THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

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


	(Unaudited)
	Three Months Ended
	March 31,
	2021		2020
Interest and dividend income:
Interest and fees on loans	$	39,613	$	36,005
Interest and dividends on securities:
Taxable interest and dividends		3,591		4,034
Tax exempt interest		1,935		1,360
Interest on federal funds sold and interest bearing deposits in other banks		48		199
Total interest income		45,187		41,598
Interest expense:
Interest on deposits		3,849		5,414
Interest on borrowed funds		2,109		2,119
Total interest expense		5,958		7,533
Net interest income		39,229		34,065
Provision for credit losses		—		7,102
Net interest income after provision for credit losses		39,229		26,963
Non-interest income:
Service charges on deposit accounts		1,761		1,914
Gain on sale of securities		20		174
Loss on sale of premises and equipment		(4)		(8)
Other		7,695		4,394
Total non-interest income		9,472		6,474
Non-interest expense:
Salaries and employee benefits		16,054		13,228
Occupancy and equipment		3,879		2,918
Acquisition and integration charges		—		740
Other		7,331		6,553
Total non-interest expense		27,264		23,439
Income before income taxes		21,437		9,998
Income tax expense		4,793		1,687
Net income	$	16,644	$	8,311

Basic earnings per share	$	0.79	$	0.44
Diluted earnings per share		0.79		0.44

See Notes to Consolidated Financial Statements

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THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(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,
	2021		2020
Net income	$	16,644	$	8,311
Other Comprehensive Income:
Unrealized holding (losses) gains arising during the period on available-for-sale securities		(12,852)		8,629
Reclassification adjustment for gains included in net income		(20)		(174)
Unrealized holding (losses) gains arising during period on available-for-sale securities		(12,872)		8,455
Income tax benefit (expense)		3,257		(2,713)
Other comprehensive income (loss)		(9,615)		5,742
Comprehensive Income	$	7,029	$	14,053

See Notes to Consolidated Financial Statements

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THE FIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CHANGES IN SHAREHOLDERS’ EQUITY

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

(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


								Accumulated
	Common			Additional				Other
	Stock			Paid-in		Retained		Comprehensive		Treasury Stock
	Shares	Amount		Capital		Earnings		Income		Shares	Amount		Total
Balance, January 1, 2020	18,996,948	$	18,997	$	409,805	$	110,460	$	10,089	(194,682)	$	(5,693)	$	543,658
Net income	—		—		—		8,311		—	—		—		8,311
Other comprehensive income	—		—		—		—		5,742	—		—		5,742
Dividends on common stock, $0.10 per share	—		—		—		(1,885)		—	—		—		(1,885)
Issuance of restricted stock grants	60,680		61		(61)		—		—	—		—		—
Repurchase of restricted stock for payment of taxes	(10,991)		(11)		(367)		—		—	—		—		(378)
Compensation expense	—		—		478		—		—	—		—		478
Balance, March 31, 2020	19,046,637	$	19,047	$	409,855	$	116,886	$	15,831	(194,682)	$	(5,693)	$	555,926


Balance, January 1, 2021	21,598,993	$	21,599	$	456,919	$	154,241	$	25,816	(483,984)	$	(13,760)	$	644,815
Net income	—		—		—		16,644		—	—		—		16,644
Common stock repurchased	—		—		—		—		—	(165,623)		(5,171)		(5,171)
Other comprehensive loss	—		—		—		—		(9,615)	—		—		(9,615)
Dividends on common stock, $0.13 per share	—		—		—		(2,723)		—	—		—		(2,723)
Issuance of restricted stock grants	84,578		85		(85)		—		—	—		—		—
Restricted stock grants forfeited	(500)		(1)		1		—		—	—		—		—
Repurchase of restricted stock for payment of taxes	(14,720)		(15)		(426)		—		—	—		—		(441)
Compensation expense	—		—		440		—		—	—		—		440
Balance, March 31, 2021	21,668,351	$	21,668	$	456,849	$	168,162	$	16,201	(649,607)	$	(18,931)	$	643,949

See Notes to Consolidated Financial Statements

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THE FIRST BANCSHARES, INC.

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

($ ~~In Thousands, unaudited)~~in thousands)

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)
	Three months ended
	March 31,
	2021			2020

Cash flows from operating activities:
Net income	$	16,644		$	8,311
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		3,318			1,308
Provision for credit losses		0			7,102
(Gain) loss on sale or writedown of ORE		(75)			293
Securities gain		(20)			(174)
Loss on disposal of premises and equipment		4			8
Restricted stock expense		440			478
Increase in cash value of life insurance		(482)			(328)
Federal Home Loan Bank stock dividends		(14)			(53)
Residential loans originated and held for sale		(79,365)			(55,076)
Proceeds from sale of residential loans held for sale		85,678			51,828
Changes in:
Interest receivable		1,658			(141)
Interest payable		(532)			377
Operating lease liability		(398)			(382)
Other, net		5,351			495
Net cash provided by operating activities		32,207			14,046

Cash flows from investing activities:
Maturities, calls and paydowns of available-for-sale securities		53,570			46,192
Purchases of available-for-sale securities		(180,948)			(36,277)
Redemptions of other securities		5,352	��		832
Net decrease (increase) in loans		65,731			(925)
Net changes in premises and equipment		(283)			(1,413)
Proceeds from sale of other real estate owned		831			532
Purchase of bank-owned life insurance		(12,248)			(5,800)
Net cash provided by (used in) investing activities		(67,995)			3,141

Cash flows from financing activities:
Increase in deposits		405,078			201,122
Net decrease in borrowed funds		(110,181)			(98,139)
Principal payments on finance lease liabilities		(47)			(45)
Dividends paid on common stock		(2,688)			(1,852)
Cash paid to repurchase common stock		(5,171)			0
Payment of subordinated debt issuance costs		(59)			0
Repurchase of restricted stock for payment of taxes		(441)			(378)
Net cash provided by financing activities		286,491			100,708
Net change in cash and cash equivalents		250,703			117,895
Beginning cash and cash equivalents		562,554			168,864
Ending cash and cash equivalents	$	813,257		$	286,759

Supplemental disclosures:
Cash payments for interest	$	5,512		$	5,567
Loans transferred to other real estate		723			504
Issuance of restricted stock grants		85			61
Dividends on restricted stock grants		35			33
Lease liabilities arising from obtaining right-of-use assets		0			2,419

See Notes to Consolidated Financial Statements

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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 -

~~See Notes to Consolidated Financial Statements~~

~~THE FIRST BANCSHARES, INC.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September 30, 2017~~

March 31, 2021

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, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2021. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the fiscal year ended December 31, ~~2016.~~2020.

NOTE 2 —– SUMMARY OF ORGANIZATION

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

At ~~September 30, 2017,~~March 31, 2021, the Company had approximately ~~$1.8~~$5.443 billion in assets, ~~$1.2~~$3.022 billion in net loans ~~$1.5~~held for investment (“LHFI”), $4.620 billion in deposits, and ~~$167.0~~$643.9 million in ~~stockholders'~~shareholders’ equity. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, the Company reported net income of ~~$8.2~~$16.6 million. ~~After tax merger related costs~~

On February 25, 2021, the Company paid a cash dividend in the amount of ~~$3.9 million were expensed during the nine months ended September 30, 2017.~~

~~In each~~$0.13 per share to shareholders of record as of the ~~first, second, and third quarters~~close of ~~2017,~~business on February 10, 2021. On April 21, 2021, the Company announced that its Board of Directors declared ~~and paid~~ a cash dividend of ~~$.0375~~$0.14 per share to be paid on its common ~~share.~~stock on May 25, 2021 to shareholders of record as of the close of business on May 10, 2021.

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

Effect of Recently Adopted Accounting Standards

~~In May 2017,~~Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (“ASC 326”) introduces guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Accounting Standards Codification (“ASC”) 326 eliminates the ~~FASB issued ASU No. 2017-09, “Stock Compensation, Scope~~current incurred loss approach and instead requires an entity to reflect its current estimate of ~~Modification Accounting.” ASU 2017-09 clarifies when changes to~~all expected credit losses. The allowance for credit losses is a valuation account that is deducted from 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 classificationamortized cost basis of the ~~award occurs. The new guidance should reduce diversity in practice and result in fewer changes~~financial assets to present the terms of an award being accounted for as modifications, as the guidance will allow companies to make certain non-substantive changes to awards without accounting for them as modifications. It does not change the accounting for modifications. ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASU 2017-09 is notnet amount expected to ~~have a material impact on the Company’s Consolidated Financial Statements.~~

~~In March 2017, the FASB issued ASU No. 2017-08, “~~~~Premium Amortization on Purchased Callable Debt Securities.”~~ ASU 2017-08 shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Currently, entities generally amortize the premium as an adjustment of yield over the contractual life of the security. The ASU does not changebe collected. This guidance also changes the accounting for purchased ~~callable~~loans and debt securities ~~held~~with credit deterioration.

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

The allowance for loan credit losses (“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

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information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Expected losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed and recoveries are credited to the allowance when received. Expected recoveries amounts may not exceed the aggregate of amounts previously charged-off.

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

The probability of default (“PD”) calculation analyzes the historical loan portfolio over the given lookback period to identify, by segment, loans that have defaulted. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. The model observes loans over a 12-month window, detecting any events previously defined. This information is then used by the model to calculate annual iterative count-based PD rates for each segment. This process is then repeated for all dates within the historical data range. These averaged PD’s are used for 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 loss given default (“LGD”) calculation is based on actual losses (charge-offs, net recoveries) at a loan level experienced over the entire lookback period aggregated to get a total for each segment of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. Defaults occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event. If there is not a minimum of five past defaults in a loan segment, or less than 15.0% calculated LDG rate, a proxy index is used. This index is proprietary to the Company’s ACL modeling vendor derived from loss data of other client institutions similar in organization structure to the Company. The vendor also provides a “crisis” index derived from loss data between the post-recessionary years of 2008-2013 that the Company uses.

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

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. These purchased credit deteriorated (“PCD”) loans are recorded at the amount paid. It is the Company’s policy that a loan

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meets this definition if it is adversely risk rated as Non-Pass (Special Mention, Substandard, Doubtful or Loss) including non-accrual loans, as well as loans identified as TDR’s. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount asor premium, which is amortized into interest income over the ~~discount~~life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

Upon adoption of ASC 326, the Company elected to maintain segments of loans that were previously accounted for under ASC 310-30 Accounting for Purchased Loans with Deteriorated Credit Quality and will continue to account for these segments as a unit of account unless the loan is collateral dependent. PCD loans that are collateral dependent will be ~~accreted~~assessed individually. Loans are only removed from the existing segments if they are written off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for each segment and added to ~~maturity. ASU 2017-08~~the band’s carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the segment and the new amortized cost basis is ~~effective~~the noncredit premium or discount, which will be amortized into interest income over the remaining life of the segment. Changes to the allowance for ~~interim and annual reporting periods beginning~~credit losses after ~~December 15, 2018; early~~ adoption ~~is permitted.~~ are recorded through provision expense.

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

ASC 326 requires that a loan be evaluated for losses individually and reserved for separately, if the loan does not share similar risk characteristics to any other loan segments. The Company’s process for determining which ~~ASU 2017-08~~loans require specific evaluation follows the standard and is ~~adopted.~~two-fold. All non-performing loans, including nonaccrual loans, loans considered to be TDRs or PCDs, are evaluated to determine if they meet the definition of collateral dependent under the new standard. These are loans where no more payments are expected from the borrower, and foreclosure or some other collection action is probable. Secondly, all non-performing loans that are not considered to be collateral dependent, but are 90 days or greater past due and/or have a balance of $500 thousand or greater, will be individually reviewed to determine if the loan displays similar risk characteristic to substandard loans in the related segment.

TDRs are loans for which the contractual terms on the loan have been modified and both of the following conditions exist: (1) the borrower is experiencing financial difficulty and (2) the restructuring constitutes a concession. Concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The Company ~~is currently evaluating the provisions of ASU 2017-08~~assesses all loan modifications to determine whether they constitute a TDR.

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

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

~~In January 2017, the FASB issued ASU No. 2017-04,~~~~“Simplifying the Test for Goodwill Impairment.”~~ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds itsSecurities available-for-sale are reported at fair value ~~not~~with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to ~~exceed~~interest rate changes, changes in prepayment risk, the ~~carrying amount of goodwill. This guidance is effective for interim~~need to increase regulatory capital, and ~~annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017.~~other similar factors are classified as available-for-sale. The Company ~~is currently assessing the impact of ASU 2017-04 on its Consolidated Financial Statements.~~

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

~~In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, “~~accordance with ASC 326, ~~Financial Instruments – Credit Losses (Topic 326):~~ Measurement of Credit Losses on Financial ~~Instruments”~~Instruments~~(ASU 2016-13)~~. ~~ASU 2016-13 requires~~The Company first assesses whether it intends to sell or is more likely than not

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that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a ~~new impairment model known as~~rating agency, and adverse conditions specifically related to the ~~current expected~~security, among other factors. If this assessment indicates that a credit loss ~~(“CECL”) which significantly changes~~exists, the ~~way impairment~~present value of ~~financial instruments is recognized by requiring immediate recognition of estimated credit losses~~cash flows expected to ~~occur over~~be collected from the ~~remaining life of financial instruments. The main provisions of ASU 2016-13 include (1) replacing~~security are compared to the ~~“incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at~~ amortized cost ~~(2) requiring entities~~basis of the security. If the present value of cash flows expected to ~~record~~be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses ~~related~~is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale debt securities ~~rather than a direct write-down~~totaled $5.3 million at December 31, 2020 and is excluded from the estimate of the carrying amount of the investments, as is required by the other-than-temporary-impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. credit losses.

The Company ~~is currently assessing~~made the ~~impact of~~following policy elections related to the adoption of ~~ASU 2016-13~~the guidance in ASC 326:

●

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

●

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

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


($ in thousands)					January 1,
	December 31,				2021
	2020				As Reported
	Pre-ASC 326		Transition		Under
Assets:	Adoption		Adjustment		ASC 326
Loans
Commercial, financial, and agriculture	$	6,214	$	(1,153)	$	5,061
Commercial real estate		24,319		(4,032)		20,287
Consumer real estate		4,736		5,629		10,365
Consumer installment		551		(47)		504
Allowance for credit losses on loans	$	35,820	$	397	$	36,217
Liabilities:
Allowance for credit losses on OBSC exposures		—		718		718
Total allowance for credit losses	$	35,820	$	1,115	$	36,935

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

New Accounting Standards That Have Not Yet Been Adopted

In ~~February 2016,~~March 2020, the FASB issued ASU ~~NO. 2016-02 “~~No. 2020-04, ~~Leases (Topic 842).~~Reference Rate Reform (ASC 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU ~~2016-02 establishes a right~~provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate

Table of ~~use model that requires a lessee~~Contents

expected to ~~record a right of use asset and a lease liability~~be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all ~~leases with terms longer than~~entities as of March 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 after2020 through 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.31, 2022. The Company is assessing ASU 2020-04 and its impact on the ~~impact of ASU 2016-02 on~~Company’s transition away from LIBOR for its ~~accounting~~loan and ~~disclosures.~~other financial instruments.

NOTE 4 – BUSINESS COMBINATIONS

Acquisitions

~~Acquisitions~~

~~Iberville Bank~~

Southwest Financial Corporation

On ~~January 1, 2017,~~April 3, 2020, the Company completed its acquisition of ~~100% of the common stock of Iberville Bank, Plaquemine, Louisiana, from A. Wilbert’s Sons Lumber and Shingle Co.~~Southwest Financial Corporation (“~~Iberville Parent”~~SWG”), and immediately thereafter merged ~~Iberville Bank (“Iberville”), the~~its wholly-owned subsidiary, ~~of Iberville Parent,~~Southwest Georgia Bank with and into The First. The Company paid a total consideration of ~~$31.1~~$47.9 million to the SWG shareholders as consideration in the merger, which included 2,546,967 shares of Company common stock and approximately $2 thousand in cash. ~~Approximately $2.5 million~~As a result of the ~~purchase price is being held in escrow as contingency for flood-related losses in~~acquisition, the ~~loan portfolio that may be incurred due~~Company will have an opportunity to ~~flooding in Iberville’s market area in the fall~~increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of ~~2016.~~

scale.

In connection with the acquisition, the Company recorded ~~approximately $5.6~~a $7.8 million ~~of goodwill~~bargain purchase gain and ~~$2.7~~$4.6 million of core deposit intangible. The bargain purchase gain was generated as a result of the estimated fair value of net assets acquired exceeding the merger consideration, based on provisional fair values, which is reflected as an adjustment to retained earnings. The bargain purchase gain is considered non-taxable for income taxes purposes. The core deposit intangible iswill be amortized to ~~be expensed~~expense over 10 years.

The Company acquired ~~Iberville’s $149.4~~the $394.6 million loan portfolio at an estimated fair value discount of ~~$0.8~~$2.3 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the SWG acquisition were ~~$3.5 million~~$210 thousand for the ~~nine month~~three months period ended ~~September 30, 2017.~~March 31, 2020. These costs included system conversion and integrating operations charges ~~as well as~~and legal and consulting expenses, which have been expensed as incurred.

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The ~~preliminary amounts of the~~assets acquired ~~identifiable assets~~ and liabilities asassumed and consideration paid in the acquisition of SWG 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 ran through April 3, 2021 in respect of SWG, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as ~~follows:~~

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

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

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

~~Valuation~~a result of changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments ~~have been made to securities, personal and real property, and~~on loans, core deposit intangible ~~since initially reported.~~and the deferred income tax assets resulting from the acquisition.

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


Purchase price:
Cash and stock	$	47,860
Total purchase price		47,860

Identifiable assets:
Cash and due from banks	$	29,247
Investments		89,737
Loans		392,292
Core deposit intangible		4,556
Personal and real property		18,558
Bank owned life insurance		6,963
Other assets		3,402
Total assets		544,755

Liabilities and equity:
Deposits		476,099
Borrowed funds		9,500
Other liabilities		3,461
Total liabilities		489,060
Net assets acquired		55,695
Bargain purchase gain	$	(7,835)

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


			April 3, 2020
Outstanding principal balance	$	132,277	$	394,621
Carrying amount		131,535		392,292

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Supplemental Pro-Forma Financial Information

The following unaudited pro-forma financial data for the three months ended March 31, 2021 and 2020 presents supplemental ~~pro forma~~information as if the SWG acquisition had occurred on January 1, 2020. The pro-forma financial information is ~~presented to show the Company’s estimated results assuming Iberville was acquired as of January 1, 2016. These unaudited pro forma results are~~ not necessarily indicative of the ~~operating~~ results ~~that~~of operations had the ~~Company would have achieved had it completed the acquisition~~acquisitions been effective as of January 1, 2016 and should not be considered as representative of future operating results. Pro forma information for 2017 is not necessary because Iberville Bank is included in the Company’s results for the entire nine and three months ended September 30, 2017.these dates.

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


	Pro-Forma		Pro-Forma
	Three months		Three months
	ended		ended
	March 31,		March 31,
	2021		2020
($ in thousands)	(unaudited)		(unaudited)
Net interest income	$	39,229	$	39,622
Non-interest income		9,472		7,675
Total revenue		48,701		47,297
Income before income taxes		21,437		10,638

~~Gulf Coast Community Bank~~

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

In connection with the acquisition, the Company recorded approximately $1.1 million of goodwill and $1.0 million of core deposit intangible. The core deposit intangible is to be expensed 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 acquisition were $2.8 million for the nine month period ended September 30, 2017. These~~ costs ~~included systems conversion and integrating operations charges, as well as legal and consulting expenses, which have been expensed as~~ incurred.

~~The preliminary amounts of the acquired identifiable assets and liabilities as of the acquisition date were 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 adjustments have been made to securities, core deposit intangible, and other real estate since initially reported. Also, certain amounts have been reclassified to conform 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

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. There were no anti-dilutive common stock equivalents excluded in the calculations.

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

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 Three Months Ended
	March 31, 2021
	Net Income		Shares		Per
	(Numerator)		(Denominator)		Share Data
Basic earnings per share	$	16,644		21,009,088	$	0.79

Effect of dilutive shares:
Restricted stock grants				191,470
Diluted earnings per share	$	16,644		21,200,558	$	0.79


	For the Three Months Ended
	March 31, 2020
	Net Income		Shares		Per
	(Numerator)		(Denominator)		Share Data
Basic earnings per share	$	8,311		18,818,115	$	0.44

Effect of dilutive shares:
Restricted stock grants				124,014
Diluted earnings per share	$	8,311		18,942,129	$	0.44

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

The Company granted ~~73,827~~84,578 shares of restricted stock in the first quarter of ~~2017, 9,709~~2021 and 60,680 shares ~~during~~of restricted stock in the ~~second~~first quarter of ~~2017, and 750 shares during the third quarter~~2020.

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NOTE 76 – COMPREHENSIVE INCOME

As presented in the Consolidated Statements of Comprehensive Income, 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.

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, 2021, and December 31, ~~2016,~~2020 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


	March 31, 2021				December 31, 2020
($ in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	77,299	$	10,266	$	97,738	$	16,203
Unused lines of credit		160,049		216,956		157,006		195,221
Standby letters of credit		3,900		10,510		4,182		11,486

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 0.5% to 18.0% and maturities ranging from approximately 1 year to 30 years.

The Company adopted ASC 326, effective January 1, 2021, which requires the Company to estimate expected credit losses for OBSC exposures which are not unconditionally cancellable. The Company maintains a separate ACL on OBSC exposures, including unfunded commitments and letters of credit, which is included on the accompanying consolidated balance sheet as of March 31, 2021.

Changes in the ACL on OBSC exposures were at March 31, 2021 were as follows ($ in thousands):


	Three Months Ended
	March 31, 2021
Balance at beginning of period	$	0
Adoption of ASU 326		718
Credit loss expense related to OBSC exposures		0
Balance at end of period	$	718

Adjustments to the ACL on OBSC exposures will be recorded to provision for credit losses.

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 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 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 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, 2021 and December 31, ~~2016:~~

2020:

·●

~~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~~value for investment securities are determined by ~~obtaining~~quoted market prices, if available (Level 1). For securities where, quoted prices are not available, fair values are calculated based on ~~nationally recognized~~market prices of similar securities ~~exchanges or by~~(Level 2), using matrix pricing. Matrix pricing ~~which~~ is a mathematical technique commonly used ~~widely in the industry~~ to ~~value~~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 ~~their~~the securities’ relationship to other benchmark quoted securities ~~when~~(Level 2 inputs). For securities where quoted prices ~~for specific~~or market prices of similar 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,~~available, fair values are ~~based on carrying values. Fair values for other loans and leases are estimated by discounting projected~~calculated using discounted 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.or other market indicators (Level 3).

·●

Loans ~~held for sale~~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~~Individually Evaluated Loans: ~~Collateral-dependent impaired loans are carried at fair value when~~Loans for which it is probable that the Company will ~~be unable to~~not collect all ~~amounts~~principal and interest due according to ~~the~~ contractual terms ofare measured for impairment. If the ~~original~~impaired loan ~~agreement and the loan has been written down to~~is identified as collateral dependent, then the fair value method of ~~its~~measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. The Company generally adjusts the appraisal down by approximately 10 percent to account for selling costs. 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 ~~expected disposition costs where applicable.~~the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment.

·●

~~Bank-owned life insurance~~Other Real Estate Owned: Other real estate owned consists of properties obtained through foreclosure. The adjustment at the time of foreclosure is recorded through the allowance for credit losses. Fair ~~values are~~value of other real estate owned is based on ~~net cash surrender policy values~~current independent appraisals of the collateral less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at ~~each reporting date.~~

~~Other securities: Certain investments for~~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 ~~secondary market exists are carried at cost~~less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the ~~carrying amount~~income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for ~~those investments typically approximates their estimated~~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 ~~unless~~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 ~~impairment analysis indicates~~adjustment to lower the ~~need~~collateral value estimates indicated in the appraisals. The Company generally adjusts the appraisal down by approximately 10 percent to account for ~~adjustments.~~

~~Deposits (noninterest-bearing and interest-bearing): Fair values for non-maturity deposits~~selling costs. Periodic revaluations are ~~equal~~classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market. Due to the ~~amount payable on demand at~~subjective nature of establishing the ~~reporting date, which~~fair value when the asset is acquired, the ~~carrying amount. Fair values for fixed-rate certificates~~actual fair value 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~~real estate owned or foreclosed asset could differ from the ~~Federal Home Loan Bank (“FHLB”), borrowings under repurchase agreements,~~original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through other non-interest income. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other ~~short-term borrowings maturing~~real estate owned and foreclosed assets are netted and recorded in other non-interest income. Other real estate owned is classified within ~~ninety days~~Level 3 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.~~hierarchy.

Table of Contents

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


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

Financial Instruments:
Assets:
Cash and cash equivalents	$	813,257	$	813,257	$	813,257	$	0	$	0
Securities available-for- sale:
U.S. Treasury		6,205		6,205		6,205		0		0
Obligations of U.S. government agencies and sponsored entities		126,401		126,401		0		126,401		0
Municipal securities		516,532		516,532		0		496,384		20,148
Mortgage- backed securities		454,929		454,929		0		454,929		0
Corporate obligations		31,122		31,122		0		30,847		275
Loans, net		3,022,430		3,042,262		0		0		3,042,262
Accrued interest receivable		24,686		24,686		0		5,345		19,341
Liabilities:
Noninterest-bearing deposits	$	632,485	$	632,485	$	0	$	632,485	$	0
Interest-bearing deposits		3,987,812		3,982,628		0		3,982,628		0
Subordinated debentures		144,572		148,406		0		0		148,406
FHLB and other borrowings		4,466		4,466		0		4,466		0
Accrued interest payable		1,602		1,602		0		1,602		0

~~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)


													Fair Value Measurements
																	Significant
																	Other		Significant
															Quoted		Observable		Unobservable
December 31, 2020											Carrying		Estimated		Prices		Inputs		Inputs
($ in thousands)											Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)

Financial Instruments:
Assets:
Cash and cash equivalents	$	93,317	$	93,317	$	93,317	$	-	$	-	$	562,554	$	562,554	$	562,554	$	0	$	0
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		-
Securities available-for-sale:
U.S. Treasury												9,383		9,383		9,383		0		0
Obligations of U.S. government agencies and sponsored entities												100,170		100,170		0		100,170		0
Municipal securities												480,374		480,374		0		460,248		20,126
Mortgage-backed securities												401,232		401,232		0		401,232		0
Corporate obligations												31,023		31,023		0		30,788		235
Loans, net		1,194,606		1,222,370		-		-		1,222,370		3,087,858		3,089,318		0		0		3,089,318
Bank-owned life insurance		26,367		26,367		-		26,367		-

Accrued interest receivable												26,344		26,344		0		5,690		20,654
Liabilities:
Noninterest-bearing deposits	$	308,050	$	308,050	$	-	$	308,050	$	-
Non-interest-bearing deposits											$	571,079	$	571,079	$	0	$	571,079	$	0
Interest-bearing deposits		1,199,941		1,198,411		-		1,198,411		-		3,644,201		3,647,845		0		3,647,845		0
Subordinated debentures		10,310		10,310		-		-		10,310		144,592		145,289		0		0		145,289
FHLB and other borrowings		94,321		94,321		-		94,321		-		114,647		114,647		0		114,647		0
Accrued interest payable												2,134		2,134		0		2,134		0

AsTable of ~~December 31, 2016~~
~~($ In Thousands)~~Contents

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, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, securities are classified within 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:


			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			For		Observable		Unobservable
March 31, 2021			Identical Assets		Inputs		Inputs
($ in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale
U.S. Treasury	$	6,205	$	6,205	$	0	$	0
Obligations of U.S. Government agencies and sponsored entities		126,401		0		126,401		0
Municipal securities		516,532		0		496,384		20,148
Mortgage-backed securities		454,929		0		454,929		0
Corporate obligations		31,122		0		30,847		275
Total available-for-sale	$	1,135,189	$	6,205	$	1,108,561	$	20,423


			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			For		Observable		Unobservable
December 31, 2020			Identical Assets		Inputs		Inputs
($ in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale
U.S. Treasury	$	9,383	$	9,383	$	0	$	0
Obligations of U.S. Government agencies and sponsored entities		100,170		0		100,170		0
Municipal securities		480,374		0		460,248		20,126
Mortgage-backed securities		401,232		0		401,232		0
Corporate obligations		31,023		0		30,788		235
Total available-for-sale	$	1,022,182	$	9,383	$	992,438	$	20,361

~~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

~~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)~~inputs (Level 3) information.


	Bank-Issued
	Trust
	Preferred
	Securities
($ in thousands)	2021		2020
Balance, January 1	$	235	$	408
Unrealized gain included in comprehensive income		40		103
Balance at March 31, 2021 and March 31, 2020	$	275	$	511


	Municipal Securities
($ in thousands)	2021		2020
Balance, January 1	$	20,126	$	10,345
Purchases		—		9,471
Sales		—		(190)
Unrealized gain (loss) included in comprehensive income		22		(444)
Balance at March 31, 2021 and March 31, 2020	$	20,148	$	19,182

~~($ In Thousands)~~

Table of Contents

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~~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, 2021 and December 31, 2020. The following tables present quantitative information about recurring Level 3 fair value measurements ~~(in~~($ in thousands):

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%


				Significant
	Fair		Valuation	Unobservable	Range of
Trust Preferred Securities	Value		Technique	Inputs	Inputs
March 31,2021	$	275	Discounted cash flow	Probability of default	1.02% - 2.43%
December 31, 2020	$	235	Discounted cash flow	Probability of default	1.08% - 2.48%


				Significant
	Fair		Valuation	Unobservable	Range of
Municipal Securities	Value		Technique	Inputs	Inputs
March 31, 2021	$	20,148	Discounted cash flow	Discount Rate	0.50% - 2.50%
December 31, 2020	$	20,126	Discounted cash flow	Discount Rate	0.50% - 2.45%

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 and applying 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 acquisition of the loan. Impaired loans are classified within Level 2 of the fair value hierarchy.

~~Other Real Estate Owned~~

Other real estate owned acquired through loan foreclosure is initially recorded at fair value less estimated costs to sell, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value, 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 non-interest expense. Operating costs associated with the assets 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 other non-interest expense. Other real estate owned measured at fair value on a non-recurring basis at September 30, 2017, amounted to $7.9 million. Other real estate owned is classified within Level 2 of the fair value hierarchy.

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, 2021 and December 31, ~~2016.~~2020.

March 31, 2021

~~($ In Thousands)~~

Fair Value Measurements Using

Quoted

Prices in

Active

Markets

Significant

For

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

($ in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)

Collateral dependent loans

378

Other real estate owned

5,769

~~September 30, 2017~~

December 31, ~~2016~~2020

			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)


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

Impaired loans	$	6,128	$	-	$	6,128	$	-	$	15,107	$	0	$	0	$	15,107
Other real estate owned		6,008		-		6,008		-		5,802		0		0		5,802

Table of Contents

NOTE 9 - SECURITIES

On January 1, 2021, the Company adopted ASC 326, which made changes to the accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity. In addition, ASC 326 requires financial assets measured at amortized cost, including held-to-maturity debt securities, to measure an expected credit loss under CECL methodology that requires consideration of a broader range of reasonable and supportable information to inform credit losses estimates. For further discussion on the Company's accounting policies and policy elections related to the accounting standard update refer to Note 3 "Accounting Standards" to the Consolidated Financial Statements for additional information.

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

Available-for-sale

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

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

●

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

●

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

●

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

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

Accrued interest receivable is excluded from the estimate of credit losses for securities AFS. At March 31, 2021, accrued interest receivable totaled $5.3 million for securities available-for-sale and was reported in interest receivable on the accompanying Consolidated Balance Sheet.

All AFS securities were current with 0 securities past due or on nonaccrual as of March 31, 2021.

Table of Contents

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


	March 31,2021
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Gains		Losses		Value
Available-for-sale securities:
U.S. Treasury	$	6,056	$	176	$	27	$	6,205
Obligations of U.S. government agencies and sponsored entities		124,614		1,908		121		126,401
Tax-exempt and taxable obligations of states and municipal subdivisions		508,285		12,319		4,072		516,532
Mortgage-backed securities - residential		281,453		7,365		1,180		287,638
Mortgage-backed securities - commercial		163,067		4,882		658		167,291
Corporate obligations		30,026		1,102		6		31,122
Total	$	1,113,501	$	27,752	$	6,064	$	1,135,189


	December 31, 2020
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Gains		Losses		Value
Available-for-sale securities:
U.S. Treasury	$	9,063	$	320	$	0	$	9,383
Obligations of U.S. government agencies sponsored entities		97,107		3,130		67		100,170
Tax-exempt and taxable obligations of states and municipal subdivisions		464,348		16,326		300		480,374
Mortgage-backed securities - residential		228,257		8,206		42		236,421
Mortgage-backed securities - commercial		158,784		6,087		60		164,811
Corporate obligations		30,063		976		16		31,023
Total	$	987,622	$	35,045	$	485	$	1,022,182

The amortized cost and fair value of debt securities at March 31, 2021 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.


	March 31,2021
	Available-for-Sale
	Amortized		Fair
($ in thousands)	Cost		Value

Due less than one year	$	40,821	$	41,113
Due after one year through five years		142,907		147,890
Due after five years through ten years		248,781		252,167
Due greater than ten years		236,472		239,090
Mortgage-backed securities - residential		281,453		287,638
Mortgage-backed securities - commercial		163,067		167,291
Total	$	1,113,501	$	1,135,189

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $759.9 million and $576.0 million at March 31, 2021 and December 31, 2020, respectively.

Table of Contents

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


	March 31,2021
	Losses < 12 Months				Losses 12 Months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury	$	1,056	$	27	$	0	$	0	$	1,056	$	27
Obligations of U.S government agencies and sponsored entities		15,607		119		298		2		15,905		121
Tax-exempt and taxable obligations of state and municipal subdivisions		157,690		3,686		4,926		386		162,616		4,072
Mortgage-backed securities - residential		104,641		1,173		517		7		105,158		1,180
Mortgage-backed securities - commercial		35,732		631		2,902		27		38,634		658
Corporate obligations		0		0		42		6		42		6
Total	$	314,726	$	5,636	$	8,685	$	428	$	323,411	$	6,064


	December 31, 2020
	Losses < 12 Months				Losses 12 Months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury	$	0	$	0	$	0	$	0	$	0	$	0
Obligations of U.S government agencies and sponsored entities		6,593		65		326		2		6,919		67
Tax-exempt and taxable obligations of state and municipal subdivisions		10,193		300		0		0		10,193		300
Mortgage-backed securities - residential		30,202		42		11		0		30,213		42
Mortgage-backed securities - commercial		10,134		29		3,596		31		13,730		60
Corporate obligations		5,217		8		40		8		5,257		16
Total	$	62,339	$	444	$	3,973	$	41	$	66,312	$	485

At March 31, 2021 and December 31, 2020, the Company’s securities portfolio consisted of 169 and 71 securities, respectively, which were in an unrealized loss position. Available-for-sale securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis. NaN allowance for credit losses for available-for-sale debt securities was needed at March 31, 2021. The Company did not consider these investments to be other-than-temporarily impaired at December 31, 2020.

NOTE 10 ~~- SECURITIES~~– LOANS

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

The ~~estimated fair value amounts~~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 ~~using available market information~~to share similar risk characteristics with respect to credit quality. Those four categories are commercial, financial and ~~valuation methodologies~~agriculture, commercial real estate, consumer real estate, consumer installment;

Table of Contents

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 ~~management believes~~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 ~~appropriate. However, considerable judgment~~grouped as such because repayment is ~~necessarily required~~mainly dependent upon either the sale of the real estate, operation of the business occupying the real estate, or refinance of the debt obligation. This includes both owner-occupied and non-owner occupied CRE secured loans, because they share similar risk characteristics related to ~~interpret market data~~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 ~~develop the estimates of fair value. Accordingly, the estimates presented herein~~individuals that are not ~~necessarily indicative~~for any purpose related to operation of a business, and not secured by real estate. Repayment on these loans is mostly dependent on personal income, which may be impacted by general economic conditions.

The composition of the ~~amounts that could be realized~~loan portfolio as of March 31, 2021 and December 31, 2020, is summarized below:


($ in thousands)	March 31, 2021		December 31, 2020
Loans held for sale
Mortgage loans held for sale	$	15,119	$	21,432
Total LHFS	$	15,119	$	21,432

Loans held for investment
Commercial, financial and agriculture (1)	$	550,500	$	579,443
Commercial real estate		1,633,667		1,652,993
Consumer real estate		832,327		850,206
Consumer installment		38,599		41,036
Total loans		3,055,093		3,123,678
Less allowance for credit losses		(32,663)		(35,820)
Net LHFI	$	3,022,430	$	3,087,858

(1)	^{Loan balance includes}^$221.7^{million and}^$239.7^{million in PPP loans as of March 31, 2021 and December 31, 2020, respectively.}

Accrued interest receivable is not included 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~~ the amortized cost ~~and estimated fair value of available-for-sale securities and held-to-maturity securities at September 30, 2017 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

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 the other types of earning assets, and, thus, one~~basis of the Company's ~~goals is~~LHFI. At March 31, 2021, accrued interest receivable for LHFI totaled $19.3 million with no related ACL and was reported in interest receivable on the accompanying consolidated balance sheet.

Nonaccrual and Past Due LHFI

Past due LHFI are loans contractually past due 30 days or more as to be the largest category of the Company's earning assets. For the quarters ended September 30, 2017 and December 31, 2016, average 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.

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.

Table of Contents

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

~~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


	March 31, 2021
									Total
	Past Due		Past Due						Past Due,
	30 to 89		90 Days or More and						Nonaccrual		Total		Nonaccrual and
($ in thousands)	Days		Still Accruing		Nonaccrual		PCD		and PCD		LHFI		PCD with No ACL
Commercial, financial and agriculture (1)	$	607	$	—	$	686	$	320	$	1,613	$	550,500	$	387
Commercial real estate		4,149		32		17,489		3,173		24,843		1,633,667		5,030
Consumer real estate		4,524		1,047		2,790		5,490		13,851		832,327		3,139
Consumer installment		309		—		30		3		342		38,599		—
Total	$	9,589	$	1,079	$	20,995	$	8,986	$	40,649	$	3,055,093	$	8,556

(1)

Total loan balance includes $221.7 million in PPP loans as of March 31, 2021.


	December 31,2020
			Past Due 90						Total
	Past Due		Days or						Past Due,
	30 to 89		More and Still						Nonaccrual		Total
($ in thousands)	Days		Accruing		Nonaccrual		PCI		and PCI		LHFI
Commercial, financial and agriculture (1)	$	1,007	$	244	$	2,197	$	221	$	3,669	$	579,443
Commercial real estate		2,116		1,553		19,499		3,388		26,556		1,652,993
Consumer real estate		5,389		895		2,480		5,954		14,718		850,206
Consumer installment		419		—		32		3		454		41,036
Total	$	8,931	$	2,692	$	24,208	$	9,566	$	45,397	$	3,123,678

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

Acquired Loans

~~December~~On January 1, 2021, the Company adopted ASC 326 and elected to account for its existing acquired PCI loans as PCD loans included within the LHFI portfolio. The Company elected to maintain segments of loans that were previously accounted for under ASC 310-30 and will continue to account for these segments as a unit of account unless the loan is collateral dependent. PCD loans that are collateral dependent will be assessed individually. Loans are only removed from the existing segments if they are written off, paid off, or sold. Upon adoption of ASC 326, the ACL was determined for each segment and added to the band's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the segment and the new amortized cost basis is the noncredit discount of approximately $685 thousand, which will be accreted into interest income over the remaining life of the segment. Changes to the ACL after adoption are recorded through provision expense. As of March 31, ~~2016~~2021, the amortized cost of the Company's PCD loans totaled $13.6 million, which had an estimated ACL of $1.2 million.

~~($ 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

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

The following table presents information regarding the contractually required payments receivable, cash flows expected to be collected and the estimated fair value of loans acquired in the BCB acquisition as of July 1, 2014, 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

any interest income recognized on these loans.

Total outstanding ~~acquired impaired~~PCI loans were ~~$2.1~~$13.1 million and the related purchase accounting discount was $3.6 million as of ~~September 30, 2017 and $2.2 million as of December~~March 31, ~~2016.~~2020. 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.

Table of Contents

Changes in the carrying amount and accretable yield for ~~acquired~~purchased credit impaired loans were as follows at ~~September 30, 2017 and December~~March 31, ~~2016:~~2020 ($ in thousands):


	Accretable
	Yield
Balance at beginning of period, January 1	$	3,417
Additions, including transfers from non-accretable		337
Accretion		(148)
Balance at end of period, March 30, 2020	$	3,606

~~($ 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

Impaired LHFI

Prior to the adoption of FASB ASC 326, the Company individually evaluated impaired LHFI. The following ~~tables provide additional~~table provides a detail of impaired loans broken out according to class as of ~~September 30, 2017 and~~ December 31, ~~2016.~~2020. The following table does not include PCI loans. The recorded investment included in the following ~~tables~~table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. ~~As nearly all of our impaired loans at September 30, 2017 are on nonaccrual status, recorded~~Recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.


							Average		Interest
							Recorded		Income
December 31, 2020	Recorded		Unpaid		Related		Investment		Recognized
($ in thousands)	Investment		Balance		Allowance		YTD		YTD
Impaired loans with no related allowance:
Commercial, financial and agriculture	$	—	$	—	$	—	$	198	$	—
Commercial real estate		5,884		6,087		—		11,433		47
Consumer real estate		712		758		—		790		5
Consumer installment		23		24		—		17		—
Total	$	6,619	$	6,869	$	—	$	12,438	$	52

Impaired loans with a related allowance:
Commercial, financial and agriculture	$	2,241	$	2,254	$	1,235	$	2,186	$	58
Commercial real estate		17,973		18,248		4,244		13,687		36
Consumer real estate		536		544		176		734		4
Consumer installment		26		26		14		86		—
Total	$	20,776	$	21,072	$	5,669	$	16,693	$	98

Total impaired loans:
Commercial, financial and agriculture	$	2,241	$	2,254	$	1,235	$	2,384	$	58
Commercial real estate		23,857		24,335		4,244		25,120		83
Consumer real estate		1,248		1,302		176		1,524		9
Consumer installment		49		50		14		103		—
Total Impaired Loans	$	27,395	$	27,941	$	5,669	$	29,131	$	150

~~September 30, 2017~~

~~($ In Thousands)~~

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

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

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

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

~~As of September 30, 2017,~~The cash basis interest earned in 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~~chart above is materially the same as the interest recognized during impairment for ~~which foreclosure proceedings are in process according to local jurisdictions.~~

the year ended December 31, ~~2016~~

~~($ In Thousands)~~

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

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

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

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

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

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

Total nonaccrual loans 4,852 3,264

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

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

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

Nine Months
Ended
Sept. 30, 2017

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

2020.

The gross interest income that would have been recorded in the period that ended if the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2020, was ~~$90,000 and $243,000, respectively.~~$377 thousand. The Company had no0 loan commitments to borrowers in ~~non-accrual~~nonaccrual status at ~~September 30, 2017 and~~March 31, 2020 or December 31, ~~2016.~~2020.

Table of Contents

Troubled Debt Restructurings

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 TDRs.

In response to the Coronavirus Disease 2019 (“COVID-19”) pandemic and its economic impact to its customers, the Company implemented a ~~troubled debt restructuring (“TDR”). The~~short-term modification program in accordance with interagency regulatory guidance to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due at the time of the modification. This program allowed for a deferral of payments for up two successive 90-day periods for a cumulative maximum of 180 days. Pursuant to interagency guidance, such short-term deferrals are not deemed to meet the criteria for reporting as TDRs. For borrowers requiring a longer-term modification following ~~tables provide detail of TDRs at Sept.~~the short-term loan modification program the Company worked with these borrowers whose loans were not more 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~~days past due at December 31, ~~2016, respectively, calculated for regulatory reporting purposes. There was $0.2 million allocated in specific reserves established with respect~~2019 and who required modification as a result of COVID-19 to ~~these~~modify such loans asunder Section 4013 of ~~September 30, 2017.~~ the Coronavirus Aid, Relief, and Economic Security (“CARES Act”).

As of ~~September 30, 2017,~~March 31, 2021, and December 31, 2020, the Company had noTDRs totaling $23.1 million and $27.5 million. As of March 31, 2021, the Company had 0 additional amount committed on any loan classified as TDR. As of March 31, 2021, TDRs had a related ACL of $2.7 million, compared to a related allowance for loan loss of $2.4 million at March 31, 2020, and resulting in 0 charge-offs for the three months ended March 31, 2021 and 2020.

The were no TDRs added during the three months ended March 31, 2021. The following table presents LHFI by class modified as TDR that occurred during the three months ended March 31, 2020 ($ in thousands, except for number of loans).


	Three Months Ended March 31, 2020
		Outstanding		Outstanding
		Recorded		Recorded
	Number of	Investment		Investment
	Loans	Pre-Modification		Post-Modification
Commercial, financial and agriculture	1	$	12	$	12
Commercial real estate	2		738		734
Consumer real estate	—		—		—
Consumer installment	—		—		—
Total	3	$	750	$	746

The TDRs presented above increased the allowance for credit losses $37 thousand for the three month period ended March 31, 2020 and resulted in 0 charge-offs for the three months period ended March 31, 2020.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification ($ in thousands, except for number of loans).


	Three Months Ended March 31,
	2021			2020
Troubled Debt Restructurings	Number of	Recorded		Number of	Recorded
That Subsequently Defaulted:	Loans	Investment		Loans	Investment

Commercial, financial and agriculture	—	$	—	10	$	15,841
Commercial real estate	3		1,065	—		—
Total	3	$	1,065	10	$	15,841

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 $89 thousand and the allowance for loan losses $2.9 million and resulted in no charge-offs for the three months period ended March 31, 2021 and 2020, respectively.

Table of Contents

The following tables ~~set forth~~represents the ~~amounts and past due status for the Bank~~Company’s TDRs at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016:~~2020:


					Past Due 90
March 31, 2021	Current		Past Due		days and still
($ in thousands)	Loans		30‑89		accruing		Nonaccrual		Total
Commercial, financial and agriculture	$	48	$	—	$	—	$	674	$	722
Commercial real estate		4,371		—		—		14,480		18,851
Consumer real estate		1,374		—		269		1,868		3,511
Consumer installment		23		—		—		—		23
Total	$	5,816	$	—	$	269	$	17,022	$	23,107
Allowance for credit losses	$	71	$	—	$	—	$	2,658	$	2,729


					Past Due 90
December 31, 2020	Current		Past Due		days and still
($ in thousands)	Loans		30‑89		accruing		Nonaccrual		Total
Commercial, financial and agriculture	$	59	$	—	$	—	$	765	$	824
Commercial real estate		4,560		49		—		18,076		22,685
Consumer real estate		1,559		269		—		2,161		3,989
Consumer installment		23		3		—		—		26
Total	$	6,201	$	321	$	—	$	21,002	$	27,524
Allowance for loan losses	$	163	$	29	$	—	$	3,936	$	4,128

~~($ In Thousands)~~Collateral Dependent Loans

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

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


March 31, 2021	Real Property		Equipment		Miscellaneous		Total
Commercial, financial and agriculture	$	—	$	742	$	—	$	742
Commercial real estate		5,126		—		—		5,126
Consumer real estate		4,282		—		—		4,282
Consumer installment		—		—		2		2
Total	$	9,408	$	742	$	2	$	10,152

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:

25●

Commercial, financial and agriculture – Loans within these loan classes are secured by equipment, inventory accounts, and other non-real estate collateral. There have been no significant changes to the collateral that secures these financial assets during the period.

●

Commercial real estate – Loans within these loan classes are secured by commercial real property. There have been no significant changes to the collateral that secures these financial assets during the period.

●

Consumer real estate - Loans within these loan classes are secured by consumer real property. There have been no significant changes to the collateral that secures these financial assets during the period.

●

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.

Table of Contents

Loan Participations

~~($ 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

The Company has loan participations, which qualify as participating interest, with other financial institutions. As of March 31, 2021, these loans totaled $124.7 million, of which $80.4 million had been sold to other financial institutions and $44.3 million was retained 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 assets unless all participating interest holders agree.

~~Internal Risk Ratings~~

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 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~~

Table of Contents

The tables below present the ~~criteria above that are analyzed individually~~amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed. Revolving loans converted to term as ~~part~~ of the ~~above described process are considered~~three months ended March 31, 2021 were not material to ~~be pass rated loans.~~the total loan portfolio.


($ in thousands)	Term Loans Amortized Cost Basis by Origination Year
													Revolving
As of March 31, 2021	2021		2020		2019		2018		2017		Prior		Loans		Total
Commercial, financial and:
agriculture
Risk Rating
Pass	$	99,367	$	208,119	$	69,541	$	66,216	$	32,346	$	53,959	$	120	$	529,668
Special mention		—		280		372		475		435		281		—		1,843
Substandard		—		431		1,910		6,822		616		8,723		10		18,512
Doubtful		—		—		477		—		—		—		—		477
Total commercial, financial
and agriculture	$	99,367	$	208,830	$	72,300	$	73,513	$	33,397	$	62,963	$	130	$	550,500

Commercial real estate:
Risk Rating
Pass	$	70,345	$	360,501	$	249,355	$	249,204	$	176,571	$	413,356	$	—	$	1,519,332
Special mention		—		3,119		1,864		9,848		12,445		23,928		—		51,204
Substandard		—		4,794		3,274		14,266		12,183		28,614		—		63,131
Doubtful		—		—		—		—		—		—		—		—
Total commercial real estate	$	70,345	$	368,414	$	254,493	$	273,318	$	201,199	$	465,898	$	—	$	1,633,667

Consumer real estate:
Risk Rating
Pass	$	44,661	$	224,446	$	96,559	$	92,227	$	78,523	$	168,617	$	95,090	$	800,123
Special mention		—		—		1,149		1,602		643		2,901		521		6,816
Substandard		—		933		1,469		3,657		1,805		15,696		1,806		25,366
Doubtful		—		—		—		—		—		22		—		22
Total consumer real estate	$	44,661	$	225,379	$	99,177	$	97,486	$	80,971	$	187,236	$	97,417	$	832,327

Consumer installment:
Risk Rating
Pass	$	3,836	$	15,221	$	7,986	$	3,391	$	1,855	$	2,459	$	3,728	$	38,476
Special mention		—		—		—		10		4		2		—		16
Substandard		—		6		28		3		19		50		1		107
Doubtful		—		—		—		—		—		—		—		—
Total consumer installment	$	3,836	$	15,227	$	8,014	$	3,404	$	1,878	$	2,511	$	3,729	$	38,599

Total
Pass	$	218,209	$	808,287	$	423,441	$	411,038	$	289,295	$	638,391	$	98,938	$	2,887,599
Special mention		—		3,399		3,385		11,935		13,527		27,112		521		59,879
Substandard		—		6,164		6,681		24,748		14,623		53,083		1,817		107,116
Doubtful		—		—		477		—		—		22		—		499
Total	$	218,209	$	817,850	$	433,984	$	447,721	$	317,445	$	718,608	$	101,276	$	3,055,093

AsTable of ~~September 30, 2017 and~~Contents

At December 31, ~~2016,~~2020, and based on the most recent analysis performed, the risk ~~categories~~category of loans by class of loans (excluding mortgage loans held for sale) ~~were~~was as follows:


	Commercial,
December 31, 2020	Financial and		Commercial		Consumer		Consumer
($ in thousands)	Agriculture		Real Estate		Real Estate		Installment		Total
Pass	$	563,772	$	1,530,366	$	834,920	$	40,884	$	2,969,942
Special Mention		2,143		64,012		1,889		20		68,064
Substandard		11,875		66,535		13,397		132		91,939
Doubtful		1,653		23		—		—		1,676
Subtotal	$	579,443	$	1,660,936	$	850,206	$	41,036	$	3,131,621
Less: Unearned discount		—		7,943		—		—		7,943

LHFI, net of unearned discount	$	579,443	$	1,652,993	$	850,206	$	41,036	$	3,123,678

~~September 30, 2017~~Allowance for Credit Losses (ACL)

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

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~~The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 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 in~~2021 and the allowance for loan losses for the ~~period was~~three months ended March 31, 2020:


	Three months ended March 31, 2021
	Commercial,
	Financial and		Commercial		Consumer		Consumer
($ in thousands)	Agriculture		Real Estate		Real Estate		Installment		Total
Allowance for credit losses:
Beginning balance	$	6,214	$	24,319	$	4,736	$	551	$	35,820
Impact of ASC 326 adoption on non-PCD loans		(1,319)		(4,607)		5,257		(49)		(718)
Impact of ASC 326 adoption on PCD loans		166		575		372		2		1,115
Provision for credit losses		—		—		—		—		—
Loans charged-off		(986)		(2,841)		(139)		(157)		(4,123)
Recoveries		83		132		54		300		569
Total ending allowance balance	$	4,158	$	17,578	$	10,280	$	647	$	32,663


	Three months ended March 31, 2020
	Commercial,		Commercial		Consumer
	Financial and		Real		Real		Consumer
($ in thousands)	Agriculture		Estate		Estate		Installment		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	3,043	$	8,836	$	1,694	$	296	$	39	$	13,908
Provision for loan losses		1,446		4,523		1,106		66		(39)		7,102
Loans charged-off		(99)		(333)		(9)		(59)		—		(500)
Recoveries		76		69		49		100		—		294
Total ending allowance balance	$	4,466	$	13,095	$	2,840	$	403	$	—	$	20,804

Table of Contents

The following table provides the ending balance in the Company’s LHFI and the ACL, broken down by portfolio segment as ~~follows:~~of March 31, 2021 ($ in thousands).

($ 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


	Commercial,		Commercial		Consumer
	Financial and		Real		Real		Consumer
March 31, 2021	Agriculture		Estate		Estate		Installment		Total
LHFI							��
Individually evaluated	$	742	$	5,126	$	4,282	$	2	$	10,152
Collectively evaluated		549,758		1,628,541		828,045		38,597		3,044,941
Total	$	550,500	$	1,633,667	$	832,327	$	38,599	$	3,055,093

Allowance for Credit Losses
Individually evaluated	$	199	$	5	$	75	$	2	$	281
Collectively evaluated		3,959		17,573		10,205		645		32,382
Total	$	4,158	$	17,578	$	10,280	$	647	$	32,663

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 the allowance for loan losses, broken down by portfolio segment as of ~~September 30, 2017 and~~ December 31, ~~2016.~~ 2020 ($ in thousands).


	Commercial,
	Financial and		Commercial		Consumer		Consumer
December 31, 2020	Agriculture		Real Estate		Real Estate		Installment		Total
LHFI
Individually evaluated	$	2,241	$	23,857	$	1,248	$	49	$	27,395
Collectively evaluated		574,152		1,971,292		494,833		41,498		3,081,775
PCI Loans		244		9,056		5,185		23		14,508
Total	$	576,637	$	2,004,205	$	501,266	$	41,570	$	3,123,678

Allowance for Loan Losses
Individually evaluated	$	1,235	$	4,244	$	176	$	14	$	5,669
Collectively evaluated		4,979		20,075		4,560		537		30,151
Total	$	6,214	$	24,319	$	4,736	$	551	$	35,820

NOTE 11 – COVID-19 UPDATE

The ~~tables also provide~~COVID-19 pandemic continues to have significant effects on global markets, supply chains, businesses and communities. COVID-19 could potentially impact the Company’s future financial condition and results of operations including but not limited to additional ~~detail as~~credit loss reserves, additional collateral and/or modifications to debt obligations, liquidity, limited dividend payouts or potential shortages of personnel. Management continues to take appropriate actions to mitigate the negative impact the virus has on the Company, including restricting employee travel, directing employees to work remotely, cancelling in-person meetings and implementing our business continuity plans and protocols to the ~~amount~~extent necessary.

The pandemic is having an adverse impact on certain industries the Company serves, including hotels, restaurants, retail, and direct energy. As of March 31,2021, the Company’s aggregate outstanding exposure in these segments was $436.5 million, and total loan modifications resulting from COVID-19 were approximately $45.7 million. While it is still not yet possible to know the full effect that the pandemic will have on the economy, or to what extent this crisis will impact the Company, all available current industry statistics and internal monitoring of loan repayment ability and payment forgiveness across the portfolio has been analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration.

Despite recent improvements in certain economic indicators, significant constraints to commerce remain in place, and significant uncertainty remains over the timing and scope of additional government stimulus packages, and the economic impact resulting from the outcome of the November 2020 elections. The duration and extent of the downturn and speed of the related recovery on our ~~loans~~business, customers, and ~~allowance that correspond to individual versus collective impairment evaluation. The impairment evaluation corresponds~~the economy as a whole remains uncertain. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the ~~Company's systematic methodology for estimating its Allowance for Loan Losses. See Item No. 2 – “Management’s Discussion and Analysis~~Company. It is reasonably possible that

Table of ~~Financial Condition and Results of Operations – Provision for Loan and Lease Losses” for a description of our methodology.~~Contents

~~September 30, 2017~~

~~(In thousands)~~

Installment Financial
Real Estate
and
Other

and
Agriculture
Total

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

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

~~December 31, 2016~~

~~(In thousands)~~

Commercial,
Installment Financial
Real Estate and
Other and
Agriculture Total

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

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

~~NOTE 12 – SUBSEQUENT EVENTS/OTHER~~

~~Subsequent events have been evaluated by management through the date~~estimates made in the financial statements ~~were issued.~~

~~On October 24, 2017,~~could be materially and adversely impacted in the ~~Company entered into an Agreement and Plan~~near term as a result of ~~Merger (the “Merger Agreement”) with Southwest Banc Shares, Inc., an Alabama corporation (“Southwest”), whereby Southwest will be merged with and into~~these conditions, including the Company. Pursuant to and simultaneously with entering into 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. At September 30, 2017, First Community Bank had total assets of approximately $391.6 million.

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 portiondetermination of the ~~purchase price~~allowance for ~~the Company’s previously announced acquisition~~credit losses, fair value of ~~Southwest, to fund~~financial instruments, impairment of goodwill and other ~~potential future acquisitions,~~intangible assets and ~~for general corporate purposes, including the repayment of debt and to support organic growth.~~income taxes.

NOTE 1312 – RECLASSIFICATION

Certain amounts in the ~~2016~~2020 financial statements have been reclassified for comparative purposes to conform to the current period financial statement presentation.

Table of Contents

~~PART I - FINANCIAL INFORMATION~~

ITEM ~~NO. 2~~

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

FORWARD LOOKING STATEMENTS

~~This Quarterly~~Certain statements made or incorporated by reference in this Report ~~on Form 10-Q contains~~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. The most recent factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the negative impact of COVID-19 pandemic on our financial statements, including our ability to continue our business activities in certain communities we serve, the duration of the pandemic and its continued effects on financial markets, a reduction in financial transaction and business activities resulting in decreased deposits and reduced loan originations, increases in unemployment rates impacting our borrowers’ ability to repay their loans, our ability to manage liquidity in a rapidly changing and unpredictable market, additional interest rate changes by the Federal Reserve and other government actions in response to the pandemic including additional quarantines, regulations or laws enacted to counter the effects of the COVID-19 pandemic on the economy. 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 financial institutions increasing significantly; economic conditions, either nationally or locally, in areas in which the Company conducts operations being less favorable than expected; legislation or regulatory changes which adversely affect the ability of the consolidated Company to conduct business combinations or new operations; and risks related to, the ~~proposed acquisition~~following:

●

the negative impacts and disruptions resulting from the outbreak of COVID-19 on the economies and communities we serve, which has had and may continue to have an adverse impact on our business operations and performance, and could have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically;

●

government or regulatory responses to the COVID-19 pandemic;

●

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 interest rates, increasing unemployment, or changes in payment behavior or other factors;

●

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

●

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

Table of ~~Southwest Banc Shares, Inc., including the risk~~Contents

●

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;

●

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

●

changes in political conditions or the legislative or regulatory environment;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

risks and uncertainties relating to not successfully closing and integrating the currently contemplated or completed acquisitions within our currently expected timeframe and other terms;

●

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

●

changes in the securities markets;

●

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 conditions and inflation;

●

changes in technology or risks to cybersecurity;

●

changes in deposit flows;

●

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

Table of Contents

●

our ability to maintain adequate internal control over financial reporting;

●

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

●

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

We have based our forward-looking statements on our current expectations about future events. Although we believe that the 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, 2020 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.

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’sManagement's Discussion and Analysis of Financial Condition and Results of ~~Operations;~~Operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgements that affect the ~~valuation~~reported amounts of ~~impaired loans~~assets, liabilities, revenues and ~~foreclosed assets, as~~expenses. Accounting policies considered critical to our financial results include the allowance for credit losses and related provision, income taxes, goodwill and business combinations. The most critical of these is the accounting policy related to the allowance for credit losses. The allowance is based in large measure upon management's evaluation of borrowers' abilities to make loan payments, local and national economic conditions, and other subjective factors. If any of these factors were to deteriorate, management would update its estimates and judgments which may require additional loss provisions. The Company's critical accounting policies are discussed in detail in Note 11B "Summary of Significant Accounting Policies" in the "Notes to the Consolidated Financial ~~Statements; income taxes~~Statements" contained in Item 8 "Financial Statements and ~~deferred tax assets and liabilities, especially with regard~~Supplementary Data" of the Company's 2020 Form 10-K.

On January 1, 2021, the Company adopted FASB ASU 2016-13, which changes the accounting for the allowance for credit losses. For a discussion of this new accounting policy, refer to Note 3 "Accounting Standards" to the ~~ability~~Consolidated Financial Statements.

As a result of the Company’s immediate response to COVID-19, including loan modifications/payment deferral programs and the Paycheck Protection Program, the Company has elected to ~~recover deferred tax assets~~temporarily suspend the application of one provision of U.S. Generally Accepted Accounting Principles (“GAAP”), as ~~discussed~~allowed by the CARES Act, which was signed into law by the President on March 27, 2020. Sections 4013 and 4014 of the CARES Act provides the Company with temporary relief from troubled debt restructurings, which the Company believes prudent to elect in these challenging times to allow us time to provide consistent, high-quality financial information to our investors and other stakeholders.

CORONAVIRUS (COVID-19) IMPACT

In March 2020, the World Health Organization recognized the novel Coronavirus Disease 2019 as a pandemic. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the ~~“Provision~~United States and globally. In response to the outbreak, federal and state authorities in the U.S. introduced various measures to try to limit or slow the spread of the virus, including travel restrictions, nonessential business closures, stay-at-home orders, and strict social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for ~~Income Taxes”~~the foreseeable future. These disruptions may result in a decline in demand for banking products or services, including loans and ~~“Other Assets” sections~~deposits, which could impact our future financial condition, result of operations and liquidity. The impacts of the COVID-19 pandemic on the economy and the banking industry are rapidly evolving and the future effects are unknown at this time. The Company is working to adapt to the changing environment and proactively plan for contingencies. To that end, the Company has and is taking steps to protect the health of our employees and to work with our customers experiencing difficulties as a result of this ~~Item No. 2 – Management’s Discussion~~virus. The Company has many non-branch personnel working remotely. All of our branches are open, and ~~Analysis~~we are servicing our clients

Table of ~~Financial Condition~~Contents

with limited lobby access by appointment only. We have also been working through loan modifications and ~~Results~~payment deferral programs to assist affected customers, and have increased our allowance for loan and lease losses.

The pandemic is having an adverse impact on certain industries the Company serves, including hotels, restaurants, retail, and direct energy. As of ~~Operations;~~March 31, 2021, the Company’s aggregate outstanding exposure in these segments was $436.5 million, or 14.3% of total loans. While it is not yet possible to know the full effect that the pandemic will have on the economy, or to what extent this crisis will impact the Company, all available current industry statistics and ~~goodwill~~internal monitoring of loan repayment ability and payment forgiveness across the portfolio has been analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration. This analysis of the possibility of increasing credit losses resulted in the need for a higher provision expense to provide the required allowance reserve for this situation.

On March 27, 2020, the CARES Act was signed into law. The CARES Act is a $2 trillion stimulus package that is intended to provide relief to U.S. businesses and consumers struggling as a result of the pandemic. A provision in the CARES Act includes a $349 billion fund for the creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll deductions evidencing their compliant use of funds and otherwise complying with the terms of the program. The PPP was amended in April to include an additional $320 billion in funding. On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) that amends the CARES Act. The PPPFA extended the covered period in which to use PPP loans, extended the forgiveness period from eight weeks to a maximum of 24 weeks and increased flexibility for small businesses that have had issues with rehiring employees and attempting to fill vacant positions due to COVID-19. The program reduced the proportion of proceeds that must be spent on payroll costs from 75% to 60%. In addition, the PPPFA also extended the payment deferral period for the PPP loans until the date when the amount of loan forgiveness is determined and remitted to the lender. For PPP recipients who do not apply for forgiveness, the loan deferral period is 10 months after the applicable forgiveness period ends.

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

On December 27, 2020, President Trump signed into law the CAA. The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for ~~impairment~~eligible businesses. In January 2021, we opened the lending portal and ~~for which~~started processing second draw PPP loan applications.

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARP”) was signed into law. The $1.9 trillion stimulus aid package builds upon many measures in the CARES Act from March 2020, and in the CAA from December 2020.

As of March 31, 2021, we have ~~determined~~modified approximately 1,638 loans for $626.7 million, of which 1,384 loans for $436.8 million were modified to defer monthly principal and interest payments and 254 loans for $189.9 million were modified from monthly principal and interest payments to interest only.At March 31, 2021, there were approximately 29 loans for $35.4 million that ~~no impairment exists, as discussed in~~were modified to defer principal and interest payments and approximately 4 loans for $10.3 million that were modified from monthly principal and interest payments to interest only that were outstanding. As of March 31, 2021, we have approximately 2,591 PPP loans approved through the ~~“Other Assets” section~~SBA for $221.7 million outstanding.

Table 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.Contents

OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS SUMMARY

~~Third~~First quarter ~~2017~~2021 compared to ~~third~~first quarter ~~2016~~

2020

The Company reported net income available to common shareholders of ~~$4.7~~$16.6 million for the three months ended ~~September 30, 2017,~~March 31, 2021, compared with net income available to common shareholders of ~~$2.5~~$8.3 million for the same period last ~~year.~~year, an increase of $8.3 million or 100.3%. In comparing the quarters, an increase in net income available to common shareholders was largely attributed to a decrease in provision for credit losses expense in the amount of $7.1 million. The Company recorded $0 in provision for credit losses expense for the first quarter 2021 and recorded $7.1 million for the first quarter 2020. For the first quarter of 2021, fully diluted earnings per share were $0.79, compared to $0.44 for the first quarter of 2020.

Operating net earnings, a non-GAAP financial measure, for the first quarter of 2021 totaled $16.6 million compared to $8.9 million for the first quarter of 2020, an increase of $7.7 million or 86.5%. Operating net earnings, which is a non-GAAP financial measure,for the first quarter of 2020 excludes merger-related costs of $576 thousand, net of tax. Operating earnings per share were $0.79 on a fully diluted basis for the first quarter 2021, compared to $0.47 for the same period in 2020, excluding the merger-related costs and income described above. See reconciliation of non-GAAP financial measures provided below.

Net interest income increased to ~~$14.9~~$39.2 million, or ~~48.4%~~15.2%, for the three months ended ~~September 30, 2017,~~March 31, 2021, compared to ~~$10.1~~$34.1 million for the same period in ~~2016. Quarterly average earning assets at September 30, 2017,~~2020. The increase was due to interest income earned on a higher volume of loans. Fully tax equivalent ("FTE") net interest income, which is a non-GAAP measure, totaled $39.9 million and $34.5 million for the first quarter of 2021 and 2020, respectively. FTE net interest income, which is a non-GAAP measure, increased ~~$486.2~~$5.4 million ~~or 43.7% and~~in the prior year quarterly ~~average interest-bearing liabilities~~comparison due to increased ~~$368.7~~loan volume. Purchase accounting adjustments decreased $1.2 million ~~or 39.9% when~~for the first quarter comparisons. First quarter 2021 FTE net interest margin, which is a non-GAAP measure, of 3.34% included 9 basis points related to purchase accounting adjustments compared to ~~September 30, 2016.~~3.93% for the same quarter in 2020, which included 28 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the net interest margin decreased 40 basis points in prior year quarterly comparison.See reconciliation of non-GAAP financial measures provided below.

~~Noninterest~~Non-interest income for the three months ended ~~September 30, 2017,~~March 31, 2021 was ~~$3.7~~$9.5 million compared to ~~$3.1~~$6.5 million for the same period in ~~2016,~~2020, reflecting an increase of ~~$0.6~~$3.0 million or ~~18.0%~~46.3%. ~~This~~Mortgage income increased $1.6 million in prior year quarterly comparison primarily due to an increase in mortgage loan volume.

Pre-tax, pre-provision operating earnings, a non-GAAP measure, excludes acquisition charges, increased 20.2% to $21.4 million for the quarter-ended March 31, 2021 as compared to $17.8 million for the first quarter of 2020. See reconciliation of non-GAAP financial measures provided below.

Non-interest expense was ~~composed of increases in service charges and interchange fee income.~~

~~The provision for loan losses was $90,000~~$27.3 million for the three months ended ~~September 30, 2017, compared with $143,000 for the same period in 2016. The allowance for loan losses~~March 31, 2021, 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 $2.5~~$3.8 million or ~~26.3% for the three months ended September 30, 2017,~~16.3%, when compared with the same period in ~~2016. The largest increase was related to salaries and benefits~~2020. Excluding the net decrease in acquisition charges of ~~$1.7~~$740 thousand for the quarterly comparison, non-interest expense increased $4.6 million in the first quarter of 2021, of which ~~$1.4~~$2.0 million was attributable to ~~increased employment associated with~~ the ~~acquisitions~~operation of ~~Iberville and GCCB.~~

~~First nine months of 2017~~SWG, as compared to first ~~nine months~~quarter of ~~2016~~2020.

Investment securities totaled $1.157 billion, or 21.3% of total assets at March 31, 2021, versus $788.9 million, or 19.4% of total assets at March 31, 2020. The average balance of investment securities increased $282.1 million in prior year quarterly comparison, mostly as a result of the acquisition of SWG. The average tax equivalent yield on investment securities decreased 62 basis points to 2.32% from 2.94% in prior year quarterly comparison. The investment portfolio had a net unrealized gain of $21.7 million at March 31, 2021 as compared to a net unrealized gain of $21.4 million at March 31, 2020.

The ~~Company reported net income available to common shareholders of $8.2 million~~FTE average yield on all earning assets, a non-GAAP measure, decreased 94 basis points in prior year quarterly comparison, from 4.78% for the ~~nine months ended September 30, 2017, compared with net income available~~first quarter of 2020 to ~~common shareholders of $7.8 million~~3.84% for the ~~same period last year. After tax merger related costs~~first quarter of ~~$3.9 million were expensed during~~2021. Average interest expense decreased 38 basis points from 0.92% for the first ~~nine months~~quarter of ~~2017.~~

~~Net interest income increased~~2020 to ~~$43.9 million or 48.5%~~0.54% for the ~~nine months ended September 30, 2017,~~first quarter of 2021. Cost of all deposits averaged 36 basis points for the first quarter of 2021 compared to ~~$29.6 million~~76 basis points for the ~~same period in 2016. Average earning assets at September 30, 2017, increased $461.3 million, or 42.1% and average interest-bearing liabilities increased $360.0 million or 39.6% when compared to the~~ first ~~nine months~~quarter of ~~2016.~~

~~Noninterest income for the nine months ended September 30, 2017, was $10.8 compared to $8.5 million for the same period in 2016, reflecting an increase~~2020. See reconciliation of ~~$2.3 million or 26.5%. This increase consists of $0.2 million of increased mortgage income, increased service charges of $0.8 million and increased interchange fee income of $0.8 million.~~non-GAAP financial measures provided below.

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

~~Noninterest expense increased by $16.3 million or 61.1% for the nine months ended September 30, 2017, when compared with the same period in 2016. $6.9 million~~Table of ~~the increase was attributable to salaries and benefits, of which $5.4 million relates to the acquisition, and also includes $6.3 million in one-time merger related charges.~~Contents

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~~$5.435 billion at ~~September 30, 2017~~March 31, 2021 compared to ~~$1.3~~$5.145 billion at December 31, ~~2016,~~2020, an increase of ~~$0.5 billion.~~$291.4 million. Loans, ~~increased $331.1~~including loans held for sale, decreased $71.7 million to ~~$1.2~~$3.038 billion, or ~~38.2%~~2.3%, during the first ~~nine~~three months of ~~2017.~~2021. Deposits at ~~September 30, 2017,~~March 31, 2021 totaled ~~$1.5~~$4.676 billion compared to ~~$1.0~~$4.283 billion at December 31, 2016. The First acquired loans of $237.3 million and deposits of $355.6 million as a result of the acquisitions of Iberville and GCCB during the first quarter of 2017. See Note 4 – Business Combinations.

2020.

For the ~~nine month~~three months period ended ~~September 30, 2017,~~March 31, 2021, The First reported net income of ~~$9.7~~$18.7 million compared to ~~$8.7~~$10.1 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2020. Merger charges, net of tax, equaled ~~$3.4 million~~$0 for the first ~~nine~~three months of ~~2017.~~

~~NONPERFORMING ASSETS AND RISK ELEMENTS~~

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

~~At September 30, 2017, The First had loans past due~~2021 as ~~follows:~~

($ In Thousands)

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

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

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

A loan is classified as a restructured loan when the following two conditions are present: First, the borrower is experiencing financial difficulty and second, the creditor grants a concession it would not otherwise consider but$576 thousand 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.~~2020.

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 interest income increased by ~~$4.9~~$5.2 million, or ~~48.4%~~15.2%, for the ~~third~~first quarter of ~~2017~~2021 relative to the ~~third~~first quarter of ~~2016.~~2020. The increase was due to interest income earned on a higher volume of loans and approximately $3.9 million in fees earned on PPP loans. 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.

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.

Table of Contents

Average Balances, Tax Equivalent Interest and Yields/Rates

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 %


($ in thousands)	Three Months Ended
	March 31,2021						March 31,2020
			Tax						Tax
	Avg.		Equivalent		Yield/		Avg.		Equivalent		Yield/
	Balance		interest		Rate		Balance		interest		Rate
Earning Assets:
Taxable securities	$	699,585	$	3,591	2.05	%	$	560,613	$	3,944	2.81	%
Tax exempt securities		367,322		2,590	2.82	%		224,212		1,821	3.25	%
Total investment securities		1,066,907		6,181	2.32	%		784,825		5,765	2.94	%
Interest bearing deposits in other banks		614,283		48	0.03	%		129,978		289	0.89	%
Loans		3,097,145		39,613	5.12	%		2,602,340		36,005	5.53	%
Total earning assets		4,778,335		45,842	3.84	%		3,517,143		42,059	4.78	%
Other assets		558,929						473,350
Total assets	$	5,337,264					$	3,990,493

Interest-bearing liabilities:
Deposits	$	4,172,326	$	3,849	0.37	%	$	3,042,529	$	5,413	0.71	%
Borrowed funds		100,143		288	1.15	%		145,267		917	2.53	%
Subordinated debentures		144,590		1,821	5.04	%		80,697		1,203	5.96	%
Total interest-bearing liabilities		4,417,059		5,958	0.54	%		3,268,493		7,533	0.92	%
Other liabilities		275,282						174,691
Shareholders’ equity		644,923						547,309
Total liabilities and shareholders’ equity	$	5,337,264					$	3,990,493

Net interest income			$	39,229					$	34,065
Net interest margin					3.28	%					3.87	%
Net interest income (FTE)*			$	39,884	3.30	%			$	34,526	3.86	%
Net interest margin (FTE)*					3.34	%					3.93	%

*See reconciliation of Non-GAAP financial measures.

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

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

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

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

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

*See reconciliationTable of ~~Non-GAAP financial measures.~~Contents

~~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 %

~~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~~Company's non-interest income and non-interest expense for the three ~~month~~months ended March 30, 2021 and ~~nine month period ended September 30, 2017 and 2016:~~2020:

($ In Thousands)	Three Months Ended										Nine Months Ended

($ in thousands)																					Three Months Ended
EARNINGS STATEMENT	9/30/17		% of Total			9/30/16		% of Total			9/30/17		% of Total			9/30/16		% of Total			3/31/21		% of Total		3/31/20		% of Total
Non-interest income:
Service charges on deposit accounts	$	902		24.7	%	$	606		19.6	%	$	2,692		24.9	%	$	1,847		21.6	%	$	1,761	18.6	%	$	1,914	29.6	%
Mortgage income		1,276		34.9	%		1,399		45.1	%		3,400		31.5	%		3,228		37.8	%
Mortgage fee income																						3,162	33.4	%		1,567	24.2	%
Interchange fee income		935		25.6	%		666		21.5	%		2,797		25.9	%		1,991		23.3	%		2,644	27.9	%		1,986	30.6	%
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	%
Gain on securities, net																						20	0.2	%		174	2.7	%
Loss on sale of premises and equipment																						(4)	0.0	%		(8)	(0.1)	%
Other																						1,889	19.9	%		841	13.0	%
Total non-interest income	$	3,658		100	%	$	3,099		100	%	$	10,807		100	%	$	8,542		100	%	$	9,472	100	%	$	6,474	100	%


Non-interest expense:
Salaries and employee benefits	$	7,327		61.6	%	$	5,645		60.0	%	$	22,577		52.4	%	$	16,194		60.6	%	$	16,054	58.9	%	$	13,228	56.4	%
Occupancy expense		1,390		11.7	%		1,209		12.8	%		4,108		9.5	%		3,392		12.7	%		3,879	14.2	%		2,918	12.5	%
FDIC premiums		355		3.0	%		254		2.7	%		887		2.1	%		755		2.8	%		494	1.8	%		147	0.6	%
Marketing		50		0.4	%		76		0.8	%		218		0.5	%		280		1.0	%		160	0.6	%		213	0.9	%
Amortization of core deposit intangibles		160		1.3	%		100		1.1	%		491		1.1	%		294		1.1	%		1,052	3.9	%		938	4.0	%
Other professional services		320		2.7	%		461		4.9	%		1,201		2.8	%		1,013		3.8	%		934	3.4	%		874	3.7	%
Other non-interest expense		2,238		18.8	%		1,671		17.7	%		7,247		16.8	%		4,802		18.0	%		4,691	17.2	%		4,381	18.7	%
Acquisition and integration charges		48		0.5	%		-		-			6,327		14.8	%		-		-			—	0.0	%		740	3.2	%
Total non-interest expense	$	11,888		100	%	$	9,416		100	%	$	43,056		100	%	$	26,730		100	%	$	27,264	100	%	$	23,439	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.

~~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~~Company's provision for income taxes was ~~$3.1~~$4.8 million or 22.4% of earnings before income taxes for the ~~year through September 30, 2017, and remained unchanged when~~first quarter 2021, compared to $1.7 million or 16.9% of earnings before income taxes for the same period in 2020. The effective tax rate for 2020 includes any provisions related to the CARES Act that was signed into law on March 27, 2020. The CARES Act includes several significant provisions for corporations including increasing the amount of ~~2016.~~deductible interest under section 163(j) of the Internal Revenue Code of 1986, as amended, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss that corporations can use to offset income.

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.

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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,~~$1.135 billion, or ~~20.1%~~20.8% of total assets at ~~September 30, 2017,~~March 31, 2021 compared to ~~$249.2 million,~~$1.022 billion, or ~~19.5%~~19.8% of total assets at December 31,~~2016~~. 2020.

~~We had~~There were no ~~fed~~federal funds sold at ~~September 30, 2017~~March 31, 2021 and ~~$0.4 million of fed funds sold at~~ December 31, ~~2016;~~2020; and interest-bearing balances at other banks ~~decreased~~increased to ~~$29.6~~$695.7 million at ~~September 30, 2017~~March 31, 2021 from ~~$30.0~~$424.9 million at December 31, ~~2016 primarily due to a decrease in our Federal Reserve Bank account.~~2020. The ~~Company’s~~Company's investment portfolio increased ~~$92.4~~$107.7 million, ~~due to acquisitions~~or 10.3%, to a total fair market value of ~~$360.4 million~~$1.157 billion at ~~September 30, 2017, reflecting an~~March 31, 2021 compared to December 31, 2020. The increase ~~of $109.8 million, or 43.8%, for~~in the portfolio is related to purchases that were made in the first ~~nine months~~quarter of ~~2017.~~2021. The ~~Company carries~~Company's investments principally at their fair market values. The Company holds a small amount of “held-to-maturity” investments with a fair market value of $7.4 million at September 30, 2017 as compared to $7.4 million at December 31, 2016. All other investment securities are classified as ~~“available-for-sale”~~"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 PORTFOLIO

~~LOAN AND LEASE PORTFOLIO~~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, 2021, LHFS totaled ~~$1.203~~$15.1 million, compared to $21.4 million at December 31, 2020.

LHFI

LHFI, net of deferred fees and costs, were $3.022 billion at ~~September 30, 2017, an increase~~March 31, 2021, a decrease of ~~$329.8~~$65.4 million, or ~~37.8%~~2.2%, ~~since~~from $3.088 billion at December 31, ~~2016.~~2020. The ~~acquisitions accounted~~Company also saw a decrease in the commercial, financial, and agriculture loan portfolio of $18.0 million related to PPP loans.

As of March 31, 2021, we have modified approximately 1,638 loans for ~~approximately $237.3~~$626.7 million, of which 1,384 loans for $436.8 million were modified to defer monthly principal and interest payments and 254 loans for $189.9 million were modified from monthly principal and interest payments to interest only. At March 31, 2021, there were approximately 29 loans for $35.4 million that were modified to defer principal and interest payments and approximately 4 loans for $10.3 million that were modified from monthly principal and interest payments to interest only that were outstanding. As of March 31, 2021, we have approximately 2,591 loans approved through the ~~increase. At September 30, 2017, the company had direct energy related loans~~SBA for $221.7 million outstanding.

Table of $20.2 million, representing 1.7% 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.Contents

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.

The following table ~~shows~~presents the Company's composition of ~~the loan portfolio by category~~LHFI, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans ($ in thousands):


	March 31, 2021 (1)					December 31, 2020
			Percent					Percent
	Amount		of Total			Amount		of Total
Commercial, financial and agriculture (2)	$	550,500		18.0	%	$	579,443	18.6	%
Commercial real estate		1,633,667		53.5	%		1,652,993	52.9	%
Consumer real estate		832,327		27.2	%		850,206	27.2	%
Consumer installment		38,599		1.3	%		41,036	1.3	%
Total loans		3,055,093		100	%		3,123,678	100	%
Allowance for credit losses		(32,663)					(35,820)
Net loans	$	3,022,430				$	3,087,858

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

(2)	Loan amount includes $221.7 million and $239.7 million in PPP loans at March 31, 2021 and December 31, 2020, respectively.

~~Composition of 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 institutions in the Company’s market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes that the risk elements of its loan portfolio have been reduced through strategies that diversify the lending mix.

LOAN CONCENTRATIONS

~~Loans held for sale consist~~Diversification within the loan portfolio is an important means of ~~mortgage loans originated by~~reducing inherent lending risk. As of March 31, 2021, 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. IfLoans are placed on nonaccrual status when they become ninety days past due (principal and/or interest), unless the ~~Company~~loans are adequately secured and in the process of collection. Nonaccrual loans totaled $30.0 million at March 31, 2021, a decrease of $3.8 million from December 31, 2020.

Other real estate owned is carried at fair value, determined by an appraisal, less estimated costs to sell. Other real estate owned totaled $5.8 million at both March 31, 2021 and December 31, 2020.

A loan is classified as a restructured loan when the following two conditions are present: first, the borrower is experiencing financial difficulty and second, the creditor grants a concession ~~to a borrower~~it would not otherwise consider but for the borrower's financial difficulty. At March 31, 2021, the Bank had $23.1 million in ~~financial difficulty,~~loans that were classified as TDRs, of which $5.8 million were performing as agreed with modified terms. At December 31, 2020, the ~~loan falls into the category~~Bank had $27.5 million in loans that were classified as TDRs of ~~a troubled debt restructuring (“TDR”).~~which $6.2 million were performing as agreed with modified terms. TDRs may be classified as either ~~nonperforming~~non-performing or performing loans depending on their accrual status. As of March 31, 2021, $17.3 million in loans categorized as TDRs were classified as non-performing as compared to $21.3 million at December 31, 2020.

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The following table presents comparative data for the Company’s ~~nonperforming~~non-performing assets and performing TDRs as of the dates ~~noted:~~noted ($ in thousands):


	3/31/21 (1)			12/31/20
Nonaccrual Loans
Commercial, financial and agriculture	$	1,006		$	2,418
Commercial real estate		20,662			22,887
Consumer real estate		8,280			8,434
Consumer installment		33			35
Total Nonaccrual Loans		29,981			33,774

Other real-estate owned		5,769			5,802

Total NPAs	$	35,750		$	39,576
Performing TDRs	$	5,816		$	6,201
Past due 90 days or more and still accruing	$	1,079		$	2,692
Total non-performing assets as a % of total loans & leases net of unearned income		1.2	%		1.3	%
Total nonaccrual loans as a % of total loans & leases net of unearned income		1.0	%		1.1	%

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

~~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~~NPAs totaled ~~$12.7~~$35.8 million at ~~September 30, 2017,~~March 31, 2021, compared to ~~$9.3~~$39.6 million at December 31, ~~2016.~~2020, a decrease of $3.8 million. The ~~increase of $3.4 million is attributable to~~ACL/total loans ratio was 1.07% at March 31, 2021, and the ~~acquisitions with associated fair value marks. The~~ ALLL/total loans ratio was ~~0.68% at September 30, 2017 and .87%~~1.15% at December 31, ~~2016. Including~~2020. The decrease in the ACL/total loans ratio is primarily attributable to charge-offs taken on several loans during the first quarter of 2021. Total valuation accounting adjustments total $6.8 million on acquired loans ~~the total valuation plus ALLL was 1.16% of loans~~ at ~~September 30, 2017.~~March 31, 2021. The ratio of annualized net charge-offs (recoveries) to total loans was ~~(0.005)%~~0.5% for the quarter ended ~~September 30, 2017~~March 31, 2021 compared to ~~(0.04)%~~0.3% for the ~~quarter~~year ended ~~September 30, 2016. As noted in our first quarter 2015 10-Q,~~December 31, 2020.

ALLOWANCE FOR CREDIT LOSSES

On January 1, 2021, the Company ~~had been notified that~~adopted the ASU 2016-13. The FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments" to replace the incurred loss model for loans and other financial assets with an expected loss model and requires consideration of a ~~recovery~~wider range of ~~$941,000 was more likely than not expected during 2015. We received~~reasonable and supportable information to determine credit losses. In accordance with ASC Subtopic 326-20, "Financial Instruments - Credit Losses - Measured at Amortized Costs," the ~~first installment during the second quarter of 2015~~Company has developed an ACL methodology effective January 1, 2021, which ~~totaled $481,000 and the second installment during the third quarter of 2015 which totaled $241,000. The remaining balance of $219,000 was received in 2016.~~

~~ALLOWANCE FOR LOAN AND LEASE LOSSES~~

~~The~~replaces its previous allowance for loan losses methodology. The ACL is a valuation account that is deducted from loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and ~~lease~~expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust the Company's own loss history including index or peer data. Management evaluates the adequacy of the ACL quarterly and makes provisions for credit losses based on this evaluation. See Note 3 "Accounting Standards" for a complete description of the Company's methodology and the quantitative and qualitative factors included in the calculation.

Upon the adoption of ASC 326, the Company recorded a $397 thousand increase to the ACL. At March 31, 2021, the ACL was $32.7 million, a decrease of $3.2 million, or 8.8% when compared to December 31, 2020. The decrease is ~~established through~~related to charge-offs taken on several loans during the first quarter of 2021 and was offset by a slight increase related to the ASC 326 transition entry. At December 31, 2020, the allowance for loan losses amounted to approximately $35.8 million, which was 1.15% of LHFI. The Company's

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provision for ~~loan and lease losses. It is maintained at~~credit losses for the three months ended March 31, 2021 was $0, a ~~level that~~decrease of $7.1million compared to with the same quarter last year.

At March 31, 2021, 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.

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

three months ended March 31, 2021 and the allowance for loan losses for the three months ended March 31, 2020 ($ in thousands):

Allowance for ~~Loan and Lease~~Credit Losses

~~($ In Thousands)~~


	Three Months			Three Months
	Ended			Ended
Balances:	3/31/21			3/31/20
Average LHFI outstanding during period:	$	3,097,145		$	2,602,340
LHFI outstanding at end of period:		3,055,093			2,602,288
Allowance for Credit Losses:
Balance at beginning of period	$	35,820		$	13,908
ASC 326 adoption adjustment		397			—
Provision charged to expense		—			7,102
Charge-offs:
Commercial, financial and agriculture		986			99
Commercial real estate		2,841			333
Consumer real estate		139			9
Consumer installment		157			59
Total Charge-offs		4,123			500
Recoveries:
Commercial, financial and agriculture		83			76
Commercial real estate		132			69
Consumer real estate		54			49
Consumer installment		300			100
Total Recoveries		569			294
Net loan charge offs (recoveries)		3,554			206
Balance at end of period	$	32,663		$	20,804

RATIOS
Net Charge-offs (recoveries) to average LHFI (annualized)		0.5	%		0.0	%
ACL to LHFI at end of period		1.1	%		0.8	%
Net Loan Charge-offs (recoveries) to PCL		0.0	%		2.9	%

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 )%

~~OFF-BALANCE SHEET ARRANGEMENTS~~

The following tables summarizes the ACL at March 31, 2021 and the ALLL at December 31,2020.


($ in thousands)	March 31, 2021		December 31, 2020
	Amount		Amount
Commercial, financial and agriculture	$	4,158	$	6,214
Commercial real estate		17,578		24,319
Consumer real estate		10,280		4,736
Consumer installment		647		551
Total	$	32,663	$	35,820

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ALLOWANCE FOR CREDIT LOSSES ON OBSC EXPOSURES

On January 1, 2021, the Company ~~maintains commitments~~adopted ASC 326. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, inunless that obligation is unconditionally cancellable by the ~~normal course of business,~~Company. The ACL on OBSC exposures is adjusted as ~~long as there are no violations of conditions established in the outstanding contractual arrangements. Unused commitments to extend~~a provision for credit totaled $265.2 million at September 30, 2017 and $220.3 million at December 31, 2016, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 22.1% of gross loans outstanding at September 30, 2017 and 25.2% at December 31, 2016, with the increase due in part to higher commitments in commercial and industrial loans.loss expense. 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 portionestimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to ~~provide credit cannot~~ be ~~reasonably predicted because there is no guarantee that the lines~~funded over its estimated life. Upon adoption 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,~~ASC 326, the Company ~~is utilizing a $82.0 million letter~~recorded an ACL on unfunded commitments of $717.9 million. As of March 31, 2021, the allowance for credit ~~issued by the Federal Home Loan Bank (“FHLB”)~~losses 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 FHLB by the Company.~~unfunded commitments was unchanged.

OTHER ASSETS

The ~~Company’s~~Company's balance of non-interest earning cash and due from banks was ~~$63.7~~$117.5 million at ~~September 30, 2017~~March 31, 2021 and ~~$31.7~~$137.7 million at December 31, ~~2016.~~2020. 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~~decreased $5.3 million due to ~~an increase~~a decrease in FHLB ~~stock and federal reserve~~ stock. The ~~Company’s~~Company's net premises and equipment at ~~September 30, 2017~~March 31, 2021 was ~~$46.2~~$113.8 million and ~~$34.6~~$114.8 million at December 31, ~~2016;~~2020; a decrease of $1.0 million, or 0.9% for the ~~result being~~first three months of 2021. Operating right-of-use assets at March 31, 2021, totaled $5.6 million compared to $6.0 million at December 31, 2020, a decrease of $409 thousand. Financing right-of-use assets at March 31, 2021, totaled $2.6 million compared to $2.7 million at December 31, 2020, a decrease of $62 thousand. Bank-owned life insurance at March 31, 2021 totaled $86.5 million compared to $73.7 million at December 31, 2020, an increase of ~~$11.6~~$12.7 million. The increase was due to the purchase of $12.3 million ~~or 33.4% for~~in BOLI contracts in the first ~~nine months~~quarter of ~~2017. Included in the acquisition of Iberville was $4.0~~2021. Goodwill at March 31, 2021 remained unchanged at $156.9 million in bank-owned life insurance, creating a balance of $26.4 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, as a result of the acquisitions, ending the first nine months of 2017 with a balance of $20.4 million.when compared to December 31, 2020. Other intangible assets, consisting primarily of the ~~Company’s~~Company's core deposit intangible ~~increased~~("CDI"), decreased by ~~$3.1~~$1.1 million ~~due~~as of March 31, 2021, as compared to ~~the acquisitions. The Company’s goodwill~~December 31, 2020.

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, 2021, management has determined that no impairment ~~exists as of September 30, 2017.~~

exists.

Other real estate owned ~~increased $1.8~~decreased by $33 thousand, or 0.6%, to $5.8 million ~~or 30.7% during~~at March 31, 2021 as compared to December 31, 2020.

OFF-BALANCE SHEET ARRANGEMENTS

The Company maintains commitments to extend credit in the ~~first nine months~~normal course of ~~2017. This increase comes~~business, as long as there are no violations of conditions established in the outstanding contractual arrangements. Unused commitments to extend credit totaled $464.6 million at March 31, 2021 and $466.2 million at December 31, 2020, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 15.2% of gross loans at March 31, 2021 and 14.9% at December 31, 2020. The Company also had undrawn similar standby letters of credit to customers totaling $14.4 million at March 31, 2021 and $15.7 million at December 31, 2020. The effect on the Company's revenues, expenses, cash flows and liquidity from the ~~acquisition~~unused portion of ~~GCCB. See~~the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the "Liquidity" section in this Form 10-Q outlines resources available to draw upon should we be required to fund a significant portion of unused commitments. For more information regarding the Company's off-balance sheet arrangements, see Note 47 - Financial Instruments with Off-Balance Risk to the Consolidated Financial Statements.

In addition to unused commitments to provide credit, the Company is utilizing a $5.0 million letter of credit issued by the FHLB on the Company’s behalf as of March 31, 2021. That letter of credit is backed by loans which are pledged to the FHLB by the Company.

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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 $1.332 billion at March 31, 2021. 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, 2021, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $414.2 million of the Company's investment balances, compared to $513.2 million at December 31, 2020. 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. That letter of credit, which is backed by loans that are pledged to the FHLB by the Company, totaled $50.0 million at March 31, 2021.

The Company’s liquidity ratio as of March 31, 2021 was 30.0%, as compared to internal liquidity policy guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:


	March 31, 2021		Policy Maximum		Policy Compliance
Loans to Deposits (including FHLB advances)	65.0	%	90.0	%	In Policy
Net Non-core Funding Dependency Ratio	(13.8)	%	20.0	%	In Policy
Fed Funds Purchased / Total Assets	0.0	%	10.0	%	In Policy
FHLB Advances / Total Assets	0.0	%	20.0	%	In Policy
FRB Advances / Total Assets	0.0	%	10.0	%	In Policy
Pledged Securities to Total Securities	67.2	%	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, 2021, cash and cash equivalents were $813.3 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $557.5 million at March 31, 2021. Approximately $479.5 million in loan commitments could fund within the next three months and other commitments, primarily commercial and similar letters of credit, totaled $14.4 million at March 31, 2021.

Management continually evaluates our liquidity position and currently believes the Company has adequate funding to meet our financial needs. During March 2020, in response to COVID-19, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent and extended terms to 90 days to enhance market liquidity and encourage use of the discount window. In addition, the Federal Reserve announced it would begin quantitative easing, or large-scale asset purchases, consisting primarily of Treasury securities and mortgage-backed securities to stem the effects of the pandemic on the financial markets. A prolonged outbreak of the COVID-19 pandemic could cause a widespread liquidity crisis, and the availability of these funds or the options to sell securities currently held could be hindered. The full impact and duration of COVID-19 on our business is unknown but if it continues to curtail economic activity, it could impact our ability to obtain funding and result in the reduction of or the cessation of dividends.

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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 – ~~Business Combinations.~~Supervision and Regulation in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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, 2021 and ~~2016~~2020 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.” The Company implemented Deposit Reclassification at the beginning of 2020. This program reclassifies non-interest bearing deposits and NOW deposit balances to money market accounts. This program reduces our reserve balance required at the Federal Reserve Bank of Atlanta and provides additional funds for liquidity or lending. At quarter-end March 31, 2021, $695.8 million in non-interest deposit balances and $859.4 million in NOW deposit accounts were reclassified as money market accounts. A distribution of the Company’s deposits without reclassification showing the balance and percentage of total deposits by type is presented for the noted periods in the following table.


Deposit Distribution							March 31, 2021				December 31, 2020
($ In Thousands)	Sept. 30, 2017			December 31, 2016
									Percent of				Percent of
($ in thousands)							Amount		Total		Amount		Total
Non-interest bearing demand deposits	$	308,050		$	202,478		$	1,328,236	28.7	%	$	1,185,980	28.1	%
NOW accounts and Other		639,802			430,903			1,562,119	33.8	%		1,347,778	32.0	%
Money Market accounts		157,219			113,253			750,687	16.3	%		705,357	16.7	%
Savings accounts		135,373			69,540			429,082	9.3	%		395,116	9.4	%
Time Deposits of less than $250,000		209,714			162,797			419,556	9.0	%		218,418	5.2	%
Time Deposits of $250,000 or more		57,833			60,220			130,617	2.9	%		362,631	8.6	%
Total deposits	$	1,507,991		$	1,039,191		$	4,620,297	100	%	$	4,215,280	100	%

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	%

As of March 31, 2021, deposits increased by $405.0 million, or 9.6% to $4.620 billion from $4.215 billion at December 31, 2020. Transaction account balances were above normal as of March 31, 2021 due to PPP loan proceeds.

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 liabilities ~~increased~~decreased by ~~$25.3~~$110.2 million, or ~~31.9%~~96.1%, in the first ~~nine~~three months of ~~2017,~~2021, due in to ~~an increase~~a decrease in notes payable of $110.2 million to the FHLB. ~~Repurchase agreements decreased $5.0 million. The Company had~~As of March 31, 2021, junior subordinated debentures ~~totaling $10.3~~decreased $21 thousand, net of issuance costs, to $144.6 million. Subordinated debt is discussed more fully in the below Capital section of this report.

LEASE LIABILITIES

As of March 31, 2021, operating lease liabilities decreased $398 thousand, or 6.6% to $5.6 million from $6.0 million at ~~September 30, 2017 and~~ December 31, ~~2016, in the form~~2020. Finance lease liabilities decreased $47 thousand, or 2.1% to $2.2 million from $2.3 million at December 31, 2020.

Table of ~~long-term borrowings from trust subsidiaries formed specifically to issue trust preferred securities.~~Contents

OTHER ~~NON-INTEREST BEARING~~ LIABILITIES

Other liabilities are principally comprised of accrued interest payable and other accrued but unpaid expenses. Other liabilities ~~increased~~decreased by ~~$4.0~~$3.5 million, or ~~100.8%~~13.8%, during the first ~~nine~~three months of ~~2017, due to the increase in other accrued but unpaid expenses.~~

~~liquidity and market RisK MANAGEMENT~~

~~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 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, the Company can borrow overnight funds from other financial institutions, draw advances via 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 $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.2021. As of ~~September 30, 2017, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $95.6~~March 31, 2021, accrued interest payable decreased $532 thousand, or 24.9% to $1.6 million ~~of the Company’s investment balances, compared to $101.2~~from $2.1 million at December 31, ~~2016.~~2020. Other accrued but unpaid expenses decreased $2.9 million, or 12.7% to 20.0 million at March 31, 2021.

CAPITAL

At March 31, 2021, the Company had total shareholders' equity of $643.9 million, comprised of $21.7 million in common stock, $18.9 million in treasury stock, $456.8 million in surplus, $168.2 million in undivided profits and $16.2 million in accumulated comprehensive income on available-for-sale securities. Total shareholders' equity at the end of 2020 was $644.8 million. The ~~increase~~decrease of $866 thousand, or 0.1%, in ~~unpledged~~shareholders' equity during the first three months of 2021 is comprised of capital added through net earnings of $16.6 million, and offset by $9.6 million decrease in accumulated comprehensive income for available-for-sale securities, treasury stock acquired of $5.2 million and $2.7 million in cash dividends paid.

On May 7, 2020, the Company announced the renewal of its share repurchase program that previously expired on December 31, 2019. Under the program, the Company could from ~~September, 2017 compared~~time to time repurchase up to $15 million of shares of its common stock in any manner determined appropriate by the Company's management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, was determined by management at its discretion and 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 renewed share repurchase program expired on December ~~2016 is primarily due~~31, 2020, The Company repurchased 289,302 shares in 2020 pursuant to the program.

On December 16, 2020, the Company announced that its Board of Directors has authorized a share repurchase program (the "Repurchase Program"), pursuant to which the Company may purchase up to an ~~increase~~aggregate of $30 million in ~~portfolio assets. Other forms~~shares of ~~balance sheet liquidity include~~the Company's issued and outstanding common stock. Under the program, the Company may, but is not required to, from time to time repurchase up $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 its 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 Repurchase Program will have an expiration date of December 31, 2021. The Company repurchased 165,623 shares for $5.2 million under the Repurchase Program in the first quarter of 2021.

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.


					Minimum
	March 31,		December 31,		Required to be
Regulatory Capital Ratios The First, A National Banking Association	2021		2020		Well Capitalized
Common Equity Tier 1 Capital Ratio	16.5	%	15.8	%	6.5	%
Tier 1 Capital Ratio	16.5	%	15.8	%	8.0	%
Total Capital Ratio	17.5	%	16.9	%	10.0	%
Tier 1 Leverage Ratio	10.4	%	10.4	%	5.0	%

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					Minimum
	March 31,		December 31,		Required to be
Regulatory Capital Ratios The First Bancshares, Inc.	2021		2020		Well Capitalized
Common Equity Tier 1 Capital Ratio*	13.8	%	13.5	%	N/A
Tier 1 Capital Ratio**	14.3	%	14.0	%	N/A
Total Capital Ratio	19.3	%	19.1	%	N/A
Tier 1 Leverage Ratio	9.0	%	9.2	%	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, 2021 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, 2021, 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, 2021 was $643.9 million, or approximately 11.8% 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 London Interbank Offer Rate (“LIBOR”) plus 1.65% and ~~other potentially liquid assets, along~~is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

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

In 2018, the Company acquired FMB’s Capital Trust 1 (“Trust 1”), which consisted of $6.1 million of floating rate junior subordinated deferrable interest debentures in which the Company owns all of the common equity. The debentures are the sole asset of Trust 1. Trust 1 issued $6.0 million of TPSs to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the Trust 1’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2033. Interest on the preferred securities is the three-month LIBOR plus 2.85% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.

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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 entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers pursuant to which the Company sold and issued $65.0 million in aggregate principal amount of its 4.25% Fixed to Floating Rate Subordinated Notes due 2030. The Notes are unsecured and have a ten-year term, maturing October 1, 2030, and will bear interest at a fixed annual rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate ("SOFR") plus 412.6 basis points, payable quarterly in arrears. As provided in the Notes, under specified conditions the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. 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’s liquidity ratio as~~Company had $144.6 million of ~~September 30, 2017 was 14.1%, as~~subordinated debt, net of deferred issuance costs $2.2 million and unamortized fair value mark $686 thousand, at March 31, 2021, compared to ~~internal policy guidelines~~$144.6 million, net of ~~10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:~~deferred issuance costs $2.2 million and unamortized fair value mark $700 thousand, at December 31, 2020.

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

Reconciliation of Non-GAAP Financial Measures

~~Continued growth in core deposits~~Our accounting 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.

The holding company’s primary uses of funds are ordinary operating expenses and stockholder dividends, and its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. Management anticipates that the Bank will have sufficient 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) Dividendsgenerally accepted accounting principles (“GAAP”) in the ~~Company’s Annual~~United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of our performance. This Quarterly Report on Form ~~10-K~~10-Q includes operating net earnings; diluted operating earnings per share; net interest income, FTE; pre-tax, pre-provision operating earnings; total interest income, FTE; interest income investment securities, FTE and certain rations 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.~~periods presented herein. The tax equivalent adjustment to net interest income 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 pre-tax, pre-provision operating earnings excludes acquisition charges. 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. 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.

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Operating Net Earnings

~~INTEREST RATE~~


	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
($ in thousands)	2021		2020
Net income available to common shareholders	$	16,644	$	8,311
Effect of acquisition charges		—		740
Tax on acquisition charges		—		(164)
Net earnings available to common shareholders, operating	$	16,644	$	8,887

Diluted Operating Earnings per Share


($ in thousands)	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2021		2020
Diluted earnings per share	$	0.79	$	0.44
Effect of acquisition charges		—		0.04
Tax on acquisition charges		—		(0.01)
Diluted earnings per share, operating	$	0.79	$	0.47

Net Interest Income, Fully Tax Equivalent


($ in thousands)	Three Months			Three Months
	Ended			Ended
	March 31, 2021			March 31, 2020
Net interest income	$	39,229		$	34,065
Tax exempt investment income		(1,935)			(1,360)
Taxable investment income		2,590			1,821
Net interest income, FTE	$	39,884		$	34,526

Average earning assets	$	4,778,335		$	3,517,143
Net interest margin, FTE		3.34	%		3.93	%

Pre-Tax Pre-Provision Operating Earnings


($ in thousands)	Three Months		Three Months
	Ended		Ended
	March 31, 2021		March 31, 2020

Earnings before income taxes	$	21,437	$	9,998
Acquisition charges		—		740
Provision for credit losses		—		7,102
Pre-Tax, Pre-Provision Operating Earnings	$	21,437	$	17,840

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Total Interest Income, Fully Tax Equivalent


($ in thousands)	Three Months			Three Months
	Ended			Ended
	March 31, 2021			March 31, 2020

Total interest income	$	45,187		$	41,598
Tax-exempt investment income		(1,935)			(1,360)
Taxable investment income		2,590			1,821
Total interest income, FTE	$	45,842		$	42,059

Yield on average earnings assets, FTE		3.84	%		4.78	%

Interest Income Investment Securities, Fully Tax Equivalent


($ in thousands)	Three Months			Three Months
	Ended			Ended
	March 31, 2021			March 31, 2020

Interest income investment securities	$	5,526		$	5,304
Tax-exempt investment income		(1,935)			(1,360)
Taxable investment income		2,590			1,821
Interest income investment securities, FTE	$	6,181		$	5,765

Average investment securities	$	1,066,907		$	784,825

Yield on investment securities, FTE		2.32	%		2.94	%

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 assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).

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


March 31, 2021	Net Interest Income at Risk				Market Value of Equity
Change in Interest	% Change				% Change
Rates	from Base		Policy Limit		from Base		Policy Limit
Up 400 bps	20.8	%	(20.0)	%	30.4	%	(40.0)	%
Up 300 bps	17.1	%	(15.0)	%	26.7	%	(30.0)	%
Up 200 bps	12.4	%	(10.0)	%	20.8	%	(20.0)	%
Up 100 bps	6.7	%	(5.0)	%	12.0	%	(10.0)	%
Down 100 bps	(3.4)	%	(5.0)	%	(16.7)	%	(10.0)	%
Down 200 bps	(4.5)	%	(10.0)	%	(34.9)	%	(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, 2021, 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

March 31, 2021																					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		129,183		130,688		135,238	144,269		151,937		158,417		163,314
Dollar Change		-5,007			-3,487					1,724			3,365			5,024			6,548		(6,055)		(4,550)			9,031		16,699		23,179		28,076
NII @ Risk - Sensitivity Y1		-8.6	%		-6.0	%				3.0	%		5.8	%		8.7	%		11.3	%	(4.5)	%	(3.4)	%		6.7	%	12.4	%	17.1	%	20.8	%
Policy Limits																					(10.0)	%	(5.0)	%		(5.0)	%	(10.0)	%	(15.0)	%	(20.0)	%

If there were an immediate and sustained downward adjustment of 200 basis points in interest rates, all else being equal, net interest income over the next twelve months would likely be approximately ~~$5.0~~$6.1 million lower than in a stable interest rate scenario, for a negative variance of ~~8.6%~~4.5%. The unfavorable variance increases if rates were to drop below 200 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop. This effect would be exacerbated by accelerated prepayments on fixed-rate loans and mortgage-backed securities when rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures. While management believes that further interest rate reductions are highly unlikely, the potential percentage drop in net interest income exceeds our internal policy guidelines in declining interest rate scenarios and we will continue to monitor our interest rate risk profile and take corrective action as deemed appropriate.

Net interest income would likely improve by ~~$3.4~~$16.7 million, or ~~5.8%~~12.4%, 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 cumulative GAP ratio is approximately ~~220.3%~~192.9%, 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.

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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 best estimates. The table below shows estimated changes in the Company’s EVE as of ~~September 30, 2017,~~March 31, 2021, 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

March 31, 2021																					Balance Sheet Shock
																									STATIC
($ in thousands)																					-200 bp		-100 bp		(Base)	+100 bp		+200 bp		+300 bp		+400 bp
Market Value of Equity	$	389,176		$	387,021		$	447,973	$	495,850		$	533,964		$	565,223		$	590,236		711,827		910,942		1,093,875	1,225,014		1,320,940		1,386,345		1,426,138
Change in EVE from base		-58,797			-60,952					47,877			85,991			117,250			142,263		(382,048)		(182,933)			131,139		227,065		292,470		332,263
% Change		-13.1	%		-13.6	%				10.7	%		19.2	%		26.2	%		31.8	%	(34.9)	%	(16.7)	%		12.0	%	20.8	%	26.7	%	30.4	%
Policy Limits		-20.0	%		-10.0	%				-10.0	%		-20.0	%		-30.0	%		-40.0	%	(20.0)	%	(10.0)	%		(10.0)	%	(20.0)	%	(30.0)	%	(40.0)	%

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

~~CAPITAL RESOURCES~~

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

~~The Company uses a variety~~Table 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.Contents

~~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, 2021, (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~~Effective January 1, 2021, the Company adopted FASB ASU 2016-13. The Company designed new controls and modified existing controls as part of the adoption. Management revised previous internal controls used under legacy GAAP and incorporated new internal controls related to the methodology of the new allowance for credit losses. There were no other changes in the Company's internal control over financial reporting that occurred during the ~~quarter ended September 30, 2017,~~period covered by this report that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company's internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1:1. LEGAL PROCEEDINGS

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

ITEM ~~1A:~~1A. RISK FACTORS

There ~~were~~have been no material changes infrom the ~~Company’s~~ risk factors ~~since December 31, 2016, other than as set forth below:~~

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

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

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

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

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

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

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

~~For additional information on risk factors, refer to Part I, Item 1A. “Risk Factors” of the~~ Annual Report on Form 10-K ~~of The First Bancshares, Inc., filed with~~for the ~~Securities and Exchange Commission on March 16, 2017.~~year ended December 31, 2020.

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

The following table provides information with respect to purchases of common stock of the Company made during the three months ended March 31, 2021, by the Company or any "affiliated purchaser" of the Company as defined in Rule 10b-18(a)(3) under the Exchange Act:


	Current Program
					Maximum
					Number of
					Shares that
				Total Number of	May Yet Be
	Total			Shares Purchased	Purchased
	Number of	Average		as Part of Publicly	Under the
	Shares	Price Paid		Announced Plans	Plans or
Period	Purchased	Per Share		or Programs	Programs
January 2021	120,548	$	31.24	120,548	840,000
February 2021	59,566		31.41	45,075	785,993
March 2021	229		32.07	—
Total	180,343	$	31.57	165,623

The Company repurchased 165,623 shares under the Repurchase Program in the first quarter of 2021. The Repurchase Program expires on December 31, 2021. As of March 31, 2021, $24.8 million remained available for further share repurchases of common stock under the Repurchase Program. As of March 31, 2021, the Company withheld 14,720 shares in order to satisfy employee tax obligations for vesting of restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM ~~3: DEFAULTS UPON SENIOR SECURITIES~~

4. MINE SAFETY DISCLOSURES

Not applicable

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

~~Item 5: Other Information~~

5. OTHER INFORMATION

Not applicable

Table of Contents

ITEM 6:6. EXHIBITS -

(a)Exhibits

~~Exhibit No.~~		~~Description~~
Exhibit No.		Description
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~~ 10.1		Supplemental Executive Retirement Agreement between The First , A National Banking Association and Donna T. Lowery (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K filed on March 12, 2021).
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)

		/s/ M. RAY (HOPPY) COLE, JR.
~~November 9, 2017~~ May 10, 2021		M. Ray (Hoppy) Cole, Jr.
(Date)		Chief Executive Officer

		/s/ DONNA T. (DEE DEE) LOWERY
~~November 9, 2017~~ May 10, 2021		Donna T. (Dee Dee) Lowery, Executive
(Date)		Vice President and Chief Financial Officer

~~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 filer	þ
Non-accelerated filer¨	◻	Smaller Reporting Company¨	◻
~~(Do not check if a smaller reporting company)~~ Emerging growth company	◻


Part I. Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets—Unaudited at March 31, 2021	3
	Consolidated Statements of Income—Unaudited	4
	Consolidated Statements of Comprehensive Income—Unaudited	5
	Consolidated Statements of Changes in Shareholders’ Equity - Unaudited	6
	Consolidated Statements of Cash Flows—Unaudited	7
	Notes to Consolidated Financial Statements—Unaudited	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	55

Part II. Other Information

Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
Signatures		58


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


☐	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

($ 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

	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 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

			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%

	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

	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

	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

	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

	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

	($ In Thousands)

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

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

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

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

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

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

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

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

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

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

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

	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

	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	%