_,
•
1-
A·L RE. P .0
LETTER FROM THE
& CEO
PRESIDENT
in 1996, The First has aspired
sustainable,
long-term
relationships
the communities
it serves
with
Since our founding
to be a bank that supports
by building
clients
accomplishing
franchise
expanding
demographic
population
profiles
growth.
in those communities.
this vision
Our strategy
for
has been to grow our
value by
and build shareholder
for income and
into markets with above-average
that dream has
asset, multi-state
Now, over 28 years later,
grown to a nearly $8 billion
financial
Mississippi,
Georgia.
by opening new markets
community bankers.
institution
Louisiana,
To achieve
spanning
with operations
and
Florida
vision
for growth,
acquiring
Alabama,
our strategic
through
ly and
we have grown both organical
banks and attracting
talented
local
Over the years, our focus has remained
confidence
financial
customers
economic
we serve by fostering
area.
markets within our franchise
by managing
with quality
steadfast
on continuing
to maintain
public
needs of our
a safe and sound bank, meeting the financial
and services,
products
growth with particular
and investing
emphasis
in the communities
on the underserved
Our bank periodic
efficiently
inflection
properly
the next strategic
billion,
asset size.
$5 billion
ally examines
our operational
as possible.
efficiency
In our company's
and cost effectively
points when we have focused internally
in terms of processes,
structured
to ensure we are operating
as
history,
we have had several
to ensure our support
areas were
growth goal. These inflection
procedures,
technology
points have occurred
to manage
$1
at $500 million,
and staffing
and now at nearly $8 billion
as we begin to prepare
for future growth in
Our growth has been disciplined
strategic
to build a regional
the Southern
exceptional
a culture
foster
of compliance
to our clients,
United States.
community
service
and methodical
plan adopted by our Board of Directors
based on the company's
in 2009. Our long-term
bank with a size and scale that will compete effectively
execution
is
strategic
of a
Our plan is to continue
to grow our franchise,
deliver
throughout
above-average
the company.
returns
vision
in
deliver
to our shareholders
and
2023 Annual Report
This Page Intentionally Left Blank
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file no. 000-22507
THE FIRST BANCSHARES, INC.
________________________________________
(Exact name of registrant as specified in its charter)
Mississippi
(State or Other Jurisdiction of
Incorporation or Organization)
6480 U.S. Hwy. 98 West, Suite A
Hattiesburg, Mississippi
(Address of principal executive offices)
Issuer’s telephone number:
(601) 268-8998
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class
Common Stock, $1.00 par value
Trading Symbol(s)
FBMS
Securities registered pursuant to Section 12(g) of the Act: None
64-0862173
(I.R.S. Employer Identification Number)
39402
(Zip Code)
Name of Each Exchange on
Which Registered
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically and every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
Based on the price at which the registrant’s Common Stock was last sold on June 30, 2023, the last business day of the registrant’s most recently completed
second fiscal quarter, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was $776.6 million.
On February 21, 2024, the registrant had outstanding 31,227,881 shares of common stock.
Auditor Firm PCAOB ID: 686
Auditor Name: FORVIS, LLP
Auditor Location: Jackson, MS
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant’s proxy statement to be filed for the Annual Meeting of Shareholders to be held May 23, 2024 are incorporated
by reference into Part III of this Annual Report on Form 10-K. Other than those portions of the proxy statement specifically incorporated by reference
pursuant to Items 10-14 of Part III hereof, no other portions of the proxy statement shall be deemed so incorporated.
THE FIRST BANCSHARES, INC.
FORM 10-K
TABLE OF CONTENTS
ITEM 1.
BUSINESS
ITEM 1A.
RISK FACTORS
ITEM 1B.
UNRESOLVED STAFF COMMENTS
ITEM 1C.
CYBERSECURITY
ITEM 2.
ITEM 3.
ITEM 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART I
PART II
ITEM 5.
ITEM 6.
ITEM 7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
RESERVED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
ITEM 9B.
OTHER INFORMATION
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16.
FORM 10-K SUMMARY
SIGNATURES
Page
7
21
31
31
34
35
35
36
37
38
63
66
139
139
141
142
142
142
142
142
143
147
148
THE FIRST BANCSHARES, INC.
FORM 10-K
PART I
This Annual Report on Form 10-K, including information incorporated by reference herein, contains statements
which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities
Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are
statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise are not
statements of historical fact, and may include statements relating to our projected growth, anticipated future financial
performance, financial condition, credit quality and management’s long-term performance goals, as well as statements
relating to the anticipated effects on our business, financial condition and results of operations from expected developments
or events, our business, growth and strategies. Such statements are often characterized by the use of qualifying words (and
their derivatives) such as “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” ”seek,”
“potential,” “aim,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” “estimate,” or other statements
concerning opinions or judgments of the Company, the Bank, and management about possible future events or outcomes.
These forward-looking statements are not historical facts, and are based upon current expectations, estimates and
projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their
nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be
regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved.
Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are
subject to risks, assumptions and uncertainties that are difficult to predict and that are beyond our control. Although we
believe that the expectations reflected in these forward-looking statements are reasonable as of the date of this Annual Report,
actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these
forward-looking statements, including, but not limited to, the following:
Factors that could influence the accuracy of such 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; interest rate risk; legislation or
regulatory changes which adversely affect the ability of the consolidated Company to conduct business combinations or new
operations; financial success or changing strategies of the Bank’s customers or vendors; actions of government regulators;
and the risk that anticipated benefits from the recent acquisitions are not realized in the time frame anticipated or at all as a
result of changes in general economic and market conditions.
Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in any
forward-looking statements include, but are not limited to, the following:
•
•
•
negative impacts on our business, profitability and our stock price that could result from prolonged periods of
inflation;
risks and uncertainties relating to recent, pending or potential future mergers or acquisitions, including risks related
to the completion of such acquisitions within expected timeframes and the successful integration of the business
that we acquire into our operations;
the risks that a future economic downturn and contraction, including a recession, could have a material adverse
effect on our capital, financial condition, credit quality, results of operations and future growth, including the risk
4
that the strength of the current economic environment could be weakened by the continued impact of rising interest
rates, and inflation;
disruptions to the financial markets as a result of the current or anticipated impact of military conflict, including
Russia's military action in Ukraine, the conflict in Israel and surrounding areas, terrorism or other geopolitical
events;
governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal
Reserve;
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
occurring in those areas;
general economic conditions, either nationally or regionally and especially in our primary service areas, 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;
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 layoffs, natural disasters, public health emergencies and international instability;
changes in laws and regulations affecting our businesses, including governmental monetary and fiscal policies,
legislation and regulations relating to bank products and services, as well as changes in the enforcement and
interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could
require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional
costs on us, or otherwise negatively affect our businesses;
the financial impact of future tax legislation;
changes in political conditions or the legislative or regulatory environment, including the possibility that the U.S.
could default on its debt obligations;
the adequacy of the level of our allowance for credit losses and the amount of credit loss provision 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;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
5
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
results of examinations by our regulatory authorities, including the possibility that the regulatory authorities may,
among other things, require us to increase our allowance for credit losses through additional credit loss provisions
or write-down of our assets;
the rate of delinquencies and amount of loans charged-off;
the impact of our efforts to raise capital on our financial position, liquidity, capital, and profitability;
significant increases in competition in the banking and financial services industries;
changes in the securities markets;
significant turbulence or a disruption in the capital or financial markets and the effect of a fall in stock market prices
on our investment securities;
loss of consumer confidence and economic disruptions resulting from national disasters or terrorist activities;
our ability to retain our existing customers, including our deposit relationships;
changes occurring in business conditions and inflation;
changes in technology or risks related to cybersecurity;
changes in deposit flows;
changes in accounting principles, policies, or guidelines;
our ability to maintain adequate internal control over financial reporting;
risks related to the continued use, availability and reliability of "benchmark" rates and the discontinuation of
quotation of London Inter Bank Offered Rate ("LIBOR"); and
other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission
(“SEC”).
We have based our forward-looking statements on our current expectations about future events. Although we believe
that the expectations reflected in and the assumptions underlying our forward-looking statements are reasonable, we cannot
guarantee that these expectations will be achieved or the assumptions will be accurate. The Company disclaims any obligation
to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included
herein to reflect future events or developments. Additional information concerning these risks and uncertainties is contained
in this Annual Report on Form 10-K for the year ended December 31, 2023, included in Item 1A. Risk Factors and in our
future filings with the SEC. Further information on The First Bancshares, Inc. is available in its filings with the Securities
and Exchange Commission, available at the SEC’s website, http://www.sec.gov.
6
ITEM 1. BUSINESS
Overview and History
BUSINESS OF THE COMPANY
The First Bancshares, Inc. (“Company”) was incorporated on June 23, 1995 to serve as a bank holding company for
The First Bank (“The First”), formerly known as The First, A National Banking Association, headquartered in Hattiesburg,
Mississippi. The Company is a Mississippi corporation and is a registered bank holding company. The First began operations
on August 5, 1996 from our main office in the Oak Grove community, which is now incorporated within the city of
Hattiesburg. As of December 31, 2023, The First operated 116 locations in Mississippi, Alabama, Florida, Georgia and
Louisiana. Our principal executive offices are located at 6480 U.S. Highway 98 West, Hattiesburg, Mississippi 39402, and
our telephone number is (601) 268-8998.
The Company is a community-focused financial institution that offers a full range of financial services to
individuals, businesses, municipal entities, and nonprofit organizations in the communities that it serves. These services
include consumer and commercial loans, deposit accounts and safe deposit services.
We have benefited from historically strong asset quality metrics compared to most of our peers, which we believe
illustrates our historically disciplined underwriting and credit culture. As such, we benefited from our strength by taking
advantage of growth opportunities when many of our peers were unable to do so. We have also focused on growing earnings
per share and increasing our tangible common equity and tangible book value per share.
In recent years, we have developed and executed a regional expansion strategy to take advantage of growth
opportunities through several acquisitions, which has allowed us to expand our footprint to Alabama, Florida Louisiana and
Georgia. We believe the conversion and integration of these acquisitions have been successful to date, and we are optimistic
that these markets will continue to contribute to our future growth and success. In addition, we continue to experience organic
loan growth by continuing to strengthen our relationships with existing clients and creating new relationships.
On January 15, 2022, The First, then named The First, A National Banking Association, converted from a national
banking association to a Mississippi state-chartered bank and changed its name to The First Bank. The First Bank is now a
member of the Federal Reserve System through the Federal Reserve Bank of Atlanta.
Unless otherwise indicated or unless the context requires otherwise, all references in this report to “the Company”,
“we”, “us”, “our”, or similar references, mean The First Bancshares, Inc. and our subsidiaries, including our banking
subsidiary, The First, on a consolidated basis. References to “The First” or the “Bank” mean our wholly owned banking
subsidiary, The First Bank.
Human Capital Resources
At December 31, 2023, The First employed 1,078 full-time employees spanning five states and 116 locations. In
2023 alone, our team members donated over 3,500 volunteer hours to more than 700 organizations including delivering
financial education to over 52,000 community members and students.
The First is dedicated to providing competitive compensation and benefits programs to help attract and maintain
highly skilled and experienced employees. Our compensation and benefits programs include a 401(k) plan with matching
contributions, a Loan Incentive Plan for our lending officers, an Employee Stock Ownership Plan, healthcare and dental
insurance benefits, health savings accounts, flexible spending accounts, life and disability insurance, as well as paid time off.
The Company offers a Continuing Education Program for our employees to support and help them attain personal goals and
professional achievements by encouraging and supporting those who pursue and participate in continuing their education.
7
The First endeavors to ensure that the composition of our employees, management team and board of directors are
reflective of the diversity of the communities we serve. As a company, we believe in the importance of diversity, value the
benefits that diversity affords our organization, and are dedicated to fostering and maintaining an inclusive culture that solicits
multiple perspectives and views and is free of conscious or unconscious bias and discrimination.
In addition to maintaining a safe and healthy workplace, The First provides our employees with access to a Grief
Counseling and Confidential Assistance Program, which provides counseling services to employees on a confidential basis
to ensure our employees get the help they need when they need it. The First also has an Employee Support Program funded
by our Heritage Community Foundation for bank employees who suffer a loss of loved ones, emergency medical procedures
and other issues that affect employees. In 2023, our employees contributed over $76 thousand to the Heritage Community
Foundation, which benefited employees in need, nonprofit organizations and local disaster relief efforts.
Market Areas
As of December 31, 2023, The First had 116 locations across Mississippi, Louisiana, Alabama, Florida and Georgia.
Recent Developments
On January 1, 2023, we completed the acquisition of Heritage Southeast Bancorporation, Inc. ("HSBI"), pursuant
to an Agreement and Plan of Merger dated July 7, 2022, by and between the Company and HSBI. Upon completion of the
merger of HSBI with and into the Company, Heritage Southeast Bank ("Heritage Bank"), HSBI's wholly-owned subsidiary,
merged with and into The First Bank. The Company paid a total consideration of approximately $221.5 million to the former
HSBI shareholders as consideration in the acquisition, which included approximately 6,920,909 shares of the Company's
common stock, and approximately $16 thousand in cash in lieu of fractional shares.
Banking Services
We strive to provide our customers with the breadth of products and services offered by large regional banks, while
maintaining the timely response and personal service of a locally owned and managed bank. In addition to offering a full
range of deposit services and loan products, we have a mortgage and private banking division. The following is a description
of the products and services we offer.
Deposit Services. We offer a full range of deposit services that are typically available in most banks and savings
institutions, including checking accounts, NOW accounts, savings accounts, and other time deposits of various types, ranging
from daily money market accounts to longer-term certificates of deposit. The transaction accounts and time certificates are
tailored to our principal market areas at rates competitive to those offered by other banks in these areas. All deposit accounts
are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum amount allowed by law. We solicit
these accounts from individuals, businesses, associations, organizations, and governmental authorities. In addition, we offer
certain retirement account services, such as Individual Retirement Accounts (IRAs) and health savings accounts.
Loan Products. We offer a full range of commercial and personal loans. Commercial loans include both secured and
unsecured loans for working capital (including loans secured by inventory and accounts receivable), business expansion
(including acquisition of real estate and improvements), purchase of equipment and machinery, and interest rate swap
agreements to facilitate the risk management strategies of certain commercial customers. Consumer loans include equity
lines of credit, secured and unsecured loans for financing automobiles, home improvements, education, and personal
investments. We also make real estate construction and acquisition loans. Our lending activities are subject to a variety of
lending limits imposed by federal law. While differing limits apply in certain circumstances based on the type of loan or the
nature of the borrower (including the borrower’s relationship to the bank), in general we are subject to an aggregate loans-
to-one-borrower limit of 15% of our unimpaired capital and surplus.
8
Mortgage Loan Division. We have a residential mortgage loan division which originates conventional, or
government agency insured loans to purchase existing residential homes, construct new homes or refinance existing
mortgages.
Private Banking Division. We have a private banking division, which offers financial and wealth management
services to individuals who meet certain criteria.
Other Services. Other bank services we offer include online internet banking services, automated teller machines,
voice response telephone inquiry services, commercial sweep accounts, cash management services, safe deposit boxes,
merchant services, mobile deposit, direct deposit of payroll and social security checks, and automatic drafts for various
accounts. We network with other automated teller machines that may be used by our customers throughout our market area
and other regions. The First also offers credit card services through a correspondent bank.
Competition
The First generally competes with other financial institutions through the selection of banking products and services
offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of
expertise and the personal manner in which services are offered. State law permits statewide branching by banks and savings
institutions, and many financial institutions in our market area have branch networks. Consequently, commercial banking in
Mississippi, Alabama, Louisiana, Florida, and Georgia is highly competitive. Many large banking organizations currently
operate in our market area, several of which are controlled by out-of-state ownership. In addition, competition between
commercial banks and thrift institutions (savings institutions and credit unions) has been intensified significantly by the
elimination of many previous distinctions between the various types of financial institutions and the expanded powers and
increased activity of thrift institutions in areas of banking which previously had been the sole domain of commercial banks.
Federal legislation, together with other regulatory changes by the primary regulators of the various financial institutions, has
resulted in the almost total elimination of practical distinctions between a commercial bank and a thrift institution.
Consequently, competition among financial institutions of all types is largely unlimited with respect to legal ability and
authority to provide most financial services. Currently there are numerous other commercial banks, savings institutions, and
credit unions operating in The First’s primary service area.
We face increased competition from both federally-chartered and state-chartered financial and thrift institutions, as
well as credit unions, consumer finance companies, insurance companies, and other institutions in the Company’s market
area. Some of these competitors are not subject to the same degree of regulation and restriction imposed upon the Company.
Many of these competitors also have broader geographic markets and substantially greater resources and lending limits than
the Company and offer certain services such as trust banking that the Company does not currently provide. In addition, many
of these competitors have numerous branch offices located throughout the extended market areas of the Company that may
provide these competitors with an advantage in geographic convenience that the Company does not have at present.
We also compete with numerous financial and quasi-financial institutions for deposits and loans, including providers
of financial services over the internet, and financial technology, or fintech companies. Recent technology advances and other
changes have allowed parties to effect financial transactions that previously required the involvement of banks. For example,
consumers can maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits.
Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks.
These nontraditional financial service providers have been successful in developing digital and other products and services
that effectively compete with traditional banking services, but are in some cases subject to fewer regulatory restrictions than
banks and bank holding companies, allowing them to operate with greater flexibility and lower cost structures. Although
digital products and services have been important competitive features of financial institutions for some time, the COVID-
19 pandemic has accelerated the move toward digital financial services products and we expect that trend to continue.
9
Available Information
Pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) we are required to file Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and other filings
pursuant to Section 13(a) or 15(d) of the Exchange Act, and amendments to such filings. The SEC maintains a website at
www.sec.gov that contains the reports, proxy statements, and other filings we electronically file with the SEC. Such
information is also available free of charge on or through our website www.thefirstbank.com as soon as reasonably
practicable after each is electronically filed with, or furnished to, the SEC. Information appearing on the Company’s website
is not part of any report that it files with the SEC.
SUPERVISION AND REGULATION
We are extensively regulated under federal and state law. The following is a brief summary that does not purport to
be a complete description of all regulations that affect us or all aspects of those regulations. This discussion is qualified in its
entirety by reference to the particular statutory and regulatory provisions described below and is not intended to be an
exhaustive description of the statutes or regulations applicable to the Company’s and The First’s business. In addition,
proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal
levels. The likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on us
and The First, are difficult to predict. In addition, bank regulatory agencies may issue enforcement actions, policy statements,
interpretive letters and similar written guidance applicable to us or to The First. Changes in applicable laws, regulations or
regulatory guidance, or their interpretation by regulatory agencies or courts may have a material adverse effect on our and
The First’s business, operations, and earnings.
We, The First, and our nonbank affiliates must undergo regular on-site examinations by the appropriate regulatory
agency, which will examine for adherence to a range of legal and regulatory compliance responsibilities. A bank regulator
conducting an examination has complete access to the books and records of the examined institution. The results of the
examination are confidential. Supervision and regulation of banks, their holding companies and affiliates is intended
primarily for the protection of depositors and customers, the Deposit Insurance Fund ("DIF") of the FDIC, and the U.S.
banking and financial system rather than holders of our capital stock.
Bank Holding Company Regulation
We are registered as a bank holding company with the Federal Reserve under the Bank Holding Company Act, as
amended ("BHC Act"). As such, we are subject to comprehensive supervision, and regulation by the Federal Reserve and are
subject to its regulatory reporting requirements. Federal law subjects bank holding companies, such as the Company, to
particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for violations of laws and regulations.
Violations of laws and regulations, or other unsafe and unsound practices, may result in regulatory agencies
imposing fines or penalties, cease and desist orders, or taking other enforcement actions. Under certain circumstances, these
agencies may enforce these remedies directly against officers, directors, employees, and other parties participating in the
affairs of a bank or bank holding company. Like all bank holding companies, we are regulated extensively under federal and
state law. Under federal and state laws and regulations pertaining to the safety and soundness of insured depository
institutions, state banking regulators, the Federal Reserve, and separately the FDIC as the insurer of bank deposits, have the
authority to compel or restrict certain actions on our part if they determine that we have insufficient capital or other resources,
or are otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. Under
this authority, our bank regulators can require us or our subsidiaries to enter into informal or formal supervisory agreements,
including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders,
pursuant to which we would be required to take identified corrective actions to address cited concerns and to refrain from
taking certain actions.
10
If we become subject to and are unable to comply with the terms of any future regulatory actions or directives,
supervisory agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders,
possibly including consent orders, prompt corrective action restrictions and/or other regulatory actions, including
prohibitions on the payment of dividends on our common stock. If our regulators were to take such additional supervisory
actions, then we could, among other things, become subject to significant restrictions on our ability to develop any new
business, as well as restrictions on our existing business, and we could be required to raise additional capital, dispose of
certain assets and liabilities within a prescribed period of time, or both. The terms of any such supervisory action could have
a material negative effect on our business, reputation, operating flexibility, financial condition, and the value of our common
stock.
Activity Limitations
Bank holding companies are generally restricted to engaging in the business of banking, managing or controlling
banks; and certain other activities determined by the Federal Reserve to be closely related to banking. In addition, the Federal
Reserve has the power to order a bank holding company or its subsidiaries to terminate any nonbanking activity or terminate
its ownership or control of any nonbank subsidiary, when it has reasonable cause to believe that continuation of such activity
or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary
of that bank holding company.
Source of Strength Obligations
A bank holding company, such as us, is required to act as a source of financial and managerial strength to its
subsidiary bank. The term "source of financial strength" means the ability of a company, such as us, that directly or indirectly
owns or controls an insured depository institution, such as The First, to provide financial assistance to such insured depository
institution in the event of financial distress. The appropriate federal banking agency for the depository institution (in the case
of The First, this agency is the Federal Reserve) may require reports from us to assess our ability to serve as a source of
strength and to enforce compliance with the source of strength requirements by requiring us to provide financial assistance
to The First in the event of financial distress. If we were to enter bankruptcy or become subject to the orderly liquidation
process established by the Dodd-Frank Act, any commitment by us to a federal bank regulatory agency to maintain the capital
of The First would be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled to a priority of payment.
In addition, the FDIC provides that any insured depository institution generally will be liable for any loss incurred by the
FDIC in connection with the default of, or any assistance provided by the FDIC to, a commonly controlled insured depository
institution. The First is an FDIC-insured depository institution and thus subject to these requirements.
Acquisitions
The BHC Act permits acquisitions of banks by bank holding companies, such that we and any other bank holding
company, whether located in Mississippi or elsewhere, may acquire a bank located in any other state, subject to certain
deposit-percentage, age of bank charter requirements, and other restrictions. The BHC Act requires that a bank holding
company obtain the prior approval of the Federal Reserve before (i) acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any additional bank or bank holding company, (ii) taking any action that causes an additional
bank or bank holding company to become a subsidiary of the bank holding company, or (iii) merging or consolidating with
any other bank holding company. The Federal Reserve may not approve any such transaction that would result in a monopoly
or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking
in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a
monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive
effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider: (1) the financial and managerial resources of the
companies involved, including pro forma capital ratios; (2) the risk to the stability of the United States banking or financial
11
system; (3) the convenience and needs of the communities to be served, including performance under the Community
Reinvestment Act ("CRA"); and (4) the effectiveness of the companies in combating money laundering.
Change in Control
Federal law restricts the amount of voting stock of a bank holding company or a bank that a person may acquire
without the prior approval of banking regulators. Under the federal Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding
company, such as the Company, or before acquiring control of any state member bank, such as The First. Upon receipt of
such notice, the Federal Reserve may approve or disapprove the acquisition. The Change in Bank Control Act creates a
rebuttable presumption of control if a member or group acquires a certain percentage or more of a bank holding company’s
or bank’s voting stock. As a result, a person or entity generally must provide prior notice to the Federal Reserve before
acquiring the power to vote 10% or more of our outstanding common stock. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or similar means than it might be to acquire
control of another type of corporation. Consequently, shareholders of the Company may be less likely to benefit from the
rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other companies.
Investors should be aware of these requirements when acquiring shares of our stock.
Governance and Financial Reporting Obligations
We are required to comply with various corporate governance and financial reporting requirements under the
Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight
Board ("PCAOB"), and NASDAQ. In particular, we are required to include management and independent registered public
accounting firm reports on internal controls as part of our Annual Report on Form 10-K in order to comply with Section 404
of the Sarbanes-Oxley Act. We have evaluated our controls, including compliance with the SEC rules on internal controls,
and have and expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure
to comply with these internal control rules may materially adversely affect our reputation, ability to obtain the necessary
certifications to financial statements, and the values of our securities.
Corporate Governance
The Dodd-Frank Act addresses many investor protections, corporate governance, and executive compensation
matters that will affect most U.S. publicly traded companies. The Dodd-Frank Act (1) grants shareholders of U.S. publicly
traded companies an advisory vote on executive compensation; (2) enhances independence requirements for Compensation
Committee members; and (3) requires companies listed on national securities exchanges to adopt incentive-based
compensation claw-back policies for executive officers.
Volcker Rule
Section 13 of the BHC Act, common referred to as the "Volcker Rule," generally prohibits banking organizations
from (i) engaging in certain proprietary trading, and (ii) acquiring or retaining an ownership interest in or sponsoring a
"covered fund," all subject to certain exceptions. The Volcker Rule also specifies certain limited activities in which banking
organizations may continue to engage and requires us to maintain a compliance program. Banking, organizations, such as
us, with $10 billion or less in total consolidated assets and with total trading assets and liabilities of less than 5% of total
consolidated assets are exempt from the Volcker Rule.
Incentive Compensation
The Dodd-Frank Act required the banking agencies and the SEC to establish joint rules or guidelines for financial
institutions with more than $1 billion in assets, such as us and The First, which prohibit incentive compensation arrangements
that the agencies determine to encourage inappropriate risks by the institution. The banking agencies issued proposed rules
12
in 2011 and previously issued guidance on sound incentive compensation policies. In 2016, the banking agencies also
proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation
arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2023, these rules have not been
implemented. We have undertaken efforts to ensure that our incentive compensation plans do not encourage inappropriate
risks, consistent with three key principles-that incentive compensation arrangements should appropriately balance risk and
financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate
governance.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including
Nasdaq, to implement listing standards that require listed companies to adopt policies mandating the recovery or "clawback"
of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding
the date the listed company is required to prepare an accounting restatement, including to correct an error that would result
in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Nasdaq's
listing standards pursuant to the SEC's rule became effective on October 2, 2023. We adopted a compensation recovery
policy pursuant to the Nasdaq listing standards effective as of October 2, 2023. The policy is included as Exhibit 97.1 to this
Form 10-K.
Shareholder Say-On-Pay Votes
The Dodd-Frank Act requires public companies to take shareholders’ votes on proposals addressing compensation
(known as say-on-pay), the frequency of a say-on-pay vote, and the golden parachutes available to executives in connection
with change-in-control transactions. Public companies must give shareholders the opportunity to vote on the compensation
at least every three years and the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay
vote should be held annually, biennially, or triennially. The say-on-pay, the say-on-parachute and the say-on-frequency votes
are explicitly nonbinding and cannot override a decision of our Board of Directors.
Other Regulatory Matters
We are subject to oversight by the SEC, the PCAOB, NASDAQ and various state securities and insurance regulators.
We and our subsidiaries have from time to time received requests for information from regulatory authorities in various
states, including state attorneys general, securities regulators and other regulatory authorities, concerning our business
practices. Such requests are considered incidental to the normal conduct of business.
Capital Requirements
We and The First are each required under federal law to maintain certain minimum capital levels based on ratios of
capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the Federal Reserve
may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of
capital in order to operate in a safe and sound manner. Risks such as concentration of credit risks and the risk arising from
non-traditional activities, as well as the institution’s exposure to a decline in the economic value of its capital due to changes
in interest rates, and an institution’s ability to manage those risks, are important factors that are to be taken into account by
the federal banking agencies in assessing an institution’s overall capital adequacy. The following is a brief description of the
relevant provisions of these capital rules and their potential impact on our and The First’s capital levels.
We and The First are each subject to the following risk-based capital ratios: a CET1 risk-based capital ratio, a Tier
1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital and a total capital ratio, which includes Tier 1
and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments and related surplus net of treasury
stock and retained earnings less certain adjustments and deductions, including with respect to goodwill, intangible assets,
mortgage servicing assets and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is
primarily comprised of noncumulative perpetual preferred stock. Tier 2 capital consists of instruments disqualified from Tier
1 capital, including qualifying subordinated debt and a limited amount of loan loss reserves up to a maximum of 1.25% of
13
risk-weighted assets, subject to certain eligibility criteria. The capital rules also define the risk-weights assigned to assets and
off-balance sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for
example, certain "high volatility" commercial real estate, past due assets, structured securities and equity holdings.
The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly
average assets net of goodwill, certain other intangible assets, and certain required deduction items. The required minimum
leverage ratio for all banks and bank holding companies (unless exempt) is 4%.
In addition, effective January 1, 2019, the capital rules required a capital conservation buffer of CET1 of 2.5% above
each of the minimum capital ratio requirements (CET1, Tier 1, and total risk-based capital), which is designed to absorb
losses during periods of economic stress. These buffer requirements must be met for a bank or bank holding company to be
able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without
restriction.
Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and
possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our
operations or financial condition. Failure to be well-capitalized or to meet minimum capital requirements could also result
in restrictions on the Company’s or The First’s ability to pay dividends or otherwise distribute capital or to receive regulatory
approval of applications or other restrictions on its growth.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, requires
the federal bank regulatory agencies to take "prompt corrective action" regarding depository institutions that do not meet
minimum capital requirements. FDICIA establishes five regulatory capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically undercapitalized." A depository institution’s capital tier
will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established
by regulation. FDICIA generally prohibits a depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be
undercapitalized. The FDICIA imposes progressively more restrictive restraints on operations, management and capital
distributions, depending on the category in which an institution is classified. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions
may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations and are required to submit
capital restoration plans for regulatory approval. A depository institution’s holding company must guarantee any required
capital restoration plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. Federal banking
agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized. All of the federal bank regulatory agencies have adopted regulations
establishing relevant capital measures and relevant capital levels for federally insured depository institutions.
To be well-capitalized, The First must maintain at least the following capital ratios:
•
•
•
•
6.5% CET1 to risk-weighted assets;
8.0% Tier 1 capital to risk-weighted assets;
10.0% Total capital to risk-weighted assets; and
5.0% leverage ratio.
The First was well capitalized at December 31, 2023, and brokered deposits are not restricted.
14
The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the
higher capital requirements imposed under the current capital rules applicable to banks. For purposes of the Federal Reserve’s
Regulation Y, bank holding companies, such as the Company, must maintain a Tier 1 risk-based capital ratio of 6.0% or
greater and a total risk-based capital ratio of 10.0% or greater to be well-capitalized. If the Federal Reserve were to apply the
same or a very similar well-capitalized standard to bank holding companies as that applicable to The First, the Company’s
capital ratios as of December 31, 2023 would exceed such revised well-capitalized standard. Also, the Federal Reserve may
require bank holding companies, including the Company, to maintain capital ratios substantially in excess of mandated
minimum levels, depending upon general economic conditions and a bank holding company’s particular condition, risk
profile and growth plans.
On October 29, 2019, the federal banking agencies issued a final rule to simplify the regulatory capital requirements
for eligible banks and holding companies with less than $10 billion in consolidated assets that opt into the Community Bank
Leverage Ratio ("CBLR") framework, as required by Section 201 of the Economic Growth, Relief and Consumer Protection
Act (the "Regulatory Relief Act"). A qualifying community banking organization that exceeds the CBLR threshold would be
exempt from the agencies’ current capital framework, including the risk-based capital requirements and capital conservation
buffer described above, and would be deemed well-capitalized under the agencies’ prompt corrective action regulations. The
Regulatory Relief Act defines a "qualifying community banking organization" as a depository institution or depository
institution holding company with total consolidated assets of less than $10 billion. Under the final rule, if a qualifying
community banking organization elects to use the CBLR framework, it will be considered "well-capitalized" so long as its
CBLR is greater than 9%. The First has chosen not to opt into the CBLR at this time.
In 2023, our and The First’s regulatory capital ratios were above the applicable well-capitalized standards and met
the capital conservation buffer. Based on current estimates, we believe that we and The First will continue to exceed all
applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2024. Certain regulatory
capital ratios of the Company and The First, as of December 31, 2023, are shown in the following table:
Capital Adequacy Ratios
Regulatory
Minimums
Regulatory
Minimums
to be Well
Capitalized
Minimum
Capital Required
Basel III Fully
Phased-In
The First
Bancshares, Inc.
The First
4.5 %
6.0 %
8.0 %
4.0 %
6.5 %
8.0 %
10.0 %
5.0 %
7.0 %
8.5 %
10.5 %
4.0 %
12.1 %
12.5 %
15.0 %
9.7 %
13.8 %
13.8 %
14.8 %
10.7 %
Common Equity Tier 1 risk-based
capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Leverage ratio
Payment of Dividends
We are a legal entity separate and distinct from The First and our other subsidiaries. The primary sources of funds
for our payment of dividends to our shareholders are cash on hand and dividends from The First. Various federal and state
statutory provisions and regulations limit the amount of dividends that The First may pay.
In addition, in deciding whether or not to declare a dividend of any particular size, the Company’s board of directors
must consider its and the Bank’s current and prospective capital, liquidity, and other needs. In addition to state law limitations
on the Company’s ability to pay dividends, the Federal Reserve imposes limitations on the Company’s ability to pay
dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if
the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.
15
In addition, we and The First are subject to various general regulatory policies and requirements relating to the
payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate
federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of
dividends would be an unsafe or unsound practice. The Federal Reserve has indicated that paying dividends that deplete a
bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. The Federal Reserve has
indicated that depository institutions and their holding companies should generally pay dividends only out of current
operating earnings. Further, under Mississippi law, The First must obtain the non-objection of the Commissioner of the
Mississippi Department of Banking and Consumer Finance prior to paying any dividend to the Company.
Under a Federal Reserve policy adopted in 2009, the board of directors of a bank holding company must consider
different factors to ensure that its dividend level is prudent relative to maintaining a strong financial position, and is not based
on overly optimistic earnings scenarios, such as potential events that could affect its ability to pay, while still maintaining a
strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding
company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s
dividends if:
•
•
•
its net income available to shareholders for the past four quarters, net of dividends previously paid during that
period, is not sufficient to fully fund the dividends;
its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective
financial condition; or
it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Regulation of the Bank
The First, which is a member of the Federal Reserve System, is subject to comprehensive supervision and regulation
by the Federal Reserve, and is subject to its regulatory reporting requirements, as well as supervision and regulation by the
Mississippi Department of Banking and Consumer Finance. As a member bank of the Federal Reserve System, The First is
required to hold stock in its district Federal Reserve Bank in an amount equal to 6% of its capital stock and surplus (half paid
to acquire stock with the remainder held as a cash reserve). Member banks do not have any control over the Federal Reserve
System as a result of owning the stock and the stock cannot be sold or traded.
The deposits of The First are insured by the FDIC up to applicable limits, and, accordingly, The First is also subject
to certain FDIC regulations and the FDIC has backup examination authority and some enforcement powers over The First.
In addition, as discussed in more detail below, The First and any other of our subsidiaries that offer consumer
financial products and services are subject to regulation and potential supervision by the Consumer Financial Protection
Bureau ("CFPB"). In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are
stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce certain federal
consumer financial protection law.
Broadly, regulations applicable to The First include limitations on loans to a single borrower and to its directors,
officers and employees; restrictions on the opening and closing of branch offices; the maintenance of required capital ratios;
the granting of credit under equal and fair conditions; the disclosure of the costs and terms of such credit; requirements to
maintain reserves against deposits and loans; limitations on the types of investment that may be made by The First;
requirements governing risk management practices; restrictions on the ability of institutions to guarantee its debt; and certain
specific accounting requirements on the Company that may be more restrictive and may result in greater or earlier charges
to earnings or reductions in its capital than generally accepted accounting principles.
16
Transactions with Affiliates and Insiders
The First is subject to restrictions on extensions of credit and certain other transactions between The First and the
Company or any nonbank affiliate. Generally, these covered transactions with either the Company or any affiliate are limited
to 10% of The First’s capital and surplus, and all such transactions between The First Bank and the Company and all of its
nonbank affiliates combined are limited to 20% of The First’s capital and surplus. Loans and other extensions of credit from
The First to the Company or any affiliate generally are required to be secured by eligible collateral in specified amounts. In
addition, any transaction between The First and the Company or any affiliate are required to be on an arm’s length basis.
Federal banking laws also place similar restrictions on certain extensions of credit by insured banks, such as The
First, to their directors, executive officers and principal shareholders.
Reserves
Federal Reserve rules require depository institutions, such as The First, to maintain reserves against their transaction
accounts, primarily NOW and regular checking accounts. Effective March 26, 2020, the Federal Reserve eliminated reserve
requirements for all depository institutions. These reserve requirements are subject to annual adjustment by the Federal
Reserve.
FDIC Insurance Assessments and Depositor Preference
The First’s deposits are insured by the FDIC’s DIF up to the limits under applicable law, which currently are set at
$250,000 per depositor, per insured bank, for each account ownership category. The First is subject to FDIC assessments for
its deposit insurance. The FDIC calculates quarterly deposit insurance assessments based on an institution’s average total
consolidated assets less its average tangible equity, and applies one of four risk categories determined by reference to its
capital levels, supervisory ratings, and certain other factors. The assessment rate schedule can change from time to time, at
the discretion of the FDIC, subject to certain limits.
As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory minimum of 1.35%. The FDIC, as
required under the Federal Deposit Insurance Act, established a plan on September 15, 2020 to restore the DIF reserve ration
to meet or exceed the statutory minimum of 1.35% within eight years. On October 18, 2022, the FDIC adopted an amended
restoration plan to increase the likelihood that the reserve ratio would be restored to at least 1.35% by September 30, 2028.
The FDIC's amended restoration plan increases the initial base deposit insurance assessment rate schedules uniformly by 2
basis points, beginning in the first quarterly assessment period of 2023. The FDIC could further increase the deposit
insurance assessments for certain insured depository institutions, including The First, if the DIF reserve ratio is not restored
as projected.
In November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to DIF
associated with several bank failures that occurred during early 2023. The assessment base for the special assessment is
equal to estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, to be
collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods,
beginning the first quarterly assessment period of 2024. The First did not have uninsured deposits in excess of $5 billion,
and so is not subject to this special assessment.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation,
rule, order or condition imposed by a bank’s federal regulatory agency. In addition, the Federal Deposit Insurance Act
provides that, in the event of the liquidation or other resolution of an insured depository institution, the claims of depositors
of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative
expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution, including
those of the parent bank holding company.
17
Standards for Safety and Soundness
The Federal Deposit Insurance Act requires the federal bank regulatory agencies to prescribe, by regulation or
guideline, operational and managerial standards for all insured depository institutions relating to: (1) internal controls; (2)
information systems and audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate risk exposure; and
(6) asset quality. The federal banking agencies have adopted regulations and Interagency Guidelines Establishing Standards
for Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness
standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under
the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator
may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and
review of such safety and soundness compliance plans.
Anti-Money Laundering
Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism (“USA PATRIOT”) Act of 2001, financial institutions are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their
dealings with foreign financial institutions and foreign customers. The USA PATRIOT Act, and its implementing regulations
adopted by the FinCEN, a bureau of the U.S. Department of the Treasury, requires financial institutions to establish anti-
money laundering programs with minimum standards that include:
•
•
•
•
•
the development of internal policies, procedures, and controls;
the designation of a compliance officer;
an ongoing employee training program;
an independent audit function to test the programs; and
identify and verify the identity of beneficial owners of legal entity customers.
Banking regulators will consider compliance with the Act’s money laundering provisions in acting upon acquisition
and merger proposals. Bank regulators routinely examine institutions for compliance with these obligations and have been
active in imposing cease and desist and other regulatory orders and money penalty sanctions against institutions found to be
violating these obligations. Sanctions for violations of the Act can be imposed in an amount equal to twice the sum involved
in the violating transaction, up to $1 million. On January 1, 2021, Congress passed federal legislation that made sweeping
changes to federal anti-money laundering laws, including changes that will be implemented in subsequent years.
Economic Sanctions
The Office of Foreign Assets Control ("OFAC") is responsible for helping to ensure that U.S. entities do not engage
in transactions with certain prohibited parties, as defined by various Executive Orders and acts of Congress. OFAC publishes,
and routinely updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts,
including the Specially Designated Nationals and Blocked Persons List. If we find a name on any transaction, account or
wire transfer that is on an OFAC list, we must undertake certain specified activities, which could include blocking or freezing
the account or transaction requested, and we must notify the appropriate authorities.
Concentrations in Lending
During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate
Lending” (the “Guidance”) and advised financial institutions of the risks posed by CRE lending concentrations. The
18
Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate
lending concentrations. Higher allowances for loan losses and capital levels may also be required. The Guidance is triggered
when CRE loan concentrations exceed either:
• Total reported loans for construction, land development, and other land of 100% or more of a bank’s total risk-based
capital; or
• Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land
development, and other land of 300% or more of a bank’s total risk-based capital.
The Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE
secured by a particular property type. We have always had exposures to loans secured by CRE due to the nature of our
markets and the loan needs of both retail and commercial customers. We believe our long term experience in CRE lending,
underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and
administration procedures, are generally appropriate to managing our concentrations as required under the Guidance.
Community Reinvestment Act
The First is subject to the provisions of the CRA, which imposes a continuing and affirmative obligation, consistent
with their safe and sound operation, to help meet the credit needs of entire communities where the bank accepts deposits,
including low- and moderate-income neighborhoods. The Federal Reserve’s assessment of The First’s CRA record is made
available to the public. Further, a less than satisfactory CRA rating will slow, if not preclude, expansion of banking activities
and prevent a company from becoming or remaining a financial holding company. Following the enactment of the Gramm-
Leach-Bliley Act (“GLB”), CRA agreements with private parties must be disclosed and annual CRA reports must be made
to a bank’s primary federal regulator. A bank holding company will not be permitted to become or remain a financial holding
company and no new activities authorized under GLB may be commenced by a holding company or by a bank financial
subsidiary if any of its bank subsidiaries received less than a “satisfactory” CRA rating in its latest CRA examination. Federal
CRA regulations require, among other things, that evidence of discrimination against applicants on a prohibited basis, and
illegal or abusive lending practices be considered in the CRA evaluation. The First has a rating of “Satisfactory” in its most
recent CRA evaluation.
On October 24, 2023, the OCC, the FRB, and FDIC issued a final rule to modernize their respective CRA
regulations. The revised rules substantially alter the methodology for assessing compliance with the CRA, with material
aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January 1, 2027. Among other
things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery
systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible
CRA activities. The final rules may make it more challenging and/or costly for the Bank to receive a rating of at least
"satisfactory" on its CRA exam.
Privacy, Credit Reporting, and Data Security
The GLB generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer
has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required
to disclose their privacy policies to customers annually. Financial institutions, however, will be required to comply with state
law if it is more protective of consumer privacy than the GLB. The GLB also directed federal regulators to prescribe standards
for the security of consumer information. The First is subject to such standards, as well as standards for notifying customers
in the event of a security breach. The First utilizes credit bureau data in underwriting activities. Use of such data is regulated
under the Fair Credit Reporting Act and Regulation V on a uniform, nationwide basis, including credit reporting,
prescreening, and sharing of information between affiliates and the use of credit data. The Fair and Accurate Credit
Transactions Act, which amended the Fair Credit Reporting Act, permits states to enact identity theft laws that are not
inconsistent with the conduct required by the provisions of that Act. We are also required to have an information security
19
program to safeguard the confidentiality and security of customer information and to ensure proper disposal. Customers must
be notified when unauthorized disclosure involves sensitive customer information that may be misused. The federal banking
agencies also require banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level
of a “notification incident.”
Anti-Tying Restrictions
In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration
for them on the condition that (1) the customer obtain or provide some additional credit, property, or services from or to the
bank or bank holding company or their subsidiaries or (2) the customer not obtain some other credit, property, or services
from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended. A
bank may, however, offer combined-balance products and may otherwise offer more favorable terms if a customer obtains
two or more traditional bank products. The law also expressly permits banks to engage in other forms of tying and authorizes
the Federal Reserve to grant additional exceptions by regulation or order. Also, certain foreign transactions are exempt from
the general rule.
Consumer Regulation
Activities of The First are subject to a variety of statutes and regulations designed to protect consumers. These laws
and regulations include, among numerous other things, provisions that:
•
•
•
•
•
•
limit the interest and other charges collected or contracted for by The First, including rules respecting the terms of
credit cards and of debit card overdrafts;
govern The First’s disclosures of credit terms to consumer borrowers;
require The First to provide information to enable the public and public officials to determine whether it is fulfilling
its obligation to help meet the housing needs of the communities it serves;
prohibit The First from discriminating on the basis of race, creed or other prohibited factors when it makes decisions
to extend credit;
govern the manner in which The First may collect consumer debts; and
prohibit unfair, deceptive or abusive acts or practices in the provision of consumer financial products and services.
Mortgage Regulation
The CFPB has issued rules to implement requirements of the Dodd-Frank Act pertaining to mortgage loan
origination (including with respect to loan originator compensation and loan originator qualifications) as well as integrated
mortgage disclosure rules. In addition, the CFPB has issued rules that require servicers to comply with new standards and
practices with regard to: error correction; information disclosure; force-placement of insurance; information management
policies and procedures; requiring information about mortgage loss mitigation options be provided to delinquent borrowers;
providing delinquent borrowers access to servicer personnel with continuity of contact about the borrower’s mortgage loan
account; and evaluating borrowers’ applications for available loss mitigation options. These rules also address initial rate
adjustment notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgage loans, and prompt
crediting of mortgage payments and response to requests for payoff amounts.
20
Non-Discrimination Policies
The First is also subject to, among other things, the provisions of the Equal Credit Opportunity Act (the “ECOA”)
and the Fair Housing Act (the “FHA”), both of which prohibit discrimination based on race or color, religion, national origin,
sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. The Department
of Justice (the “DOJ”), and the federal bank regulatory agencies have issued an Interagency Policy Statement on
Discrimination in Lending that provides guidance to financial institutions in determining whether discrimination exists, how
the agencies will respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending
practices. The DOJ has increased its efforts to prosecute what it regards as violations of the ECOA and FHA.
Effect of Governmental Monetary and Fiscal Policies
The difference between the interest rate paid on deposits and other borrowings and the interest rate received on
loans and securities comprises most of a bank’s earnings. In order to mitigate the interest rate risk inherent in the industry,
the banking business is becoming increasingly dependent on the generation of fee and service charge revenue.
The earnings and growth of a bank are affected by both general economic conditions and the monetary and fiscal
policy of the U.S. government and its agencies, particularly the Federal Reserve. The Federal Reserve sets national monetary
policy such as seeking to curb inflation and combat recession. This is accomplished by its open-market operations in U.S.
government securities, adjustments in the amount of reserves that financial institutions are required to maintain and
adjustments to the discount rates on borrowings and target rates for federal funds transactions. The actions of the Federal
Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest rates on loans
and deposits. The nature and timing of any future changes in monetary policies and their potential impact on the Company
cannot be predicted.
ITEM 1A. RISK FACTORS
Our business is subject to risk. The following discussion, along with management’s discussion and analysis and our
financial statements and footnotes, sets forth the most significant risks and uncertainties that we believe could adversely
affect our business, financial condition or results of operations. Additional risks and uncertainties that management is not
aware of or that management currently deems immaterial may also have a material adverse effect on our business, financial
condition or results of operations. There is no assurance that this discussion covers all potential risks that we face. Further,
to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking
statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our
actual results to differ materially from those expressed in any forward-looking statements made herein.
Risk Factors Associated with Our Business
General economic conditions in the areas where our operations or loans are concentrated may adversely affect our
financial results or liquidity.
A sudden or severe downturn in the economy in the geographic markets we serve in the states of Mississippi,
Louisiana, Alabama, Florida or Georgia may affect the ability of our customers to meet loan payment obligations on a timely
basis. The local economic conditions in these areas have a significant impact on our commercial, real estate, and construction
loans, the ability of borrowers to repay these loans and the value of the collateral securing such loans. Any deterioration in
the economic conditions of these market areas could negatively impact the financial results of the Company’s banking
operations, earnings, and profitability.
Our Bank requires liquidity in the form of available funds to meet its deposit, debt and other obligations as they
come due, borrower requests to draw on committed credit facilities as well as unexpected demands for cash payments.
Adverse economic changes may cause customers to withdraw deposit balances, thereby causing a strain on our liquidity.
21
Moreover, customers with larger uninsured deposit account balances often are small-and mid-sized businesses that rely upon
deposit funds for payment of operational expenses and, as a result, are more likely to closely monitor for financial condition
and performance of their depository institutions. As a result, in the event of financial distress, uninsured depositors
historically have been more likely to withdraw their deposits. If a significant portion of our deposits were to be withdrawn
within a short period of time, additional sources of liquidity may be required to meet withdrawal demands. We have
historically had access to a number of alternative sources of liquidity, but if there is an increase in volatility in the credit and
liquidity markets there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all.
We may be vulnerable to certain sectors of the economy, including real estate.
A significant portion of our loan portfolio is secured by real estate. Real estate values in our markets have
experienced periods of fluctuation over the last several years, and the market value of real estate can fluctuate significantly
in a relatively short period of time. If the economy deteriorates and real estate values decline materially in one or more of
our markets, the credit risk associated with our loan portfolio could increase, a significant part of our loan portfolio could
become under-collateralized and losses incurred upon borrower defaults would increase. This could result in additional credit
loss accruals which would negatively impact our earnings. Our ability to dispose of foreclosed real estate at prices above the
respective carrying values could also be impacted, which could cause our results of operations to be adversely affected.
Unpredictable market conditions may adversely affect the industry in which we operate.
The capital and credit markets are subject to volatility and disruption. Dramatic declines in the housing market in
years past caused home prices to fall and increased foreclosures, unemployment and under-employment. These events, if
they were to happen again, could negatively impact the credit performance of mortgage loans and result in significant write-
downs of asset values, including government-sponsored entities as well as major commercial and investment banks. Market
turmoil and tightening of credit could lead to an increased level of commercial and consumer delinquencies, lack of consumer
confidence and widespread reduction of business activity. Generally, a worsening of these conditions would have an adverse
effect on us and others in the financial institution industry, particularly in our real estate markets, as lower home prices and
increased foreclosures would result in higher charge-offs and delinquencies.
The state of the economy and various economic factors, including inflation, recession, unemployment, interest rates
and the level of U.S. debt, as well as governmental action and uncertainty resulting from U.S. and global political trends,
may directly and indirectly, have a destabilizing effect on our financial condition and results of operations. In addition, the
U.S. government's decisions regarding its debt ceiling and the possibility that the U.S. could default on its debt obligations
could cause further interest rate increases, disrupt access to capital markets and deepen recessionary conditions. An
unfavorable or uncertain national or regional political or economic environment could drive losses beyond those which are
provided for in our allowance for credit losses and could negatively impact our results of operations.
We must maintain an appropriate allowance for credit losses.
The First, as lender, is exposed to the risk that its customers will be unable to repay their loans in accordance with
their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses
are inherent in the business of making loans and could have a material adverse effect on our operating results. Credit risk
with respect to our real estate and construction loan portfolio relates principally to the creditworthiness of the borrower
corporations and the value of the real estate serving as security for the repayment of loans. Credit risk with respect to our
commercial and consumer loan portfolio will relate principally to the general creditworthiness of the borrower businesses
and individuals within our local markets.
On January 1, 2021, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments
- Credit Losses ("ASC 326"). The Financial Accounting Standards Board (the “FASB”) issued ASC 326 to replace the
incurred loss model for loans and other financial assets with an expected loss model and requires consideration of a wider
range of reasonable and supportable information to determine credit losses. In accordance with ASC 326, the Company has
22
developed an allowance for credit losses (“ACL”) methodology effective January 1, 2021, which replaces its previous
allowance for loan losses methodology. The ACL is a valuation account that is deducted from loans’ amortized cost basis to
present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant available information, from internal and external
sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience
provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for
differences in current risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or
term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other
relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss
history including index or peer data. Management evaluates the adequacy of the ACL quarterly and makes provisions for
credit losses based on this evaluation. See Note B – Summary of Significant Accounting Policies in the notes to consolidated
financial statements. Changes in economic conditions or individual business or personal circumstances affecting borrowers,
new information regarding existing loans, identification of additional problem loans and other factors, both within and outside
of our control, may require an increase in the ACL. Further, if actual charge-offs in future periods exceed our estimation of
charge-offs, we may need additional provision for loan losses to restore the adequacy of our ACL. If we are required to
materially increase our level of ACL for any reason, such increases could have an adverse effect on our business, financial
condition, and results of operations.
We are subject to risks related to changes in market interest rates.
Our assets and liabilities are primarily monetary in nature, and as a result we are subject to significant risks resulting
from changes in interest rates. Our profitability is largely dependent upon net interest income. Unexpected movement in
interest rates markedly changing the slope of the current yield curve could cause net interest margins to decrease,
subsequently decreasing net interest income. In addition, such changes could adversely affect the valuation of our assets and
liabilities.
The fair market value of the securities portfolio and the investment income from these securities also fluctuates
depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from
investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those
anticipated at the time of investment as a result of interest rate fluctuations.
Beginning in early 2022, in response to growing signs of inflation, the FRB increased interest rates rapidly. Further,
the FRB has increased the benchmark rapidly and has announced an intention to take further actions to mitigate rising
inflationary pressures. Rising interest rates can have a negative impact on our business by reducing the amount of money our
clients borrow or by adversely affecting their ability to repay outstanding loan balances that may increase due to adjustments
in their variable rates. In addition, as interest rates rise, so have competitive pressures on the deposit cost of funds. We may
have to offer more attractive interest rates to depositors to compete for deposits, or pursue other sources of liquidity, such as
wholesale funds, which could result in negative pressure on our net interest income. It is not possible to predict the pace and
magnitude of changes in interest rates, or the impact rate changes will have on the Company’s results of operations.
Certain changes in interest rates, inflation, or the financial markets could affect demand for our products and our ability
to deliver products efficiently.
Loan originations, and therefore loan revenues, could be adversely impacted by rising interest rates. Increases in
market interest rates can have negative impacts on our business, including reducing our customers’ desire to borrow money
from us or adversely affecting their ability to repay their outstanding loans by increasing their debt service obligations through
the periodic reset of adjustable interest rate loans. If our borrowers’ ability to repay their loans is impaired by increasing
23
interest payment obligations, our level of non-performing assets would increase, producing an adverse effect on operating
results. Asset values, especially commercial real estate as collateral, securities or other fixed rate earning assets, can decline
significantly with relatively minor changes in interest rates. If interest rates were to decrease, our yield on our variable rate
loans and on our new loans would decrease, reducing our net interest income. In addition, lower interest rates may reduce
our realized yields on investment securities, which would reduce our net interest income and cause downward pressure on
net interest margin in future periods. A significant reduction in our net interest income could have a material adverse impact
on our capital, financial condition and results of operations.
Continued increases in inflation could cause operating costs related to salaries and benefits, technology, and supplies
to increase at a faster pace than revenues.
Evaluation of investment securities for impairment involves subjective determinations and could materially impact our
results of operations and financial condition.
The evaluation of impairments is a quantitative and qualitative process, which is subject to risks and uncertainties,
and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings.
The risks and uncertainties include changes in general economic conditions, the issuers’ financial condition or future recovery
prospects, the effects of changes in interest rates or credit spreads and the expected recovery period. Estimating future cash
flows involves incorporating information received from third-party sources and making internal assumptions and judgments
regarding the future performance of the underlying collateral and assessing the probability that an adverse change in future
cash flows has occurred. The determination of the amount of impairments is based upon the Company’s quarterly evaluation
and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are
revised as conditions change and new information becomes available.
Additionally, our management considers a wide range of factors about the security issuer and uses its reasonable
judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for
recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the
issuer and its future earnings potential. Impairments to the carrying value of our investment securities may need to be taken
in the future, which could have a material adverse effect on our results of operations and financial condition.
Changes in the policies of monetary authorities and other government action could adversely affect profitability.
The results of operations of the Company are affected by credit policies of monetary authorities, particularly the
Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board. The instruments of
monetary policy employed by the Federal Reserve Board include open market operations in U.S. government securities,
changes in the discount rate or the federal funds rate on bank borrowings and changes in reserve requirements against bank
deposits. In view of changing conditions in the national economy and monetary policy, we cannot predict the impact of future
changes in interest rates, deposit levels, loan demand or the Company’s business and earnings. Furthermore, the actions of
the United States government and other governments in responding to developing situations or implementing new fiscal or
trade policies may result in currency fluctuations, exchange controls, market disruption and other unanticipated economic
effects. Such actions could have an adverse effect on our results of operations and profitability.
We are subject to regulation by various Federal and State entities.
The Company and The First are subject to extensive regulation by various regulatory agencies, including the Federal
Reserve Board, the FDIC, the Mississippi Department of Banking and Consumer Finance and the CFPB. See Supervision
and Regulation above for more information. New regulations issued by these agencies may adversely affect our ability to
carry on our business activities. The Company is subject to various Federal and state laws and certain changes in these laws
and regulations may adversely affect operations.
24
The Company and The First are also subject to the accounting rules and regulations of the SEC and the FASB.
Changes in accounting rules could adversely affect the reported financial statements or results of operations of the Company
and may also require extraordinary efforts or additional costs to implement. Any of these laws or regulations may be modified
or changed from time to time, and we cannot be assured that such modifications or changes will not adversely affect the
Company.
Tax law and regulatory changes could adversely affect our financial condition and results of operations.
Changes to tax laws, including a repeal of all or part of the Tax Cuts and Jobs Act and the implementation of the
Inflation Reduction Act of 2022 ("IRA"), could significantly impact our business in the form of greater than expected income
tax expense and taxes payable. Such changes may also negatively impact the financial condition of our customers and/or
overall economic conditions. Further, future regulatory reforms that could include a heightened focus and scrutiny on
BSA/AML related compliance, expansion of consumer protections, the regulation of loan portfolios and credit concentrations
to borrows impacted by climate changes, increased capital and liquidity requirements and limitations or additional taxes on
share repurchases and dividends, could increase our costs and impact our business.
On August 16, 2022, the IRA was signed into law in the United States. The IRA includes various tax provisions,
including an excise tax on stock repurchases and a corporate alternative minimum tax that generally applies to U.S.
corporations with average adjusted financial statement income over a three-year period in excess of $1 billion. We do not
currently expect the IRA to have a material impact on our financial results, including on our annual estimated effective tax
rate or on our liquidity, the effects of the measures are unknown at this time.
We may be required to pay additional insurance premiums to the FDIC, which could negatively impact earnings.
The deposits of The First are insured by the FDIC up to legal limits and, accordingly, subject it to the payment of
FDIC deposit insurance assessments. The First's regular assessments are determined by the level of its assessment base and
its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that is poses.
Moreover, the FDIC has the unilateral power to change deposit insurance assessment rates and the manner in which deposit
insurance is calculated and also to charge special assessments to FDIC-insured institutions. The FDIC utilized these powers
during the financial crisis for the purpose of restoring the reserve ratios of the Deposit Insurance Fund. Beginning in the first
quarterly assessment period of 2023, the FDIC deposit insurance premiums were increased by two basis points. Any future
special assessments, increases in assessment rates or premiums, or required prepayments in FDIC insurance premiums could
reduce our profitability or limit our ability to pursue certain business opportunities, which could materially and adversely
affect our business, financial condition, and results of operations.
We are subject to industry competition which may have an adverse impact upon our success.
The profitability of the Company depends on its ability to compete successfully with other financial services
companies. We operate in a highly competitive financial services environment. Certain competitors are larger and may have
more resources than we do. We face competition in our regional market areas from other commercial banks, savings
institutions, credit unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment
banking firms, and other financial intermediaries that offer similar services. Some of the nonbank competitors are not subject
to the same extensive regulations that govern the Company or The First and may have greater flexibility in competing for
business.
Many of these competitors also have broader geographic markets and substantially greater resources and lending
limits than The First and offer certain services such as trust banking that The First does not currently provide. In addition,
many of these competitors have numerous branch offices located throughout the extended market areas of The First that may
provide these competitors with an advantage in geographic convenience that The First does not have at present. Currently
there are numerous other commercial banks, savings institutions, and credit unions operating in The First’s primary service
area.
25
We also compete with numerous financial and quasi-financial institutions for deposits and loans, including providers
of financial services over the internet. Recent technology advances and other changes have allowed parties to effectuate
financial transactions that previously required the involvement of banks. For example, consumers can maintain funds in
brokerage accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete
transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating
banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer
deposits and the related income generated from those deposits. The loss of these revenue streams and access to lower cost
deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
Some of our competitors have reduced or eliminated certain service charges on deposit accounts, including overdraft
fees, and additional competitors may be willing to reduce or eliminate service or other fees in order to attract additional
customers. If the Company chooses to reduce or eliminate certain categories of fees, including those related to deposit
accounts, fee income related to these products and services would be reduced. If the Company chooses not to take such
actions, we may be at a competitive disadvantage in attracting customers for certain fee producing products.
Our information systems may experience an interruption or breach in security.
We necessarily collect, use and hold personal and financial information concerning individuals and businesses with
which we have a banking relationship. This information includes non-public, personally identifiable information that is
protected under applicable federal and state laws and regulations. As such, we rely heavily on communications and
information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in
failures or disruptions in our customer relationship management, deposit, loan and other systems. While we have policies
and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information
systems, there can be no assurance that we can prevent any such failures, interruptions, cyber security breaches or other
security breaches or, if they do occur, that they will be adequately addressed. We have been, and likely will continue to be,
subject to various forms of external security breaches, which may include computer hacking, acts of vandalism or theft,
malware, computer viruses or other malicious codes, phishing, employee error or malfeasance, catastrophes, unforeseen
events or other cyber-attacks. To date, we have seen no material impact on our business or operations from these attacks or
events. Any future significant compromise or breach of our data security, whether external or internal, or misuse of customer,
associate, supplier or Company data could damage our reputation, result in a loss of customer business, subject us to
additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a
material adverse effect on our financial condition and results of operations. In addition, as the regulatory environment related
to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly
changing requirements applicable to our business, compliance with those requirements could also result in additional costs.
It is difficult or impossible to defend against every risk being posed by changing technologies or criminals intent on
committing cyber-crime. In the last few years, there have been an increasing number of cyber incidents and cyber criminals
continue to increase their sophistication, including several well-publicized cyber-attacks that targeted other companies in the
United States, including financial services companies much larger than us. These cyber incidents have been initiated from a
variety of sources, including terrorist organizations and hostile foreign governments. As technology advances, the ability to
initiate transactions and access data has also become more widely distributed amount mobile devices, personal computers,
automated teller machines, remote deposit capture sites and similar access points, some of which are not controlled or secured
by us. It is possible that we could have exposure to liability and suffer losses as a result of a security breach or cyber-attack
that occurred through no fault of our own. Further, the probability of a successful cyber-attack against us or one of our third-
party services providers cannot be predicted, and in some cases, prevented.
26
Natural disasters, public health emergencies, acts of war or terrorism and other external events could affect our ability to
operate.
Our market areas are susceptible to natural disasters such as hurricanes and tornados. Natural disasters can disrupt
operations, result in damage to properties that may be serving as collateral for our loan assets and negatively affect the local
economies in which we operate. Climate change may be increasing the nature, severity and frequency of adverse weather
conditions, making the impact from these types of natural disasters on our customers or us worse. We cannot predict whether
or to what extent damage caused by future hurricanes, tornados or other natural disasters will affect operations or the
economies in our market areas, but such weather events could cause a decline in loan originations, a decline in the value or
destruction of properties serving as collateral for our loans and an increase in the risk of delinquencies, foreclosures or loan
losses.
In addition, health emergencies, disease pandemics, acts of war or terrorism, trade policies and sanctions, including
the repercussions of the ongoing military conflicts in Ukraine and the Middle East, and other external events could cause
disruption in our operations. The occurrence of any of these events could have a material adverse effect on our business,
financial condition and results of operations.
Our business is susceptible to fraud.
Our business exposes us to fraud risk from our loan and deposit customers, the parties they do business with, as
well as from our employees, contractors and vendors. We rely on financial and other data from new and existing customers
which could turn out to be fraudulent when accepting such customers, executing their financial transactions and making and
purchasing loans and other financial assets. In times of increased economic stress, we are at increased risk of fraud losses.
We believe we have underwriting and operational controls in place to prevent or detect such fraud, but we cannot provide
assurance that these controls will be effective in detecting fraud or that we will not experience fraud losses or incur costs or
other damage related to such fraud, at levels that adversely affect our financial results or reputation. Our lending customers
may also experience fraud in their businesses which could adversely affect their ability to repay their loans or make use of
our services. Our exposure and the exposure of our customers to fraud may increase our financial risk and reputation risk as
it may result in unexpected loan losses that exceed those that have been provided for in our allowance for credit losses.
We may not be able to attract and retain skilled personnel.
Our success depends, in large part, on our ability to attract and retain key personnel. Competition for the best
personnel in most activities we engage in can be intense, and we may not be able to hire personnel or to retain them. The
unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because
of the difficulty of promptly finding qualified replacement personnel with comparable skills, knowledge of our market,
relationships in the communities we serve, and years of industry experience. Although we have employment agreements with
certain of our executive officers, there is no guarantee that these officers and other key personnel will remain employed with
the Company.
The soundness of other financial institutions could adversely affect the Company.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing, counterparty
and other relationships. We have exposure to different industries and counterparties, and through transactions with
counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other
financial intermediaries. As a result, defaults by, declines in the financial condition of, or even rumors or concerns about,
one or more financial institutions or the financial services industry generally could negatively impact market-wide liquidity
and could lead to losses or defaults by the Company or by other institutions.
27
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer
confidence in the banking system.
The closures of Silicon Valley Bank and Signature Bank in March 2023 and First Republic Bank in May 2023, and
concerns about similar future events, have generated significant market volatility among publicly traded bank holding
companies and, in particular, regional banks like the Company. These market developments have negatively impacted
customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits
with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially
adversely impact the Company's liquidity, loan funding capacity, net interest margin, capital and results of operations. While
the Department of the Treasury, the Federal Reserve, and the FDIC took action to ensure that depositors of these failed banks
had access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful
in restoring customer confidence in regional banks and the banking system more broadly.
Merger-Related Risks
We may engage in acquisitions of other businesses from time to time, which may adversely impact our results.
From time to time, we may engage in acquisitions of other businesses. Difficulty in integrating an acquired business
or company may cause us not to realize expected revenue increases, cost savings, increases in geographic or product presence,
or other anticipated benefits from any acquisition. The integration could result in higher than expected deposit attrition (run-
off), loss of key employees, disruption of the Company’s business or the business of the acquired company, or otherwise
adversely affect the Company’s ability to maintain relationships with customers and employees or achieve the anticipated
benefits of the acquisition. The acquired companies may also have legal contingencies, beyond those that we are aware of,
that could result in unexpected costs. The Company may need to make additional investment in equipment and personnel to
manage higher asset levels and loan balances as a result of any significant acquisition, which may adversely impact earnings.
We may fail to realize the anticipated cost savings and other financial benefits of recent acquisitions in the timeframe we
expect, or at all.
The Company completed the Beach Bancorp, Inc. ("BBI") acquisition on August 1, 2022, and the acquisition of
HSBI on January 1, 2023. Achieving the anticipated cost savings and financial benefits of the mergers will depend, in part,
on whether we can successfully integrate these businesses with and into the business of The First. 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 mergers. In addition, the integration
of certain operations following the mergers has required and will continue to 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.
We have incurred and may continue to incur significant transaction and merger-related costs in connection with our
recent acquisitions.
We have incurred and may continue to incur a number of non-recurring costs associated with our recent acquisitions.
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. There are also a large number of
processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the
integration of these companies’ businesses. While we have assumed that a certain level of expenses would be incurred in
connection with the acquisitions, there are many factors beyond our control that could affect the total amount or the timing
of the integration and implementation expenses.
28
There may also be additional unanticipated significant costs in connection with the acquisitions 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 acquisitions. Although we expect that these benefits will offset the transaction expenses and
implementation costs over time, the net benefit may not be achieved in the near term or at all, which could have a material
adverse impact on our financial results.
We may incur impairment to goodwill.
We review our goodwill at least annually. Significant negative industry or economic trends, reduced estimates of
future cash flows or disruptions to our business, could indicate that goodwill might be impaired. Our valuation methodology
for assessing impairment requires management to make judgements and assumptions based on historical experience and to
rely on projections of future operating performance. We operate in a competitive environment and projections of future
operating results and cash flows may vary significantly from actual results. In addition, if our analysis results in an
impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during
the period in which such impairment is determined to exist. Any such charge could have a material adverse effect on our
results of operations.
Risks Relating to Our Securities
The price of our common stock may fluctuate significantly, which may make it difficult for investors to resell shares of
common stock at a time or price they find attractive.
Our stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond our control.
In addition to those described in “Special Cautionary Notice Regarding Forward-Looking Statements,” these factors include,
among others:
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated quarterly fluctuations in our operating results, financial condition or asset quality;
changes in financial estimates or the publication of research reports and recommendations by financial analysts or
actions taken by rating agencies with respect to us or other financial institutions;
failure to declare dividends on our common stock from time to time;
failure to meet analysts’ revenue or earnings estimates;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings;
fluctuations in the stock price and operating results of our competitors or other companies that investors deem
comparable to us;
future sales of our common stock or other securities;
proposed or final regulatory changes or developments;
anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us;
reports in the press or investment community generally relating to our reputation or the financial services industry;
domestic and international economic and political factors unrelated to our performance;
29
•
•
•
•
general market conditions and, in particular, developments related to market conditions for the financial services
industry;
adverse weather conditions, including floods, tornadoes and hurricanes;
public health emergencies, including disease pandemics; and
disruptions to the financial markets as a result of the current or anticipated impact of military conflict, including the
ongoing military conflicts in Ukraine and the Middle East, terrorism or other geopolitical events.
In addition, in recent years, the stock market in general has experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market price of securities issued by many companies, including for reasons
unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price,
notwithstanding our operating results. We expect that the market price of our common stock will continue to fluctuate and
there can be no assurances about the levels of the market prices for our common stock.
General market fluctuations, industry factors and general economic and political conditions and events, such as
economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease
regardless of operating results.
We may need to rely on the financial markets to provide needed capital.
Our common stock is listed and traded on the Nasdaq stock market. Although we anticipate that our capital resources
will be adequate for the foreseeable future to meet our capital requirements, at times we may depend on the liquidity of the
capital markets to raise additional capital. Our historical ability to raise capital through the sale of capital stock and debt
securities may be affected by economic and market conditions or regulatory changes that are beyond our control. Adverse
changes in our operating performance or financial condition could make raising additional capital difficult or more expensive
or limit our access to customary sources of funding. If the market should fail to operate, or if conditions in the capital markets
are adverse, our efforts to raise capital could require the issuance of securities at times and with maturities, conditions and
rates that are disadvantageous, and which could have a dilutive impact on our current stockholders. Should these risks
materialize, the ability to further expand our operations through organic or acquisitive growth may be limited.
Securities issued by the Company, including the Company’s common stock, are not FDIC insured.
Securities issued by the Company, including the Company’s common stock, are not savings or deposit accounts or
other obligations of any bank and are not insured by the FDIC, the DIF, or any other governmental agency or instrumentality,
or any private insurer, and are subject to investment risk, including the possible loss of principal.
Anti-takeover laws and certain agreements and charter provisions may adversely affect the price of our common stock.
Certain provisions of state and federal law and our articles of incorporation may make it more difficult for someone
to acquire control of the Company. Under federal law, subject to certain exemptions, a person, entity, or group must notify
the federal banking agencies before acquiring 10% or more of the outstanding voting stock of a bank holding company,
including the Company’s shares. Banking agencies review the acquisition to determine if it will result in a change of control.
The banking agencies have 60 days to act on the notice, and take into account several factors, including the resources of the
acquiror and the antitrust effects of the acquisition. There also are Mississippi statutory provisions and provisions in our
articles of incorporation that may be used to delay or block a takeover attempt. As a result, these statutory provisions and
provisions in our articles of incorporation could result in the Company being less attractive to a potential acquiror.
30
The trading volume in our common stock is less than that of other larger financial services companies.
Although our common stock is listed for trading on the Nasdaq Global Market, the trading volume for our common
stock is low relative to other larger financial services companies, and you are not assured liquidity with respect to transactions
in our common stock. A public trading market having the desired characteristics of depth, liquidity and orderliness depends
on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence
depends on the individual decisions of investors and general economic and market conditions over which we have no control.
Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these
sales, could cause our stock price to fall.
You may not receive dividends on our common stock.
Although we have historically declared quarterly cash dividends on our common stock, we are not required to do
so and may reduce or cease to pay common stock dividends in the future. If we reduce or cease to pay common stock
dividends, the market price of our common stock could be adversely affected.
The principal source of funds from which we pay cash dividends are the dividends received from The First. Federal
and state banking laws and regulations and state corporate laws restrict the amount of dividends we may declare and pay
from The First. See “Item 1. Business – Regulation and Supervision” included herein for more information.
If we fail to pay dividends, capital appreciation, if any, of our common stock may be the sole opportunity for gains
on an investment in our common stock. In addition, in the event The First becomes unable to pay dividends to us, we may
not be able to service our debt or pay our other obligations or pay dividends on our common stock and preferred stock.
Accordingly, our inability to receive dividends from The First could also have a material adverse effect on our business,
financial condition and results of operations and the value of your investment in our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 1C. CYBERSECURITY
The Company’s information security program is designed to protect the security of our computer systems, networks,
software and information assets, including customer information. The program is comprised of technical controls, policies,
guidelines, and procedures. These technical controls, policies, guidelines, and procedures are intended to align with
regulatory guidance, and common industry standard security practices.
The board of directors and our executives appreciate the severity of cybersecurity-related risks and support the
continuous development of and investment in the information security program.
Commitment to Security and Confidentiality
At the Company, we expect each associate to be responsible for the security and confidentiality of customer
information. We communicate this responsibility to associates during on-boarding and throughout their employment.
Annually, training courses are assigned to each associate to complete on how to protect the confidentiality of customer
information at the time of hire and during each year of employment.
We regularly provide associates with information security awareness training, including the recognition and
appropriate handling of potential phishing emails, which can introduce malware to a bank’s network, result in the theft of
user credentials and, ultimately, place customer information at risk. We regularly use phishing campaigns to train associates
31
to determine their ability to recognize phishing emails. For associates who fail a phishing campaign, the associates are
assigned additional training courses.
Associates must also follow established procedures for the safe storage and handling and secure disposal of customer
information. Old or obsolete computer assets are subject to defined procedures and processes to ensure safe destruction of
information contained on those devices. For paper-based information or documents, we dispose of paper using shred bins for
destruction.
Cybersecurity Incident Response Plan
As part of our information security program, we have adopted an Information Security Incident Response Plan
(Incident Response Plan), which is administered by the Company’s Chief Information Security Officer (CISO). The Incident
Response Plan describes the Company’s processes, procedures, and responsibilities for responding to incidents including
security and cybersecurity. The Incident Response Plan is intended to be followed in the event of a cybersecurity incident,
including implementation of (i) forensic and containment, eradication, and remediation actions by information technology
and security personnel and (ii) operational response actions by business units, communications, legal, and risk personnel.
The Incident Response Plan includes an annual tabletop exercise to simulate responses to cybersecurity events. If applicable,
each exercise may result in postmortem and discuss lessons learned to evaluate any improvements to the Incident Response
Plan.
The Incident Response Plan includes processes for escalation and reporting of cybersecurity incidents to the Incident
Response Team.
Network and Device Security
The Company employs a constantly evolving, defense-in-depth methodology to cybersecurity. Robust high-
availability firewalls are in place at the perimeter. Remote workers are supported through the Company’s secure VPN and
uses multifactor authentication. The Company has a vulnerability management program in place that includes a managed
detect and response platform to ensure monitoring of the Company’s network, ensures the timely installation of software
patches, and provides a risk-based approach to addresses vulnerabilities across the network. Network security controls are
in place to prevent unauthorized access to the network or the Company’s IT resources. The Company employs controls over
its managed workstations, servers, and other endpoints to prevent inappropriate access or damage to physical, virtual, or data
assets. Data loss prevention programs are in place to prevent the inappropriate transmission or exposure of sensitive data
assets or customer information.
Cybersecurity training is provided to all employees as part of the overall cybersecurity program. The Company
contracts with third party vendors to conduct internal and external penetration tests against the Company’s networks and IT
assets to ensure controls are operating in an appropriate manner.
Impacts of Cybersecurity Incidents
To date, the Company has not experienced a cybersecurity incident that has materially impacted our business
strategy, results of operations, or financial condition. Addressing cybersecurity risks is a priority for the Company, and the
Company is committed to enhancing its systems of internal controls and business continuity and disaster recovery plans.
Third-Party Vendor Controls
Before engaging third-party service providers, the Company carries out a due diligence process. This process is led
by the Enterprise Risk Management team and Information Security performs due diligence through the process. Risk
assessments are reviewed using Service Organization Controls (SOC) reports, self- attestation questionnaires, and other tools.
32
Any third-party service provider or vendor utilized as part of the Company’s cybersecurity framework is required
to comply with the Company’s policies regarding non-public personal information and information security. Third parties
processing sensitive customer data are contractually required to meet all legal and regulatory obligations to protect customer
data against security threats or unauthorized access. After contract executions, vendors undergo ongoing monitoring to ensure
they continue to meet their security obligations.
Our Board of Directors’ Role in Oversight of Cybersecurity Threats
Our Board of Directors is responsible for overseeing the Company’s business and affairs, including risks associated
with cybersecurity threats. The Board oversees the Company’s corporate risk governance processes primarily through its
committees, and oversight of cybersecurity threats is delegated primarily to our Board Risk Committee.
The Board Risk Committee has primary responsibility for overseeing the Company’s comprehensive Enterprise
Risk Management program. The Enterprise Risk Management program assists senior management in identifying, assessing,
monitoring, and managing risk, including cybersecurity risk, in a rapidly changing environment. Cybersecurity matters and
assessments are regularly included in Board Risk Committee meetings.
The Board’s oversight of cybersecurity risk is supported by our CISO and Cybersecurity Manager. The CISO and
the Cybersecurity Manager attend Board Risk Committee meetings, periodically provides cybersecurity and other
information security updates to the Board Risk Committee. The CISO also provides an annual information security program
summary report to the Board, outlining the overall status of our information security program and the Company’s compliance
with regulatory guidelines.
Our Management’s Role in Assessing and Managing Cybersecurity Matters
The Company’s CISO directs the Company’s information security program and our information technology risk
management. The CISO and Cybersecurity Manager along with a team of dedicated security personnel examines risks to
the Company’s information systems and assets, designs and implements security solutions, monitors the environment, and
provides immediate responses to threats.
Role of the Chief Information Security Officer and Cybersecurity Manager
Our CISO is responsible for the Company’s information security program. In this role, the CISO manages the
Company’s information security Program.
The CISO has experience with FDIC regulated financial institutions and holds the certification as a Certified
Banking Chief Information Security Officer (CBISO) and participates in various Information Security peer groups and serves
on the Mississippi Bankers Associations - Information Security Committee.
The Company’s Cybersecurity Manager oversees the day-to-day cybersecurity operations.
The CISO and Cybersecurity Manager support the information security risk oversight responsibilities of the Board
and its committees. The CISO reports to our Chief Information Officer, who in turn reports to our Chief Executive Officer
and President. The Cybersecurity Manager reports to the Information Technology Director, who in turn reports to the Chief
Information Officer.
Our Cybersecurity Manager has experience spanning multiple OCC and FDIC regulated financial institutions across
the nation. He holds various cybersecurity related certifications and is currently registered with the International Information
Systems Security Certification Consortium as a Certified Information Systems Security Professional (CISSP) member in
good standing.
33
Role of the Enterprise Risk Manager
Our Enterprise Risk Manager is responsible for oversight of the Company’s information technology governance and
risk program. In this role, the Enterprise Risk Manager provides independent oversight of information technology risk,
promotes effective challenge to the Company’s information technology systems, and ensures that high level risks receive
appropriate attention. The Enterprise Risk Manager is a member of the Company’s Risk Management Group and reports to
the Chief Risk Officer, who in turn reports to the Board Risk Committee.
Role of the IT Risk Governance Subcommittee
Governance of the information security program begins with the IT Risk Governance Subcommittee, a
management level subcommittee, whose objective is to protect the integrity, security, safety and resiliency of corporate
information systems and assets. Together, our CISO leads the Company’s IT Risk Governance Committee. The IT Risk
Governance Committee meets regularly to review the development of the program and develop recommendations and
provides regular reports to management, and, ultimately, the Board Risk Committee through the CISO.
Role of Enterprise Risk Management
Enterprise Risk Management (ERM) is a holistic process to identify, assess/measure, mitigate/control, and
aggregate/escalate/report organizational risks, both internal and external, in order to make decisions aimed at maximizing
shareholder value and achieving strategic goals. The overarching ERM program shapes information security strategy and
development. ERM works with information security management to facilitate performance of Risk Assessments, the results
of which are used to identify opportunities to strengthen the program.
ITEM 2. PROPERTIES
Our Company’s main office, which is the holding company headquarters, is located at 6480 U.S. Highway 98 West
in Hattiesburg, Mississippi. As of year-end, we had 110 full service banking and financial service offices, one motor bank
facility and five loan production offices across Mississippi, Alabama, Florida, Georgia and Louisiana. Management ensures
that all properties, whether owned or leased, are maintained in suitable condition.
The following table sets forth banking office locations that are leased by the Company.
Alabama
Georgia
• Theodore - Bayley’s Corner
• Dauphin Island
Fairhope
Spanish Fort
Florida
•
•
•
•
Pensacola - Garden Street
St. Petersburg - Loan Production Office
•
•
Pascagoula
Petal
• Eagles Landing
•
Jonesboro
Mississippi
• Columbus - Loan Production Office
• Gulfport - Hardy Court
• Tallahassee – Apalachee Parkway
• Tallahassee – Thomasville Road
• Tampa - Westshore
34
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and/or The First may be named as defendants in various lawsuits arising out of the
normal course of business. At present, with the exception of the matter described below, the Company is not aware of any
legal proceedings that it anticipates may materially adversely affect its business.
Nancy Hall, et al. v. The First Bancshares, Inc., Case No. 2:23-cv-192, United States District Court, Southern
District of Mississippi.
On December 7, 2023, Nancy Hall, individually and on behalf of all others similarly situated ("Plaintiff"), sued The
First Bancshares, Inc., as successor in interest to Heritage Southeast Bank, in a putative class action complaint in federal
district court for the Southern District of Mississippi. Plaintiff asserts claims based on the alleged improper assessment and
collection of overdraft fees. Specifically, Plaintiff's claims relate to overdraft fees resulting from alleged "authorized positive,
settle negative" or APSN debit card transactions. The complaint asserts causes of action of breach of contract, including the
covenant of good faith and fair dealing, and unjust enrichment. The complaint also asserts a claim for alleged violations of
Regulation E of the Electronic Funds Transfer Act. The complaint seeks an unspecified amount of damages, restitution,
costs, attorney's fees, and interest, as well as injunctive relief.
On February 1, 2024, the Company filed its Answer and Affirmative Defenses, and the proceedings remain ongoing.
At this stage of the proceedings, it is not feasible to predict the outcome or a range of loss, should a loss occur, from this
proceeding. Accordingly, no accrual has been made and no estimated range of potential loss can be determined at this time.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
35
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Shares of our common stock are traded on the Nasdaq global market under the symbol “FBMS.”
There were approximately 4,618 record holders of the Company’s common stock at February 21, 2024 and
31,227,881 shares outstanding.
Subject to the approval of the Board of Directors and applicable regulatory requirements, the Company expects to
continue its policy of paying regular cash dividends on a quarterly basis. A discussion of certain limitations on the ability of
The Firsts to pay dividends to the Company and the ability of the Company to pay dividends on its common stock is set forth
in Part 1 – Item 1. Business – Supervision and Regulation of this report.
Issuer Purchases of Equity Securities
The following table sets forth shares of our common stock we repurchased during the quarter ended December 31,
2023.
Period
October
November
December
Total
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs
(in thousands) (a)
$
—
—
856
856 (b) $
—
—
26.91
26.91
— $
—
—
—
50,000
50,000
50,000
______________________________________
(a) On February 28, 2023, the Company announced that its Board of Directors authorized a new share repurchase
program (the "2023 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of
$50.0 million in shares of the Company's issued and outstanding common stock. The 2023 Repurchase Program
expired on December 31, 2023.
(b) The 856 shares purchased in the fourth quarter were withheld by the Company in order to satisfy employee tax
obligations for vesting of restricted stock awards.
Stock Performance Graph
The following performance graph and related information are neither “soliciting material” nor “filed’ with the SEC,
nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the
Securities Exchange Act of 1934, each as amended, except to the extent the Company specifically incorporates it by reference
to such filing.
The performance graph compares the cumulative five-year shareholder return on the Company’s common stock,
assuming an investment of $100 on December 31, 2018 and the reinvestment of dividends thereafter, to that of the common
stocks of United States companies reported in the Nasdaq Composite-Total Returns Index and the common stocks of the
Nasdaq OMX Banks Index. The Nasdaq OMX Banks Index contains securities of Nasdaq-listed companies classified
36
according to the Industry Classification Benchmark as banks. They include banks providing a broad range of financial
services, including retail banking, loans and money transmissions.
Legend
Symbol Total Returns Index For:
2018 2019 2020 2021 2022 2023
First Bancshares, Inc.
NASDAQ Composite-Total Returns
NASDAQ OMX Banks Index
100.00 118.55 104.82 133.07 112.80 106.66
100.00 136.69 198.10 242.03 163.28 236.17
100.00 124.38 115.04 164.41 137.65 132.91
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 12/31/2018.
ITEM 6. RESERVED
37
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following provides a narrative discussion and analysis of The First Bancshares’ financial condition as of
December 31, 2023 and 2022 and results of operations for the years ended December 31, 2023, 2022, and 2021. This
discussion should be read in conjunction with the consolidated financial statements and the supplemental financial data
included in Part II. Item 8. Financial Statements and Supplementary Data included elsewhere in this report.
Critical Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires us to make estimates and judgements that affect the reported
amounts of assets, liabilities, revenues and expenses. While we base estimates on historical experience, current information
and other factors deemed to be relevant, actual results could differ from those estimates. Accounting policies considered
critical to our financial results include the allowance for credit losses and related provision, business combinations and
goodwill. 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. Effective January 1,
2021, the Company adopted ASU 2016-13, Financial Instruments – Measurement of Current Expected Credit Losses on
Financial Instruments (“CECL”), which modified the accounting for the allowance for loan losses from an incurred loss
model to an expected loss model, as discussed more fully under Part II – Item 8. Financial Statements and Supplementary
Data – Note B – Summary of Significant Accounting Policies of this report.
Assets acquired and liabilities assumed as part of a business combination are generally recorded at their fair value
at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is
recorded as goodwill. Determining the fair value of identifiable assets, particularly intangibles, and liabilities acquired also
require management to make estimates, which are based on all available information and in some cases assumptions with
respect to the timing and amount of future revenues and expenses associated with an asset. Business combinations are
discussed more fully under Part II - Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant
Accounting Policies and Note C Business Combinations of this report.
Goodwill is assessed for impairment both annually and when events or circumstances occur that make it more likely
than not that impairment has occurred. As part of its testing, the Company first assesses qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company
determines the fair value of a reporting unit is less than its carrying amount using these qualitative factors, the Company
compares the fair value of goodwill with its carrying amount, and then measures impaired loss by comparing the implied fair
value of goodwill with the carrying amount of that goodwill. Other intangibles are also assessed for impairment, both
annually and when events or circumstances occur, that make it more likely than not that impairment has occurred. Goodwill
is discussed more fully under Part II - Item 8. Financial Statements and Supplementary Data - Note B - Summary of
Significant Accounting Policies of this report.
Overview
The Company was incorporated on June 23, 1995, and serves as a bank holding company for The First, formerly
known as The First, A National Banking Association, located in Hattiesburg, Mississippi. The First began operations on
August 5, 1996, from its main office in the Oak Grove community, which is now incorporated within the city of Hattiesburg.
Currently, the First has 116 locations in Mississippi, Alabama, Florida, Georgia and Louisiana. The Company and The First
38
engage in a general commercial and retail banking business characterized by personalized service and local decision-making,
emphasizing the banking needs of small to medium-sized businesses, professional concerns, and individuals.
The Company’s primary source of revenue is interest income and fees, which it earns by lending and investing the
funds which are held on deposit. Because loans generally earn higher rates of interest than investments, the Company seeks
to employ as much of its deposit funds as possible in the form of loans to individuals, businesses, and other organizations.
To ensure sufficient liquidity, the Company also maintains a portion of its deposits in cash, government securities, deposits
with other financial institutions, and overnight loans of excess reserves (known as “Federal Funds Sold”) to correspondent
banks. The revenue which the Company earns (prior to deducting its overhead expenses) is essentially a function of the
amount of the Company’s loans and deposits, as well as the profit margin (“interest spread”) and fee income which can be
generated on these amounts.
Highlights for the year:
•
In the year-over-year comparison, net income available to common shareholders increased $12.5 million, or 19.9%,
from $62.9 million for the year ended December 31, 2022 to $75.5 million for the same period ended December 31,
2023.
• Excluding the loans acquired from the Heritage Bank acquisition of $1.159 billion, total loans increased $236.9
million for the year ended December 31, 2023, representing net growth of 6.3%, as compared to the same period
ended December 31, 2022.
•
Past due loans of $11.7 million to total loans was 0.23% for the year ended December 31, 2023, compared to $6.1
million, or 0.16% for the same period ended December 31, 2022.
• Cost of deposits averaged 109 basis points for the year ended December 31, 2023, compared to 26 basis points for
the same period ended December 31, 2022.
At December 31, 2023, the Company had approximately $7.999 billion in total assets, an increase of $1.538 billion
compared to $6.462 billion at December 31, 2022. Loans, including mortgage loans held for sale and net of the allowance
for credit losses, increased to $5.119 billion at December 31, 2023 from $3.740 billion at December 31, 2022. Deposits
increased to $6.463 billion at December 31, 2023 from $5.494 billion at December 31, 2022. Stockholders’ equity increased
to $949.0 million at December 31, 2023 from $646.7 million at December 31, 2022. The acquisition of Heritage Bank during
2023 contributed, at acquisition, $1.565 billion, $1.159 billion, net of purchase accounting adjustments, and $1.392 billion,
net of purchase accounting adjustments, in assets, loans, and deposits, respectively.
The First (Bank only) reported net income of $81.8 million, $72.6 million and $73.9 million for the years ended
December 31, 2023, 2022, and 2021, respectively. For the years ended December 31, 2023, 2022 and 2021, the Company
reported consolidated net income available to common stockholders of $75.5 million, $62.9 million and $64.2 million,
respectively. The following discussion should be read in conjunction with the Company's consolidated financial statements
and the Notes thereto and the other financial data included elsewhere.
39
The following is a summary of the results of operations for The First (Bank only) the years ended December 31,
Results of Operations
2023, 2022, and 2021.
($ in thousands)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income tax expense
Net income
2023
340,897 $
83,638
257,259
14,500
242,759
39,722
177,324
23,352
81,805 $
2022
200,375 $
15,085
185,290
5,605
179,685
34,288
122,373
19,033
72,567 $
2021
176,735
12,306
164,429
(1,104)
165,533
37,362
108,791
20,210
73,894
$
$
The following reconciles the above table to the amounts reflected in the consolidated financial statements of the
Company at December 31, 2023, 2022, and 2021.
($ in thousands)
Net interest income:
Net interest income of The First
Interest expense
Net income available to common shareholders:
Net income of The First
Net loss of the Company
Consolidated Net Income
2023
2022
2021
257,259 $
7,934
249,325 $
185,290 $
7,474
177,816 $
164,429
7,365
157,064
81,805 $
(6,348)
75,457 $
72,567 $
(9,648)
62,919 $
73,894
(9,727)
64,167
$
$
$
$
The Company reported consolidated net income available to common stockholders of $75.5 million for the year
ended December 31, 2023, compared to a consolidated net income of $62.9 million for the year ended December 31, 2022.
Net interest income was $249.3 million for the twelve months ended December 31, 2023, an increase of $71.5
million in year-over-year comparison, primarily due to interest income earned on a higher volume of loans (including loans
acquired from Heritage Bank and Beach Bank).
Non-interest income was $46.7 million for the year ended December 31, 2023, an increase of $9.7 million as
compared to the same period ended December 31, 2022. Service charges on deposit accounts and interchange fee income
accounted for $11.7 million of the increase.
40
Non-interest expense was $184.7 million for the year ended December 31, 2023, an increase of $54.2 million as
compared to the same period ended December 31, 2022. The increase was partially attributable to $2.7 million in acquisition
and charter conversion charges and $32.1 million in increased operating expenses related to the acquisitions of Beach Bank
and Heritage Bank as well as $5.2 million in expenses associated with the U.S. Treasury awards and increases in FDIC
premiums of $1.7 million and a $4.9 million increase in core deposit amortization for the year ended December 31, 2023.
The Company reported consolidated net income available to common stockholders of $62.9 million for the year
ended December 31, 2022, compared to a consolidated net income of $64.2 million for the year ended December 31, 2021.
In the year-over-year comparison, Paycheck Protection Program ("PPP") loans fee income decreased $9.8 million.
Net interest income increased $14.0 million for the year ended December 31, 2022 compared to the same time
period in 2021, primarily due to interest income earned on a higher volume of securities and loans and increased interest
rates.
Non-interest income decreased $512 thousand for the year ended December 31, 2022 compared to the same time
period in 2021. Increased service charges on deposit accounts and interchange fee income of $2.5 million was offset by a
decrease in mortgage income of $4.5 million.
Non-interest expense was $130.5 million for the year ended December 31, 2022, an increase of $15.9 million as
compared to the same period ended December 31, 2021. An increase of $4.8 million in acquisition and charter conversion
charges and $3.3 million related to the ongoing operations of the Cadence Bank branches and $5.1 million related to the
Beach Bank branch operations accounted for the increase in non-interest expense.
See Note C – Business Combinations in the accompanying notes to the consolidated financial statements included
elsewhere in this report for more information on how the Company accounts for business combinations.
Consolidated Net Interest Income
The largest component of net income for the Company is net interest income, which is the difference between the
income earned on assets and interest paid on deposits and borrowings used to support such assets. Net interest income is
determined by the rates earned on the Company’s interest-earning assets and the rates paid on its interest-bearing liabilities,
the relative amounts of interest-earning assets and interest-bearing liabilities, and the degree of mismatch and the maturity
and repricing characteristics of its interest-earning assets and interest-bearing liabilities.
Consolidated net interest income was approximately $249.3 million for the year ended December 31, 2023, as
compared to $177.8 million for the year ended December 31, 2022, primarily due to interest income earned on a higher
volume of loans (including loans acquired from Heritage Bank and Beach Bank). Average interest-bearing liabilities for the
year 2023 were $4.935 billion compared to $3.944 billion for the year 2022. Net interest margin, which is net interest income
divided by average earning assets, was 3.59% for the year 2023 compared to 3.19% for the year 2022. Rates paid on average
interest-bearing liabilities increased to 1.86% for the year 2023 compared to 0.57% for the year 2022. Interest earned on
assets and interest accrued on liabilities is significantly influenced by market factors, specifically interest rates as set by
federal agencies. Average loans comprised 71.4% of average earnings assets for the year 2023 compared to 58.0% for the
year 2022.
Consolidated net interest income was approximately $177.8 million for the year ended December 31, 2022, as
compared to $157.1 million for the year ended December 31, 2021. This increase was the direct result of higher volume of
securities and loans and increased interest rates during 2022 as compared to 2021. Average interest-bearing liabilities for the
year 2022 were $3.944 billion compared to $3.435 billion for the year 2021. Net interest margin, which is net interest income
divided by average earning assets, was 3.19% for the year 2022 compared to 3.21% for the year 2021. Rates paid on average
interest-bearing liabilities was 0.57% for the year 2022 and remained unchanged for the year ended 2021. Interest earned on
assets and interest accrued on liabilities is significantly influenced by market factors, specifically interest rates as set by
41
federal agencies. Average loans comprised 58.0% of average earnings assets for the year 2022 compared to 60.8% for the
year 2021.
Average Balances, Income and Expenses, and Rates. The following tables depict, for the periods indicated, certain
information related to the average balance sheet and average yields on assets and average costs of liabilities. Such yields are
derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.
Average Balances, Income and Expenses, and Rates
Average
Balance
2023
Income/
Expenses
Yield/
Rate
Years Ended December 31,
2022
Income/
Expenses
Average
Balance
Yield/
Rate
Average
Balance
2021
Income/
Expenses
Yield/
Rate
$ 5,036,021 $ 294,541
47,913
1,918,575
5.85 % $ 3,302,265 $ 157,761
46,305
2.50 % 2,023,214
4.78 % $ 3,019,605 $ 151,203
28,035
2.29 % 1,305,262
5.01 %
2.15 %
2,453
344,907
97,183
7,051,779
866,869
$ 7,918,648
2.52 %
366,465
4.89 % 5,691,944
584,164
$ 6,276,108
50
204,116
0.01 %
642,042
3.59 % 4,966,909
526,877
$ 5,493,786
121
179,359
0.02 %
3.61 %
($ in thousands)
Assets
Earning Assets
Loans (1)(2)
Securities (4)
Federal funds sold and
interest bearing deposits
with other banks (3)
Total earning assets
Other
Total assets
Liabilities
Interest-bearing liabilities
Demand deposits
Other liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
$ 4,934,875 $
2,012,129
77,252
894,392
$ 7,918,648
91,608
22,577
1.86 % $ 3,943,531 $
1,660,696
45,065
626,816
0.57 % $ 3,434,964 $
1,366,529
34,827
657,466
19,681
0.57 %
$ 6,276,108
$ 5,493,786
Net interest spread
Net yield on interest-
earning assets
3.03 %
3.02 %
3.04 %
$ 253,299
3.59 %
$ 181,539
3.19 %
$ 159,678
3.21 %
______________________________________
(1) Includes nonaccrual loans of $10,690, $12,591, and $28,013 for the years ended December 31, 2023, 2022, and 2021,
respectively. Loans include held for sale loans.
(2) Includes loan fees of $7,665, $7,453, and $17,138 for the years ended December 31, 2023, 2022, and 2021, respectively.
(3) Includes Excess Balance Account-First National Banker’s Bank.
(4) Fully tax equivalent yield assuming a 25.3% tax rate.
42
Analysis of Changes in Net Interest Income. The following table presents the consolidated dollar amount of changes
in interest income and interest expense attributable to changes in volume and to changes in rate. The combined effect in both
volume and rate which cannot be separately identified has been allocated proportionately to the change due to volume and
due to rate.
Analysis of Changes in Consolidated Net Interest Income
($ in thousands)
Earning Assets
Loans
Securities (1)
Year Ended December 31,
2023 versus 2022
Increase (decrease) due to
Rate
Volume
Year Ended December 31,
2022 versus 2021
Increase (decrease) due to
Rate
Net
Net
Volume
$ 82,887 $ 53,893 $ 136,780 $ 14,176 $
15,436
(2,405)
4,013
1,608
(7,595) $
2,832
6,581
18,268
Federal funds sold and interest bearing
deposits with other banks
Total interest income
Interest-Bearing Liabilities
(28)
80,454
2,403
2,431
60,337 140,791
(55)
29,557
(37)
(4,800)
(92)
24,757
Interest-bearing transaction accounts
Money market accounts and savings
Time deposits
Borrowed funds
Total interest expense
Net interest income
903
491
2,078
10,642
14,114
$ 66,340 $
1,278
20,562
19,659
226
16,562
16,071
294
20,238
18,160
241
11,669
1,027
54,917
2,039
69,031
5,420 $ 71,760 $ 27,518 $
(745)
819
(52)
835
857
533
1,045
242
1,076
2,896
(5,657) $ 21,861
______________________________________
(1) Fully tax equivalent yield assuming a 25.3% tax rate.
Interest Sensitivity. The Company monitors and manages the pricing and maturity of its assets and liabilities in order
to diminish the potential adverse impact that changes in interest rates could have on its net interest income. A monitoring
technique employed by the Company is the measurement of the Company’s interest sensitivity "gap," which is the positive
or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of
time. The Company also performs asset/liability modeling to assess the impact varying interest rates and balance sheet mix
assumptions will have on net interest income. Interest rate sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset
or liability. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates. The Company evaluates interest sensitivity risk
and then formulates guidelines regarding asset generation and repricing, funding sources and pricing, and off-balance sheet
commitments in order to decrease interest rate sensitivity risk.
43
In the third quarter of 2022, the Company ceased the Deposit Reclassification program it implemented at the
beginning of 2020. The program reclassified non-interest bearing and NOW deposit balances to money market accounts.
The following tables illustrate the Company’s consolidated interest rate sensitivity and consolidated cumulative gap position
by maturity at December 31, 2023, 2022, and 2021. Deposits at December 31, 2021 are shown without reclassification for
consistency with the current period presentation.
$ in thousands
December 31, 2023
Within
Three
Months
After Three
Through
Twelve
Months
Within
One
Year
Greater Than
One Year or
Nonsensitive
Total
Assets
Earning assets:
Loans
Securities (2)
Funds sold and other
Total earning assets
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)
Money market accounts
Savings deposits (1)
Time deposits
$
$
$
Total interest-bearing deposits
Borrowed funds (3)
Total interest-bearing liabilities
Interest-sensitivity gap per period
$
Cumulative gap at December 31, 2023 $
Ratio of cumulative gap to total earning
assets at December 31, 2023
262,916 $
51,735
—
314,651 $
406,261 $
35,679
130,948
572,888 $
669,177 $
87,414
130,948
887,539 $
4,503,779 $
1,609,490
—
6,113,269 $
5,172,956
1,696,904
130,948
7,000,808
— $
1,090,484
—
361,342
1,451,826
250,000
1,701,826
(1,387,175) $
(1,387,175) $
1,914,792 $
—
532,827
618,134
3,065,753
140,000
3,205,753
(2,492,865) $
(3,880,040) $
1,914,792 $
1,090,484
532,827
979,476
4,517,579
390,000
4,907,579
(4,020,040) $
(4,020,040) $
— $
—
—
96,280
96,280 $
—
96,280
6,016,989 $
1,996,949 $
1,914,792
1,090,484
532,827
1,075,756
4,613,859
390,000
5,003,859
1,996,949
1,996,949
(19.8)%
(55.4)%
(57.4)%
28.5 %
44
$ in thousands
December 31, 2022
Within
Three
Months
After Three
Through
Twelve
Months
Within
One
Year
Greater Than
One Year or
Nonsensitive
Total
Assets
Earning assets:
Loans
Securities (2)
Funds sold and other
Total earning assets
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)
Money market accounts
Savings deposits (1)
Time deposits
$
$
$
Total interest-bearing deposits
Borrowed funds (3)
Total interest-bearing liabilities
Interest-sensitivity gap per period
$
Cumulative gap at December 31, 2022 $
Ratio of cumulative gap to total earning
assets at December 31, 2022
180,128 $
13,565
—
193,693 $
247,781 $
58,431
78,139
384,351 $
427,909 $
71,996
78,139
578,044 $
3,350,693 $
1,876,589
—
5,227,282 $
3,778,602
1,948,585
78,139
5,805,326
1,769,699 $
— $
—
825,813
542,296
—
440,087
118,108
2,752,082
943,921
—
130,100
2,752,082
1,074,021
(880,328) $
(2,367,731) $
(880,328) $ (3,248,059) $
1,769,699 $
825,813
542,296
558,195
3,696,003
130,100
3,826,103
(3,248,059) $
(3,248,059) $
— $
—
—
168,200
168,200 $
—
168,200
5,059,082 $
1,811,023 $
1,769,699
825,813
542,296
726,395
3,864,203
130,100
3,994,303
1,811,023
1,811,023
(15.2)%
(55.9)%
(55.9)%
31.2 %
45
$ in thousand
December 31, 2021
Within
Three
Months
After Three
Through
Twelve
Months
Within
One
Year
Greater Than
One Year or
Nonsensitive
Total
Assets
Earning assets:
Loans
Securities (2)
Funds sold and other
Total earning assets
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1)
Money market accounts
Savings deposits (1)
Time deposits
$
$
$
Total interest-bearing deposits
Total interest-bearing liabilities
Interest-sensitivity gap per period
$
Cumulative gap at December 31, 2021 $
Ratio of cumulative gap to total earning
assets at December 31, 2021
147,728 $
8,959
—
156,687 $
256,450 $
51,457
804,481
1,112,388 $
404,178 $
60,416
804,481
1,269,075 $
2,563,053 $
1,713,642
—
4,276,695 $
2,967,231
1,774,058
804,481
5,545,770
1,771,510 $
1,771,510 $
— $
817,476
—
817,476
502,808
502,808
—
444,983
312,958
132,025
3,536,777
2,587,276
949,501
949,501
3,536,777
2,587,276
(792,814) $ (1,474,888) $ (2,267,702) $
(792,814) $ (2,267,702) $ (2,267,702) $
— $
—
—
139,626
139,626
139,626
4,137,069 $
1,869,367 $
1,771,510
817,476
502,808
584,609
3,676,403
3,676,403
1,869,367
1,869,367
(14.3)%
(40.9)%
(40.9)%
33.7 %
______________________________________
(1) NOW and savings accounts are subject to immediate withdrawal and repricing. These deposits do not tend to immediately react to
changes in interest rates and the Company believes these deposits are fairly stable. Therefore, these deposits are included in the
repricing period that management believes most closely matches the periods in which they are likely to reprice rather than the period
in which the funds can be withdrawn contractually.
(2) Securities include mortgage backed and other installment paying obligations based upon stated maturity dates.
(3) Does not include subordinated debentures of $123,386, $145,027, $144,592 for the years ended December 31, 2023, 2022, and 2021,
respectively.
The Company generally would benefit from increasing market rates of interest when it has an asset-sensitive gap
and generally from decreasing market rates of interest when it is liability sensitive. The Company currently is asset sensitive
within the one-year time frame based on effective GAP which uses behavioral assumptions that model the rate sensitivity of
non-maturity deposits by looking at the deposits’ behavior rather than their contractual ability to reprice. The cash flows used
in the analysis are the projected dollars of assets and liabilities that “reprice” (including maturities, repricing, likely calls,
prepayments, etc.). However, the Company's gap analysis is not a precise indicator of its interest sensitivity position. The
analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration
that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of
core deposits may change contractually within a relatively short time frame, but those rates are viewed by management as
significantly less interest-sensitive than market-based rates such as those paid on non-core deposits. Accordingly,
management believes an asset sensitive-position within one year would not be as indicative of the Company’s true interest
sensitivity as it would be for an organization which depends to a greater extent on purchased funds to support earning assets.
Net interest income is also affected by other significant factors, including changes in the volume and mix of earning assets
and interest-bearing liabilities.
46
The following tables depict, for the periods indicated, certain information related to interest rate sensitivity in net
interest income and market value of equity:
Change in Interest
Rates
Change in Interest
Rates
Change in Interest
Rates
December 31, 2023
Up 400 bps
Up 300 bps
Up 200 bps
Up 100 bps
Down 100 bps
Down 200 bps
December 31, 2022
Up 400 bps
Up 300 bps
Up 200 bps
Up 100 bps
Down 100 bps
Down 200 bps
December 31, 2021
Up 400 bps
Up 300 bps
Up 200 bps
Up 100 bps
Down 100 bps
Down 200 bps
Net Interest Income at Risk
Bank
% Change
Policy Limit
from Base
Market Value of Equity
Bank
Policy Limit
% Change
from Base
(19.0)%
(9.1)%
(2.3)%
0.7 %
0.5 %
2.3 %
(20.0)%
(15.0)%
(10.0)%
(5.0)%
(5.0)%
(10.0)%
(12.4)%
(6.7)%
(2.0)%
0.6 %
(2.4)%
(5.0)%
(40.0)%
(30.0)%
(20.0)%
(10.0)%
(10.0)%
(20.0)%
Net Interest Income at Risk
Bank
% Change
Policy Limit
from Base
Market Value of Equity
Bank
Policy Limit
% Change
from Base
(11.3)%
(6.4)%
(2.9)%
(0.9)%
1.1 %
(0.7)%
(20.0)%
(15.0)%
(10.0)%
(5.0)%
(5.0)%
(10.0)%
(16.6)%
(10.6)%
(5.8)%
(2.2)%
0.9 %
(2.2)%
(40.0)%
(30.0)%
(20.0)%
(10.0)%
(10.0)%
(20.0)%
Net Interest Income at Risk
Bank
% Change
Policy Limit
from Base
Market Value of Equity
Bank
Policy Limit
% Change
from Base
11.3%
10.2%
8.1%
4.7%
(3.3)%
(4.6)%
(20.0)%
(15.0)%
(10.0)%
(5.0)%
(5.0)%
(10.0)%
20.0%
18.9%
15.5%
9.4%
(15.0)%
(34.2)%
(40.0)%
(30.0)%
(20.0)%
(10.0)%
(10.0)%
(20.0)%
Allowance and Provision for Credit Losses
The ACL is a valuation account that is deducted from loans’ amortized cost basis to present the net amount expected
to be collected on the loans. It is comprised of a general allowance for loans that are collectively assessed in pools with
similar risk characteristics and a specific allowance for individually assessed loans. Loans are charged-off against the
allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed
the aggregate of amounts previously charged-off and expected to be charged-off. The allowance is continuously monitored
by management to maintain a level adequate to absorb expected credit losses in the loan portfolio.
47
Management estimates the allowance balance using relevant available information, from internal and external
sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience
provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for
differences in current risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or
term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other
relevant factors. Management may selectively apply external market data to subjectively adjust the Company’s own loss
history including index or peer data. Management evaluates the adequacy of the ACL quarterly and makes provisions for
credit losses based on this evaluation. See Note B – Summary of Significant Accounting Policies in the accompanying notes
to the consolidated financial statements included elsewhere in this report for a complete description of the Company’s
methodology and the quantitative and qualitative factors included in the calculation.
At December 31, 2023, the ACL was $54.0 million, or 1.1% of LHFI, an increase of $15.1 million, or 38.8% when
compared to December 31, 2022. The 2023 increase is attributable to loan growth and the acquisition of HSBI in January
2023. The Bank acquired loans totaling $1.159 billion, net of purchase accounting adjustments, and recorded initial ACL on
PCD loans of $3.2 million related to the HSBI acquisition. In addition, the 2023 provision for credit losses includes
$10.7 million associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded
commitments acquired in the HSBI acquisition. At December 31, 2022, the allowance for credit losses was approximately
$38.9 million, which was 1.0% of LHFI. The Company maintains the allowance at a level that management believes is
adequate to absorb expected credit losses in the loan portfolio. The 2022 provision for credit losses includes $3.9 million
associated with a day one post-merger accounting provision recorded for non-PCD loans, unfunded commitments. A $1.3
million initial allowance was recorded on PCD loans acquired in the BBI merger. Specifically, identifiable and quantifiable
losses are immediately charged-off against the allowance; recoveries are generally recorded only when sufficient cash
payments are received subsequent to the charge-off.
The provision for credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent
with management’s assessment of the collectability of the loan portfolio in light of current economic conditions and market
trends. The Company’s provision for credit losses was a $13.8 million for the year ended December 31, 2023 and $5.4 million
for the year ended December 31, 2022, and a negative $1.5 million for the year ended December 31, 2021. A majority of the
2023 and 2022 increase in the Company's provision for credit losses is attributed to the HSBI and BBI acquisitions detailed
herein. The negative provision for 2021 is attributed to the improved macroeconomic outlook and the Company’s ACL
calculation under ASC 326.
At December 31, 2023, management believes the allowance is appropriate and has been derived from consistent
application of our methodology. Should any of the factors considered by management in evaluating the appropriateness of
the allowance for credit losses change, management’s estimate of expected credit losses in the portfolio could also change,
which would affect the level of future provisions for credit losses.
Allowance for Credit Losses on Off Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to
credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.
The ACL on off-balance sheet credit (“OBSC”) exposures is adjusted as a provision for credit loss expense. The estimate
includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments
expected to be funded over its estimated life. 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. The
Company's provision for credit losses on OBSC exposures was $750 thousand for the year end December 31, 2023, $255
thousand for the year ended December 31, 2022, and $352 thousand for the year ended December 31, 2021. The increase in
the ACL on OBSC exposures for the year ended December 31, 2023 compared to the same period in 2022 was due to the
day one provision for unfunded commitments related to the HSBI acquisition and an increase in unfunded commitments.
48
Non-Performing Assets
A loan is placed on nonaccrual and the accrual of interest discontinued, when based on all available information and
events, it displays characteristics causing management to determine that the collection of all principal, interest, and other
related fees due according to the contractual terms of the loan agreement is not probable. Also identified along with these
loans in nonaccrual status, as well as loans 90 days or greater past due and still accruing interest.
Once these loans are identified, they are evaluated to determine whether the ultimate repayment source will be
liquidation of collateral or some future source of cash flow. If the only source of repayment will come from the liquidation
of collateral, they are analyzed and documented as to whether any impairment exists. This method considers collateral
exposure, as well as all expected expenses related to the disposal of the collateral. If there is any impairment, specific
allowances for these loans are then accounted for on a per loan basis. Loans that are identified as criticized or classified based
on unsatisfactory repayment performance, or other evidence of deteriorating credit quality, are not reviewed until they meet
one of the three criteria described above.
Total nonaccrual loans at December 31, 2023, were $10.7 million, a decrease of $1.9 million compared to $12.6
million at December 31, 2022. Management believes these relationships were adequately reserved at December 31, 2023.
See Note E – Loans in the accompanying notes to the consolidated financial statements included elsewhere in this report for
a description of modified loans.
A potential problem loan is one in which management has serious doubts about the borrower’s future performance
under the terms of the loan contract and does not meet the standard of a non-performing asset as outlined by regulatory
guidance. These loans may or may not be current as to principal and interest repayment, but they still possess some asset
quality characteristics that give management a reason to believe that repayment in full under the contractual terms of the
agreement are possible. The level of potential problem loans is one factor used in the determination of the adequacy of the
allowance for credit losses. At December 31, 2023 and 2022, The First had potential problem loans of $107.1 million and
$108.1 million, respectively.
49
Summary of Credit Loss Experience
Consolidated Allowance for Credit Losses
($ in thousands)
Average LHFI outstanding
Loans outstanding at year end, including LHFS
Total nonaccrual loans
Beginning balance of allowance
Impact of ASC 326 adoption on non-PCD loans
Impact of ASC 326 adoption on PCD loans
Initial allowance on acquired PCD loans
Loans charged-off
Total recoveries
Net loans (charged-off) recoveries
Provision for credit losses (2)
Balance at year end
Net charge-offs to average loans
Allowance as percent of total loans
Nonaccrual loans as a percentage of total loans
Allowance as a multiple of nonaccrual loans
$
$
$
$
$
Years Ended December 31,
2022
3,302,265 $
3,778,630 $
2023
5,036,021 $
5,172,956 $
2021 (1)
3,019,605
2,967,231
10,690 $
12,591 $
38,917 $
—
—
3,176
(3,092)
1,281
(1,811)
13,750
54,032 $
(0.04)%
1.04%
0.21%
5.05X
30,742 $
—
—
1,303
(1,218)
2,740
1,522
5,350
38,917 $
0.05%
1.03%
0.33%
3.10X
28,013
35,820
(718)
1,115
—
(6,213)
2,194
(4,019)
(1,456)
30,742
0.13%
1.04%
0.94%
1.10 X
______________________________________
(1) Effective January 1, 2021, The Company adopted ASC 326 using the modified retrospective approach.
(2) The negative provision of $1.5 million for credit losses on the consolidated statements of income is net of a $370 thousand
provision for credit marks in the Cadence Bank Branches loans acquired for the year ended December 31, 2022.
At December 31, 2023, allowance as of percent of total loans increased 0.01% to 1.04% when compared to 1.03%
at December 31, 2022. The increase is attributed to the increase in loan volume related to the HSBI acquisition and organic
loan growth in 2023. At December 31, 2023, nonaccrual loans as a percentage of total loans decreased 0.12% to 0.21% when
compared to 0.33% at December 31, 2022. The decrease is attributed to a $1.9 million decrease in nonaccrual loans
mentioned above.
At December 31, 2022, allowance as of percent of total loans decreased 0.01% to 1.03% when compared to 1.04%
at December 31, 2021. The decrease is attributed to the increase in loan volume related to the BBI acquisition and organic
loan growth in 2022. At December 31, 2022, nonaccrual loans as a percentage of total loans decreased 0.61% to 0.33% when
compared to 0.94% at December 31, 2021. The decrease is attributed to a $15.4 million decrease in nonaccrual loans
mentioned above.
50
The following table represents the components of the ACL for the years 2023, 2022, and 2021.
($ in thousands)
Allocated:
Collateral dependent loans
Loans collectively evaluated
Total
Allowance for Credit Losses
2023
2022
2021
$
$
408 $
53,624
54,032 $
5 $
38,912
38,917 $
6
30,736
30,742
Loans collectively evaluated are those loans or pools of loans assigned a grade by internal loan review.
The following table represents the activity of the allowance for credit losses for the years 2023, 2022, and 2021.
($ in thousands)
Balance at beginning of period
Impact of ASC 326 adoption on non-PCD loans
Impact of ASC 326 adoption on PCD loans
Initial allowance on acquired PCD loans
Loans charged-off:
Commercial, financial and agriculture
Commercial real estate
Consumer real estate
Consumer installment
Total
Recoveries on loans previously charged-off:
Commercial, financial and agriculture
Commercial real estate
Consumer real estate
Consumer installment
Total
Net (charge-offs) recoveries
Provision:
Initial provision for acquired non-PCD loans
Provision for credit losses charged to expense (2)
Balance at end of period
______________________________________
Analysis of the Allowance for Credit Losses
2022
2023
2021 (1)
$
38,917 $
—
—
3,176
30,742 $
—
—
1,303
(745)
(250)
(49)
(2,048)
(3,092)
349
116
249
567
1,281
(1,811)
(259)
(72)
(204)
(683)
(1,218)
433
591
1,015
701
2,740
1,522
10,719
3,031
54,032 $
3,855
1,495
38,917 $
$
35,820
(718)
1,115
—
(1,662)
(3,523)
(473)
(555)
(6,213)
433
888
311
562
2,194
(4,019)
—
(1,456)
30,742
(1) Effective January 1, 2021, The Company adopted ASC 326 using the modified retrospective approach.
(2) The negative provision of $1.5 million for credit losses on the consolidated statements of income is net of a $370 thousand
provision for credit marks in the Cadence Bank Branches loans acquired for the year ended December 31, 2022.
51
The following tables represents how the ACL is allocated to a particular loan type as well as the percentage of the
category to total gross loans at December 31, 2023 and 2022.
Allocation of the Allowance for Credit Losses
($ in thousands)
December 31, 2023
December 31, 2022
December 31, 2021
% of loans in
each category
to
total gross
loans
Amount
% of loans in
each category
to
total gross
loans
Amount
% of loans in
each category
to
total gross
loans
Amount
Commercial,
financial and
agriculture
Commercial real
estate
Consumer real
estate
Consumer
installment
Total loans
$
Non-interest Income
$
8,844
15.5 % $
6,349
14.2 % $
4,873
13.4 %
29,125
59.2 %
20,389
56.5 %
17,552
57.0 %
15,260
24.2 %
11,599
28.1 %
7,889
28.3 %
803
54,032
1.1 %
100 % $
580
38,917
1.2 %
100 % $
428
30,742
1.3 %
100 %
The Company's primary sources of non-interest income are mortgage banking operations and service charges on
deposit accounts. Other sources of non-interest income include bankcard fees, commissions on check sales, safe deposit box
rent, wire transfer fees, official check fees and bank owned life insurance income.
Non-interest income was $46.7 million at December 31, 2023, an increase of $9.7 million or 26.4% compared to
December 31, 2022. This increase was partially attributable to $11.7 million in service charges on deposit accounts and
interchange fee income, a $5.3 million increase associated with the U.S. Treasury awards, offset by a $9.8 million loss on
the sale of available-for-sale securities. Non-interest income was $37.0 million at December 31, 2022, a decrease of $512
thousand or 1.4% compared to December 31, 2021. Increased service charges on deposit accounts and interchange fee income
of $2.5 million was offset by a decrease in mortgage income of $4.5 million.
Non-interest Expense
Non-interest expense was $184.7 million for the year ended December 31, 2023, an increase of $54.2 million, or
41.6% in year-over-year comparison. The increase was partially attributable to $2.7 million in acquisition and charter
conversion charges and $32.1 million in increased operating expenses related to the acquisitions of Beach Bank and Heritage
Bank as well as $5.2 million in expenses associated with the U.S. Treasury awards and increases in FDIC premiums of $1.7
million and a $4.9 million increase in core deposit amortization for the year ended December 31, 2023. Non-interest expense
was $130.5 million for the year ended December 31, 2022, an increase of $15.9 million compared to December 31, 2021.
An increase of $4.8 million in acquisition and charter conversion charges and $3.3 million related to the ongoing operations
of the Cadence Bank branches and $5.1 million related to the Beach Bank branch operations accounted for the increase in
non-interest expense.
52
The following table sets forth the primary components of non-interest expense for the periods indicated.
Non-interest Expense
($ in thousands)
Salaries and employee benefits
Occupancy
Furniture and equipment
Supplies and printing
Professional and consulting fees
Marketing and public relations
FDIC and OCC assessments
ATM expense
Bank communications
Data processing
Acquisition expense/charter conversion
Other
Total
Income Tax Expense
Years ended December 31,
2022
2023
2021
$
$
93,412 $
17,381
3,987
1,240
6,446
833
3,849
5,821
3,579
2,771
9,075
36,332
184,726 $
73,077 $
12,854
2,981
967
3,558
393
2,122
3,873
1,904
2,211
6,410
20,133
130,483 $
65,856
12,713
2,848
903
4,035
615
2,074
3,623
1,754
1,578
1,607
16,953
114,559
Income tax expense consists of two components. The first is the current tax expense which represents the expected
income tax to be paid to taxing authorities. The Company also recognizes deferred tax for future income/deductible amounts
resulting from differences in the financial statement and tax bases of assets and liabilities. Income tax expense was
$21.3 million for the year ended December 31, 2023, $15.8 million for the year ended December 31, 2022 and $16.9 million
for the year ended December 31, 2021. The Company’s effective income tax rate was 22.1%, 20.0% and 20.9% for the years
ended December 31, 2023, 2022 and 2021, respectively. The effective tax rate differs each year primarily due to our
investments in bank-qualified municipal securities, bank-owned life insurance, and certain merger related expenses. Income
taxes are discussed more fully under Note K – Income Tax in the accompanying notes to the consolidated financial statements
included elsewhere in this report.
Earning Assets
Analysis of Financial Condition
Loans. Loans typically provide higher yields than the other types of earning assets, and thus one of the Company's
goals is for loans to be the largest category of the Company's earning assets. At December 31, 2023, 2022, and 2021,
respectively, average loans accounted for 71.4%, 58.0% and 60.8% of average earning assets. Management attempts to
control and counterbalance the inherent credit and liquidity risks associated with the higher loan yields without sacrificing
asset quality to achieve its asset mix goals. Loans, excluding mortgage loans held for sale, averaged $5.036 billion during
2023 and $3.302 billion during 2022, as compared to $3.020 billion during 2021.
In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than loans for construction
purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial
institutions in the Company’s market area of obtaining a security interest in real estate whenever possible, in addition to any
other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends
53
to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio
to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes it
will reduce the risk elements of its loan portfolio through strategies that diversify the lending mix.
Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market.
Commitments from investors to purchase the loans are obtained upon origination.
The following table sets forth the Company’s loan portfolio maturing within specified intervals at December 31,
2023.
($ in thousands)
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
Due in One
Year or Less
After One,
but Within
Five Years
After Five but
Within
Fifteen Years
After
Fifteen
Years
Total
Commercial, financial and
agricultural
Commercial real estate
Consumer real estate
Consumer installment
Total
Loans with fixed interest rates:
Commercial, financial and
agricultural
Commercial real estate
Consumer real estate
Consumer installment
Total
$
$
$
$
Loans with floating interest rates:
Commercial, financial and
agricultural
Commercial real estate
Consumer real estate
Consumer installment
$
Total
$
209,690 $
314,080
129,208
13,285
666,263 $
392,382 $
1,414,550
365,095
39,110
2,211,137 $
191,341 $
1,168,566
187,040
5,125
1,552,072 $
6,911 $
161,959
571,452
248
740,570 $
800,324
3,059,155
1,252,795
57,768
5,170,042
130,524 $
231,270
68,229
11,987
442,010 $
275,836 $
1,215,711
267,122
36,252
1,794,921 $
126,964 $
717,414
104,973
4,386
953,737 $
5,436 $
19,742
89,254
239
114,671 $
538,760
2,184,137
529,578
52,864
3,305,339
79,166 $
82,810
60,979
1,298
224,253 $
116,546 $
198,839
97,973
2,858
416,216 $
64,377 $
451,152
82,067
739
598,335 $
1,475 $
142,217
482,198
9
625,899 $
261,564
875,018
723,217
4,904
1,864,703
The information presented in the above table is based on the contractual maturities of the individual loans, including
loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit
approval, as well as modification of terms upon their maturity.
Investment Securities. The investment securities portfolio is a significant component of the Company’s total earning
assets. Total securities averaged $1.919 billion in 2023, as compared to $2.023 billion in 2022, and $1.305 billion in 2021.
This represents 27.2%, 35.5%, and 26.3% of the average earning assets for the years ended December 31, 2023, 2022 and
2021, respectively. At December 31, 2023, investment securities, including equity securities, were $1.735 billion and
54
represented 28.5% of earning assets. The Company attempts to maintain a portfolio of high quality, highly liquid investments
with returns competitive with short-term U.S. Treasury or agency obligations. This objective is particularly important as the
Company focuses on growing its loan portfolio. The Company primarily invests in securities of U.S. Treasury, U.S.
Government agencies, municipals, and corporate obligations with maturities up to ten years.
The following table details the weighted-average yield for each range of maturities of securities held-to-maturity
using the amortized cost at December 31, 2023 (tax equivalent basis):
After One, But
Within Five
Years
Maturing
After Five But
Within Ten
Years
Within One
Year
After Ten
Years
Total
Securities held-to-maturity
U.S. Treasury
Obligations of U.S. government
agencies and sponsored entities
Tax-exempt and taxable obligations
of states and municipal subdivisions
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Corporate obligations
Total held-to-maturity
1.48 %
1.67 %
— %
— %
3.49 %
3.30 %
— %
— %
1.60 %
3.34 %
1.91 %
2.04 %
3.96 %
4.83 %
4.57 %
— %
— %
1.61 %
2.45 %
2.34 %
— %
— %
1.62 %
2.12 %
— %
2.00 %
3.40 %
— %
3.71 %
3.86 %
3.13 %
4.57 %
3.57 %
3.13 %
4.18 %
Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected
maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
Short-Term Investments. Short-term investments, consisting of Federal Funds Sold, funds due from banks and
interest-bearing deposits with banks, averaged $97.2 million in 2023, $366.5 million in 2022, and $642.0 million in 2021.
There were no federal funds sold at December 31, 2023, 2022, and 2021. These funds are a primary source of the Company's
liquidity and are generally invested in an earning capacity on an overnight basis.
Deposits
Deposits. Average total deposits at December 31, 2023 were $6.555 billion, an increase of $1.127 billion, or 20.8%
compared to 2022. Average total deposits at December 31, 2022 were $5.428 billion, an increase of $796.9 million, or 17.2%
compared to $4.631 billion in 2021.
At December 31, 2023, total deposits were $6.463 billion, compared to $5.494 billion at December 31, 2022, an
increase of $968.5 million, or 17.6%, and $5.227 billion at December 31, 2021. During January 2023, deposits totaling
$1.392 billion, net of purchase accounting adjustments, were acquired in the Heritage Bank acquisition. During August
2022, deposits totaling $490.6 million were acquired in the BBI acquisition. During December 2021, deposits totaling $410.2
million were acquired in the Cadence Bank branches acquisition.
As of December 31, 2023 and 2022, the Company had estimated uninsured deposits of $2.145 billion and $2.076
billion, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's
regulatory reporting.
55
In the third quarter of 2022, the Company ceased the Deposit Reclassification program it implemented at the
beginning of 2020. The program reclassified non-interest bearing and NOW deposit balances to money market accounts. A
distribution of the Company’s deposits showing the year-to-date average balance of deposits by type and weighted-average
is presented for the noted periods in the following table. Deposits at December 31, 2021 are shown without reclassification
for consistency with the current period presentation.
($ in thousands)
Non-interest-bearing accounts $
Interest bearing deposits:
2023
Average
Balance
2,012,935
Average
Rate
Paid
December 31,
2022
Average
Rate
Paid
Average
Balance
1,660,301
$
2021
Average
Balance
1,366,529
$
Average
Rate
Paid
NOW accounts and other
Money market accounts
Savings accounts
Time deposits
Total interest-bearing
deposits
Total deposits
2,017,154
1,013,701
606,421
904,629
1.41 %
1.79 %
0.18 %
2.61 %
1,810,575
831,463
535,449
590,385
0.44 %
0.29 %
0.04 %
0.58 %
1,529,293
756,951
440,977
537,538
4,541,905
6,554,840
$
1.57 %
1.09 % $
3,767,872
5,428,173
0.37 %
0.26 % $
3,264,759
4,631,288
0.48 %
0.20 %
0.03 %
0.59 %
0.37 %
0.26 %
The most significant growth during 2023 compared to 2022 was in time deposits. The average cost of interest-
bearing deposits and total deposits was 1.57% and 1.09% during 2023 compared to 0.37% and 0.26% in 2022. Average cost
of interest bearing deposits increased 120 basis points to 1.57% at December 31, 2023 compared to 0.37% during the same
time period in 2022. Average cost of total deposits increased 83 basis points to 1.09% at December 31, 2023 compared to
0.26% during the same time period in 2022. The increase in the average cost of deposits paid on our interest-bearing deposit
products in 2023 compared to 2022, is a result of higher average market interest rates. Average cost of interest-bearing
deposits and total deposits remained unchanged at December 31, 2022 compared to 2021.
The Company’s loan-to-deposit ratio, which excludes mortgage loans held for sale, was 80.0% at December 31,
2023, 68.7% at December 31, 2022 and 56.6% at December 31, 2021. The loan-to-deposit ratio averaged 76.8% during 2023.
Core deposits, which exclude time deposits of $250,000 or more, provide a relatively stable funding source for the Company's
loan portfolio and other earning assets. The Company's core deposits were $6.084 billion at December 31, 2023, $5.198
billion at December 31, 2022, and $4.504 billion at December 31, 2021.
Management anticipates that a stable base of deposits will be the Company's primary source of funding to meet both
its short-term and long-term liquidity needs in the future. The Company has purchased brokered deposits from time to time
to help fund loan growth. Brokered deposits and jumbo certificates of deposit generally carry a higher interest rate than
traditional core deposits. Further, brokered deposit customers typically do not have loan or other relationships with the
Company. The Company has adopted a policy not to permit brokered deposits to represent more than 10% of all of the
Company’s deposits. The Company's brokered deposits were 1.8% of deposits at December 31, 2023.
56
Maturities of Certificates of Deposit
of $250,000 or More
Within Three
Months
After Three
Through Six
Months
After Six
Through
Twelve
Months
After Twelve
Months
$
103,032 $
122,629 $
44,767 $
22,443 $
Total
292,871
($ in thousands)
December 31, 2023
Borrowed Funds
Borrowed funds consist of advances from the Federal Home Loan Bank of Dallas (“FHLB”), loans from First
Horizon Bank, loans from the Federal Reserve Bank, federal funds purchased and reverse repurchase agreements. At
December 31, 2023, advances from the FHLB totaled $0 compared to $130.1 million at December 31, 2022 and $0 at
December 31, 2021. The advances are collateralized by a blanket lien on the first mortgage loans in the amount of the
outstanding borrowings, FHLB capital stock, and amounts on deposit with the FHLB. There were no federal funds purchased
at December 31, 2023, 2022, and 2021, respectively.
On March 12, 2023, the Federal Reserve Board announced the Bank Term Funding Program ("BTFP"), which offers
loans to banks with a term up to one year. The loans are secured by pledging the banks' U.S. treasuries, agency securities,
agency mortgage-backed securities, and any other qualifying asset. These pledged securities will be valued at par for
collateral purposes. The BTFP offers up to one year fixed-rate term borrowings that are prepayable without penalty.
In 2023, the Bank participated in the BTFP and had outstanding debt of $390.0 million and pledged securities with
a fair value of $362.4 million at December 31, 2023. The securities pledged have a par value of $398.1 million. The Bank's
BTFP borrowings, which were drawn between March 15, 2023 and December 28, 2023, bear interest rates ranging from
4.69% to 4.83% and are set to mature one year from their issuance date.
Subordinated Debentures
On June 30, 2006, the Company issued $4.1 million of floating rate junior subordinated deferrable interest
debentures to The First Bancshares Statutory Trust 2 (“Trust 2”). The debentures are the sole asset of Trust 2, and the
Company is the sole owner of the common equity of Trust 2. Trust 2 issued $4.0 million of Trust Preferred Securities to
investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and
unconditional guarantee by the Company of the Trust 2’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 term Secured Overnight Financing Rate ("SOFR") plus 1.65%
plus a tenor spread adjustment of 0.026161% and is payable quarterly. The terms of the subordinated debentures are 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”). The Company owns all of the common equity of Trust 3,
and the debentures are the sole asset of Trust 3. Trust 3 issued $6.0 million of Trust Preferred Securities to investors. The
Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional
guarantee by the Company of 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 term SOFR plus 1.40% plus a tenor spread adjustment of 0.026161% and is
payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.
In 2018, as a result of the acquisition of FMB Banking Corporation ("FMB"), the Company became the successor
to FMB's obligations in respect of $6.2 million of floating rate junior subordinated debentures issued to FMB Capital Trust
57
1 ("FMB Trust"). The debentures are the sole asset of FMB Trust, and the Company is the sole owner of the common equity
of FMB Trust. FMB Trust issued $6.0 million of Trust Preferred Securities to investors. The Company’s obligations under
the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of FMB
Trust's obligations under the preferred securities. The preferred securities issued by the FMB Trust are redeemable by the
Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2033. Interest on the
preferred securities is the three-month term SOFR plus 2.85% plus a tenor spread adjustment of 0.026161% and is payable
quarterly.
On January 1, 2023, as a result of the acquisition of HSBI, the Company became the successor to HSBI's obligations
in respect of $10.3 million of subordinated debentures issued to Liberty Shares Statutory Trust II ("Liberty Trust"). The
debentures are the sole asset of Liberty Trust, and the Company is the sole owner of the common equity of Liberty Trust.
Liberty Trust issued $10.0 million of preferred securities to an investor. The Company's obligations under the debentures
and related documents, taken together, constitute a full and unconditional guarantee by the Company of Liberty Trust's
obligations under the preferred securities. The preferred securities issued by the Liberty Trust are redeemable by the
Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2036. Interest on the
preferred securities is the three-month term SOFR plus 1.48% plus a tenor spread adjustment of 0.026161% and is payable
quarterly.
In accordance with the provisions of ASC Topic 810, Consolidation, the Trust 2, Trust 3, FMB Trust, and Liberty
Trust are not included in the consolidated financial statements.
Subordinated Notes
On April 30, 2018, The Company entered into two Subordinated Note Purchase Agreements pursuant to which the
Company sold and issued $24.0 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes
due 2028 (the "Notes due 2028") and $42.0 million in aggregate principal amount of 6.40% fixed-to-floating rate
subordinated notes due 2033 (the “Notes due 2033”). In May of 2023, the Company redeemed all $24.0 million of the
outstanding 5.875% fixed-to-floating rate subordinated notes due 2028.
The Notes due 2033 are not convertible into or exchangeable for any other securities or assets of the Company or
any of its subsidiaries. The Notes due 2033 are not subject to redemption at the option of the holder. Principal and interest
on the Notes due 2033 are subject to acceleration only in limited circumstances. The Notes due 2033 are unsecured,
subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior
indebtedness, and each Note is pari passu in right to payment with respect to the other Notes. The Notes due 2033 have a
fifteen year term, maturing May 1, 2033, and will bear interest at a fixed annual rate of 6.40%, payable quarterly in arrears,
for the first ten years of the term. Thereafter, the interest rate will re-set quarterly to an interest rate per annum equal to a
benchmark rate (which is expected to be three-month term SOFR plus 3.39% plus a tenor spread adjustment of 0.026161%),
payable quarterly in arrears. As provided in the Notes due 2033, under specified conditions the interest rate on the Notes due
2033 during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The
Company is entitled to redeem the Notes due 2033, in whole or in part, on any interest payment date on or after May 1, 2028,
and to redeem the Notes due 2033 at any time in whole upon certain other specified events.
On September 25, 2020, The Company entered into a Subordinated Note Purchase Agreement with certain qualified
institutional buyers pursuant to which the Company sold and issued $65.0 million in aggregate principal amount of its 4.25%
Fixed to Floating Rate Subordinated Notes due 2030 (the "Notes due 2030"). The Notes due 2030 are unsecured and have a
ten-year term, maturing October 1, 2030, and will bear interest at a fixed annual rate of 4.25%, payable semi-annually in
arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal
to a benchmark rate (which is expected to be the Three-Month Term SOFR plus 412.6 basis points), payable quarterly in
arrears. As provided in the Notes due 2030, under specified conditions the interest rate on the Notes due 2030 during the
applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The Company is
58
entitled to redeem the Notes due 2030, in whole or in part, on any interest payment date on or after October 1, 2025, and to
redeem the Notes due 2030 at any time in whole upon certain other specified events.
The Company had $123.4 million of subordinated debt, net of deferred issuance costs $1.6 million and unamortized
fair value mark $2.1 million, at December 31, 2023, compared to $145.0 million, net of deferred issuance costs $1.9 million
and unamortized fair value mark $593 thousand, at December 31, 2022. The decrease in subordinated debt was attributable
to the Company's redemption of $24.0 million of its Notes due 2028 and the Company's repayment of $2.0 million of its
Notes due 2030 in May of 2023, which resulted in the Company recording a $217 thousand gain on the repurchased debt.
The decrease in subordinated debt was partially offset by the addition of $9.0 million, net purchase accounting adjustments,
of subordinated debt that the Company acquired as part of the HSBI acquisition.
Capital
The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions
to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk
weights ranging from 0% for U.S government and agency securities, to 600% for certain equity exposures. In November
2019, the federal banking agencies adopted a rule revising the scope of commercial real estate mortgages subject to a 150%
risk weight. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common stockholders’
equity, excluding the unrealized gain (loss) on available-for-sale securities, minus certain intangible assets. Tier 2 capital
consists of the general reserve for loan losses, subject to certain limitations. An institution’s total risk-based capital for
purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The risk-based regulatory minimum
requirements are 6% for Tier 1 and 8% for total risk-based capital.
Bank holding companies and banks are also required to maintain capital at a minimum level based on total assets,
which is known as the leverage ratio. The minimum requirement for the leverage ratio is 4%. All but the highest rated
institutions are required to maintain ratios 100 to 200 basis points above the minimum. The Company and The First exceeded
their minimum regulatory capital ratios as of December 31, 2023, 2022 and 2021.
The Federal Reserve and the Federal Deposit Insurance Corporation approved final capital rules in July 2013, that
substantially amended the existing capital rules for banks. These new rules reflect, in part, certain standards initially adopted
by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel
III”) as well as requirements contemplated by the Dodd-Frank Act.
Under the Basel III capital rules, the Company is required to meet certain minimum capital requirements that differ
from past capital requirements. The rules implement a new capital ratio of common equity Tier 1 capital to risk-weighted
assets. Common equity Tier 1 capital generally consists of retained earnings and common stock (subject to certain
adjustments) as well as accumulated other comprehensive income (“AOCI”), however, the Company exercised a one-time
irrevocable option to exclude certain components of AOCI as of March 31, 2015. The Company is required to establish a
“conservation buffer,” consisting of a common equity Tier 1 capital amount equal to 2.5% of risk-weighted assets effective
January 2019. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities
including payment of dividends, stock repurchases, and discretionary bonuses to executive officers.
The prompt corrective action rules have been modified to include the common equity Tier 1 capital ratio and to
increase the Tier 1 capital ratio requirements for the various thresholds. For example, the requirements for the Company to
be considered well-capitalized under the rules include a 5.0% leverage ratio, a 6.5% common equity Tier 1 capital ratio, an
8.0% Tier 1 capital ratio, and a 10.0% total capital ratio.
The rules modify the manner in which certain capital elements are determined. The rules make changes to the
methods of calculating the risk-weighting of certain assets, which in turn affects the calculation of the risk-weighted capital
ratios. Higher risk weights are assigned to various categories of assets, including commercial real estate loans, credit facilities
59
that finance the acquisition, development or construction of real property, certain exposures or credit that are 90 days past
due or are nonaccrual, securitization exposures, and in certain cases mortgage servicing rights and deferred tax assets.
The Company was required to comply with the new capital rules on January 1, 2015, with a measurement date of
March 31, 2015. The conservation buffer was phased-in beginning in 2016, and took full effect on January 1, 2019. Certain
calculations under the rules will also have phase-in periods. Under this guidance banking institutions with a CETI, Tier 1
Capital Ratio and Total Risk Based Capital above the minimum regulatory adequate capital ratios but below the capital
conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses
to executive officers, based on the amount of the shortfall.
Analysis of Capital
Capital Ratios
Adequately
Capitalized
Well
Capitalized
Minimum
Capital
Required
Basel III
Fully
Phased In
4.0 %
5.0 %
7.0 %
The Company
December 31,
2022
9.3 %
2023
9.7 %
The First
December 31,
2022
2023
2021
9.2 % 10.7 % 11.1 % 10.8 %
2021
Leverage
Risk-based capital:
Common equity
Tier 1
Tier 1
Total
4.5 %
6.0 %
8.0 %
6.5 %
8.0 %
10.0 %
7.0 % 12.1 % 12.7 % 13.7 % 13.8 % 15.6 % 16.6 %
8.5 % 12.5 % 13.0 % 14.1 % 13.8 % 15.6 % 16.6 %
10.5 % 15.0 % 16.7 % 18.6 % 14.8 % 16.4 % 17.4 %
Liquidity and Capital Resources
Liquidity management involves monitoring the Company’s sources and uses of funds in order to meet its day-to-
day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into
cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management
is made more complicated because different balance sheet components are subject to varying degrees of management control.
For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control
at the time investment decisions are made; however, net deposit inflows and outflows are far less predictable and are not
subject to the same degree of control. Asset liquidity is provided by cash and assets which are readily marketable, which can
be pledged, or which will mature in the near future. Liability liquidity is provided by access to core funding sources,
principally the ability to generate customer deposits in the Company’s market area.
The Company’s federal funds sold position, which includes funds due from banks and interest-bearing deposits with
banks, is typically its primary source of liquidity. Federal funds sold averaged $97.2 million during the year ended
December 31, 2023 and averaged $366.5 million at December 31, 2022. In addition, the Company has available advances
from the FHLB. Advances available are generally based upon the amount of qualified first mortgage loans which can be used
for collateral. At December 31, 2023, advances available totaled approximately $2.051 billion, of which $355.2 million had
been drawn, or used for letters of credit.
As of December 31, 2023, the market value of unpledged debt securities plus pledged securities in excess of current
pledging requirements comprised $661.8 million of the Company’s investment balances, compared to $1.066 billion at
December 31, 2022. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding federal
funds sold and vault cash. Management believes that available investments and other potentially liquid assets, along with the
60
standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term
liquidity needs.
The Company’s liquidity ratio as of December 31, 2023 was 17.6%, as compared to internal liquidity policy
guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines for the
periods indicated:
Loans to Deposits (including FHLB advances)
Net Non-core Funding Dependency Ratio
Fed Funds Purchased / Total Assets
FHLB Advances / Total Assets
FRB Advances / Total Assets
Pledged Securities to Total Securities
Loans to Deposits (including FHLB advances)
Net Non-core Funding Dependency Ratio
Fed Funds Purchased / Total Assets
FHLB Advances / Total Assets
FRB Advances / Total Assets
Pledged Securities to Total Securities
Loans to Deposits (including FHLB advances)
Net Non-core Funding Dependency Ratio
Fed Funds Purchased / Total Assets
FHLB Advances / Total Assets
FRB Advances / Total Assets
Pledged Securities to Total Securities
December 31,
2023
Policy Maximum
90.0 %
20.0 %
10.0 %
20.0 %
10.0 %
90.0 %
79.3 %
8.3 %
0.0 %
0.0 %
5.0 %
58.6 %
December 31,
2022
Policy Maximum
90.0 %
20.0 %
10.0 %
20.0 %
10.0 %
90.0 %
67.9 %
4.4 %
0.0 %
2.0 %
0.0 %
46.9 %
December 31,
2021
Policy Maximum
90.0 %
20.0 %
10.0 %
20.0 %
10.0 %
90.0 %
55.8 %
(14.6)%
0.0 %
0.0 %
0.0 %
48.5 %
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
In Policy
The holding company’s primary uses of funds are ordinary operating expenses and stockholder dividends, and its
primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations.
Management anticipates that the Bank will have sufficient earnings to provide dividends to the holding company to meet its
funding requirements for the foreseeable future.
Management regularly reviews the liquidity position of the Company and has implemented internal policies which
establish guidelines for sources of asset-based liquidity and limit the total amount of purchased funds used to support the
balance sheet and funding from non-core sources. As of December 31, 2023, the target federal funds rate was 5.25% to
5.50%.
On February 8, 2022, the Company announced the renewal of the 2021 Repurchase Program that previously expired
on December 31, 2021. Under the renewed 2021 Repurchase Program, the Company could repurchase up to an aggregate of
$30.0 million of the Company’s issued and outstanding common stock in any manner determined appropriate by the
61
Company’s management, less the amount of prior purchases under the program during the 2021 calendar year. The renewed
2021 Repurchase Program was completed in February 2022 when the Company’s repurchases under the program approached
the maximum authorized amount. The Company repurchased 600,000 shares under the 2021 Repurchase Program in the
first quarter of 2022.
On March 9, 2022, the Company announced that its Board of Directors authorized a new share repurchase program
(the “2022 Repurchase Program”), pursuant to which the Company could purchase up to an aggregate of $30.0 million in
shares of the Company’s issued and outstanding common stock during the 2022 calendar year. Under the program, the
Company could, but was not required to, from time to time repurchase up $30.0 million of shares of its own common stock
in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the
target number of shares and the maximum price (or range of prices) under the program, was determined by management at
is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general
market and economic conditions, and applicable legal and regulatory requirements. The 2022 Repurchase Program expired
on December 31, 2022.
The Inflation Reduction Act of 2022 signed into law in August 2022 includes a provision for an excise tax equal to
1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits
and provisions. The excise tax is effective beginning in fiscal year 2023. While we may complete transactions subject to
the new excise tax, we do not expect a material impact to our statement of condition or result of operations.
On February 28, 2023, the Company announced that its Board of Directors has authorized a new share repurchase
program (the "2023 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50.0 million
in shares of the Company's issued and outstanding common stock during the 2023 calendar year. Under the program, the
Company may, but is not required to, from time to time repurchase up $50.0 million of shares of its own common stock in
any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the
target number of shares and the maximum price (or range of prices) under the program, will be determined by management
at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general
market and economic conditions, and applicable legal and regulatory requirements. The 2023 Repurchase Program expired
on December 31, 2023.
On February 28, 2024, the Company announced that its Board of Directors has authorized a new share repurchase
program (the "2024 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50.0 million
in shares of the Company's issued and outstanding common stock during the 2024 calendar year. Under the program, the
Company may, but is not required to, from time to time repurchase up $50.0 million of shares of its own common stock in
any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the
target number of shares and the maximum price (or range of prices) under the program, will be determined by management
at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general
market and economic conditions, and applicable legal and regulatory requirements. The 2024 Repurchase Program will
expire on December 31, 2024.
62
Commitments and Contractual Obligations
The following table presents, as of December 31, 2023, fixed and determinable contractual obligations to third
parties by payment date. Amounts in the table do not include accrued or accruing interest. Payments related to leases are
based on actual payments specified in the underlying contracts. Further discussion of the nature of each obligation is included
in the referenced note to the consolidated financial statements included elsewhere in this Form 10-K.
Note
Reference
Within One
Year
After One
But Within
Three Years
After Three
But Within
Five Years
After Five
Years
Total
G
G
H
I
N
N
$ 5,387,116 $
971,259
390,000
1,240
— $
73,460
—
2,225
— $
22,510
—
1,825
— $ 5,387,116
1,075,756
390,000
8,289
8,527
—
2,999
—
—
—
25,016
25,016
—
$ 6,749,615 $
—
75,685 $
—
24,335 $
98,370
98,370
134,912 $ 6,984,547
($ in thousands)
Deposits without a stated
maturity
Time deposits
Borrowings
Lease obligations
Trust preferred subordinated
debentures
Subordinated note purchase
agreement
Total Contractual obligations
Subprime Assets
The Bank does not engage in subprime lending activities targeted towards borrowers in high risk categories.
Accounting Matters
Information on new accounting matters is set forth in Note B – Summary of Significant Accounting Policies in the
accompanying notes to the consolidated financial statements included elsewhere in this report. This information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company
does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. Our market
risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our
earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is
to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation
for earnings and capital under a variety of interest rate scenarios.
To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software
to perform earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate
scenarios every month. The model imports relevant information for the Company’s financial instruments and incorporates
management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios
consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest
rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections
can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease
63
in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from
current actual levels).
We use seven standard interest rate scenarios in conducting our 12-month net interest income simulations: “static,”
upward shocks of 100, 200, 300 and 400 basis points, and downward shocks of 100, and 200 basis points. Pursuant to policy
guidelines, we typically attempt to limit the projected decline in net interest income relative to the stable rate scenario to no
more than 5% for a 100-basis point (bp) interest rate shock, 10% for a 200 bp shock, 15% for a 300 bp shock, and 20% for a
400 bp shock. As of December 31, 2023, the Company had the following estimated net interest income, without factoring in
any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:
December 31, 2023
($ in thousands)
Net Interest Income
Dollar Change
NII @ Risk - Sensitivity Year 1
-200 bp
236,936
5,415
-100 bp
232,589
1,068
Net Interest Income at Risk – Sensitivity Year 1
+100 bp
STATIC
231,521 233,208
1,687
+200 bp
226,151
2.3 %
0.5 %
0.7 %
+300 bp
210,556
+400 bp
187,595
(5,370) (20,965) (43,926)
(19.0)%
(9.1)%
(2.3)%
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 $5.4 million higher than in a stable
interest rate scenario, for a variance of 2.3%.
Net interest income would likely decrease by $5.4 million, or (2.3)%, if interest rates were to increase by 200 basis
points relative to a stable interest rate scenario. The initial increase in rising rate scenarios will be limited to some extent by
the fact that some of our variable-rate loans are currently at rate floors, resulting in a re-pricing lag while base rates are
increasing to floored levels, but we believe the Company still would benefit from a material upward shift in the yield curve.
The Company’s one-year cumulative GAP ratio was approximately 118.0% at December 31, 2023, 180.0% at
December 31, 2022 and 164.5% at December 31, 2021. The Company is considered “asset-sensitive” which means that there
are more assets repricing than liabilities within the first year.
In addition to the net interest income simulations shown above, we run stress scenarios modeling the possibility of
no balance sheet growth, the potential runoff of 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.
64
The change in economic value under different interest rate scenarios depends on the characteristics of each class of
financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or
spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average
remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios
and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value
as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have
on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated
maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and management’s best
estimates. The table below shows estimated changes in the Company’s EVE as of the periods indicated under different interest
rate scenarios relative to a base case of current interest rates:
($ in thousands)
Market Value of Equity
Change in EVE from base
% Change
Policy Limits
($ in thousands)
Market Value of Equity
Change in EVE from base
% Change
Policy Limits
December 31, 2023 - Balance Sheet Shock
STATIC
(Base)
-200 bp
-100 bp
+100 bp
1,286,790 1,321,286 1,354,363 1,362,597 1,327,813 1,263,361 1,187,080
(91,002) (167,283)
8,234
(12.4)%
(40.0)%
(26,550)
(2.0)%
(20.0)%
(67,573)
(5.0)%
(20.0)%
(33,077)
(2.4)%
(10.0)%
0.6 %
(10.0)%
(6.7)%
(30.0)%
+200 bp
+400 bp
+300 bp
December 31, 2022 - Balance Sheet Shock
STATIC
(Base)
+200 bp
-200 bp
-100 bp
+100 bp
1,366,982 1,410,341 1,397,164 1,366,639 1,316,226 1,248,624 1,165,069
(80,938) (148,540) (232,095)
(16.6)%
(10.6)%
(40.0)%
(30.0)%
(30,182)
(2.2)%
(20.0)%
(30,525)
(2.2)%
(10.0)%
0.9 %
(10.0)%
(5.8)%
(20.0)%
+400 bp
+300 bp
13,177
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.
65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders, Board of Directors and Audit Committee
The First Bancshares, Inc.
Hattiesburg, Mississippi
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of The First Bancshares, Inc. (the “Company”) as of December 31,
2023 and 2022, the related consolidated statements of income, comprehensive income (loss), stockholders’ equity and cash flows
for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated February 29, 2024, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts
or disclosures to which they relate.
66
Allowance for Credit Losses
The Company’s loan portfolio totaled $5.17 billion as of December 31, 2023, and the allowance for credit losses on loans was $54
million. The Company’s unfunded loan commitments totaled $866 million, with an allowance for credit loss of $2.1 million.
Together these amounts represent the allowance for credit losses (“ACL”).
As more fully described in Notes B, E and Q to the Company’s consolidated financial statements, the Company estimates its
exposure to expected credit losses as of the balance sheet date, for existing financial instruments held at amortized cost, and off-
balance sheet exposures, such as unfunded loan commitments, letters of credit and other financial guarantees that are not
unconditionally cancellable by the Company.
The determination of the ACL requires management to exercise significant judgment and consider numerous subjective factors,
including determining qualitative factors utilized to adjust historical loss rates, loan credit risk grading and identifying loans
requiring individual evaluation among others. As disclosed by management, different assumptions and conditions could result in a
materially different amount for the estimate of the ACL.
We identified the valuation of the ACL as a critical audit matter. Auditing the ACL involved a high degree of subjectivity in
evaluating management’s estimates, such as evaluating management's identification of credit quality indicators, grouping of loans
determined to be similar into pools, estimating the remaining life of loans in a pool, assessment of economic conditions and other
environmental factors, evaluating the adequacy of specific allowances associated with individually evaluated loans and assessing
the appropriateness of loan credit risk grades.
The primary procedures we performed as of December 31, 2023, to address this critical audit matter included:
• Testing the design and operating effectiveness of controls, including those related to technology, over the allowance for
credit losses including:
◦
◦
◦
◦
◦
◦
◦
loan data completeness and accuracy,
classifications of loans by loan segment,
verification of historical net loss data and calculated net loss rates,
the establishment of qualitative adjustments,
credit ratings and risk classification of loans,
establishment of specific reserves on individually evaluated loans,
and management’s review and disclosure controls over the allowance for credit losses;
• Testing of completeness and accuracy of the information utilized in the allowance for credit losses;
• Testing the allowance for credit losses model’s computational accuracy;
• Evaluating the qualitative adjustments, including assessing the basis for the adjustments and the reasonableness of the
significant assumptions;
• Testing the loan review function and evaluating the accuracy of loan credit ratings;
• Evaluating the reasonableness of specific allowances on individually evaluated loans;
• Evaluating the overall reasonableness of assumptions used by management considering the past performance of the
Company;
67
• Evaluating the disclosures in the consolidated financial statements.
Acquisition
As described in Note C to the Company’s consolidated financial statements, the Company consummated the acquisition of Heritage
Southeast Bancorporation, Inc. and its wholly-owned subsidiary, Heritage Bank, resulting in goodwill of approximately $91.9
million being recognized on the Company’s consolidated balance sheet. As part of the acquisition, management assessed that the
acquisition qualified as a business combination and all identifiable assets and liabilities acquired were valued at fair value as part
of the purchase price allocation as of the acquisition date. The identification and valuation of such acquired assets and assumed
liabilities requires management to exercise significant judgment. Management utilized outside vendors to assist with estimating
the fair value.
We identified the consummated acquisition and the valuation of acquired assets and assumed liabilities as a critical audit matter.
Auditing the acquired assets and assumed liabilities and other acquisition-related considerations involved a high degree of
subjectivity in evaluating management’s fair value estimates and purchase price allocations.
The primary procedures we performed to address this critical audit matter included:
• Obtained and read the executed Agreement and Plan of Merger documents to gain an understanding of the underlying
terms of the consummated acquisition;
• Testing the design and operating effectiveness of controls including:
◦ Evaluating the significant assumptions used for valuing significant assets and liabilities assumed;
• Assessed management’s application of accounting guidance related to the business combination and management’s
determination of whether the transaction was an acquisition of a business as defined within the ASC 805, Business
Combinations, framework;
• Assessed the completeness and accuracy of management’s purchase accounting model, including the balance sheet
acquired and related fair value purchase price allocations made to identified assets acquired and liabilities assumed;
• Obtained and evaluated significant outside vendor valuation estimates, and challenging management’s review of the
appropriateness of the valuations including but not limited to, testing critical inputs, assumptions applied and valuation
models utilized by the outside vendors;
• Utilized internal valuation specialists to assist with testing the related fair value estimates;
• Tested the completeness and accuracy of management’s calculation of total consideration paid;
• Tested the accuracy of the goodwill calculation resulting from the acquisition, which was the difference between the total
consideration paid and the fair value of the net assets acquired;
• Read and evaluated the adequacy of the disclosures made in the notes to the Company’s consolidated financial statements.
/s/ FORVIS, LLP
We have served as the Company’s auditor since 2021.
Jackson, Mississippi
February 29, 2024
68
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 AND 2022
($ in thousands except per share data)
2023
2022
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Total cash and cash equivalents
$
224,199 $
130,948
355,147
Securities available-for-sale, at fair value (amortized cost: $1,164,227 in 2023; $1,418,337 in 2022; allowance for
credit losses: $0 in both 2023 and 2022)
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $615,944 - 2023; $642,097 - 2022)
$
$
Other securities
Total securities
Loans held for sale
Loans, net of ACL of $54,032 in 2023 and $38,917 in 2022
Interest receivable
Premises and equipment
Operating lease right-of-use assets
Finance lease right-of-use assets
Cash surrender value of life insurance
Goodwill
Other real estate owned
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Interest payable
Borrowed funds
Subordinated debentures
Operating lease liabilities
Finance lease liabilities
Allowance for credit losses on off-balance sheet credit exposures
Other liabilities
Total liabilities
Stockholders’ Equity:
Common stock, par value $1 per share: 80,000,000 shares authorized; 32,338,983 shares issued in 2023, 40,000,000
shares authorized, and 25,275,369 shares issued in 2022, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Treasury stock, at cost (1,249,607 shares - 2023; 1,249,607 shares - 2022)
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these statements.
69
1,042,365
654,539
37,754
1,734,658
2,914
5,116,010
33,300
174,309
6,387
1,466
134,249
272,520
8,320
160,065
1,849,013 $
4,613,859
6,462,872
22,702
390,000
123,386
6,550
1,739
2,075
40,987
7,050,311
32,339
775,232
300,150
(117,576)
(41,111)
949,034
7,999,345 $
$
67,176
78,139
145,315
1,257,101
691,484
33,944
1,982,529
4,443
3,735,240
27,723
143,518
7,620
1,930
95,571
180,254
4,832
132,742
1,630,203
3,864,201
5,494,404
3,324
130,100
145,027
7,810
1,918
1,325
31,146
5,815,054
25,275
558,833
252,623
(148,957)
(41,111)
646,663
6,461,717
7,999,345 $
6,461,717
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
($ in thousands, except per share amount)
INTEREST INCOME
Interest and fees on loans
Interest and dividends on securities:
Taxable interest and dividends
Tax-exempt interest
Interest on deposits in banks
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on borrowed funds
Total interest expense
Net interest income
Provision for credit losses, LHFI
Provision for credit losses, OBSC exposures
Net interest income after provision for credit losses
NON-INTEREST INCOME
Service charges on deposit accounts
Other service charges and fees
Interchange fees
Secondary market mortgage income
Bank owned life insurance income
BOLI death proceeds
Gain (loss) on sale of premises
Securities (loss) gain
Gain (loss) on sale of other real estate
Government awards/grants
Bargain purchase gain
Other
Total non-interest income
NON-INTEREST EXPENSE
Salaries
Employee benefits
Occupancy
Furniture and equipment
Supplies and printing
Professional and consulting fees
Marketing and public relations
FDIC and OCC assessments
ATM expense
Bank communications
Data processing
Acquisition expense/charter conversion
Other
Total non-interest expense
2023
2022
2021
$
294,541
$
157,768
$
151,203
32,202
11,737
2,453
340,933
71,359
20,249
91,608
249,325
13,750
750
234,825
14,175
3,177
18,914
2,866
3,319
—
35
(9,716)
6
6,197
—
7,732
46,705
76,609
16,803
17,381
3,987
1,240
6,446
833
3,849
5,821
3,579
2,771
9,075
29,656
11,017
1,952
200,393
13,978
8,599
22,577
177,816
5,350
255
172,211
8,668
1,833
12,702
4,303
2,101
1,630
(116)
(82)
214
873
281
4,554
36,961
57,903
15,174
12,854
2,981
967
3,558
393
2,122
3,873
1,904
2,211
6,410
16,685
7,721
1,136
176,745
12,062
7,619
19,681
157,064
(1,456)
352
158,168
7,264
1,508
11,562
8,823
1,955
—
(264)
143
(300)
1,826
1,300
3,656
37,473
53,371
12,485
12,713
2,848
903
4,035
615
2,074
3,623
1,754
1,578
1,607
36,332
184,726
20,133
130,483
16,953
114,559
70
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
($ in thousands, except per share amount)
Continued:
Income before income taxes
Income taxes
Net income available to common stockholders
Earnings per share:
Basic
Diluted
$
$
$
2023
2022
2021
96,804
$
78,689
$
21,347
15,770
81,082
16,915
75,457
$
62,919
$
64,167
2.41
$
2.39
2.86
$
2.84
3.05
3.03
The accompanying notes are an integral part of these statements.
71
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
($ in thousands)
Net income
Other comprehensive income (loss):
Unrealized holding gain/(loss) arising during the period on available-for-sale
securities
Net unrealized loss at time of transfer on securities available-for-sale
transferred to held-to-maturity
Reclassification adjustment for (accretion) amortization of unrealized
holdings gain/(loss) included in accumulated other comprehensive income
from the transfer of securities available-for-sale to held-to-maturity
Reclassification adjustment for loss/(gains) included in net income
Unrealized holding gain/(loss) arising during the period on available-for-sale
securities
Income tax (expense) benefit
Other comprehensive income (loss)
Comprehensive income (loss)
2023
2022
2021
$
75,457 $
62,919 $
64,167
31,921
(173,428)
(23,738)
—
(36,838)
—
372
9,716
97
82
42,009
(210,087)
(10,628)
31,381
106,838 $
53,152
(156,935)
(94,016) $
$
—
(143)
(23,881)
6,043
(17,838)
46,329
The accompanying notes are an integral part of these statements.
72
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023
($ in thousands except per share amount)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
21,598,993 $
—
—
—
21,599 $
—
—
—
456,919 $
—
—
—
154,241 $
64,167
—
—
25,816
—
—
(17,838)
Balance, January 1, 2021
Net income, 2021
Common stock repurchased
Other comprehensive loss
Dividend on common stock,
$.58 per common share
Issuance restricted stock grant
Restricted stock grant forfeited
Compensation expense
Repurchase of restricted stock
for payment of taxes
—
93,578
(2,021)
—
(21,906)
Balance, December 31, 2021 21,668,644 $
Net income, 2022
Common stock repurchased
Other comprehensive loss
Dividend on common stock,
$.74 per common share
Issuance of common shares for
BBI acquisition
Issuance restricted stock grant
Restricted stock grant forfeited
Compensation expense
Repurchase of restricted stock
for payment of taxes
Balance, December 31, 2022
—
—
—
—
3,498,936
129,950
(2,500)
—
(19,661)
25,275,369 $
Net income, 2023
Other comprehensive income
Dividend on common stock,
$.90 per common share
Issuance of common shares for
HSBI acquisition
—
94
(2)
—
—
(94)
2
3,100
(12,180)
—
—
—
(22)
21,669 $
(699)
459,228 $
—
206,228 $
—
—
—
—
3,499
130
(3)
—
—
—
—
62,919
—
—
—
(16,524)
97,970
(130)
3
2,425
—
—
—
—
(20)
(663)
25,275 $ 558,833 $ 252,623 $
—
Treasury Stock
Shares
Amount
Total
(483,984) $
(13,760) $
644,815
(165,623)
—
—
—
—
—
—
64,167
(5,171)
(17,838)
(12,180)
—
—
3,100
(721)
(5,171)
—
—
—
—
—
—
—
—
—
—
—
7,978
(649,607) $
(18,931) $
676,172
—
—
(156,935)
—
(600,000)
—
—
(22,180)
—
62,919
(22,180)
(156,935)
—
—
—
—
—
—
(148,957)
—
—
—
—
—
—
—
—
—
—
—
—
(16,524)
101,469
—
—
2,425
(683)
(1,249,607) $
(41,111) $ 646,663
—
—
—
—
—
—
—
—
—
—
75,457
31,381
—
(27,930)
—
—
—
—
—
221,522
—
—
2,302
(361)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
75,457
—
—
31,381
—
(27,930)
6,920,422
6,920
214,602
Issuance restricted stock grant
Restricted stock grant forfeited
Compensation expense
Repurchase of restricted stock
for payment of taxes
167,173
(12,194)
—
167
(12)
—
(167)
12
2,302
(11,787)
(11)
(350)
—
—
—
—
—
Balance, December 31, 2023 32,338,983 $
32,339 $
775,232 $
300,150 $
(117,576)
(1,249,607) $
(41,111) $
949,034
See Notes to Consolidated Financial Statements
73
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
($ in thousands)
2023
2022
2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
75,457
$
62,919
$
64,167
Depreciation and amortization
FHLB stock dividends
Provision for credit losses
Deferred income taxes
Restricted stock expense
Increase in cash value of life insurance
Amortization and accretion, net, related to acquisitions
Bank premises and equipment loss/(gain)
Acquisition gain
Securities loss (gain)
Loss on sale/writedown of other real estate
Residential loans originated and held for sale
Proceeds from sale of residential loans held for sale
Changes in:
Interest receivable
Other assets
Interest payable
Operating lease liability
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Sales
Maturities, prepayments, and calls
Purchases
Held-to-maturity securities:
Maturities, prepayments, and calls
Purchases
Purchases of other securities
Proceeds from redemption of other securities
Net (increase)/decrease in loans
Net changes to premises and equipment
Bank-owned life insurance - death proceeds
Purchase of bank owned life insurance
Proceeds from sale of other real estate owned
Proceeds from sale of land
Cash received in excess of cash paid for acquisition
Net cash provided by (used in) investing activities
74
12,099
(355)
14,500
7,006
2,302
(3,319)
(4,432)
(35)
—
9,716
774
(91,786)
93,315
(1,228)
16,086
19,378
(1,260)
(39,710)
108,508
285,793
132,919
(8,473)
40,469
—
(17,094)
14,466
(227,896)
(3,688)
221
—
3,069
1,416
106,793
327,995
12,173
(28)
5,605
940
2,425
(2,101)
1,706
116
(281)
82
159
(152,776)
156,011
(2,987)
(45,692)
1,613
(1,306)
51,449
90,027
21,069
197,417
(6,500)
474
(602,718)
(11,444)
1,237
(326,113)
(15,522)
1,630
—
8,930
712
23,939
(706,889)
13,792
(27)
(1,104)
1,739
3,100
(1,955)
(30)
264
(1,300)
(143)
815
(230,456)
244,210
3,218
(1,056)
(463)
(1,839)
2,783
95,715
—
229,091
(988,536)
—
—
—
5,276
202,194
(7,125)
—
(11,733)
4,562
—
358,916
(207,355)
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
Continued:
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in deposits
Proceeds from borrowed funds
Repayment of borrowed funds
Dividends paid on common stock
Cash paid to repurchase common stock
Repurchase of restricted stock for payment of taxes
Principal payment on finance lease liabilities
Payment on subordinated debt issuance costs
Called/repayment of subordinated debt
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures:
Cash paid during the year for:
Interest
Income taxes, net of refunds
Non-cash activities:
Transfers of loans to other real estate
Transfer of securities available-for-sale to held-to-maturity
Issuance of restricted stock grants
Stock issued in connection with BBI acquisition
Stock issued in connection with HSBI acquisition
Dividends on restricted stock grants
Right-of-use assets obtained in exchange for operating lease liabilities
Lease liabilities arising from BBI acquisition
Lease liabilities arising from HSBI acquisition
2023
2022
2021
(427,481)
7,600,043
(7,340,143)
(27,550)
—
(361)
(179)
—
(31,000)
(226,671)
(223,322)
2,055,401
(1,950,301)
(16,275)
(22,180)
(683)
(176)
—
—
(157,536)
209,832
145,315
355,147 $
(774,398)
919,713
145,315 $
601,575
—
(114,647)
(11,991)
(5,171)
(721)
(187)
(59)
—
468,799
357,159
562,554
919,713
51,101 $
16,084
16,932 $
7,194
16,368
15,717
6,602
—
168
—
221,522
380
817
—
184
2,560
139,598
130
101,469
—
249
2,698
3,390
—
2,143
—
94
—
—
189
168
—
—
$
$
The accompanying notes are an integral part of these statements.
75
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF BUSINESS
The First Bancshares, Inc. (the “Company”) is a bank holding company whose business is primarily conducted by
its wholly-owned subsidiary, The First Bank (the “Bank”), formerly known as The First, A National Banking Association.
The Bank provides a full range of banking services in its primary market area of Mississippi, Louisiana, Alabama, Florida,
and Georgia. The Company is regulated by the Federal Reserve Bank. Its subsidiary bank is currently subject to the regulation
of the Federal Reserve Bank and the Mississippi Department of Banking and Consumer Finance, and was previously subject
to the regulation of the OCC.
On January 15, 2022, the Bank, then named The First, A National Banking Association, converted from a national
banking association to a Mississippi state-chartered bank and changed its name to The First Bank. The First Bank is a member
of the Federal Reserve System through the Federal Reserve Bank of Atlanta. The charter conversion and name change are
expected to have only a minimal impact on the Bank’s clients, and deposits will continue to be insured by the Federal Deposit
Insurance Corporation up to the applicable limits.
The principal products produced, and services rendered by the Company and are as follows:
Commercial Banking - The Company provides a full range of commercial banking services to corporations and
other business customers. Loans are provided for a variety of general corporate purposes, including financing for
commercial and industrial projects, income producing commercial real estate, owner-occupied real estate and
construction and land development. The Company also provides deposit services, including checking, savings and
money market accounts and certificate of deposit as well as treasury management services.
Consumer Banking - The Company provides banking services to consumers, including checking, savings, and
money market accounts as well as certificate of deposit and individual retirement accounts. In addition, the
Company provides consumers with installment and real estate loans and lines of credit.
Mortgage Banking - The Company provides residential mortgage banking services, including construction
financing, for conventional and government insured home loans to be sold in the secondary market.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and the Bank follow accounting principles generally accepted in the United States of America
including, where applicable, general practices within the banking industry.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates
that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit
losses, acquisition accounting, intangible assets, deferred tax assets, and fair value of financial instruments.
76
Debt Securities
Investments in debt securities are accounted for as follows:
Available-for-Sale Securities
Debt securities classified as available-for-sale ("AFS") are those securities that are intended to be held for an
indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would
be based on various factors, including movements in interest rates, liquidity needs, security risk assessments, changes in the
mix of assets and liabilities and other similar factors. These securities are carried at their estimated fair value, and the net
unrealized gain or loss is reported as component of accumulated other comprehensive income (loss), net of tax, in
stockholders’ equity, until realized. Premiums and discounts are recognized in interest income using the interest method. The
Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses
in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. Gains and losses on the sale of
available-for-sale securities are determined using the adjusted cost of the specific security sold. AFS securities are placed
on nonaccrual status at the time any principal to interest payments become 90 days delinquent or if full collection of interest
or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income.
There was no accrued interest related to AFS securities reversed against interest income for the years ended December 31,
2023, 2022, and 2021.
Allowance for Credit Losses – Available-for-Sale Securities
For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell or is
more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If
either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair
value through income. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value
has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair
value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions
specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value
of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present
value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for
credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any
impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are
charged against the allowance when management believes the uncollectability of a security is confirmed or when either of
the criteria regarding intent or requirement to sell is met.
Accrued interest receivable is excluded from the estimate of credit losses for securities AFS.
Securities to be Held-to-Maturity
Debt securities classified as held-to-maturity ("HTM") are those securities for which there is a positive intent and
ability to hold to maturity. These securities are carried at cost adjusted for amortization of premiums and accretion of
discounts, computed by the interest method. Gain and losses on the sales are determined using the adjusted cost of the specific
security sold. HTM securities are placed on nonaccrual status at the time any principal to interest payments become 90 days
delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual
is reversed against interest income. There was no accrued interest related to HTM securities reversed against interest income
for the years ended December 31, 2023, 2022, and 2021.
77
Allowance for Credit Losses – Held-to-Maturity Securities
Management measures expected credit losses on HTM debt securities on a pooled basis. That is, for pools of such
securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of
default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable
forecasts over the expected lives of the securities.
Expected credit losses on each security in the HTM portfolio that does not share common risk characteristics with
any of the identified pools of debt securities are individually measured based on net realizable value, of the difference between
the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized
cost basis of the security.
Loss forecasts for HTM debt securities utilize Moody's municipal and corporate database, based on a scenario-
conditioned probability of default and loss rate platform. The core of the stressed default probabilities and loss rates is based
on the methodological relationship between key macroeconomic risk factors and historical defaults over nearly 50 years.
Loss forecasts for structured HTM securities utilize VeriBanc's Estimated CAMELS Rating and the Modified Texas Ratio
for each piece of underlying collateral and are applied to Intex models for the underlying assets cashflow resulting in
collateral cashflow forecasts. These securities are assumed not to share similar risk characteristics due to the heterogeneous
nature of the underlying collateral. As a result of this evaluation, management determined that the expected credit losses
associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses
has been recognized during the years ended December 31, 2023 and 2022.
Accrued interest receivable is excluded from the estimate of credit losses for securities HTM.
Trading Account Securities
Trading account securities are those securities which are held for the purpose of selling them at a profit. There were
no trading account securities at December 31, 2023 and 2022.
Equity Securities
Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without
readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable
price changes in orderly transactions for the identical or a similar investment. There were no equity securities at December 31,
2023 and 2022.
Other Securities
Other securities are carried at cost and are restricted in marketability. Other securities consist of investments in the
FHLB, Federal Reserve Bank and First National Bankers’ Bankshares, Inc. Management reviews for impairment based on
the ultimate recoverability of the cost basis.
Shares of FHLB, Federal Reserve Bank and First National Bankers’ Bankshares, Inc. common stock are equity
securities that do not have a readily determinable fair value because their ownership is restricted and lacks marketability. The
common stock is carried at cost and evaluated for impairment. The Company’s investment in member bank stock is included
in other securities in the accompanying consolidated balance sheets. Management reviews for impairment based on the
ultimate recoverability of the cost basis. No impairment was noted for the years ended December 31, 2023, 2022 and 2021.
Interest Income
Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are
amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where
78
prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific
identification method.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past
due. Interest accrued but not received for a security placed in nonaccrual is reversed against interest income.
Loans Held for Sale (LHFS)
The Bank originates fixed rate single family, residential first mortgage loans on a presold basis. The Bank issues a
rate lock commitment to a customer and concurrently “locks in” with a secondary market investor under a best efforts delivery
mechanism. Such loans are sold without the mortgage servicing rights being retained by the Bank. The terms of the loan are
dictated by the secondary investors and are transferred within several weeks of the Bank initially funding the loan. The Bank
recognizes certain origination fees and service release fees upon the sale, which are included in other income on loans in the
consolidated statements of income. Between the initial funding of the loans by the Bank and the subsequent purchase by the
investor, the Bank carries the loans held for sale at fair value in the aggregate as determined by the outstanding commitments
from investors.
Loans Held for Investment (LHFI)
LHFI that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are
carried at the principal amount outstanding, net of the allowance for credit losses, unearned income, any unamortized deferred
fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income on loans is
recognized based on the principal balance outstanding and the stated rate of the loan and is excluded from the estimate of
credit losses. Interest income is accrued in the unpaid principal balance. Loan origination fees and certain direct origination
costs are deferred and recognized as an adjustment of the related loan yield using the interest method. Premiums and discounts
on purchased loans not deemed purchase credit deteriorated are deferred and amortized as a level yield adjustment over the
respective term of the loan.
Under ASC 326-20-30-2, if the Bank determines that a loan does not share risk characteristics with its other financial
assets, the Bank shall evaluate the financial asset for expected credit losses on an individual basis. Factors considered by
management in determining impairment include payment status, collateral values, and the probability of collecting scheduled
payments of principal and interest when due. Generally, impairment is measured on a loan by loan basis using the fair value
of the supporting collateral.
Loans are generally placed on a nonaccrual status, and the accrual of interest on such loan is discontinued, when
principal or interest is past due 90 days or when specifically determined to be impaired unless the loan is well-secured and
in the process of collection. When a loan is placed on nonaccrual status, interest accrued but not received is generally reversed
against interest income. If collectability is in doubt, cash receipts on nonaccrual loans are used to reduce principal rather than
recorded in interest income. Past due status is determined based upon contractual terms. Loans are returned to accrual status
when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of
time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Allowance for Credit Losses (ACL)
The ACL represents the estimated losses for financial assets accounted for on an amortized cost basis. Expected
losses are calculated using relevant information, from internal and external sources, about past events, including historical
experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss
information are made for differences in current risk characteristics such as differences in underwriting standards, portfolio
mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates,
property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust the
Company’s own loss history including index or peer data. Expected losses are estimated over the contractual term of the
79
loans, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals, and modifications.
Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed
and recoveries are credited to the allowance when received. Expected recoveries amounts may not exceed the aggregate of
amounts previously charged-off.
The ACL is measured on a collective basis when similar risk characteristics exist. Generally, collectively assessed
loans are grouped by call code (segments). Segmenting loans by call code will group loans that contain similar types of
collateral, purposes, and are usually structured with similar terms making each loan’s risk profile very similar to the rest in
that segment. Each of these segments then flows up into one of the four bands (bands), Commercial, Financial, and
Agriculture, Commercial Real Estate, Consumer Real Estate, and Consumer Installment. In accordance with the guidance in
ASC 326, the Company redefined its LHFI portfolio segments and related loan classes based on the level at which risk is
monitored within the ACL methodology. Construction loans for 1-4 family residential properties with a call code 1A1, and
other construction, all land development and other land loans with a call code 1A2 were previously separated between the
Commercial Real Estate or Consumer Real Estate bands based on loan type code. Under our ASC 326 methodology 1A1
loans are all defined as part of the Consumer Real Estate band and 1A2 loans are all defined as part of the Commercial Real
Estate Band.
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 PDs
are used for an immediate reversion back to the historical mean. The historical data used to calculate this input was captured
by the Company from 2009 through the most recent quarter end.
The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL
on loans. The model’s calculation also includes a 24-month forecasted PD based on a regression model that calculated a
comparison of the Company’s historical loan data to various national economic metrics during the same periods. The results
showed the Company’s past losses having a high rate of correlation to unemployment, both regionally and nationally. Using
this information, along with the most recently published Wall Street Journal survey of sixty economists’ forecasts predicting
unemployment rates out over the next eight quarters, a corresponding future PD can be calculated for the forward-looking
24-month period. This data can also be used to predict loan losses at different levels of stress, including a baseline, adverse
and severely adverse economic condition. After the forecast period, PD rates revert to the historical mean of the entire data
set.
The loss given default (“LGD”) calculation is based on actual losses (charge-offs, net recoveries) at a loan level
experienced over the entire lookback period aggregated to get a total for each segment of loans. The aggregate loss amount
is divided by the exposure at default to determine an LGD rate. Defaults occurring during the lookback period are included
in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately
preceding the default event. If there is not a minimum of five past defaults in a loan segment, or less than 15.0% calculated
LGD rate, or the total balance at default is less than 1% of the balance in the respective call code as of the model run date, a
proxy index is used. This index is proprietary to the Company’s ACL modeling vendor derived from loss data of other client
institutions similar in organization structure to the Company. The vendor also provides a “crisis” index derived from loss
data between the post-recessionary years of 2008-2013 that the Company uses.
The model then uses these inputs in a non-discounted version of discounted cash flow (“DCF”) methodology to
calculate the quantitative portion of estimated losses. The model creates loan level amortization schedules that detail out the
expected monthly payments for a loan including estimated prepayments and payoffs. These expected cash flows are
discounted back to present value using the loan’s coupon rate instead of the effective interest rate. On a quarterly basis, the
Company uses internal credit portfolio data, such as changes in portfolio volume and composition, underwriting practices,
and levels of past due loans, nonaccruals and classified assets along with other external information not used in the
80
quantitative calculation to determine if any subjective qualitative adjustments are required so that all significant risks are
incorporated to form a sufficient basis to estimate credit losses.
ASC 326 requires that a loan be evaluated for losses individually and reserved for separately, if the loan does not
share similar risk characteristics to any other loan segments. The Company’s process for determining which loans require
specific evaluation follows the standard and is two-fold. All non-performing loans, including nonaccrual loans and loans
considered to be purchased credit deteriorated (“PCD”), are evaluated to determine if they meet the definition of collateral
dependent under the new standard. These are loans where no more payments are expected from the borrower, and foreclosure
or some other collection action is probable. Secondly, all non-performing loans that are not considered to be collateral
dependent but are 90 days or greater past due and/or have a balance of $500 thousand or greater, will be individually reviewed
to determine if the loan displays similar risk characteristic to substandard loans in the related segment.
The Company adopted ASU No. 2022-02 effective January 1, 2023. These amendments eliminate the TDR
recognition and measurement guidance and enhanced disclosures for loan modifications to borrowers experiencing financial
difficulty.
Prior to the adoption of ASU 2022-02, TDRs are loans for which the contractual terms on the loan have been
modified and both of the following conditions exist: (1) the borrower is experiencing financial difficulty and (2) the
restructuring constitutes a concession. Concessions could include a reduction in the interest rate on the loan, payment
extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The Company assesses
all loan modifications to determine whether they constitute a TDR.
Purchased Credit Deteriorated Loans
The Company purchases individual loans and groups of loans, some of which have shown evidence of credit
deterioration since origination. These PCD loans are recorded at the amount paid. It is the Company’s policy that a loan
meets this definition if it is adversely risk rated as Non-Pass (Special Mention, Substandard, Doubtful or Loss) including
nonaccrual. An allowance for credit losses is determined using the same methodology as other loans held for investment.
The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s
purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial
amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income
over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
The Company continues to maintain segments of loans that were previously accounted for under ASC 310-30
Accounting for Purchased Loans with Deteriorated Credit Quality and will continue to account for these segments as a unit
of account unless the loan is collateral dependent. PCD loans that are collateral dependent will be assessed individually.
Loans are only removed from the existing segments if they are written off, paid off, or sold. Upon adoption of ASC 326, the
allowance for credit losses was determined for each segment and added to the band’s carrying amount to establish a new
amortized cost basis. The difference between the unpaid principal balance of the segment and the new amortized cost basis
is the noncredit premium or discount, which will be amortized into interest income over the remaining life of the segment.
Changes to the allowance for credit losses after adoption are recorded through provision expense.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The depreciation policy is to provide for
depreciation over the estimated useful lives of the assets using the straight-line method. Repairs and maintenance
expenditures are charged to operating expenses; major expenditures for renewals and betterments are capitalized and
depreciated over their estimated useful lives. Upon retirement, sale, or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts, and any gains or losses are included in operations. Building
and related components are depreciated using the straight-line method with useful lives ranging from 10 to 39 years.
Furniture, fixtures, and equipment are depreciated using the straight-line (or accelerated) method with useful lives ranging
from 3 to 10 years.
81
Other Real Estate Owned
Other real estate owned consists of properties acquired through foreclosure and as held for sale property, are initially
recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real
estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure
or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure
or through similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated
costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operation
costs after acquisition are expensed. Any write-down to fair value required at the time of foreclosure is charged to the
allowance for credit losses. Subsequent gains or losses on other real estate are reported in other operating income or expenses.
At December 31, 2023 and 2022, other real estate owned totaled $8.3 million and $4.8 million, respectively.
Goodwill and Other Intangible Assets
Goodwill arises from business combinations and is determined as the excess of the fair value of the consideration
transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of any net assets acquired
and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a business combination and
determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently
if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company will
perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that
is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is
determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for
impairment. The goodwill impairment loss, if any, is measured as the amount by which the carrying amount of the reporting
unit, including goodwill, exceeds its fair value. Subsequent increases in goodwill value are not recognized in the consolidated
financial statements. The Commercial/Retail Bank segment of the Company is the only reporting unit for which the goodwill
analysis is prepared. Intangible assets with a finite useful lives are amortized over their estimated useful lives to their
estimated residual values. Goodwill is the only intangible assets with an indefinite life on our balance sheet.
The change in goodwill during the year is as follows:
($ in thousands)
Beginning of year
Acquired goodwill and provisional adjustments
End of year
2023
180,254 $
92,266
272,520 $
2022
156,663 $
23,591
180,254 $
2021
156,944
(281)
156,663
$
$
Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from
whole bank and branch acquisitions and are amortized on a straight-line basis over a 10-year average life. Such assets are
periodically evaluated as to the recoverability of carrying values. The definite-lived intangible assets had the following
carrying values at December 31, 2023 and 2022:
($ in thousands)
2023
Core deposit intangibles
2022
Core deposit intangibles
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
99,071 $
(30,259) $
68,812
$
55,332 $
(20,696) $
34,636
82
The related amortization expense of business combination related intangible assets is as follows:
($ in thousands)
Aggregate amortization expense for the year ended December 31:
2021
2022
2023
Estimated amortization expense for the year ending December 31:
2024
2025
2026
2027
2028
Thereafter
Total amortization expense
Cash Surrender Value of Life Insurance
Amount
4,137
4,664
9,563
Amount
9,533
9,518
9,518
9,185
8,193
22,865
68,812
$
$
$
The Company invests in bank owned life insurance (“BOLI”). BOLI involves the purchase of life insurance by the
Company on a chosen group of employees. The Company is the owner of the policies and, accordingly, the cash surrender
value of the policies is reported as an asset, and increases in cash surrender values are reported as income.
Deferred Financing Costs
Financing costs related to the issuance of junior subordinated debentures are being amortized over the life of the
instruments and are included in other liabilities.
Restricted Stock
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation - Stock
Compensation. Compensation cost is recognized for all restricted stock granted based on the weighted average fair value
stock price at the grant date.
Treasury Stock
Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the
first-in, first-out method.
Income Taxes
The Company and its subsidiary file consolidated income tax returns. The subsidiary provides for income taxes on
a separate return basis and remits to the Company amounts determined to be payable.
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of
taxes currently payable plus deferred taxes related primarily to differences between the bases of assets and liabilities as
measured by income tax laws and their bases as reported in the financial statements. The deferred tax assets and liabilities
83
represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
ASC Topic 740, Income Taxes, provides guidance on financial statement recognition and measurement of tax
positions taken, or expected to be taken, in tax returns. ASC Topic 740 requires an evaluation of tax positions to determine
if the tax positions will more likely than not be sustainable upon examination by the appropriate taxing authority. The
Company, at December 31, 2023 and 2022, had no uncertain tax positions that qualify for either recognition or disclosure in
the financial statements.
Advertising Costs
Advertising costs are expensed in the period in which they are incurred. Advertising expense for the years ended
December 31, 2023, 2022 and 2021, was $833 thousand, $393 thousand, and $391 thousand, respectively.
Statements of Cash Flows
Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days,
federal funds sold, and collateral identified as "restricted cash" related to the Company's back-to-back SWAP transactions.
Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions,
and federal funds purchased and repurchase agreements.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the subsidiary bank enters into off-balance sheet financial instruments consisting
of commitments to extend credit, credit card lines and standby letters of credit. The face amount for these items represents
the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded in the
financial statements when they are funded.
ACL on Off-Balance Sheet Credit (OBSC) Exposures
Under ASC 326, the Company is required to estimate expected credit losses for OBSC which are not unconditionally
cancellable. The Company estimates expected credit losses over the contractual period in which the Company is exposed to
credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company.
The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the
likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its
estimated life. Expected credit losses related to OBSC exposures are presented as a liability.
Earnings Available to Common Stockholders
Per share amounts are presented in accordance with ASC Topic 260, Earnings Per Share. Under ASC Topic 260,
two per share amounts are considered and presented, if applicable. Basic per share data is calculated based on the weighted-
average number of common shares outstanding during the reporting period. Diluted per share data includes any dilution from
securities that may be converted into common stock, such as outstanding restricted stock. There were no anti-dilutive
common stock equivalents excluded in the calculations.
84
The following tables disclose the reconciliation of the numerators and denominators of the basic and diluted
computations available to common stockholders.
($ in thousands, except per share amount)
December 31, 2023
Basic per common share
Effect of dilutive shares:
Restricted Stock
December 31, 2022
Basic per common share
Effect of dilutive shares:
Restricted Stock
December 31, 2021
Basic per common share
Effect of dilutive shares:
Restricted Stock
Net
Income
(Numerator)
Weighted
Average
Shares
(Denominator)
Per Share
Amount
$
75,457
31,373,718 $
2.41
—
75,457
192,073
31,565,791 $
$
2.39
$
62,919
22,023,595 $
2.86
—
62,919
141,930
22,165,525 $
$
2.84
$
64,167
21,017,189 $
3.05
—
64,167
149,520
21,166,709 $
$
3.03
The diluted per share amounts were computed by applying the treasury stock method.
Mergers and Acquisitions
Business combinations are accounted for under ASC 805, “Business Combinations”, using the acquisition method
of accounting. The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities
assumed at the acquisition date measured at their fair values as of that date. To determine the fair values, the Company relies
on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation
techniques. Under the acquisition method of accounting, the Company identifies the acquirer and the closing date and applies
applicable recognition principles and conditions. Acquisition-related costs are costs the Company incurs to affect a business
combination. Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Some
other examples of costs to the Company include systems conversion, integration planning consultants and advertising costs.
The Company accounts for acquisition-related costs as expenses in the periods in which the costs are incurred and the services
are received, with one exception. The costs to issue debt or equity securities is recognized in accordance with other applicable
GAAP. These acquisition-related costs have been and will be included within the Consolidated Statements of Income
classified within the non-interest expense caption.
85
Derivative Financial Instruments
The Company enters into interest rate swap agreements primarily to facilitate the risk management strategies of
certain commercial customers. The interest rate swap agreements entered into by the Company are all entered into under
what is referred to as a back-to-back interest rate swap, as such, the net positions are offsetting assets and liabilities, as well
as income and expenses. All derivative instruments are recorded in the consolidated statement of financial condition at their
respective fair values, as components of other assets and other liabilities. Under a back-to-back interest rate swap program,
the Company enters into an interest rate swap with the customer and another offsetting swap with a counterparty. The result
is two mirrored interest rate swaps, absent a credit event, which will offset in the financial statements. These swaps are not
designated as hedging instruments and are recorded at fair value in other assets and other liabilities. The change in fair value
is recognized in the income statement as other income and fees.
In addition, the Company will enter into risk participation agreements that are derivative financial instruments and
are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded
directly through earnings at each reporting period. Under a risk participation-out agreement, a derivative asset, the Company
participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial
borrower, for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company
assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial
borrower, for a fee received from the other bank.
Entering into derivative contracts potentially exposes the Company to the risk of counterparties' failure to fulfill
their legal obligations, including, but not limited to, potential amounts due or payable under each derivative contract.
Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to
credit risk are much smaller. The Company assesses the credit risk of its dealer counterparties by regularly monitoring
publicly available credit rating information, evaluating other market indicators, and periodically reviewing detailed
financials.
The Company records the fair value of its interest rate swap contracts separately within other assets and other
liabilities as current accounting rules do not permit the netting of customer and counterparty fair value amounts in the
consolidated statement of financial condition.
Investment in Limited Partnership
The Company invested $4.4 million in a limited partnership that provides low-income housing. The Company is
not the general partner and does not have controlling ownership. The carrying value of the Company’s investment in the
limited partnership was $1.2 million at December 31, 2023 and $1.6 million at December 31, 2022, net of amortization, using
the proportional method and is reported in other assets on the Consolidated Balance Sheets. The Company’s maximum
exposure to loss is limited to the carrying value of its investment. The Company received $481 thousand in low-income
housing tax credits during 2023, 2022 and 2021.
Reclassifications
Certain reclassifications have been made to the 2022 and 2021 financial statements to conform with the
classifications used in 2023. These reclassifications did not impact the Company’s consolidated financial condition or results
of operations.
Accounting Standards
Effect of Recently Adopted Accounting Standards
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”)
No. 2020-04, Reference Rate Reform (ASC 848): “Facilitation of the Effects of Reference Rate Reform on Financial
86
Reporting.” This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate
reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to
contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offer
Rate ("LIBOR") or another reference rate expected to be discontinued. It is intended to help stakeholders during the global
market-wide reference rate transition period. The Company adopted ASU 2020-04 effective January 1, 2023. Adoption of
ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combination (Topic 805): “Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers.” This ASU requires entities to apply Topic 606 to recognize
and measure contract assets and contract liabilities in a business combination. The amendment improves comparability after
the business combination by providing consistent recognition and measurement guidance for revenue contracts with
customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.
The Company adopted ASU 2021-08 effective January 1, 2023. Adoption of ASU 2021-08 did not have a material impact
on the Company's consolidated financial statements.
In March 2022, FASB issued ASU No. 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures.” These amendments eliminate the TDR recognition and measurement guidance and
instead require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan.
The amendments also enhance existing disclosure requirements and introduce new requirements related to certain
modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these
amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables
and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage
disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity
disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year
of origination. The Company adopted ASU 2022-02 effective January 1, 2023. Adoption of ASU 2022-02 did not have a
material impact on the Company's consolidated financial statements.
In July 2023, FASB issued ASU No. 2023-03, "Presentation of Financial Statements (Topic 205), Income Statement
- Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and
Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraph Pursuant to SEC Staff Accounting
Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff
Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss
Applicable to Common Stock." This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant
to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff
Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss
Applicable to Common Stock. These updates were effective immediately and did not have a material impact on the
Company's consolidated financial statements.
New Accounting Standards That Have Not Yet Been Adopted
In March 2023, FASB issued ASU No. 2023-01, Leases (Topic 842) - "Common Control Arrangements." This ASU
requires entities to determine whether a related party arrangement between entities under common control is a lease. If the
arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement
with a related party. The ASU requires all entities to amortize leasehold improvements associated with common control
leases over the useful life to the common control group. This guidance is effective for the Company January 1, 2024, and is
not expected to have a material impact on the Company's consolidated financial statements.
In March 2023, FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Venture (Topic 323):
"Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." These amendments
allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method,
87
regardless of the program giving rise to the related income tax credits. This guidance is effective for the Company January
1, 2024, and is not expected to have a material impact on the Company's consolidated financial statements.
In October 2023, FASB issued ASU No. 2023-06, "Disclosure Improvements: Codification Amendments in
Response to the SEC's Disclosure Update and Simplification Initiative." This ASU amends the ASC to incorporate certain
disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018.
The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation
S-K becomes effective, with early adoption prohibited. This guidance is not expected to have a material impact on the
Company's consolidated financial statements.
In November 2023, FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable
Segment Disclosures." This ASU amends the ASC to improve reportable segment disclosure requirements primarily through
enhanced disclosures about significant segment expenses. The key amendments: 1. Require that a public entity disclose, on
an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker
(CODM) and included within each reported measure of segment profit or loss. 2. Require that a public entity disclose, on
an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition.
The other segment items category is the difference between segment revenue less the significant expenses disclosed and each
reported measure of segment profit or loss. 3. Require that a public entity provide all annual disclosures about a reportable
segment's profit or loss and assets currently required by FASB ASU Topic 280, Segment Reporting, in interim periods. 4.
Clarify that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and
deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.
However, at least one the reported segment profit or loss measures (or the single reported measure, if only one is disclosed)
should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts
in the public entity's consolidated financial statements. 5. Require that a public entity disclose the title and position of the
CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment
performance and deciding how to allocate resources. 6. Require that a public entity has a single reportable segment provide
all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280. This ASU is
effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after
December 15, 2024. This guidance is not expected to have a material impact on the Company's consolidated financial
statements.
In December 2023, FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax
Disclosures." This ASU amendments require that a public business entities on an annual basis (1) disclose specific categories
in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if
the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax
income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual
basis the following information about income taxes paid: 1. The amount of income taxes paid (net of refunds received)
disaggregated by federal (national), state, and foreign taxes. 2. The amount of income taxes paid (net of refunds received)
disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5
percent of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the
following information: 1. Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated
between domestic and foreign. 2. Income tax expense (or benefit) from continuing operations disaggregated by federal
(national), state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. This guidance
is not expected to have a material impact on the Company's consolidated financial statements.
NOTE C - BUSINESS COMBINATIONS
The Company accounts for its business combinations using the acquisition method. Acquisition accounting requires
the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain
intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of
net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money
market and savings deposits acquired in business combinations accounted for under the acquisition method. Core deposit
88
intangibles and other identified intangibles with finite useful lives are amortized using the straight-line method over their
estimated useful lives of up to 10 years.
Financial assets acquired in a business combination after January 1, 2021, are recorded in accordance with ASC
326. Loans that the Company acquires in connection with acquisitions are recorded at fair value with no carryover of the
related allowance for credit losses. PCD loans that have experienced more than insignificant credit deterioration since
origination are recorded at the amount paid. The ACL is determined on a collective basis and is allocated to the individual
loans. The sum of the loan’s purchase price and ACL becomes its initial amortized cost basis. The difference between the
initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest
income over the life of the loan. Non-PCD loans are acquired that have experienced no or insignificant deterioration in credit
quality since origination. The difference between the fair value and outstanding balance of the non-PCD loans is recognized
as an adjustment to interest income over the lives of the loan.
Acquisitions
Heritage Southeast Bank
On January 1, 2023, the Company completed its acquisition of HSBI, pursuant to an Agreement and Plan of Merger
dated July 27, 2022, by and between the Company and HSBI (the "HSBI Merger Agreement"). Upon the completion of the
merger of HSBI with and into the Company, Heritage Bank, HSBI's wholly-owned subsidiary, was merged with and into The
First Bank. Under the terms of the HSBI Merger Agreement, each share of HSBI common stock was converted into the right
to receive 0.965 of share of Company common stock. The Company paid a total consideration of $221.5 million to the
former HSBI shareholders as consideration in the acquisition, which included 6,920,422 shares of the Company's common
stock, and $16 thousand in cash in lieu of fractional shares. The HSBI acquisition provided the opportunity for the Company
to expand its operations in Georgia and the Florida panhandle.
In connection with the acquisition of HSBI, the Company recorded approximately $91.9 million of goodwill, of
which $3.2 million funded the ACL for estimated losses on the acquired PCD loans, and $43.7 million core deposit intangible.
Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.
Expenses associated with the HSBI acquisition were $388 thousand and $4.9 million for the three months and
twelve months period ended December 31, 2023, respectively. These costs included charges associated with legal and
consulting expenses, which have been expensed as incurred.
89
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the
goodwill generated from the transaction on January 1, 2023, along with valuation adjustments that have been made since
initially reported.
($ in thousands)
Identifiable assets:
Cash and due from banks
Investments
Loans
Core deposit intangible
Personal and real property
Other real estate owned
Bank owned life insurance
Deferred taxes
Interest receivable
Other assets
Total assets
Liabilities and equity:
Deposits
Trust Preferred
Other liabilities
Total liabilities
Net assets acquired
Consideration paid
Goodwill
As Initially
Reported
Measurement
Period
Adjustments As Adjusted
$
106,973 $
172,775
(180) $
—
1,155,712
43,739
35,963
857
35,579
6,761
4,349
3,103
—
—
—
332
—
(632)
—
—
106,793
172,775
1,155,712
43,739
35,963
1,189
35,579
6,129
4,349
3,103
1,565,811
(480)
1,565,331
1,392,432
9,015
34,271
1,435,718
130,093
221,538
91,445 $
$
—
—
—
—
(480)
—
480 $
1,392,432
9,015
34,271
1,435,718
129,613
221,538
91,925
During the fourth quarter of 2023, the Company finalized its analysis and valuation adjustments have been made to
cash and due from banks, other real estate owned, and deferred taxes since initially reported.
Beach Bancorp, Inc.
On August 1, 2022, the Company completed its acquisition of BBI, pursuant to an Agreement and Plan of Merger
dated April 26, 2022 by and between the Company and BBI (the "BBI Merger Agreement"). Upon the completion of the
merger of BBI with and into the Company, Beach Bank, BBI's wholly-owned subsidiary, was merged with and into The First
Bank. Under the terms of the BBI Merger Agreement, each share of BBI common stock and each share of BBI preferred
stock was converted into the right to receive 0.1711 of a share of Company common stock (the "BBI Exchange Ratio"), and
all stock options awarded under the BBI equity plans were converted automatically into an option to purchase shares of
Company common stock on the same terms and conditions as applicable to each such BBI option as in effect immediately
prior to the effective time, with the number of shares underlying each such option and the applicable exercise price adjusted
based on the BBI Exchange Ratio. The BBI merger provides the opportunity for the Company to expand its operations in
the Florida panhandle and enter the Tampa market. The Company paid consideration of approximately $101.5 million to the
former BBI shareholders including 3,498,936 shares of the Company's common stock and approximately $1 thousand in
90
cash in lieu of fractional shares, and also assumed options entitling the owners thereof to purchase an additional 310,427
shares of the Company's common stock.
In connection with the acquisition of BBI, the Company recorded approximately $23.7 million of goodwill and $9.8
million core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized
to expense over 10 years. The Company also incurred $1.3 million of provision for credit losses on credit marks from the
loans acquired from Beach Bank.
Expenses associated with the BBI acquisition were $4.0 thousand and $1.4 million for the three months and twelve
months period ended December 31, 2023, respectively. These costs included charges associated with legal and consulting
expenses, which have been expensed as incurred.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the
goodwill generated from the transaction on August 1, 2022, along with valuation adjustments that have been made since
initially reported.
($ in thousands)
Purchase price:
Cash and stock
Total purchase price
Identifiable assets:
Cash
Investments
Loans
Other real estate
Bank owned life insurance
Core deposit intangible
Personal and real property
Deferred tax asset
Other assets
Total assets
Liabilities and equity:
Deposits
Borrowings
Other liabilities
Total liabilities
Net assets acquired
Goodwill
As Initially
Reported
Measurement
Period
Adjustments
As Adjusted
$
$
$
101,470 $
101,470
23,939 $
22,907
482,903
8,797
10,092
9,791
13,825
28,105
9,649
610,008
490,588
25,000
14,772
530,360
79,648
21,822 $
— $
—
101,470
101,470
— $
(264)
2,268
(580)
—
—
(1,868)
(970)
(414)
23,939
22,643
485,171
8,217
10,092
9,791
11,957
27,135
9,235
(1,828)
608,180
3
—
—
3
(1,831)
1,831 $
490,591
25,000
14,772
530,363
77,817
23,653
During the third quarter of 2023, the Company finalized its analysis and valuation adjustments that were made to
investments, loans, other real estate, personal and real property, deferred tax asset, other assets, and deposits.
91
Cadence Bank Branches
On December 03, 2021, The First completed its acquisition of seven Cadence Bank, N.A. (“Cadence”) branches in
Northeast Mississippi (the “Cadence Branches”). In connection with the acquisition of the Cadence Branches, The First
assumed $410.2 million in deposits, acquired $40.3 million in loans at fair value, acquired certain assets associated with the
Cadence Branches at their book value, and paid a deposit premium of $1.0 million to Cadence. As a result of the acquisition,
the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects
to reduce costs through economies of scale.
In connection with the acquisition of the Cadence Branches, the Company recorded a $1.6 million bargain purchase
gain and $2.9 million core deposit intangible. The bargain purchase gain was generated as a result of the estimated fair value
of net assets acquired exceeding the merger consideration, based on provisional fair values. The bargain purchase gain is
considered non-taxable for income taxes purposes. The core deposit intangible will be amortized to expense over 10 years.
Expenses associated with the branch acquisition of the Cadence Branches were $81 thousand and $189 thousand
for the three months and twelve months period ended December 31, 2023. These costs included charges associated with due
diligence as well as legal and consulting expenses, which have been expensed as incurred. The Company also incurred $370
thousand of provision for credit losses on credit marks from the loans acquired.
The following table summarizes the provisional fair values of the assets acquired and liabilities assumed and the
goodwill (bargain purchase gain) generated from the transaction:
($ in thousands)
Identifiable assets:
Cash and due from banks
Loans
Core deposit intangible
Personal and real property
Other assets
Total assets
Liabilities and equity:
Deposits
Other liabilities
Total liabilities
Net assets acquired
Consideration paid
Bargain purchase gain
As Initially
Reported
Measurement
Period
Adjustments
As Adjusted
$
$
359,916 $
40,262
2,890
9,675
135
412,878
410,171
407
410,578
2,300
1,000
(1,300) $
— $
—
—
—
—
—
—
(281)
(281)
281
—
(281) $
359,916
40,262
2,890
9,675
135
412,878
410,171
126
410,297
2,581
1,000
(1,581)
During the fourth quarter of 2022, the Company finalized its analysis and valuation adjustments were made to other
liabilities since initially reported.
92
Supplemental Pro Forma Information
The following table presents certain supplemental pro forma information, for illustrative purposes only, for the years
December 31, 2023 and 2022 as if the BBI and HSBI acquisitions had occurred on January 1, 2022. The pro forma financial
information is not necessarily indicative of the results of operations had the acquisitions been effective as of this date.
($ in thousands)
Net interest income
Non-interest income
Total revenue
Income before income taxes
Pro Forma for the Year Ended
December 31,
2023
(unaudited)
2022
(unaudited)
$
249,325 $
46,705
296,030
105,879
248,639
58,645
307,284
118,465
Supplemental pro-forma earnings were adjusted to exclude acquisition costs incurred.
NOTE D - SECURITIES
The following table summarizes the amortized cost, gross unrealized gains, and losses, and estimated fair values of
AFS securities and securities HTM at December 31, 2023 and 2022:
($ in thousands)
Available-for-sale:
U.S. Treasury
Obligations of U.S. government agencies and sponsored
entities
Tax-exempt and taxable obligations of states and
municipal subdivisions
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Corporate obligations
Other
Total available-for-sale
Held-to-maturity:
U.S. Treasury
Obligations of U.S. government agencies and sponsored
entities
Tax-exempt and taxable obligations of states and
municipal subdivisions
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Corporate obligations
Total held-to-maturity
December 31, 2023
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
16,985 $
— $
310 $
16,675
119,868
1
14,946
104,923
486,293
297,735
198,944
41,347
3,055
1,164,227 $
449
11
76
—
—
537 $
48,276
34,430
20,675
3,750
12
122,399 $
438,466
263,316
178,345
37,597
3,043
1,042,365
89,688 $
— $
2,804 $
86,884
33,659
—
1,803
31,856
$
$
246,908
141,573
132,711
10,000
9,566
—
—
—
14,697
14,237
12,334
2,286
241,777
127,336
120,377
7,714
$
654,539 $
9,566 $
48,161 $
615,944
93
($ in thousands)
Available-for-sale:
U.S. Treasury
Obligations of U.S. government agencies and
sponsored entities
Tax-exempt and taxable obligations of states and
municipal subdivisions
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Corporate obligations
Total available-for-sale
Held-to-maturity:
U.S. Treasury
Obligations of U.S. government agencies and
sponsored entities
Tax-exempt and taxable obligations of states and
municipal subdivisions
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Corporate obligations
Total held-to-maturity
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
135,752 $
— $
11,898 $
123,854
163,054
3
18,688
144,369
519,190
341,272
215,200
43,869
1,418,337 $
598
11
60
—
672 $
61,931
42,041
24,363
2,987
161,908 $
457,857
299,242
190,897
40,882
1,257,101
109,631 $
— $
5,175 $
104,456
33,789
—
2,153
31,636
247,467
156,119
134,478
10,000
691,484 $
4,525
—
7
—
4,532 $
13,699
17,479
13,798
1,615
53,919 $
238,293
138,640
120,687
8,385
642,097
$
$
$
The Company reassessed classification of certain investments and effective October 2022, the Company transferred
$863 thousand of obligations of U.S. government agencies and sponsored entities, $1.2 million of mortgage -backed
securities - commercial, and $137.5 million of tax-exempt and taxable obligations of states and municipal subdivisions from
AFS to HTM securities. The securities were transferred at their amortized costs basis, net of any remaining unrealized gain
or loss reported in accumulated other comprehensive income. The related unrealized loss of $36.8 million included in other
comprehensive income remained in other comprehensive income, to be amortized out of other comprehensive income with
an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. There
was no allowance for credit loss associated with the AFS securities that were transferred to HTM.
ACL on Securities
Securities Available-for-Sale
Quarterly, the Company evaluates if a security has a fair value less than its amortized cost. Once these securities are
identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, the Company
performs further analysis as outlined below:
• Review the extent to which the fair value is less than the amortized cost and determine if the decline is indicative
of credit loss or other factors.
• The securities that violate the credit loss trigger above would be subjected to additional analysis.
94
•
If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using the
DCF analysis using the effective interest rate. The amount of credit loss the Company records will be limited to the
amount by which the amortized cost exceeds the fair value. The allowance for the calculated credit loss will be
monitored going forward for further credit deterioration or improvement.
At December 31, 2023 and 2022, the results of the analysis did not identify any securities where the decline was
indicative of credit loss factors; therefore, no DCF analysis was performed, and no credit loss was recognized on any of the
securities AFS.
Accrued interest receivable is excluded from the estimate of credit losses for securities AFS. Accrued interest
receivable totaled $5.2 million and $6.2 million at December 31, 2023 and 2022, respectively and was reported in interest
receivable on the accompanying Consolidated Balance Sheet.
All AFS securities were current with no securities past due or on nonaccrual as of December 31, 2023.
Securities Held to Maturity
At December 31, 2023, the potential credit loss exposure totaled $205 thousand and $242 thousand at December 31,
2023 and 2022, respectively and consisted of tax-exempt and taxable obligations of states and municipal subdivisions and
corporate obligations securities. After applying appropriate probability of default (“PD”) and loss given default (“LGD”)
assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded
for the years ended December 31, 2023 and 2022.
Accrued interest receivable is excluded from the estimate of credit losses for securities held-to-maturity. Accrued
interest receivable totaled $3.4 million and $3.6 million at December 31, 2023 and 2022, respectively and was reported in
interest receivable on the accompanying Consolidated Balance Sheet.
At December 31, 2023, the Company had no securities held-to-maturity that were past due 30 days or more as to
principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual for the years ended
December 31, 2023 and 2022.
The Company monitors the credit quality of the debt securities held-to-maturity through the use of credit ratings.
The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt
securities held-to-maturity at December 31, 2023, aggregated by credit quality indicators.
December 31,
2023
431,527 $
129,751
13,902
10,000
69,359
654,539 $
December 31,
2022
467,736
110,854
13,757
10,000
89,137
691,484
$
$
($ in thousands)
Aaa
Aa1/Aa2/Aa3
A1/A2
BBB
Not rated
Total
95
The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may
differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment
penalties.
($ in thousands)
Available-for-Sale
Within one year
One to five years
Five to ten years
Beyond ten years
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Total
Held-to-maturity
Within one year
One to five years
Five to ten years
Beyond ten years
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Total
December 31, 2023
Amortized
Cost
Fair
Value
45,559 $
150,165
306,927
164,897
297,735
198,944
1,164,227 $
45,246
143,592
270,342
141,524
263,316
178,345
1,042,365
39,082 $
72,333
54,428
214,412
141,573
132,711
654,539 $
38,725
69,387
49,697
210,422
127,336
120,377
615,944
$
$
$
$
The proceeds from sales and calls of securities and the associated gains and losses are listed below:
($ in thousands)
Gross gains
Gross losses
Realized net (loss) gain
2023
2022
2021
$
$
65 $
9,781
(9,716) $
82 $
164
(82) $
202
59
143
The amortized costs of securities pledged as collateral, to secure public deposits and for other purposes, was $1.095
billion and $1.031 billion at December 31, 2023 and 2022, respectively.
96
The following table summarizes securities in an unrealized losses position for which an allowance for credit losses
has not been recorded at December 31, 2023 and 2022. The securities are aggregated by major security type and length of
time in a continuous unrealized loss position:
($ in thousands)
Available-for-sale:
U.S. Treasury
Less than 12 Months
Fair
Value
Unrealized
Losses
2023
12 Months or Longer
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
— $
— $
16,675 $
310 $
16,675 $
310
Obligations of U.S. government
agencies and sponsored entities
Tax-exempt and taxable obligations
of states and municipal subdivisions
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Corporate obligations
Other
Total available-for-sale
$
$
Held-to-maturity:
U.S. Treasury
Obligations of U.S. government
agencies and sponsored entities
Tax-exempt and taxable obligations
of states and municipal subdivisions
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Corporate obligations
Total held-to-maturity
$
123
—
104,495
14,946
104,618
14,946
20,879
1,479
389,113
46,797
409,992
48,276
222
2
262,012
34,428
262,234
34,430
2,896
—
3,055
27,175 $
52
—
12
170,256
37,597
—
20,623
3,750
—
173,152
37,597
3,055
12
1,545 $ 980,148 $ 120,854 $ 1,007,323 $ 122,399
20,675
3,750
— $
— $
86,884 $
2,804 $
86,884 $
2,804
747
5
31,109
1,798
31,856
1,803
10,472
3,949
91,480
10,748
101,952
14,697
—
—
127,336
14,237
127,336
14,237
920
—
12,139 $
2
—
119,457
7,714
3,956 $ 463,980 $
120,377
12,332
2,286
7,714
44,205 $ 476,119 $
12,334
2,286
48,161
97
($ in thousands)
Available-for-sale:
U.S. Treasury
Less than 12 Months
Fair
Value
Unrealized
Losses
2022
12 Months or Longer
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
4,563 $
419 $ 119,292 $
11,479 $ 123,855 $
11,898
Obligations of U.S. government
agencies and sponsored entities
Tax-exempt and taxable obligations
34,254
2,293
109,431
16,395
143,685
18,688
of states and municipal
subdivisions
Mortgage-backed securities:
residential
Mortgage-backed securities:
commercial
Corporate obligations
Total available-for-sale
Held-to-maturity:
U.S. Treasury
275,202
31,152
159,508
30,779
434,710
61,931
76,125
4,970
222,274
37,071
298,399
42,041
50,193
35,142
$ 475,479 $
136,062
5,739
3,025
1,995
2,987
43,854 $ 752,306 $ 118,054 $ 1,227,785 $ 161,908
186,255
40,881
21,338
992
24,363
$ 104,457 $
5,175 $
— $
— $ 104,457 $
5,175
Obligations of U.S. government
agencies and sponsored entities
Tax-exempt and taxable obligations
of states and municipal subdivisions
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Corporate obligations
Total held-to-maturity
31,636
2,153
—
—
31,636
2,153
127,628
13,583
15,303
116
142,931
13,699
138,639
17,479
—
—
138,639
17,479
119,758
8,385
$ 530,503 $
13,798
1,615
53,803 $
—
—
15,303 $
119,758
—
—
8,385
116 $ 545,806 $
13,798
1,615
53,919
At December 31, 2023 and December 31, 2022, the Company’s securities portfolio consisted of 1,125 and 1,265
securities, respectively, which were in an unrealized loss position. AFS securities in unrealized loss positions are evaluated
for impairment related to credit losses at least quarterly. The unrealized losses shown above are due to increases in market
rates over the yields available at the time of purchase of the underlying securities and not credit quality. The Company does
not intend to sell these securities and it is more likely than not that the Company will not be required to sell the investments
before recovery of their amortized cost basis. No allowance for credit losses was needed at December 31, 2023 or 2022.
NOTE E - LOANS
The Company uses four different categories to classify loans in its portfolio based on the underlying collateral
securing each loan. The loans grouped together in each category have been determined to share similar risk characteristics
with respect to credit quality. Those four categories are commercial, financial and agriculture, commercial real estate,
consumer real estate, consumer installment;
Commercial, financial and agriculture - Commercial, financial and agriculture loans include loans to business
entities issued for commercial, industrial, or other business purposes. This type of commercial loan shares a similar
98
risk characteristic in that unlike commercial real estate loans, repayment is largely dependent on cash flow generated
from the operation of the business.
Commercial real estate - Commercial real estate loans are grouped as such because repayment is mainly dependent
upon either the sale of the real estate, operation of the business occupying the real estate, or refinance of the debt
obligation. This includes both owner-occupied and non-owner occupied CRE secured loans, because they share
similar risk characteristics related to these variables.
Consumer real estate - Consumer real estate loans consist primarily of loans secured by 1-4 family residential
properties and/or residential lots. This includes loans for the purpose of constructing improvements on the residential
property, as well as home equity lines of credit.
Consumer installment - Installment and other loans are all loans issued to individuals that are not for any purpose
related to operation of a business, and not secured by real estate. Repayment on these loans is mostly dependent on
personal income, which may be impacted by general economic conditions.
The composition of the loan portfolio as of December 31, 2023 and December 31, 2022, is summarized below:
($ in thousands)
Loans held for sale
Mortgage loans held for sale
Total LHFS
Loans held for investment
Commercial, financial, and agriculture (1)
Commercial real estate
Consumer real estate
Consumer installment
Total loans
Less allowance for credit losses
Net LHFI
______________________________________
December 31,
2023
December 31,
2022
$
$
$
$
2,914 $
2,914 $
4,443
4,443
800,324 $
3,059,155
1,252,795
57,768
5,170,042
(54,032)
5,116,010 $
536,192
2,135,263
1,058,999
43,703
3,774,157
(38,917)
3,735,240
(1) Loan balance includes $386 thousand and $710 thousand in PPP loans as of December 31, 2023 and 2022, respectively.
Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market.
Commitments from investors to purchase the loans are obtained upon origination.
Accrued interest receivable is not included in the amortized cost basis of the Company’s LHFI. At December 31,
2023 and 2022, accrued interest receivable for LHFI totaled $24.7 million and $18.0 million, respectively, with no related
ACL and was reported in interest receivable on the accompanying consolidated balance sheet.
Nonaccrual and Past Due LHFI
Past due LHFI are loans contractually past due 30 days or more as to principal or interest payments. Generally, the
Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a
loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and
99
deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until
the collection of both principal and interest becomes reasonably certain.
The following tables presents the aging of the amortized cost basis in past due loans in addition to those loans
classified as nonaccrual including PCD loans:
December 31, 2023
Past Due 90
Days or
More
and
Still
Accruing
Past Due
30 to 89
Days
Nonaccrual
PCD
Total
Past Due,
Nonaccrual
and PCD
Nonaccrual
and PCD
with No
ACL
Total
LHFI
($ in thousands)
Commercial, financial, and
agriculture (1)
$
Commercial real estate
Consumer real estate
Consumer installment
Total
$
2,043 $
1,698
3,992
180
7,913 $
313 $
630
220
—
1,163 $
353 $
3,790
1,806
31
5,980 $
965 $
647
3,098
—
3,674 $ 800,324 $
6,765 3,059,155
9,116 1,252,795
57,768
211
4,710 $ 19,766 $ 5,170,042 $
465
410
680
—
1,555
______________________________________
(1) Total loan balance includes $386 thousand in PPP loans as of December 31, 2023.
December 31, 2022
Past Due 90
Days or
More
and
Still
Accruing
Past Due
30 to 89
Days
Nonaccrual
PCD
Total
Past Due,
Nonaccrual
and PCD
Nonaccrual
and PCD
with No
ACL
Total
LHFI
$
$
220 $
1,984
3,386
173
5,763 $
19 $
— $
7,445
—
2,965
289
1
—
289 $ 10,430 $
— $
1,129
1,032
—
239 $ 536,192 $
10,558 2,135,263
7,672 1,058,999
43,703
174
2,161 $ 18,643 $ 3,774,157 $
—
4,560
791
—
5,351
($ in thousands)
Commercial, financial, and
agriculture (1)
Commercial real estate
Consumer real estate
Consumer installment
Total
______________________________________
(1) Total loan balance includes $710 thousand in PPP loans as of December 31, 2022.
Acquired Loans
In connection with the acquisitions of BBI and HSBI, the Company acquired loans both with and without evidence
of credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with
no carryover from the acquired institution's previously recorded allowance for credit losses. Acquired loans are accounted
for under ASC 326, Financial Instruments - Credit Losses.
The fair value for acquired loans recorded at the time of acquisition is based upon several factors including the
timing and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting
these cash flows using comparable market rates. The resulting fair value adjustment is recorded in the form of premium or
discount to the unpaid principal balance of each acquired loan. As it relates to acquired PCD loans, the net premium or net
discount is adjusted to reflect the Company's allowance for credit losses ("ACL") recorded for PCD loans at the time of
100
acquisition, and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of
the loan. As it relates to acquired loans not classified as PCD ("non-PCD") loans, the credit loss and yield components of
the fair value adjustments are aggregated, and the resulting net premium or net discount is accreted or amortized into interest
income over the average remaining life of those loans. The Company records an ACL for non-PCD loans at the time of
acquisition through provision expense, and therefore, no further adjustments are made to the net premium or net discount for
non-PCD loans.
The estimated fair value of the non-PCD loans acquired in the BBI acquisition was $460.0 million, which is net of
a $8.8 million discount. The gross contractual amounts receivable of the acquired non-PCD loans at acquisition was
approximately $468.8 million, of which $6.4 million is the amount of contractual cash flows not expected to be collected.
The estimated fair value of the non-PCD acquired in the HSBI acquisition was $1.091 billion, which is net of a
$33.7 million discount. The gross contractual amounts receivable of the acquired non-PCD loans at acquisition was
approximately $1.125 billion, of which $16.5 million is the amount of contractual cash flows not expected to be collected.
The following table shows the carrying amount of loans acquired in the BBI and HSBI acquisition transaction for
which there was, at the date of acquisition, more than insignificant deterioration of credit quality since origination:
($ in thousands)
Purchase price of loans at acquisition
Allowance for credit losses at acquisition
Non-credit discount (premium) at acquisition
Par value of acquired loans at acquisition
BBI
HSBI
27,669 $
1,303
530
29,502 $
52,356
3,176
2,325
57,857
$
$
As of December 31, 2023 and 2022, the amortized cost of the Company’s PCD loans totaled $57.8 million and
$24.0 million, respectively, which had an estimated ACL of $3.7 million and $1.7 million, respectively.
Loan Modifications
The Company adopted ASU No. 2022-02 effective January 1, 2023. These amendments eliminate the TDR
recognition and measurement guidance and enhanced disclosures for loan modifications to borrowers experiencing financial
difficulty.
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness,
term extension, and other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided,
the amount of forgiveness is charged-off against the allowance for credit losses.
In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession,
such as term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession,
such as principal forgiveness, may be granted. For loans included in the "combination" columns below, multiple types of
modifications have been made on the same loan within the current reporting period. The combination is at least two of the
following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate
reduction.
The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing
financial difficulty and modified during 2023, by class and by type of modification. The percentage of the amortized cost
basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of
financing receivable is also presented below:
101
($ in thousands)
Commercial real estate
Total
Term Extension
581
$
581
$
Percentage of
Total Loans Held
for Investment
0.02 %
0.02 %
The Company has not committed to lend additional amounts to the borrowers included in the previous table.
Debt Restructurings Prior to the Adoption of ASU 2022-02
If the Company grants a concession to a borrower for economic or legal reasons related to a borrower’s financial
difficulties that it would not otherwise consider, the loan is classified as TDRs.
As of December 31, 2022 and 2021 the Company had TDRs totaling $21.8 million and $24.2 million, respectively.
As of December 31, 2022, the Company had no additional amount committed on any loan classified as TDR. As of
December 31, 2022 and 2021 TDRs had a related ACL of $841 thousand and $4.3 million, respectively.
The following table presents LHFI by class modified as TDRs that occurred during the twelve months ended
December 31, 2022 and 2021.
($ in thousands, except for number of loans)
December 31, 2022
Consumer real estate
Total
December 31, 2021
Commercial, financial, and agriculture
Commercial real estate
Consumer real estate
Consumer installment
Total
Outstanding
Recorded
Investment
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Interest
Income
Recognized
Number of
Loans
1 $
1 $
134 $
134 $
135 $
135 $
1 $
5
4
1
11 $
38 $
5,151
222
13
5,424 $
37 $
4,890
187
1
5,115 $
7
7
4
230
5
—
239
The TDRs presented above increased the ACL $22 thousand and $1.6 million and resulted in no charge-offs for the
years ended December 31, 2022, and 2021, respectively.
The following table presents loans by class modified as TDRs for which there was a payment default within twelve
months following the modification during the year ending December 31, 2022 and 2021.
($ in thousands, except for number of loans)
Troubled Debt Restructurings
That Subsequently Defaulted:
Commercial real estate
Consumer real estate
Total
2022
2021
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
— $
1
1 $
—
134
134
— $
2
2 $
—
55
55
102
The modifications described above included one of the following or a combination of the following: maturity date
extensions, interest only payments, amortizations were extended beyond what would be available on similar type loans, and
payment waiver. No interest rate concessions were given on these loans nor were any of these loans written down. A loan is
considered to be in a payment default once it is 30 days contractually past due under the modified terms. The TDRs presented
above increased the ACL $22 thousand and $21 thousand resulted in no charge-offs for the years ended December 31, 2022,
and 2021, respectively.
The following tables represents the Company’s TDRs at December 31, 2022:
December 31, 2022
($ in thousands)
Current
Loans
Past Due
30-89
Past Due 90
days and still
accruing
Nonaccrual
Total
Commercial, financial, and agriculture $
Commercial real estate
Consumer real estate
Consumer installment
Total
Allowance for credit losses
$
$
49 $
13,561
1,077
14
14,701 $
350 $
— $
—
—
—
— $
— $
— $
—
—
—
— $
— $
— $
6,121
929
—
7,050 $
491 $
49
19,682
2,006
14
21,751
841
Collateral Dependent Loans
The following table presents the amortized cost basis of collateral dependent individually evaluated loans by class
of loans as of December 31, 2023 and 2022:
December 31, 2023
($ in thousands)
Commercial financial, and agriculture
Commercial real estate
Consumer real estate
Total
December 31, 2022
($ in thousands)
Commercial real estate
Consumer real estate
Total
Real Property
Equipment
Miscellaneous
Total
$
$
— $
710
778
1,488 $
496 $
—
—
496 $
918 $
—
—
918 $
1,414
710
778
2,902
Real Property
Total
$
$
4,560 $
998
5,558 $
4,560
998
5,558
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is
expected to be provided substantially through the sale of the collateral. The following provides a qualitative description by
class of loan of the collateral that secures the Company’s collateral dependent LHFI:
• Commercial, financial and agriculture – Loans within these loan classes are secured by equipment, inventory
accounts, and other non-real estate collateral.
• Commercial real estate – Loans within these loan classes are secured by commercial real property.
103
• Consumer real estate - Loans within these loan classes are secured by consumer real property.
• Consumer installment - Loans within these loan classes are secured by consumer goods, equipment, and non-real
estate collateral.
There have been no significant changes to the collateral that secures these financial assets during the period.
Loan Participations
The Company has loan participations, which qualify as participating interest, with other financial institutions. As of
December 31, 2023, these loans totaled $304.0 million, of which $165.9 million had been sold to other financial institutions
and $138.1 million was purchased by the Company. As of December 31, 2022, these loans totaled $202.6 million, of which
$100.1 million had been sold to other financial institutions and $102.5 million was purchased by the company. The loan
participations convey proportionate ownership rights with equal priority to each participating interest holder; involving no
recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all
cash flows are divided among the participating interest holders in proportion to each holder’s share of ownership; and no
holder has the right to pledge the entire financial asset unless all participating interest holders agree.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to
service their debt, such as current financial information, historical payment experience, credit documentation, public
information, and current economic trends, among other factors. The Company analyzes loans individually to classify the
loans as to credit risk. The Company uses the following definitions for risk ratings:
Pass: Loan classified as pass are deemed to possess average to superior credit quality, requiring no more than normal
attention.
Special Mention: Loans classified as special mention have a potential weakness that deserves management's close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for
the loan or of the Company’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the
added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
These above classifications were the most current available as of December 31, 2023, and were generally updated
within the prior year.
The tables below present the amortized cost basis of loans by credit quality indicator and class of loans based on
the most recent analysis performed at year ends December 31, 2023 and 2022. Revolving loans converted to term as of year
ended December 31, 2023 and 2022 were not material to the total loan portfolio.
104
($ in thousands)
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Total
Commercial, financial and
agriculture:
Risk Rating
Pass
Special mention
Substandard
Doubtful
Total commercial, financial
and agriculture
$
102,263 $ 150,420 $ 113,487 $
—
330
—
—
451
—
—
121
—
47,313 $
141
185
—
36,065 $
797
550
—
64,020 $ 281,646 $
795,214
3
1,894
—
10
628
—
951
4,159
—
$
102,714 $ 150,750 $ 113,608 $
47,639 $
37,412 $
65,917 $ 282,284 $
800,324
Current period gross write
offs
$
Commercial real estate:
$
Risk Rating
Pass
Special mention
Substandard
Doubtful
Total commercial real estate $
Current period gross write
offs
$
14 $
51 $
225 $
139 $
206 $
110 $
— $
745
385,954 $ 825,505 $ 558,742 $ 377,085 $ 253,746 $ 569,428 $
22,648
26,401
—
9,545
5,427
—
6,118
393
—
660
7,293
—
3,111
566
—
—
136
—
6,397 $ 2,976,857
42,082
—
—
—
40,216
—
386,090 $ 833,458 $ 565,253 $ 380,762 $ 268,718 $ 618,477 $
6,397 $ 3,059,155
— $
— $
193 $
— $
— $
57 $
— $
250
Consumer real estate:
Risk Rating
Pass
Special mention
Substandard
Doubtful
$
176,144 $ 334,056 $ 219,071 $ 127,539 $
—
502
—
1,081
404
—
—
511
—
—
1,559
—
59,615 $ 163,464 $ 153,821 $ 1,233,710
5,382
643
514
—
3,246
6,988
—
412
3,225
—
13,703
—
Total consumer real estate
$
176,646 $ 335,541 $ 219,582 $ 129,098 $
60,772 $ 173,698 $ 157,458 $ 1,252,795
Current period gross write
offs
$
Consumer installment:
5 $
19 $
— $
— $
— $
25 $
— $
49
Risk Rating
Pass
Special mention
Substandard
Doubtful
Total consumer installment $
Current period gross write
offs
$
Total
Pass
$
Special mention
Substandard
Doubtful
$
24,482 $
12,408 $
7,316 $
2,919 $
1,213 $
1,195 $
8,156 $
57,689
—
—
—
24,482 $
—
8
—
12,416 $
—
17
—
7,333 $
—
42
—
2,961 $
—
11
—
1,224 $
—
—
—
1,195 $
—
1
—
8,157 $
—
79
—
57,768
226 $
567 $
223 $
179 $
156 $
576 $
121 $
2,048
688,843 $ 1,322,389 $ 898,616 $ 554,856 $ 350,639 $ 798,107 $ 450,020 $ 5,063,470
48,415
1,741
8,035
6,118
1,042
3,252
2,352
10,985
6,502
25,897
35,283
422
3,854
—
1,089
—
—
—
—
—
—
—
58,157
—
Total
$
689,932 $ 1,332,165 $ 905,776 $ 560,460 $ 368,126 $ 859,287 $ 454,296 $ 5,170,042
Current period gross write
offs
$
245 $
637 $
641 $
318 $
362 $
768 $
121 $
3,092
105
($ in thousands)
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2022
Commercial, financial and
agriculture:
Risk Rating
Pass
Special mention
Substandard
Doubtful
Total commercial, financial
and agriculture
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Total
$ 181,761 $ 141,174 $
5,188
—
—
380
50
—
55,690 $
1,664
—
—
53,954 $
—
34
—
43,441 $
—
33
—
52,038 $
412
192
—
181 $
—
—
—
528,239
7,644
309
—
$ 182,191 $ 146,362 $
57,354 $
53,988 $
43,474 $
52,642 $
181 $
536,192
Commercial real estate:
Risk Rating
Pass
Special mention
Substandard
Doubtful
672
50
—
9,885
4,797
—
3,938
908
—
11,643
1,694
—
$ 582,895 $ 436,661 $ 305,140 $ 217,626 $ 140,682 $ 368,185 $
16,612
1,345
27,935
2,830
—
—
Total commercial real estate $ 583,617 $ 440,836 $ 309,986 $ 230,963 $ 155,364 $ 412,732 $
Consumer real estate:
Risk Rating
Pass
Special mention
Substandard
Doubtful
$ 325,853 $ 226,355 $ 136,052 $
—
1,481
—
$ 326,372 $ 226,909 $ 137,533 $
59,376 $
—
648
—
60,024 $
51,515 $ 129,923 $ 112,278 $
—
3,846
1,176
6,894
—
—
54,044 $ 140,663 $ 113,454 $
823
1,706
—
—
554
—
—
519
—
1,765 $
—
—
—
1,765 $
2,052,954
44,095
38,214
—
2,135,263
Total consumer real estate
Consumer installment:
Risk Rating
Pass
Special mention
Substandard
Doubtful
Total consumer installment
$
$
18,925 $
—
4
—
18,929 $
11,618 $
—
13
—
11,631 $
5,031 $
—
24
—
5,055 $
2,078 $
—
—
—
2,078 $
832 $
—
3
—
835 $
1,445 $
—
5
—
1,450 $
3,725 $
—
—
—
3,725 $
Total
Pass
Special mention
Substandard
Doubtful
Total
$ 1,109,434 $ 815,808 $ 501,913 $ 333,034 $ 236,470 $ 551,591 $ 117,949 $
—
1,176
—
$ 1,111,109 $ 825,738 $ 509,928 $ 347,053 $ 253,717 $ 607,487 $ 119,125 $
20,870
35,026
—
11,643
2,376
—
10,708
6,539
—
6,533
3,397
—
5,602
2,413
—
1,052
623
—
1,041,352
4,669
12,978
—
1,058,999
43,654
—
49
—
43,703
3,666,199
56,408
51,550
—
3,774,157
Allowance for Credit Losses (ACL)
The ACL is a valuation account that is deducted from loans’ amortized cost basis to present the net amount expected
to be collected on the loans. It is comprised of a general allowance for loans that are collectively assessed in pools with
similar risk characteristics and a specific allowance for individually assessed loans. The allowance is continuously monitored
by management to maintain a level adequate to absorb expected credit losses in the loan portfolio.
106
The ACL represents the estimated losses for financial assets accounted for on an amortized cost basis. Expected
losses are calculated using relevant information, from internal and external sources, about past events, including historical
experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss
information are made for differences in current loan-specific risk characteristics such as differences in underwriting
standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in
unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to
subjectively adjust the Company’s own loss history including index or peer data. Expected losses are estimated over the
contractual term of the loans, adjusted for expected prepayments. The contractual term excludes expected extensions,
renewals, and modifications. Loans are charged-off against the allowance when management believes the uncollectibility of
a loan balance is confirmed and recoveries are credited to the allowance when received. Expected recovery amounts may not
exceed the aggregate of amounts previously charged-off.
The ACL is measured on a collective basis when similar risk characteristics exist. Generally, collectively assessed
loans are grouped by call code (segments). Segmenting loans by call code will group loans that contain similar types of
collateral, purposes, and are usually structured with similar terms making each loan’s risk profile very similar to the rest in
that segment. Each of these segments then flows up into one of the four bands (bands), Commercial, Financial, and
Agriculture, Commercial Real Estate, Consumer Real Estate, and Consumer Installment. In accordance with the guidance in
ASC 326, the Company redefined its LHFI portfolio segments and related loan classes based on the level at which risk is
monitored within the ACL methodology. Construction loans for 1-4 family residential properties with a call code 1A1, and
other construction, all land development and other land loans with a call code 1A2 were previously separated between the
Commercial Real Estate or Consumer Real Estate bands based on loan type code. Under our ASC 326 methodology 1A1
loans are all defined as part of the Consumer Real Estate band and 1A2 loans are all defined as part of the Commercial Real
Estate Band.
The PD calculation analyzes the historical loan portfolio over the given lookback period to identify, by segment,
loans that have defaulted. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or
experienced a charge-off during the period. The model observes loans over a 12-month window, detecting any events
previously defined. This information is then used by the model to calculate annual iterative count-based PD rates for each
segment. This process is then repeated for all dates within the historical data range. These averaged PDs are used for an
immediate reversion back to the historical mean. The historical data used to calculate this input was captured by the Company
from 2009 through the most recent quarter end.
The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL
on loans. The model’s calculation also includes a 24-month forecasted PD based on a regression model that calculated a
comparison of the Company’s historical loan data to various national economic metrics during the same periods. The results
showed the Company’s past losses having a high rate of correlation to unemployment, both regionally and nationally. Using
this information, along with the most recently published Wall Street Journal survey of sixty economists’ forecasts predicting
unemployment rates out over the next eight quarters, a corresponding future PD can be calculated for the forward-looking
24-month period. This data can also be used to predict loan losses at different levels of stress, including a baseline, adverse
and severely adverse economic condition. After the forecast period, PD rates revert to the historical mean of the entire data
set.
The LGD calculation is based on actual losses (charge-offs, net recoveries) at a loan level experienced over the
entire lookback period aggregated to get a total for each segment of loans. The aggregate loss amount is divided by the
exposure at default to determine an LGD rate. Defaults occurring during the lookback period are included in the denominator,
whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default
event. If there is not a minimum of five past defaults in a loan segment, or less than 15.0% calculated LGD rate, or the total
balance at default is less than 1.0% of the balance in the respective call code as of the model run date, a proxy index is used.
This index is proprietary to the Company’s ACL modeling vendor derived from loss data of other client institutions similar
in organization structure to the Company. The vendor also provides a “crisis” index derived from loss data between the post-
recessionary years of 2008-2013 that the Company uses.
107
The model then uses these inputs in a non-discounted version of DCF methodology to calculate the quantitative
portion of estimated losses. The model creates loan level amortization schedules that detail out the expected monthly
payments for a loan including estimated prepayments and payoffs. These expected cash flows are discounted back to present
value using the loan’s coupon rate instead of the effective interest rate. On a quarterly basis, the Company uses internal credit
portfolio data, such as changes in portfolio volume and composition, underwriting practices, and levels of past due loans,
nonaccruals and classified assets along with other external information not used in the quantitative calculation to determine
if any subjective qualitative adjustments are required so that all significant risks are incorporated to form a sufficient basis
to estimate credit losses.
The following table presents the activity in the allowance for credit losses by portfolio segment for the years ended
December 31, 2023, 2022, and 2021.
($ in thousands)
Allowance for credit losses:
Beginning balance
Initial allowance on PCD loans
Provision for credit losses
Loans charged-off
Recoveries
Total ending allowance balance
$
($ in thousands)
Allowance for credit losses:
Beginning balance
Initial allowance on PCD loans
Provision for credit losses
Loans charged-off
Recoveries
Total ending allowance balance
$
$
$
December 31, 2023
Commercial,
Financial and
Agriculture
Commercial
Real Estate
Consumer
Real Estate
Consumer
Installment
Total
6,349 $
727
2,164
(745)
349
8,844 $
20,389 $
2,260
6,610
(250)
116
29,125 $
11,599 $
182
3,279
(49)
249
15,260 $
580 $
7
1,697
(2,048)
567
803 $
38,917
3,176
13,750
(3,092)
1,281
54,032
December 31, 2022
Commercial,
Financial and
Agriculture
Commercial
Real Estate
Consumer
Real Estate
Consumer
Installment
Total
4,873 $
614
688
(259)
433
6,349 $
17,552 $
576
1,742
(72)
591
20,389 $
7,889 $
113
2,786
(204)
1,015
11,599 $
428 $
—
134
(683)
701
580 $
30,742
1,303
5,350
(1,218)
2,740
38,917
108
($ in thousands)
Allowance for credit losses:
Beginning balance
Impact of ASC 326 adoption on
non-PCD loans
Impact of ASC 326 adoption on
PCD loans
Provision for credit losses (1)
Loans charged-off
Recoveries
Total ending allowance balance
$
December 31, 2021
Commercial,
Financial and
Agriculture
Commercial
Real Estate
Consumer
Real Estate
Consumer
Installment
Total
$
6,214 $
24,319 $
4,736 $
551 $
35,820
(1,319)
(4,607)
5,257
(49)
(718)
166
1,041
(1,662)
433
4,873 $
575
(100)
(3,523)
888
17,552 $
372
(2,314)
(473)
311
7,889 $
2
(83)
(555)
562
428 $
1,115
(1,456)
(6,213)
2,194
30,742
(1) The negative provision of $1.5 million for credit losses on the consolidated statements of income is net of a $370 thousand
provision for credit marks in the Cadence Bank Branches loans acquired for the year ended December 31, 2022.
The Company recorded a $13.8 million, provision for credit losses for the year ended December 31, 2023, compared
to $5.4 million for the year ended December 31, 2022. The 2023 provision for credit losses increase is attributable to loan
growth and the acquisition of HSBI in January 2023. Total loans were $5.116 billion at December 31, 2023, compared to
$3.735 billion at December 31, 2022, representing an increase of $1.381 billion, or 37.0%. During January 2023, loans
totaling $1.159 billion, net of purchase accounting adjustments, were acquired as part of the HSBI acquisition. The initial
ACL on PCD loans recorded in March 2023, of $3.2 million was related to the HSBI acquisition. In addition, the 2023
provision for credit losses includes $10.7 million associated with day one post-merger accounting provision recorded for
non-PCD loans and unfunded commitments acquired in the HSBI acquisition. The 2022 provision includes $3.9 million
associated with day one post-merger accounting provision recorded for non-PCD loans and unfunded commitments and a
$1.3 million initial allowance recorded on PCD loans acquired as part of the BBI merger.
The Company recorded a $5.4 million, provision for credit losses for the year ended December 31, 2022, compared
to $1.5 million, negative provision for credit losses for the year ended December 31, 2021. The 2022 provision for credit
losses includes $3.9 million associated with day one post-merger accounting provision recorded for non-PCD loans and
unfunded commitments. A $1.3 million initial allowance was recorded on PCD loans acquired in the BBI merger. The
negative provision for 2021 was composed of a $1.5 million decrease in the ACL for LHFI, net of $370 thousand provision
for credit marks on the Cadence Bank Branches loans acquired. The negative provision for credit losses in 2021 was primarily
due to the improved macroeconomic outlook for 2021.
109
The following table provides the ending balance in the Company’s LHFI and the ACL, broken down by portfolio
segment as of December 31, 2023 and 2022. The table also provides additional detail as to the amount of our loans and
allowance that correspond to individual versus collective impairment evaluation.
($ in thousands)
December 31, 2023
LHFI
Individually evaluated
Collectively evaluated
Total
Allowance for Credit Losses
Individually evaluated
Collectively evaluated
Total
($ in thousands)
December 31, 2022
LHFI
Individually evaluated
Collectively evaluated
Total
Allowance for Credit Losses
Individually evaluated
Collectively evaluated
Total
Commercial,
Financial and
Agriculture
Commercial
Real Estate
Consumer
Real Estate
Consumer
Installment
Total
$
$
$
$
1,414 $
798,910
800,324 $
710 $
3,058,445
3,059,155 $
778 $
1,252,017
1,252,795 $
— $
57,768
57,768 $
2,902
5,167,140
5,170,042
408 $
8,436
8,844 $
— $
29,125
29,125 $
— $
15,260
15,260 $
— $
803
803 $
408
53,624
54,032
Commercial,
Financial and
Agriculture
Commercial
Real Estate
Consumer
Real Estate
Consumer
Installment
Total
$
$
$
$
— $
536,192
536,192 $
4,560 $
2,130,703
2,135,263 $
998 $
1,058,001
1,058,999 $
— $
43,703
43,703 $
5,558
3,768,599
3,774,157
— $
6,349
6,349 $
— $
20,389
20,389 $
5 $
11,594
11,599 $
— $
580
580 $
5
38,912
38,917
110
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment owned and utilized in the operations of the Company are stated at cost, less accumulated
depreciation and amortization as follows:
($ in thousands)
Premises:
Land
Buildings and improvements
Equipment
Construction in progress
Less accumulated depreciation and amortization
Total
2023
2022
$
$
48,460 $
126,013
41,788
1,808
218,069
43,760
174,309 $
40,846
100,830
32,486
6,447
180,609
37,091
143,518
The amounts charged to operating expense for depreciation were $7.4 million, $5.7 million, and $5.4 million in
2023, 2022 and 2021, respectively.
NOTE G - DEPOSITS
Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at December 31, 2023 and 2022, were
$292.9 million and $146.6 million, respectively.
At December 31, 2023, the scheduled maturities of time deposits included in interest-bearing deposits were as
follows:
($ in thousands)
Year
2024
2025
2026
2027
2028
Thereafter
Total
$
Amount
971,259
59,867
13,593
7,575
14,935
8,527
$
1,075,756
NOTE H - BORROWED FUNDS
At December 31, 2023 and 2022, borrowed funds consisted of the following:
($ in thousands)
Bank Term Funding Program
FHLB advances
Total
2023
390,000 $
—
390,000 $
2022
—
130,100
130,100
$
$
111
On March 12, 2023, the Federal Reserve Board announced the Bank Term Funding Program ("BTFP"), which offers
loans to banks with a term up to one year. The loans are secured by pledging the banks' U.S. treasuries, agency securities,
agency securities, agency mortgage-backed securities, and any other qualifying asset. These pledged securities will be valued
at par for collateral purposes. The BTFP offers up to one year fixed-rate term borrowings that are prepayable without penalty.
In 2023, the Bank participated in the BTFP and had outstanding debt of $390.0 million, pledged securities totaling
a fair value for $362.4 million at December 31, 2023. The securities pledged have a par value of $398.1 million. The Bank's
BTFP borrowings, which were drawn between March 15, 2023 and December 28, 2023, bear interest rates ranging from
4.69% to 4.83% and are set to mature one year from their issuance date.
In 2022, each advance from the FHLB was payable at its maturity date, with a prepayment penalty for fixed rate
advances. Interest was payable monthly at rates ranging from 4.55% to 4.58%. Advances due to the FHLB are collateralized
by a blanket lien on first mortgage loans in the amount of the outstanding borrowings, FHLB capital stock, and amounts on
deposit with the FHLB. In 2022, advances due to the FHLB were collateralized by $3.651 billion in loans. Based on this
collateral and holdings of FHLB stock, the Company is eligible to borrow up to a total of $2.051 billion and $1.679 billion
at December 31, 2023 and 2022, respectively.
Payments over the next five years are as follows:
($ in thousands)
2024
2025
2026
2027
2028
NOTE I – LEASE OBLIGATIONS
$
390,000
—
—
—
—
The Company enters into leases in the normal course of business primarily for financial centers, back-office
operations locations and business development offices. The Company’s leases have remaining terms ranging from 1 to 8
years.
The Company includes lease extension and termination options in the lease term if, after considering relevant
economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to
account for any non-lease components in its real estate leases as part of the associated lease component. The Company has
also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s
balance sheet.
Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating
leases and short-term leases is recognized on a straight-line basis over the lease term and is recorded in net occupancy and
equipment expense in the consolidated statements of income and other comprehensive income. Right-of-use assets represent
our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments
arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date and based on
the estimated present value of lease payments over the lease term.
The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease
payments when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB
amortizing advance rate, adjusted for the lease term and other factors.
112
The following table details balance sheet information, as well as weighted-average lease terms and discount rates,
related to leases at December 31, 2023 and 2022.
($ in thousands)
Right-of-use assets:
Operating leases
Finance leases, net of accumulated depreciation
Total right-of-use assets
Lease liabilities:
Operating lease
Finance lease
Total lease liabilities
Weighted average remaining lease term
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
The table below summarizes our net lease costs.
($ in thousands)
Operating lease cost
Finance lease cost:
Interest on lease liabilities
Amortization of right-of-use
Net lease cost
December 31,
2023
December 31,
2022
$
$
$
$
6,387 $
1,466
7,853 $
6,550 $
1,739
8,289 $
7,620
1,930
9,550
7,810
1,918
9,728
7.2 years
7.9 years
7.5 years
8.9 years
2.0%
2.2%
1.8%
2.2%
2023
December 31,
2022
2021
$
1,504 $
1,464 $
1,657
40
464
2,008 $
44
464
1,972 $
7
263
1,927
$
113
The table below summarizes the maturity of remaining lease liabilities at December 31, 2023.
($ in thousands)
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
NOTE J - REGULATORY MATTERS
December 31, 2023
Operating Leases Finance Leases
$
$
1,144 $
1,043
945
777
691
2,439
7,039
(489)
6,550 $
220
220
222
252
252
735
1,901
(162)
1,739
On January 15, 2022, The First, A National Banking Association, a subsidiary of the Company, converted from a
national banking association to a Mississippi state-chartered bank and changed its name to The First Bank. The First Bank is
a member of the Federal Reserve System through the Federal Reserve Bank of Atlanta.
The Company and its subsidiary bank are subject to regulatory capital requirements administered by federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiary bank
must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative
judgment by regulators about components, risk weightings, and other related factors.
To ensure capital adequacy, quantitative measures have been established by regulators, and these require the
Company and its subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1
capital (as defined) to risk-weighted assets (as defined), Tier 1 capital to adjusted total assets (leverage) and common equity
Tier 1.
Management believes, as of December 31, 2023, that the Company met all capital adequacy requirements to which
they are subject. Under Basel III requirements, a financial institution is considered to be well-capitalized if it has a total risk-
based capital ratio of 10% or more, has a Tier 1 risk-based capital ratio of 8% or more, has a common equity Tier 1 of 6.5%,
and has a Tier 1 leverage capital ratio of 5% or more.
The actual capital amounts and ratios, excluding unrealized losses, at December 31, 2023 and 2022 are presented
in the following table. No amount was deducted from capital for interest-rate risk exposure.
114
($ in thousands)
December 31, 2023
Total risk-based
Common equity Tier 1
Tier 1 risk-based
Tier 1 leverage
December 31, 2022
Total risk-based
Common equity Tier 1
Tier 1 risk-based
Tier 1 leverage
Company
(Consolidated)
Subsidiary
The First
Amount
Ratio
Amount
Ratio
$
$
892,310
715,858
740,113
740,113
15.0 % $
12.1 %
12.5 %
9.7 %
875,071
821,246
821,246
821,246
14.8 %
13.8 %
13.8 %
10.7 %
Amount
Ratio
Amount
Ratio
753,708
570,660
586,068
586,068
16.7 % $
12.7 %
13.0 %
9.3 %
739,616
701,099
701,099
701,099
16.4 %
15.6 %
15.6 %
11.1 %
The minimum amounts of capital and ratios, not including Accumulated Other Comprehensive Income, as
established by banking regulators at December 31, 2023, and 2022, were as follows:
($ in thousands)
December 31, 2023
Total risk-based
Common equity Tier 1
Tier 1 risk-based
Tier 1 leverage
December 31, 2022
Total risk-based
Common equity Tier 1
Tier 1 risk-based
Tier 1 leverage
Company
(Consolidated)
Subsidiary
The First
Amount
Ratio
Amount
Ratio
$
$
475,183
267,291
356,387
237,592
8.0 % $
4.5 %
6.0 %
4.0 %
474,679
267,007
356,009
237,339
8.0 %
4.5 %
6.0 %
4.0 %
Amount
Ratio
Amount
Ratio
360,597
202,836
270,447
180,298
8.0 % $
4.5 %
6.0 %
4.0 %
360,071
202,540
270,053
180,035
8.0 %
4.5 %
6.0 %
4.0 %
The principal sources of funds to the Company to pay dividends are the dividends received from the Bank.
Consequently, dividends are dependent upon The First’s earnings, capital needs, regulatory policies, as well as statutory and
regulatory limitations. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive
officers if the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital
conservation buffer. Federal and state banking laws and regulations restrict the amount of dividends and loans a bank may
make to its parent company. Approval by the Company’s regulators is required if the total of all dividends declared in any
calendar year exceed the total of its net income for that year combined with its retained net income of the preceding two
years. In 2023, the Bank had available $147.3 million to pay dividends.
115
NOTE K - INCOME TAXES
The components of income tax expense are as follows:
($ in thousands)
Current:
Federal
State
Deferred
Total income tax expense
Years Ended December 31,
2022
2021
2023
$
$
11,754 $
2,587
7,006
21,347 $
12,071 $
2,759
940
15,770 $
12,546
2,630
1,739
16,915
The Company's income tax expense differs from the amounts computed by applying the federal income tax statutory
rates to income before income taxes. A reconciliation of the differences is as follows:
($ in thousands)
2023
Years Ended December 31,
2022
2021
Amount
%
Amount
%
Amount
%
Income taxes at statutory rate
Tax-exempt income, net
Nondeductible expenses
State income tax, net of federal tax
effect
Federal tax credits, net
Other, net
$
$
20,289
(1,696)
144
3,064
(715)
261
21,347
21 % $
(2)%
— %
4 %
(1)%
— %
22 % $
16,525
(2,369)
391
2,251
(715)
(313)
15,770
21 % $
(3)%
— %
3 %
(1)%
— %
20 % $
17,027
(1,692)
29
2,299
(715)
(33)
16,915
21 %
(2)%
— %
3 %
(1)%
— %
21 %
116
The components of deferred income taxes included in the consolidated financial statements were as follows:
$
($ in thousands)
Deferred tax assets:
Allowance for credit losses
Net operating loss carryover
Nonaccrual loan interest
Other real estate
Deferred compensation
Loan purchase accounting
Unrealized loss on available-for-sale securities
Lease liability
Other
Deferred tax liabilities:
Securities
Premises and equipment
Core deposit intangible
Goodwill
Right-of-use asset
Other
Net deferred tax asset/(liability), included in other assets/(liabilities)
$
December 31,
2023
2022
13,276 $
27,256
826
1,092
1,161
6,438
38,776
2,037
5,014
95,876
(560)
(9,017)
(16,094)
(2,651)
(1,929)
(1,461)
(31,712)
64,164 $
9,581
24,531
600
894
1,205
2,554
48,738
2,395
3,299
93,797
(627)
(6,588)
(7,628)
(2,388)
(2,517)
(596)
(20,344)
73,453
With the acquisition of Baldwin Bancshares, Inc. in 2013, BCB Holding Company, Inc. in 2014, Gulf Coast
Community Bank in 2017, Sunshine Financial, Inc. in 2018, and FPB Financial Corp. in 2019, SWG in 2020, BBI in 2022,
and HSBI in 2023, the Company assumed federal tax net operating loss carryovers. $228.9 million of net operating losses
remain available to the Company and begin to expire in 2026. The Company expects to fully utilize the net operating losses.
The Company follows the guidance of ASC Topic 740, Income Taxes, which prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. ASC Topic 740 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. As of December 31, 2023, the Company had no uncertain tax
positions that it believes should be recognized in the financial statements. The tax years still subject to examination by taxing
authorities are years subsequent to 2019.
NOTE L - EMPLOYEE BENEFITS
The Company and the Bank provide a deferred compensation arrangement (401k plan) whereby employees
contribute a percentage of their compensation. For employee contributions of six percent or less, the Company and its
subsidiary bank provide a 50% matching contribution. Contributions totaled $1.5 million in 2023, $1.2 million in 2022, and
$1.1 million in 2021.
The Company sponsors an Employee Stock Ownership Plan (ESOP) for employees who have completed one year
of service for the Company and attained age 21. Employees become fully vested after five years of service. Contributions to
117
the plan are at the discretion of the Board of Directors. At December 31, 2023, the ESOP held 5,728 shares valued at $168
thousand of Company common stock and had no debt obligation. All shares held by the plan were considered outstanding
for net income per share purposes. Total ESOP expense was $24 thousand for 2023, $33 thousand for 2022, and $3 thousand
for 2021.
In 2014, the Company established a Supplemental Executive Retirement Plan (“SERP”) for three active key
executives. During 2016, the Company established a SERP for eight additional active key executives. Pursuant to the SERP,
these officers are entitled to receive 180 equal monthly payments commencing at the later of obtaining age 65 or separation
from service. The costs of such benefits, assuming a retirement date at age 65, are accrued by the Company and included in
other liabilities in the Consolidated Balance Sheets. The SERP balance at December 31, 2023 and 2022 was $4.6 million and
$3.7 million, respectively. The Company accrued to expense $951 thousand for 2023, $945 thousand for 2022, and $945
thousand for 2021 for future benefits payable under the SERP. The SERP is an unfunded plan and is considered a general
contractual obligation of the Company.
Upon the acquisition of Iberville Bank, Southwest Banc Shares, Inc., FMB Banking Corporation, and SWG, the
Bank assumed deferred compensation agreements with directors and employees. At December 31, 2023, the total liability of
the deferred compensation agreements was $763 thousand, $1.1 million, $2.6 million, and $273 thousand, respectively.
Deferred compensation expense totaled $24 thousand, $152 thousand, $112 thousand, and $19 thousand, respectively for
2023.
NOTE M - STOCK PLANS
In 2007, the Company adopted the 2007 Stock Incentive Plan. The 2007 Plan provided for the issuance of up to
315,000 shares of Company Common Stock, $1.00 par value per share. In 2015, the Company adopted an amendment to the
2007 Stock Incentive Plan which provided for the issuance of an additional 300,000 shares of Company Common Stock,
$1.00 par value per share, for a total of 615,000 shares. In 2021, the Company adopted an amendment to the 2007 Stock
Incentive Plan which provided for the issuance of an additional 500,000 shares of Company Common Stock, $1.00 par value
per share, for a total of 1,115,000 shares. Shares issued under the 2007 Plan may consist in whole or in part of authorized but
unissued shares or treasury shares. Total shares issuable under the plan are 239,964 at year-end 2023, and 167,173 and
129,950 shares were issued in 2023 and 2022, respectively.
A summary of changes in the Company’s nonvested shares for the year follows:
Nonvested shares
Nonvested at January 1, 2023
Granted
Vested
Forfeited
Nonvested at December 31, 2023
Weighted-
Average
Grant-Date
Fair Value
31.88
31.08
Shares
364,056 $
167,173
(54,094)
(12,194)
464,941 $
As of December 31, 2023, there was $8.5 million of total unrecognized compensation cost related to nonvested
shares granted under the Plan. The costs are expected to be recognized over the remaining term of the vesting period
(approximately 5 years). The total fair value of shares vested during the years ended December 31, 2023, 2022 and 2021 was
$1.7 million, $2.5 million, and $3.2 million.
Compensation cost in the amount of $2.3 million was recognized for the year ended December 31, 2023, $2.4
million was recognized for the year ended December 31, 2022 and $3.1 million for the year ended December 31, 2021.
118
Shares of restricted stock granted to employees under this stock plan are subject to restrictions as to the vesting period. The
restricted stock award becomes 100% vested on the earliest of 1) the vesting period provided the Grantee has not incurred a
termination of employment prior to that date, 2) the Grantee’s retirement, or 3) the Grantee’s death. During this period, the
holder is entitled to full voting rights and dividends. The dividends are held by the Company and only paid if and when the
grants are vested. The 2007 Plan also contains a double trigger change-in-control provision pursuant to which unvested shares
of stock granted through the plan will be accelerated upon a change in control if the executive is terminated without cause as
a result of the transaction (as long as the shares granted remain part of the Company or are transferred into the shares of the
new company).
In 2022, as part of the BBI acquisition, the Company assumed outstanding options previously granted by BBI under
the BBI 2018 Stock Option Plan ("legacy BBI options"). In connection with the assumption of the legacy BBI options, the
Company reserved for issuance 310,427 shares of common stock to be issued upon exercise of such options. These options
had a weighted average exercise price of $29.23 and were fully vested upon acquisition.
NOTE N - SUBORDINATED DEBT
Debentures
On June 30, 2006, the Company issued $4.1 million of floating rate junior subordinated deferrable interest
debentures to The First Bancshares Statutory Trust 2 (“Trust 2”). The debentures are the sole asset of Trust 2, and the
Company is the sole owner of the common equity of Trust 2. Trust 2 issued $4.0 million of Trust Preferred Securities to
investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and
unconditional guarantee by the Company of the Trust 2’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 term Secured Overnight Financing Rate ("SOFR") plus 1.65%
plus a tenor spread adjustment of 0.026161% and is payable quarterly. The terms of the subordinated debentures are 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”). The Company owns all of the common equity of Trust 3,
and the debentures are the sole asset of Trust 3. Trust 3 issued $6.0 million of Trust Preferred Securities to investors. The
Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional
guarantee by the Company of 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 term SOFR plus 1.40% plus a tenor spread adjustment of 0.026161% and is
payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.
In 2018, as a result of the acquisition of FMB Banking Corporation ("FMB"), the Company became the successor
to FMB's obligations in respect of $6.2 million of floating rate junior subordinated debentures issued to FMB Capital Trust
1 ("FMB Trust"). The debentures are the sole asset of FMB Trust, and the Company is the sole owner of the common equity
of FMB Trust. FMB Trust issued $6.0 million of Trust Preferred Securities to investors. The Company’s obligations under
the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of FMB
Trust's obligations under the preferred securities. The preferred securities issued by the FMB Trust are redeemable by the
Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2033. Interest on the
preferred securities is the three-month term SOFR plus 2.85% plus a tenor spread adjustment of 0.026161% and is payable
quarterly.
On January 1, 2023, as a result of the acquisition of HSBI, the Company became the successor to HSBI's obligations
in respect of $10.3 million of subordinated debentures issued to Liberty Shares Statutory Trust II ("Liberty Trust"). The
debentures are the sole asset of Liberty Trust, and the Company is the sole owner of the common equity of Liberty Trust.
Liberty Trust issued $10.0 million of preferred securities to an investor. The Company's obligations under the debentures
119
and related documents, taken together, constitute a full and unconditional guarantee by the Company of Liberty Trust's
obligations under the preferred securities. The preferred securities issued by the Liberty Trust are redeemable by the
Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2036. Interest on the
preferred securities is the three-month term SOFR plus 1.48% plus a tenor spread adjustment of 0.026161% and is payable
quarterly.
In accordance with the provisions of ASC Topic 810, Consolidation, the Trust 2, Trust 3, FMB Trust, and Liberty
Trust are not included in the consolidated financial statements.
Notes
On April 30, 2018, The Company entered into two Subordinated Note Purchase Agreements pursuant to which the
Company sold and issued $24.0 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes
due 2028 (the "Notes due 2028") and $42.0 million in aggregate principal amount of 6.40% fixed-to-floating rate
subordinated notes due 2033 (the “Notes due 2033”). In May of 2023, the Company redeemed all $24.0 million of the
outstanding 5.875% fixed-to-floating rate subordinated notes due 2028.
The Notes due 2033 are not convertible into or exchangeable for any other securities or assets of the Company or
any of its subsidiaries. The Notes due 2033 are not subject to redemption at the option of the holder. Principal and interest
on the Notes due 2033 are subject to acceleration only in limited circumstances. The Notes due 2033 are unsecured,
subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior
indebtedness, and each Note is pari passu in right to payment with respect to the other Notes. The Notes due 2033 have a
fifteen year term, maturing May 1, 2033, and will bear interest at a fixed annual rate of 6.40%, payable quarterly in arrears,
for the first ten years of the term. Thereafter, the interest rate will re-set quarterly to an interest rate per annum equal to a
benchmark rate (which is expected to be three-month term SOFR plus 3.39% plus a tenor spread adjustment of 0.026161%),
payable quarterly in arrears. As provided in the Notes due 2033, under specified conditions the interest rate on the Notes due
2033 during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The
Company is entitled to redeem the Notes due 2033, in whole or in part, on any interest payment date on or after May 1, 2028,
and to redeem the Notes due 2033 at any time in whole upon certain other specified events.
On September 25, 2020, The Company entered into a Subordinated Note Purchase Agreement with certain qualified
institutional buyers pursuant to which the Company sold and issued $65.0 million in aggregate principal amount of its 4.25%
Fixed to Floating Rate Subordinated Notes due 2030 (the "Notes due 2030"). The Notes due 2030 are unsecured and have a
ten-year term, maturing October 1, 2030, and will bear interest at a fixed annual rate of 4.25%, payable semi-annually in
arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal
to a benchmark rate (which is expected to be the Three-Month Term SOFR plus 412.6 basis points), payable quarterly in
arrears. As provided in the Notes due 2030, under specified conditions the interest rate on the Notes due 2030 during the
applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The Company is
entitled to redeem the Notes due 2030, in whole or in part, on any interest payment date on or after October 1, 2025, and to
redeem the Notes due 2030 at any time in whole upon certain other specified events.
The Company had $123.4 million of subordinated debt, net of deferred issuance costs $1.6 million and unamortized
fair value mark $2.1 million, at December 31, 2023, compared to $145.0 million, net of deferred issuance costs $1.9 million
and unamortized fair value mark $593 thousand, at December 31, 2022. The decrease in subordinated debt was attributable
to the Company's redemption of $24.0 million of its Notes due 2028 and the Company's repayment of $2.0 million of its
Notes due 2030 in May of 2023, which resulted in the Company recording a $217 thousand gain on the repurchased debt.
The decrease in subordinated debt was partially offset by the addition of $9.0 million, net purchase accounting adjustments,
of subordinated debt that the Company acquired as part of the HSBI acquisition.
120
NOTE O - TREASURY STOCK
Shares held in treasury totaled 1,249,607 at December 31, 2023, 1,249,607 at December 31, 2022 and 649,607 at
December 31, 2021.
On February 8, 2022, the Company announced the renewal of the 2021 Repurchase Program that previously expired
on December 31, 2021. Under the renewed 2021 Repurchase Program, the Company could repurchase up to an aggregate of
$30.0 million of the Company’s issued and outstanding common stock in any manner determined appropriate by the
Company’s management, less the amount of prior purchases under the program during the 2021 calendar year. The renewed
2021 Repurchase Program was completed in February 2022 when the Company’s repurchases under the program approached
the maximum authorized amount. The Company repurchased 600,000 shares under the 2021 Repurchase Program in the
first quarter of 2022.
On March 9, 2022, the Company announced that its Board of Directors authorized a new share repurchase program
(the “2022 Repurchase Program”), pursuant to which the Company could purchase up to an aggregate of $30.0 million in
shares of the Company’s issued and outstanding common stock during the 2022 calendar year. Under the program, the
Company could, but was not required to, from time to time repurchase up $30.0 million of shares of its own common stock
in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the
target number of shares and the maximum price (or range of prices) under the program, was determined by management at
is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general
market and economic conditions, and applicable legal and regulatory requirements. The 2022 Repurchase Program expired
on December 31, 2022.
The Inflation Reduction Act of 2022 signed into law in August 2022 includes a provision for an excise tax equal to
1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits
and provisions. The excise tax is effective beginning in fiscal year 2023. While we may complete transactions subject to
the new excise tax, we do not expect a material impact to our statement of condition or result of operations.
On February 28, 2023, the Company announced that its Board of Directors has authorized a new share repurchase
program (the "2023 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50.0 million
in shares of the Company's issued and outstanding common stock during the 2023 calendar year. Under the program, the
Company may, but is not required to, from time to time repurchase up $50.0 million of shares of its own common stock in
any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the
target number of shares and the maximum price (or range of prices) under the program, will be determined by management
at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general
market and economic conditions, and applicable legal and regulatory requirements. The 2023 Repurchase Program expired
on December 31, 2023.
On February 28, 2024, the Company announced that its Board of Directors has authorized a new share repurchase
program (the "2024 Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of $50.0 million
in shares of the Company's issued and outstanding common stock during the 2024 calendar year. Under the program, the
Company may, but is not required to, from time to time repurchase up $50.0 million of shares of its own common stock in
any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the
target number of shares and the maximum price (or range of prices) under the program, will be determined by management
at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general
market and economic conditions, and applicable legal and regulatory requirements. The 2024 Repurchase Program will
expire on December 31, 2024.
121
NOTE P - RELATED PARTY TRANSACTIONS
In the normal course of business, the Bank makes loans to its directors and executive officers and to companies in
which they have a significant ownership interest. Such loans amounted to approximately $23.7 million and $28.3 million at
December 31, 2023 and 2022, respectively. The activity in loans to current directors, executive officers, and their affiliates
during the year ended December 31, 2023, is summarized as follows:
($ in thousands)
Loans outstanding at beginning of year
Advances/new loans
Removed/payments
Loans outstanding at end of year
$
$
28,338
725
(5,383)
23,680
Deposits from principal officers, directors, and their affiliates at year-end 2023 and 2022 were $15.6 million and
$16.8 million.
NOTE Q - COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business, there are outstanding various commitments and contingent liabilities, such as
guaranties, commitments to extend credit, overdraft protection, etc., which are not reflected in the accompanying financial
statements. Commitments to extend credit and letters of credit include some exposure to credit loss in the event of
nonperformance of the customer. Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The credit policies and procedures for such commitments
are the same as those used for lending activities. Because these instruments have fixed maturity dates and because a number
expire without being drawn upon, they generally do not present any significant liquidity risk. No significant losses on
commitments were incurred during the years ended December 31, 2023 and 2022, nor are any significant losses as a result
of these transactions anticipated.
The contractual amounts of financial instruments with off-balance-sheet risk at year-end were as follows:
($ in thousands)
Commitments to make loans
Unused lines of credit
Standby letters of credit
2023
2022
Fixed Rate
Variable Rate
Fixed Rate
Variable Rate
$
34,380 $
231,335
15,573
50,226 $
605,646
13,114
43,227 $
243,043
4,260
15,758
404,025
9,909
Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments
have interest rates ranging from 1.0% to 18.0% and maturities ranging from 1 year to 30 years.
ALLOWANCE FOR CREDIT LOSSES (“ACL”) ON OFF BALANCE SHEET CREDIT (“OBSC”) Exposures
The Company adopted ASC 326, effective January 1, 2021, which requires the Company to estimate expected credit
losses for OBSC exposures which are not unconditionally cancellable. The Company maintains a separate ACL on OBSC
exposures, including unfunded commitments and letters of credit, which is included on the accompanying consolidated
balance sheet for the years ended December 31, 2023 and 2022. The ACL on OBSC exposures is adjusted as a provision for
credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected
credit losses on commitments expected to be funded over its estimated life.
122
Changes in the ACL on OBSC exposures were as follows for the presented periods:
($ in thousands)
Balance at beginning of period
Adoption of ASU 326
Credit loss expense related to OBSC exposures
Balance at end of period
2023
2022
2021
$
$
1,325 $
—
750
2,075 $
1,070 $
—
255
1,325 $
—
718
352
1,070
Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses OBSC exposures. The
Company recorded $750 thousand, $255 thousand, and $352 thousand to the provision for credit losses OBSC exposures for
the years ended December 31, 2023, 2022, and 2021 respectively. The increase in the ACL on OBSC exposures for the year
ended December 31, 2023 compared to the same period in 2022 was due to the day one provision for unfunded commitments
related to the HSBI acquisition and an increase in unfunded commitments.
No credit loss estimate is reported for OBSC exposures that are unconditionally cancellable by the Company or for
undrawn amounts under such arrangements that may be drawn prior to the cancellation on the arrangement.
The Company currently has 110 full-service banking and financial service offices, one motor bank facility and five
loan production offices across Mississippi, Alabama, Florida, Georgia, and Louisiana. Management closely monitors its
credit concentrations and attempts to diversify the portfolio within its primary market area. As of December 31, 2023,
management does not consider there to be any significant credit concentrations within the loan portfolio. Although the Bank’s
loan portfolio, as well as existing commitments, reflects the diversity of its primary market area, a substantial portion of a
borrower's ability to repay a loan is dependent upon the economic stability of the area.
In the normal course of business, the Company and its subsidiary are subject to pending and threatened legal actions.
Although the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions
with counsel, management believes that based on the information currently available the outcome of such actions,
individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial statements.
NOTE R - FAIR VALUES OF ASSETS AND LIABILITIES
The Company follows the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which establishes
a framework for measuring fair value and expands disclosures about fair value measurements.
The guidance defines the fair value as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value.
In accordance with the guidance, the Company groups its financial assets and financial liabilities measured at fair
value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions
used to determine fair value. These levels are:
Level 1:
Level 2:
Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock
Exchange. Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are
obtained from third party pricing services for identical or comparable assets or liabilities which use
observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
123
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets and liabilities.
Level 3:
Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that
market participants would use in pricing an asset or liability.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument
for which it is practicable to estimate that value:
Cash and Cash Equivalents – For such short-term instruments, the carrying amount is a reasonable estimate of fair
value.
Debt Securities - The fair value of available-for-sale securities is determined by various valuation methodologies.
Where quoted market prices are available in an active market, securities are classified within Level 1. If quoted
market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities
with similar characteristics. Level 2 securities include obligations of U.S. government corporations and agencies,
obligations of states and political subdivisions, mortgage-backed securities, and collateralized mortgage obligations.
In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the
hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are
calculated using the discounted cash flow or other market indicators (Level 3).
Loans – The fair value of loans was estimated by discounting the expected future cash flows using the current
interest rates at which similar loans would be made for the same remaining maturities, in accordance with the exit
price notion as defined by FASB ASC 820, Fair Value Measurement ("ASC 820"). Expected future cash flows were
projected based on contractual cash flows, adjusted for estimated prepayments and as a result of the adoption of
ASU 2016-01, which also included credit risk and other market factors to calculate the exit price fair value in
accordance with ASC 820.
Loans Held for Sale - Loans held for sale are carried at fair value in the aggregate as determined by the outstanding
commitments from investors. As, such we classify those loans subjected to nonrecurring fair value adjustments as
Level 2 of the fair value hierarchy.
Interest Rate Swaps - The Company offers interest rate swaps to certain commercial loan customers to allow them
to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan
and enters into a variable to fixed interest rate swap with the customer. The Company also enters into an offsetting
swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the
Company to originate a variable rate loan, while providing the contract or fixed interest payments for the customer.
In addition, the Company will enter into risk participation agreements ("RPA"). Under an RPA-in agreement, a
derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest
rate swap position with the commercial borrower, for a fee received from the other bank. Under an RPA-out
agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest
rate swap position executed with the commercial borrower, for a fee paid to the participating bank. RPAs are
derivative financial instruments recorded at fair value. Although we have determined that a majority of the inputs
used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit assumptions associated with
our risk participation agreements utilize Level 3 inputs.
Accrued Interest Receivable – The carrying amount of accrued interest receivable approximates fair value and is
classified as level 2 for accrued interest receivable related to investments securities and Level 3 for accrued interest
receivable related to loans.
Deposits – The fair values of demand deposits are, as required by ASC Topic 825, equal to the carrying value of
such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts,
124
and money market demand accounts. The fair value of variable rate term deposits, those repricing within six months
or less, approximates the carrying value of these deposits. Discounted cash flows have been used to value fixed rate
term deposits and variable rate term deposits repricing after six months. The discount rate used is based on interest
rates currently being offered on comparable deposits as to amount and term.
Short-Term Borrowings – The carrying value of any federal funds purchased and other short-term borrowings
approximates their fair values.
FHLB and Other Borrowings – The fair value of the fixed rate borrowings is estimated using discounted cash
flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying
amount of any variable rate borrowing approximates its fair value.
Subordinated Debentures – Fair values are determined based on the current market value of like instruments of a
similar maturity and structure.
Accrued Interest Payable – The carrying amount of accrued interest payable approximates fair value resulting in
a Level 2 classification.
Off-Balance Sheet Instruments – Fair values of off-balance sheet financial instruments are based on fees charged
to enter into similar agreements. However, commitments to extend credit do not represent a significant value until
such commitments are funded or closed. Management has determined that these instruments do not have a
distinguishable fair value and no fair value has been assigned.
The following table presents the Company’s securities that are measured at fair value on a recurring basis and the
level within the hierarchy in which the fair value measurements fell as of December 31, 2023 and 2022:
December 31, 2023
($ in thousands)
Assets:
Available-for-sale
U.S. Treasury
Fair Value Measurements
Quoted Prices in
Active Markets
For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$
16,675 $
16,675 $
— $
—
Obligations of U.S. government agencies and
sponsored entities
Municipal securities
Mortgage-backed Securities
Corporate obligations
Other
Total investment securities available-for-sale $
Loans held for sale
Interest rate swaps
Liabilities:
Interest rate swaps
$
$
104,923
438,466
441,661
37,597
3,043
1,042,365 $
2,914
12,170 $
—
—
—
—
—
16,675 $
—
— $
104,923
420,283
441,661
37,567
3,043
1,007,477 $
2,914
12,129 $
—
18,183
—
30
—
18,213
—
41
12,175 $
— $
12,129 $
46
125
December 31, 2022
($ in thousands)
Assets:
Available-for-sale
U.S. Treasury
Fair Value Measurements
Quoted Prices in
Active Markets
For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$
123,854 $
123,854 $
— $
—
Obligations of U.S. government agencies and
sponsored entities
Municipal securities
Mortgage-backed securities
Corporate obligations
Total investment securities available-for-sale $
$
$
Loans held for sale
Interest rate swaps
144,369
457,857
490,139
40,882
1,257,101 $
4,443 $
12,825 $
—
—
—
—
123,854 $
— $
— $
144,369
442,740
490,139
40,851
1,118,099 $
4,443 $
12,825 $
—
15,117
—
31
15,148
—
—
Liabilities:
Interest rate swaps
$
12,825 $
— $
12,825 $
—
The following is a reconciliation of activity for assets measured at fair value based on significant unobservable
(Level 3) information:
($ in thousands)
Balance, January 1
Paydowns
Balance, December 31
($ in thousands)
Balance, January 1
Maturities, calls and paydowns
Transfer from level 2 to level 3
Unrealized (loss) gain included in comprehensive income
Balance, December 31
Bank-Issued Trust
Preferred Securities
2023
2022
31 $
(1)
30 $
43
(12)
31
Municipal Securities
2023
2022
15,117 $
(2,639)
6,085
(380)
18,183 $
20,123
(2,328)
—
(2,678)
15,117
$
$
$
$
126
($ in thousands)
Balance, January 1
RPA-in
RPA-out
Balance at December 31
Interest Rate Swaps
- Risk Participations
2023
$
$
—
(46)
41
(5)
The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at
fair value on a recurring basis at December 31, 2023 and 2022. The following tables present quantitative information about
recurring Level 3 fair value measurements:
($ in thousands)
Bank-Issued Trust Preferred Securities
December 31, 2023
December 31, 2022
Municipal Securities
December 31, 2023
December 31, 2022
$
$
$
$
Significant
Unobservable
Inputs
Fair Value
Valuation Technique
Range of Inputs
30 Discounted cash flow Discount rate 7.81% - 7.89%
31 Discounted cash flow Discount rate 6.98% - 7.19%
Significant
Unobservable
Inputs
Fair Value
Valuation Technique
Range of Inputs
18,183 Discounted cash flow Discount rate 2.34% - 5.50%
15,117 Discounted cash flow Discount rate 3.00% - 4.00%
Interest Rate Swaps - Risk Participations
Fair Value
Valuation Technique
December 31, 2023
$
(5)
Credit Value
Adjustment
Significant
Unobservable
Inputs
Range of Inputs
Credit Spread 225 bps - 300 bps
Recovery Rate
70%
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a
non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets
and liabilities pursuant to the valuation hierarchy.
Collateral Dependent Loans
Loans for which it is probable that the Company will not collect all principal and interest due according to
contractual terms are measured for impairment. If the impaired loan is identified as collateral dependent, then the fair value
method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal
of the collateral. These appraisals may utilize a single valuation approach or a combination of approaches including
comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent
appraisers to adjust for differences between the comparable sales and income date available for similar loans and collateral
underlying such loans. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value.
The Company adjusts the appraisal for cost associated with litigation and collections. Non-real estate collateral may be valued
using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on
127
management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.
Impaired loans are evaluated on a quarterly basis for additional impairment.
Other Real Estate Owned
Other real estate owned consists of properties obtained through foreclosure. The adjustment at the time of
foreclosure is recorded through the allowance for credit losses. Fair value of other real estate owned is based on current
independent appraisals of the collateral less costs to sell when acquired, establishing a new costs basis. These assets are
subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent
real estate appraisals, which are updated no less frequently than annually. These appraisals may utilize a single valuation
approach or a combination of approaches including comparable sales and the income approach with data from comparable
properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences
between the comparable sales and income data available. Such adjustments, if any, result in a Level 3 classification of the
inputs for determining fair value. In the determination of fair value subsequent to foreclosure, management also considers
other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales
values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated
in the appraisals. The Company adjust the appraisal 10 percent for carrying costs. Periodic revaluations are classified as
Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market. Due to the subjective
nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed
asset could differ from the original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation
allowance is recorded through other income. Operating costs associated with the assets after acquisition are also recorded as
non-interest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and
recorded in other income. Other real estate measured at fair value on a non-recurring basis at December 31, 2023, amounted
to $8.3 million. Other real estate owned is classified within Level 3 of the fair value hierarchy.
The following table presents the fair value measurement of assets and liabilities measured at fair value on a
nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements were reported at
December 31, 2023 and 2022:
($ in thousands)
December 31, 2023
Collateral dependent loans
Other real estate owned
December 31, 2022
Collateral dependent loans
Other real estate owned
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
For
Identical Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$
$
2,494 $
8,320
5,552 $
4,832
— $
—
— $
—
— $
—
2,494
8,320
— $
—
5,552
4,832
128
Estimated fair values for the Company's financial instruments are as follows, as of the dated noted:
December 31, 2023
($ in thousands)
Financial Instruments:
Assets:
Fair Value Measurements
Carrying
Amount
Estimated
Fair Value
Quoted
Prices
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Loans, net
Accrued interest receivable
Interest rate swaps
355,147 $
1,042,365
654,539
2,914
5,116,010
33,300
12,170
355,147 $
1,042,365
615,944
2,914
4,877,935
33,300
12,170
355,147 $
16,675
—
—
—
—
—
— $
1,007,477
615,944
2,914
—
8,632
12,129
—
18,213
—
—
4,877,935
24,668
41
Liabilities:
Non-interest-bearing deposits $
Interest-bearing deposits
Subordinated debentures
FHLB and other borrowings
Accrued interest payable
Interest rate swaps
1,849,013 $
4,613,859
123,386
390,000
22,702
12,175
1,849,013 $
4,430,227
109,426
390,000
22,702
12,175
— $
—
—
—
—
—
1,849,013 $
4,430,227
—
390,000
22,702
12,129
—
—
109,426
—
—
46
129
December 31, 2022
($ in thousands)
Financial Instruments:
Assets:
Fair Value Measurements
Carrying
Amount
Estimated
Fair Value
Quoted
Prices
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Loans, net
Accrued interest receivable
Interest rate swaps
145,315 $
1,257,101
691,484
4,443
3,735,240
27,723
12,825
145,315 $
1,257,101
642,097
4,443
3,681,313
27,723
12,825
145,315 $
123,854
—
—
—
—
—
— $
1,118,099
642,097
4,443
—
9,757
12,825
—
15,148
—
—
3,681,313
17,966
—
Liabilities:
Non-interest-bearing deposits $
Interest-bearing deposits
Subordinated debentures
FHLB and other borrowings
Accrued interest payable
Interest rate swaps
1,630,203 $
3,864,201
145,027
130,100
3,324
12,825
1,630,203 $
3,505,990
133,816
130,100
3,324
12,825
— $
—
—
—
—
—
1,630,203 $
3,505,990
—
130,100
3,324
12,825
—
—
133,816
—
—
—
NOTE S - REVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within
non-interest income. The guidance does not apply to revenue associated with financial instruments, including loans and
investment securities that are accounted for under other GAAP, which comprise a significant portion of our revenue stream.
A description of the Company’s revenue streams accounted for under ASC 606 is as follows:
Service Charges on Deposit Accounts: The Company earns fees from deposit customers for transaction-based, account
maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment
charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in the
time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly
maintenance, are earned over the course of a month, representing the period over which the Company satisfies the
performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on
deposits are withdrawn from the customer’s account balance.
Interchange Income: The Company earns interchange fees from debit and credit card holder transaction conducted
through various payment networks. Interchange fees from cardholder transactions represent a percentage of the
underlying transaction value and are recognized daily, concurrently with the transaction processing services provided by
the cardholder.
Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the
property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the
sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the
contract and whether the collectability of the transaction prices is probable. Once these criteria are met, the OREO asset
130
is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In
determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a
significant financing component is present.
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-
interest income. The following table presents the Company’s sources of non-interest income for December 31, 2023, 2022,
and 2021. Items outside the scope of ASC 606 are noted as such.
Total non-interest income
$
($ in thousands)
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees
Other
Interchange income
Investment brokerage fees
Net gains on OREO
Net losses on sales of securities (1)
Gain on premises and equipment
Gain on sale of loans
Other
($ in thousands)
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees
Other
Interchange income
Investment brokerage fees
Net gains on OREO
Net losses on sales of securities (1)
Gain on acquisition (1)
Loss on premises and equipment
Other
Total non-interest income
$
$
$
Commercial/
Retail
Bank
Year Ended December 31, 2023
Mortgage
Banking
Division
Holding
Company
Total
8,154 $
6,021
18,914
1,623
6
(9,716)
35
1,512
10,307
36,856 $
— $
—
—
—
—
—
—
—
2,866
2,866 $
— $
—
—
—
—
—
—
—
6,983
6,983 $
8,154
6,021
18,914
1,623
6
(9,716)
35
1,512
20,156
46,705
Commercial/
Retail
Bank
Year Ended December 31, 2022
Mortgage
Banking
Division
Holding
Company
Total
4,023 $
8,679
12,702
1,566
214
(82)
281
(116)
2,724
29,991 $
93 $
—
—
—
—
—
—
—
4,210
4,303 $
— $
—
—
—
—
—
—
—
2,667
2,667 $
4,116
8,679
12,702
1,566
214
(82)
281
(116)
9,601
36,961
131
($ in thousands)
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees
Other
Interchange income
Investment brokerage fees
Net (losses) on OREO
Net gains on sales of securities (1)
Gain on acquisition (1)
Loss on premises and equipment
Other
Commercial/
Retail
Bank
Year Ended December 31, 2021
Mortgage
Banking
Division
Holding
Company
Total
$
3,122 $
4,140
11,562
1,349
(300)
143
1,300
(264)
7,487
28,539 $
— $
2
—
—
—
—
—
—
8,821
8,823 $
— $
—
—
—
—
—
—
—
111
111 $
3,122
4,142
11,562
1,349
(300)
143
1,300
(264)
16,419
37,473
Total non-interest income
$
___________________________________
(1) Not within scope of ASC 606.
NOTE T - PARENT COMPANY FINANCIAL INFORMATION
The balance sheets, statements of income and cash flows for The First Bancshares, Inc. (parent company only)
Condensed Balance Sheets
follows:
($ in thousands)
Assets:
Cash and cash equivalents
Investment in subsidiary bank
Investments in statutory trusts
Bank owned life insurance
Other
Liabilities and Stockholders’ Equity:
Subordinated debentures
Other
Stockholders’ equity
December 31,
2023
2022
$
$
$
$
13,485 $
1,056,369
806
348
3,275
1,074,283 $
123,386 $
1,863
949,034
1,074,283 $
9,843
778,885
496
333
3,962
793,519
145,027
1,830
646,663
793,519
132
Condensed Statements of Income
($ in thousands)
Income:
Interest and dividends
Dividend income
Other
Expenses:
Interest on borrowed funds
Legal and professional
Other
Income (loss) before income taxes and equity in undistributed income of
subsidiary
Income tax benefit
Income (loss) before equity in undistributed income of subsidiary
Equity in undistributed income of subsidiary
Years Ended December 31,
2023
2022
2021
$
36 $
65,000
6,983
72,019
17 $
16,000
2,667
18,684
7,970
1,136
6,266
15,372
56,647
2,005
58,652
16,805
7,492
593
7,498
15,583
3,101
3,263
6,364
56,555
10
—
111
121
7,375
941
4,828
13,144
(13,023)
3,295
(9,728)
73,895
Net income
$
75,457 $
62,919 $
64,167
133
Condensed Statements of Cash Flows
($ in thousands)
Cash flows from operating activities:
Net income
Years Ended December 31,
2023
2022
2021
$
75,457 $
62,919 $
64,167
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed income of Subsidiary
Restricted stock expense
Other, net
Net cash provided by (used in) operating activities
(16,805)
(56,555)
(73,895)
2,302
9,263
70,217
2,425
6,255
15,044
3,100
(3,343)
(9,970)
Cash flows from investing activities:
Investment in bank
Other, net
Net cash (used in) investing activities
Cash flows from financing activities:
Dividends paid on common stock
Repurchase of restricted stock for payment of taxes
Common stock repurchased
Repayment of borrowed funds
Called/repayment of subordinated debt
Other, net
Net cash (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
—
—
—
(1,300)
290
(1,010)
(27,550)
(361)
—
—
(31,000)
(7,664)
(66,575)
3,642
9,843
(16,275)
(683)
(22,180)
—
—
216
(38,922)
(24,888)
34,731
—
—
—
(11,991)
(721)
(5,171)
(4,647)
—
—
(22,530)
(32,500)
67,231
Cash and cash equivalents at end of year
$
13,485 $
9,843 $
34,731
134
NOTE U - OPERATING SEGMENTS
The Company is considered to have three principal business segments in 2023, 2022, and 2021, the
Commercial/Retail Bank, the Mortgage Banking Division, and the Holding Company.
($ in thousands)
Interest income
Interest expense
Net interest income (loss)
Provision (credit) for credit losses
Net interest income (loss) after provision for loan
losses
Non-interest income
Non-interest expense
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Total Assets
Net Loans
($ in thousands)
Interest income
Interest expense
Net interest income (loss)
Provision (credit) for loan losses
Net interest income (loss) after provision for loan
losses
Non-interest income
Non-interest expense
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Total Assets
Net Loans
$
Commercial/
Retail
Bank
340,566 $
83,497
257,069
14,500
242,569
36,856
172,133
107,292
23,892
83,400 $
Year Ended December 31, 2023
Mortgage
Banking
Division
Holding
Company
331 $
141
190
—
190
2,866
5,191
(2,135)
(540)
(1,595) $
36 $
7,970
(7,934)
—
(7,934)
6,983
7,402
(8,353)
(2,005)
(6,348) $
Total
340,933
91,608
249,325
14,500
234,825
46,705
184,726
96,804
21,347
75,457
7,971,373 $
5,114,434
10,058 $
4,490
17,914 $
—
7,999,345
5,118,924
$
Commercial/
Retail
Bank
199,937 $
14,979
184,958
5,605
179,353
29,991
116,899
92,445
19,250
73,195 $
Year Ended December 31, 2022
Mortgage
Banking
Division
Holding
Company
439 $
106
333
—
333
4,303
5,493
(857)
(217)
(640) $
17 $
7,492
(7,475)
—
(7,475)
2,667
8,091
(12,899)
(3,263)
(9,636) $
Total
200,393
22,577
177,816
5,605
172,211
36,961
130,483
78,689
15,770
62,919
$
$
$
$
6,428,889 $
3,734,659
18,194 $
5,024
14,634 $
—
6,461,717
3,739,683
135
($ in thousands)
Commercial/
Retail
Bank
Year Ended December 31, 2021
Mortgage
Banking
Division
Holding
Company
Interest income
Interest expense
Net interest income (loss)
Provision (credit) for loan losses
Net interest income (loss) after provision for loan
losses
Non-interest income
Non-interest expense
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Total Assets
Net Loans
$
$
$
176,153 $
12,166
163,987
(1,104)
165,091
28,539
103,430
90,200
19,222
70,978 $
582 $
140
442
—
442
8,823
5,361
3,904
988
2,916 $
10 $
7,375
(7,365)
—
(7,365)
111
5,768
(13,022)
(3,295)
(9,727) $
Total
176,745
19,681
157,064
(1,104)
158,168
37,473
114,559
81,082
16,915
64,167
6,015,664 $
2,929,995
16,519 $
6,494
45,231 $
—
6,077,414
2,936,489
136
NOTE V - SUMMARY OF QUARTERLY RESULTS OF OPERATIONS AND PER SHARE AMOUNTS (UNAUDITED)
($ in thousands, except per share amounts)
2023
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Total non-interest income
Total non-interest expense
Income tax expense
Net income available to common stockholders
Per common share:
Net income, basic
Net income, diluted
Cash dividends declared
2022
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Total non-interest income
Total non-interest expense
Income tax expense
Net income available to common stockholders
Per common share:
Net income, basic
Net income, diluted
Cash dividends declared
2021
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Total non-interest income
Total non-interest expense
Income tax expense
Net income available to common stockholders
Per common share:
Net income, basic
Net income, diluted
Cash dividends declared
March 31
June 30
Sept. 30
Dec. 31
$
$
$
$
$
$
$
$
$
$
$
$
80,338
$
86,194
$
85,681
$
15,412
20,164
24,977
64,926
$
66,030
$
60,704
$
11,000
53,926
12,612
45,670
4,597
1,250
64,780
12,423
46,899
6,525
1,000
59,704
19,324
47,724
6,944
16,271
$
23,779
$
24,360
$
0.52
$
0.76
$
0.78
$
0.52
0.21
0.75
0.22
0.77
0.23
42,741
$
45,847
$
53,874
$
4,102
3,746
4,726
38,639
$
42,101
$
49,148
$
—
600
38,639
11,157
28,590
4,377
41,501
8,664
30,955
3,457
4,300
44,848
9,022
35,903
3,924
16,829
$
15,753
$
14,043
$
0.81
$
0.77
$
0.61
$
0.81
0.17
0.76
0.18
0.61
0.19
45,187
$
43,238
$
44,435
$
5,958
5,188
4,407
39,229
$
38,050
$
40,028
$
88,720
31,055
57,665
1,250
56,415
2,346
44,433
3,281
11,047
0.35
0.35
0.24
57,931
10,003
47,928
705
47,223
8,118
35,035
4,012
16,294
0.68
0.67
0.20
43,885
4,128
39,757
—
—
—
(1,104)
39,229
9,472
27,264
4,793
38,050
8,822
27,452
3,820
40,028
9,586
29,053
4,429
16,644
$
15,600
$
16,132
$
0.79
$
0.74
$
0.77
$
0.79
0.13
0.74
0.14
0.76
0.15
40,861
9,593
30,790
3,873
15,791
0.75
0.75
0.16
137
NOTE W - DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements primarily to facilitate the risk management strategies of
certain commercial customers. The interest rate swap agreements entered into by the Company are all entered into under
what is referred to as a back-to-back interest rate swap, as such, the net positions are offsetting assets and liabilities, as well
as income and expenses and risk participation. All derivative instruments are recorded in the consolidated statement of
financial condition at their respective fair values, as components of other assets and other liabilities.
Under a back-to-back interest rate swap program, the Company enters into an interest rate swap with the customer
and another offsetting swap with a counterparty. The result is two mirrored interest rate swaps, absent a credit event, which
will offset in the financial statements. These swaps are not designated as hedging instruments and are recorded at fair value
in other assets and other liabilities. The change in fair value is recognized in the income statement as other income and fees.
Risk participation agreements are derivative financial instruments and are recorded at fair value. These derivatives
are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting
period. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk
associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating
bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of
the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other
bank. The Company has two risk participation-in swaps and one risk participation-out swap at December 31, 2023.
The following table provides outstanding interest rate swaps at December 31, 2023 and December 31, 2022.
($ in thousands)
Notional amount
Weighted average pay rate
Weighted average receive rate
Weighted average maturity in years
December 31, 2023
493,290
$
December 31, 2022
328,756
$
5.2 %
5.2 %
5.39
4.6 %
4.3 %
6.11
The following table provides the fair value of interest rate swap contracts at December 31, 2023 and December 31,
2022 included in other assets and other liabilities.
($ in thousands)
December 31, 2023
December 31, 2022
Interest rate swap contracts
$
12,170
12,175
Derivative Assets
Derivative Liabilities Derivative Assets
Derivative Liabilities
12,825
12,825
The Company also enters into a collateral agreement with the counterparty requiring the Company to post cash or
cash equivalent collateral to mitigate the credit risk in the transaction. At December 31, 2023 and December 31, 2022, the
Company had $500 thousand of collateral posted with its counterparties, which is included in the consolidated statement of
financial condition as cash and cash equivalents as "restricted cash". The Company also receives a swap spread to
compensate it for the credit exposure it takes on the customer-facing portion of the transaction and this upfront cash payment
from the counterparty is recorded in other income, net of any transaction execution expenses, in the consolidated statement
of operations. For the year ended December 31, 2023 and December 31, 2022, net swap spread income included in other
income was $1.3 million and $193 thousand, respectively.
Entering into derivative contracts potentially exposes the Company to the risk of counterparties' failure to fulfill
their legal obligations, including, but not limited to, potential amounts due or payable under each derivative contract.
Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to
credit risk are much smaller. The Company assesses the credit risk of its dealer counterparties by regularly monitoring
138
publicly available credit rating information, evaluating other market indicators, and periodically reviewing detailed
financials.
The Company records the fair value of its interest rate swap contracts separately within other assets and other
liabilities as current accounting rules do not permit the netting of customer and counterparty fair value amounts in the
consolidated statement of financial condition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, under the supervision of and with the participation of the Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of the Company’s disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of
December 31, 2023. Disclosure controls and procedures are controls and procedures designed to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the
period covered by this report. No changes were made to the Company’s internal controls over financial reporting (as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
The First Bancshares, Inc.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over financial
reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act. Internal control over financial reporting is a
process designed under the supervision of the Chief Executive Officer and the Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, under the supervision of and with the participation of the Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting as of
December 31, 2023 based on the framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, our management believes
that, as of December 31, 2023, the Company’s internal control over financial reporting was effective based on those criteria.
139
As permitted by SEC guidance, management has excluded the operations of the HSBI acquisition from the scope
of management’s report on internal control over financial reporting. HSBI was acquired during the year ended December 31,
2023. For the year ended December 31, 2023, HSBI represented approximately 19.6% of total consolidated assets.
This Annual Report on Form 10-K contains an audit report of FORVIS, LLP, our independent registered public
accounting firm, regarding internal control over financial reporting for the fiscal year ended December 31, 2023 pursuant to
the rules of the SEC. Their report appears in the section captioned “Report of Independent Registered Public Accounting
Firm” included in Part II. Item 8 – Financial Statements and Supplementary Data of this report.
Report of Independent Registered Public Accounting Firm
To the Stockholders, Board of Directors and Audit Committee
The First Bancshares, Inc.
Hattiesburg, Mississippi
Opinion on the Internal Control over Financial Reporting
We have audited The First Bancshares, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2023, based
on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated financial statements of the Company as of December 31, 2023 and 2022 and for each of the years in the three-year period
ended December 31, 2023, and our report dated February 29, 2024 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
As described in Management’s Annual Report on Internal Control over Financial Reporting, the scope of management’s assessment of
internal control over financial reporting as of December 31, 2023, has excluded Heritage Southeast Bancorporation, Inc. which was
acquired during the year ended December 31, 2023. We have also excluded Heritage Southeast Bancorporation, Inc. from the scope of
our audit of internal control over financial reporting. Heritage Southeast Bancorporation, Inc. represented approximately 22.4 percent of
consolidated revenues for the year ended December 31, 2023, and approximately 19.6 percent of consolidated total assets as of December
31, 2023.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
140
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may deteriorate.
/s/ FORVIS, LLP
Jackson, Mississippi
February 29, 2024
ITEM 9B. OTHER INFORMATION
SERP Amendments
On November 16, 2023, the Board approved amendments to the Supplemental Executive Retirement Plan
Agreement dated January 1, 2020 with M. Ray (Hoppy) Cole, Jr. (the "Cole 2020 SERP Amendment") and the Supplemental
Executive Retirement Plan Agreement dated January 1, 2021 with Donna T. (Dee Dee) Lowery (the "2021 Lowery SERP
Amendment"). The 2020 Cole SERP Amendment and the 2021 Lowery SERP Amendment were executed on February 26,
2024. The material terms of the agreements are summarized below.
Mr. Cole's 2020 SERP, as amended. Mr. Cole's 2020 SERP, as amended, provides for a lifetime benefit equal to
50% of "compensation" (as defined in the 2020 SERP), less any amounts payable under his 2014 SERP, which will be payable
in equal monthly installments upon Mr. Cole's separation from service following attainment of age 65 while in the
employment of the Bank (except in the case of Mr. Cole's death, in which case the death benefit will be paid in a lump sum).
•
•
•
If Mr. Cole separates from service prior to age 65, other than by reason of his death or a termination for
cause other than in connection with a change in control, then he will receive an annual benefit equal to the
"early termination benefit" (as defined in the 2020 SERP).
If Mr. Cole separates from service following a change in control prior to age 65, then he will receive 100%
of the "change in control benefit" (as defined in the 2020 SERP).
In the event of Mr. Cole's death, his beneficiary will receive a lump sum payment equal to 50% of Mr.
Cole's compensation multiplied by a factor of 17, less any amounts already paid under the 2021 or 2014
SERPs, plus an additional lump sum death benefit payment determined by Mr. Cole's age at death.
Ms. Lowery's 2021 SERP. Ms. Lowery's 2021 SERP, as amended, provides for a lifetime benefit equal to 50% of
"compensation" (as defined in the 2021 SERP), less any amounts payable under her 2014 SERP, which will be payable in
equal monthly installments upon Ms. Lowery's separation from service following attainment of age 65 while in the
employment of the Bank (except in the case of Ms. Lowery's death, in which case the death will be paid in a lump sum).
•
•
If Ms. Lowery separates from service prior to age 65, other than by reason of her death or a termination
for cause other than in connection with a change in control, then she will receive an annual benefit equal
to the "early termination benefit" (as defined in the 2021 SERP).
If Ms. Lowery separates from service following a change in control prior to age 65, then she will receive
100% of the "change in control benefit" (as defined in the 2021 SERP).
141
•
In the event of Ms. Lowery's death, her beneficiary will receive a lump sum payment equal to 50% of Ms.
Lowery's compensation multiplied by a factor of 21, less any amounts already paid under the 2021 or 2014
SERPs.
On November 16, 2023, the Board also approved amendments to the Supplemental Executive Retirement Plan
Agreement dated May 15, 2014 with Mr. Cole (the "2014 Cole SERP Amendment") and the Supplemental Executive
Retirement Plan Agreement dated May 19, 2014 with Ms. Lowery (the "2014 Lowery SERP Amendment"), to remove the
death benefit provided under each agreement. The 2014 Cole SERP Amendment and the 2014 Lowery SERP Amendment
were executed on February 26, 2024.
The summary provided herein is qualified in its entirety by reference to the full text of the 2020 Cole SERP
Amendment, the 2021 Lowery SERP Amendment, the 2014 Cole SERP Amendment and the 2014 Lowery SERP
Amendment, which are attached hereto as Exhibits 10.13, 10.17, 10.11 and 10.15, respectively.
Rule 10b5-1 Trading Arrangements
During the quarter ended December 31, 2023, none of the Company's directors or executive officers adopted or
terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy
the affirmative defense conditions of Rule 10b5-(c) or any "non-Rule 10b5-1 trading arrangement.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of
Shareholders to be held May 23, 2024, which proxy materials will be filed with the SEC on or about April 10, 2024.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of
Shareholders to be held May 23, 2024, which proxy materials will be filed with the SEC on or about April 10, 2024.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of
Shareholders to be held May 23, 2024, which proxy materials will be filed with the SEC on or about April 10, 2024.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of
Shareholders to be held May 23, 2024, which proxy materials will be filed with the SEC on or about April 10, 2024.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item is set forth in our definitive proxy materials regarding our Annual Meeting of
Shareholders to be held May 23, 2024, which proxy materials will be filed with the SEC on or about April 10, 2024.
142
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
1. The following consolidated financial statements of The First Bancshares, Inc. and subsidiaries are incorporated as
part of this Report under Item 8 – Financial Statements and Supplementary Data.
Consolidated balance sheets – December 31, 2023 and 2022
Consolidated statements of income – Years ended December 31, 2023, 2022, and 2021
Consolidated statements of other comprehensive income (loss) – Years ended December 31, 2023, 2022, and 2021
Consolidated statements of changes in stockholders’ equity– Years ended December 31, 2023, 2022 and 2021
Consolidated statements of cash flows –Years ended December 31, 2023, 2022, and 2021
Notes to consolidated financial statements – December 31, 2023, 2022, and 2021
2. Consolidated Financial Statement Schedules:
All schedules have been omitted, as the required information is either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. Exhibits required to be filed by Item 601 of Regulation S-K, by Item 15(b) are listed below.
(b) Exhibits:
All other financial statements and schedules are omitted as the required information is inapplicable or the required
information is presented in the consolidated financial statements or related notes.
(a) 3. Exhibits:
Exhibit No.
Description of Exhibit
2.1
2.2
2.3
2.4
Agreement and Plan of Merger, dated October 12, 2016, by and among The First Bancshares, Inc., The First,
A National Banking Association, and Gulf Coast Community Bank (incorporated herein by reference to
Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on October 14, 2016).
Agreement and Plan of Merger by and between The First Bancshares, Inc. and Southwest Banc Shares, Inc.,
dated October 24, 2017 (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q filed on November 9, 2017).
Agreement and Plan of Merger by and between The First Bancshares, Inc. and Sunshine Financial, Inc., dated
December 6, 2017 (incorporated herein by reference to Exhibit 2.4 to the Company’s Annual Report on Form
10-K filed on March 16, 2018).
Agreement and Plan of Merger by and between The First Bancshares, Inc. and FMB Banking Corporation,
dated July 23, 2018 (incorporated by reference to Exhibit 2.1 of the Company’s Registration Statement on
Form S-4 filed on September 13, 2018).
143
2.5
2.6
2.7
2.8
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
Agreement and Plan of Merger by and between The First Bancshares, Inc. and FPB Financial Corp., dated
November 6, 2018 (incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly Report on
Form 10-Q filed on November 6, 2018).
Agreement and Plan of Merger by and between The First Bancshares, Inc. and Southwest Georgia Financial
Corp., dated December 18, 2019 (incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly
Report on Form 8-K filed on December 18, 2019).
Agreement and Plan of Merger, dated as of April 26, 2022, by and between The First Bancshares, Inc. and
Beach Bancorp, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-
K filed on May 2, 2022).
Agreement and Plan of Merger, dated as of July 27, 2022, by and between The First Bancshares, Inc. and
Heritage Southeast Bancorporation, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K filed on August 1, 2022).
Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated herein by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 29, 2016).
Amendment to Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated
herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 10-Q filed on August 9, 2018).
Amendment to Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated
herein by reference to 3.1 to the Company's Current Report on Form 8-K filed on May 26, 2023.
Amended and Restated Bylaws of The First Bancshares, Inc., effective as of March 17, 2016 (incorporated
herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 18, 2016).
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).
Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Registration
Statement No. 333-220491 on Form S-3 filed on September 15, 2017).
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).
Form of Global Subordinated Note for The First Bancshares, Inc. 6.4% Fixed-to-Floating Rate Subordinated
Notes Due 2023 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed
on May 1, 2018).
Indenture by and between The First Bancshares, Inc. and U.S. Bank National Association, dated September
25, 2020 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on
September 25, 2020).
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).
Description of Securities.
144
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Note Purchase Agreement between the Company and the several purchasers of the Subordinated Notes, dated
April 30, 2018 (incorporated herein by reference to Exhibit 10.1 to The Company’s Current Report on Form
8-K filed on May 1, 2018).
Subordinated Note Purchase Agreement between the Company and the several purchasers of the Subordinated
Notes, dated April 30, 2018 (incorporated herein by reference to Exhibit 10.2 to The Company’s Current
Report on Form 8-K filed on May 1, 2018).
Loan Agreement, dated as of December 5, 2016, by and between the Company, as Borrower, and First
Tennessee Bank National Association, as Lender (incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on December 9, 2016).
Employment Agreement dated May 31, 2011, between The First, A National Banking Association, and M.
Ray Cole, Jr. (incorporated herein by reference to Exhibit 10.5 of The First Bancshares’ Annual Report on
Form 10-K filed on March 29, 2012).+
Amendment to Employment Agreement dated January 16, 2020, between The First, A National Banking
Association, and M. Ray Cole, Jr. (incorporated herein by reference to Exhibit 10.3 to The First Bancshares
Quarterly Report on Form 10-Q filed on May 11, 2020).+
Employment Agreement, dated as of October 17, 2019, by and between The First, A National Banking
Association and Donna T. (Dee Dee) Lowery (incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on October 21, 2019).+
Amendment to Employment Agreement dated January 16, 2020, between The First, A National Banking
Association, and Donna T. (Dee Dee) Lowery (incorporated herein by reference to Exhibit 10.3 to The First
Bancshares Quarterly Report on Form 10-Q filed on May 11, 2020).+
The First Bancshares, Inc. 2007 Stock Incentive Plan (incorporated herein by reference to Exhibit 4.3 to The
First Bancshares’ Registration Statement No. 333-171996 on Form S-8 filed on February 1, 2011).+
Amendment to 2007 Stock Incentive Plan effective May 28, 2015 (incorporated herein by reference to Exhibit
10.6 to The First Bancshares Annual Report on Form 10-K filed on March 30, 2016).+
Supplemental Executive Retirement Agreement between The First, A National Banking Association and M.
Ray (Hoppy) Cole, Jr., as amended (incorporated herein by reference to Exhibit 10.9 to The First Bancshares
Annual Report on Form 10-K filed on March 16, 2017).+
Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First
Bank and Milton R Cole Jr *
Supplemental Executive Retirement Agreement effective January 1, 2020 between The First, A National
Banking Association and Milton R. Cole, Jr. (incorporated herein by reference to Exhibit 10.3 to The First
Bancshares Quarterly Report on Form 10-Q filed on May 11, 2020).+
Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First
Bank and Milton R. Cole, Jr.*
Supplemental Executive Retirement Agreement between The First, A National Banking Association and
Donna T. Lowery, as amended (incorporated herein by reference to Exhibit 10.10 to The First Bancshares
Annual Report on Form 10-K filed on March 16, 2017).+
Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First
Bank and Donna T. Lowery*
145
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
21.1
23.1
31.1
31.2
32.1
97.1
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 in Form 10-
K filed in March 12,2021).+
Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First
Bank and Donna T. Lowery*
Form of Supplemental Executive Retirement Agreements for Executives of The First, A National Banking
Association (incorporated herein by reference to Exhibit 10.11 to The First Bancshares Annual Report on
Form 10-K filed on March 16, 2017).+
Form of Stock Incentive Agreement for Restricted Stock Award pursuant to The First Bancshares, Inc. 2007
Stock Incentive Plan (incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on
Form 10-K filed on March 16, 2018).+
Amendment to Stock Incentive Agreement for Outstanding Shares of Restricted Stock, dated as of October
15, 2019 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on
October 21, 2019). +
Subordinated Note Purchase Agreement between The First Bancshares, Inc. and the several purchasers of the
Subordinated Notes, dated September 25, 2020 (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed on September 25, 2020).
Registration Rights Agreement between The First Bancshares, Inc. and the several purchasers of the
Subordinated Notes, dated September 25, 2020 (incorporated by reference to Exhibit 10.2 of the Company’s
Current Report on Form 8-K filed on September 25, 2020).
Beach Community Bank 2018 Stock Option Plan (incorporated by reference to Exhibit 99.1 of The First
Bancshares' Registration Statement No. 333-266436 on Form S-8 filed on August 1, 2022).
Subsidiaries of The First Bancshares, Inc.*
Consent of FORVIS, LLP.*
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*
Section 1350 Certifications.**
Clawback Policy.*
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104
________________________
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith.
146
**Furnished herewith.
+ Denotes management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
147
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 29, 2024
THE FIRST BANCSHARES, INC.
By:
/s/ M. Ray (Hoppy) Cole, Jr.
M. Ray (Hoppy) Cole, Jr.
Chief Executive Officer and President (Principal
Executive Officer), Chairman of the Board
Date: February 29, 2024
By:
/s/ Dee Dee Lowery
Dee Dee Lowery
Executive VP and Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints M. Ray (Hoppy) Cole, Jr. and Donna T. (Dee Dee) Lowery, with full power to act without the other,
his or her true and lawful attorney-in-fact and agent, with full and several powers of substitution and resubsititution, for him
or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report
on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities
and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be done, as fully as to all intents and purposes as
each of the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
148
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES
CAPACITIES
/s/ E. Ricky Gibson
/s/ David W. Bomboy
/s/ Jonathan A. Levy
/s/ Charles R. Lightsey
/s/ Fred McMurry
/s/ Thomas E. Mitchell
/s/ Renee Moore
/s/ Ted E. Parker
/s/ J. Douglas Seidenburg
/s/ Andrew D. Stetelman
/s/ Valencia M. Williamson
/s/ M. Ray (Hoppy) Cole, Jr.
/s/ Donna T. (Dee Dee) Lowery
Director
Director
Director
Director
Director
Director
Director
Lead Director
Director
Director
Director
CEO, President, Director, and Chairman of
the Board (Principal Executive Officer)
Executive VP & Chief Financial Officer
(Principal Financial and Accounting Officer)
DATE
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
149