. 30, 2016

Net interest income $ 12,428 $ 36,479
Net income available to common shareholders 2,667 8,366
Diluted earnings per common share 0.49 1.53

~~Gulf Coast Community Bank~~

~~Also on January 1, 2017, the Company completed the merger of Gulf Coast Community Bank (“GCCB”~~Northeast Mississippi (the “Cadence Branches”), Pensacola, Florida, with and into The First. The Company issued to GCCB’s shareholders shares of the Company’s common stock which, for purposes of the GCCB acquisition, were valued through averaging the trading price of the Company’s common stock price over a 30 day trading period ending on the fifth business day prior to the closing of the acquisition. Fractional shares were acquired with cash. The consideration was approximately $2.3 million.

. 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 ~~approximately $1.1~~a $1.6 million ~~of goodwill~~bargain purchase gain and ~~$1.0~~$2.9 million of 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 iswill be amortized to ~~be expensed~~expense over 10 years.

The Company ~~acquired GCCB’s $91.0 million loan portfolio at a fair value discount~~also incurred $370 thousand of ~~approximately $2.2 million. The discount represents expected~~provision for credit losses ~~adjusted for market interest rates and liquidity adjustments.~~

on credit marks from the loans acquired.

Expenses associated with the branch acquisition of the Cadence Branches were ~~$2.8 million~~$142 thousand and $604 thousand for the three months and nine ~~month~~months period ended September 30, ~~2017.~~2022, respectively. These costs included ~~systems conversion and integrating operations~~ charges ~~as well as~~associated with legal and consulting expenses, which have been expensed as incurred.

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The ~~preliminary amounts~~assets acquired and liabilities assumed and consideration paid in the acquisition of the ~~acquired identifiable assets and liabilities as~~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 ~~were~~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 ~~follows:~~

($ In Thousands)
Purchase price:
Cash and stock $ 2,258
Total purchase price 2,258

Identifiable assets:
Cash and due from banks 5,733
Investments 13,805
Loans 88,801
Core deposit intangible 953
Personal and real property 4,739
Other real estate 7,393
Deferred tax asset 6,693
Other assets 468
Total assets 128,585

Liabilities and equity:
Deposits 111,993
Borrowed funds 14,450
Other liabilities 950
Total liabilities 127,393
Net assets acquired 1,192
Goodwill resulting from acquisition 1,066

~~Valuation~~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 ~~have been made to securities,~~on loans, core deposit intangible and ~~other real estate since initially reported. Also,~~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 (bargain purchase gain) generated from the transaction ($ in thousands):


Purchase price:
Cash	$	1,000
Total purchase price	1,000
Identifiable assets:
Cash	$	359,916
Loans	40,262
Core deposit intangible	2,890
Personal and real property	9,675
Other assets	135
Total assets	412,878
Liabilities and equity:
Deposits	410,171
Other liabilities	126
Total liabilities	410,297
Net assets acquired	2,581
Bargain purchase gain	$	(1,581)

Supplemental Pro Forma Information

The following table presents certain ~~amounts have~~supplemental pro forma information, for illustrative purposes only, for the nine months ended September 30, 2022 and 2021 as if the Cadence and BBI acquisitions had occurred on January 1, 2021. The pro forma financial information is not necessarily indicative of the results of operations had the acquisitions been ~~reclassified~~effective as of this date.


($ in thousands)	(unaudited)		(unaudited)
	Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Net interest income	$	140,551	$	129,439
Non-interest income	33,710		45,114
Total revenue	174,261		174,553
Income before income taxes	69,123		63,787

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

Table of ~~the Company.~~

~~The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at September 30, 2017, are as follows ($ In Thousands):~~

Outstanding principal balance $ 67,225
Carrying amount 67,275

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NOTE 5 – ~~PREFERRED STOCK AND WARRANT~~

~~On December 6, 2016, the Company repurchased all 17,123 shares of its CDCI Preferred Shares at fair market value $15,925,000, which equated to a discount of 7% to par, or $1,198,000.~~

~~NOTE 6 —~~ EARNINGS APPLICABLE TO COMMON ~~STOCKHOLDERS~~

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.

For the Three Months Ended
September 30, 2017
Net Income Shares Per
(Numerator) (Denominator) Share Data

Basic per share $ 4,714,000 9,152,674 $ 0.52

Effect of dilutive shares:
Restricted stock grants 71,807

Diluted per share $ 4,714,000 9,224,481 $ 0.51

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):

For the Nine Months Ended
September 30, 2017
Net Income Shares Per
(Numerator) (Denominator) Share Data

Basic per share $ 8,202,000 9,140,375 $ 0.90

Effect of dilutive shares:
Restricted stock grants 71,807

Diluted per share $ 8,202,000 9,212,182 $ 0.89

For the Three Months Ended
September 30, 2016
Net Income Shares Per
(Numerator) (Denominator) Share Data

Basic per share $ 2,472,000 5,429,349 $ 0.46

Effect of dilutive shares:
Restricted stock grants 50,218

Diluted per share $ 2,472,000 5,479,567 $ 0.45

For the Nine Months Ended
September 30, 2016
Net Income Shares Per
(Numerator) (Denominator) Share Data

Basic per share $ 7,554,000 5,425,567 $ 1.39

Effect of dilutive shares:
Restricted stock grants 50,218

Diluted per share $ 7,554,000 5,475,785 $ 1.38


	Three Months Ended September 30, 2022					Three 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	$	14,043	22,861,795	$	0.61	$	16,132	21,020,128	$	0.77
Effect of dilutive shares:
Restricted stock grants			117,734					190,763
Diluted earnings per share	$	14,043	22,979,529	$	0.61	$	16,132	21,210,891	$	0.76

	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

The Company granted ~~73,827~~82,123 shares and 84,578 shares of restricted stock in the first quarter of ~~2017, 9,709~~2022 and 2021, respectively. The Company granted 47,827 shares ~~during~~and 3,000 shares of restricted stock in the second quarter of ~~2017,~~2022 and ~~750~~2021, respectively. The Company granted 60 shares ~~during~~and 0 shares of restricted stock in the third quarter of ~~2017.~~

2022 and 2021, respectively.

NOTE 76 – 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 ~~investment~~ securities, ~~and loans held for sale. Gains or losses on investment securities that were realized and reflected in net income~~which are also recognized as separate components of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period.

equity.

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NOTE 87 – FINANCIAL INSTRUMENTS WITH ~~OFF-BALANCE-SHEET~~OFF-BALANCE SHEET RISK

The Company is a party to financial instruments with ~~off-balance-sheet~~off-balance sheet risk in the normal course of business to meet the financing needs of its customers. At September 30, ~~2017,~~2022, and December 31, ~~2016,~~2021 these financial instruments consisted of the following:

($ In Thousands) September 30, 2017 December 31, 2016
Commitments to extend credit $ 265,233 $ 220,252
Standby letters of credit 8,204 1,742


($ in thousands)	September 30, 2022				December 31, 2021
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	85,066	$	11,113	$	80,760	$	23,946
Unused lines of credit	219,118		314,864		213,332		309,791
Standby letters of credit	4,470		10,079		2,586		9,737

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

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 and December 31, 2021. 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)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Balance at beginning of period	$	1,220	$	718	$	1,070	$	—
Adoption of ASU 326	—		—		—		718
Credit loss expense related to OBSC exposures	—		—		150		—
Balance at end of period	$	1,220	$	718	$	1,220	$	718

Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses OBSC exposures. The Company recorded no provision and $150 thousand for the three months and nine months period ended September 30, 2022. The increase in the ACL on OBSC exposures for the nine months ended September 30, 2022 was primarily due to 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 98 – FAIR VALUE DISCLOSURES AND REPORTING, THE FAIR VALUE OPTION AND FAIR VALUE MEASUREMENTS

FASB’s standards on financial instruments, and on fair value measurements and disclosures, require all entities to disclose in their financial statement footnotes the estimated fair values of financial instruments for which it is practicable to estimate fair values. In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities which are classified as available-for-sale and our equity securities that have readily determinable fair values be measured and reported at fair value in our Consolidated Financial Statements. Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value. FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but we have not elected the fair value option for any of those financial instruments.

~~Fair value measurement and disclosure standards also establish a framework for measuring fair values.~~

Fair value is ~~defined as~~ the exchange price that would be received for an asset or paid to transfer a liability ~~(an exit~~(exit price) in the principal or most advantageous market for the ~~asset~~assets or liability in an orderly transaction between market participants on the measurement date. Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values. The standards describeThere 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.

~~Level 3~~

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.~~

~~Fair value estimates are made at a specific point in time based on relevant market data and information~~ about the ~~financial instruments. The estimates do not reflect any premium~~factors that market participants would likely consider in pricing an asset or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to realized gains and losses could have a significant effect on fair value estimates but have not been considered in those estimates. Because no active market exists for a significant portion of our financial instruments, fair value disclosures are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. The estimates are subjective and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly alter the fair values presented. liability.

The following methods and assumptions were used by the Company to estimate its financial instrument fair values disclosed at September 30, ~~2017~~2022 and December 31, ~~2016:~~

2021:

~~Cash and cash equivalents and fed funds sold~~•Investment Securities: The ~~carrying amount is estimated to be fair value.~~

~~Securities (available-for-sale and held-to-maturity)~~: Fair values are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities when quoted prices for specific securities are not readily available.

~~Loans and leases~~: For variable-rate loans and leases that re-price frequently with no significant change in credit risk or interest rate spread, fair values are based on carrying values. Fair values for other loans and leases are estimated by discounting projected cash flows at interest rates being offered at each reporting date for loans and leases with similar terms, to borrowers of comparable creditworthiness. The carrying amount of accrued interest receivable approximates its fair value.

~~Loans held for sale~~: Since loans designated by the Company 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 period of time, the fair value of those loans is determined using quoted secondary-market prices.

~~Collateral-dependent impaired loans~~: Collateral-dependent impaired loans are carried at fair value when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable.

~~Bank-owned life insurance: Fair values are based on net cash surrender policy values at each reporting date.~~

~~Other securities~~: Certain investments for which no secondary market exists are carried at cost and the carrying amount for those investments typically approximates their estimated fair value, unless an impairment analysis indicates the need for adjustments.

~~Deposits (noninterest-bearing and interest-bearing)~~: Fair values for non-maturity deposits are equal to the amount payable on demand at the reporting date, which is the carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a cash flow analysis, discounted at interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

~~FHLB and other borrowings~~: Current carrying amounts are used as an approximation of fair values for federal funds purchased, overnight advances from the Federal Home Loan Bank (“FHLB”), borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days of the reporting dates. Fair values of other short-term borrowings are estimated by discounting projected cash flows at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

~~Long-term borrowings: Fair values are estimated using projected cash flows discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements.~~

~~Subordinated debentures: Fair values are determined based on the current market value for like instruments of a similar maturity and structure.~~

~~Off-Balance Sheet Instruments~~ – Fair values of off-balance sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value until such commitments are funded or closed. Management has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned.

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

~~As of September 30, 2017~~
~~($ In Thousands)~~

Fair Value Measurements

Carrying
Amount

Estimated
Fair
Value

Quoted Prices
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Instruments:
Assets:
Cash and cash equivalents $ 93,317 $ 93,317 $ 93,317 $ - $ -
Securities available-for-sale 353,035 353,035 931 349,770 2,334
Securities held-to-maturity 6,000 7,388 - 7,388 -
Other securities 9,556 9,556 - 9,556 -
Loans, net 1,194,606 1,222,370 - - 1,222,370
Bank-owned life insurance 26,367 26,367 - 26,367 -

Liabilities:
Noninterest-bearing deposits $ 308,050 $ 308,050 $ - $ 308,050 $ -
Interest-bearing deposits 1,199,941 1,198,411 - 1,198,411 -
Subordinated debentures 10,310 10,310 - - 10,310
FHLB and other borrowings 94,321 94,321 - 94,321 -

~~As of December 31, 2016~~
~~($ In Thousands)~~

Fair Value Measurements

Carrying
Amount

Estimated
Fair
Value
Quoted
Prices
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Instruments:
Assets:
Cash and cash equivalents $ 62,119 $ 62,119 $ 62,119 $ - $ -
Securities available-for-sale 243,206 243,206 940 240,025 2,241
Securities held-to-maturity 6,000 7,394 - 7,394 -
Other securities 6,593 6,593 - 6,593 -
Loans, net 865,424 883,161 - - 883,161
Bank-owned life insurance 21,250 21,250 - 21,250 -

Liabilities:
Noninterest- bearing deposits $ 202,478 $ 202,478 $ - $ 202,478 $ -
Interest-bearing deposits 836,713 835,658 - 835,658 -
Subordinated debentures 10,310 10,310 - - 10,310
FHLB and other borrowings 69,000 69,000 - 69,000 -

~~Where quoted prices are available in an active market,~~investment securities are ~~classified within Level 1 of the valuation hierarchy. Level 1~~determined by quoted market prices, if available (Level 1). For securities ~~include highly liquid government bonds, mortgage products and exchange traded equities. If~~where, quoted ~~market~~ prices are not available, ~~securities are classified within Level 2 of the valuation hierarchy, and~~ fair values are ~~estimated by~~calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing ~~models,~~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 ~~with similar characteristics, or~~are not available, fair values are calculated using discounted cash ~~flow. Level 2 securities include U. S. agency securities, mortgage-backed securities, obligations~~flows or other market indicators (Level 3).

•Loans Held for Sale: Since loans designated by the Company 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 period of ~~states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to~~time, the ~~valuation, securities are classified within Level 3 of the valuation hierarchy.~~

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

~~September 30, 2017~~

~~($ In Thousands)~~

Fair Value Measurements Using

Quoted Prices
in
Active
Markets
For
Identical
Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Fair Value (Level 1) (Level 2) (Level 3)

Obligations of U. S. Government Agencies $ 6,505 $ - $ 6,505 $ -
Municipal securities 135,155 - 135,155 -
Mortgage-backed securities 193,039 - 193,039 -
Corporate obligations 17,405 - 15,071 2,334
Other 931 931 - -
Total $ 353,035 $ 931 $ 349,770 $ 2,334

of those loans is determined using quoted secondary-market prices.

~~December 31, 2016~~

~~($ In Thousands)~~

Fair Value Measurements Using

Quoted Prices
in
Active
Markets
For
Identical
Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Fair Value (Level 1) (Level 2) (Level 3)

Obligations of U. S. Government Agencies $ 9,045 $ - $ 9,045 $ -
Municipal securities 98,822 - 98,822 -
Mortgage-backed securities 114,289 - 114,289 -
Corporate obligations 20,110 - 17,869 2,241
Other 940 940 - -
Total $ 243,206 $ 940 $ 240,025 $ 2,241

~~The following is a reconciliation of activity for assets measured at fair value based on significant unobservable (non-market) information.~~

~~($ In Thousands)~~

Bank-Issued
Trust
Preferred
Securities
2017 2016
Balance, January 1 $ 2,241 $ 2,557
Transfers into Level 3 - -
Transfers out of Level 3 - -
Other-than-temporary impairment loss included in earnings (loss) - -
Unrealized gain (loss) included in comprehensive income 93 (316 )
Balance at September 30, 2017 and December 31, 2016 $ 2,334 $ 2,241

~~The following table presents quantitative information about recurring Level 3 fair value measurements (in thousands)~~•Collateral Dependent Loans:

Trust Preferred
Securities Fair Value Valuation
Technique Significant
Unobservable
Inputs Range of
Inputs
September 30, 2017 $ 2,334 Discounted cash flow Probability of default 1.87% - 3.50%
December 31, 2016 $ 2,241 Discounted cash flow Probability of default 1.50% - 3.34%

Following is a description of the valuation methodologies used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

~~Impaired 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. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method.

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 ~~and applying~~underlying such loans. Such adjustments, if any, result in a discount factor to the value. If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the impaired loan to be recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or costs, or premium or discount existing at origination or acquisitionLevel 3 classification of the ~~loan.~~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 ~~classified within Level 2 of the fair value hierarchy.~~

evaluated on a quarterly basis for additional impairment.

•Other Real Estate Owned

:Other real estate owned ~~acquired~~consists of properties obtained through ~~loan foreclosure is initially recorded at fair value less estimated costs to sell, establishing a new cost basis.~~foreclosure. The adjustment at the time of foreclosure is recorded through the allowance for ~~loan~~credit losses. Fair value of other real estate owned is based on current independent appraisals of the collateral less costs to sell when acquired, establishing a new 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 ~~expense.~~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 ~~posted to~~recorded in other non-interest ~~expense.~~income. Other real estate owned ~~measured at~~is classified within Level 3 of the fair value hierarchy.

•Interest Rate Swaps: The Company offers interest rate swaps to certain commercial loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a ~~non-recurring basis at September 30, 2017, amounted~~variable rate loan and enters into a variable to ~~$7.9 million. Other real estate owned~~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 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
($ in thousands)
					Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)


Financial Instruments:
Assets:
Cash and cash equivalents	$	163,841	$	163,841	$	163,841	$	—	$	—
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 held-to-maturity	593,553		593,553		—		593,553		—
Loans, net	3,681,032		3,684,489		—		—		3,684,489
Accrued interest receivable	24,570		23,317		—		8,495		14,822
Interest rate swaps	13,258		13,258		—		13,258		—
Liabilities:
Noninterest-bearing deposits	$	1,770,848	$	1,770,848	$	—	$	1,770,848	$	—
Interest-bearing deposits	3,780,450		3,614,886		—		3,614,886		—
Subordinated debentures	144,952		137,418		—		—		137,418
FHLB advances and other borrowings	90,000		90,000		—		90,000		—
Accrued interest payable	1,365		1,365		—		1,365		—
Interest rate swaps	13,258		13,258		—		13,258		—

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


Financial Instruments:
Assets:
Cash and cash equivalents	$	919,713	$	919,713	$	919,713	$	—	$	—
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
Loans, net	2,928,811		2,956,297		—		—		2,956,297
Accrued interest receivable	23,256		23,256		—		6,838		16,418
Liabilities:
Non-interest-bearing deposits	$	1,550,381	$	1,550,381	$	—	$	1,550,381	$	—
Interest-bearing deposits	3,676,403		3,644,418		—		3,644,418		—
Subordinated debentures	144,726		156,952		—		—		156,952
Accrued interest payable	1,711		1,711		—		1,711		—

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


September 30, 2022
($ 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)
Assets:
Available-for-sale
U.S. Treasury	$	122,918	$	122,918	$	—	$	—
Obligations of U.S. Government agencies and sponsored entities	144,926		—		144,926		—
Municipal securities	550,891		—		533,933		16,958
Mortgage-backed securities	517,432		—		517,432		—
Corporate obligations	43,243		—		43,211		32
Total available-for-sale	$	1,379,410	$	122,918	$	1,239,502	$	16,990
Interest rate swaps	$	13,258	$	—	$	13,258	$	—
Liabilities
Interest rate swaps	$	13,258	$	—	$	13,258	$	—

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December 31, 2021
($ 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)
Available-for-sale
U.S. Treasury	$	135,158	$	135,158	$	—	$	—
Obligations of U.S. Government agencies and sponsored entities	183,021		—		183,021		—
Municipal securities	708,502		—		688,379		20,123
Mortgage-backed securities	688,298		—		688,298		—
Corporate obligations	36,853		—		36,810		43
Total available-for-sale	$	1,751,832	$	135,158	$	1,596,508	$	20,166

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
($ in thousands)	2022		2021
Balance, January 1	$	43	$	235
Paydowns	(11)		(64)
Unrealized gain included in comprehensive income	—		55
Balance at September 30	$	32	$	226


	Municipal Securities
($ in thousands)	2022		2021
Balance, January 1	$	20,123	$	20,126
Purchases	—		4,209
Maturities, calls and paydowns	(524)		(4,474)
Unrealized loss included in comprehensive income	(2,641)		(496)
Balance at September 30	$	16,958	$	19,365

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 and December 31, 2021. 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

Discounted cash flow

Probability of default

5.78% - 6.11%

December 31, 2021

Discounted cash flow

Probability of default

2.35% - 2.47%

Municipal Securities

Fair Value

Valuation Technique

Significant
Unobservable Inputs

Range of Inputs

September 30, 2022

16,958

Discounted cash flow

Discount Rate

1.10% - 4.62%

December 31, 2021

20,123

Discounted cash flow

Discount Rate

0.50% - 1.90%

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The following table presents the fair value measurement of assets measured at fair value on a ~~nonrecurring~~non-recurring basis and the level within the fair value hierarchy in which the fair value measurements ~~fell~~were classified at September 30, ~~2017~~2022 and December 31, ~~2016.~~

~~($ In Thousands)~~

2021.


September 30, 2022
($ 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)
Collateral dependent loans	$	6,633	$	—	$	—	$	6,633
Other real estate owned	10,328		—		—		10,328


December 31, 2021
($ 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)
Collateral dependent loans	$	3,564	$	—	$	—	$	3,564
Other real estate owned	2,565		—		—		2,565

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, ~~2017~~

2022 and December 31, ~~2016~~

~~NOTE 10 - SECURITIES~~

2021.


($ in thousands)	September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
U.S. Treasury	$	135,786	$	—	$	12,868	$	122,918
Obligations of U.S. government agencies and sponsored entities	164,486		4		19,564		144,926
Tax-exempt and taxable obligations of states and municipal subdivisions	661,260		546		110,915		550,891
Mortgage-backed securities - residential	353,965		15		46,071		307,909
Mortgage-backed securities - commercial	234,860		71		25,408		209,523
Corporate obligations	45,933		—		2,690		43,243
Total available-for-sale	$	1,596,290	$	636	$	217,516	$	1,379,410
Held-to-maturity:
U.S. Treasury	$	109,578	$	—	$	5,670	$	103,908
Obligations of U.S. government agencies and sponsored entities	33,074		—		2,164		30,910
Tax-exempt and taxable obligations of states and municipal subdivisions	146,789		—		18,975		127,814
Mortgage-backed securities - residential	159,844		—		19,253		140,591
Mortgage-backed securities - commercial	134,268		—		13,350		120,918
Corporate obligations	10,000		—		1,453		8,547
Total held-to-maturity	$	593,553	$	—	$	60,865	$	532,688

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($ in thousands)	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
U.S. Treasury	$	135,889	$	83	$	814	$	135,158
Obligations of U.S. government agencies sponsored entities	182,877		1,238		1,094		183,021
Tax-exempt and taxable obligations of states and municipal subdivisions	698,861		12,452		2,811		708,502
Mortgage-backed securities - residential	410,269		4,123		3,425		410,967
Mortgage-backed securities - commercial	277,353		2,917		2,939		277,331
Corporate obligations	35,904		962		13		36,853
Total available-for-sale	$	1,741,153	$	21,775	$	11,096	$	1,751,832

The ~~following disclosure of the estimated~~amortized cost and fair value of ~~financial instruments is made in accordance~~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 ~~authoritative guidance. The estimated~~or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

ACL on Securities

Securities Available for Sale

Quarterly, the Company evaluates if a security has a fair value ~~amounts have been determined using available market information and valuation methodologies that management believes~~less than its amortized cost. Once these securities are ~~appropriate. However, considerable judgment is necessarily required~~identified, in order to ~~interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized~~determine whether a decline in ~~a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated~~ fair value ~~amounts.~~

~~A summary of~~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 ~~estimated~~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 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 and December 31, 2021, 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 million and $6.8 million at September 30, 2022 and December 31, 2021, 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 and December 31, 2021.

Securities Held to Maturity

At September 30, 2022, the potential credit loss exposure was $402 thousand 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

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

At September 30, 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 September 30, 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, 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

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


($ in thousands)	September 30, 2022
	Amortized Cost		Fair Value
Available-for-sale:
Due less than one year	$	26,758	$	26,432
Due after one year through five years	276,821		256,948
Due after five years through ten years	376,584		324,364
Due greater than ten years	327,302		254,234
Mortgage-backed securities - residential	353,965		307,909
Mortgage-backed securities - commercial	234,860		209,523
Total	$	1,596,290	$	1,379,410

Held-to-maturity:
Due less than one year	$	20,850	$	20,558
Due after one year through five years	109,905		103,568
Due after five years through ten years	41,211		36,786
Due greater than ten years	127,475		110,267
Mortgage-backed securities - residential	159,844		140,591
Mortgage-backed securities - commercial	134,268		120,918
Total	$	593,553	$	532,688

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

Table of Contents

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 and December 31, 2021. There were no held-to-maturity securities at December 31, 2021. The securities are aggregated by major security type and length of time in a continuous unrealized loss position:


($ in thousands)	September 30, 2022
	Losses < 12 Months				Losses 12 Months or >				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:
U.S. Treasury	$	104,630	$	10,570	$	18,288	$	2,298	$	122,918	$	12,868
Obligations of U.S. government agencies and sponsored entities	78,456		9,317		65,383		10,247		143,839		19,564
Tax-exempt and taxable obligations of state and municipal subdivisions	411,023		80,247		125,582		30,668		536,605		110,915
Mortgage-backed securities - residential	129,058		14,720		177,053		31,351		306,111		46,071
Mortgage-backed securities - commercial	113,360		10,431		91,036		14,977		204,396		25,408
Corporate obligations	43,215		2,686		28		4		43,243		2,690
Total	$	879,742	$	127,971	$	477,370	$	89,545	$	1,357,112	$	217,516

Held-to-maturity:
U.S. Treasury	$	103,908	$	5,670	$	—	$	—	$	103,908	$	5,670
Obligations of U.S. government agencies and sponsored entities	30,910		2,164		—		—		30,910		2,164
Tax-exempt and taxable obligations of state and municipal subdivisions	120,472		18,975		—		—		120,472		18,975
Mortgage-backed securities - residential	140,591		19,253		—		—		140,591		19,253
Mortgage-backed securities - commercial	120,918		13,350		—		—		120,918		13,350
Corporate obligations	8,547		1,453		—		—		8,547		1,453
Total	$	525,346	$	60,865	$	—	$	—	$	525,346	$	60,865

Table of Contents


($ in thousands)	December 31, 2021
	Losses < 12 Months				Losses 12 Months or >				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Treasury	$	130,098	$	814	$	—	$	—	$	130,098	$	814
Obligations of U.S. government agencies and sponsored entities	121,402		933		5,254		161		126,656		1,094
Tax-exempt and taxable obligations of state and municipal subdivisions	249,430		2,692		3,692		119		253,122		2,811
Mortgage-backed securities - residential	284,183		3,228		8,912		197		293,095		3,425
Mortgage-backed securities - commercial	174,697		2,836		3,038		103		177,735		2,939
Corporate obligations	6,692		8		42		5		6,734		13
Total	$	966,502	$	10,511	$	20,938	$	585	$	987,440	$	11,096

At September 30, ~~2017~~2022 and December 31, ~~2016, follows:~~

~~($ In Thousands)~~

September 30, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Available-for-sale securities:
Obligations of U.S. Government agencies $ 6,494 $ 14 $ 3 $ 6,505
Tax-exempt and taxable obligations of states and municipal subdivisions 132,323 3,069 237 135,155
Mortgage-backed securities 191,869 1,712 542 193,039
Corporate obligations 18,368 69 1,032 17,405
Other 1,255 - 324 931
$ 350,309 $ 4,864 $ 2,138 $ 353,035
Held-to-maturity securities:
Taxable obligations of states and municipal subdivisions $ 6,000 $ 1,388 $ - $ 7,388

2021, the Company’s securities portfolio consisted of 1,392 and 304 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 Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis. No allowance for credit losses was needed at September 30, 2022 and December 31, 2021.

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.

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.

Table of Contents

The following table shows the composition of the loan portfolio:


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

Loans held for investment
Commercial, financial and agriculture (1)	$	517,197	$	397,516
Commercial real estate	2,125,471		1,683,698
Consumer real estate	1,032,343		838,654
Consumer installment	44,377		39,685
Total loans	3,719,388		2,959,553
Less allowance for credit losses	(38,356)		(30,742)
Net LHFI	$	3,681,032	$	2,928,811

	19
(1)			Loan balance includes $1.5 million and $41.1 million in Paycheck Protection Program (“PPP”) loans as of September 30, 2022 and December 31, 2021, respectively.

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Available-for-sale securities:
Obligations of U.S. Government agencies $ 9,023 $ 28 $ 6 $ 9,045
Tax-exempt and taxable obligations of states and municipal subdivisions 98,328 1,678 1,184 98,822
Mortgage-backed securities 114,991 602 1,304 114,289
Corporate obligations 21,274 66 1,230 20,110
Other 1,256 - 316 940
$ 244,872 $ 2,374 $ 4,040 $ 243,206
Held-to-maturity securities:
Taxable obligations of states and municipal subdivisions $ 6,000 $ 1,394 $ - $ 7,394

~~NOTE 11 – LOANS~~

~~Loans typically provide higher yields than~~Accrued interest receivable is not included in the ~~other types of earning assets, and, thus, one~~amortized cost basis of the ~~Company's goals is for loans to be the largest category of the Company's earning assets. For the quarters ended~~Company’s LHFI. At September 30, ~~2017~~2022 and December 31, ~~2016, average~~2021, accrued interest receivable for LHFI totaled $16.1 million and $16.4 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 ~~accounted for 74.1% and 73.8% of average earning assets, respectively. The Company controls and mitigates the inherent credit and liquidity risks through the composition of its loan portfolio.~~

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.

The following tables ~~summarize by class our loans classified as~~presents the aging of the amortized cost basis in past due ~~in excess of 30 days or more~~loans in addition to those loans classified as ~~non-accrual:~~

nonaccrual including purchase credit deteriorated (“PCD”) loans:


($ in thousands)	September 30, 2022
	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)	$	293	$	—	$	29	$	—	$	322	$	517,197	$	—
Commercial real estate	121		—		10,253		1,198		11,572		2,125,471		5,265
Consumer real estate	1,452		571		3,282		1,079		6,384		1,032,343		1,339
Consumer installment	144		—		3		—		147		44,377		—
Total	$	2,010	$	571	$	13,567	$	2,277	$	18,425	$	3,719,388	$	6,604

~~September 30, 2017~~

~~($ In thousands)~~

Past Due
30 to 89
Days

Past Due
90 Days
or More
and Still
Accruing
Non-
Accrual
Total
Past Due
and
Non-
Accrual

Total
Loans

Real Estate-construction $ 497 $ 105 $ 98 $ 700 $ 171,609
Real Estate-mortgage 1,630 180 2,733 4,543 377,307
Real Estate-non farm non-residential 759 - 1,764 2,523 456,110
Commercial 115 1,151 211 1,477 164,577
Lease Financing Rec. - - - - 2,008
Obligations of states and subdivisions - - - - 5,892
Consumer 140 - 46 186 20,690
Total $ 3,141 $ 1,436 $ 4,852 $ 9,429 $ 1,198,193

	20
(1)			Total loan balance includes $1.5 million in PPP loans as of September 30, 2022.

Table of Contents


	December 31, 2021
($ 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)	$	246	$	—	$	190	$	—	$	436	$	397,516	$	—
Commercial real estate	453		—		19,445		2,082		21,980		1,683,698		1,661
Consumer real estate	2,140		45		3,776		2,512		8,473		838,654		1,488
Consumer installment	121		—		7		1		129		39,685		—
Total	$	2,960	$	45	$	23,418	$	4,595	$	31,018	$	2,959,553	$	3,149

~~December 31, 2016~~

~~($ In Thousands)~~

Past Due
30 to 89
Days

Past Due
90 Days
or More
and
Still
Accruing
Non-
Accrual
Total
Past Due
and
Non-
Accrual

Total
Loans

Real Estate-construction $ 204 $ 96 $ 658 $ 958 $ 109,394
Real Estate-mortgage 2,745 102 1,662 4,509 289,640
Real Estate-non farm non residential 269 - 909 1,178 314,359
Commercial 9 - 2 11 129,423
Lease Financing Rec. - - - - 2,204
Obligations of states and subdivisions - - - - 6,698
Consumer 22 - 33 55 15,336
Total $ 3,249 $ 198 $ 3,264 $ 6,711 $ 867,054


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

Acquired Loans

In connection with ~~our acquisition of BCB Holding~~the acquisitions, the Company ~~Inc. in 2014, we~~ acquired loans both with ~~deteriorated~~and without evidence of credit ~~quality. These~~quality deterioration since origination. Acquired loans ~~were~~are recorded at ~~estimated~~their fair value at the time of acquisition ~~date~~ with no carryover offrom the ~~related~~acquired institution's previously recorded allowance for ~~loan~~credit losses. The acquired loans were segregated as of the acquisition date between those considered to be performing (acquired non-impaired loans) and those with evidence of credit deterioration (acquired impaired loans). Acquired loans are ~~considered impaired if there~~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 ~~evidence~~based upon several factors including the timing and payment of expected cash flows, as adjusted for estimated credit ~~deterioration~~losses and ifprepayments, 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 ~~probable,~~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 ~~all contractually required payments will~~was approximately $468.8 million, of which $6.4 million is the amount of contractual cash flows not expected to be collected.

The following table ~~presents information regarding~~shows the ~~contractually required payments receivable, cash flows expected to be collected and the estimated fair value~~carrying amount of loans acquired in the ~~BCB~~BBI acquisition ~~as of July 1, 2014,~~transaction for which there was, at the ~~closing~~ date of ~~the transaction:~~

~~($ In Thousands)~~

Commercial,
financial
and
agricultural

Mortgage-
Commercial

Mortgage-
Residential

Commercial
and other
Total
Contractually required payments $ 1,519 $ 29,648 $ 7,933 $ 976 $ 40,076
Cash flows expected to be collected 1,570 37,869 9,697 1,032 50,168
Fair value of loans acquired 1,513 28,875 7,048 957 38,393

acquisition, more than insignificant deterioration of credit quality since origination:

	21
($ 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

Total outstanding acquired impaired loans were $2.1 million as of September 30, 2017 and $2.2 million as of December 31, 2016. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off.

~~Changes in the carrying amount and accretable yield for acquired impaired loans were as follows at September 30, 2017 and December 31, 2016:~~

~~($ In Thousands)~~

September 30, 2017 December 31, 2016

Accretable
Yield

Carrying
Amount of
Loans

Accretable
Yield

Carrying
Amount of
Loans

Balance at beginning of period $ 894 $ 1,305 $ 1,219 $ 1,821
Accretion (43 ) 43 (325 ) 325
Payments received, net - (139 ) - (841 )
Balance at end of period $ 851 $ 1,209 $ 894 $ 1,305

The following tables provide additional detail of impaired loans broken out according to class as of September 30, 2017 and December 31, 2016. The recorded investment included in the following tables represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As nearly all of our impaired loans at September 30, 2017 are on nonaccrual status, recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.

~~September 30, 2017~~

~~($ In Thousands)~~

Average Interest
Recorded Income
Recorded Unpaid Related Investment Recognized
Investment Balance Allowance YTD YTD

Impaired loans with no related allowance:
Commercial installment $ 15 $ 15 $ - $ 45 $ -
Commercial real estate 4,383 4,504 - 3,358 89
Consumer real estate 2,235 2,437 - 1,826 63
Consumer installment 29 29 - 14 -
Total $ 6,662 $ 6,985 $ - $ 5,243 $ 152

Impaired loans with a related allowance:
Commercial installment $ 195 $ 195 $ 101 $ 115 $ -
Commercial real estate 2,499 2,499 237 2,786 80
Consumer real estate 506 506 136 490 12
Consumer installment 23 23 17 24 -
Total $ 3,223 $ 3,223 $ 491 $ 3,415 $ 92

Total Impaired Loans:
Commercial installment $ 210 $ 210 $ 101 $ 160 $ -
Commercial real estate 6,882 7,003 237 6,144 169
Consumer real estate 2,741 2,943 136 2,316 75
Consumer installment 52 52 17 38 -
Total Impaired Loans $ 9,885 $ 10,208 $ 491 $ 8,658 $ 244

As of September 30, 2017, the Company had $1.0 million of foreclosed residential real estate property obtained by physical possession and $0.2 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions.

~~December 31, 2016~~

~~($ In Thousands)~~

Average Interest
Recorded Income
Recorded Unpaid Related Investment Recognized
Investment Balance Allowance YTD YTD

Impaired loans with no related allowance:
Commercial installment $ - $ - $ - $ - $ -
Commercial real estate 2,324 2,570 - 4,368 37
Consumer real estate 329 329 - 291 1
Consumer installment 14 14 - 9 -
Total $ 2,667 $ 2,913 $ - $ 4,668 $ 38

Impaired loans with a related allowance:
Commercial installment $ 153 $ 153 $ 10 $ 244 $ 9
Commercial real estate 2,726 2,726 343 2,832 127
Consumer real estate 556 669 308 733 14
Consumer installment 26 27 21 32 -
Total $ 3,461 $ 3,575 $ 682 $ 3,841 $ 150

Total Impaired Loans:
Commercial installment $ 153 $ 153 $ 10 $ 244 $ 9
Commercial real estate 5,050 5,296 343 7,200 164
Consumer real estate 885 998 308 1,024 15
Consumer installment 40 41 21 41 -
Total Impaired Loans $ 6,128 $ 6,488 $ 682 $ 8,509 $ 188

~~The following table represents the Company’s impaired loans at September 30, 2017,~~2022, and December 31, ~~2016.~~

Sept. 30, December 31,
2017 2016
($ In Thousands)
Impaired Loans:
Impaired loans without a valuation allowance $ 6,662 $ 2,667
Impaired loans with a valuation allowance 3,223 3,461
Total impaired loans $ 9,885 $ 6,128
Allowance for loan losses on impaired loans at period end 491 682

Total nonaccrual loans 4,852 3,264

Past due 90 days or more and still accruing 1,436 198
Average investment in impaired loans 8,658 8,509

~~The following table is a summary of interest recognized and cash-basis interest earned on impaired loans:~~

($ In Thousands)
Three Months
Ended
Sept. 30, 2017

Nine Months
Ended
Sept. 30, 2017

Interest income recognized during impairment - -
Cash-basis interest income recognized 60 244

~~The gross interest income that would have been recorded in~~2021 the ~~period that ended if the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part~~amortized cost of the ~~three months~~Company’s PCD loans totaled $27.1 million and ~~nine months ended September 30, 2017 was $90,000~~$8.6 million, respectively, which had an estimated ACL of $1.7 million and ~~$243,000,~~$855 thousand, respectively. ~~The Company had no loan commitments to borrowers in non-accrual status at September 30, 2017 and December 31, 2016.~~

Troubled Debt Restructurings ("TDRs")

If the Company grants a concession to a borrower infor economic or legal reasons related to a borrower’s financial ~~difficulty,~~difficulties that it would not otherwise consider, the loan is classified as ~~a troubled debt restructuring (“TDR”). The following tables provide detail~~TDRs.

Table of ~~TDRs at Sept. 30, 2017.~~

~~For the Three Months Ending September 30, 2017~~

~~($ In Thousands)~~

~~Outstanding~~

~~Recorded~~

~~Investment~~

~~Interest~~

~~Investment~~

~~Post-~~

~~Number of~~

~~Income~~

~~Pre-Modification~~

~~Modification~~

~~Loans~~

~~Recognized~~

~~Commercial installment~~

~~Commercial real estate~~

~~Consumer real estate~~

~~Consumer installment~~

~~Total~~

Contents

~~For the Nine Months Ending September 30, 2017~~

~~($ In Thousands)~~

Outstanding
Outstanding Recorded
Recorded Investment Interest
Investment Post- Number of Income
Pre-Modification Modification Loans Recognized

Commercial installment $ - $ - - $ -
Commercial real estate - - - -
Consumer real estate 152 149 2 5
Consumer installment - - - -
Total $ 152 $ 149 2 $ 5

There were no TDRs modified during the three month period ended September 30, 2017. The balance of TDRs was $7.3 million at September 30, 2017 and $4.1 million at December 31, 2016, respectively, calculated for regulatory reporting purposes. There was $0.2 million allocated in specific reserves established with respect to these loans as of September 30, 2017. As of September 30, ~~2017,~~2022, and December 31, 2021, the Company had TDRs totaling $23.4 million and $24.2 million, respectively. The Company acquired three TDRs totaling $1.5 million as part of the BBI acquisition. As of September 30, 2022, the Company had no additional amount committed on any loan classified as TDR.

As of September 30, 2022, and December 31, 2021, TDRs had a related ACL of $704 thousand and $4.3 million, respectively.

The following table presents LHFI by class modified as TDRs that occurred during the three and nine months ended September 30, 2021. 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 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 ~~set forth~~represents the ~~amounts and past due status for the Bank~~Company’s TDRs at September 30, ~~2017~~2022 and December 31, ~~2016:~~

~~($ In Thousands)~~

September 30, 2017

Current
Loans

Past Due
30-89

Past Due
90 days
and still
accruing

Non-
accrual

Total

Commercial installment $ - $ - $ - $ 308 $ 308
Commercial real estate 3,461 267 - 1,047 4,775
Consumer real estate 1,099 88 - 1,011 2,198
Consumer installment 5 - - 19 24
Total $ 4,565 $ 355 $ - $ 2,385 $ 7,305
Allowance for loan losses $ 107 $ 14 $ - $ 122 $ 243

2021:


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

~~($ In Thousands)~~

December 31, 2016
Current
Loans Past Due
30-89 Past Due
90 days
and still
accruing Non-
accrual Total

Commercial installment $ 151 $ - $ - $ - $ 151
Commercial real estate 2,463 - - 1,102 3,565
Consumer real estate 154 90 - 122 366
Consumer installment 6 - - 23 29
Total $ 2,774 $ 90 $ - $ 1,247 $ 4,111
Allowance for loan losses $ 125 $ - $ - $ 40 $ 165

~~Internal Risk Ratings~~


December 31, 2021	Current Loans		Past Due 30-89		Past Due 90 days and still accruing		Nonaccrual		Total
($ in thousands)
Commercial, financial and agriculture	$	63	$	—	$	—	$	107	$	170
Commercial real estate	3,367		—		—		16,858		20,225
Consumer real estate	1,772		—		—		1,973		3,745
Consumer installment	18		—		—		—		18
Total	$	5,220	$	—	$	—	$	18,938	$	24,158
Allowance for credit losses	$	90	$	—	$	—	$	4,217	$	4,307

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 and December 31, 2021:


September 30, 2022
($ in thousands)	Real Property		Total
Commercial real estate	$	5,265	$	5,265
Consumer real estate	1,374		1,374
Total	$	6,639	$	6,639


December 31, 2021
($ in thousands)	Real Property		Total
Commercial real estate	$	1,712	$	1,712
Consumer real estate	1,858		1,858
Total	$	3,570	$	3,570

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

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

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

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

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

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

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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, these loans totaled $202.5 million, of which $93.2 million had been sold to other financial institutions and $109.3 million was purchased by the Company. As of December 31, 2021, these loans totaled $118.4 million, of which $77.8 million had been sold to other financial institutions and $40.6 million was purchased by the Company. 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:~~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, which~~ratings:

Pass: Loan classified as pass are ~~consistent with the definitions used in supervisory guidance:~~

deemed to possess average to superior credit quality, requiring no more than normal attention.

Special ~~Mention.~~Mention: Loans classified as special mention have a potential weakness that deserves ~~management's~~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.~~

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.~~

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.

~~Loans not meeting~~

These above classifications were the ~~criteria above that are analyzed individually~~most current available as ~~part of the above described process are considered to be pass rated loans.~~

As of September 30, ~~2017~~2022, and ~~December 31, 2016,~~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 and December 31, 2021. Revolving loans converted to term as of the nine months ended September 30, 2022 and December 31, 2021 were not material to the total loan portfolio.


As of September 30, 2022	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Total
($ in thousands)	2022		2021		2020		2019		2018		Prior
Commercial, financial and
agriculture:
Risk Rating
Pass	$	139,969	$	151,211	$	58,425	$	58,055	$	46,316	$	53,783	$	115	$	507,874
Special mention	389		5,655		1,690		204		—		1,032		—		8,970
Substandard	—		17		—		54		35		247		—		353
Doubtful	—		—		—		—		—		—		—		—
Total commercial, financial and agriculture	$	140,358	$	156,883	$	60,115	$	58,313	$	46,351	$	55,062	$	115	$	517,197

Commercial real estate:
Risk Rating
Pass	$	458,767	$	458,929	$	320,224	$	228,481	$	147,199	$	411,604	$	—	$	2,025,204
Special mention	676		1,389		2,315		11,763		7,184		20,665		—		43,992
Substandard	51		5,159		2,705		3,514		15,394		28,777		—		55,600
Doubtful	—		—		—		—		—		675		—		675
Total commercial real estate	$	459,494	$	465,477	$	325,244	$	243,758	$	169,777	$	461,721	$	—	$	2,125,471

Consumer real estate:
Risk Rating
Pass	$	264,641	$	240,464	$	144,526	$	62,785	$	58,092	$	141,643	$	103,853	$	1,016,004
Special mention	—		—		—		—		837		4,256		—		5,093
Substandard	116		1,003		220		640		1,726		6,515		1,026		11,246
Doubtful	—		—		—		—		—		—		—		—
Total consumer real estate	$	264,757	$	241,467	$	144,746	$	63,425	$	60,655	$	152,414	$	104,879	$	1,032,343

Consumer installment:
Risk Rating
Pass	$	15,513	$	13,840	$	5,858	$	2,597	$	986	$	1,669	$	3,867	$	44,330
Special mention	—		—		—		—		—		—		—		—
Substandard	—		4		25		9		1		8		—		47
Doubtful	—		—		—		—		—		—		—		—
Total consumer installment	$	15,513	$	13,844	$	5,883	$	2,606	$	987	$	1,677	$	3,867	$	44,377

Total
Pass	$	878,890	$	864,444	$	529,033	$	351,918	$	252,593	$	608,699	$	107,835	$	3,593,412
Special mention	1,065		7,044		4,005		11,967		8,021		25,953		—		58,055
Substandard	167		6,183		2,950		4,217		17,156		35,547		1,026		67,246
Doubtful	—		—		—		—		—		675		—		675
Total	$	880,122	$	877,671	$	535,988	$	368,102	$	277,770	$	670,874	$	108,861	$	3,719,388

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As of December 31, 2021	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Total
($ in thousands)	2021		2020		2019		2018		2017		Prior
Commercial, financial and:
agriculture
Risk Rating
Pass	$	152,798	$	60,106	$	52,802	$	47,988	$	22,083	$	43,773	$	178	$	379,728
Special mention	—		255		749		90		481		29		—		1,604
Substandard	—		—		1,398		6,184		360		8,242		—		16,184
Doubtful	—		—		—		—		—		—		—		—
Total commercial, financial and agriculture	$	152,798	$	60,361	$	54,949	$	54,262	$	22,924	$	52,044	$	178	$	397,516

Commercial real estate:
Risk Rating
Pass	$	402,284	$	313,288	$	207,879	$	177,943	$	134,234	$	332,588	$	—	$	1,568,216
Special mention	1,326		2,259		1,782		15,076		2,779		15,519		—		38,741
Substandard	3,904		3,189		1,931		17,147		18,814		31,756		—		76,741
Doubtful	—		—		—		—		—		—		—		—
Total commercial real estate	$	407,514	$	318,736	$	211,592	$	210,166	$	155,827	$	379,863	$	—	$	1,683,698

Consumer real estate:
Risk Rating
Pass	$	243,340	$	164,359	$	70,465	$	66,940	$	51,988	$	121,238	$	98,444	$	816,774
Special mention	—		—		331		26		1,746		1,949		—		4,052
Substandard	444		532		1,280		3,410		1,288		9,241		1,633		17,828
Doubtful	—		—		—		—		—		—		—		—
Total consumer real estate	$	243,784	$	164,891	$	72,076	$	70,376	$	55,022	$	132,428	$	100,077	$	838,654

Consumer installment:
Risk Rating
Pass	$	17,980	$	9,245	$	4,222	$	1,645	$	1,088	$	1,758	$	3,697	$	39,635
Special mention	—		—		—		—		1		—		—		1
Substandard	—		26		3		5		8		7		—		49
Doubtful	—		—		—		—		—		—		—		—
Total consumer installment	$	17,980	$	9,271	$	4,225	$	1,650	$	1,097	$	1,765	$	3,697	$	39,685

Total
Pass	$	816,402	$	546,998	$	335,368	$	294,516	$	209,393	$	499,357	$	102,319	$	2,804,353
Special mention	1,326		2,514		2,862		15,192		5,007		17,497		—		44,398
Substandard	4,348		3,747		4,612		26,746		20,470		49,246		1,633		110,802
Doubtful	—		—		—		—		—		—		—		—
Total	$	822,076	$	553,259	$	342,842	$	336,454	$	234,870	$	566,100	$	103,952	$	2,959,553

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 ~~categories~~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 ~~class~~call code will group loans that contain similar types of collateral, purposes, and are usually structured with similar terms making each loan’s risk profile very similar to the rest in that segment. Each of these segments then flows up into one of the four bands (bands), Commercial, Financial, and Agriculture, Commercial Real Estate, Consumer Real Estate, and Consumer Installment. In accordance with the guidance in ASC 326, the Company redefined its LHFI portfolio segments and related loan classes based on the level at which risk is monitored within the ACL methodology. Construction loans ~~(excluding mortgage~~for 1-4 family residential properties with a call code 1A1, and other construction, all land development and other land loans ~~held~~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 ~~sale) were~~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 ~~follows:~~

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.

~~September 30, 2017~~

~~($ In Thousands)~~

Real
Estate
Commercial

Real
Estate
Mortgage

Installment
and
Other

Commercial,
Financial and
Agriculture
Total

Pass $ 746,097 $ 223,995 $ 28,184 $ 164,373 $ 1,162,649
Special Mention 9,619 825 - 3,127 13,571
Substandard 16,743 4,172 89 1,892 22,896
Doubtful 95 - - 26 121
Subtotal 772,554 228,992 28,273 169,418 1,199,237
Less:
Unearned discount 750 59 - 235 1,044
Loans, net of unearned discount $ 771,804 $ 228,933 $ 28,273 $ 169,183 $ 1,198,193

~~December 31, 2016~~

~~($ In Thousands)~~

Real
Estate
Commercial

Real
Estate
Mortgage

Installment
and
Other

Commercial,
Financial and
Agriculture
Total

Pass $ 522,949 $ 174,325 $ 21,278 $ 134,235 $ 852,787
Special Mention 376 237 - 618 1,231
Substandard 11,873 1,336 79 208 13,496
Doubtful - 200 - 40 240
Subtotal 535,198 176,098 21,357 135,101 867,754
Less:
Unearned discount 378 60 - 262 700
Loans, net of unearned discount $ 534,820 $ 176,038 $ 21,357 $ 134,839 $ 867,054

~~Activity~~

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


($ 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 initial ACL on PCD loans recorded in September 30, 2022, of $1.3 million were related to the BBI acquisition. The 2022 provision for credit losses includes $3.9 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments acquired in the BBI merger. The Company recorded a $4.3 million provision for credit losses for the three months ended September 30, 2022, compared to no provision for the same periods in 2021. The increase in the provision is related to the BBI acquisition. The provision for credit losses was $4.9 million for the nine months ended September 30, 2022, compared with no provision for credit losses for the same period ~~was as follows:~~

($ In Thousands)
Three Months Nine Months
Ended Ended
Sept. 30, 2017 Sept. 30, 2017

Balance at beginning of period $ 8,070 $ 7,510
Loans charged-off:
Real Estate (39 ) (259 )
Installment and Other (21 ) (63 )
Commercial, Financial and Agriculture ( - ) (1 )
Total (60 ) (323 )

Recoveries on loans previously charged-off:
Real Estate 45 498
Installment and Other 23 67
Commercial, Financial and Agriculture 7 39
Total 75 604
Net recoveries 15 281
Provision for Loan Losses 90 384
Balance at end of period $ 8,175 $ 8,175

in 2021.

The following ~~tables represent how the allowance for loan losses is allocated to a particular loan type, as well as the percentage of the category to total loans at September 30, 2017 and December 31, 2016.~~

~~Allocation of the Allowance for Loan Losses~~

September 30, 2017
($ In Thousands)
Amount
% of loans
in each category
to total loans

Commercial Non Real Estate $ 1,557 14.1 %
Commercial Real Estate 4,662 64.4
Consumer Real Estate 1,510 19.1
Consumer 174 2.4
Secondary market reserve 180 -
Unallocated 92 -
Total $ 8,175 100 %

December 31, 2016
($ In Thousands)
Amount
% of loans
in each category
to total loans

Commercial Non Real Estate $ 1,118 15.6 %
Commercial Real Estate 4,071 61.6
Consumer Real Estate 1,589 20.3
Consumer 155 2.4
Unallocated 577 0.1
Total $ 7,510 100 %

~~The following tables provide~~table provides the ending ~~balances~~balance in the ~~Company's loans (excluding mortgage loans held for sale)~~Company’s LHFI and ~~allowance for loan losses,~~the ACL, broken down by portfolio segment as of September 30, ~~2017~~2022 and December 31, ~~2016.~~ 2021 ($ in thousands).


September 30, 2022	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
LHFI
Individually evaluated	$	—	$	5,265	$	1,374	$	—	$	6,639
Collectively evaluated	517,197		2,120,206		1,030,969		44,377		3,712,749
Total	$	517,197	$	2,125,471	$	1,032,343	$	44,377	$	3,719,388

Allowance for Credit Losses
Individually evaluated	$	—	$	—	$	5	$	—	$	5
Collectively evaluated	5,900		20,925		10,979		547		38,351
Total	$	5,900	$	20,925	$	10,984	$	547	$	38,356


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

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NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Swaps

The ~~tables also provide additional detail~~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 toa back-to-back interest rate swap, as such, the ~~amount~~net positions are offsetting assets and liabilities, as well as income and expenses. All derivative instruments are recorded in the consolidated statement of ~~our~~financial condition at their respective fair values, as components of other assets and other liabilities. Under a back-to-back interest rate swap program, the Company enters into an interest rate swap with the customer and another offsetting swap with a counterparty. The result is two mirrored interest rate swaps, absent a credit event, that 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 of the BBI acquisition, the Bank acquired 33 loans ~~and allowance that correspond to individual versus collective impairment evaluation.~~ with related interest rate swaps.

The impairment evaluation corresponds to the Company's systematic methodology for estimating its Allowance for Loan Losses. See Item No. 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Provision for Loan and Lease Losses” for a description of our methodology.

following table provides outstanding interest rate swaps at September 30, 2022.

	28
($ 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

The following table provides the fair value of interest rate swap contracts at September 30, ~~2017~~

~~(In thousands)~~

Installment Financial
Real Estate
and
Other

and
Agriculture
Total

Loans
Individually evaluated $ 9,623 $ 52 $ 210 $ 9,885
Collectively evaluated 991,115 28,222 168,971 1,188,308
Total $ 1,000,738 $ 28,374 $ 169,181 $ 1,198,193

Allowance for Loan Losses
Individually evaluated $ 373 $ 17 $ 101 $ 491
Collectively evaluated 5,978 249 1,457 7,684
Total $ 6,351 $ 266 $ 1,558 $ 8,175

~~December 31, 2016~~

~~(In thousands)~~

Commercial,
Installment Financial
Real Estate and
Other and
Agriculture Total

Loans
Individually evaluated $ 5,935 $ 40 $ 153 $ 6,128
Collectively evaluated 704,923 21,317 134,686 860,926
Total $ 710,858 $ 21,357 $ 134,839 $ 867,054

Allowance for Loan Losses
Individually evaluated $ 651 $ 21 $ 10 $ 682
Collectively evaluated 5,009 711 1,108 6,828
Total $ 5,660 $ 732 $ 1,118 $ 7,510

~~NOTE 12 – SUBSEQUENT EVENTS/OTHER~~

~~Subsequent events have been evaluated by management through~~2022 included in other assets and other liabilities.


($ in thousands)
	September 30, 2022
	Derivative Assets		Derivative Liabilities
Interest rate swap contracts	$	13,258	13,258

The Company also enters into a collateral agreement with the ~~date the financial statements were issued.~~

~~On October 24, 2017,~~counterparty requiring the Company ~~entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Southwest Banc Shares, Inc., an Alabama corporation (“Southwest”), whereby Southwest will be merged with and into~~to post cash or

cash equivalent collateral to mitigate the ~~Company. Pursuant to and simultaneously with entering into~~credit risk in the Merger Agreement, The First, and Southwest’s wholly owned subsidiary bank, First Community Bank (“First Community Bank”), entered into a Plan of Bank Merger whereby First Community Bank will be merged with and into The First immediately following the merger of SWBS with and into the Company.transaction. At September 30, ~~2017, First Community Bank had total assets of approximately $391.6 million.~~

~~On October 31, 2017,~~2022, the Company ~~completed a sale~~had $1.0 million of ~~an aggregate~~collateral posted with its counterparties, which is included in the consolidated statement of ~~2,012,500 shares of its common stock in a public offering. Net proceeds after underwriting discounts~~financial condition as cash and ~~estimated expenses were approximately $55.2 million.~~cash equivalents as "restricted cash". The Company ~~intends~~also receives a swap spread to ~~use~~compensate it for the ~~net proceeds from~~credit exposure it takes on the ~~offering to fund the cash~~customer-facing portion of the ~~purchase price for~~transaction and this upfront cash payment from the ~~Company’s previously announced acquisition~~counterparty is recorded in other income, net of ~~Southwest,~~any transaction execution expenses, in the consolidated statement of operations. For the three and nine months ended September 30, 2022, net swap spread income included in other income was $20 thousand.

Entering into derivative contracts potentially exposes the Company to ~~fund~~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 ~~potential future acquisitions,~~market indicators, and ~~for general corporate purposes, including~~periodically reviewing detailed financials.

The Company records the ~~repayment~~fair value of ~~debt~~its interest rate swap contracts separately within other assets and ~~to support organic growth.~~

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.

NOTE 1312 – RECLASSIFICATION

Certain amounts in the ~~2016~~2021 financial statements have been reclassified for comparative purposes to conform to the current period financial statement presentation.

~~PART I - FINANCIAL INFORMATION~~

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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 ~~NO. 2~~

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

FORWARD LOOKING STATEMENTS

~~This~~

Certain statements made or incorporated by reference in this Quarterly Report on Form 10-Q ~~contains~~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 ~~Private~~protections of, Section 27A of the Securities ~~Litigation Reform~~ Act of ~~1995. Words~~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,” ~~“anticipates,~~“targets,” “estimates,” “projects,” “seek,” “plans,” ~~“believes,~~“potential,” ~~“seeks,~~“aim,” ~~“estimates”~~ and ~~variations of such~~other similar words and ~~similar~~ expressions ~~are intended to identify such forward-looking statements. Such~~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 ~~currently available information~~the current beliefs and expectations of the Company’s management and are subject to ~~various~~significant risks and ~~uncertainties~~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 ~~the Company’s present expectations. Factors that might cause such differences~~those indicated by forward-looking statements include, but are not limited ~~to: competitive pressures among~~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 ~~institutions~~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, 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;

•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;

•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 real estate values, increasing ~~significantly;~~interest rates, increasing unemployment, or changes in payment behavior or other factors;

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•general economic conditions, either nationally or ~~locally,~~regionally and especially in ~~areas in which the Company conducts operations being~~our primary service area, becoming less favorable than ~~expected; legislation~~expected resulting in, among other things, a deterioration in credit quality;

•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 ~~which~~or changes in monetary, tax or fiscal policy that adversely affect the ~~ability~~businesses in which we or our customers or our borrowers are engaged, including the impact of the ~~consolidated Company~~Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Federal Reserve’s actions with respect to ~~conduct~~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;

•changes in political conditions or the legislative or regulatory environment;

•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;

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

•changes occurring in business ~~combinations~~conditions and inflation;

•changes in technology or ~~new operations; and~~ 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 ~~proposed acquisition~~continued use, availability and reliability of ~~Southwest Banc Shares, Inc., including~~LIBOR and other “benchmark” rates; and

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

We have based our forward-looking statements on our current expectations about future events. Although we believe that the proposed transaction does not close when expected or at all because required regulatory or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all, the terms of the proposed transaction may need to be modified to satisfy such approvals or conditions,expectations reflected in and the ~~risk~~assumptions underlying our forward-looking statements are reasonable, we cannot guarantee that ~~anticipated benefits from~~these expectations will be achieved or the ~~proposed transaction are not realized in the time frame anticipated or at all as a result of changes in general economic and market conditions.~~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. ~~Further~~Additional information concerning these risks and uncertainties is contained in Item 1A. "Risk Factors" in our Annual Report on ~~The First Bancshares, Inc. is available~~Form 10-K for the year ended December 31, 2021 the "Company's 2021 Form 10-K" and in ~~its~~our other filings with the Securities and Exchange Commission, available at the SEC’s website, http://~~www.sec.gov~~.

~~CRITICAL ACCOUNTING POLICIES~~

www.sec.gov.

ECONOMIC CONDITIONS

The ~~Company’s financial statements are prepared~~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 ~~accordance with accounting principles generally accepted~~several markets in the ~~United States. The financial information~~southeast. Worker shortages especially in the restaurant, hospitality and ~~disclosures contained within those statements are significantly impacted by Management’s estimates~~retail industries combined with supply chain disruptions impacting numerous industries and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances. Actual results may differ from those estimates under divergent conditions.

~~Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential~~inflationary conditions has had some impact on the ~~Company’s stated results~~level of ~~operations. In Management’s opinion,~~economic growth. Ongoing higher inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers. Overall, the ~~Company’s critical accounting policies deal~~southeast continues to experience economic growth due to company relocations and expansions combined with the following areas: the establishment of the allowance for loan and lease losses, as explained in detail in Note 11 to the Consolidated Financial Statements and in the “Provision for Loan and Lease Losses” and “Allowance for Loan and Lease Losses” sections of this Item No. 2 – overall population growth.

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations;~~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 ~~valuation~~reported amounts of ~~impaired loans~~assets, liabilities, revenues and ~~foreclosed assets, as~~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 11B “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial ~~Statements; income taxes~~Statements” contained in Item 8 “Financial Statements and ~~deferred tax assets and liabilities, especially with regard to the ability~~Supplementary Data” of the Company to recover deferred tax assets as discussed in the “Provision for Income Taxes” and “Other Assets” sections of this Item No. 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and goodwill and other intangible assets, which are evaluated annually for impairment and for which we have determined that no impairment exists, as discussed in the “Other Assets” section of this Item No. 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations. Critical accounting policies are evaluated on an ongoing basis to ensure that the Company’s ~~financial statements incorporate our most recent expectations with regard to those areas.~~

2021 Form 10-K.

OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS SUMMARY

Third quarter ~~2017~~2022 compared to third quarter ~~2016~~

2021

The Company reported net income available to common shareholders of ~~$4.7~~$14.0 million for the three months ended September 30, ~~2017,~~2022, compared with net income available to common shareholders of ~~$2.5~~$16.1 million for the same period last ~~year.~~

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, 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 million or 21.9%. Operating net earnings,

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which is a non-GAAP financial measure, for the third quarter of 2022 excludes merger 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.

Net interest income ~~increased to $14.9~~for the third quarter 2022 was $49.1 million, an increase of $9.1 million or ~~48.4% for the three months ended September 30, 2017,~~22.8%, compared to ~~$10.1~~$40.0 million for the same period in ~~2016. Quarterly average earning assets at September 30, 2017,~~2021. Fully tax equivalent (“FTE”) net interest income, which is a non-GAAP measure, totaled $50.1 million and $40.7 million for the third quarter of 2022 and 2021, respectively. Purchase accounting adjustments decreased $349 thousand for the third quarter comparisons. Third quarter 2022 FTE net interest margin, which is a non-GAAP measure, increased ~~$486.2 million, or 43.7% and quarterly average interest-bearing liabilities increased $368.7 million or 39.9% when~~3.50% including 6 basis points related to purchase accounting adjustments compared to ~~September 30, 2016.~~

~~Noninterest~~3.25% for the same quarter in 2021, which included 10 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the net interest margin increased 29 basis points in prior year quarterly comparison. See reconciliation of non-GAAP financial measures provided below.

Non-interest income for the three months ended September 30, ~~2017,~~2022 was ~~$3.7~~$9.0 million compared to ~~$3.1~~$9.6 million for the same period in ~~2016,~~2021, reflecting ~~an increase~~a decrease of ~~$0.6 million~~$564 thousand or ~~18.0%~~5.9%. This ~~increase was composed~~decrease consisted of ~~increases~~$511 thousand decrease in ~~service charges~~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 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 ~~interchange fee income.~~

~~The~~conversion related costs of $3.6 million, $4.3 million provision for loan ~~losses~~losses. Pre-tax, pre-provision operating earnings, a non-GAAP measure, for the third quarter of 2021 excludes merger and conversion related costs of $5 thousand, $397 thousand bargain purchase gain and loss on sale of fixed assets, $1.8 million in government grants from the U.S. Treasury offset by $1.4 million in charitable contributions related to the U.S. Treasury awards. See reconciliation of non-GAAP financial measures provided below.

Non-interest expense was ~~$90,000~~$35.9 million for the three months ended September 30, ~~2017,~~2022, an increase of $6.9 million or 23.6%, when compared with ~~$143,000~~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 $2.004 billion, or 31.0% of total assets at September 30, 2022, compared to $1.485 billion, or 27.0% of total assets at September 30, 2021. The average balance of investment securities increased $727.3 million in prior year quarterly comparison. The average tax equivalent yield on investment securities, which is a non-GAAP measure, increased 18 basis points to 2.40% from 2.22% in prior year quarterly comparison. The investment portfolio had a net unrealized loss of $216.9 million at September 30, 2022 as compared to a net unrealized gain of $18.2 million at September 30, 2021. See reconciliation of non-GAAP financial measures provided below.

The FTE average yield on all earning assets, a non-GAAP measure, increased 23 basis points in prior year quarterly comparison, from 3.60% for the third quarter of 2021 to 3.83% for the third quarter of 2022. Interest expense on average interest-bearing liabilities decreased 4 basis points from 0.52% for the third quarter of 2021 to 0.48% for the third quarter of 2022. Cost of all deposits averaged 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.

First nine months 2022 compared to first nine months 2021

The Company reported net income available to common shareholders of $46.6 million for the nine months ended September 30, 2022, compared to $48.4 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 at September 30, 2021 to $51.1 million at September 30, 2022. Operating net earnings, a non-GAAP measure, for the nine months ended September 30, 2022, excludes merger and conversion related costs of $3.9 million, net of tax, government grants from the U.S. Treasury of $652 thousand, net of tax, offset by $123 thousand in contributions related to the government grants from the U.S. Treasury 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, 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 ~~2016.~~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 ~~loan~~credit losses of ~~$8.2~~$38.4 million at September 30, ~~2017~~2022 (approximately ~~0.68%~~1.0% of total ~~loans and 1.16% of loans including valuation accounting adjustments on acquired~~ loans) is considered by management to be adequate to cover losses inherent in the loan portfolio. See ~~“Provision~~“Allowance for ~~Loan and Lease~~Credit Losses” in ~~this~~ Item ~~No. 2 – Management’s~~2. "Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations" for more information on this evaluation.

~~Noninterest~~

Non-interest expense ~~increased by $2.5 million or 26.3% for the three months ended September 30, 2017, when compared with the same period in 2016. The largest increase~~ was ~~related to salaries and benefits of $1.7 million of which $1.4 million was attributable to increased employment associated with the acquisitions of Iberville and GCCB.~~

~~First nine months of 2017 compared to first nine months of 2016~~

~~The Company reported net income available to common shareholders of $8.2~~$95.4 million for the nine months ended September 30, 2017, compared with net income available to common shareholders of $7.8 million for the same period last year. After tax merger related costs of $3.9 million were expensed during the first nine months of 2017.

Net interest income increased to $43.9 million or 48.5% for the nine months ended September 30, 2017, compared to $29.6 million for the same period in 2016. Average earning assets at September 30, 2017, increased $461.3 million, or 42.1% and average interest-bearing liabilities increased $360.0 million or 39.6% when compared to the first nine months of 2016.

~~Noninterest income for the nine months ended September 30, 2017, was $10.8 compared to $8.5 million for the same period in 2016, reflecting~~2022, an increase of ~~$2.3~~$11.7 million or ~~26.5%. This increase consists of $0.2 million of increased mortgage income, increased service charges of $0.8 million and increased interchange fee income of $0.8 million.~~

The provision for loan losses was $0.4 million for the nine months ended September 30, 2017, compared with $0.5 million for the same period in 2016. The allowance for loan losses of $8.2 million at September 30, 2017 (approximately 0.68% of total loans and 1.16% of loans including valuation accounting adjustments on acquired loans) is considered by management to be adequate to cover losses inherent in the loan portfolio. See “Provision for Loan and Lease Losses” in this Item No. 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on this evaluation.

~~Noninterest expense increased by $16.3 million or 61.1% for the nine months ended September 30, 2017,~~13.9%, when compared with the same period in ~~2016. $6.9 million of the~~2021. The increase ~~was~~is primarily attributable to ~~salaries~~an increase of $5.2 million in acquisition and ~~benefits, of which $5.4~~charter conversion expenses and $2.5 million ~~relates~~related to the ~~acquisition,~~ongoing charges associated with the Cadence Branches and ~~also includes $6.3~~$2.1 million ~~in one-time merger~~ related ~~charges.~~

to the Beach Bank branch operations.

FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF THE FIRST

The First represents the primary asset of the Company. The First reported total assets of ~~$1.8~~$6.443 billion at September 30, ~~2017~~2022 compared to ~~$1.3~~$6.067 billion at December 31, ~~2016,~~2021, an increase of ~~$0.5 billion.~~$376.5 million. Loans, including loans held for sale, increased ~~$331.1~~$754.4 million to ~~$1.2~~$3.722 billion, or ~~38.2%~~25.4%, during the first nine months of ~~2017.~~2022. Deposits at September 30, ~~2017,~~2022 totaled ~~$1.5~~$5.558 billion compared to ~~$1.0~~$5.262 billion at December 31, 2016. The First acquired loans of $237.3 million and deposits of $355.6 million as a result of the acquisitions of Iberville and GCCB during the first quarter of 2017. See Note 4 – Business Combinations.

2021.

For the nine ~~month~~months period ended September 30, ~~2017,~~2022, The First reported net income of ~~$9.7~~$53.6 million compared to ~~$8.7~~$55.2 million for the nine months ended September 30, ~~2016.~~2021. Merger and conversion charges equaled $3.9 million, net of tax, ~~equaled $3.4 million~~ for the first nine months of ~~2017.~~

~~NONPERFORMING ASSETS AND RISK ELEMENTS~~

Diversification within the loan portfolio is an important means of reducing inherent lending risks. At September 30, 2017, The First had no concentrations of ten percent or more of total loans in any single industry or any geographical area outside its immediate market areas, which include Mississippi, Louisiana, Alabama and Florida.

~~At September 30, 2017, The First had loans past due~~2022 as ~~follows:~~

($ In Thousands)

Past due 30 through 89 days $ 3,141
Past due 90 days or more and still accruing 1,436

The accrual of interest is discontinued on loans which become ninety days past due (principal and/or interest), unless the loans are adequately secured and in the process of collection. Nonaccrual loans totaled $4.9 million at September 30, 2017, an increase of $1.6 million from December 31, 2016.

~~Other real estate owned is carried at fair value, determined by an appraisal, less estimated costs~~compared to ~~sell. Other real estate owned totaled $7.9 million at September 30, 2017.~~

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$0 for the ~~borrower’s financial difficulties. At September 30, 2017, the Bank had $7.3 million in loans that were modified as troubled debt restructurings,~~first nine months of ~~which $4.7 million were performing as agreed with modified terms.~~

2021.

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~~NET INTEREST INCOME AND NET INTEREST MARGIN

For the three months ended September 30, 2022, net interest income increased by $9.1 million, or 22.8%, when compared with the same period in 2021. Net interest income increased by ~~$4.9~~$12.6 million, or ~~48.4%~~10.7%, to $129.9 million for the ~~third quarter of 2017 relative~~nine month period ending September 30, 2022 compared to the ~~third quarter~~same period in 2021. The increase is primarily related to interest income earned on a higher volume of ~~2016.~~loans and securities. PPP loans totaled $1.5 million as of September 30, 2022, a decrease of $156.3 million or 99.0% 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 ~~non-accrual~~nonaccrual status during the reporting period, and the recovery of interest on loans that had been on ~~non-accrual~~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	%

Three Months Ended Three Months Ended
September 30, 2017 September 30, 2016
Avg.
Tax
Equivalent
Yield/ Avg.
Tax
Equivalent
Yield/
($ In Thousands) Balance interest Rate Balance interest Rate

Earning Assets:
Taxable
securities $ 280,441 $ 1,601 2.28 % $ 177,154 $ 965 2.18 %
Tax exempt securities 93,716 876 3.74 % 77,073 704 3.65 %
Total investment securities 374,157 2,477 2.65 % 254,227 1,669 2.63 %
Fed funds sold 36,591 113 1.24 % 10,356 25 0.97 %
Interest bearing deposits in other banks 3,463 3 0.35 % 11,961 16 0.54 %
Loans 1,185,493 14,412 4.86 % 836,931 9,798 4.68 %
Total earning assets 1,599,704 17,005 4.25 % 1,113,475 11,508 4.13 %
Other assets 172,698 119,559
Total assets $ 1,772,402 $ 1,233,034

Interest-bearing liabilities:
Deposits $ 1,204,614 $ 1,375 0.46 % $ 850,442 $ 962 0.45 %
Repo 4,891 38 3.11 % 5,000 49 3.92 %
Fed funds purchased 3,816 19 1.99 % 1,926 5 1.04 %
FHLB and FTN 68,041 300 1.76 % 55,337 106 0.77 %
Subordinated debentures 10,310 41 1.59 % 10,310 80 3.10 %
Total interest-bearing liabilities 1,291,672 1,773 0.55 % 923,015 1,202 0.52 %
Other liabilities 316,275 198,889
Stockholders’ equity 164,455 111,130

Total liabilities and stockholders’ equity $ 1,772,402 $ 1,233,034
Net interest income (FTE)* $ 15,232 3.70 % $ 10,306 3.61 %
Net interest Margin (FTE)* 3.81 % 3.70 %

*Non-GAAP measure. See reconciliation of Non-GAAP financial measures.

~~Average Balances, Tax Equivalent Interest and Yields/Rates~~

YTD September 30, 2017 YTD September 30, 2016
Avg.
Tax
Equivalent
Yield/ Avg.
Tax
Equivalent
Yield/
($ In Thousands) Balance interest Rate Balance interest Rate

Earning Assets:
Taxable securities $ 265,320 $ 4,742 2.38 % $ 184,313 $ 3,055 2.21 %
Tax exempt securities 92,040 2,668 3.87 % 77,385 2,118 3.65 %
Total investment securities 357,360 7,410 2.76 % 261,698 5,173 2.64 %
Fed funds sold 42,372 330 1.04 % 2,377 82 4.60 %
Interest bearing deposits in other banks 4,356 7 0.21 % 23,626 56 0.32 %
Loans 1,153,694 42,083 4.86 % 808,821 28,146 4.64 %
Total earning assets 1,557,782 49,830 4.26 % 1,096,522 33,457 4.07 %
Other assets 190,337 116,252
Total assets $ 1,748,119 $ 1,212,774

Interest-bearing liabilities:
Deposits $ 1,188,919 $ 3,836 0.43 % $ 824,065 $ 2,476 0.40 %
Repo 4,892 134 3.65 % 5,000 145 3.87 %
Fed funds purchased 2,211 29 1.75 % 1,867 15 1.07 %
FHLB and FTN 63,094 817 1.73 % 68,170 342 0.67 %
Subordinated debentures 10,310 171 2.21 % 10,310 162 2.10 %
Total interest- bearing liabilities 1,269,426 4,987 0.52 % 909,412 3,140 0.46 %
Other liabilities 319,451 196,289
Stockholders’ equity 159,242 107,073

Total liabilities and stockholders’ equity $ 1,748,119 $ 1,212,774
Net interest income (FTE)* $ 44,842 3.74 % $ 30,317 3.61 %
Net interest Margin (FTE)* 3.84 % 3.69 %

*See reconciliation

Table of ~~Non-GAAP financial measures.~~

~~Interest Rate Sensitivity – September 30, 2017~~

Net Interest
Income at Risk Market Value of Equity
Change in
Interest
Rates % Change
from Base Policy Limit % Change
from Base Policy Limit

Up 400 bps 17.9 % -20.0 % 31.8 % -40.0 %
Up 300 bps 13.6 % -15.0 % 26.2 % -30.0 %
Up 200 bps 9.1 % -10.0 % 19.2 % -20.0 %
Up 100 bps 4.6 % -5.0 % 10.7 % -10.0 %
Down 100 bps -6.4 % -5.0 % -13.6 % -10.0 %
Down 200 bps -9.0 % -10.0 % -13.1 % -20.0 %

Contents

~~LIQUIDITY AND CAPITAL RESOURCES~~

As of September 30, 2017, cash and cash equivalents were $93.3 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $373.1 million at September 30, 2017. Approximately $265.2 million in loan commitments could fund within the next three months and other commitments, primarily standby letters of credit, totaled $8.2 million at September 30, 2017.

On October 31, 2017, the Company completed a sale of an aggregate of 2,012,500 shares of its common stock in a public offering. Net proceeds after underwriting discounts and estimated expenses were approximately $55.2 million. The Company intends to use the net proceeds from the offering to fund the cash portion of the purchase price for the Company’s previously announced acquisition of Southwest, to fund other potential future acquisitions, and for general corporate purposes, including the repayment of debt and to support organic growth.

Total consolidated equity capital at September 30, 2017, was $167.0 million, or approximately 9.3% of total assets. The Company currently has adequate capital positions to meet the minimum capital requirements for all regulatory agencies. The Company’s capital ratios as of September 30, 2017, were as follows:

~~Tier 1 leverage~~	~~8.6~~	%
~~Tier 1 risk-based~~	~~11.0~~	%
~~Total risk-based~~	~~11.6~~	%
~~Common equity Tier 1~~	~~10.3~~	%

On June 30, 2006, The Company issued $4,124,000 of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 2 in which the Company owns all of the common equity. The debentures are the sole asset of the Trust. The Trust issued $4,000,000 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’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 Rate (LIBOR) plus 1.65% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities. On July 27, 2007, The Company issued $6,186,000 of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 3 in which the Company owns all of the common equity. The debentures are the sole asset of Trust 3. The Trust issued $6,000,000 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’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 plus 1.40% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities. In accordance with the authoritative guidance, the trusts are not included in the consolidated financial statements.

~~PROVISION FOR LOAN AND LEASE LOSSES~~

The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. Management’s judgment as to the adequacy of the allowance is based upon a number of assumptions which it believes to be reasonable, but which may not prove to be accurate, particularly given the Company’s growth and the economy. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the loan loss allowance will not be required.

The Company’s allowance consists of two parts. The first part is determined in accordance with authoritative guidance regarding contingencies. The Company’s determination of this part of the allowance is based upon quantitative and qualitative factors. A loan loss history based upon the prior seven years is utilized in determining the appropriate allowance. Historical loss factors are determined by risk rated loans by loan type. These historical loss factors are applied to the loans by loan type to determine an indicated allowance. The loss factors of peer groups are considered in the determination of the allowance and are used to assist in the establishment of a long-term loss history for areas in which this data is unavailable and incorporated into the qualitative factors to be considered. The historical loss factors may also be modified based upon other qualitative factors including but not limited to local and national economic conditions, trends of delinquent loans, changes in lending policies and underwriting standards, concentrations, and management’s knowledge of the loan portfolio. These factors require judgment upon the part of management and are based upon state and national economic reports received from various institutions and agencies including the Federal Reserve Bank, United States Bureau of Economic Analysis, Bureau of Labor Statistics, meetings with the Company’s loan officers and loan committee, and data and guidance received or obtained from the Company’s regulatory authorities.

The second part of the allowance is determined in accordance with authoritative guidance regarding loan impairment. Impaired loans are determined based upon a review by internal loan review and senior management.

The sum of the two parts constitutes management’s best estimate of an appropriate allowance for loan losses. When the estimated allowance is determined, it is presented to the Company’s audit committee for review and approval on a quarterly basis.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis, and a specific allowance is assigned to each loan determined to be impaired. Impaired loans not deemed collateral dependent are analyzed according to the ultimate repayment source, whether that is cash flow from the borrower, guarantor or some other source of repayment. Impaired loans are deemed collateral dependent if, in the Company’s opinion, the ultimate source of repayment will be generated from the liquidation of collateral.

The Company discontinues accrual of interest on loans when management believes, after considering economic and business conditions and collection efforts, that a borrower’s financial condition is such that the collection of interest is doubtful. 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.

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 ~~month~~ and nine ~~month period~~months ended September 30, ~~2017~~2022 and ~~2016:~~

($ In Thousands) Three Months Ended Nine Months Ended
EARNINGS STATEMENT 9/30/17
% of
Total
9/30/16
% of
Total
9/30/17
% of
Total
9/30/16
% of
Total

Non-interest income:
Service charges on deposit accounts $ 902 24.7 % $ 606 19.6 % $ 2,692 24.9 % $ 1,847 21.6 %
Mortgage income 1,276 34.9 % 1,399 45.1 % 3,400 31.5 % 3,228 37.8 %
Interchange fee income 935 25.6 % 666 21.5 % 2,797 25.9 % 1,991 23.3 %
Gain (loss) on securities, net - - - - 129 1.5 %
Other charges and fees 545 14.8 % 428 13.8 % 1,918 17.7 % 1,347 15.8 %
Total non-interest income $ 3,658 100 % $ 3,099 100 % $ 10,807 100 % $ 8,542 100 %

Non-interest expense:
Salaries and employee benefits $ 7,327 61.6 % $ 5,645 60.0 % $ 22,577 52.4 % $ 16,194 60.6 %
Occupancy expense 1,390 11.7 % 1,209 12.8 % 4,108 9.5 % 3,392 12.7 %
FDIC premiums 355 3.0 % 254 2.7 % 887 2.1 % 755 2.8 %
Marketing 50 0.4 % 76 0.8 % 218 0.5 % 280 1.0 %
Amortization of core deposit intangibles 160 1.3 % 100 1.1 % 491 1.1 % 294 1.1 %
Other professional services 320 2.7 % 461 4.9 % 1,201 2.8 % 1,013 3.8 %
Other non-interest expense 2,238 18.8 % 1,671 17.7 % 7,247 16.8 % 4,802 18.0 %
Acquisition and integration charges 48 0.5 % - - 6,327 14.8 % - -
Total non-interest expense $ 11,888 100 % $ 9,416 100 % $ 43,056 100 % $ 26,730 100 %

Noninterest income increased $0.6 million, or 18.0% as compared to third quarter 2016. The largest increases in noninterest income were increases in service charges and interchange fee income. Third quarter 2017 noninterest expense increased $2.5 million, or 26.3% as compared to third quarter 2016. The largest increase in noninterest expense, other than acquisition charges, was related to salaries and benefits2021:


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

Non-interest expense:
Salaries and employee benefits	$	19,099	53.2	%	$	16,246	56.0	%
Occupancy expense	3,826		10.7	%	3,922		13.5	%
FDIC/OCC premiums	496		1.4	%	532		1.8	%
Marketing	50		0.1	%	78		0.3	%
Amortization of core deposit intangibles	1,227		3.4	%	1,052		3.6	%
Other professional services	1,256		3.5	%	934		3.2	%
Other non-interest expense	6,309		17.6	%	6,284		21.6	%
Acquisition and charter conversion charges	3,640		10.1	%	5		0.0	%
Total non-interest expense	$	35,903	100	%	$	29,053	100	%

Table of ~~$1.7 million of which $1.4 million is related to increased employment as a result of the acquisitions.~~

Contents


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

Non-interest expense:
Salaries and employee benefits	$	53,135	55.6	%	$	32,091	58.7	%
Occupancy expense	11,530		12.1	%	7,692		14.1	%
FDIC/OCC premiums	1,608		1.7	%	993		1.8	%
Marketing	258		0.3	%	199		0.4	%
Amortization of core deposit intangibles	3,355		3.5	%	2,104		3.8	%
Other professional services	2,587		2.7	%	1,983		3.6	%
Other non-interest expense	17,755		18.6	%	9,655		17.6	%
Acquisition and charter conversion charges	5,220		5.5	%	—		0.0	%
Total non-interest expense	$	95,448	100	%	$	54,717	100	%

~~Noninterest expense increased $16.3 million in year-over-year comparison consisting of increases in salaries and benefits of $6.9 million of which $5.4 million relates to the acquisitions.~~

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 ~~$3.1~~$3.9 million or 21.8% of earnings before income taxes for the ~~year through~~third quarter 2022, compared to $4.4 million or 21.5% of earnings before income taxes for the same period in 2021. The provision for the nine months ended September 30, ~~2017, and remained unchanged when~~2022 was $11.8 million or 20.1% of earnings before income taxes compared to $13.0 million or 21.2% for the same period ~~of 2016.~~

in 2021.

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

Table of Contents

our Federal Reserve Bank (“FRB”) account, and overnight fed funds sold. Surplus FRB balances and ~~fed~~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 ~~$359.0 million,~~$1.973 billion, or ~~20.1%~~30.6% of total assets at September 30, ~~2017,~~2022 compared to ~~$249.2 million,~~$1.752 billion, or ~~19.5%~~28.8% of total assets at December 31,~~2016~~.

~~We had no fed~~ 2021.

There were $10.0 million federal funds sold at September 30, ~~2017~~2022 and ~~$0.4 million of fed funds sold~~$0 at December 31, ~~2016;~~2021; and interest-bearing balances at other banks decreased to ~~$29.6~~$92.3 million at September 30, ~~2017~~2022 from ~~$30.0~~$804.5 million at December 31, ~~2016~~2021. The decrease in interest-bearing balances is primarily ~~due~~related to a $721.7 million decrease in ~~our~~the Federal Reserve Bank ~~account.~~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. The Company’s investment portfolio increased ~~$92.4~~$230.0 million, ~~due~~or 13.0%, to ~~acquisitions to a total fair market value of $360.4 million~~$2.004 billion at September 30, ~~2017, reflecting an~~2022 compared to December 31, 2021. The increase ~~of $109.8 million, or 43.8%, for~~in the portfolio is related to purchases that were made in the first nine months of ~~2017.~~2022 offset by a decrease in the fair market value of $227.6 million. The Company carries available-for-sale investments ~~principally~~ at their fair market ~~values.~~values and held-to-maturity investments at their amortized costs. The ~~Company holds a small amount of “held-to-maturity” investments with a~~ fair ~~market~~ value of ~~$7.4 million~~available-for-sale securities totaled $1.379 billion at September 30, ~~2017 as~~2022 compared to ~~$7.4 million~~$1.752 billion at December 31, ~~2016.~~2021. The fair value of held-to-maturity investments totaled $532.7 million and $0 at September 30, 2022 and December 31, 2021, 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 ~~table~~the tables shown in ~~NOTE 10 - SECURITIES~~Note 9 – 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 ~~AND LEASE~~ PORTFOLIO

Loans Held for Sale (“LHFS”)

The ~~Company’s gross~~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 ~~leases, excluding~~concurrently “locks in” with a secondary market investor under a best efforts delivery mechanism. Such loans are sold without the ~~associated allowance for losses~~mortgage servicing rights being retained by the Bank. The terms of the loan are dictated by the secondary investors and ~~including~~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, LHFS totaled ~~$1.203~~$2.2 million, compared to $7.7 million at December 31, 2021.

Loans Held for Investment (“LHFI”)

LHFI, net of deferred fees and costs, were $3.681 billion at September 30, ~~2017,~~2022, an increase of ~~$329.8~~$752.2 million, or ~~37.8%~~25.7%, ~~since~~from $2.929 billion at December 31, ~~2016.~~2021. The ~~acquisitions~~acquisition of BBI accounted for approximately ~~$237.3~~$502.3 million of the increase. AtPPP loans were $1.5 million at September 30, ~~2017, the company had direct energy related loans~~2022, a decrease of ~~$20.2~~$39.6 million, ~~representing 1.7%~~or 96.3%, from $41.1 million at December 31, 2021.

Table of the total loan portfolio. A majority of the outstanding are secured by marine assets that operate in the Gulf of Mexico, which are under term contracts to major operators tied primarily to oil and gas production.

A distribution of the Company’s loans showing the balance and percentage of loans by type is presented for the noted periods in the table below. The balances shown are before deferred or unamortized loan origination, extension, or commitment fees, and deferred origination costs.

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The following table ~~shows~~presents the Company’s composition of ~~the loan portfolio by category~~:

~~Composition~~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
	Amount		Percent of Total		Amount		Percent of Total
Commercial, financial and agriculture (1)	$	517,197	13.9	%	$	397,516	13.4	%
Commercial real estate	2,125,471		57.1	%	1,683,698		57.0	%
Consumer real estate	1,032,343		27.8	%	838,654		28.3	%
Consumer installment	44,377		1.2	%	39,685		1.3	%
Total loans	3,719,388		100	%	2,959,553		100	%
Allowance for credit losses	(38,356)				(30,742)
Net loans	$	3,681,032			$	2,928,811

(1)Loan ~~Portfolio~~

Sept. 30, 2017 December 31, 2016
Amount
Percent
of
Total
Amount
Percent
of
Total

($ In Thousands)
Mortgage loans held for sale $ 4,588 0.4 % $ 5,880 0.6 %
Commercial, financial and agricultural 164,577 13.7 129,423 14.8
Real Estate:
Mortgage-commercial 456,110 37.9 314,359 36.0
Mortgage-residential 377,307 31.4 289,640 33.2
Construction 171,609 14.3 109,394 12.5
Lease financing receivable 2,008 0.2 2,204 0.3
Obligations of states and subdivisions 5,892 0.5 6,698 0.8
Consumer and other 20,690 1.6 15,336 1.8
Total loans 1,202,781 100 % 872,934 100 %
Allowance for loan losses (8,175 ) (7,510 )
Net loans $ 1,194,606 $ 865,424

In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than a loan for construction purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial institutionsamount includes $1.5 million and $41.1 million in the Company’s market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loanPPP loans at September 30, 2022 and ~~tends to increase the magnitude of the real estate loan portfolio component.~~ December 31, 2021, 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.

~~Loans held for sale consist~~

LOAN CONCENTRATIONS

Diversification within the loan portfolio is an important means of ~~mortgage loans originated by~~reducing inherent lending risk. As of September 30, 2022, management does not consider there to be any significant credit concentrations within the ~~Bank and sold into~~loan portfolio. Although the ~~secondary market. Commitments from investors~~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 ~~purchase~~repay a loan is dependent upon the ~~loans are obtained upon origination.~~

economic stability of the area.

NON-PERFORMING ASSETS

~~NONPERFORMING ASSETS~~

~~Nonperforming~~

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

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 million at September 30, 2022, an increase of $7.8 million as compared to $2.6 million at December 31, 2021. The acquisition of BBI accounted for approximately $8.1 million of the increase.

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 ~~to a borrower~~it would not otherwise consider but for the borrower’s financial difficulty. At September 30, 2022, the Bank had $23.4 million in ~~financial difficulty,~~loans that were classified as TDRs, of which $15.8 million were performing as agreed with modified terms. At December 31, 2021, the ~~loan falls into the category~~Bank had $24.2 million in loans that were classified as TDRs of ~~a troubled debt restructuring (“TDR”).~~which $5.2 million were performing as agreed with modified terms. TDRs may be classified as either ~~nonperforming~~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 ~~nonperforming~~non-performing assets and performing TDRs as of the dates ~~noted:~~

~~Nonperforming Assets and Performing Troubled Debt Restructurings~~

~~($ In Thousands)~~

NON-ACCRUAL LOANS
Real Estate: 9/30/17 12/31/16 9/30/16
1-4 family residential construction $ - $ 300 $ -
Other construction/land 98 358 2,788
1-4 family residential revolving/open-end 61 200 317
1-4 family residential closed-end 2,672 1,463 1,652
Nonfarm, nonresidential, owner-occupied 625 587 598
Nonfarm, nonresidential, other nonfarm nonresidential 1,139 322 336
TOTAL REAL ESTATE 4,595 3,230 5,691
Commercial and industrial 211 2 72
Loans to individuals - other 46 33 36
TOTAL NON-ACCRUAL LOANS 4,852 3,265 5,799
Other real estate owned 7,855 6,008 4,670
TOTAL NON-PERFORMING ASSETS $ 12,707 $ 9,273 $ 10,469
Performing TDRs $ 4,676 $ 2,774 $ 2,903
Total non-performing assets as a % of total loans & leases net of unearned income 1.06 % 1.06 % 1.21 %
Total non-accrual loans as a % of total loans & leases net of unearned income 0.40 % 0.37 % 0.67 %

~~Nonperforming assets~~noted.


($ in thousands)	September 30, 2022			December 31, 2021
Nonaccrual Loans
Commercial, financial and agriculture	$	29		$	190
Commercial real estate	11,452			21,527
Consumer real estate	4,361			6,288
Consumer installment	2			8
Total Nonaccrual Loans	15,844			28,013

Other real-estate owned	10,328			2,565

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

NPAs totaled ~~$12.7~~$26.2 million at September 30, ~~2017,~~2022, compared to ~~$9.3~~$30.6 million at December 31, ~~2016.~~2021, a decrease of $4.4 million. The ~~increase of $3.4 million is attributable to the acquisitions with associated fair value marks. The ALLL/~~ACL/total loans ratio was ~~0.68%~~1.03% at September 30, ~~2017~~2022, and ~~.87%~~1.04% at December 31, ~~2016. Including~~2021. Total valuation accounting adjustments were $11.5 million on acquired ~~loans, the total valuation plus ALLL was 1.16% of~~ loans at September 30, ~~2017.~~2022. The Company recorded a $9.5 million credit mark related to the BBI acquisition. The ratio of annualized net charge-offs (recoveries) to total loans was ~~(0.005)% for the quarter ended September 30, 2017 compared to~~ (0.04)% for the quarter ended September 30, ~~2016. As noted in our first quarter 2015 10-Q,~~2022 compared to 0.03% for the year ended December 31, 2021.

ALLOWANCE FOR CREDIT LOSSES

On January 1, 2021, the Company ~~had been notified that~~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 ~~recovery~~wider range of ~~$941,000 was more likely than not expected during 2015. We received~~reasonable and supportable information to determine credit losses. In accordance with ASC 326, the ~~first installment during the second quarter of 2015~~Company has developed an ACL methodology effective January 1, 2021, which ~~totaled $481,000 and the second installment during the third quarter of 2015 which totaled $241,000. The remaining balance of $219,000 was received in 2016.~~

~~ALLOWANCE FOR LOAN AND LEASE LOSSES~~

~~The~~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 ~~lease~~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 ~~is established through~~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, the ACL was $38.4 million, or 1.0% of LHFI, an increase of $7.6 million, or 24.8% when compared to December 31, 2021. The 2022 provision for credit losses includes $3.9 million associated with a day one post-merger accounting provision recorded for non-PCD loans, unfunded commitments, and a $1.3 million initial allowance on PCD loans acquired in the BBI merger. At December 31, 2021, the allowance for loan ~~and lease losses. It is maintained at a level that~~losses was approximately $30.7 million, which was 1.0% of LHFI.

At September 30, 2022, management believes the allowance is ~~adequate to absorb probable incurred~~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 ~~remaining loan portfolio. Specifically identifiable and quantifiable losses are immediately charged off against~~portfolio could also change, which would affect the ~~allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge off.~~

level of future provisions for credit losses.

The table that follows summarizes the activity in the allowance for ~~loan and lease~~credit losses for the ~~noted periods:~~

~~Allowance for Loan~~three and ~~Lease Losses~~

~~($ In Thousands)~~

3 months
ended 3 months
ended 9 months
ended 9 months
ended For the
Year
Ended
9/30/17 9/30/16 9/30/17 9/30/16 12/31/16
Balances:
Average gross loans & leases outstanding during period: $ 1,185,493 $ 836,931 $ 1,153,694 $ 808,821 $ 820,881
Gross Loans & leases outstanding at end of period 1,202,781 863,803 1,202,781 863,803 872,934

Allowance for Loan and Lease Losses:
Balance at beginning of period $ 8,070 $ 7,259 $ 7,510 $ 6,747 $ 6,747
Provision charged to expense 90 143 384 538 625
Charge-offs:
Real Estate-
1-4 family residential construction - - 32 - -
Other construction/land 39 - 111 67 274
1-4 family revolving, open-ended - - 67 - 134
1-4 family closed-end - 130 49 219 219
Nonfarm, nonresidential, owner-occupied - - - - -
Total Real Estate 39 130 259 286 627
Commercial and industrial - - 1 6 71
Credit cards - - - 1 6
Automobile loans 12 20 30 29 37
Loans to individuals - other - - - - -
All other loans 9 6 33 25 30
Total 60 156 323 347 771
Recoveries:
Real Estate-
1-4 family residential construction - - - - -
Other construction/land 24 108 274 191 229
1-4 family revolving, open-ended - 3 51 17 17
1-4 family closed-end 16 105 160 194 502
Nonfarm, nonresidential, owner-occupied 5 1 13 6 7
Total Real Estate 45 217 498 408 755
Commercial and industrial 7 3 39 83 84
Credit cards - 1 - 1 2
Automobile loans 4 - 11 1 1
Loans to individuals - other 7 5 21 10 12
All other loans 12 9 35 40 55
Total 75 235 604 543 909
Net loan charge offs (recoveries) (15 ) (79 ) (281 ) (196 ) (138 )
Balance at end of period $ 8,175 $ 7,481 $ 8,175 $ 7,481 $ 7,510

RATIOS
Net Charge-offs (recoveries) to average Loans & Leases(annualized) (0.005 )% (0.04 )% (0.03 )% (0.03 )% (0.02 )%
Allowance for Loan Losses to gross Loans & Leases at end of period 0.68 % 0.87 % 0.68 % 0.87 % 0.86 %
Net Loan Charge-offs (recoveries) to provision for loan losses (16.67 )% (55.24 )% (73.18 )% (36.43 )% (22.08 )%

nine months ended September 30, 2022 and 2021 ($ in thousands):


Allowance for Credit Losses
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
Average LHFI outstanding during period:	$	3,162,310		$	2,983,771		$	3,041,337		$	3,040,818
LHFI outstanding at end of period:	3,719,388			2,960,919			3,719,388			2,960,919
Allowance for Credit Losses:
Balance at beginning of period	$	32,400		$	32,457		$	30,742		$	35,820
ASC 326 adoption adjustment	—			—			—			397
Initial allowance on PCD loans	1,303			—			1,303			—
Provision:
Initial provision for acquired non-PCD loans	3,855			—			3,855			—
Provision for credit losses charged to expense	445			—			895			—
Charge-offs:
Commercial, financial and agriculture	—			142			146			1,618
Commercial real estate	—			59			27			3,066
Consumer real estate	55			19			202			282
Consumer installment	186			166			523			431
Total Charge-offs	241			386			898			5,397
Recoveries:
Commercial, financial and agriculture	292			57			388			382
Commercial real estate	18			180			532			473
Consumer real estate	39			39			987			276
Consumer installment	245			71			552			467
Total Recoveries	594			347			2,459			1,598
Net loan charge offs (recoveries)	(353)			39			(1,561)			3,799
Balance at end of period	$	38,356		$	32,418		$	38,356		$	32,418
RATIOS
Net Charge-offs (recoveries) to average LHFI (annualized)	0.0		%	0.0		%	(0.1)		%	0.2		%
ACL to LHFI at end of period	1.0		%	1.1		%	1.0		%	1.1		%
Net Loan Charge-offs (recoveries) to PCL	(79.3)		%	0.0		%	(174.4)		%	0.0		%

~~OFF-BALANCE SHEET ARRANGEMENTS~~

The Company ~~maintains commitments to extend~~recorded a $4.3 million and $4.8 million provision for credit inlosses for 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 $265.2 million at~~three and nine months ended September 30, ~~2017~~2022 and $220.3 million at December 31, 2016, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 22.1% of gross loans outstanding at$0 for the three and nine months ended September 30, ~~2017~~2021, respectively. An initial provision for acquired non-PCD loans of $3.9 million and ~~25.2% at December 31, 2016, with the increase due in part to higher commitments in commercial and industrial loans. The Company also had undrawn letters~~an initial allowance on PCD loans of ~~credit issued to customers totaling $8.2~~$1.3 million at September 30, 2017 and $1.7 million at December 31, 2016. 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 8 to the consolidated financial statements.

~~In addition to unused commitments to provide credit, the Company is utilizing a $82.0 million letter of credit issued by the Federal Home Loan Bank (“FHLB”) on the Company’s behalf as security~~was recorded as of September 30, ~~2017. That letter of credit is backed by loans which are pledged~~2022 due to the ~~FHLB~~acquisition of BBI.

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


($ in thousands)	September 30, 2022		December 31, 2021
Commercial, financial and agriculture	$	5,900	$	4,873
Commercial real estate	20,925		17,552
Consumer real estate	10,984		7,889
Consumer installment	547		428
Total	$	38,356	$	30,742

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 thousand provision for credit losses on OBSC exposures for the nine month period ended September 30, 2022 and $0 for the same period in 2021. The increase in the ACL on OBSC exposures for the nine months ended September 30, 2022 was primarily due to an increase in unfunded commitments.

OTHER ASSETS

The Company’s balance of non-interest earning cash and due from banks was ~~$63.7~~$71.6 million at September 30, ~~2017~~2022 and ~~$31.7~~$115.2 million at December 31, ~~2016.~~2021. 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.~~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 ~~equity~~other securities increased ~~$3.0~~$8.8 million ~~due~~to $31.1 million at September 30, 2022 compared to $22.2 million at December 31, 2021. A majority of the increase in other securities is related to an increase in ~~FHLB~~ stock ~~and federal reserve stock.~~held at the FHLB. The Company’s net premises and equipment at September 30, ~~2017~~2022 was ~~$46.2~~$140.5 million and ~~$34.6~~$126.0 million at December 31, ~~2016; the result being~~2021; anincreaseof ~~$11.6~~$14.6 million, or ~~33.4%~~12% for the first nine months of ~~2017. Included~~2022. The increase is attributed to the BBI acquisition. Operating right-of-use assets at September 30, 2022 totaled $7.9 million compared to $4.1 million at December 31, 2021, an increase of $3.8 million. The increase in operating right-of-use assets is attributed to the acquisition of BBI. Financing right-of-use assets at September 30, 2022 totaled $2.0 million compared to $2.4 million at December 31, 2021, a decrease of $348 thousand. Bank-owned life insurance at September 30, 2022 totaled $95.4 million compared to $87.4 million at December 31, 2021, an increase of $7.9 million. The increase in bank-owned life insurance is attributed to $10.1 million of insurance included in the acquisition of ~~Iberville was $4.0 million~~BBI offset by a decrease in ~~bank-owned life insurance, creating a balance~~death benefits received in the first quarter of ~~$26.4 million~~2022. Goodwill at September 30, ~~2017. Bank-owned life insurance is also discussed above in the “Non-Interest Income and Non-Interest Expense” section. Goodwill~~2022 increased ~~by $6.7~~$22.1 million ~~during the period,~~to $178.8 million compared to $156.7 million at December 31, 2021 as a result of the ~~acquisitions, ending the first nine months of 2017 with a balance of $20.4 million.~~BBI acquisition. Other intangible assets, consisting primarily of the Company’s core deposit intangible (“CDI”), increased by ~~$3.1~~$6.4 million to $35.9 million as of September 30, 2022, compared to $29.5 million at December 31, 2021, due to the ~~acquisitions. The Company’s goodwill~~BBI acquisition.

Goodwill and ~~other~~indefinite-lived intangible assets are ~~evaluated~~tested for impairment at least annually, ~~for potential impairment,~~ and ~~pursuant to~~more frequently if events or changes in circumstances indicate that ~~analysis~~it is more likely than not that the asset is impaired. At September 30, 2022, management has determined that no impairment ~~exists as of September 30, 2017.~~

exists.

Other real estate owned increased ~~$1.8~~by $7.8 million, or ~~30.7% during~~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 ~~first nine months~~increase.

Table of ~~2017. This increase comes~~Contents

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 million at September 30, 2022 and $627.8 million at December 31, 2021, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 16.9% of gross loans at September 30, 2022 and 21.2% at December 31, 2021. The Company also had undrawn similar standby letters of credit to customers totaling $14.5 million at September 30, 2022 and $12.3 million at December 31, 2021. The effect on the Company’s revenues, expenses, cash flows and liquidity from the ~~acquisition~~unused portion of ~~GCCB. See~~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 ~~4 –~~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 million letter of credit issued by the FHLB on the Company’s behalf as of September 30, 2022. 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, 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 billion at September 30, 2022. 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, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $1.097 billion of the Company’s investment balances, compared to $985.4 million at December 31, 2021. 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.

The Company’s liquidity ratio as of September 30, 2022 was 25.8%, 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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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, cash and cash equivalents were $163.8 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $915.0 million at September 30, 2022. Approximately $630.2 million in loan commitments could fund within the next three months and includes other commitments, primarily commercial and $14.5 million similar letters of credit, at September 30, 2022.

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 ~~Combinations.~~

"Supervision and Regulation" in the Company’s 2021 Form 10-K.

DEPOSITS ~~AND INTEREST BEARING LIABILITIES~~

~~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 ~~paid by deposit type~~ for the ~~three-month~~nine month periods ended September 30, ~~2017~~2022 and ~~2016~~2021 is included in the Average Balances, Tax Equivalent Interest and Yield/Rates tables appearing above, inunder the ~~section titled~~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.

Deposit Distribution
($ In Thousands) Sept. 30, 2017 December 31, 2016
Non-interest bearing demand deposits $ 308,050 $ 202,478
NOW accounts and Other 639,802 430,903
Money Market accounts 157,219 113,253
Savings accounts 135,373 69,540
Time Deposits of less than $250,000 209,714 162,797
Time Deposits of $250,000 or more 57,833 60,220
Total deposits $ 1,507,991 $ 1,039,191

Percentage of Total Deposits

Non-interest bearing demand deposits 20.4 % 19.5 %
NOW accounts and other 42.4 % 41.5 %
Money Market accounts 10.5 % 10.9 %
Savings accounts 9.0 % 6.7 %
Time Deposits of less than $250,000 13.9 % 15.6 %
Time Deposits of $250,000 or more 3.8 % 5.8 %
Total 100 % 100 %

Deposits at December 31, 2021 are shown without reclassification for consistency with the current period presentation.


Deposit Distribution	September 30, 2022				December 31, 2021
($ in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Non-interest-bearing demand deposits	$	1,647,205	—		$	1,366,529	—
Interest bearing deposits:
NOW accounts and other	1,836,462		0.34	%	1,529,293		0.48	%
Money market accounts	825,400		0.11	%	756,951		0.20	%
Savings accounts	531,304		0.02	%	440,977		0.03	%
Time deposits	562,912		0.35	%	537,538		0.59	%
Total interest-bearing deposits	3,756,078		0.25	%	3,264,759		0.37	%
Total deposits	$	5,403,283	0.17	%	$	4,631,288	0.26	%

As of September 30, 2022, average deposits increased by $772.0 million, or 16.7% to $5.403 billion from $4.631 billion at December 31, 2021. The most significant growth during 2022 compared to 2021 was in NOW accounts. The average cost of interest-bearing deposits and total deposits was 0.25% and 0.17% during at September 30, 2022 compared to 0.37% and 0.26% at December 31, 2021. The decrease in the average cost of interest-bearing deposit during the first nine months of 2022 compared to December 31, 2021 was related to the Bank gradually reducing interest rates during 2021. In addition to reducing rates, several larger public fund relationships renewed into lower rates during the first quarter of 2022.

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OTHER INTEREST-BEARING LIABILITIES

The Company’s non-deposit borrowings may, at any given time, include ~~fed~~federal funds purchased from correspondent banks, borrowings from the ~~Federal Home Loan Bank,~~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 ~~fed~~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 ~~non-deposit interest-bearing~~noninterest-bearing deposit liabilities increased by ~~$25.3~~$220.5 million, or ~~31.9%~~14.2%, in the first nine months of ~~2017, due~~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 anmoney market accounts. The increase in ~~notes payable~~noninterest-bearing deposits is related to the ~~FHLB. Repurchase agreements decreased $5.0 million. The Company had~~ending of the Deposit Reclassification program coupled with the BBI acquisition. As of September 30, 2022, junior subordinated debentures ~~totaling $10.3~~increased $226 thousand, net of issuance costs, to $145.0 million. Subordinated debt is discussed more fully in the below Capital section of this report.

LEASE LIABILITIES

As of September 30, 2022, operating lease liabilities increased $3.9 million, or 93.0% to $8.1 million from $4.2 million at ~~September 30, 2017 and~~ December 31, ~~2016,~~2021. The increase in operating lease liabilities is attributed to the ~~form~~acquisition of ~~long-term borrowings~~BBI. Finance lease liabilities decreased $132 thousand, or 6.3% to $2.0 million from ~~trust subsidiaries formed specifically to issue trust preferred securities.~~

$2.1 million at December 31, 2021.

OTHER ~~NON-INTEREST BEARING~~ LIABILITIES

Other liabilities are principally comprised of accrued interest payable and other accrued but unpaid expenses. Other liabilities increased by ~~$4.0~~$13.6 million, or ~~100.8%~~58.1%, during the first nine months of ~~2017, due~~2022. The increase is primarily related to the ~~increase in other~~acquisition of BBI. As of September 30, 2022, accrued ~~but unpaid expenses.~~

~~liquidity and market RisK MANAGEMENT~~

~~LIQUIDITY~~

~~Liquidity management refers~~interest payable decreased $346 thousand, or 20.2% to ~~the Company’s ability~~$1.4 million from $1.7 million at December 31, 2021. The ACL on OBSC exposures increased $150 thousand 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 our 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.

CAPITAL

At September 30, 2022, the Company had total shareholders’ equity of $621.5 million, comprised of $25.3 million in common stock, $41.1 million in treasury stock, $558.2 million in surplus, $241.1 million in undivided profits and $162.0 million in accumulated comprehensive loss on available-for-sale securities. Total shareholders’ equity at the end of 2021 was $676.2 million. The decrease of $54.7 million, or 8.1%, in shareholders’ equity during the first nine months of 2022 is primarily attributable to $170.0 million decrease 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 million in cash dividends paid, these decreases in total shareholders’ equity were offset by ~~drawing down~~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 ~~correspondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets. In addition,~~issued and outstanding common stock. Under the program, the Company ~~can raise immediate cash~~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.

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 ~~temporary needs~~$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 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, but is 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 ~~selling~~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 ~~agreement~~the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2022 Repurchase Program will have an expiration date of December 31, 2022.

The Inflation Reduction Act of 2022 signed into law in August 2022 includes a provision for an excise tax equal to ~~repurchase those investments~~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.

The Company uses a variety of measures to evaluate its ~~portfolio which~~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 ~~pledged~~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 ~~collateral.~~ “Basel III”) to include accumulated other comprehensive income in risk-based capital. The following table sets forth the Company’s and the Bank’s regulatory capital ratios as of the dates indicated.


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
Common Equity Tier 1 Capital Ratio	15.5	%	16.6	%	6.5	%	7.0	%
Tier 1 Capital Ratio	15.5	%	16.6	%	8.0	%	8.5	%
Total Capital Ratio	16.4	%	17.4	%	10.0	%	10.5	%
Tier 1 Leverage Ratio	10.6	%	10.8	%	5.0	%	7.0	%


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
Common Equity Tier 1 Capital Ratio*	12.6	%	13.7	%	N/A	N/A
Tier 1 Capital Ratio**	12.9	%	14.1	%	N/A	N/A
Total Capital Ratio	16.7	%	18.6	%	N/A	N/A
Tier 1 Leverage Ratio	9.3	%	9.2	%	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 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, ~~2017,~~2022, management believes that each of the ~~market value~~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 was $621.5 million, or approximately 9.6% of ~~unpledged debt securities plus pledged securities in excess of current pledging~~total assets. The Company currently has adequate capital to meet the minimum capital requirements ~~comprised $95.6~~for all regulatory agencies.

On June 30, 2006, The Company issued $4.1 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 2 (“Trust 2”) in which the Company owns all of the common equity. The debentures are the sole asset of the Trust. Trust 2 issued $4.0 million of Trust Preferred Securities (“TPSs”) to investors. The Company’s investment balances, compared to $101.2 million at December 31, 2016. The increase in unpledged securities from September, 2017 compared to December 2016 is primarily due to an increase in portfolio assets. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding fed funds soldobligations under the debentures and ~~vault cash. The Company has~~related documents, taken together, constitute a higher level of actual balance sheet liquidity than might otherwise be the case, since we utilize a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans that are pledged to the FHLBfull and unconditional guarantee by the Company ~~totaled $82.0 million~~of Trust 2’s obligations under the preferred securities. The preferred securities are redeemable by the Company at ~~September 30, 2017. Management is~~its option. The preferred securities must be redeemed upon maturity of the ~~opinion that available investments~~debentures in 2036. Interest on the preferred securities is the three month London Interbank Offer Rate (“LIBOR”) plus 1.65% and ~~other potentially liquid assets, along~~is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

On July 27, 2007, The Company issued $6.2 million of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 3 (“Trust 3”) in which the Company owns all of the common equity. The debentures are the sole asset of Trust 3. The Trust issued $6.0 million of 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 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 plus 1.40% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

In 2018, the Company acquired FMB’s Capital Trust 1 (“Trust 1”), which consisted of $6.1 million of floating rate junior subordinated deferrable interest debentures in which the Company owns all of the common equity. The debentures are the sole asset of Trust 1. Trust 1 issued $6.0 million of 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 1’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 2033. Interest on the preferred securities is the three-month LIBOR plus 2.85% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

In accordance with the ~~standby funding sources it has arranged,~~provisions of ASC 810, Consolidation, the trusts are ~~more than sufficient~~not included in the consolidated financial statements.

Subordinated Notes

On April 30, 2018, the Company entered into two Subordinated Note Purchase Agreements pursuant to ~~meet~~which the Company sold and issued $24 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes due 2028 and $42 million in aggregate principal amount of 6.40% fixed-to-floating rate subordinated notes due 2033 (collectively, the “Notes”).

The Notes 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 are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and ~~anticipated short-term liquidity needs.~~

future senior indebtedness, and each Note is pari passu in right to payment with respect to the other Notes.

On September 25, 2020, The ~~Company’s liquidity ratio as~~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. The Notes 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”) plus 412.6 basis points), payable quarterly in arrears. As provided in the Notes, under specified conditions the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR.

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The Company is entitled to redeem the Notes, in whole or in part, on any interest payment date on or after October 1, 2025, and to redeem the Notes at any time in whole upon certain other specified events.

The Company had $145.0 million of subordinated debt, net of deferred issuance costs $1.9 million and unamortized fair value mark $606 thousand, at September 30, ~~2017 was 14.1%, as~~2022, compared to ~~internal policy guidelines~~$144.7 million, net of ~~10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:~~

Sept. 30, 2017
Policy
Maximum

Policy
Compliance
Loans to Deposits (including FHLB advances) 75.0 % 90.0 % In Policy
Net Non-core Funding Dependency Ratio 6.0 % 20.0 % In Policy
Fed Funds Purchased / Total Assets 0.0 % 10.0 % In Policy
FHLB Advances / Total Assets 4.4 % 20.0 % In Policy
FRB Advances / Total Assets 0.0 % 10.0 % In Policy
Pledged Securities to Total Securities 72.0 % 90.0 % In Policy

~~Continued growth in core deposits~~deferred issuance costs $2.1 million and ~~relatively high levels~~unamortized fair value mark $646 thousand, at December 31, 2021.

Reconciliation 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.~~

~~The holding company’s primary uses of funds are ordinary operating expenses~~Non-GAAP Financial Measures

Our accounting and stockholder dividends, and its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. Management anticipates that the Bank will have sufficient earningsreporting policies conform to provide dividends to the holding company to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) DividendsGAAP in the ~~Company’s Annual~~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-K~~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 ~~year ended December 31, 2016.~~

~~INTEREST RATE~~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, 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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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

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Total 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

Total interest income	$	53,874		$	44,435		$	142,462		$	132,860
Tax-exempt investment income	(2,875)			(1,905)			(8,077)			(5,748)
Taxable investment income	3,849			2,550			10,812			7,694
Total interest income, FTE	$	54,848		$	45,080		$	145,197		$	134,806

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

Interest Income Investment Securities, 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

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

Average investment securities	$	2,091,234		$	1,364,431		$	2,038,921		$	1,218,451

Yield on investment securities, FTE	2.40		%	2.15		%	2.23		%	2.23		%

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK ~~MANAGEMENT~~

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

To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios every month. The model imports relevant information for the Company’s financial instruments and incorporates ~~Management’s~~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
Change in Interest Rates	% Change from Base		Policy Limit		% Change from Base		Policy Limit
Up 400 bps	(1.8)	%	(20.0)	%	(11.6)	%	(40.0)	%
Up 300 bps	0.9	%	(15.0)	%	(6.3)	%	(30.0)	%
Up 200 bps	2.2	%	(10.0)	%	(2.5)	%	(20.0)	%
Up 100 bps	1.9	%	(5.0)	%	(0.4)	%	(10.0)	%
Down 100 bps	(4.3)	%	(5.0)	%	(2.4)	%	(10.0)	%
Down 200 bps	(10.3)	%	(10.0)	%	(7.3)	%	(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, ~~2017,~~2022, the Company had the following estimated net interest income sensitivity profile, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:

September 30, 2017 Net Interest Income at Risk – Sensitivity Year 1
($ In Thousands) -200 bp -100 bp STATIC +100 bp +200 bp +300 bp +400 bp
Net Interest Income $ 53,060 $ 54,580 $ 58,067 $ 59,791 $ 61,432 $ 63,091 $ 64,615
Dollar Change -5,007 -3,487 1,724 3,365 5,024 6,548
NII @ Risk - Sensitivity Y1 -8.6 % -6.0 % 3.0 % 5.8 % 8.7 % 11.3 %


September 30, 2022	Net Interest Income at Risk – Sensitivity Year 1
($ in thousands)	-200 bp		-100 bp		STATIC	+100 bp		+200 bp		+300 bp		+400 bp
Net Interest Income	193,088		205,914		215,168	219,276		219,795		217,136		211,335
Dollar Change	(22,080)		(9,254)			4,108		4,627		1,968		(3,833)
NII @ Risk - Sensitivity Y1	(10.3)	%	(4.3)	%		1.9	%	2.2	%	0.9	%	(1.8)	%
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 ~~$5.0~~$22.1 million lower than in a stable interest rate scenario, for a negative variance of ~~8.6%~~10.3%. The unfavorable variance increases if rates were to drop below 200 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop. This effect 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. While management believes that further interest rate reductions are highly unlikely, the potential percentage drop in net interest income exceeds our internal policy guidelines in declining interest rate scenarios and we will continue to monitor our interest rate risk profile and take corrective action as deemed appropriate.

Net interest income would likely improve by ~~$3.4~~$4.6 million, or ~~5.8%~~2.2%, if interest rates were to increase by 200 basis points relative to a stable interest rate scenario, with the favorable variance expanding the higher interest rates rise. 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 ~~still appears well-positioned~~would expect to benefit from a material upward shift in the yield curve.

The Company’s ~~one year~~one-year cumulative GAP ratio is approximately ~~220.3%~~206.0%, which means that there are more assets repricing than liabilities within the first year. The Company is “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 ~~companies~~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 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~~management’s best estimates. The table below shows estimated changes in the Company’s EVE as of September 30, ~~2017,~~2022, under different interest rate scenarios relative to a base case of current interest rates:

Balance Sheet Shock
($ In Thousands) -200 bp -100 bp STATIC
(Base) +100 bp +200 bp +300 bp +400 bp
Market Value of Equity $ 389,176 $ 387,021 $ 447,973 $ 495,850 $ 533,964 $ 565,223 $ 590,236
Change in EVE from base -58,797 -60,952 47,877 85,991 117,250 142,263
% Change -13.1 % -13.6 % 10.7 % 19.2 % 26.2 % 31.8 %
Policy Limits -20.0 % -10.0 % -10.0 % -20.0 % -30.0 % -40.0 %


September 30, 2022	Balance Sheet Shock
($ in thousands)	-200 bp		-100 bp		STATIC (Base)	+100 bp		+200 bp		+300 bp		+400 bp
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
Change in EVE from base	(99,487)		(32,924)			(5,987)		(34,203)		(86,496)		(158,983)
% Change	(7.3)	%	(2.4)	%		(0.4)	%	(2.5)	%	(6.3)	%	(11.6)	%
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. ~~As noted previously, however, Management believes that the potential for a significant rate decline is low.~~ 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.

~~CAPITAL RESOURCES~~

At September 30, 2017 the Company had total stockholders’ equity of $167.0 million, comprised of $9.2 million in common stock, less than $0.1 million in treasury stock, $105.0 million in surplus, $51.6 million in undivided profits, $1.7 million in accumulated comprehensive income for available-for-sale securities. Total stockholders’ equity at the end of 2016 was $154.5 million. The increase of $12.5 million, or 8.1%, in stockholders’ equity during the first nine months of 2017 is comprised of capital added via net earnings of $8.2 million, $2.7 million increase in accumulated comprehensive income for available-for-sale securities, and 2.2 million of common stock issued for the purchase of GCCB, offset by $1.0 million in cash dividends paid.

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

~~Regulatory Capital Ratios~~

~~The First, ANBA~~

Sept. 30,
2017
December 31,
2016
Minimum
Required to be
Well
Capitalized

Common Equity Tier 1 Capital Ratio 12.1 % 16.2 % 6.5 %
Tier 1 Capital Ratio 12.1 % 16.2 % 8.0 %
Total Capital Ratio 12.7 % 17.0 % 10.0 %
Tier 1 Leverage Ratio 9.5 % 13.1 % 5.0 %

~~Regulatory Capital Ratios~~

~~The First Bancshares, Inc.~~

Sept. 30,
2017
December 31,
2016
Minimum
Required to be
Well
Capitalized

Common Equity Tier 1 Capital Ratio* 10.3 % 13.8 % 6.5 %
Tier 1 Capital Ratio** 11.0 % 14.7 % 8.0 %
Total Capital Ratio 11.6 % 15.5 % 10.0 %
Tier 1 Leverage Ratio 8.6 % 11.9 % 5.0 %

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

** The numerator includes Trust Preferred.

Regulatory capital ratios slightly decreased from December 31, 2016 to September 30, 2017 as asset growth outpaced capital formation. Our capital ratios remain very strong relative to the median for peer financial institutions, and at September 30, 2017 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. 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.

~~Reconciliation of Non-GAAP Financial Measures~~

We report net interest income and net interest margin on a fully tax equivalent, or FTE, basis, which calculations are not in accordance with generally accepted accounting principles, or GAAP. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 34% 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. Net interest income and net interest margin on a fully tax equivalent basis should not be viewed as a substitute for net interest income or net interest margin provided in accordance with GAAP. See reconciliation of net interest income (FTE) to net interest income calculated in accordance with GAAP and net interest margin (FTE) to net interest margin calculated in accordance with GAAP below:

~~Net Interest Income Fully Tax Equivalent~~

($ In Thousands) Three Months Three Months
Ended Ended
Sept. 30, 2017 Sept. 30, 2016

Net interest income $ 14,935 $ 10,067
Tax exempt investment income (579 ) (465 )
Taxable investment income 876 704
Net interest income fully tax equivalent $ 15,232 $ 10,306
Net interest income fully tax equivalent $ 15,232 $ 10,306
Average earning assets $ 1,599,704 $ 1,113,475
Net interest margin fully tax equivalent 3.81 % 3.70 %

($ In Thousands)
YTD YTD
Sept. 30, 2017 Sept. 30, 2016

Net interest income $ 43,939 $ 29,597
Tax exempt investment income (1,765 ) (1,398 )
Taxable investment income 2,668 2,118
Net interest income fully tax equivalent $ 44,842 $ 30,317
Net interest income fully tax equivalent $ 44,842 $ 30,317
Average earning assets $ 1,557,782 $ 1,096,522
Net interest margin fully tax equivalent 3.84 % 3.69 %

~~PART I - FINANCIAL INFORMATION~~

ITEM ~~NO. 3~~

~~QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK~~

The information concerning quantitative and qualitative disclosures about market risk is included in Part I, Item 2 above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management.”

~~PART I - FINANCIAL INFORMATION~~

~~ITEM NO. 4~~

4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, ~~2017,~~2022, (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 ~~Securities~~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 ~~of 1934, as amended. Based on this evaluation, as~~is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the ~~Evaluation Date,~~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 ~~Controls~~

Control over Financial Reporting

There have been no changes ~~significant or otherwise,~~ in our internal ~~controls~~control over financial reporting, ~~that occurred~~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, ~~2017,~~2022 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 1:1. 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:~~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 ~~were~~have been no material changes infrom the ~~Company’s~~ risk factors ~~since December 31, 2016, other than as set forth below:~~

Shareholder approval for the proposed merger of Southwest with and into the Company may not be received and regulatory consents or approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated.

Before the merger may be completed, Southwest’s shareholders must approve the transaction and such shareholder approval may not be received. In addition, various approvals or consents must be obtained from the Federal Reserve, the OCC, and other bank, securities, antitrust and other regulatory authorities. These regulators may impose conditions on consummation of the merger or require changes to the terms of the merger. Although we do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying the effective time of the merger or imposing additional costs on or limitingpreviously disclosed in our revenues following the merger. Furthermore, such conditions or changes may constitute a burdensome condition that may allow us to terminate the merger agreement and we may exercise our right to terminate the merger agreement. There can be no assurance as to whether the regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed.

~~We may fail to realize the anticipated cost savings and other financial benefits of the proposed acquisition of Southwest on the anticipated schedule, if at all.~~

The Company and Southwest have historically operated independently. The success of the merger of Southwest with and into The Company will depend, in part, on our ability to successfully combine our businesses. To realize the anticipated benefits of the merger, after the effective time of the merger, we expect to integrate Southwest’s business into our own. We may face significant challenges in integrating Southwest’s operations in a timely and efficient manner and in retaining personnel from these two banks that we consider to be key personnel. We anticipate that we will achieve cost savings from the merger when the two companies have been fully integrated, however achieving the anticipated cost savings and financial benefits of the mergers will depend, in part, on whether we can successfully integrate these businesses. Actual growth and cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. In addition, integration efforts following the mergers will require the dedication of significant management resources, which may temporarily distract management’s attention from the day-to-day business of the combined company. Any inability to realize the full extent of, or any of, the anticipated cost savings and financial benefits of the mergers, as well as any delays encountered in the integration process, could have an adverse effect on the business and results of operations of the combined company, which may affect the market price of our common stock.

~~We will incur significant transaction and merger-related costs in connection with the proposed acquisition of Southwest.~~

We have incurred and expect to incur a number of non-recurring costs associated with the proposed acquisition of Southwest. These costs and expenses include fees paid to financial, legal and accounting advisors, severance, retention bonus and other potential employment-related costs, filing fees, printing expenses and other related charges. Some of these costs are payable by us regardless of whether the acquisition is completed. There are also a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the merger and the integration of the two companies’ businesses. While we have assumed that a certain level of expenses would be incurred in connection with the acquisition, there are many factors beyond our control that could affect the total amount or the timing of the integration and implementation expenses.

There may also be additional unanticipated significant costs in connection with the acquisition that we may not recoup. These costs and expenses could reduce the realization of efficiencies, strategic benefits and additional income we expect to achieve from the acquisition. Although we expect that these benefits will offset the transaction expenses and implementation costs over time, the net benefit may not be achieved in the near term or at all.

~~For additional information on risk factors, refer to Part I, Item 1A. “Risk Factors” of the~~ Annual Report on Form 10-K ~~of The First Bancshares, Inc., filed with~~for the ~~Securities and Exchange Commission on March 16, 2017.~~

year ended December 31, 2021.

ITEM 2:2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3:3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM ~~4: (REMOVED AND RESERVED)~~

~~Item 5: Other Information~~

4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 6:5. OTHER INFORMATION

Not applicable

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ITEM 6. EXHIBITS -

(a)Exhibits

~~Exhibit No.~~	~~Description~~
Exhibit No.		Description
~~3.1~~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).
~~3.2~~3.3		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		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 ~~9-15-2017.~~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).
~~10.1~~4.3		~~Agreement and Plan~~Form of ~~Merger~~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 ~~Southwest Banc Shares, Inc.,~~U.S. Bank National Association, dated ~~October 24, 2017.~~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
~~31.2~~	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1
~~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
~~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~~		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		/s/ M. RAY (HOPPY) COLE, JR.
~~November 9, 2017~~	M. Ray (Hoppy) Cole, Jr.
~~(Date)~~	Chief Executive Officer
(Date)


November 9, 2022		/s/ DONNA T. (DEE DEE) LOWERY
~~November 9, 2017~~	Donna T. (Dee Dee) Lowery, Executive
~~(Date)~~	Vice President and Chief Financial Officer

(Date)

~~Mississippi~~	~~64-0862173~~
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)


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


Large accelerated filer¨	☑	Accelerated filerþ	☐
Non-accelerated filer¨	☐	Smaller Reporting Company¨	☐
~~(Do not check if a smaller reporting company)~~Emerging growth company	☐


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


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

	(Unaudited)			(Audited)
	September 30,			December 31,
	2017			2016

ASSETS
Cash and due from banks	$	63,668		$	31,719
Interest-bearing deposits with banks		29,649			29,975
Federal funds sold		-			425

Total cash and cash equivalents		93,317			62,119

Securities held-to-maturity, at amortized cost		6,000			6,000
Securities available-for-sale, at fair value		353,035			243,206
Other securities		9,556			6,593

Total securities		368,591			255,799

Loans held for sale		4,588			5,880
Loans		1,198,193			867,054
Allowance for loan losses		(8,175	)		(7,510	)

Loans, net		1,190,018			859,544

Premises and equipment		46,203			34,624
Interest receivable		5,787			4,358
Cash surrender value of bank-owned life insurance		26,367			21,250
Goodwill		20,443			13,776
Other real estate owned		7,855			6,008
Other assets		24,807			14,009

TOTAL ASSETS	$	1,787,976		$	1,277,367

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing	$	308,050		$	202,478
Interest-bearing		1,199,941			836,713

TOTAL DEPOSITS		1,507,991			1,039,191

Interest payable		274			306
Borrowed funds		94,321			69,000
Subordinated debentures		10,310			10,310
Other liabilities		8,100			4,033

TOTAL LIABILITIES		1,620,996			1,122,840

STOCKHOLDERS’ EQUITY:
Common stock, par value $1 per share, 20,000,000 shares authorized; 9,179,901 shares issued at September 30, 2017, and 9,017,891 shares issued at December 31, 2016, respectively		9,180			9,018
Additional paid-in capital		104,965			102,574
Retained earnings		51,649			44,477
Accumulated other comprehensive income (loss)		1,650			(1,078	)
Treasury stock, at cost, 26,494 shares at Sept. 30, 2017 and at December 31, 2016		(464	)		(464	)

TOTAL STOCKHOLDERS’ EQUITY		166,980			154,527

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,787,976		$	1,277,367

	Common Stock			Preferred Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income(Loss)			Treasury Stock			Total

Balance, January 1, 2016	$	5,403		$	17,123	$	44,650		$	35,625		$	1,099		$	(464	)	$	103,436
Net income		-			-		-			7,811			-			-			7,811
Other comprehensive income		-			-		-			-			1,906			-			1,906
Dividends on preferred stock		-			-		-			(257	)		-			-			(257	)
Dividends on common stock, $0.1125 per share		-			-		-			(611	)		-			-			(611	)
Issuance of preferred shares										(25	)								(25	)
Repurchase of restricted stock for payment of taxes		(9	)		-		(167	)		-			-			-			(176	)
Restricted stock grant		61			-		(61	)		-			-			-			-
Compensation expense		-			-		574			-			-			-			574
Balance, Sept. 30, 2016	$	5,455		$	17,123	$	44,996		$	42,543		$	3,005		$	(464	)	$	112,658

Balance, January 1, 2017	$	9,018		$	-	$	102,574		$	44,477		$	(1,078	)	$	(464	)	$	154,527
Net income		-			-		-			8,202			-			-			8,202
Other comprehensive income		-			-		-			-			2,728			-			2,728
Dividends on common stock, $0.1125 per share		-			-		-			(1,030	)		-			-			(1,030	)
Issuance of 89,591 common shares for GCCB acquisition		89			-		2,160			-			-			-			2,249
Repurchase of restricted stock for payment of taxes		(12	)		-		(318	)		-			-			-			(330	)
Restricted stock grant		85			-		(85	)		-			-			-			-
Compensation expense		-			-		634			-			-			-			634
Balance, Sept. 30, 2017	$	9,180		$	-	$	104,965		$	51,649		$	1,650		$	(464	)	$	166,980

	For the Three		For the Nine
($ In Thousands)	Months Ended		Months Ended
Performance Measures (pro forma, unaudited)	Sept. 30, 2016		Sept. 30, 2016

Net interest income	$	12,428	$	36,479
Net income available to common shareholders		2,667		8,366
Diluted earnings per common share		0.49		1.53

	For the Three Months Ended
	September 30, 2017
	Net Income		Shares		Per
	(Numerator)		(Denominator)		Share Data

Basic per share	$	4,714,000		9,152,674	$	0.52

Effect of dilutive shares:
Restricted stock grants				71,807

Diluted per share	$	4,714,000		9,224,481	$	0.51

	For the Nine Months Ended
	September 30, 2017
	Net Income		Shares		Per
	(Numerator)		(Denominator)		Share Data

Basic per share	$	8,202,000		9,140,375	$	0.90

Effect of dilutive shares:
Restricted stock grants				71,807

Diluted per share	$	8,202,000		9,212,182	$	0.89

	For the Three Months Ended
	September 30, 2016
	Net Income		Shares		Per
	(Numerator)		(Denominator)		Share Data

Basic per share	$	2,472,000		5,429,349	$	0.46

Effect of dilutive shares:
Restricted stock grants				50,218

Diluted per share	$	2,472,000		5,479,567	$	0.45

($ In Thousands)	September 30, 2017		December 31, 2016
Commitments to extend credit	$	265,233	$	220,252
Standby letters of credit		8,204		1,742

			Fair Value Measurements Using
			Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)

Obligations of U. S. Government Agencies	$	6,505	$	-	$	6,505	$	-
Municipal securities		135,155		-		135,155		-
Mortgage-backed securities		193,039		-		193,039		-
Corporate obligations		17,405		-		15,071		2,334
Other		931		931		-		-
Total	$	353,035	$	931	$	349,770	$	2,334

	Bank-Issued Trust Preferred Securities
	2017		2016
Balance, January 1	$	2,241	$	2,557
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Other-than-temporary impairment loss included in earnings (loss)		-		-
Unrealized gain (loss) included in comprehensive income		93		(316	)
Balance at September 30, 2017 and December 31, 2016	$	2,334	$	2,241

Trust Preferred Securities	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs
September 30, 2017	$	2,334	Discounted cash flow	Probability of default	1.87% - 3.50%
December 31, 2016	$	2,241	Discounted cash flow	Probability of default	1.50% - 3.34%

			Fair Value Measurements Using
			Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)

Impaired loans	$	9,885	$	-	$	9,885	$	-
Other real estate owned		7,855		-		7,855		-

	Past Due 30 to 89 Days		Past Due 90 Days or More and Still Accruing		Non- Accrual		Total Past Due and Non- Accrual		Total Loans

Real Estate-construction	$	497	$	105	$	98	$	700	$	171,609
Real Estate-mortgage		1,630		180		2,733		4,543		377,307
Real Estate-non farm non-residential		759		-		1,764		2,523		456,110
Commercial		115		1,151		211		1,477		164,577
Lease Financing Rec.		-		-		-		-		2,008
Obligations of states and subdivisions		-		-		-		-		5,892
Consumer		140		-		46		186		20,690
Total	$	3,141	$	1,436	$	4,852	$	9,429	$	1,198,193

	Past Due 30 to 89 Days		Past Due 90 Days or More and Still Accruing		Non- Accrual		Total Past Due and Non- Accrual		Total Loans

Real Estate-construction	$	204	$	96	$	658	$	958	$	109,394
Real Estate-mortgage		2,745		102		1,662		4,509		289,640
Real Estate-non farm non residential		269		-		909		1,178		314,359
Commercial		9		-		2		11		129,423
Lease Financing Rec.		-		-		-		-		2,204
Obligations of states and subdivisions		-		-		-		-		6,698
Consumer		22		-		33		55		15,336
Total	$	3,249	$	198	$	3,264	$	6,711	$	867,054

	Commercial, financial and agricultural		Mortgage- Commercial		Mortgage- Residential		Commercial and other		Total
Contractually required payments	$	1,519	$	29,648	$	7,933	$	976	$	40,076
Cash flows expected to be collected		1,570		37,869		9,697		1,032		50,168
Fair value of loans acquired		1,513		28,875		7,048		957		38,393

	September 30, 2017						December 31, 2016
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	894		$	1,305		$	1,219		$	1,821
Accretion		(43	)		43			(325	)		325
Payments received, net		-			(139	)		-			(841	)
Balance at end of period	$	851		$	1,209		$	894		$	1,305

							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
	Investment		Balance		Allowance		YTD		YTD

Impaired loans with no related allowance:
Commercial installment	$	15	$	15	$	-	$	45	$	-
Commercial real estate		4,383		4,504		-		3,358		89
Consumer real estate		2,235		2,437		-		1,826		63
Consumer installment		29		29		-		14		-
Total	$	6,662	$	6,985	$	-	$	5,243	$	152

Impaired loans with a related allowance:
Commercial installment	$	195	$	195	$	101	$	115	$	-
Commercial real estate		2,499		2,499		237		2,786		80
Consumer real estate		506		506		136		490		12
Consumer installment		23		23		17		24		-
Total	$	3,223	$	3,223	$	491	$	3,415	$	92

Total Impaired Loans:
Commercial installment	$	210	$	210	$	101	$	160	$	-
Commercial real estate		6,882		7,003		237		6,144		169
Consumer real estate		2,741		2,943		136		2,316		75
Consumer installment		52		52		17		38		-
Total Impaired Loans	$	9,885	$	10,208	$	491	$	8,658	$	244

	Sept. 30,		December 31,
	2017		2016
	($ In Thousands)
Impaired Loans:
Impaired loans without a valuation allowance	$	6,662	$	2,667
Impaired loans with a valuation allowance		3,223		3,461
Total impaired loans	$	9,885	$	6,128
Allowance for loan losses on impaired loans at period end		491		682

Total nonaccrual loans		4,852		3,264

Past due 90 days or more and still accruing		1,436		198
Average investment in impaired loans		8,658		8,509

($ In Thousands)	Three Months Ended Sept. 30, 2017		Nine Months Ended Sept. 30, 2017

Interest income recognized during impairment		-		-
Cash-basis interest income recognized		60		244

			Outstanding
	Outstanding		Recorded
	Recorded		Investment				Interest
	Investment		Post-		Number of		Income
	Pre-Modification		Modification		Loans		Recognized

Commercial installment	$	-	$	-		-	$	-
Commercial real estate		-		-		-		-
Consumer real estate		152		149		2		5
Consumer installment		-		-		-		-
Total	$	152	$	149		2	$	5

	Real Estate Commercial		Real Estate Mortgage		Installment and Other		Commercial, Financial and Agriculture		Total

Pass	$	746,097	$	223,995	$	28,184	$	164,373	$	1,162,649
Special Mention		9,619		825		-		3,127		13,571
Substandard		16,743		4,172		89		1,892		22,896
Doubtful		95		-		-		26		121
Subtotal		772,554		228,992		28,273		169,418		1,199,237
Less:
Unearned discount		750		59		-		235		1,044
Loans, net of unearned discount	$	771,804	$	228,933	$	28,273	$	169,183	$	1,198,193

($ In Thousands)
	Three Months			Nine Months
	Ended			Ended
	Sept. 30, 2017			Sept. 30, 2017

Balance at beginning of period	$	8,070		$	7,510
Loans charged-off:
Real Estate		(39	)		(259	)
Installment and Other		(21	)		(63	)
Commercial, Financial and Agriculture		( -	)		(1	)
Total		(60	)		(323	)

Recoveries on loans previously charged-off:
Real Estate		45			498
Installment and Other		23			67
Commercial, Financial and Agriculture		7			39
Total		75			604
Net recoveries		15			281
Provision for Loan Losses		90			384
Balance at end of period	$	8,175		$	8,175

			Installment		Financial
	Real Estate		and Other		and Agriculture		Total

Loans
Individually evaluated	$	9,623	$	52	$	210	$	9,885
Collectively evaluated		991,115		28,222		168,971		1,188,308
Total	$	1,000,738	$	28,374	$	169,181	$	1,198,193

Allowance for Loan Losses
Individually evaluated	$	373	$	17	$	101	$	491
Collectively evaluated		5,978		249		1,457		7,684
Total	$	6,351	$	266	$	1,558	$	8,175

					Commercial,
			Installment		Financial
	Real Estate		and Other		and Agriculture		Total

Loans
Individually evaluated	$	5,935	$	40	$	153	$	6,128
Collectively evaluated		704,923		21,317		134,686		860,926
Total	$	710,858	$	21,357	$	134,839	$	867,054

Allowance for Loan Losses
Individually evaluated	$	651	$	21	$	10	$	682
Collectively evaluated		5,009		711		1,108		6,828
Total	$	5,660	$	732	$	1,118	$	7,510

	($ In Thousands)

Past due 30 through 89 days	$	3,141
Past due 90 days or more and still accruing		1,436

	YTD September 30, 2017							YTD September 30, 2016
	Avg.		Tax Equivalent		Yield/			Avg.		Tax Equivalent		Yield/
($ In Thousands)	Balance		interest		Rate			Balance		interest		Rate

Earning Assets:
Taxable securities	$	265,320	$	4,742		2.38	%	$	184,313	$	3,055		2.21	%
Tax exempt securities		92,040		2,668		3.87	%		77,385		2,118		3.65	%
Total investment securities		357,360		7,410		2.76	%		261,698		5,173		2.64	%
Fed funds sold		42,372		330		1.04	%		2,377		82		4.60	%
Interest bearing deposits in other banks		4,356		7		0.21	%		23,626		56		0.32	%
Loans		1,153,694		42,083		4.86	%		808,821		28,146		4.64	%
Total earning assets		1,557,782		49,830		4.26	%		1,096,522		33,457		4.07	%
Other assets		190,337							116,252
Total assets	$	1,748,119						$	1,212,774

Interest-bearing liabilities:
Deposits	$	1,188,919	$	3,836		0.43	%	$	824,065	$	2,476		0.40	%
Repo		4,892		134		3.65	%		5,000		145		3.87	%
Fed funds purchased		2,211		29		1.75	%		1,867		15		1.07	%
FHLB and FTN		63,094		817		1.73	%		68,170		342		0.67	%
Subordinated debentures		10,310		171		2.21	%		10,310		162		2.10	%
Total interest- bearing liabilities		1,269,426		4,987		0.52	%		909,412		3,140		0.46	%
Other liabilities		319,451							196,289
Stockholders’ equity		159,242							107,073

Total liabilities and stockholders’ equity	$	1,748,119						$	1,212,774
Net interest income (FTE)*			$	44,842		3.74	%			$	30,317		3.61	%
Net interest Margin (FTE)*						3.84	%						3.69	%

	Net Interest Income at Risk						Market Value of Equity
Change in Interest Rates	% Change from Base			Policy Limit			% Change from Base			Policy Limit

Up 400 bps		17.9	%		-20.0	%		31.8	%		-40.0	%
Up 300 bps		13.6	%		-15.0	%		26.2	%		-30.0	%
Up 200 bps		9.1	%		-10.0	%		19.2	%		-20.0	%
Up 100 bps		4.6	%		-5.0	%		10.7	%		-10.0	%
Down 100 bps		-6.4	%		-5.0	%		-13.6	%		-10.0	%
Down 200 bps		-9.0	%		-10.0	%		-13.1	%		-20.0	%

NON-ACCRUAL LOANS
Real Estate:	9/30/17			12/31/16			9/30/16
1-4 family residential construction	$	-		$	300		$	-
Other construction/land		98			358			2,788
1-4 family residential revolving/open-end		61			200			317
1-4 family residential closed-end		2,672			1,463			1,652
Nonfarm, nonresidential, owner-occupied		625			587			598
Nonfarm, nonresidential, other nonfarm nonresidential		1,139			322			336
TOTAL REAL ESTATE		4,595			3,230			5,691
Commercial and industrial		211			2			72
Loans to individuals - other		46			33			36
TOTAL NON-ACCRUAL LOANS		4,852			3,265			5,799
Other real estate owned		7,855			6,008			4,670
TOTAL NON-PERFORMING ASSETS	$	12,707		$	9,273		$	10,469
Performing TDRs	$	4,676		$	2,774		$	2,903
Total non-performing assets as a % of total loans & leases net of unearned income		1.06	%		1.06	%		1.21	%
Total non-accrual loans as a % of total loans & leases net of unearned income		0.40	%		0.37	%		0.67	%

	3 months ended			3 months ended			9 months ended			9 months ended			For the Year Ended
	9/30/17			9/30/16			9/30/17			9/30/16			12/31/16
Balances:
Average gross loans & leases outstanding during period:	$	1,185,493		$	836,931		$	1,153,694		$	808,821		$	820,881
Gross Loans & leases outstanding at end of period		1,202,781			863,803			1,202,781			863,803			872,934

Allowance for Loan and Lease Losses:
Balance at beginning of period	$	8,070		$	7,259		$	7,510		$	6,747		$	6,747
Provision charged to expense		90			143			384			538			625
Charge-offs:
Real Estate-
1-4 family residential construction		-			-			32			-			-
Other construction/land		39			-			111			67			274
1-4 family revolving, open-ended		-			-			67			-			134
1-4 family closed-end		-			130			49			219			219
Nonfarm, nonresidential, owner-occupied		-			-			-			-			-
Total Real Estate		39			130			259			286			627
Commercial and industrial		-			-			1			6			71
Credit cards		-			-			-			1			6
Automobile loans		12			20			30			29			37
Loans to individuals - other		-			-			-			-			-
All other loans		9			6			33			25			30
Total		60			156			323			347			771
Recoveries:
Real Estate-
1-4 family residential construction		-			-			-			-			-
Other construction/land		24			108			274			191			229
1-4 family revolving, open-ended		-			3			51			17			17
1-4 family closed-end		16			105			160			194			502
Nonfarm, nonresidential, owner-occupied		5			1			13			6			7
Total Real Estate		45			217			498			408			755
Commercial and industrial		7			3			39			83			84
Credit cards		-			1			-			1			2
Automobile loans		4			-			11			1			1
Loans to individuals - other		7			5			21			10			12
All other loans		12			9			35			40			55
Total		75			235			604			543			909
Net loan charge offs (recoveries)		(15	)		(79	)		(281	)		(196	)		(138	)
Balance at end of period	$	8,175		$	7,481		$	8,175		$	7,481		$	7,510

RATIOS
Net Charge-offs (recoveries) to average Loans & Leases(annualized)		(0.005	)%		(0.04	)%		(0.03	)%		(0.03	)%		(0.02	)%
Allowance for Loan Losses to gross Loans & Leases at end of period		0.68	%		0.87	%		0.68	%		0.87	%		0.86	%
Net Loan Charge-offs (recoveries) to provision for loan losses		(16.67	)%		(55.24	)%		(73.18	)%		(36.43	)%		(22.08	)%