Common stock, $1.00 par value, ~~9,179,901~~32,301,491 shares issued and ~~11,192,401~~31,051,884 outstanding as of ~~November~~May 3, ~~2017.~~

2023.


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

Table of Contents

The First Bancshares, Inc.

Form 10-Q

Quarter Ended March 31, 2023

Index


Part I. Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets—Unaudited at March 31, 2023	3
	Consolidated Statements of Income—Unaudited	4
	Consolidated Statements of Comprehensive Income (Loss)—Unaudited	5
	Consolidated Statements of Changes in Shareholders’ Equity —Unaudited	6
	Consolidated Statements of Cash Flows—Unaudited	7
	Notes to Consolidated Financial Statements—Unaudited	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4.	Controls and Procedures	59

Part II. Other Information

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
Signatures		63

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)
	March 31, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	106,586	$	67,176
Interest-bearing deposits with banks	226,905		78,139
Total cash and cash equivalents	333,491		145,315
Securities available-for-sale, at fair value (amortized cost: $1,387,394 - 2023; $1,418,337 - 2022; allowance for credit losses: $0)	1,249,791		1,257,101
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $639,518 - 2023; $642,097 - 2022)	678,161		691,484
Other securities	34,423		33,944
Total securities	1,962,375		1,982,529
Loans held for sale	4,073		4,443
Loans held for investment	4,969,776		3,774,157
Allowance for credit losses	(52,450)		(38,917)
Net loans held for investment	4,917,326		3,735,240
Interest receivable	29,983		27,723
Premises and equipment	178,410		143,518
Operating lease right-of-use assets	6,464		7,620
Finance lease right-of-use assets	1,814		1,930
Cash surrender value of bank-owned life insurance	131,945		95,571
Goodwill	271,804		180,254
Other real estate owned	5,066		4,832
Other assets	174,565		132,742
Total assets	$	8,017,316	$	6,461,717
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing	$	2,082,441	$	1,630,203
Interest-bearing	4,585,515		3,864,201
Total deposits	6,667,956		5,494,404
Interest payable	4,087		3,324
Borrowed funds	250,000		130,100
Subordinated debentures	154,127		145,027
Operating lease liabilities	6,624		7,810
Finance lease liabilities	1,874		1,918
Allowance for credit losses on off-balance sheet credit exposures	1,825		1,325
Other liabilities	34,396		31,146
Total liabilities	7,120,889		5,815,054
Shareholders’ equity:
Common stock, par value $1 per share, 40,000,000 shares authorized; 32,304,153 shares issued at March 31, 2023, and 25,275,369 shares issued at December 31, 2022, respectively	32,304		25,275
Additional paid-in capital	773,612		558,833
Retained earnings	262,396		252,623
Accumulated other comprehensive (loss) income	(130,774)		(148,957)
Treasury stock, at cost, 1,249,607 shares at March 31, 2023 and at December 31, 2022	(41,111)		(41,111)
Total shareholders’ equity	896,427		646,663
Total liabilities and shareholders’ equity	$	8,017,316	$	6,461,717

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)
	Three Months Ended March 31,
	2023		2022
Interest and dividend income:
Interest and fees on loans	$	67,733	$	34,154
Interest and dividends on securities:
Taxable interest and dividends	8,759		6,152
Tax exempt interest	2,948		2,422
Interest on federal funds sold and interest-bearing deposits in other banks	898		13
Total interest income	80,338		42,741
Interest expense:
Interest on deposits	12,277		2,283
Interest on borrowed funds	3,135		1,819
Total interest expense	15,412		4,102
Net interest income	64,926		38,639
Provision for credit losses, LHFI	10,500		—
Provision for credit losses, OBSC exposures	500		—
Net interest income after provision for credit losses	53,926		38,639
Non-interest income:
Service charges on deposit accounts	3,657		2,040
(Loss) gain on securities	—		(3)
Government awards/grants	—		702
BOLI death proceeds	—		1,630
(Loss) gain on sale of premises and equipment	662		2
Other	8,293		6,786
Total non-interest income	12,612		11,157
Non-interest expense:
Salaries and employee benefits	23,572		16,799
Occupancy and equipment	5,296		3,876
Acquisition expense/charter conversion	3,793		408
Other	13,009		7,507
Total non-interest expense	45,670		28,590
Income before income taxes	20,868		21,206
Income tax expense	4,597		4,377
Net income	$	16,271	$	16,829

Basic earnings per share	$	0.52	$	0.81
Diluted earnings per share	0.52		0.81

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)
	Three Months Ended March 31,
	2023		2022
Net income	$	16,271	$	16,829
Other comprehensive income (loss):
Unrealized holding (losses) gains arising during the period on available-for-sale securities	24,249		(102,849)
Reclassification adjustment for (accretion) amortization of unrealized holdings gain/(loss) included in accumulated other comprehensive income from the transfer of securities available-for-sale to held-to-maturity	92		—
Reclassification adjustment for losses (gains) included in net income	—		3
Unrealized holding (losses) gains arising during the period on available-for-sale securities	24,341		(102,846)
Income tax (expense) benefit	(6,158)		26,021
Other comprehensive income (loss)	18,183		(76,825)
Comprehensive income (loss)	$	34,454	$	(59,996)

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, 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

Balance, January 1, 2023	25,275,369		$	25,275	$	558,833	$	252,623	$	(148,957)	(1,249,607)		$	(41,111)	$	646,663
Net income	—		—		—		16,271		—		—		—		16,271
Other comprehensive loss	—		—		—		—		18,183		—		—		18,183
Dividends on common stock, $0.21 per share	—		—		—		(6,498)		—		—		—		(6,498)
Issuance of common shares for HSBI acquisition	6,920,422		6,920		214,602		—		—		—		—		221,522
Issuance of restricted stock grants	118,689		119		(119)		—		—		—		—		—
Restricted stock grants forfeited	(500)		(1)		1		—		—		—		—		—
Repurchase of restricted stock for payment of taxes	(9,827)		(9)		(298)		—		—		—		—		(307)
Compensation expense	—		—		593		—		—		—		—		593
Balance, March 31, 2023	$	32,304,153	$	32,304	$	773,612	$	262,396	$	(130,774)	$	(1,249,607)	$	(41,111)	$	896,427

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)
	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	16,271	$	16,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	3,336		3,569
Provision for credit loss	11,000		—
Loss (gain) on sale or writedown of ORE	66		(46)
Securities loss (gain)	—		3
Loss (gain) on disposal of premises and equipment	(662)		(2)
Restricted stock expense	593		466
Increase in cash value of life insurance	(795)		(574)
Residential loans originated and held for sale	(21,900)		(38,783)
Proceeds from sale of residential loans held for sale	22,270		38,248
Changes in:
Interest receivable	2,089		22
Interest payable	763		(405)
Operating lease liability	(1,186)		(316)
Other, net	(27,191)		4,093
Net cash provided by operating activities	4,654		23,104
Cash flows from investing activities:
Available-for-sale securities:
Sales	170,625		—
Maturities, prepayments and calls	31,173		55,868
Held-to-maturity securities:
Maturities, prepayments and calls	14,044		597
Purchases	—		(372,629)
Purchases of other securities	(7,631)		—
Proceeds from other securities	7,979		—
Net (increase) decrease in loans	(33,405)		(9,510)
Net changes in premises and equipment	(1,066)		(1,183)
Proceeds from sale of other real estate owned	456		271
Proceeds from the sale of land	731		—
Bank-owned life insurance – death proceeds	—		1,630
Cash received in excess of cash paid for acquisitions	106,973		—
Net cash provided by (used in) investing activities	289,879		(324,956)
Cash flows from financing activities:
(Decrease) increase in deposits	(219,484)		210,953
Net change in borrowed funds	119,900		—
Principal payments on finance lease liabilities	(44)		(44)
Dividends paid on common stock	(6,422)		(3,423)
Cash paid to repurchase common stock	—		(22,180)
Repurchase of restricted stock for payment of taxes	(307)		(554)
Net cash provided by (used in) financing activities	(106,357)		184,752
Net change in cash and cash equivalents	188,176		(117,100)
Beginning cash and cash equivalents	145,315		919,713
Ending cash and cash equivalents	$	333,491	$	802,613

Table of Contents

THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

($ in thousands)


	(Unaudited)
	Three Months Ended March 31,
	2023		2022
Supplemental disclosures:
Loans transferred to other real estate	$	—	$	493
Issuance of restricted stock grants	$	119	$	82
Dividends on restricted stock grants	$	76	$	45
Stock issued in connection with HSBI acquisition	6,920,422		—
Lease liabilities arising from obtaining right-of-use assets	$	—	$	6
Lease liabilities arising from HSBI acquisition	$	184	$	—

See Notes to Consolidated Financial Statements

Table of Contents

THE FIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September 30, 2017~~

March 31, 2023

NOTE 1 —– BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and the instructions to Form 10-Q of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2023. 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.~~

2022.

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 ~~A National Banking Association~~Bank (the “Bank” or “The First”).

At ~~September 30, 2017,~~March 31, 2023, the Company had approximately ~~$1.8~~$8.017 billion in assets, ~~$1.2~~$4.917 billion in net loans ~~$1.5~~held for investment (“LHFI”), $6.668 billion in deposits, and ~~$167.0~~$896.4 million in ~~stockholders'~~shareholders' equity. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, the Company reported net income of ~~$8.2~~$16.3 million. ~~After tax merger related costs~~

On February 24, 2023, the Company paid a cash dividend in the amount of ~~$3.9 million were expensed~~$0.21 per share to shareholders of record as of the close of business on February 8, 2023.

NOTE 3 – ACCOUNTING STANDARDS

Effect of Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (ASC 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offer Rate ("LIBOR") or another reference rate expected to be discontinued. It is intended to help stakeholders during the ~~nine months ended September 30, 2017.~~

~~In each~~global market-wide reference rate transition period. The Company adopted ASU 2020-04 effective January 1, 2023. Adoption of ~~the first, second, and third quarters of 2017, the Company declared and paid a dividend of $.0375 per common share.~~

~~NOTE 3 — RECENT ACCOUNTING PRONOUNCEMENTS~~

~~In May 2017, the FASB issued~~ ASU No. 2017-09, “Stock Compensation, Scope of Modification Accounting.” 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 does2020-04 did 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 expected to have a material impact on the ~~Company’s Consolidated Financial Statements.~~

Company's consolidated financial statements.

In ~~March 2017,~~October 2021, the FASB issued ASU No. ~~2017-08, “~~~~Premium Amortization on Purchased Callable Debt Securities.~~2021-08, Business Combination (Topic 805): “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU ~~2017-08 shortens~~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 ~~amortization period~~business combination by providing consistent recognition and measurement guidance 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 doesrevenue contracts with customers acquired in a business combination and revenue contracts with customers not ~~change the accounting for purchased callable debt securities held at~~acquired in 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.business combination. The Company ~~is currently evaluating the provisions~~adopted ASU 2021-08 effective January 1, 2023. Adoption of ASU ~~2017-08 to determine~~2022-02 did not have a material impact on the ~~potential impact the new standard will have on its Consolidated Financial Statements.~~

Company's consolidated financial statements.

In ~~January 2017, the~~November 2021, FASB issued ASU No. ~~2017-04,~~~~“Simplifying~~2021-10, Government Assistance (Topic 832): “Disclosures by Business Entities about Government Assistance.” These amendments are expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The Company adopted ASU 2021-10 effective January 1, 2022. Adoption of ASU 2021-10 did not have a material impact to the ~~Test~~Company’s consolidated financial statements.

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In March 2022, FASB issued ASU No. 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” These amendments eliminate the TDR recognition and measurement guidance and instead require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current period gross write-offs by year of origination for ~~Goodwill Impairment.”ASU 2017-04 removes Step 2~~financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the ~~goodwill impairment test,~~vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The Company adopted ASU 2022-02 effective January 1, 2023. Adoption of ASU 2022-02 did not have a ~~hypothetical purchase price allocation. Under~~material impact on the ~~amended guidance,~~Company's consolidated financial statements.

New Accounting Standards That Have Not Yet Been Adopted

In March 2023, FASB issued ASU No. 2023-01, Leases (Topic 842) - "Common Control Arrangements." This ASU requires entities to determine whether a ~~goodwill impairment charge will now~~related party arrangement between entities under common control is a lease. If the arrangement is determined to be ~~recognized~~a lease, an entity must classify and account for the ~~amount by which~~lease on the ~~carrying value of~~same basis as an arrangement with a ~~reporting unit exceeds its fair value, not~~related party. The ASU requires all entities to ~~exceed~~amortize leasehold improvements associated with common control leases over the ~~carrying amount of goodwill.~~useful life to the common control group. This guidance is effective for ~~interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after~~the Company 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~~2024, 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.~~

consolidated financial statements.

In ~~June 2016, the Financial Accounting Standards Board (FASB)~~March 2023, FASB issued ASU No. ~~2016-13, “~~~~Financial Instruments –~~2023-02, Investments - Equity Method and Joint Venture (Topic 323): "Accounting for Investments in Tax Credit ~~Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”~~~~(ASU 2016-13). ASU 2016-13 requires a new impairment model known as~~Structures Using the current expected credit loss (“CECL”) which significantly changes 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) requiringProportional Amortization Method." These amendments allow reporting entities to ~~record an allowance~~elect to account for ~~credit losses related to available-for-sale debt securities rather than a direct write-down~~qualifying tax equity investments using the proportional amortization method, regardless of the ~~carrying amount of~~program giving rise to 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. ASU 2016-13~~related income tax credits. This guidance is effective for ~~interim~~the Company January 1, 2024, and ~~annual reporting periods beginning after December 15, 2019, although early adoption~~ is ~~permitted. The Company is currently assessing~~not expected to have a material impact on the ~~impact of the adoption of ASU 2016-13 on its Consolidated Financial Statements.~~

Company's 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. The Company is assessing the impact of ASU 2016-02 on its accounting and disclosures.

NOTE 4 – BUSINESS COMBINATIONS

Acquisitions

~~Iberville~~

Heritage Southeast Bank

On January 1, ~~2017,~~2023, the Company completed its acquisition of ~~100%~~Heritage Southeast Bancorporation, Inc. ("HSBI"), pursuant to an Agreement and Plan of Merger dated July 27, 2022, by and between the Company and HSBI (the "HSBI Merger Agreement"). Upon the completion of the ~~common stock~~merger of ~~Iberville~~HSBI with and into the Company, Heritage Southeast Bank, ~~Plaquemine, Louisiana, from A. Wilbert’s Sons Lumber and Shingle Co. (“Iberville Parent”), and immediately thereafter merged Iberville Bank (“Iberville”), the~~HSBI's wholly-owned subsidiary, ~~of Iberville Parent,~~was merged with and into The ~~First.~~First Bank. Under the terms of the HSBI Merger Agreement, each share of HSBI common stock was converted into the right to receive 0.965 of a share of Company common stock. The Company paid a total consideration of ~~$31.1~~$221.5 million to the former HSBI shareholders as consideration in ~~cash. Approximately $2.5 million~~the acquisition, which included approximately 6,920,909 shares of the ~~purchase price is being held~~Company's common stock, and $16 thousand in ~~escrow as contingency~~cash in lieu of fractional shares. The HSBI acquisition provides the opportunity for ~~flood-related losses~~the Company to expand its operations in Georgia and the ~~loan portfolio that may be incurred due to flooding in Iberville’s market area in the fall of 2016.~~

Florida panhandle.

In connection with the acquisition of HSBI, the Company recorded approximately ~~$5.6~~$91.4 million of goodwill, of which $3.2 million funded the ACL for estimated losses on the acquired PCD loans, and ~~$2.7~~$43.7 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 million loan portfolio at an estimated fair value discount of $0.8 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the HSBI acquisition were ~~$3.5~~$1.0 million for the ~~nine month~~three months period ended ~~September 30, 2017.~~March 31, 2023. 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 provisional amounts that are identified during the measurement period, which will run through January 1, 2024, in respect of the acquisition, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as ~~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~~

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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 completed~~goodwill generated from the ~~acquisition as of January~~transaction ($ in thousands):


Purchase price:
Cash and stock	$	221,538
Total purchase price	221,538
Identifiable assets:
Cash	$	106,973
Investments	172,775
Loans	1,155,712
Core deposit intangible	43,739
Personal and real property	35,963
Other real estate owned	857
Bank owned life insurance	35,579
Deferred taxes	6,761
Interest receivable	4,349
Other assets	3,103
Total assets	1,565,811
Liabilities and equity:
Deposits	1,392,432
Trust Preferred	9,015
Other liabilities	34,271
Total liabilities	1,435,718
Net assets acquired	130,093
Goodwill	$	91,445

Beach Bancorp, Inc.

On August 1, 2016 and should not be considered as representative of future operating results. Pro forma information for 2017 is not necessary because Iberville Bank is included 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,~~2022, the Company completed its acquisition of Beach Bancorp, Inc. ("BBI"), pursuant to an Agreement and Plan of Merger dated April 26, 2022, by and between the Company and BBI (the "BBI Merger Agreement"). Upon the completion of the merger of ~~Gulf Coast Community~~BBI with and into the Company, Beach Bank, ~~(“GCCB”), Pensacola, Florida,~~BBI's wholly-owned subsidiary, 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 ~~issued~~paid consideration of $101.5 million to ~~GCCB’s~~the former BBI shareholders including 3,498,936 shares of the ~~Company’s~~Company's common stock ~~which, for purposes~~and $1 thousand in cash in lieu of fractional shares, and also assumed options entitling the owners thereof to purchase an additional 310,427 shares of the ~~GCCB acquisition, were valued through averaging the trading price of the Company’s~~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.

stock.

In connection with the acquisition of BBI, the Company recorded approximately ~~$1.1~~$21.8 million of goodwill, of which $1.3 million funded the ACL for estimated losses on the acquired PCD loans, and ~~$1.0~~$9.8 million of core deposit

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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 GCCB’s $91.0 million loan portfolio at a fair value discount of approximately $2.2 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the BBI acquisition were ~~$2.8 million~~$820 thousand for the ~~nine month~~three months period ended ~~September 30, 2017.~~March 31, 2023. These costs included ~~systems 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 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 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 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

Supplemental Pro Forma Information

The following table presents certain ~~amounts have~~supplemental pro forma information, for illustrative purposes only, for the three months ended March 31, 2023 and 2022 as if the BBI and HSBI acquisitions had occurred on January 1, 2022. The

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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)
	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Net interest income	$	64,926	$	42,722
Non-interest income	12,612		16,865
Total revenue	77,538		59,587
Income before income taxes	24,661		27,532

Supplemental pro-forma earnings were adjusted to ~~conform~~exclude acquisition costs incurred. The Company’s operating results for the three months ended March 31, 2023, include the operating results of the acquired assets and assumed liabilities of the above mentioned acquisitions subsequent to the ~~classifications 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

acquisition date.

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 March 31, 2023					Three Months Ended March 31, 2022
	Net Income (Numerator)		Shares (Denominator)	Per Share Data		Net Income (Numerator)		Shares (Denominator)	Per Share Data
Basic earnings per share	$	16,271	31,309,458	$	0.52	$	16,829	20,697,946	$	0.81
Effect of dilutive shares:
Restricted stock grants			231,755					149,051
Diluted earnings per share	$	16,271	31,541,213	$	0.52	$	16,829	20,846,997	$	0.81

The Company granted ~~73,827~~118,689 shares and 82,123 shares of restricted stock in the first quarter of ~~2017, 9,709 shares during the second quarter of 2017,~~2023 and ~~750 shares during the third quarter of 2017.~~

2022, 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,~~March 31, 2023, and December 31, ~~2016,~~2022, 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)	March 31, 2023				December 31, 2022
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	39,123	$	29,041	$	43,227	$	15,758
Unused lines of credit	247,995		360,488		243,043		404,025
Standby letters of credit	9,299		8,909		4,260		9,909

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 1.0% to 18.0% and maturities ranging from approximately 1 year to 30 years.

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

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 March 31, 2023 and December 31, 2022. The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

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


($ in thousands)	Three Months Ended March 31,
	2023		2022
Balance at beginning of period	$	1,325	$	1,070
Credit loss expense related to OBSC exposures	500		—
Balance at end of period	$	1,825	$	1,070

Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses related to OBSC exposures. The Company recorded $500 thousand provision and no provision for the three months period ended March 31, 2023 and 2022, respectively. The increase in the ACL on OBSC exposures for the three months ended March 31, 2023 was due to the day one provision for unfunded commitments related to the HSBI acquisition.

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.

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~~liability.

Table 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. Contents

The following methods and assumptions were used by the Company to estimate its financial instrument fair values disclosed at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016:~~

2022:

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

•Loans Held for Sale - Loans held for sale are carried at the lower of cost or fair value in the aggregate as determined by the outstanding commitments from investors. As, such we classify those loans subjected to nonrecurring fair value adjustments as Level 2 of the valuation hierarchy, and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities include U. S. agency securities, mortgage-backed securities, obligations 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 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

hierarchy.

~~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 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.

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


March 31, 2023	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	$	333,491	$	333,491	$	333,491	$	—	$	—
Securities available-for-sale	1,249,791		1,249,791		125,773		1,108,360		15,658
Securities held-to-maturity	678,161		639,518		—		639,518		—
Loans held for sale	4,073		4,073		—		4,073		—
Loans, net	4,917,326		4,793,811		—		—		4,793,811
Accrued interest receivable	29,983		29,983		—		8,408		21,575
Interest rate swaps	10,577		10,577		—		10,577		—
Liabilities:
Noninterest-bearing deposits	$	2,082,441	$	2,082,441	$	—	$	2,082,441	$	—
Interest-bearing deposits	4,585,515		4,270,490		—		4,270,490		—
Subordinated debentures	154,127		134,532		—		—		134,532
FHLB and other borrowings	250,000		250,000		—		250,000		—
Accrued interest payable	4,087		4,087		—		4,087		—
Interest rate swaps	10,577		10,577		—		10,577		—

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December 31, 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	$	145,315	$	145,315	$	145,315	$	—	$	—
Securities available-for-sale	1,257,101		1,257,101		123,854		1,118,099		15,148
Securities held-to-maturity	691,484		642,097		—		642,097		—
Loans held for sale	4,443		4,443		—		4,443		—
Loans, net	3,735,240		3,681,313		—		—		3,681,313
Accrued interest receivable	27,723		27,723		—		9,757		17,966
Interest rate swaps	12,825		12,825		—		12,825		—
Liabilities:
Non-interest-bearing deposits	$	1,630,203	$	1,630,203	$	—	$	1,630,203	$	—
Interest-bearing deposits	3,864,201		3,505,990		—		3,505,990		—
Subordinated debentures	145,027		133,816		—		—		133,816
FHLB and other borrowings	130,100		130,100		—		130,100		—
Accrued interest payable	3,324		3,324		—		3,324		—
Interest rate swaps	12,825		12,825		—		12,825		—

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


March 31, 2023
($ 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	$	125,773	$	125,773	$	—	$	—
Obligations of U.S. Government agencies and sponsored entities	143,217		—		143,217		—
Municipal securities	460,184		—		444,557		15,627
Mortgage-backed securities	481,553		—		481,553		—
Corporate obligations	39,064		—		39,033		31
Total available-for-sale	$	1,249,791	$	125,773	$	1,108,360	$	15,658
Loans held for sale	$	4,073	$	—	$	4,073	$	—
Interest rate swaps	$	10,577	$	—	$	10,577	$	—
Liabilities
Interest rate swaps	$	10,577	$	—	$	10,577	$	—

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December 31, 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)
Available-for-sale
U.S. Treasury	$	123,854	$	123,854	$	—	$	—
Obligations of U.S. Government agencies and sponsored entities	144,369		—		144,369		—
Municipal securities	457,857		—		442,740		15,117
Mortgage-backed securities	490,139		—		490,139		—
Corporate obligations	40,882		—		40,851		31
Total available-for-sale	$	1,257,101	$	123,854	$	1,118,099	$	15,148
Loans held for sale	$	4,443	$	—	$	4,443	$	—
Interest rate swaps	$	12,825	$	—	$	12,825	$	—
Liabilities:
Interest rate swaps	$	12,825	$	—	$	12,825	$	—

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


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


	Municipal Securities
($ in thousands)	2023		2022
Balance, January 1	$	15,117	$	20,126
Purchases	—		4,209
Maturities, calls and paydowns	(216)		(4,474)
Unrealized gain (loss) included in comprehensive income	726		(496)
Balance at March 31	$	15,627	$	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 March 31, 2023 and December 31, 2022. The following tables present quantitative information about recurring Level 3 fair value measurements ($ in thousands):

Trust Preferred Securities

Fair Value

Valuation Technique

Significant Unobservable
Inputs

Range of Inputs

March 31, 2023

Discounted cash flow

Probability of default

7.10% - 7.12%

December 31, 2022

Discounted cash flow

Probability of default

6.98% - 7.19%

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Municipal Securities

Fair Value

Valuation Technique

Significant
Unobservable Inputs

Range of Inputs

March 31, 2023

15,627

Discounted cash flow

Discount Rate

2.60% - 4.61%

December 31, 2022

15,117

Discounted cash flow

Discount Rate

3.00% - 4.00%

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~~March 31, 2023 and December 31, ~~2016.~~

~~($ In Thousands)~~

~~September 30, 2017~~

2022.


March 31, 2023
($ 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	$	8,087	$	—	$	—	$	8,087
Other real estate owned	5,066		—		—		5,066


December 31, 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	$	3,564	$	—	$	—	$	3,564
Other real estate owned	4,832		—		—		4,832

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NOTE 9 - SECURITIES

The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale (“AFS”) and securities held-to-maturity at March 31, 2023 and December 31, ~~2016~~

~~NOTE 10 - SECURITIES~~

2022.


($ in thousands)	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
U.S. Treasury	$	135,718	$	—	$	9,945	$	125,773
Obligations of U.S. government agencies and sponsored entities	158,735		2		15,520		143,217
Tax-exempt and taxable obligations of states and municipal subdivisions	509,746		762		50,324		460,184
Mortgage-backed securities - residential	330,626		9		37,241		293,394
Mortgage-backed securities - commercial	209,947		56		21,844		188,159
Corporate obligations	42,622		—		3,558		39,064
Total available-for-sale	$	1,387,394	$	829	$	138,432	$	1,249,791
Held-to-maturity:
U.S. Treasury	$	99,677	$	—	$	4,114	$	95,563
Obligations of U.S. government agencies and sponsored entities	33,679		12		1,549		32,142
Tax-exempt and taxable obligations of states and municipal subdivisions	247,872		8,676		13,569		242,979
Mortgage-backed securities - residential	152,636		—		15,229		137,407
Mortgage-backed securities - commercial	134,297		21		11,282		123,036
Corporate obligations	10,000		—		1,609		8,391
Total held-to-maturity	$	678,161	$	8,709	$	47,352	$	639,518

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($ in thousands)	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
U.S. Treasury	$	135,752	$	—	$	11,898	$	123,854
Obligations of U.S. government agencies sponsored entities	163,054		3		18,688		144,369
Tax-exempt and taxable obligations of states and municipal subdivisions	519,190		598		61,931		457,857
Mortgage-backed securities - residential	341,272		11		42,041		299,242
Mortgage-backed securities - commercial	215,200		60		24,363		190,897
Corporate obligations	43,869		—		2,987		40,882
Total available-for-sale	$	1,418,337	$	672	$	161,908	$	1,257,101
Held-to-maturity:
U.S. Treasury	$	109,631	$	—	$	5,175	$	104,456
Obligations of U.S. government agencies and sponsored entities	33,789		—		2,153		31,636
Tax-exempt and taxable obligations of states and municipal subdivisions	247,467		4,525		13,699		238,293
Mortgage-backed securities - residential	156,119		—		17,479		138,640
Mortgage-backed securities - commercial	134,478		7		13,798		120,687
Corporate obligations	10,000		—		1,615		8,385
Total held-to-maturity	$	691,484	$	4,532	$	53,919	$	642,097

The ~~following disclosure of the estimated~~amortized cost and fair value of ~~financial instruments is made~~debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

The Company reassessed classification of certain investments and effective October 2022, the Company transferred $863 thousand of obligations of U.S. government agencies and sponsored entities, $1.2 million of mortgage-backed securities - commercial, and $137.5 million of tax-exempt and taxable obligations of state and municipal subdivisions from AFS to HTM securities. The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in ~~accordance~~accumulated other comprehensive income. The related unrealized loss of $36.8 million included in other comprehensive income remained in other comprehensive income, to be amortized out of other comprehensive income with ~~authoritative guidance. The estimated~~an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. There was no allowance for credit loss associated with the AFS securities that were transferred to HTM.

ACL on Securities

Securities Available for Sale

Quarterly, the Company evaluates if a security has a fair value ~~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

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records will be limited to the amount by which the amortized cost exceeds the fair value. The allowance for the calculated credit loss will be monitored going forward for further credit deterioration or improvement.

At both March 31, 2023 and December 31, 2022, the results of the analysis did not identify any securities where the decline was indicative of credit loss factors; therefore, no credit loss was recognized on any of the securities AFS.

Accrued interest receivable is excluded from the estimate of credit losses for securities AFS. Accrued interest receivable totaled $5.2 million and $6.2 million at March 31, 2023 and December 31, 2022, respectively and was reported in interest receivable on the accompanying Consolidated Balance Sheet.

All AFS securities were current with no securities past due or on nonaccrual as of March 31, 2023 and December 31, 2022.

Securities Held to Maturity

At March 31, 2023 and December 31, 2022, the potential credit loss exposure was $282 thousand and $242 thousand, respectively and consisted of tax-exempt and taxable obligations of states and municipal subdivisions and corporate obligations securities. After applying appropriate probability of default (“PD”) and loss given default (“LGD”) assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded at March 31, 2023.

Accrued interest receivable is excluded from the estimate of credit losses for securities held-to-maturity. Accrued interest receivable totaled $2.8 million and $3.6 million at March 31, 2023 and December 31, 2022, respectively and was reported in interest receivable on the accompanying Consolidated Balance Sheet.

At both March 31, 2023 and December 31, 2022, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual at both March 31, 2023 and December 31, 2022.

The Company monitors the credit quality of the debt securities held-to-maturity through the use of credit ratings. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at March 31, 2023 and December 31, 2022, aggregated by credit quality indicators.


($ in thousands)	March 31, 2023		December 31, 2022
Aaa	$	454,048	$	467,736
Aa1/Aa2/Aa3	110,991		110,854
A1/A2	13,793		13,757
BBB	10,000		10,000
Not rated	89,329		89,137
Total	$	678,161	$	691,484

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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)	March 31, 2023
	Amortized Cost		Fair Value
Available-for-sale:
Due less than one year	$	59,346	$	58,055
Due after one year through five years	271,333		255,119
Due after five years through ten years	336,077		300,986
Due greater than ten years	180,065		154,078
Mortgage-backed securities - residential	330,626		293,394
Mortgage-backed securities - commercial	209,947		188,159
Total	$	1,387,394	$	1,249,791

Held-to-maturity:
Due less than one year	$	38,232	$	37,371
Due after one year through five years	82,398		78,578
Due after five years through ten years	48,564		45,111
Due greater than ten years	222,034		218,015
Mortgage-backed securities - residential	152,636		137,407
Mortgage-backed securities - commercial	134,297		123,036
Total	$	678,161	$	639,518

The amortized costs of securities pledged as collateral, to secure public deposits and ~~held-to-maturity~~for other purposes, was $1.198 billion at March 31, 2023 and $1.031 billion at December 31, 2022, respectively.

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The following table summarizes securities in an unrealized loss position for which an allowance for credit losses has not been recorded at ~~September 30, 2017~~March 31, 2023 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

2022. The securities are aggregated by major security type and length of time in a continuous unrealized loss position:


($ in thousands)	March 31, 2023
	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	$	—	$	—	$	125,773	$	9,945	$	125,773	$	9,945
Obligations of U.S. government agencies and sponsored entities	5,573		137		137,028		15,383		142,601		15,520
Tax-exempt and taxable obligations of state and municipal subdivisions	57,181		1,363		368,485		48,961		425,666		50,324
Mortgage-backed securities - residential	31,971		1,266		260,601		35,975		292,572		37,241
Mortgage-backed securities - commercial	29,832		1,292		153,856		20,552		183,688		21,844
Corporate obligations	23,228		1,378		15,836		2,180		39,064		3,558
Total	$	147,785	$	5,436	$	1,061,579	$	132,996	$	1,209,364	$	138,432

Held-to-maturity:
U.S. Treasury	$	—	$	—	$	95,562	$	4,114	$	95,562	$	4,114
Obligations of U.S. government agencies and sponsored entities	31,401		1,549		—		—		31,401		1,549
Tax-exempt and taxable obligations of state and municipal subdivisions	71,182		5,667		40,327		7,902		111,509		13,569
Mortgage-backed securities - residential	48,340		4,190		89,067		11,039		137,407		15,229
Mortgage-backed securities - commercial	67,344		4,760		54,749		6,522		122,093		11,282
Corporate obligations	—		—		8,391		1,609		8,391		1,609
Total	$	218,267	$	16,166	$	288,096	$	31,186	$	506,363	$	47,352

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($ in thousands)	December 31, 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	$	4,563	$	419	$	119,292	$	11,479	$	123,855	$	11,898
Obligations of U.S. government agencies and sponsored entities	34,254		2,293		109,431		16,395		143,685		18,688
Tax-exempt and taxable obligations of state and municipal subdivisions	275,202		31,152		159,508		30,779		434,710		61,931
Mortgage-backed securities - residential	76,125		4,970		222,274		37,071		298,399		42,041
Mortgage-backed securities - commercial	50,193		3,025		136,062		21,338		186,255		24,363
Corporate obligations	35,142		1,995		5,739		992		40,881		2,987
Total	$	475,479	$	43,854	$	752,306	$	118,054	$	1,227,785	$	161,908

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

At March 31, 2023 and December 31, 2022, the Company’s securities portfolio consisted of 1,162 and 1,265 securities, respectively, which were in an unrealized loss position. Securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. The 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 March 31, 2023 and December 31, 2022.

NOTE 10 – LOANS

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

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

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

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of the debt obligation. This includes both owner-occupied and non-owner occupied CRE secured loans, because they share similar risk characteristics related to these variables.

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

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

The following table shows the composition of the loan portfolio:


($ in thousands)	March 31, 2023		December 31, 2022
Loans held for sale
Mortgage loans held for sale	$	4,073	$	4,443
Total LHFS	$	4,073	$	4,443

Loans held for investment
Commercial, financial and agriculture (1)	$	785,676	$	536,192
Commercial real estate	2,862,145		2,135,263
Consumer real estate	1,268,776		1,058,999
Consumer installment	53,179		43,703
Total loans	4,969,776		3,774,157
Less allowance for credit losses	(52,450)		(38,917)
Net LHFI	$	4,917,326	$	3,735,240

	19
(1)			Loan balance includes $568 thousand and $710 thousand in Paycheck Protection Program (“PPP”) loans as of March 31, 2023 and December 31, 2022, 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 September 30, 2017~~Company’s LHFI. At March 31, 2023 and December 31, ~~2016, average~~2022, accrued interest receivable for LHFI totaled $21.6 million and $18.0 million, respectively, with no related ACL and was reported in interest receivable on the accompanying consolidated balance sheet.

Nonaccrual and Past Due LHFI

Past due LHFI are loans ~~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.

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The following tables ~~summarize by class our loans classified as~~present 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)	March 31, 2023
	Past Due 30 to 89 Days		Past Due 90 Days or More and Still Accruing		Nonaccrual		PCD		Total Past Due, Nonaccrual and PCD		Total LHFI		Nonaccrual and PCD with No ACL
Commercial, financial and agriculture (1)	$	2,405	$	70	$	92	$	1,563	$	4,130	$	785,676	$	98
Commercial real estate	2,151		—		8,916		1,557		12,624		2,862,145		6,230
Consumer real estate	6,101		3		3,381		1,790		11,275		1,268,776		1,118
Consumer installment	214		—		14		—		228		53,179		—
Total	$	10,871	$	73	$	12,403	$	4,910	$	28,257	$	4,969,776	$	7,446

~~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 $568 thousand in PPP loans as of March 31, 2023.


	December 31, 2022
($ in thousands)	Past Due 30 to 89 Days		Past Due 90 Days or More and Still Accruing		Nonaccrual		PCD		Total Past Due, Nonaccrual and PCD		Total LHFI		Nonaccrual and PCD with No ACL
Commercial, financial and agriculture (1)	$	220	$	—	$	19	$	—	$	239	$	536,192	$	—
Commercial real estate	1,984		—		7,445		1,129		10,558		2,135,263		4,560
Consumer real estate	3,386		289		2,965		1,032		7,672		1,058,999		791
Consumer installment	173		—		1		—		174		43,703		—
Total	$	5,763	$	289	$	10,430	$	2,161	$	18,643	$	3,774,157	$	5,351

~~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 $710 thousand in PPP loans as of December 31, 2022.

Acquired Loans

In connection with ~~our acquisition~~the acquisitions of ~~BCB Holding~~HSBI and BBI, 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.

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

The following table ~~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 acquisition as of July 1, 2014,~~BBI and HSBI acquisitions 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:


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

~~Total outstanding acquired impaired loans were $2.1 million as~~

As of ~~September 30, 2017 and $2.2 million as of December~~March 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~~2023, and December 31, ~~2016:~~

($ 2022 the amortized cost of the Company’s PCD loans totaled $68.8 million and $24.0 million, respectively, which had an estimated ACL of $4.3 million and $1.7 million, respectively.

Loan Modifications

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

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

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

rate reduction.

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~~presents the ~~Company’s impaired~~amortized cost basis of loans at ~~September 30, 2017,~~March 31, 2023 that were both experiencing financial difficulty 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

modified during 2023, by class and by type of modification. 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 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 partpercentage of the ~~three months and nine months ended September 30, 2017 was $90,000 and $243,000, respectively. The Company had no loan commitments~~amortized cost basis of loans that were modified to borrowers in ~~non-accrual status at September 30, 2017 and December 31, 2016.~~

financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:


($ in thousands)	Combination Payment Deferral and Payment Modification		Percentage of Total Loans Held for Investment
Commercial real estate	$	301	0.01	%
Total	$	301	0.01	%

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

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

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~~TDR.

As 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~~

~~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~~2022, the Company had TDRs totaling $21.8 million. The Company acquired three TDRs totaling $1.5 million ~~allocated in specific reserves established with respect to these loans~~ as part of ~~September 30, 2017.~~the BBI acquisition. As of ~~September 30, 2017,~~December 31, 2022, the Company had no additional amount committed on any loan classified as TDR.

As of December 31, 2022, TDRs had a related ACL of $841 thousand.

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The following table presents LHFI by class modified as TDRs that occurred during the three months ended March 31, 2022.


($ in thousands)	Three Months Ended March 31,
2022	Number of Loans	Outstanding Recorded Investment Pre-Modification		Outstanding Recorded Investment Post-Modification
Commercial real estate	1	$	230	$	230
Total	1	$	230	$	230

The TDRs presented above increased the ACL $1 thousand and resulted in no charge-offs for the three months period ended March 31, 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 three months ended March 31, 2022 ($ in thousands).


Troubled Debt Restructurings That Subsequently Defaulted:	Three Months Ended March 31,
	2022
	Number of Loans	Recorded Investment
Commercial real estate	3	$	4,606
Consumer real estate	3	141
Total	6	$	4,747

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 $1.5 million and resulted in no charge-offs for the three months period ended March 31, 2022.

The following tables ~~set forth~~represents the ~~amounts and past due status for the Bank~~Company’s TDRs at ~~September 30, 2017~~December 31, 2022:


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

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Collateral Dependent Loans

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

2022:


March 31, 2023
($ in thousands)	Real Property		Equipment		Miscellaneous		Total
Commercial, financial and agriculture	$	—	$	171	$	701	$	872
Commercial real estate	6,230		—		—		6,230
Consumer real estate	1,342		—		—		1,342
Total	$	7,572	$	171	$	701	$	8,444

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

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

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

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

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

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

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

Loan Participations

The Company has loan participations, which qualify as participating interest, with other financial institutions. As of March 31, 2023, these loans totaled $251.3 million, of which $140.7 million had been sold to other financial institutions and $110.5 million was purchased by the Company. As of December 31, 2022, these loans totaled $202.6 million, of which $100.1 million had been sold to other financial institutions and $102.5 million was purchased by the Company. The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involving no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided among the participating interest holders in proportion to each holder’s share of ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree.

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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 March 31, 2023, and were generally updated within the ~~above described process are considered to be pass rated loans.~~

Asprior year.

Table of ~~September 30, 2017~~Contents

The tables below present the amortized cost basis of loans by credit quality indicator and ~~December 31, 2016, and~~class of loans based on the most recent analysis performed at March 31, 2023 and December 31, 2022. Revolving loans converted to term as of the three months ended March 31, 2023 and December 31, 2022 were not material to the total loan portfolio.


As of March 31, 2023	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Total
($ in thousands)	2023		2022		2021		2020		2019		Prior
Commercial, financial and
agriculture:
Risk Rating
Pass	$	30,008	$	164,576	$	123,428	$	59,554	$	50,826	$	84,846	$	264,482	$	777,720
Special mention	—		—		2,358		536		399		1,474		305		5,072
Substandard	9		291		181		334		908		1,136		25		2,884
Doubtful	—		—		—		—		—		—		—		—
Total commercial, financial and agriculture	$	30,017	$	164,867	$	125,967	$	60,424	$	52,133	$	87,456	$	264,812	$	785,676
Current period gross write offs	$	—	$	—	$	3	$	—	$	—	$	—	$	—	$	3

Commercial real estate:
Risk Rating
Pass	$	37,110	$	774,221	$	586,611	$	405,322	$	285,453	$	650,549	$	9,306	$	2,748,572
Special mention	—		7,558		9,379		3,342		11,190		28,141		173		59,783
Substandard	—		2,714		3,297		873		5,375		41,531		—		53,790
Doubtful	—		—		—		—		—		—		—		—
Total commercial real estate	$	37,110	$	784,493	$	599,287	$	409,537	$	302,018	$	720,221	$	9,479	$	2,862,145
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer real estate:
Risk Rating
Pass	$	35,440	$	397,923	$	257,557	$	148,394	$	65,976	$	194,847	$	147,998	$	1,248,135
Special mention	—		77		179		—		92		4,270		2,026		6,644
Substandard	—		538		673		1,579		1,075		8,978		1,154		13,997
Doubtful	—		—		—		—		—		—		—		—
Total consumer real estate	$	35,440	$	398,538	$	258,409	$	149,973	$	67,143	$	208,095	$	151,178	$	1,268,776
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer installment:
Risk Rating
Pass	$	6,458	$	19,656	$	11,402	$	5,236	$	2,282	$	1,989	$	6,095	$	53,118
Special mention	—		—		—		1		—		—		—		1
Substandard	—		14		20		23		—		3		—		60
Doubtful	—		—		—		—		—		—		—		—
Total consumer installment	$	6,458	$	19,670	$	11,422	$	5,260	$	2,282	$	1,992	$	6,095	$	53,179
Current period gross write offs	$	—	$	114	$	47	$	85	$	17	$	75	$	—	$	338
Total
Pass	$	109,016	$	1,356,376	$	978,998	$	618,506	$	404,537	$	932,231	$	427,881	$	4,827,545
Special mention	—		7,635		11,916		3,879		11,681		33,885		2,504		71,500
Substandard	9		3,557		4,171		2,809		7,358		51,648		1,179		70,731
Doubtful	—		—		—		—		—		—		—		—
Total	$	109,025	$	1,367,568	$	995,085	$	625,194	$	423,576	$	1,017,764	$	431,564	$	4,969,776
Current period gross write offs	$	—	$	114	$	50	$	85	$	17	$	75	$	—	$	341

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As of December 31, 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	$	181,761	$	141,174	$	55,690	$	53,954	$	43,441	$	52,038	$	181	$	528,239
Special mention	380		5,188		1,664		—		—		412		—		7,644
Substandard	50		—		—		34		33		192		—		309
Doubtful	—		—		—		—		—		—		—		—
Total commercial, financial and agriculture	$	182,191	$	146,362	$	57,354	$	53,988	$	43,474	$	52,642	$	181	$	536,192

Commercial real estate:
Risk Rating
Pass	$	582,895	$	436,661	$	305,140	$	217,626	$	140,682	$	368,185	$	1,765	$	2,052,954
Special mention	672		1,345		3,938		11,643		9,885		16,612		—		44,095
Substandard	50		2,830		908		1,694		4,797		27,935		—		38,214
Doubtful	—		—		—		—		—		—		—		—
Total commercial real estate	$	583,617	$	440,836	$	309,986	$	230,963	$	155,364	$	412,732	$	1,765	$	2,135,263

Consumer real estate:
Risk Rating
Pass	$	325,853	$	226,355	$	136,052	$	59,376	$	51,515	$	129,923	$	112,278	$	1,041,352
Special mention	—		—		—		—		823		3,846		—		4,669
Substandard	519		554		1,481		648		1,706		6,894		1,176		12,978
Doubtful	—		—		—		—		—		—		—		—
Total consumer real estate	$	326,372	$	226,909	$	137,533	$	60,024	$	54,044	$	140,663	$	113,454	$	1,058,999

Consumer installment:
Risk Rating
Pass	$	18,925	$	11,618	$	5,031	$	2,078	$	832	$	1,445	$	3,725	$	43,654
Special mention	—		—		—		—		—		—		—		—
Substandard	4		13		24		—		3		5		—		49
Doubtful	—		—		—		—		—		—		—		—
Total consumer installment	$	18,929	$	11,631	$	5,055	$	2,078	$	835	$	1,450	$	3,725	$	43,703

Total
Pass	$	1,109,434	$	815,808	$	501,913	$	333,034	$	236,470	$	551,591	$	117,949	$	3,666,199
Special mention	1,052		6,533		5,602		11,643		10,708		20,870		—		56,408
Substandard	623		3,397		2,413		2,376		6,539		35,026		1,176		51,550
Doubtful	—		—		—		—		—		—		—		—
Total	$	1,111,109	$	825,738	$	509,928	$	347,053	$	253,717	$	607,487	$	119,125	$	3,774,157

Allowance for Credit Losses

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 months ended March 31, 2023 and 2022:


($ in thousands)	Three Months Ended March 31, 2023
	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
Allowance for credit losses:
Beginning balance	$	6,349	$	20,389	$	11,599	$	580	$	38,917
Initial allowance on PCD loans	727		2,260		182		7		3,176
Provision for credit losses	2,327		5,388		2,402		383		10,500
Loans charged-off	(3)		—		—		(338)		(341)
Recoveries	43		15		18		122		198
Total ending allowance balance	$	9,443	$	28,052	$	14,201	$	754	$	52,450


($ in thousands)	Three Months Ended March 31, 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
Provision for credit losses	—		—		—		—		—
Loans charged-off	(52)		(3)		(7)		(169)		(231)
Recoveries	53		224		610		222		1,109
Total ending allowance balance	$	4,874	$	17,773	$	8,492	$	481	$	31,620

The initial ACL on PCD loans recorded in March 2023, of $3.2 million was related to the HSBI acquisition. The 2023 provision for credit losses includes $10.7 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments acquired in the HSBI merger. The Company recorded a $10.5 million provision for credit losses for the ~~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

three months ended March 31, 2023, compared to no provision for the same periods in 2022. The increase in the provision is related to the HSBI acquisition and loan growth.

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~~March 31, 2023 and December 31, ~~2016.~~ 2022 ($ in thousands).


March 31, 2023	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Consumer Installment		Total
LHFI
Individually evaluated	$	872	$	6,230	$	1,342	$	—	$	8,444
Collectively evaluated	784,804		2,855,915		1,267,434		53,179		4,961,332
Total	$	785,676	$	2,862,145	$	1,268,776	$	53,179	$	4,969,776

Allowance for Credit Losses
Individually evaluated	$	337	$	—	$	20	$	—	$	357
Collectively evaluated	9,106		28,052		14,181		754		52,093
Total	$	9,443	$	28,052	$	14,201	$	754	$	52,450

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

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

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, which will offset in the financial statements. These swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. The change in fair value is recognized in the income statement as other income and fees. As part 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 March 31, 2023.

	28
($ in thousands)
		March 31, 2023
Notional amount		$	332,873
Weighted average pay rate		4.4		%
Weighted average receive rate		4.4		%
Weighted average maturity in years		5.96

~~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~~

The following table provides the fair value of interest rate swap contracts at March 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~~2023 included in other assets and other liabilities.


($ in thousands)
	March 31, 2023
	Derivative Assets		Derivative Liabilities
Interest rate swap contracts	$	10,577	$	10,577

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~~March 31, ~~2017,~~2023, the Company ~~completed a sale~~had $500 thousand 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 months ended March 31, 2023, net swap spread income included in other income was $169 thousand.

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

~~PART I - FINANCIAL INFORMATION~~

NOTE 13 – SUBSEQUENT EVENTS/OTHER

In April 2023, the U.S. Department of Treasury (the "Treasury") informed the Company that the Treasury has reviewed the Company's application to receive a grant through the Community Development Financial Institution Fund ("CDFI Fund") related to the Equitable Recovery Program ("ERP"), and that the Company would be eligible to receive an ERP grant in an amount up to $6.2 million. The Company has not yet determined whether it will accept the offer to receive the ERP grant.

If the Company moves forward with pursuing the ERP grant from the Treasury, the Company would be required to fulfill certain conditions established by the Treasury and would be subject to certain restrictions following its acceptance of the investment.

Authorized by the Consolidated Appropriations Act, 2021, the ERP was created to respond to the economic effects of the Coronavirus Disease ("COVID-19") pandemic. These funds will strengthen the ability of the CDFIs to help low-and moderate-income communities recover from the COVID-19 pandemic and invest in long-term prosperity.

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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:

•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;

•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 occurring in those areas;

•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;

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

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

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

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

•the ~~ability~~financial impact of future tax legislation;

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

•the adequacy of the ~~consolidated Company~~level of our allowance for credit losses and the amount of credit loss provisions required to ~~conduct~~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;

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

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•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, 2022 "the Company's 2022 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~~.

www.sec.gov.

RECENT DEVELOPMENTS

During the first quarter of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, uninsured deposit concentrations, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company's liquidity position and balance sheet remains strong. The Company's total deposits increased by approximately $1.174 billion, or 21.4%, as compared to December 31, 2022, to $6.668 billion at March 31, 2023. The increase in the current quarter compared to the sequential quarter was primarily due the HSBI acquisition which included deposits totaling $1.392 billion, net of purchase accounting adjustments offset by deposit outflow in the first quarter. The Company's estimated uninsured deposits totaled $2.303 billion at March 31, 2023, compared to $2.076 billion at December 31, 2022, representing 34.5% and 37.8% of total deposits at March 31, 2023, and December 31, 2022, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's regulatory reporting. The Company also took a number of preemptive actions, which included pro-active outreach to clients and actions to maximize its funding sources in response to these recent developments, including the Company's strategic decision to hold excess cash for contingency liquidity for the majority of the month ended March 31, 2023. Furthermore, the Company's capital remains strong with common Tier 1 and total capital ratios of 11.2% and 14.7%, respectively, as of March 31, 2023.

CRITICAL ACCOUNTING POLICIES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates 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 impact on the Company’s stated results of operations. In Management’s opinion, the Company’s critical accounting policies deal 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 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; the valuation of impaired loans and foreclosed assets, as discussed in Note 11 to the Consolidated Financial Statements; income taxes and deferred tax assets and liabilities, especially with regard to the ability 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.

~~OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS SUMMARY~~

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

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

Net interest income increased to $14.9 million, or 48.4% for the three months ended September 30, 2017, compared to $10.1 million for the same period in 2016. Quarterly average earning assets at September 30, 2017, increased $486.2 million, or 43.7% and quarterly average interest-bearing liabilities increased $368.7 million or 39.9% when compared to September 30, 2016.

Noninterest income for the three months ended September 30, 2017, was $3.7 million compared to $3.1 million for the same period in 2016, reflecting an increase of $0.6 million or 18.0%. This increase was composed of increases in service charges and interchange fee income.

The provision for loan losses was $90,000 for the three months ended September 30, 2017, compared with $143,000 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 is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. Accounting policies considered critical to our financial results include the allowance for ~~more information on this evaluation.~~

~~Noninterest expense increased by $2.5 million or 26.3% for~~credit losses and related provision, income taxes, goodwill and business combinations. The most critical of these is the ~~three months ended September 30, 2017, when compared with the same period in 2016. The largest increase was~~accounting policy related to ~~salaries~~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 ~~benefits~~national economic conditions, and other subjective factors. If any of ~~$1.7 million~~these factors were to deteriorate, management would update its estimates and judgments which may require additional loss provisions. The Company’s critical accounting policies are discussed in detail in Note B “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s 2022 Form 10-K.

On January 1, 2023, the Company adopted FASB ASU 2022-02, which ~~$1.4 million was attributable~~eliminates the TDR recognition and measurement guidance and instead requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to ~~increased employment associated~~certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the ~~acquisitions~~amortized cost basis of ~~Iberville~~financing receivables by credit quality indicator and ~~GCCB.~~

class of financing receivable by year of origination.

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OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS SUMMARY

First ~~nine months of 2017~~quarter 2023 compared to first ~~nine months of 2016~~

quarter 2022

The Company reported net income available to common shareholders of ~~$8.2~~$16.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, compared with net income available to common shareholders of ~~$7.8~~$16.8 million for the same period last ~~year. After tax~~year, a decrease of $558 thousand or 3.3%. For the first quarter of 2023, fully diluted earnings per share were $0.52, compared to $0.81 for the first quarter of 2022.

Operating net earnings, a non-GAAP financial measure, for the first quarter of 2023 totaled $27.1 million compared to $15.0 million for the first quarter of 2022, an increase of $12.1 million or 81.0%. Operating net earnings, which is a non-GAAP financial measure, for the first quarter of 2023 excludes merger and conversion related costs of ~~$3.9~~$2.8 million, ~~were expensed during~~net of tax, initial provision for acquired loans of $8.0 million, net of tax. Operating net earnings, a non-GAAP financial measure, for the first ~~nine months~~quarter of ~~2017.~~

2022 excludes merger and conversion related costs of $305 thousand, net of tax, government grants from the U.S. Treasury of $524 thousand, net of tax, and bank-owned life insurance ("BOLI") death proceeds of $1.6 million. Diluted operating earnings per share, a non-GAAP financial measure, was $0.86 on a fully diluted basis for the first quarter 2023, compared to $0.72 for the same period in 2022, excluding the costs and income described above. See reconciliation of non-GAAP financial measures provided below.

Net interest income ~~increased to $43.9~~for the first quarter 2023 was $64.9 million, an increase of $26.3 million or ~~48.5% for the nine months ended September 30, 2017,~~68.0%, compared to ~~$29.6~~$38.6 million for the same period in ~~2016. Average earning assets at September 30, 2017,~~2022. Fully tax equivalent (“FTE”) net interest income, which is a non-GAAP measure, totaled $65.9 million and $39.5 million for the first quarter of 2023 and 2022, respectively. Purchase accounting adjustments increased ~~$461.3~~$2.7 million ~~or 42.1%~~for the first quarter comparisons. The increase was largely due to increased interest rates as well as the acquisitions of BBI and ~~average interest-bearing liabilities~~HSBI.

First quarter 2023 FTE net interest margin, which is a non-GAAP measure, increased ~~$360.0 million or 39.6% when~~3.69% including 22 basis points related to purchase accounting adjustments compared to 2.78% for the ~~first nine months~~same quarter in 2022, which included 5 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the core net interest margin, a non-GAAP financial measure, increased 74 basis points in prior year quarterly comparison primarily due to an increase in average loans as well as interest rate increases. See reconciliation of ~~2016.~~

~~Noninterest~~non-GAAP financial measures provided below.

Non-interest income for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023 was ~~$10.8~~$12.6 million compared to ~~$8.5~~$11.2 million for the same period in ~~2016,~~2022, reflecting an increase of ~~$2.3~~$1.5 million or ~~26.5%~~13.0%. This increase ~~consists of $0.2 million of increased mortgage income, increased~~was attributable to increases in service charges ~~of $0.8 million~~on deposit accounts and ~~increased~~ interchange fee income of ~~$0.8 million.~~

~~The provision for loan losses was $0.4~~$2.9 million and partially offset by a decrease of $597 thousand in mortgage income.

Pre-tax, pre-provision operating earnings, a non-GAAP measure, increased 84.9% to $35.7 million for the ~~nine months ended September 30, 2017,~~quarter-ended March 31, 2023 as compared ~~with $0.5~~to $19.3 million for the ~~same period~~first quarter of 2022. Pre-tax, pre-provision operating earnings, a non-GAAP measure, for the first quarter 2023 excludes merger and conversion related costs of $3.8 million, and $11.0 million provision for credit losses. Pre-tax, pre-provision operating earnings, a non-GAAP measure, for the first quarter of 2022 excludes merger and conversion related costs of $408 thousand, $702 thousand government grants from the U.S. Treasury, and $1.6 million in ~~2016. The allowance~~BOLI income death proceeds. See reconciliation of non-GAAP financial measures provided below.

Non-interest expense was $45.7 million for ~~loan losses~~the three months ended March 31, 2023, an increase 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~~$17.1 million or ~~61.1% for the nine months ended September 30, 2017,~~59.7%, when compared with the same period in ~~2016. $6.9 million~~2022. For the first quarter of 2023, charges related to the ~~increase was attributable to salaries~~ongoing operations of BBI and ~~benefits,~~HSBI totaled $12.7 million. For the first quarter of ~~which $5.4 million relates~~2022, charges related to the acquisition of the Cadence Branches and ~~also includes $6.3~~charter conversion accounted for $408 thousand and charges related to the ongoing operations of the Cadence Branches totaled $722 thousand.

Investment securities totaled $1.962 billion, or 24.5% of total assets at March 31, 2023, compared to $1.986 billion, or 27.0% of total assets at March 31, 2022. The average balance of investment securities increased $131.0 million in ~~one-time merger related charges.~~

prior year quarterly comparison. The average tax equivalent yield on investment securities, a non-GAAP financial measure, increased 53 basis points to 2.51% from 1.98% in prior year quarterly comparison. The investment portfolio had a

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net unrealized loss of $137.6 million at March 31, 2023 as compared to a net unrealized loss of $92.2 million at March 31, 2022. See reconciliation of non-GAAP financial measures provided below.
The FTE average yield on all earning assets, a non-GAAP measure, increased 148 basis points in prior year quarterly comparison, from 3.07% for the first quarter of 2022 to 4.55% for the first quarter of 2023. Interest expense on average interest-bearing liabilities increased 82 basis points from 0.42% for the first quarter of 2022 to 1.24% for the first quarter of 2023. Cost of all deposits averaged 77 basis points for the first quarter of 2023 compared to 17 basis points for the first quarter of 2022. This increase was a result of rising interest rates and increased competition for deposits. See reconciliation of non-GAAP financial measures provided below.

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~~$8.008 billion at ~~September 30, 2017~~March 31, 2023 compared to ~~$1.3~~$6.462 billion at December 31, ~~2016,~~2022, an increase of ~~$0.5~~$1.546 billion. Loans, including loans held for sale, increased ~~$331.1 million~~$1.195 billion to ~~$1.2~~$4.974 billion, or ~~38.2%~~31.6%, during the first ~~nine~~three months of ~~2017.~~2023. Deposits at ~~September 30, 2017,~~March 31, 2023 totaled ~~$1.5~~$6.677 billion compared to ~~$1.0~~$5.511 billion at December 31, ~~2016.~~2022. The ~~First acquired~~increase in assets, loans, ~~of $237.3 million~~ and deposits ~~of $355.6 million as a result of~~is attributed to the ~~acquisitions of Iberville and GCCB during the first quarter of 2017. See Note 4 – Business Combinations.~~

HSBI acquisition.

For the ~~nine month~~three months period ended ~~September 30, 2017,~~March 31, 2023, The First reported net income of ~~$9.7~~$20.3 million compared to ~~$8.7~~$17.1 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2022. Merger and conversion charges equaled $2.8 million, net of tax, ~~equaled $3.4 million~~ for the first ~~nine~~three months of ~~2017.~~

~~NONPERFORMING ASSETS AND RISK ELEMENTS~~

~~Diversification within the loan portfolio is an important means~~2023 as compared to $305 thousand, net 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 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 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 buttax, 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 three months of ~~which $4.7 million were performing as agreed with modified terms.~~

2022.

EARNINGS PERFORMANCE

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

~~Net interest income~~NET INTEREST INCOME AND NET INTEREST MARGIN

~~Net~~

For the three months ended March 31, 2023, net interest income increased by ~~$4.9~~$26.3 million, or ~~48.4%~~68.0%, ~~for~~when compared with the ~~third quarter~~same period in 2022. The increase is primarily related to interest income earned on a higher volume of ~~2017 relative~~loans attributed to the ~~third quarter~~BBI and HSBI acquisitions and securities. PPP loans totaled $568 thousand as of ~~2016.~~March 31, 2023, a decrease of $18.8 million or 97.1% 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
	March 31, 2023						March 31, 2022
	Avg. Balance		Tax Equivalent Interest		Yield/ Rate		Avg. Balance		Tax Equivalent Interest		Yield/ Rate
Earning Assets:
Taxable securities	$	1,565,623	$	8,758	2.24	%	$	1,413,523	$	6,152	1.74	%
Tax exempt securities	462,718		3,946		3.41	%	483,780		3,242		2.68	%
Total investment securities	2,028,341		12,704		2.51	%	1,897,303		9,394		1.98	%
Interest bearing deposits in other banks	146,663		898		2.45	%	825,877		13		0.01	%
Loans	4,975,663		67,734		5.45	%	2,945,877		34,154		4.64	%
Total earning assets	7,150,667		81,336		4.55	%	5,669,057		43,561		3.07	%
Other assets	852,587						533,612
Total assets	$	8,003,254					$	6,202,669

Interest-bearing liabilities:
Deposits	$	4,738,076	$	12,277	1.04	%	$	5,021,657	$	2,588	0.18	%
Borrowed funds	77,098		959		4.98	%	—		—		—	%
Subordinated debentures	155,084		2,176		5.61	%	144,759		1,819		5.03	%
Total interest-bearing liabilities	4,970,258		15,412		1.24	%	5,166,416		4,407		0.32	%
Other liabilities	2,164,001						369,692
Shareholders’ equity	868,995						666,561
Total liabilities and shareholders’ equity	$	8,003,254					$	6,202,669

Net interest income			$	64,926					$	38,639
Net interest margin					3.63	%					2.73	%
Net interest income (FTE)*			$	65,924	3.31	%			$	39,459	2.75	%
Net interest margin (FTE)*					3.69	%					2.78	%

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~~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~~months ended March 31, 2023 and ~~nine month period ended September 30, 2017 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 benefits of $1.7 million of which $1.4 million is related to increased employment as a result of the acquisitions.

2022:


($ in thousands)	Three Months Ended
EARNINGS STATEMENT	March 31, 2023		% of Total		March 31, 2022		% of Total
Non-interest income:
Service charges on deposit accounts	$	3,657	29.0	%	$	2,040	18.3	%
Mortgage fee income	633		5.0	%	1,230		11.0	%
Interchange fee income	4,498		35.7	%	3,197		28.7	%
(Loss) gain on securities, net	—		0.0	%	(3)		0.0	%
Gain (loss) on sale of premises and equipment	—		0.0	%	2		0.0	%
Government awards/grants	—		0.0	%	702		6.3	%
BOLI income from death proceeds	—		0.0	%	1,630		14.6	%
Other	3,824		30.3	%	2,359		21.1	%
Total non-interest income	$	12,612	100	%	$	11,157	100	%

Non-interest expense:
Salaries and employee benefits	$	23,572	51.6	%	$	16,799	58.8	%
Occupancy expense	5,296		11.6	%	3,876		13.5	%
FDIC/OCC premiums	670		1.5	%	566		2.0	%
Marketing	158		0.3	%	86		0.3	%
Amortization of core deposit intangibles	2,402		5.3	%	1,064		3.7	%
Other professional services	1,068		2.3	%	563		2.0	%
Other non-interest expense	8,711		19.1	%	5,228		18.3	%
Acquisition and charter conversion charges	3,793		8.3	%	408		1.4	%
Total non-interest expense	$	45,670	100	%	$	28,590	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~~$4.6 million or 22.0% of earnings before income taxes for the ~~year through September 30, 2017, and remained unchanged when~~first quarter 2023, compared to $4.4 million or 20.6% of earnings before income taxes for the same period ~~of 2016.~~

in 2022.

BALANCE SHEET ANALYSIS

EARNING ASSETS

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

Table of Contents

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 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,~~$1.928 billion, or ~~20.1%~~24.0% of total assets at ~~September 30, 2017,~~March 31, 2023 compared to ~~$249.2 million,~~$1.949 billion, or ~~19.5%~~30.2% of total assets at December 31,~~2016~~.

~~We had~~ 2022.

There were no ~~fed~~federal funds sold at ~~September 30, 2017~~March 31, 2023 and ~~$0.4 million of fed funds sold at~~ December 31, ~~2016;~~2022; and interest-bearing balances at other banks ~~decreased~~increased to ~~$29.6~~$226.9 million at ~~September 30, 2017~~March 31, 2023 from ~~$30.0~~$78.1 million at December 31, ~~2016~~2022. The increase in interest-bearing balances is primarily ~~due~~related to ~~a decrease~~$143.4 million increase in ~~our~~the Federal Reserve Bank ~~account.~~deposits. The Company’s investment portfolio ~~increased $92.4~~decreased $20.2 million, ~~due~~or 1.0%, to ~~acquisitions~~$1.962 billion at March 31, 2023 compared to December 31, 2022. The decrease is attributed to $43.7 million in securities that matured, prepaid, or were called offset by a $23.6 million change in the net unrealized loss of the security portfolio. The investment portfolio had a net unrealized loss of $137.6 million at March 31, 2023 as compared to a ~~total fair market value~~net unrealized loss of ~~$360.4~~$161.2 million at ~~September 30, 2017, reflecting an increase of $109.8 million, or 43.8%, for the first nine months of 2017.~~December 31, 2022. 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 $1.250 billion at ~~September 30, 2017 as~~March 31, 2023 compared to ~~$7.4 million~~$1.257 billion at December 31, ~~2016.~~2022. The fair value of held-to-maturity investments totaled $639.5 million and $642.1 million at March 31, 2023 and December 31, 2022, respectively. All other investment securities are classified as “available-for-sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.

Refer to ~~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 March 31, 2023, LHFS totaled ~~$1.203~~$4.1 million, compared to $4.4 million at December 31, 2022.

Loans Held for Investment (“LHFI”)

LHFI, net of deferred fees and costs, were $4.917 billion at ~~September 30, 2017,~~March 31, 2023, an increase of ~~$329.8 million,~~$1.182 billion, or ~~37.8%~~31.6%, ~~since~~from $3.735 billion at December 31, ~~2016.~~2022. The ~~acquisitions~~acquisition of HSBI accounted for approximately ~~$237.3 million~~$1.159 billion, net of purchase accounting adjustments, of the increase. ~~At September 30, 2017, the company had direct energy related~~PPP loans were $568 thousand at March 31, 2023, a decrease of ~~$20.2 million, representing 1.7%~~$142 thousand, or 20.0%, from $710 thousand at December 31, 2022.

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.

Contents

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):


	March 31, 2023				December 31, 2022
	Amount		Percent of Total		Amount		Percent of Total
Commercial, financial and agriculture (1)	$	785,676	15.8	%	$	536,192	14.2	%
Commercial real estate	2,862,145		57.6	%	2,135,263		57.0	%
Consumer real estate	1,268,776		25.5	%	1,058,999		28.1	%
Consumer installment	53,179		1.1	%	43,703		1.2	%
Total loans	4,969,776		100	%	3,774,157		100	%
Allowance for credit losses	(52,450)				(38,917)
Net loans	$	4,917,326			$	3,735,240

(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 $568 thousand and $710 thousand 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 March 31, 2023 and ~~tends to increase the magnitude of the real estate loan portfolio component.~~ December 31, 2022, respectively.

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

~~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 March 31, 2023, 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 grants a concession~~loans are adequately secured and in the process of collection. Nonaccrual loans totaled $17.3 million at March 31, 2023, an increase of $4.7 million from December 31, 2022.

Other real estate owned is carried at fair value, determined by an appraisal, less estimated costs to ~~a borrower~~sell. Other real estate owned totaled $5.1 million at March 31, 2023, an increase of $234 thousand as compared to $4.8 million at December 31, 2022. The acquisition of HSBI accounted for approximately $857 thousand of the increase and was offset by $623 thousand in ~~financial difficulty,~~sales and write-downs during the ~~loan falls into the category~~first quarter of ~~a troubled debt restructuring (“TDR”). TDRs may be classified as either nonperforming or performing loans depending on their accrual status.~~ 2023.

Table of Contents

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)	March 31, 2023			December 31, 2022
Nonaccrual Loans
Commercial, financial and agriculture	$	1,655		$	19
Commercial real estate	10,473			8,574
Consumer real estate	5,171			3,997
Consumer installment	14			1
Total Nonaccrual Loans	17,313			12,591

Other real-estate owned	5,066			4,832

Total NPAs	$	22,379		$	17,423
Past due 90 days or more and still accruing	$	73		$	289
Total NPAs as a % of total loans & leases net of unearned income	0.5		%	0.5		%
Total nonaccrual loans as a % of total loans & leases net of unearned income	0.3		%	0.3		%

NPAs totaled ~~$12.7~~$22.4 million at ~~September 30, 2017,~~March 31, 2023, compared to ~~$9.3~~$17.4 million at December 31, ~~2016. The~~2022, an increase of ~~$3.4 million is attributable to the acquisitions with associated fair value marks.~~$5.0 million. The ~~ALLL/~~ACL/total loans ratio was ~~0.68%~~1.06% at ~~September 30, 2017~~March 31, 2023, and ~~.87%~~1.03% at December 31, ~~2016. Including~~2022. Total valuation accounting adjustments were $40.1 million on acquired loans at March 31, 2023. The Company recorded a $9.5 million credit mark related to the ~~total valuation plus ALLL was 1.16% of loans at September 30, 2017.~~BBI acquisition in 2022 and a $33.2 million credit mark related to the HSBI acquisition in 2023. The ratio of annualized net charge-offs (recoveries) to total loans was ~~(0.005)%~~0.01% for the quarter ended ~~September 30, 2017~~March 31, 2023 compared to ~~(0.04)%~~0.004% for the quarter ended ~~September 30, 2016. As noted~~December 31, 2022.

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. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in ~~our first quarter 2015 10-Q,~~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 had been notified that~~Company’s own loss history including index or peer data. Management evaluates the adequacy of the ACL quarterly and makes provisions for credit losses based on this evaluation. See Note 10 “Loans” for a ~~recovery~~description of ~~$941,000 was more likely than not expected during 2015. We received~~ the ~~first installment during the second quarter of 2015 which totaled $481,000~~Company’s methodology and the ~~second installment during~~quantitative and qualitative factors included in the ~~third quarter~~calculation.

At March 31, 2023, the ACL was $52.5 million, or 1.1% of ~~2015 which totaled $241,000.~~LHFI, an increase of $13.5 million, or 34.8% when compared to December 31, 2022. The ~~remaining balance of $219,000 was received~~2023 provision for credit losses includes $10.7 million associated with a day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments and a $3.2 million initial allowance on PCD loans related to the HSBI acquisition. At December 31, 2022, provision for credit losses includes $3.9 million associated with a day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments and a $1.3 million initial allowance on PCD loans acquired in ~~2016.~~

~~ALLOWANCE FOR LOAN AND LEASE LOSSES~~

~~The~~the BBI acquisition. At December 31, 2022, the allowance for ~~loan and lease~~credit losses ~~is established through a provision for loan and lease losses. It is maintained at a level that~~was approximately $38.9 million, which was 1.0% of LHFI.

At March 31, 2023, 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 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.

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

~~Allowance for Loan~~three months ended March 31, 2023 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 )%

2022 ($ in thousands):


Allowance for Credit Losses
Balances:	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
Average LHFI outstanding during period:	$	4,975,663		$	2,945,877
LHFI outstanding at end of period:	$	4,969,776		$	2,970,246
Allowance for Credit Losses:
Balance at beginning of period	$	38,917		$	30,742
Initial allowance on PCD loans	3,176			—
Provision:
Initial provision for acquired non-PCD loans	10,219			—
Provision for credit losses charged to expense	281			—
Charge-offs:
Commercial, financial and agriculture	3			52
Commercial real estate	—			3
Consumer real estate	—			7
Consumer installment	338			169
Total Charge-offs	341			231
Recoveries:
Commercial, financial and agriculture	43			53
Commercial real estate	15			224
Consumer real estate	18			610
Consumer installment	122			222
Total Recoveries	198			1,109
Net loan charge offs (recoveries)	143			(878)
Balance at end of period	$	52,450		$	31,620
RATIOS
Net Charge-offs (recoveries) to average LHFI (annualized)	0.0		%	(0.1)		%
ACL to LHFI at end of period	1.1		%	1.1		%
Net Loan Charge-offs (recoveries) to PCL	50.9		%	0.0		%

~~OFF-BALANCE SHEET ARRANGEMENTS~~

The Company ~~maintains commitments~~recorded a $10.5 million provision for credit losses for the three months ended March 31, 2023 and $0 for the three months ended March 31, 2022. An initial provision for acquired non-PCD loans of $10.2 million and an initial allowance on PCD loans of $3.2 million was recorded as of March 31, 2023 due to the acquisition of HSBI.

The following tables summarizes the ACL at March 31, 2023 and at December 31, 2022.


($ in thousands)	March 31, 2023		December 31, 2022
Commercial, financial and agriculture	$	9,443	$	6,349
Commercial real estate	28,052		20,389
Consumer real estate	14,201		11,599
Consumer installment	754		580
Total	$	52,450	$	38,917

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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, 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 $265.2 million at September 30, 2017 and $220.3 million at December 31, 2016, although itunless that obligation is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 22.1% of gross loans outstanding at September 30, 2017 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 of credit issued to customers totaling $8.2 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 as of September 30, 2017. That letter of credit is backed by loans which are pledged to the FHLBunconditionally 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 $500 thousand provision for credit losses on OBSC exposures for the three month period ended March 31, 2023 and $0 for the same period in 2022. The increase in the ACL on OBSC exposures for the three months ended March 31, 2023 was primarily due to the day one provision for unfunded commitments related to the HSBI acquisition.

OTHER ASSETS

The Company’s balance of non-interest earning cash and due from banks was ~~$63.7~~$106.6 million at ~~September 30, 2017~~March 31, 2023 and ~~$31.7~~$67.2 million at December 31, ~~2016.~~2022. The balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the level of cash maintained on hand at our branches, and our reserve requirement among other things, and is subject to significant fluctuation in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to and borrowings from correspondent banks, including the Federal Reserve Bank and the Federal Home Loan ~~Bank.~~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~~$479 thousand to $34.4 million ~~due~~at March 31, 2023 compared to $33.9 million at December 31, 2022. A majority of the increase in other securities is related to an increase in ~~FHLB~~ stock ~~and federal reserve stock.~~held at the Federal Reserve Bank. The Company’s net premises and equipment at ~~September 30, 2017~~March 31, 2023 was ~~$46.2~~$178.4 million and ~~$34.6~~$143.5 million at December 31, ~~2016; the result being~~2022; anincreaseof ~~$11.6~~$34.9 million, or ~~33.4%~~24.3% for the first ~~nine~~three months of ~~2017. Included~~2023. The increase is attributed to the HSBI acquisition. Operating right-of-use assets at March 31, 2023 totaled $6.5 million compared to $7.6 million at December 31, 2022, a decrease of $1.2 million. The decrease in operating right-of-use assets is attributed to several lease cancellations in the first quarter of 2023. Financing right-of-use assets at March 31, 2023 totaled $1.8 million compared to $1.9 million at December 31, 2022, a decrease of $116 thousand. Bank-owned life insurance at March 31, 2023 totaled $131.9 million compared to $95.6 million at December 31, 2022, an increase of $36.4 million. A majority of the increase in bank-owned life insurance is attributed to $35.6 million of insurance included in the acquisition of ~~Iberville was $4.0~~HSBI. Goodwill at March 31, 2023 increased $91.6 million ~~in bank-owned life insurance, creating a balance of $26.4~~to $271.8 million compared to $180.3 million at ~~September 30, 2017. Bank-owned life insurance is also discussed above in the “Non-Interest Income and Non-Interest Expense” section. Goodwill increased by $6.7 million during the period,~~December 31, 2022 as a result of the ~~acquisitions, ending the first nine months of 2017 with a balance of $20.4 million.~~HSBI acquisition. Other intangible assets, consisting primarily of the Company’s core deposit intangible (“CDI”), increased by ~~$3.1~~$41.3 million to $76.0 million as of March 31, 2023, compared to $34.6 million at December 31, 2022, due to the ~~acquisitions. The Company’s goodwill~~HSBI 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 March 31, 2023, management has determined that no impairment ~~exists as of September 30, 2017.~~

exists.

Other real estate owned increased ~~$1.8~~by $234 thousand, or 4.8%, to $5.1 million ~~or 30.7%~~at March 31, 2023 as compared to December 31, 2022. The acquisition of HSBI accounted for approximately $857 thousand of the increase and was offset by $623 thousand in sales and write-downs during the first ~~nine months~~quarter of ~~2017. This increase comes~~2023.

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 $676.6 million at March 31, 2023 and $706.1 million at December 31, 2022, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 13.6% of gross loans at March 31, 2023 and 18.7% at December 31, 2022. The Company also had undrawn similar standby letters of credit to customers totaling $18.2 million at March 31, 2023 and $14.2 million at December 31, 2022. 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

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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 $255.0 million letter of credit issued by the FHLB on the Company’s behalf as of March 31, 2023. That letter of credit is backed by loans which are pledged to the FHLB by the Company.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

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

The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments. To meet short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances through FHLB lines of credit, or solicit brokered deposits if deposits are not immediately obtainable from local sources. The net availability on lines of credit from the FHLB totaled $1.635 billion at March 31, 2023. Furthermore, funds can be obtained by drawing down the Company’s correspondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets. In addition, the Company can raise immediate cash for temporary needs by selling under agreement to repurchase those investments in its portfolio which are not pledged as collateral. As of March 31, 2023, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $903.6 million of the Company’s investment balances, compared to $1.066 billion at December 31, 2022. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding federal funds sold and vault cash. The Company has a higher level of actual balance sheet liquidity than might otherwise be the case, since it utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements.

The Company’s liquidity ratio as of March 31, 2023 was 19.5%, as compared to internal liquidity policy guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:


	March 31, 2023		Policy Maximum		Policy Compliance
Loans to Deposits (including FHLB advances)	74.2	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	2.3	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	0.0	%	20.0	%	In Policy
FRB Advances / Total Assets	3.1	%	10.0	%	In Policy
Pledged Securities to Total Securities	57.4	%	90.0	%	In Policy

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

As of March 31, 2023, cash and cash equivalents were $333.5 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $1.140 billion at March 31, 2023. Approximately $676.6 million in loan commitments could fund within the next three months and includes other commitments, primarily commercial and $18.2 million similar letters of credit, at March 31, 2023.

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

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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 2022 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 periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 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.” ~~A distribution~~


Deposit Distribution	March 31, 2023				December 31, 2022
($ in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Non-interest-bearing demand deposits	$	2,104,945	—		$	1,660,301	—
Interest bearing deposits:
NOW accounts and other	2,130,459		1.05	%	1,810,575		0.44	%
Money market accounts	1,077,478		1.06	%	831,463		0.29	%
Savings accounts	658,750		0.13	%	535,449		0.04	%
Time deposits	844,736		1.71	%	590,385		0.58	%
Total interest-bearing deposits	4,711,423		1.04	%	3,767,872		0.37	%
Total deposits	$	6,816,368	0.72	%	$	5,428,173	0.26	%

As of March 31, 2023, average deposits increased by $1.388 billion, or 25.6% to $6.816 billion from $5.428 billion at December 31, 2022. During January 2023, deposits totaling $1.392 billion, net of purchase accounting adjustments were acquired in the ~~Company’s~~HSBI merger. The average cost of interest-bearing deposits ~~showing the balance~~ and ~~percentage of~~ total deposits ~~by type is presented for the noted periods~~was 1.04% and 0.72% during at March 31, 2023 compared to 0.37% and 0.26% at December 31, 2022. The increase 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 %

average cost of interest-bearing deposit during the first three months of 2022 compared to December 31, 2022 is attributed to the increase in volume due to the HSBI acquisition coupled with an increase in rates attributable to the higher rate environment.

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~~$452.2 million, or ~~31.9%~~27.7%, in the first ~~nine~~three months of ~~2017, due to an~~2023. The increase in ~~notes payable~~noninterest-bearing deposits is attributed to the ~~FHLB. Repurchase agreements decreased $5.0 million. The Company had~~HSBI acquisition. As of March 31, 2023, junior subordinated debentures ~~totaling $10.3~~increased $9.1 million, net of issuance costs, to $154.1 million. As part of the HSBI acquisition, the Company acquired $9.0 million, net of purchase accounting adjustments, in subordinated debt. Subordinated debt is discussed more fully in the below Capital section of this report.

LEASE LIABILITIES

As of March 31, 2023, operating lease liabilities decreased $1.2 million, or 15.2% to $6.6 million from $7.8 million at ~~September 30, 2017 and~~ December 31, ~~2016,~~2022. The decrease in operating lease liabilities is attributed to several leases that were

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cancelled in the ~~form~~first quarter of ~~long-term borrowings~~2023. Finance lease liabilities decreased $44 thousand, or 2.3% to $1.9 million from ~~trust subsidiaries formed specifically to issue trust preferred securities.~~

$1.9 million at December 31, 2022.

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~~$4.5 million, or ~~100.8%~~12.6%, during the first ~~nine~~three months of ~~2017,~~2023. The increase is primarily related to the acquisition of HSBI. As of March 31, 2023, accrued interest payable increased $763 thousand, or 23.0% to $4.1 million from $3.3 million at December 31, 2022. The ACL on OBSC exposures increased $500 thousand to $1.8 million at March 31, 2023 when compared to December 31, 2022. The increase in the ACL on OBSC exposures for the three months ended March 31, 2023 was due to the ~~increase in other accrued but unpaid expenses.~~

~~liquidity and market RisK MANAGEMENT~~

~~LIQUIDITY~~

~~Liquidity management refers~~day one provision for unfunded commitments related 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 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.

~~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,~~HSBI acquisition.

CAPITAL

At March 31, 2023, the Company ~~can borrow overnight funds from other financial institutions, draw advances via FHLB lines~~had total shareholders’ equity of ~~credit,~~$896.4 million, comprised of $32.3 million in common stock, $41.1 million in treasury stock, $773.6 million in surplus, $262.4 million in undivided profits, and $130.8 million in accumulated comprehensive loss on available-for-sale securities. Total shareholders’ equity at the end of 2022 was $646.7 million. The increase of $249.8 million, or ~~solicit brokered deposits if deposits are not immediately obtainable from local sources. The net availability~~38.6%, in shareholders’ equity during the first three months of 2023 is primarily attributable to $18.2 million decrease in accumulated comprehensive loss related to the effect of rising interest rates on lines of credit from the FHLB totaled $414.1 million at September 30, 2017. 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, 2017, the market value of ~~unpledged debt~~our available-for-sale securities ~~plus pledged securities~~and $6.5 million in ~~excess~~cash dividends paid these decreases in total shareholders’ equity were offset by capital added through net earnings of ~~current pledging requirements comprised $95.6~~$16.3 million, and $221.5 million added through the HSBI acquisition.

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 ~~investment balances, compared~~issued and outstanding common stock in any manner determined appropriate by the Company’s management, less the amount of prior purchases under the program during the 2021 calendar year. The renewed 2021 Repurchase Program was completed in February 2022 when the Company’s repurchases under the program approached the maximum authorized amount. The Company repurchased 600,000 shares for $22.2 million under the 2021 Repurchase Program in the first quarter of 2022.

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 ~~$101.2~~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 the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2022 Repurchase Program will have an expiration date of December 31, ~~2016.~~ 2022.

The ~~increase~~Inflation Reduction Act of 2022 signed into law in ~~unpledged securities from September, 2017 compared~~August 2022 includes a provision for an excise tax equal to ~~December 2016~~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 ~~primarily due~~effective beginning in fiscal year 2023. While we may complete transactions subject to the new excise tax, we do not expect a material impact to our statement of condition or result of operations.

On February 28, 2023, the Company announced that its Board of Directors has authorized a new share repurchase program (the "2023 Repurchase Program"), pursuant to which the Company may purchase up to an ~~increase~~aggregate of $50 million in ~~portfolio assets. Other forms~~shares of ~~balance sheet liquidity include~~the Company's issued and outstanding common stock during the 2023 calendar year. Under the program, the Company may, but is not required to, from time to time repurchase up $50 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2023 Repurchase Program will have an expiration date of December 31, 2023.

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The Company uses a variety of measures to evaluate its capital adequacy, including risk-based capital and leverage ratios that are calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to ensure that they meet or surpass established internal and external guidelines. As permitted by the regulators for financial institutions that are not ~~necessarily limited~~deemed to be “advanced approaches” institutions, the Company has elected to opt out of the requirement of the standards initially adopted by the Basal Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) to 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	March 31, 2023		December 31, 2022		Minimum Required to be Well Capitalized		Minimum Capital Required Basel III Fully Phased In
Common Equity Tier 1 Capital Ratio	13.6	%	15.6	%	6.5	%	7.0	%
Tier 1 Capital Ratio	13.6	%	15.6	%	8.0	%	8.5	%
Total Capital Ratio	14.5	%	16.4	%	10.0	%	10.5	%
Tier 1 Leverage Ratio	10.3	%	11.1	%	5.0	%	7.0	%


Regulatory Capital Ratios The First Bancshares, Inc.	March 31, 2023		December 31, 2022		Minimum Required to be Well Capitalized	Minimum Capital Required Basel III Fully Phased In
Common Equity Tier 1 Capital Ratio*	11.2	%	12.7	%	N/A	N/A
Tier 1 Capital Ratio**	11.6	%	13.0	%	N/A	N/A
Total Capital Ratio	14.7	%	16.7	%	N/A	N/A
Tier 1 Leverage Ratio	8.8	%	9.3	%	N/A	N/A

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

**The numerator includes Trust Preferred.

Our capital ratios remain very strong relative to the median for peer financial institutions, and at March 31, 2023 were well above the threshold for the Company and the Bank to be classified as “well capitalized,” the highest rating of the categories defined under the Bank Holding Company Act and the Federal Deposit Insurance Corporation Improvement Act of 1991. Basel III rules require a “capital conservation buffer” for both the Company and the Bank. The capital conservation buffer is subject to a three-year phase-in period that began January 1, 2016 and was fully phased-in on January 1, 2019 at 2.5%. Under this guidance banking institutions with a CETI, Tier 1 Capital Ratio and Total Risk Based Capital above the minimum regulatory adequate capital ratios but below the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall.

As of March 31, 2023, management believes that each of the Bank and the Company met all capital adequacy requirements to which they are subject. We do not foresee any ~~outstanding fed funds sold and vault cash.~~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 March 31, 2023 was $896.4 million, or approximately 11.2% of total assets. The Company currently has adequate capital to meet the minimum capital requirements 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 obligations under the debentures and 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 LIBOR plus 1.65% and ~~other potentially liquid~~is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

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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 2023, The Company acquired HSBI's debentures issued to Liberty Shares Statutory Trust II ("Trust"), which consisted of $10.3 million in Debt Securities. The Debt Securities represent the sole assets ~~along~~of the Trust. The debentures mature on March 15, 2036. The interest rate reprices quarterly equal to the three-month LIBOR plus 148 basis points with interest payable quarterly.

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 ~~September 30, 2017 was 14.1%~~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%, aspayable 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. 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 $154.1 million of subordinated debt, net of deferred issuance costs $1.8 million and unamortized fair value mark $1.9 million, at March 31, 2023, compared to ~~internal policy guidelines~~$145.0 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 $1.9 million and ~~relatively high levels~~unamortized fair value mark $593 thousand, at December 31, 2022.

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

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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 March 31, 2023		Three Months Ended March 31, 2022

Net income available to common shareholders	$	16,271	$	16,829
Acquisition and charter conversion charges	3,793		408
Tax on acquisition and charter conversion charges	(960)		(103)
Initial provision for acquired loans	10,727		—
Tax on initial provision for acquired loans	(2,714)		—
Treasury awards	—		(702)
Tax on Treasury awards	—		178
BOLI income from death proceeds	—		(1,630)
Net earnings available to common shareholders, operating	$	27,117	$	14,980

Diluted Operating Earnings per Share


($ in thousands)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022

Diluted earnings per share	$	0.52	$	0.81
Acquisition and charter conversion charges	0.11		0.02
Tax on acquisition and charter conversion charges	(0.02)		—
Initial provision for acquired loans	0.34		—
Tax on initial provision for acquired loans	(0.09)		—
Effect of Treasury awards	—		(0.03)
BOLI income from death proceeds	—		(0.08)
Diluted earnings per share, operating	$	0.86	$	0.72

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Net Interest Income, Fully Tax Equivalent


($ in thousands)	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022

Net interest income	$	64,926		$	38,639
Tax exempt investment income	(2,948)			(2,422)
Taxable investment income	3,946			3,242
Net interest income, FTE	$	65,924		$	39,459

Average earning assets	$	7,150,667		$	5,669,057
Net interest margin, FTE	3.69		%	2.78		%

Pre-Tax Pre-Provision Operating Earnings


($ in thousands)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022

Earnings before income taxes	$	20,868	$	21,206
Acquisition and charter conversion charges	3,793		408
Provision for credit loss	11,000		—
Treasury awards	—		(702)
BOLI income from death proceeds	—		(1,630)
Pre-Tax, Pre-Provision Operating Earnings	$	35,661	$	19,282

Total Interest Income, Fully Tax Equivalent


($ in thousands)	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022

Total interest income	$	80,338		$	42,741
Tax-exempt investment income	(2,948)			(2,422)
Taxable investment income	3,946			3,242
Total interest income, FTE	$	81,336		$	43,561

Yield on average earning assets, FTE	4.55		%	3.07		%

Interest Income Investment Securities, Fully Tax Equivalent


($ in thousands)	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022

Interest income investment securities	$	11,706		$	8,574
Tax-exempt investment income	(2,948)			(2,422)
Taxable investment income	3,946			3,242
Interest income investment securities, FTE	$	12,704		$	9,394

Average investment securities	$	2,028,341		$	1,897,303

Yield on investment securities, FTE	2.51		%	1.98		%

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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).

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


March 31, 2023	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	(0.4)	%	(20.0)	%	(7.4)	%	(40.0)	%
Up 300 bps	1.6	%	(15.0)	%	(2.8)	%	(30.0)	%
Up 200 bps	2.3	%	(10.0)	%	0.5	%	(20.0)	%
Up 100 bps	1.6	%	(5.0)	%	2.3	%	(10.0)	%
Down 100 bps	(1.2)	%	(5.0)	%	(1.3)	%	(10.0)	%
Down 200 bps	(5.7)	%	(10.0)	%	(8.3)	%	(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,~~March 31, 2023, 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 %


March 31, 2023	Net Interest Income at Risk – Sensitivity Year 1
($ in thousands)	-200 bp		-100 bp		STATIC	+100 bp		+200 bp		+300 bp		+400 bp
Net Interest Income	245,776		257,584		260,693	264,878		266,642		264,873		259,744
Dollar Change	(14,917)		(3,109)			4,185		5,949		4,180		(949)
NII @ Risk - Sensitivity Y1	(5.7)	%	(1.2)	%		1.6	%	2.3	%	1.6	%	(0.4)	%
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~~$14.9 million lower than in a stable interest rate scenario, for aan negative variance of ~~8.6%~~5.7%. The unfavorable variance increases if rates were to drop below 200 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop. This effect would be exacerbated by accelerated prepayments on fixed-rate loans and mortgage-backed securities when rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures. 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.

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Net interest income would likely improve by ~~$3.4~~$5.9 million, or ~~5.8%~~2.3%, if interest rates were to increase by 200 basis points relative to a stable interest rate scenario, with the favorable variance expanding the higher interest rates rise. 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%~~221.0%, 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 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,~~March 31, 2023, 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 %


March 31, 2023	Balance Sheet Shock
($ in thousands)	-200 bp		-100 bp		STATIC (Base)	+100 bp		+200 bp		+300 bp		+400 bp
Market Value of Equity	1,493,461		1,606,781		1,628,282	1,665,061		1,635,686		1,582,494		1,507,466
Change in EVE from base	(134,821)		(21,501)			36,779		7,404		(45,788)		(120,816)
% Change	(8.3)	%	(1.3)	%		2.3	%	0.5	%	(2.8)	%	(7.4)	%
Policy Limits	(20.0)	%	(10.0)	%		(10.0)	%	(20.0)	%	(30.0)	%	(40.0)	%

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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,~~March 31, 2023, (the “Evaluation Date”), we carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)and 15d-15(e) promulgated under the ~~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 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,~~March 31, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

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

~~There were~~

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 2022 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.

Other than the risk factors set forth below, there are no material changes during the period covered by this Report to the risk factors previously disclosed in the ~~Company’s risk factors since December 31, 2016, other than~~Company's 2022 Form 10-K.

Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.

The recent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies, and in particular, regional banks like the Company. These developments have negatively impacted client confidence in regional banks, which could prompt clients to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as ~~set forth below:~~

~~Shareholder approval for~~a result of the ~~proposed merger~~negative impact of ~~Southwest with~~rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and ~~into~~our capital. If we were required to raise additional capital in 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~~current environment, any such capital raise may be ~~completed, Southwest’s shareholders must approve~~on unfavorable terms, thereby negatively impacting book value and profitability. While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the ~~transaction~~event of sudden liquidity needs.

We also anticipate increased regulatory scrutiny - in the course of routine examinations and ~~such shareholder approval may not be received. In addition, various approvals or consents must be obtained from the Federal Reserve, the OCC,~~otherwise - and ~~other bank, securities, antitrust and other regulatory authorities. These regulators may impose conditions on consummation~~new regulations directed towards banks of ~~the merger or require changes~~similar size to the ~~terms~~Bank, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, the ~~merger. Although we do not currently expect that any such conditions~~level of uninsured deposits, the level of unrealized losses in either available-for-sale or ~~changes would be imposed, there can be no assurance that they will not be,~~held-to-maturity securities portfolios, contingent liquidity, CRE loan composition and ~~such conditions or changes~~concentration, capital position and general oversight and internal control structures regarding the foregoing. This could have the effect of delaying the effective time of the merger or imposing additional costs on or limiting 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~~impact our ability to ~~successfully combine~~achieve 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 expectstrategic objectives and may ~~take longer to achieve than anticipated. It is possible that the integration process could~~ result in ~~the loss~~changes to our balance sheet position which could, in turn, negatively impact our profitability.

Table 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.

Contents

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 the Securities and Exchange Commission on March 16, 2017.

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


Period	Current Program
	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (b)
January 1 - January 31	—		$	—	—	$	50,000
February 1 - February 28	—		—		—	50,000
March 1 - March 31	9,827		31.31		—	50,000
Total	9,827	(a)	$	31.31	—

~~Not applicable~~

(a)The 9,827 shares purchased in the 1st quarter were withheld by the Company in order to satisfy employee tax obligations for vesting of restricted stock awards.

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

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

Table of Contents

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.

Table of Contents

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)

May 10, 2023		/s/ M. RAY (HOPPY) COLE, JR.
~~November 9, 2017~~	M. Ray (Hoppy) Cole, Jr.
~~(Date)~~	Chief Executive Officer and President (Principal Executive Officer), Chairman of the Board
(Date)


May 10, 2023		/s/ DONNA T. (DEE DEE) LOWERY
~~November 9, 2017~~	Donna T. (Dee Dee) Lowery, Executive
~~(Date)~~	Vice President and Chief Financial Officer (Principal Financial and Principal Accounting 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

	(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			-

	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	%