EDGAR 10-K Filing

Company CIK: 947559
Filing Year: 2025
Filename: 947559_10-K_2025_0000947559-25-000007.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
BUSINESS OF THE COMPANY
Overview and History
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, 2024, 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 have been able to take 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 May 17, 2024, the Company, acting pursuant to authorization from its Board of Directors, provided written notice to The Nasdaq Stock Market LLC (“Nasdaq”) of its determination to voluntarily withdraw the principal listing of the Company’s voting common stock, $1.00 par value per share (the “Common Stock”), from Nasdaq and transfer the listing to the New York Stock Exchange (“NYSE”). The listing and trading of the Common Stock on Nasdaq ended at market close on May 29, 2024, and trading commended on the NYSE at market open on May 30, 2024. The Common Stock is traded on the NYSE under the symbol “FBMS.”
On July 29, 2024, the Company entered into a definitive merger agreement (the “Merger Agreement”) with Renasant Corporation (“Renasant”), the holding company for Renasant Bank, whereby the Company will merge with and into Renasant, with Renasant continuing as the surviving corporation, and immediately thereafter, the Bank will merge with and into Renasant Bank (collectively, the “Renasant Merger”). Subject to the terms and conditions of the Merger Agreement, the companies will combine in an all-stock transaction in which all shareholders of the Company will receive 1.00 share of Renasant common stock for each share of Company common stock. The Renasant Merger has been approved by each company’s board of directors and shareholders and is expected to close in the first half of 2025. Completion of the Renasant Merger remains subject to customary closing conditions, including the receipt of required regulatory approvals.
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, 2024, The First employed 1,051 full-time employees spanning five states and 116 locations. In 2024 alone, our team members donated over 4,700 volunteer hours to more than 500 organizations, including delivering financial education to over 29,300 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, 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.
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 2024, our employees contributed over $30 thousand to the Heritage Community Foundation, which benefited employees in need, nonprofit organizations and local disaster relief efforts.
Market Areas
As of December 31, 2024, The First had 116 locations across Mississippi, Louisiana, Alabama, Florida, and Georgia.
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.
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 accelerated the move toward digital financial services products, and we expect that trend to continue.
Available Information
Pursuant to 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.
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 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 the NYSE. 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, commonly 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 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, 2024, 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 NYSE and 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. NYSE and 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, NYSE, 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 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. 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, 2024, and brokered deposits are not restricted.
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, 2024 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 2024, the Company’s 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 2025. Certain regulatory capital ratios of the Company and The First, as of December 31, 2024, 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
Common Equity Tier 1 risk-based capital ratio 4.5 % 6.5 % 7.0 % 12.7 % 14.5 %
Tier 1 risk-based capital ratio 6.0 % 8.0 % 8.5 % 13.1 % 14.5 %
Total risk-based capital ratio 8.0 % 10.0 % 10.5 % 15.6 % 15.4 %
Leverage ratio 4.0 % 5.0 % 4.0 % 10.5 % 11.6 %
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.
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.
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.
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 Act of 2021 (“USA PATRIOT Act”), 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 commercial real estate (“CRE”) lending concentrations. The 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 were challenged in federal court and a preliminary injunction was granted in March 2024 enjoining implementation of the rules. The effective dates will be extended for each day the injunction remains in place, pending the resolution of the lawsuit. If the final rules are reinstated, they are likely to 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 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.
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.

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ITEM 1A. RISK FACTORS
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.
Risks Related to the Renasant Merger
Failure to complete the Renasant Merger could negatively affect our stock price and our future business and financial results.
The Renasant Merger is subject to a number of customary conditions which must be fulfilled in order to complete the merger. These conditions to the consummation of the merger may not be fulfilled and, accordingly, the merger may not be completed. If the Renasant Merger is not consummated, the ongoing business and financial results of the Company may be adversely affected and the Company will be subject to several risks, including significant declines in the market price of the Company’s common stock and litigation related to any failure to complete the Renasant Merger. If the consummation of the Renasant Merger is delayed, the business, financial condition and results of operations of the Company may be adversely affected.
In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the Renasant Merger. If the merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the merger. Any of the foregoing, or other risk arising in the connection with the failure of or delay in consummating the Renasant Merger, including the diversion of management attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the merger, could have an adverse effect on the Company’s business, financial condition and results of operations.
Because the market price of Renasant common stock will fluctuate, the value of the merger consideration to be received by the Company’s shareholders may change.
The Merger Agreement provides that shareholders of the Company will receive 1.00 share of Renasant common stock for each share of Company common stock. The closing price of Renasant common stock on the date the merger is completed may vary from the closing price of Renasant common stock on the date the Company and Renasant announced the signing of the Merger Agreement and the date of the special meeting of the Company’s shareholders regarding the Renasant Merger. Because the merger consideration is determined by a fixed exchange ratio, Renasant will not know or be able to calculate the value of the shares of common stock it will issue to the Company’s shareholders upon completion of the merger. Any changes in the market price of Renasant common stock prior to completion of the merger may affect the value of the merger consideration. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the companies’ respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of the Company and Renasant.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated, cannot be met, or that could have an adverse effect on the combined company following the consummation of the Renasant Merger.
Before the Renasant Merger may be completed, various approvals, consents and/or non-objections must be obtained from bank regulatory authorities. These approvals could be delayed or not obtained at all, including due to an adverse development in either the Company’s or Renasant’s regulatory standing or in any other factors considered by regulators in granting such approvals. The approvals that are granted may impose terms and conditions, limitations,
obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the Merger Agreement. There can be no assurance that regulators will not impose such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the Renasant Merger, imposing additional material costs on or materially limiting the revenues of the combines company following the Renasant Merger or otherwise reduce the anticipated benefits of the Renasant Merger if the merger is consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Renasant Merger. The completion of the Renasant Merger is conditioned on the receipt of the requisite regulatory approvals without the imposition of any burdensome conditions and the expiration of all statutory waiting periods.
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. 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 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 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 and continuing into 2023, in response to growing signs of inflation, the FRB increased interest rates rapidly. The FRB began lowering interest rates in September 2024 in response to declining inflation and labor market concerns, followed by two additional cuts in November and December, although rates nonetheless remain elevated. Sustained elevated 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. 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 changes in interest rates. Elevated 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 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 continue 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.
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 Federal Reserve. The instruments of monetary policy employed by the Federal Reserve 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 U.S. 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. Changes in trade policies by the United States or other countries, such as tariffs or
retaliatory tariffs, may cause inflation which could impact the prices of products sold by our borrowers to repay their loans. 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, 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. In addition, the Company and The First are subject to various federal and state laws. Congress, state legislatures, and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company and the First in substantial and unpredictable ways.
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.
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.
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. Furthermore, developments in generative artificial intelligence (“AI”) may heighten these risks by enabling more sophisticated cyber threats, including AI-generated phishing attacks and automated vulnerability exploitation. 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 among 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.
The development and use of generative artificial intelligence presents risks and challenges that may adversely impact the Company’s business.
The Company or its third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in the Company’s implementation of AI technology and increase the Company’s compliance costs and the risk of non-compliance. AI model, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, the Company may rely on AI models developed by third
parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these parties have taken to limit the risks associated with the output of their models, matters over which the Company may have limited visibility. Any of these risks could expose the Company to liability or adverse legal or regulatory consequences and harm the Company’s reputation and the public perception of its business or the effectiveness of its security measures.
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 that 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.
Negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.
Any future bank failures like those experienced in 2023 or similar events may negatively impact customer confidence in the safety and soundness of regional banks and may generate market volatility among publicly-traded bank holding companies and, in particular, regional banks like the Company. 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 historically have taken action to ensure that depositors of failed banks had access to their deposits, including uninsured deposit accounts, there is no guarantee that regional bank failures or bank runs will not occur in the future and, if they were to occur, they may have a material and adverse impact on customer and investor confidence in regional banks negatively impacting the Company’s liquidity, capital, results of operations and stock price.
Risks Related to our Acquisition Activity
We may engage in acquisitions of other businesses from time to time, which involve risks and uncertainties that 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.
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.
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;
•general market conditions and, in particular, developments related to market conditions for the financial services industry;
•adverse weather conditions, including floods, tornados 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 NYSE. 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.
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.
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 NYSE, 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None

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ITEM 2. PROPERTIES
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 109 full-service banking and financial service offices, one motor bank facility and six 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
•Eagles Landing
•Dauphin Island
•Jonesboro
•Fairhope
Mississippi
•Spanish Fort
•Columbus - Loan Production Office
Florida •Gulfport - Hardy Court
•Pensacola - Garden Street
•Pascagoula
•St. Petersburg - Loan Production Office
•Petal
•Tampa - Westshore

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ITEM 3. LEGAL PROCEEDINGS
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. On March 5, 2024, the Company filed a Motion to Stay Proceedings and Compel Arbitration. The court has entered an order staying the case. The Company accrued $995 thousand for this litigation during the twelve months ended December 31, 2024.
On July 3, 2024, the Plaintiff notified the court that the parties had reached an agreement in principle to settle the case on a class-wide basis for $995 thousand. The settlement has received preliminary court approval.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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 NYSE under the symbol “FBMS.”
There were approximately 4,821 record holders of the Company’s common stock at February 21, 2025 and 31,251,167 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 First 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, 2024.
Period 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) (b)
October - $ - - 50,000
November - - - 50,000
December 52,328 36.15 - 50,000
Total 52,328 (a)
$ 36.15 -
______________________________________
(a)The 52,328 shares purchased in the fourth quarter were withheld by the Company in order to satisfy employee tax obligations for vesting of restricted stock awards.
(b)On February 28, 2024, the Company announced that its Board of Directors 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. The 2024 Repurchase Program expired on December 31, 2024.
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, 2019 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 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: 2019 2020 2021 2022 2023 2024
First Bancshares, Inc. 100.00 88.41 112.24 95.15 89.97 111.16
NASDAQ Composite-Total Returns 100.00 144.92 177.06 119.45 172.77 223.87
NASDAQ OMX Banks Index 100.00 92.50 132.19 110.67 106.86 128.85
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 12/31/2019.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 2024 and 2023 and results of operations for the years ended December 31, 2024, 2023, and 2022. 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. 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.
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 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 $1.7 million, or 2.3%, from $75.5 million for the year ended December 31, 2023 to $77.2 million for the same period ended December 31, 2024.
•Total loans increased $237.2 million for the year ended December 31, 2024, representing net growth of 4.6%, as compared to the same period ended December 31, 2023.
•Past due loans of $21.8 million to total loans was 0.40% for the year ended December 31, 2024, compared to $11.7 million, or 0.23%, for the same period ended December 31, 2023.
•Total deposits increased $142.0 million, or 2.2%, from $6.463 billion for the year ended December 31, 2023 to $6.605 billion for the same period ended December 31, 2024.
At December 31, 2024, the Company had approximately $8.005 billion in total assets, an increase of $0.005 billion compared to $7.999 billion at December 31, 2023. Loans, including mortgage loans held for sale and net of the allowance for credit losses, increased to $5.355 billion at December 31, 2024 from $5.119 billion at December 31, 2023. Deposits increased to $6.605 billion at December 31, 2024 from $6.463 billion at December 31, 2023. Stockholders’ equity increased to $1.005 billion at December 31, 2024 from $949.0 million at December 31, 2023.
The First (Bank only) reported net income of $90.9 million, $81.8 million and $72.6 million for the years ended December 31, 2024, 2023, and 2022, respectively. For the years ended December 31, 2024, 2023 and 2022, the Company reported consolidated net income available to common stockholders of $77.2 million, $75.5 million and $62.9 million, respectively. The following discussion should be read in conjunction with the Company's consolidated financial statements and the Notes thereto and the other financial data included elsewhere.
Results of Operations
The following is a summary of the results of operations for The First (Bank only) the years ended December 31, 2024, 2023, and 2022.
($ in thousands) 2024 2023 2022
Interest income $ 369,797 $ 340,897 $ 200,375
Interest expense 128,130 83,638 15,085
Net interest income 241,667 257,259 185,290
Provision for credit losses 3,790 14,500 5,605
Net interest income after provision for loan losses 237,877 242,759 179,685
Non-interest income 49,746 39,722 34,288
Non-interest expense 171,283 177,324 122,373
Income tax expense 25,420 23,352 19,033
Net income $ 90,920 $ 81,805 $ 72,567
The following reconciles the above table to the amounts reflected in the consolidated financial statements of the Company at December 31, 2024, 2023, and 2022.
($ in thousands) 2024 2023 2022
Net interest income:
Net interest income of The First $ 241,667 $ 257,259 $ 185,290
Interest expense 7,398 7,934 7,474
$ 234,269 $ 249,325 $ 177,816
Net income available to common shareholders:
Net income of The First $ 90,920 $ 81,805 $ 72,567
Net loss of the Company (13,726) (6,348) (9,648)
$ 77,194 $ 75,457 $ 62,919
Consolidated Net Income
The Company reported consolidated net income available to common stockholders of $77.2 million for the year ended December 31, 2024, compared to a consolidated net income of $75.5 million for the year ended December 31, 2023.
Net interest income was $234.3 million for the twelve months ended December 31, 2024, a decrease of $15.1 million in year-over-year comparison, primarily due to an increase in interest expense on deposits partially offset by an increase in loan interest income.
Non-interest income was $49.8 million for the year ended December 31, 2024, an increase of $3.1 million as compared to the same period ended December 31, 2023. This increase was attributed to the loss on sale of available for sale investment securities of $9.7 million in 2023, partially offset by the U.S. Treasury award of $6.2 million received in 2023.
Non-interest expense was $182.3 million for the year ended December 31, 2024, a decrease of $2.5 million as compared to the same period ended December 31, 2023. The decrease was partially attributable to $12.2 million decrease in acquisition and other expenses partially offset by an increase of $8.7 million in salary expense. Included in the increase in salary expense is $1.9 million in accelerated vesting on restricted stock grants related to the Renasant Merger.
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.
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.
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 $234.3 million for the year ended December 31, 2024, as compared to $249.3 million for the year ended December 31, 2023, primarily due to an increase in interest expense on deposits partially offset by an increase in loan interest income. Average interest-bearing liabilities for the year 2024 were $5.098 billion compared to $4.935 billion for the year 2023. Net interest margin, which is net interest income divided by average earning assets, was 3.35% for the year 2024 compared to 3.59% for the year 2023. Rates paid on average interest-bearing liabilities increased to 2.65% for the year 2024 compared to 1.86% for the year 2023. 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 73.8% of average earnings assets for the year 2024 compared to 71.4% for the year 2023.
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 $3.944 billion for the year 2022. Net interest margin, which is net interest income divided by average earning assets, was 3.59% for the year 2023 compared to 3.19% for the year 2022. Rates paid on average interest-bearing liabilities increased to 1.86% for the year 2023 compared to 0.57% for the year 2022. Interest earned on assets and interest accrued on liabilities is significantly influenced by market factors, specifically interest rates as set by federal agencies. Average loans comprised 71.4% of average earnings assets for the year 2023 compared to 58.0% for the year 2022.
Average Balances, Income and Expenses, and Rates. The following tables depict, for the periods indicated, certain information related to the average balance sheet and average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.
Average Balances, Income and Expenses, and Rates
Years Ended December 31,
2024 2023 2022
($ in thousands) Average
Balance Income/
Expenses Yield/
Rate Average
Balance Income/
Expenses Yield/
Rate Average
Balance Income/
Expenses Yield/
Rate
Assets
Earning Assets
Loans (1)(2) $ 5,250,117 $ 321,665 6.13 % $ 5,036,021 $ 294,541 5.85 % $ 3,302,265 $ 157,761 4.78 %
Securities (4) 1,751,273 48,671 2.78 % 1,918,575 47,913 2.50 % 2,023,214 46,305 2.29 %
Federal funds sold and interest bearing deposits with other banks (3) 116,457 3,444 2.96 % 97,183 2,453 2.52 % 366,465 50 0.01 %
Total earning assets 7,117,847 373,780 5.25 % 7,051,779 344,907 4.89 % 5,691,944 204,116 3.59 %
Other 843,649 866,869 584,164
Total assets $ 7,961,496 $ 7,918,648 $ 6,276,108
Liabilities
Interest-bearing liabilities $ 5,098,047 $ 135,566 2.65 % $ 4,934,875 $ 91,608 1.86 % $ 3,943,531 $ 22,577 0.57 %
Demand deposits 1,815,620 2,012,129 1,660,696
Other liabilities 71,151 77,252 45,065
Stockholders’ equity 976,678 894,392 626,816
Total liabilities and stockholders’ equity $ 7,961,496 $ 7,918,648 $ 6,276,108
Net interest spread 2.60 % 3.03 % 3.02 %
Net yield on interest-earning assets $ 238,214 3.35 % $ 253,299 3.59 % $ 181,539 3.19 %
______________________________________
(1)Includes nonaccrual loans of $20,338, $10,690, and $12,591 for the years ended December 31, 2024, 2023, and 2022, respectively. Loans include held for sale loans.
(2)Includes loan fees of $6,520, $7,665, and $7,453 for the years ended December 31, 2024, 2023, and 2022, respectively.
(3)Includes Excess Balance Account-First National Banker’s Bank.
(4)Fully tax equivalent yield assuming a 25.3% tax rate for the first nine months of 2024 and 24.8% tax rate for the fourth quarter 2024. Fully tax equivalent yield assuming 25.3% tax rate for 2023, and 2022.
Analysis of Changes in Net Interest Income. The following table presents the consolidated dollar amount of changes in interest income and interest expense attributable to changes in volume and to changes in rate. The combined effect in both volume and rate which cannot be separately identified has been allocated proportionately to the change due to volume and due to rate.
Analysis of Changes in Consolidated Net Interest Income
Year Ended December 31,
2024 versus 2023
Increase (decrease) due to Year Ended December 31,
2023 versus 2022
Increase (decrease) due to
($ in thousands) Volume Rate Net Volume Rate Net
Earning Assets
Loans $ 12,479 $ 14,645 $ 27,124 $ 82,887 $ 53,893 $ 136,780
Securities (1) (4,165) 4,923 758 (2,405) 4,013 1,608
Federal funds sold and interest bearing deposits with other banks 483 508 991 (28) 2,431 2,403
Total interest income 8,797 20,076 28,873 80,454 60,337 140,791
Interest-Bearing Liabilities
Interest-bearing transaction accounts 95 15,060 15,155 903 19,659 20,562
Money market accounts and savings (293) 12,339 12,046 491 16,071 16,562
Time deposits 7,813 11,466 19,279 2,078 18,160 20,238
Borrowed funds (2,759) 237 (2,522) 10,642 1,027 11,669
Total interest expense 4,856 39,102 43,958 14,114 54,917 69,031
Net interest income $ 3,941 $ (19,026) $ (15,085) $ 66,340 $ 5,420 $ 71,760
______________________________________
(1)Fully tax equivalent yield assuming a 25.3% tax rate for the first nine months of 2024 and 24.8% tax rate for the fourth quarter 2024. Fully tax equivalent yield assuming 25.3% tax rate for 2023, and 2022.
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.
The following tables illustrate the Company’s consolidated interest rate sensitivity and consolidated cumulative gap position by maturity at December 31, 2024, 2023, and 2022.
$ in thousands December 31, 2024
Within
Three
Months After Three
Through
Twelve
Months Within
One
Year Greater Than
One Year or
Nonsensitive Total
Assets
Earning assets:
Loans $ 306,245 $ 401,168 $ 707,413 $ 4,703,505 $ 5,410,918
Securities (2) 32,970 38,653 71,623 1,514,619 1,586,242
Funds sold and other - 106,226 106,226 - 106,226
Total earning assets $ 339,215 $ 546,047 $ 885,262 $ 6,218,124 $ 7,103,386
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1) $ - $ 1,963,776 $ 1,963,776 $ - $ 1,963,776
Money market accounts 1,046,849 - 1,046,849 - 1,046,849
Savings deposits (1) - 495,938 495,938 - 495,938
Time deposits 859,607 371,461 1,231,068 70,540 1,301,608
Total interest-bearing deposits 1,906,456 2,831,175 4,737,631 70,540 $ 4,808,171
Borrowed funds (3) 210,000 - 210,000 - 210,000
Total interest-bearing liabilities 2,116,456 2,831,175 4,947,631 70,540 5,018,171
Interest-sensitivity gap per period $ (1,777,241) $ (2,285,128) $ (4,062,369) $ 6,147,584 $ 2,085,215
Cumulative gap at December 31, 2024 $ (1,777,241) $ (4,062,369) $ (4,062,369) $ 2,085,215 $ 2,085,215
Ratio of cumulative gap to total earning assets at December 31, 2024 (25.0) % (57.2) % (57.2) % 29.4 %
$ 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 $ 262,916 $ 406,261 $ 669,177 $ 4,503,779 $ 5,172,956
Securities (2) 51,735 35,679 87,414 1,609,490 1,696,904
Funds sold and other - 130,948 130,948 - 130,948
Total earning assets $ 314,651 $ 572,888 $ 887,539 $ 6,113,269 $ 7,000,808
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1) $ - $ 1,914,792 $ 1,914,792 $ - $ 1,914,792
Money market accounts 1,090,484 - 1,090,484 - 1,090,484
Savings deposits (1) - 532,827 532,827 - 532,827
Time deposits 361,342 618,134 979,476 96,280 1,075,756
Total interest-bearing deposits 1,451,826 3,065,753 4,517,579 96,280 $ 4,613,859
Borrowed funds (3) 250,000 140,000 390,000 - 390,000
Total interest-bearing liabilities 1,701,826 3,205,753 4,907,579 96,280 5,003,859
Interest-sensitivity gap per period $ (1,387,175) $ (2,492,865) $ (4,020,040) $ 6,016,989 $ 1,996,949
Cumulative gap at December 31, 2023 $ (1,387,175) $ (3,880,040) $ (4,020,040) $ 1,996,949 $ 1,996,949
Ratio of cumulative gap to total earning assets at December 31, 2023 (19.8) % (55.4) % (57.4) % 28.5 %
$ 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 $ 180,128 $ 247,781 $ 427,909 $ 3,350,693 $ 3,778,602
Securities (2) 13,565 58,431 71,996 1,876,589 1,948,585
Funds sold and other - 78,139 78,139 - 78,139
Total earning assets $ 193,693 $ 384,351 $ 578,044 $ 5,227,282 $ 5,805,326
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1) $ - $ 1,769,699 $ 1,769,699 $ - $ 1,769,699
Money market accounts 825,813 - 825,813 - 825,813
Savings deposits (1) - 542,296 542,296 - 542,296
Time deposits 118,108 440,087 558,195 168,200 726,395
Total interest-bearing deposits 943,921 2,752,082 3,696,003 168,200 3,864,203
Borrowed funds (3) 130,100 - 130,100 - 130,100
Total interest-bearing liabilities 1,074,021 2,752,082 3,826,103 168,200 3,994,303
Interest-sensitivity gap per period $ (880,328) $ (2,367,731) $ (3,248,059) $ 5,059,082 $ 1,811,023
Cumulative gap at December 31, 2022 $ (880,328) $ (3,248,059) $ (3,248,059) $ 1,811,023 $ 1,811,023
Ratio of cumulative gap to total earning assets at December 31, 2022 (15.2) % (55.9) % (55.9) % 31.2 %
______________________________________
(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 $123,731, $123,386, $145,027 for the years ended December 31, 2024, 2023, and 2022, 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.
The following tables depict, for the periods indicated, certain information related to interest rate sensitivity in net interest income and market value of equity:
December 31, 2024
Net Interest Income at Risk Market Value of Equity
Change in Interest
Rates % Change
from Base Bank
Policy Limit % Change
from Base Bank
Policy Limit
Up 400 bps (15.4) % (20.0) % (6.2) % (40.0) %
Up 300 bps (6.5) % (15.0) % (1.8) % (30.0) %
Up 200 bps (0.7) % (10.0) % 1.3 % (20.0) %
Up 100 bps 1.4 % (5.0) % 1.9 % (10.0) %
Down 100 bps (1.2) % (5.0) % (3.3) % (10.0) %
Down 200 bps 1.0 % (10.0) % (5.8) % (20.0) %
December 31, 2023
Net Interest Income at Risk Market Value of Equity
Change in Interest
Rates % Change
from Base Bank
Policy Limit % Change
from Base Bank
Policy Limit
Up 400 bps (19.0) % (20.0) % (12.4) % (40.0) %
Up 300 bps (9.1) % (15.0) % (6.7) % (30.0) %
Up 200 bps (2.3) % (10.0) % (2.0) % (20.0) %
Up 100 bps 0.7 % (5.0) % 0.6 % (10.0) %
Down 100 bps 0.5 % (5.0) % (2.4) % (10.0) %
Down 200 bps 2.3 % (10.0) % (5.0) % (20.0) %
December 31, 2022
Net Interest Income at Risk Market Value of Equity
Change in Interest
Rates % Change
from Base Bank
Policy Limit % Change
from Base Bank
Policy Limit
Up 400 bps (11.3)% (20.0) % (16.6)% (40.0) %
Up 300 bps (6.4)% (15.0) % (10.6)% (30.0) %
Up 200 bps (2.9)% (10.0) % (5.8)% (20.0) %
Up 100 bps (0.9)% (5.0) % (2.2)% (10.0) %
Down 100 bps 1.1 % (5.0) % 0.9 % (10.0) %
Down 200 bps (0.7) % (10.0) % (2.2) % (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.
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, 2024, the ACL was $56.2 million, or 1.1% of LHFI, an increase of $2.2 million, or 4.0% when compared to December 31, 2023. The 2024 increase is attributable to loan growth. At December 31, 2023, the allowance for credit losses was approximately $54.0 million, which was 1.1% of LHFI. In 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. The Company maintains the allowance at a level that management believes is adequate to absorb expected credit losses in the loan portfolio.
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 $3.8 million for the year ended December 31, 2024 and $13.8 million for the year ended December 31, 2023, and $5.4 million for the year ended December 31, 2022. The 2024, increase is attributable to loan growth. 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.
At December 31, 2024, 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 $32 thousand for the year end December 31, 2024, $750 thousand for the year ended December 31, 2023, and $255 thousand for the year ended December 31, 2022. The Company’s ACL on OBSC was $2.1 million for the year ended December 31, 2024, $2.1 million for the year ended December 31, 2023, and $1.3 million for the year ended December 31, 2022. The increase in the ACL on OBSC exposures for the year ended December 31, 2024 is attributable to an increase in unfunded commitments. The increase in the ACL on OBSC exposures for the year ended December 31, 2023 when 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.
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, 2024, were $20.3 million, an increase of $9.6 million compared to $10.7 million at December 31, 2023. Management believes these relationships were adequately reserved at December 31, 2024. 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, 2024 and 2023, The First had potential problem loans of $124.5 million and $107.1 million, respectively.
Summary of Credit Loss Experience
Consolidated Allowance for Credit Losses
Years Ended December 31,
($ in thousands) 2024 2023 2022
Average LHFI outstanding $ 5,250,117 $ 5,036,021 $ 3,302,265
Loans outstanding at year end, including LHFS $ 5,410,918 $ 5,172,956 $ 3,778,630
Total nonaccrual loans $ 20,338 $ 10,690 $ 12,591
Beginning balance of allowance $ 54,032 $ 38,917 $ 30,742
Initial allowance on acquired PCD loans - 3,176 1,303
Loans charged-off (3,894) (3,092) (1,218)
Total recoveries 2,309 1,281 2,740
Net loans (charged-off) recoveries (1,585) (1,811) 1,522
Provision for credit losses 3,758 13,750 5,350
Balance at year end $ 56,205 $ 54,032 $ 38,917
Net (charge-offs) recoveries to average loans (0.03)% (0.04)% 0.05%
Allowance as percent of total loans 1.04% 1.04% 1.03%
Nonaccrual loans as a percentage of total loans 0.38% 0.21% 0.33%
Allowance as a multiple of nonaccrual loans 2.76X 5.05X 3.10X
At December 31, 2024, allowance as of percent of total loans remained unchanged at 1.04% when compared to the same period in 2023. At December 31, 2024, nonaccrual loans as a percentage of total loans increased 0.17% to 0.38% when compared to 0.21% at December 31, 2023. Approximately $6.6 million of the increase in nonaccrual loans is attributed to loans acquired in the HSBI and BBI acquisitions that were identified and have been monitored since acquisition.
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 was attributed to a $1.9 million decrease in nonaccrual loans.
The following table represents the components of the ACL for the years 2024, 2023, and 2022.
($ in thousands) Allowance for Credit Losses
Allocated: 2024 2023 2022
Collateral dependent loans $ 595 $ 408 $ 5
Loans collectively evaluated 55,610 53,624 38,912
Total $ 56,205 $ 54,032 $ 38,917
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 2024, 2023, and 2022.
($ in thousands) Analysis of the Allowance for Credit Losses
2024 2023 2022
Balance at beginning of period $ 54,032 $ 38,917 $ 30,742
Initial allowance on acquired PCD loans - 3,176 1,303
Loans charged-off:
Commercial, financial and agriculture (1,173) (745) (259)
Commercial real estate (161) (250) (72)
Consumer real estate (522) (49) (204)
Consumer installment (2,038) (2,048) (683)
Total (3,894) (3,092) (1,218)
Recoveries on loans previously charged-off:
Commercial, financial and agriculture 319 349 433
Commercial real estate 676 116 591
Consumer real estate 85 249 1,015
Consumer installment 1,229 567 701
Total 2,309 1,281 2,740
Net (charge-offs) recoveries (1,585) (1,811) 1,522
Provision:
Initial provision for acquired non-PCD loans - 10,719 3,855
Provision for credit losses charged to expense 3,758 3,031 1,495
Balance at end of period $ 56,205 $ 54,032 $ 38,917
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, 2024, 2023, and 2022.
Allocation of the Allowance for Credit Losses
($ in thousands) December 31, 2024 December 31, 2023 December 31, 2022
Amount % 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
Commercial, financial and agriculture $ 11,203 13.7 % $ 8,844 15.5 % $ 6,349 14.2 %
Commercial real estate 29,467 61.5 % 29,125 59.2 % 20,389 56.5 %
Consumer real estate 14,876 24.0 % 15,260 24.2 % 11,599 28.1 %
Consumer installment 659 0.8 % 803 1.1 % 580 1.2 %
Total loans $ 56,205 100 % $ 54,032 100 % $ 38,917 100 %
Loan Concentrations
Diversification within the loan portfolio is an important means of reducing inherent lending risk. As of December 31, 2024, management does not consider there to be any significant credit concentration 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.
The following table presents the concentration by borrower type of the Company’s CRE loan balances as of December 31, 2024.
($ in thousands) December 31, 2024
Balance Percentage of Total
Owner occupied CRE by property type:
Convenience stores $ 98,610 3.0 %
Medical facilities 118,844 3.6 %
Office space 284,195 8.6 %
Residential - - %
Retail 307,165 9.1 %
Special purpose facility 264,241 8.0 %
Warehouse/industrial 162,378 4.9 %
Other 164,135 4.9 %
Total owner occupied CRE 1,399,568 42.1 %
Non-owner occupied by property type:
Convenience stores $ 22,912 0.7 %
Medical facilities 74,206 2.2 %
Motel/hotel 342,289 10.3 %
Multifamily 287,633 8.7 %
Office space 248,175 7.5 %
Residential 1,025 - %
Retail 401,294 12.0 %
Special purpose facility 60,445 1.8 %
Warehouse/industrial 95,383 2.9 %
Other 390,751 11.8 %
Total non-owner occupied CRE 1,924,113 57.9 %
Total CRE $ 3,323,681 100.0 %
The following table presents the geographic concentrations of the Company’s CRE loan balances by property type as of December 31, 2024.
($ in thousands) December 31, 2024
Owner occupied CRE by property type: Alabama Florida Georgia Louisiana Mississippi Total
Convenience stores $ 2,757 $ 6,215 $ 37,786 $ 20,916 $ 30,936 $ 98,610
Medical facilities 2,755 3,138 27,460 15,769 69,722 118,844
Office space 20,034 104,527 75,742 34,295 49,597 284,195
Residential - - - - - -
Retail 19,374 74,309 99,457 33,534 80,491 307,165
Special purpose facility 8,346 47,205 63,072 9,084 136,534 264,241
Warehouse/industrial 5,224 32,555 55,985 38,542 30,072 162,378
Other 17,981 19,472 96,383 7,028 23,271 164,135
Total owner occupied CRE 76,471 287,421 455,885 159,168 420,623 1,399,568
Non-owner occupied by property type:
Convenience stores $ - $ - $ 11,357 $ 9,744 $ 1,811 $ 22,912
Medical facilities 30,507 5,174 10,710 2,779 25,036 74,206
Motel/hotel 31,511 123,209 91,513 43,714 52,342 342,289
Multifamily 38,135 10,356 93,856 98,049 47,237 287,633
Office space 8,443 87,934 72,108 18,117 61,573 248,175
Residential - - 412 553 60 1,025
Retail 24,435 80,632 106,617 125,869 63,741 401,294
Special purpose facility 564 14,090 19,003 4,843 21,945 60,445
Warehouse/industrial 6,019 39,693 22,416 13,445 13,810 95,383
Other 38,087 91,748 93,926 47,279 119,711 390,751
Total non-owner occupied CRE 177,701 452,836 521,918 364,392 407,266 1,924,113
Total CRE $ 254,172 $ 740,257 $ 977,803 $ 523,560 $ 827,889 $ 3,323,681
Percentage of total CRE 7.6 % 22.3 % 29.4 % 15.8 % 24.9 % 100.0 %
Non-interest Income
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 $49.8 million for the year ended December 31, 2024, an increase of $3.1 million or 6.5% compared to December 31, 2023. This increase was attributed to the loss on sale of available for sale investment securities of $9.7 million in 2023, partially offset by the U.S. Treasury award of $6.2 million received in 2023. 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 Expense
Non-interest expense was $182.3 million for the year ended December 31, 2024, a decrease of $2.5 million, or 1.3%, in year-over-year comparison. The decrease was partially attributable to $12.2 million decrease in acquisition and other expenses partially offset by an increase of $8.7 million in salary expense with $1.9 million in accelerated vesting on restricted stock grants related to the Renasant Merger. Non-interest expense was $184.7 million for the year ended December 31, 2023, an increase of $54.2 million compared to 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 $4.9 million increase in core deposit amortization for the year ended December 31, 2023.
The following table sets forth the primary components of non-interest expense for the periods indicated.
Non-interest Expense
($ in thousands) Years ended December 31,
2024 2023 2022
Salaries and employee benefits $ 102,153 $ 93,412 $ 73,077
Occupancy 18,530 17,381 12,854
Furniture and equipment 4,325 3,987 2,981
Supplies and printing 1,153 1,240 967
Professional and consulting fees 6,208 6,446 3,558
Marketing and public relations 445 833 393
FDIC and OCC assessments 4,015 3,849 2,122
ATM expense 7,226 5,821 3,873
Bank communications 2,525 3,579 1,904
Data processing 1,611 2,771 2,211
Acquisition expense/charter conversion 3,740 9,075 6,410
Amortization of core deposit intangibles 9,533 9,563 4,664
Other 20,812 26,769 15,469
Total $ 182,276 $ 184,726 $ 130,483
Income Tax Expense
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 $20.8 million for the year ended December 31, 2024, $21.3 million for the year ended December 31, 2023 and $15.8 million for the year ended December 31, 2022. The Company’s effective income tax rate was 21.2%, 22.1% and 20.0% for the years ended December 31, 2024, 2023 and 2022, 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.
Analysis of Financial Condition
Earning Assets
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, 2024, 2023, and 2022, respectively, average loans accounted for 73.8%, 71.4% and 58.0% 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 $5.250 billion during 2024 and $5.036 billion during 2023, as compared to $3.302 billion during 2022.
In the context of this discussion, a “real estate mortgage loan” is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial institutions in the Company’s market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes it will reduce the risk elements of its loan portfolio through strategies that diversify the lending mix.
Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination.
The following table sets forth the Company’s loan portfolio maturing within specified intervals at December 31, 2024.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
($ in thousands) 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 $ 166,109 $ 424,716 $ 143,481 $ 5,887 $ 740,193
Commercial real estate 376,100 1,700,696 1,101,058 145,827 3,323,681
Consumer real estate 150,912 415,061 152,482 580,518 1,298,973
Consumer installment 10,612 30,976 2,589 207 44,384
Total $ 703,733 $ 2,571,449 $ 1,399,610 $ 732,439 $ 5,407,231
Loans with fixed interest rates:
Commercial, financial and agricultural $ 68,630 $ 243,005 $ 99,710 $ 4,447 $ 415,792
Commercial real estate 289,541 1,260,390 542,037 29,115 2,121,083
Consumer real estate 67,254 262,230 79,449 83,499 492,432
Consumer installment 8,368 30,011 1,909 203 40,491
Total $ 433,793 $ 1,795,636 $ 723,105 $ 117,264 $ 3,069,798
Loans with floating interest rates:
Commercial, financial and agricultural $ 97,479 $ 181,711 $ 43,771 $ 1,440 $ 324,401
Commercial real estate 86,559 440,306 559,021 116,712 1,202,598
Consumer real estate 83,658 152,831 73,033 497,019 806,541
Consumer installment 2,244 965 680 4 3,893
Total $ 269,940 $ 775,813 $ 676,505 $ 615,175 $ 2,337,433
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 $1.751 billion in 2024, as compared to $1.919 billion in 2023, and $2.023 billion in 2022. This represents 24.6%, 27.2%, and 35.5% of the average earning assets for the years ended December 31, 2024, 2023 and 2022, respectively. At December 31, 2024, investment securities, including equity and other securities, were
$1.646 billion and represented 22.3% 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, 2024 (tax equivalent basis):
Within One Year After One But Within Five Years Maturing After Five But Within Ten Years After Ten Years Total
Securities held-to-maturity
U.S. Treasury 1.66 % 1.69 % - % - % 1.67 %
Obligations of U.S. government agencies and sponsored entities - % - % 3.30 % - % 3.30 %
Tax-exempt and taxable obligations of states and municipal subdivisions 0.81 % 2.42 % 4.28 % 4.85 % 4.60 %
Mortgage-backed securities - residential - % - % 1.62 % 2.46 % 2.35 %
Mortgage-backed securities - commercial - % 2.12 % 3.40 % 3.74 % 3.48 %
Corporate obligations - % - % 3.13 % - % 3.13 %
Total held-to-maturity 1.44 % 2.19 % 4.02 % 4.56 % 4.25 %
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.
Equity Securities. In 2024, the Company made a correction of an immaterial error and moved one of its securities from AFS to Equity Securities. The equity security consists of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund focuses exclusively on providing affordable housing to low- and moderate-income borrowers and renters, including Majority Minority Census Tracts.
As of December 31, 2024, the Company had equity securities with carrying values totaling $15.7 million. During the twelve months ended December 31, 2024, we recognized an unrealized loss of $78 thousand in net income on our equity securities. These unrealized losses are recorded in the change in value of equity securities on the Consolidated Statements of Income.
Short-Term Investments. Short-term investments, consisting of Federal Funds Sold, funds due from banks and interest-bearing deposits with banks, averaged $116.5 million in 2024, $97.2 million in 2023, and $366.5 million in 2022. There were no federal funds sold at December 31, 2024, 2023, and 2022. 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 for the year ended December 31, 2024 were $6.574 billion, an increase of $19.4 million, or 0.3%, compared to 2023. Average total deposits for the year ended December 31, 2023 were $6.555 billion, an increase of $1.127 billion, or 20.8%, compared to $5.428 billion in 2022.
At December 31, 2024, total deposits were $6.605 billion, compared to $6.463 billion at December 31, 2023, an increase of $142.0 million, or 2.2%, and $5.494 billion at December 31, 2022. 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.
As of December 31, 2024 and 2023, the Company had estimated uninsured deposits of $2.276 billion and $2.145 billion, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's regulatory reporting.
In the third quarter of 2022, the Company ceased the Deposit Reclassification program it implemented at the beginning of 2020. The program reclassified non-interest bearing and NOW deposit balances to money market accounts. A distribution of the Company’s deposits showing the year-to-date average balance of deposits by type and weighted-average is presented for the noted periods in the following table.
December 31,
($ in thousands) 2024 2023 2022
Average
Balance Average
Rate
Paid Average
Balance Average
Rate
Paid Average
Balance Average
Rate
Paid
Non-interest-bearing accounts $ 1,815,620 $ 2,012,935 $ 1,660,301
Interest bearing deposits:
NOW accounts and other 2,023,879 2.16 % 2,017,154 1.41 % 1,810,575 0.44 %
Money market accounts 1,080,756 2.79 % 1,013,701 1.79 % 831,463 0.29 %
Savings accounts 514,656 0.23 % 606,421 0.18 % 535,449 0.04 %
Time deposits 1,139,354 3.77 % 904,629 2.61 % 590,385 0.58 %
Total interest-bearing deposits 4,758,645 2.48 % 4,541,905 1.57 % 3,767,872 0.37 %
Total deposits $ 6,574,265 1.79 % $ 6,554,840 1.09 % $ 5,428,173 0.26 %
The most significant growth during 2024 compared to 2023 was in time deposits. The average cost of interest-bearing deposits and total deposits was 2.48% and 1.79% during 2024 compared to 1.57% and 1.09% in 2023. Average cost of interest bearing deposits increased 91 basis points to 2.48% for the year ended December 31, 2024 compared to 1.57% during the same time period in 2023. Average cost of total deposits increased 70 basis points to 1.79% for the year ended December 31, 2024 compared to 1.09% during the same time period in 2023. The increase in the average cost of deposits paid on our interest-bearing deposit products in 2024 compared to 2023, and 2023 compared to 2022, is a result of higher average of market interest rates.
The Company’s loan-to-deposit ratio, which excludes mortgage loans held for sale, was 81.9% at December 31, 2024, 80.0% at December 31, 2023 and 68.7% at December 31, 2022. The loan-to-deposit ratio averaged 79.9% during 2024. 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 $5.991 billion at December 31, 2024, $6.084 billion at December 31, 2023, and $5.198 billion at December 31, 2022.
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 4.9% of deposits at December 31, 2024.
Maturities of Certificates of Deposit
of $250,000 or More
($ in thousands) Within Three
Months After Three
Through Six
Months After Six
Through
Twelve
Months After Twelve
Months Total
December 31, 2024 $ 181,921 $ 77,889 $ 31,541 $ 11,877 $ 303,228
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, 2024, advances from the FHLB totaled $210.0 million compared to $0 at December 31, 2023 and $130.1 million at December 31, 2022. 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, 2024, 2023, and 2022, 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.
At December 31, 2024, the Bank had outstanding BTFP debt of $0 compared to $390.0 million at December 31, 2023. In 2023, the Bank pledged securities with a fair value of $362.4 million. The securities pledged had a par value of $398.1 million. The Bank's BTFP borrowings, which were drawn between March 15, 2023 and December 28, 2023, bore interest rates ranging from 4.69% to 4.83% and were 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 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 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 $123.7 million of subordinated debt, net of deferred issuance costs $1.4 million and unamortized fair value mark $1.7 million, at December 31, 2024, compared to $123.4 million, net of deferred issuance costs $1.6 million and unamortized fair value mark $2.1 million, at December 31, 2023.
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, 2024, 2023 and 2022.
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 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 The Company
December 31, The First
December 31,
2024 2023 2022 2024 2023 2022
Leverage 4.0 % 5.0 % 7.0 % 10.5 % 9.7 % 9.3 % 11.6 % 10.7 % 11.1 %
Risk-based capital:
Common equity Tier 1 4.5 % 6.5 % 7.0 % 12.7 % 12.1 % 12.7 % 14.5 % 13.8 % 15.6 %
Tier 1 6.0 % 8.0 % 8.5 % 13.1 % 12.5 % 13.0 % 14.5 % 13.8 % 15.6 %
Total 8.0 % 10.0 % 10.5 % 15.6 % 15.0 % 16.7 % 15.4 % 14.8 % 16.4 %
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 $116.5 million during the year ended December 31, 2024 and averaged $97.2 million at December 31, 2023. 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, 2024, advances available totaled approximately $2.549 billion, of which $355.0 million had been drawn, or used for letters of credit.
As of December 31, 2024, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $616.9 million of the Company’s investment balances, compared to $661.8 million at December 31, 2023. 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 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, 2024 was 13.6%, 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:
December 31, 2024 Policy Maximum
Loans to Deposits (including FHLB advances) 80.9 % 90.0 % In Policy
Net Non-core Funding Dependency Ratio 9.4 % 20.0 % In Policy
Fed Funds Purchased / Total Assets 0.0 % 10.0 % In Policy
FHLB Advances / Total Assets 1.9 % 20.0 % In Policy
FRB Advances / Total Assets 0.8 % 10.0 % In Policy
Pledged Securities to Total Securities 61.7 % 90.0 % In Policy
December 31, 2023 Policy Maximum
Loans to Deposits (including FHLB advances) 79.3 % 90.0 % In Policy
Net Non-core Funding Dependency Ratio 8.3 % 20.0 % In Policy
Fed Funds Purchased / Total Assets 0.0 % 10.0 % In Policy
FHLB Advances / Total Assets 0.0 % 20.0 % In Policy
FRB Advances / Total Assets 5.0 % 10.0 % In Policy
Pledged Securities to Total Securities 58.6 % 90.0 % In Policy
December 31, 2022 Policy Maximum
Loans to Deposits (including FHLB advances) 67.9 % 90.0 % In Policy
Net Non-core Funding Dependency Ratio 4.4 % 20.0 % In Policy
Fed Funds Purchased / Total Assets 0.0 % 10.0 % In Policy
FHLB Advances / Total Assets 2.0 % 20.0 % In Policy
FRB Advances / Total Assets 0.0 % 10.0 % In Policy
Pledged Securities to Total Securities 46.9 % 90.0 % 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, 2024, the target federal funds rate was 4.25% to 5.00%.
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 $50.0 million of shares of its own common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The 2024 Repurchase Program expired on December 31, 2024.
Commitments and Contractual Obligations
The following table presents, as of December 31, 2024, fixed and determinable contractual obligations to third parties by payment date. Amounts in the table do not include accrued or accruing interest. Payments related to leases are based on actual payments specified in the underlying contracts. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements included elsewhere in this Form 10-K.
($ in thousands) Note
Reference Within One
Year After One
But Within
Three Years After Three
But Within
Five Years After Five
Years Total
Deposits without a stated maturity G $ 5,303,248 $ - $ - $ - $ 5,303,248
Time deposits G 1,231,068 41,213 23,114 6,213 1,301,608
Borrowings H 210,000 - - - 210,000
Lease obligations I 1,255 2,257 1,972 2,345 7,829
Trust preferred subordinated debentures N - - - 25,113 25,113
Subordinated note purchase agreement N - - - 98,618 98,618
Total Contractual obligations $ 6,745,571 $ 43,470 $ 25,086 $ 132,289 $ 6,946,416
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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 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, 2024, 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, 2024 Net Interest Income at Risk - Sensitivity Year 1
($ in thousands) -200 bp -100 bp STATIC +100 bp +200 bp +300 bp +400 bp
Net Interest Income 256,043 250,406 253,505 257,091 251,854 237,139 214,366
Dollar Change 2,538 (3,099) 3,586 (1,651) (16,366) (39,139)
NII @ Risk - Sensitivity Year 1 1.0 % (1.2) % 1.4 % (0.7) % (6.5) % (15.4) %
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 $2.5 million higher than in a stable interest rate scenario, for a variance of 1.0%.
Net interest income would likely decline by $1.7 million, or 0.7%, if interest rates were to increase by 200 basis points relative to a stable interest rate scenario, with the unfavorable variance expanding the higher interest rates rise. The initial increase in rising rate scenarios will be limited to some extent by the fact that some of our variable-rate loans are currently at rate floors, resulting in a re-pricing lag while base rates are increasing to floored levels, but 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 144.0% at December 31, 2024, 118.0% at December 31, 2023 and 180.0% at December 31, 2022. The Company is considered “asset-sensitive” which means that there are more assets repricing than liabilities within the first year. These results are based on cash flows from assumptions of assets and liabilities that reprice (maturities, likely calls, prepayments, etc.). Typically, the net interest income of asset-sensitive financial institutions should improve with rising rates and decrease with declining rates.
If interest rates change in the modeled amounts, our assets and liabilities may not perform as anticipated. Measuring interest rate risk has inherent limitations including model assumptions. For example, changes in market indices as modeled in conjunction with changes in the shapes of the yield curves could result in different net interest income. We consider many factors in monitoring our interest rate risk, and management adjusts strategies for the balance sheet and earnings as needed.
In addition to the net interest income simulations shown above, we run stress scenarios modeling the possibility of no balance sheet growth, the potential runoff of “surge” core deposits and uninsured depositors, 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. Recently, the Company underwent a study of its deposit base and loan prepayment speeds to provide more clarity on the specific movement of its balance sheet during a flat and rising rate environment. The study is updated periodically. The results of the study have been incorporated into the 2024 modeling. In the event the Company exceeds the tolerance for any particular shock, management reviews strategies as to the cause of the breach and institutes actions accordingly. Board level data is provided on a regular basis for all of the modeling results as well as any breach of tolerance levels.
The economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed. The difference between the projected fair value of the Company’s financial assets and the fair value of its financial liabilities is referred to as the economic value of equity (“EVE”), and changes in EVE under different interest rate scenarios are effectively a gauge of the Company’s longer-term exposure to interest rate risk. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at projected replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios. An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change substantially over time as the characteristics of the Company’s balance sheet evolve and interest rate and yield curve assumptions are updated.
The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and management’s best estimates. The table below shows estimated changes in the Company’s EVE as of the periods indicated under different interest rate scenarios relative to a base case of current interest rates:
December 31, 2024 - Balance Sheet Shock
($ in thousands) -200 bp -100 bp STATIC
(Base) +100 bp +200 bp +300 bp +400 bp
Market Value of Equity 1,597,659 1,641,180 1,696,389 1,728,106 1,718,716 1,666,310 1,591,845
Change in EVE from base (98,730) (55,209) 31,717 22,327 (30,079) (104,544)
% Change (5.8) % (3.3) % 1.9 % 1.3 % (1.8) % (6.2) %
Policy Limits (20.0) % (10.0) % (10.0) % (20.0) % (30.0) % (40.0) %
December 31, 2023 - Balance Sheet Shock
($ in thousands) -200 bp -100 bp STATIC
(Base) +100 bp +200 bp +300 bp +400 bp
Market Value of Equity 1,286,790 1,321,286 1,354,363 1,362,597 1,327,813 1,263,361 1,187,080
Change in EVE from base (67,573) (33,077) 8,234 (26,550) (91,002) (167,283)
% Change (5.0) % (2.4) % 0.6 % (2.0) % (6.7) % (12.4) %
Policy Limits (20.0) % (10.0) % (10.0) % (20.0) % (30.0) % (40.0) %
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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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. ( Company) as of December 31, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, 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, 2024, 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 March 3, 2025 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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 it relates.
Allowance for Credit Losses
As described in Notes B and E to the consolidated financial statements, the Company’s consolidated allowance for credit losses (ACL) on loans held for investment was $56.2 million at December 31, 2024 and represents an estimate of expected losses inherent within the Company’s loan portfolio. The Company’s loan portfolio totaled $5.41 billion as of December 31, 2024, and the ACL on loans was $56.2 million. The Company’s unfunded loan commitments totaled $863 million, with an ACL of $2.1 million. Together these amounts represent the ACL.
The Company estimates the ACL using a non-discounted cash flow methodology that incorporates probability of default and loss given default assumptions adjusted for prepayment assumptions. The model’s calculation includes reasonable and supportable forecasts derived from unemployment data from a third-party. After the quantitative loss estimate is
determined, management adjusts these estimates to incorporate considerations of current trends and conditions not captured in the quantitative loss estimate process through the use of qualitative factors.
We identified the ACL as a critical audit matter. The principal considerations for our determination of the ACL as a critical audit matter includes the subjectivity and complexity in management’s determination of the loan estimates and assumptions, specifically the determination of the qualitative factor adjustments to reflect current trends and conditions not captured within the quantitative models. This required increased auditor effort and a high degree of auditor subjectivity in evaluating the ACL.
The primary procedures we performed to address this critical audit matter included:
•We tested the design and operating effectiveness of controls relating to management’s determination of the ACL, including controls over:
◦Completeness and accuracy of inputs into the model used to determine the ACL
◦Management’s review and establishment of qualitative adjustments
•We evaluated management’s determination of the qualitative adjustments, including assessing the basis for the adjustments and the accuracy of the supporting calculations
We have served as the Company’s auditor since 2021.
/s/ Forvis Mazars, LLP
Jackson, Mississippi
March 3, 2025
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2024 AND 2023
($ in thousands except per share data)
2024 2023
ASSETS
Cash and due from banks $ 114,185 $ 224,199
Interest-bearing deposits with banks 106,226 130,948
Total cash and cash equivalents 220,411 355,147
Securities available-for-sale, at fair value (amortized cost: $1,119,034 in 2024; $1,164,227 in 2023; allowance for credit losses: $0 in both 2024 and 2023)
1,003,303 1,042,365
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $537,275 in 2024; $615,944 in 2023)
582,939 654,539
Equity securities 15,684 -
Other securities 44,168 37,754
Total securities 1,646,094 1,734,658
Loans held for sale 3,687 2,914
LHFI, net of allowance for credit losses of $56,205 in 2024 and $54,032 in 2023
5,351,026 5,116,010
Interest receivable 34,002 33,300
Premises and equipment 169,796 174,309
Operating lease right-of-use assets 6,102 6,387
Finance lease right-of-use assets 1,002 1,466
Cash surrender value of life insurance 145,569 134,249
Goodwill 272,520 272,520
Other intangibles 59,278 68,812
Other real estate owned 7,874 8,320
Other assets 87,417 91,253
Total assets $ 8,004,778 $ 7,999,345
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 1,796,685 $ 1,849,013
Interest-bearing 4,808,171 4,613,859
Total deposits 6,604,856 6,462,872
Interest payable 13,856 22,702
Borrowed funds 210,000 390,000
Subordinated debentures 123,731 123,386
Operating lease liabilities 6,273 6,550
Finance lease liabilities 1,556 1,739
Allowance for credit losses on OBSC exposures 2,107 2,075
Other liabilities 36,968 40,987
Total liabilities 6,999,347 7,050,311
Stockholders’ Equity:
Common stock, par value $1 per share: 80,000,000 shares authorized; 32,409,962 shares issued in 2024, 80,000,000 shares authorized, and 32,338,983 shares issued in 2023, respectively
32,410 32,339
Additional paid-in capital 777,508 775,232
Retained earnings 346,182 300,150
Accumulated other comprehensive (loss) income (109,558) (117,576)
Treasury stock, at cost (1,249,607 shares - 2024; 1,249,607 shares - 2023)
(41,111) (41,111)
Total stockholders' equity 1,005,431 949,034
Total liabilities and stockholders' equity $ 8,004,778 $ 7,999,345
The accompanying notes are an integral part of these statements.
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
($ in thousands, except per share amount)
2024 2023 2022
INTEREST INCOME
Interest and fees on loans $ 321,665 $ 294,541 $ 157,768
Interest and dividends on securities:
Taxable interest and dividends 32,999 32,202 29,656
Tax-exempt interest 11,727 11,737 11,017
Interest on deposits in banks 3,444 2,453 1,952
Total interest income 369,835 340,933 200,393
INTEREST EXPENSE
Interest on deposits 117,850 71,359 13,978
Interest on borrowed funds 17,716 20,249 8,599
Total interest expense 135,566 91,608 22,577
Net interest income 234,269 249,325 177,816
Provision for credit losses, LHFI 3,758 13,750 5,350
Provision for credit losses, OBSC exposures 32 750 255
Net interest income after provision for credit losses 230,479 234,825 172,211
NON-INTEREST INCOME
Service charges on deposit accounts 13,905 14,175 8,668
Other service charges and fees 2,713 3,177 1,833
Interchange fees 17,914 18,914 12,702
Secondary market mortgage income 3,354 2,866 4,303
Bank owned life insurance income 3,820 3,319 2,101
BOLI death proceeds 600 - 1,630
Gain (loss) on sale of premises (183) 35 (116)
Securities (loss) gain (31) (9,716) (82)
Change in value of equity securities (78) - -
Gain (loss) on sale of other real estate (87) 6 214
Government awards/grants 280 6,197 873
Bargain purchase gain - - 281
Other 7,555 7,732 4,554
Total non-interest income 49,762 46,705 36,961
NON-INTEREST EXPENSE
Salaries 80,421 76,609 57,903
Employee benefits 21,732 16,803 15,174
Occupancy 18,530 17,381 12,854
Furniture and equipment 4,325 3,987 2,981
Supplies and printing 1,153 1,240 967
Professional and consulting fees 6,208 6,446 3,558
Marketing and public relations 445 833 393
FDIC and OCC assessments 4,015 3,849 2,122
ATM expense 7,226 5,821 3,873
Bank communications 2,525 3,579 1,904
Data processing 1,611 2,771 2,211
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
($ in thousands, except per share amount)
Continued: 2024 2023 2022
Acquisition expense/charter conversion 3,740 9,075 6,410
Amortization of core deposit intangible 9,533 9,563 4,664
Other 20,812 26,769 15,469
Total non-interest expense 182,276 184,726 130,483
Income before income taxes $ 97,965 $ 96,804 $ 78,689
Income taxes 20,771 21,347 15,770
Net income available to common stockholders $ 77,194 $ 75,457 $ 62,919
Earnings per share:
Basic $ 2.45 $ 2.41 $ 2.86
Diluted 2.44 2.39 2.84
The accompanying notes are an integral part of these statements.
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
($ in thousands) 2024 2023 2022
Net income $ 77,194 $ 75,457 $ 62,919
Other comprehensive income (loss):
Unrealized holding gain/(loss) arising during the period on available-for-sale securities 10,323 31,921 (173,428)
Net unrealized loss at time of transfer on securities available-for-sale transferred to held-to-maturity - - (36,838)
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 380 372 97
Reclassification adjustment for loss/(gains) included in net income 31 9,716 82
Unrealized holding gain/(loss) arising during the period on available-for-sale securities 10,734 42,009 (210,087)
Income tax (expense) benefit (2,716) (10,628) 53,152
Other comprehensive income (loss) 8,018 31,381 (156,935)
Comprehensive income (loss) $ 85,212 $ 106,838 $ (94,016)
The accompanying notes are an integral part of these statements.
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
($ in thousands except per share amount)
Common Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income
(Loss) Treasury Stock Total
Shares Amount Shares Amount
Balance, January 1, 2022 21,668,644 $ 21,669 $ 459,228 $ 206,228 $ 7,978 (649,607) $ (18,931) $ 676,172
Net income, 2022
- - - 62,919 - - - 62,919
Common stock repurchased - - - - - (600,000) (22,180) (22,180)
Other comprehensive loss - - - - (156,935) - - (156,935)
Dividend on common stock, $.74 per common share
- - - (16,524) - - - (16,524)
Issuance of common shares for BBI acquisition 3,498,936 3,499 97,970 - - - - 101,469
Issuance restricted stock grant 129,950 130 (130) - - - - -
Restricted stock grant forfeited (2,500) (3) 3 - - - - -
Compensation expense - - 2,425 - - - - 2,425
Repurchase of restricted stock for payment of taxes (19,661) (20) (663) - - - - (683)
Balance, December 31, 2022
25,275,369 $ 25,275 $ 558,833 $ 252,623 $ (148,957) (1,249,607) $ (41,111) $ 646,663
Net income, 2023
- - - 75,457 - - - 75,457
Other comprehensive income - - - - 31,381 - - 31,381
Dividend on common stock, $.90 per common share
- - - (27,930) - - - (27,930)
Issuance of common shares for HSBI acquisition 6,920,422 6,920 214,602 - - - - 221,522
Issuance restricted stock grant 167,173 167 (167) - - - - -
Restricted stock grant forfeited (12,194) (12) 12 - - - - -
Compensation expense - - 2,302 - - - - 2,302
Repurchase of restricted stock for payment of taxes (11,787) (11) (350) - - - - (361)
Balance, December 31, 2023
32,338,983 $ 32,339 $ 775,232 $ 300,150 $ (117,576) (1,249,607) $ (41,111) $ 949,034
Net income, 2024
- - - 77,194 - - - 77,194
Other comprehensive income - - - - 8,018 - - 8,018
Dividend on common stock, $1.00 per common share
- - - (31,162) - - - (31,162)
Issuance restricted stock grant 164,844 165 (165) - - - - -
Restricted stock grant forfeited (26,561) (27) 27 - - - - -
Compensation expense - - 4,622 - - - - 4,622
Repurchase of restricted stock for payment of taxes (67,304) (67) (2,208) - - - - (2,275)
Balance, December 31, 2024
32,409,962 $ 32,410 $ 777,508 $ 346,182 $ (109,558) (1,249,607) $ (41,111) $ 1,005,431
See Notes to Consolidated Financial Statements
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
($ in thousands) 2024 2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 77,194 $ 75,457 $ 62,919
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,209 12,099 12,173
FHLB stock dividends (465) (355) (28)
Provision for credit losses 3,790 14,500 5,605
Deferred income taxes 3,204 7,006 940
Restricted stock expense 4,622 2,302 2,425
Increase in cash value of life insurance (3,820) (3,319) (2,101)
Amortization and accretion, net, related to acquisitions 2,030 (4,432) 1,706
Bank premises and equipment loss/(gain) 183 (35) 116
Acquisition gain - - (281)
Securities loss (gain) 31 9,716 82
Change in value of equity securities 78 - -
Loss on sale/writedown of other real estate 264 774 159
Residential loans originated and held for sale (85,861) (91,786) (152,776)
Proceeds from sale of residential loans held for sale 85,088 93,315 156,011
Changes in:
Interest receivable (702) (1,228) (2,987)
Other assets 4,690 16,086 (45,692)
Interest payable (8,846) 19,378 1,613
Operating lease liability (277) (1,260) (1,306)
Other liabilities (5,900) (39,710) 51,449
Net cash provided by operating activities 85,512 108,508 90,027
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Sales - 285,793 21,069
Maturities, prepayments, and calls 235,880 132,919 197,417
Purchases (195,226) (8,473) (6,500)
Held-to-maturity securities:
Maturities, prepayments, and calls 74,206 40,469 474
Purchases - - (602,718)
Purchase of other securities (9,718) (17,094) (11,444)
Purchase of equity securities (15,684) - -
Proceeds from redemption of other securities 3,769 14,466 1,237
Net (increase)/decrease in loans (232,716) (227,896) (326,113)
Net changes to premises and equipment (3,325) (3,688) (15,522)
Bank-owned life insurance - death proceeds 600 221 1,630
Purchase of bank owned life insurance (8,100) - -
Proceeds from sale of other real estate owned 1,582 3,069 8,930
Proceeds from sale of premises and equipment 430 1,416 712
Cash received in excess of cash paid for acquisition - 106,793 23,939
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
Continued:
2024 2023 2022
Net cash (used in) provided by investing activities (148,302) 327,995 (706,889)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in deposits 141,176 (427,481) (223,322)
Proceeds from borrowed funds 4,032,700 7,600,043 2,055,401
Repayment of borrowed funds (4,212,700) (7,340,143) (1,950,301)
Dividends paid on common stock (30,664) (27,550) (16,275)
Cash paid to repurchase common stock - - (22,180)
Repurchase of restricted stock for payment of taxes (2,275) (361) (683)
Principal payment on finance lease liabilities (183) (179) (176)
Called/repayment of subordinated debt - (31,000) -
Net cash (used in) financing activities (71,946) (226,671) (157,536)
Net change in cash and cash equivalents (134,736) 209,832 (774,398)
Cash and cash equivalents at beginning of year 355,147 145,315 919,713
Cash and cash equivalents at end of year $ 220,411 $ 355,147 $ 145,315
Supplemental disclosures:
Cash paid during the year for:
Interest $ 127,166 $ 51,101 $ 16,932
Income taxes, net of refunds 16,548 16,084 7,194
Non-cash activities:
Transfers of loans to other real estate 2,254 6,602 2,560
Transfer of securities available-for-sale to held-to-maturity - - 139,598
Issuance of restricted stock grants 165 168 130
Stock issued in connection with BBI acquisition - - 101,469
Stock issued in connection with HSBI acquisition - 221,522 -
Dividends on restricted stock grants 497 380 249
Right-of-use assets obtained in exchange for operating lease liabilities 884 817 2,698
Lease liabilities arising from BBI acquisition - - 3,390
Lease liabilities arising from HSBI acquisition - 184 -
The accompanying notes are an integral part of these statements.
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.
On May 17, 2024, the Company, acting pursuant to authorization from its Board of Directors, provided written notice to the Nasdaq of its determination to voluntarily withdraw the principal listing of the Company's voting common stock, $1.00 par value per share (the “Common Stock”), from Nasdaq and transfer the listing to the NYSE. The listing and trading of the Common Stock on Nasdaq ended at market close on May 29, 2024, and trading commenced on the NYSE at market open on May 30, 2024. The Common Stock is traded on the NYSE under the symbol “FBMS”.
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, and deferred tax assets.
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, 2024, 2023, and 2022.
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, 2024, 2023, and 2022.
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. It is expected that U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities.
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, 2024 and 2023.
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, 2024 and 2023.
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.
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, 2024, 2023 and 2022.
Interest Income on Investments
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 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 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 has defined 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 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.
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, 2024 and 2023, other real estate owned totaled $7.9 million and $8.3 million, respectively.
Goodwill and Other Intangible Assets
Goodwill arises from business combinations and is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of any net assets acquired and liabilities assumed as of the acquisition date. Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company will perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than the carrying amount. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, a quantitative test for impairment is performed and is measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeds its fair value. The Commercial/Retail Bank segment of the Company is the only reporting unit for which the
goodwill analysis is prepared. Intangible assets with finite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.
The change in goodwill during the year is as follows:
($ in thousands) 2024 2023 2022
Beginning of year $ 272,520 $ 180,254 $ 156,663
Acquired goodwill - 92,266 23,591
End of year $ 272,520 $ 272,520 $ 180,254
Other intangible assets consist of core deposit 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, 2024 and 2023:
($ in thousands)
2024 Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
Core deposit intangibles $ 99,071 $ (39,793) $ 59,278
Core deposit intangibles $ 99,071 $ (30,259) $ 68,812
The related amortization expense of business combination related intangible assets is as follows:
($ in thousands) Amount
Aggregate amortization expense for the year ended December 31:
2022 $ 4,664
2023 9,563
2024 9,533
Amount
Estimated amortization expense for the year ending December 31:
2025 $ 9,518
2026 9,518
2027 9,185
2028 8,193
2029 6,522
Thereafter 16,342
Total amortization expense $ 59,278
Cash Surrender Value of Life Insurance
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 represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Interest and/or penalties related to income taxes are reported as a component of income tax expense.
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, 2024 and 2023, 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, 2024, 2023 and 2022, was $445 thousand, $833 thousand, and $393 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. At December 31, 2024 and December 31, 2023, the Company had $650 thousand and $500 thousand, respectively, of restricted cash. 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.
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, 2024 Net
Income
(Numerator) Weighted Average
Shares
(Denominator) Per Share
Amount
Basic per common share $ 77,194 31,505,267 $ 2.45
Effect of dilutive shares:
Restricted Stock - 117,206
$ 77,194 31,622,473 $ 2.44
December 31, 2023
Basic per common share $ 75,457 31,373,718 $ 2.41
Effect of dilutive shares:
Restricted Stock - 192,073
$ 75,457 31,565,791 $ 2.39
December 31, 2022
Basic per common share $ 62,919 22,023,595 $ 2.86
Effect of dilutive shares:
Restricted Stock - 141,930
$ 62,919 22,165,525 $ 2.84
The diluted per share amounts were computed by applying the treasury stock method.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on available-for-sale which are also recognized as separate components of equity.
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. 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.
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 $739 thousand at December 31, 2024 and $1.2 million at December 31, 2023, 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 2024, 2023 and 2022.
U.S. Treasury Awards
During the third quarter of 2023, The Bank received $6.2 million in funds as part of the Community Development Financial Institutions Fund. This award was distributed as part of the CDFI Equitable Recovery Program (CDFI ERP). This award is to provide funding to expand lending, grant making and investment activities in low- or moderate-income communities and to borrowers that have significant unmet capital and financial service needs. As part of the agreement with CDFI ERP, the Bank has annual reporting requirements, performance goals and related measures that the Bank must achieve during the period of performance. These are reported to the CDFI ERP through various schedules and reports required by the program. In addition, the award must be expended in certain Program Activities and/or Operations Support Activities as described and defined in the CDFI ERP agreement. The total amount of the award must expended in accordance with the CDFI ERP guidelines, with at least 60% utilized by December 31, 2026, at least 80% by December 31, 2027, and full expenditure by December 31, 2028. The Bank intends to expense the award on Financial Products (i.e. loans) and Grants which fall under the Program Activities section as defined in the CDFI ERP agreement. The Bank accounts for the CDFI ERP using ASC 958-605. Although the scope of ASC 958-605 excludes for-profit entities, the FASB staff has concluded that for-profit entities may apply this guidance when appropriate and that the award should be accounted for as other non-interest income as permitted by GAAP.
During the fourth quarter of 2024, the Bank received $280 thousand for the Bank Enterprise Award Program (“BEA Program”) from the CDFI Fund. The BEA program awards FDIC insured depository institutions for increasing their investments and support of CDFIs and advancing their community development financing and service activities in the most economically distressed communities.
Operating Segments
The Company’s reportable segments are determined by the Chief Financial Officer, who is the designated chief operating decision maker, based upon information provided about the Company’s products and services offered, primarily distinguished between banking and mortgage banking operations. A third operating segment, Holding Company, is for the most part the parent holding company, as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part have little or no activity. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision maker evaluates the financial performance of the Company’s business components such as evaluating revenue streams, significant expenses and budget to actual results, in assessing the performance of the Company’s reportable segments and in the determination of allocating resources. Segment pretax profit or loss is used to assess the performance of the banking segment by monitoring the margin between interest revenue and interest expense. Segment pretax profit or loss is used to assess the performance of the mortgage banking segment by monitoring the premium received on loan sales. Loans, investments, and deposits provide the revenues in the banking operation. Loans, and deposits provide the revenues in mortgage banking, and loan sales provide the revenues in mortgage banking. Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operation, payroll expenses provide the significant expenses in mortgage banking, and interest expense, employee benefits, and acquisition expenses provide the significant expenses for the holding company operations. All operations are domestic. Segment performance is evaluated using income before income taxes. Indirect expenses are allocated on revenue. Transactions among segments are made at fair value. Information reported internally for performance assessment by the chief operating decision maker follows, inclusive of reconciliations of significant segment totals to the financial statements. The Company is considered to have three principal business segments the Commercial/Retail Bank, the Mortgage Banking Division, and the Holding Company.
Reclassifications
Certain reclassifications have been made to the 2023 and 2022 financial statements to conform with the classifications used in 2024. 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 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. The Company adopted ASU 2023-01 effective January 1, 2024, which did not 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, regardless of the program giving rise to the related income tax credits. The Company adopted ASU 2023-02 effective January 1, 2024, which did not 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 that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280. The Company adopted ASU 2023-07 effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This guidance did not have a material impact on the Company's consolidated financial statements.
New Accounting Standards That Have Not Yet Been Adopted
In December 2023, FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU requires that 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 ASU requires 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 ASU also requires 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.
In November 2024, FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires public companies to disclose, in the notes to financial statements, specified information and certain costs and expenses at each interim and annual reporting period. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. 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 and accordingly, records business combinations at their estimated fair values on the acquisition date. The Company generally records provisional amounts at the time of an acquisition based on the information available. These provisional estimates of fair values may be adjusted for a period of up to one year from the acquisition date if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. The excess cost over fair value of net assets acquired 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 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 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 $4.9 million for the three months and twelve months period ended December 31, 2023, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the goodwill generated from the transaction on January 1, 2023, along with valuation adjustments that have been made since initially reported.
($ in thousands) As Initially
Reported Measurement
Period
Adjustments As Adjusted
Identifiable assets:
Cash and due from banks $ 106,973 $ (180) $ 106,793
Investments 172,775 - 172,775
Loans 1,155,712 - 1,155,712
Core deposit intangible 43,739 - 43,739
Personal and real property 35,963 - 35,963
Other real estate owned 857 332 1,189
Bank owned life insurance 35,579 - 35,579
Deferred taxes 6,761 (632) 6,129
Interest receivable 4,349 - 4,349
Other assets 3,103 - 3,103
Total assets 1,565,811 (480) 1,565,331
Liabilities and equity:
Deposits 1,392,432 - 1,392,432
Trust Preferred 9,015 - 9,015
Other liabilities 34,271 - 34,271
Total liabilities 1,435,718 - 1,435,718
Net assets acquired 130,093 (480) 129,613
Consideration paid 221,538 - 221,538
Goodwill $ 91,445 $ 480 $ 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 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 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) As Initially Reported Measurement Period Adjustments As Adjusted
Purchase price:
Cash and stock $ 101,470 $ - $ 101,470
Total purchase price 101,470 - 101,470
Identifiable assets:
Cash $ 23,939 $ - $ 23,939
Investments 22,907 (264) 22,643
Loans 482,903 2,268 485,171
Other real estate 8,797 (580) 8,217
Bank owned life insurance 10,092 - 10,092
Core deposit intangible 9,791 - 9,791
Personal and real property 13,825 (1,868) 11,957
Deferred tax asset 28,105 (970) 27,135
Other assets 9,649 (414) 9,235
Total assets 610,008 (1,828) 608,180
Liabilities and equity:
Deposits 490,588 3 490,591
Borrowings 25,000 - 25,000
Other liabilities 14,772 - 14,772
Total liabilities 530,360 3 530,363
Net assets acquired 79,648 (1,831) 77,817
Goodwill $ 21,822 $ 1,831 $ 23,653
During the third quarter of 2023, the Company finalized its analysis and valuation adjustments that were made to investments, loans, other real estate, personal and real property, deferred tax asset, other assets, and deposits.
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, 2024 and 2023:
($ in thousands) December 31, 2024
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Available-for-sale:
U.S. Treasury $ 5,297 $ - $ 64 $ 5,233
Obligations of U.S. government agencies and sponsored entities 109,289 - 13,064 96,225
Tax-exempt and taxable obligations of states and municipal subdivisions 448,463 240 49,171 399,532
Mortgage-backed securities - residential 298,461 30 33,566 264,925
Mortgage-backed securities - commercial 225,892 117 18,516 207,493
Corporate obligations 31,632 37 1,774 29,895
Total available-for-sale $ 1,119,034 $ 424 $ 116,155 $ 1,003,303
Held-to-maturity:
U.S. Treasury $ 52,216 $ - $ 1,244 $ 50,972
Obligations of U.S. government agencies and sponsored entities 17,950 - 1,417 16,533
Tax-exempt and taxable obligations of states and municipal subdivisions 244,729 3,368 15,568 232,529
Mortgage-backed securities - residential 127,492 - 15,989 111,503
Mortgage-backed securities - commercial 130,552 - 13,327 117,225
Corporate obligations 10,000 - 1,487 8,513
Total held-to-maturity $ 582,939 $ 3,368 $ 49,032 $ 537,275
($ in thousands) December 31, 2023
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Available-for-sale:
U.S. Treasury $ 16,985 $ - $ 310 $ 16,675
Obligations of U.S. government agencies and sponsored entities 119,868 1 14,946 104,923
Tax-exempt and taxable obligations of states and municipal subdivisions 486,293 449 48,276 438,466
Mortgage-backed securities - residential 297,735 11 34,430 263,316
Mortgage-backed securities - commercial 198,944 76 20,675 178,345
Corporate obligations 41,347 - 3,750 37,597
Other 3,055 - 12 3,043
Total available-for-sale $ 1,164,227 $ 537 $ 122,399 $ 1,042,365
Held-to-maturity:
U.S. Treasury $ 89,688 $ - $ 2,804 $ 86,884
Obligations of U.S. government agencies and sponsored entities 33,659 - 1,803 31,856
Tax-exempt and taxable obligations of states and municipal subdivisions 246,908 9,566 14,697 241,777
Mortgage-backed securities - residential 141,573 - 14,237 127,336
Mortgage-backed securities - commercial 132,711 - 12,334 120,377
Corporate obligations 10,000 - 2,286 7,714
Total held-to-maturity $ 654,539 $ 9,566 $ 48,161 $ 615,944
ACL on Securities
Securities Available-for-Sale
Quarterly, the Company evaluates if a security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, the Company performs further analysis as outlined below:
•Review the extent to which the fair value is less than the amortized cost and determine if the decline is indicative of credit loss or other factors.
•The securities that violate the credit loss trigger above would be subjected to additional analysis.
•If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using the 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, 2024 and 2023, 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 $5.0 million and $5.2 million at December 31, 2024 and 2023, 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, 2024.
Securities Held to Maturity
The potential credit loss exposure totaled $201 thousand and $205 thousand at December 31, 2024 and 2023, 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, 2024 and 2023.
Accrued interest receivable is excluded from the estimate of credit losses for securities held-to-maturity. Accrued interest receivable totaled $3.1 million and $3.4 million at December 31, 2024 and 2023, respectively and was reported in interest receivable on the accompanying Consolidated Balance Sheet.
At December 31, 2024, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual for the years ended December 31, 2024 and 2023.
The Company monitors the credit quality of the debt securities held-to-maturity through the use of credit ratings. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at December 31, 2024 and 2023, aggregated by credit quality indicators.
($ in thousands) December 31, 2024 December 31, 2023
Aaa $ 361,656 $ 431,527
Aa1/Aa2/Aa3 112,535 129,751
A1/A2/A3 12,273 13,902
BBB 10,000 10,000
Not rated 86,475 69,359
Total $ 582,939 $ 654,539
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) December 31, 2024
Available-for-Sale Amortized
Cost Fair
Value
Within one year $ 42,008 $ 41,807
One to five years 127,945 121,463
Five to ten years 311,010 271,828
Beyond ten years 113,718 95,787
Mortgage-backed securities: residential 298,461 264,925
Mortgage-backed securities: commercial 225,892 207,493
Total $ 1,119,034 $ 1,003,303
Held-to-maturity
Within one year $ 28,527 $ 28,334
One to five years 30,868 29,360
Five to ten years 62,237 58,225
Beyond ten years 203,263 192,628
Mortgage-backed securities: residential 127,492 111,503
Mortgage-backed securities: commercial 130,552 117,225
Total $ 582,939 $ 537,275
The proceeds from sales and calls of securities and the associated gains and losses are listed below:
($ in thousands) 2024 2023 2022
Gross gains $ 47 $ 65 $ 82
Gross losses 78 9,781 164
Realized net (loss) gain $ (31) $ (9,716) $ (82)
The amortized costs of securities pledged as collateral, to secure public deposits and for other purposes, was $1.089 billion and $1.095 billion at December 31, 2024 and 2023, respectively.
The following table summarizes securities in an unrealized losses position for which an allowance for credit losses has not been recorded at December 31, 2024 and 2023. The securities are aggregated by major security type and length of time in a continuous unrealized loss position:
($ in thousands) Less than 12 Months 12 Months or Longer Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Available-for-sale:
U.S. Treasury $ - $ - $ 5,233 $ 64 $ 5,233 $ 64
Obligations of U.S. government agencies and sponsored entities 262 1 95,958 13,063 96,220 13,064
Tax-exempt and taxable obligations of states and municipal subdivisions 32,717 2,174 349,879 46,997 382,596 49,171
Mortgage-backed securities - residential 40,448 451 222,555 33,115 263,003 33,566
Mortgage-backed securities - commercial 33,439 942 152,532 17,574 185,971 18,516
Corporate obligations - - 24,858 1,774 24,858 1,774
Total available-for-sale $ 106,866 $ 3,568 $ 851,015 $ 112,587 $ 957,881 $ 116,155
Held-to-maturity:
U.S. Treasury $ - $ - $ 50,972 $ 1,244 $ 50,972 $ 1,244
Obligations of U.S. government agencies and sponsored entities 761 24 15,772 1,393 16,533 1,417
Tax-exempt and taxable obligations of states and municipal subdivisions 45,064 970 98,527 14,598 143,591 15,568
Mortgage-backed securities - residential - - 111,503 15,989 111,503 15,989
Mortgage-backed securities - commercial 892 30 116,333 13,297 117,225 13,327
Corporate obligations - - 8,513 1,487 8,513 1,487
Total held-to-maturity $ 46,717 $ 1,024 $ 401,620 $ 48,008 $ 448,337 $ 49,032
Less than 12 Months 12 Months or Longer Total
($ in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Available-for-sale:
U.S. Treasury $ - $ - $ 16,675 $ 310 $ 16,675 $ 310
Obligations of U.S. government agencies and sponsored entities 123 - 104,495 14,946 104,618 14,946
Tax-exempt and taxable obligations of states and municipal subdivisions 20,879 1,479 389,113 46,797 409,992 48,276
Mortgage-backed securities: residential 222 2 262,012 34,428 262,234 34,430
Mortgage-backed securities: commercial 2,896 52 170,256 20,623 173,152 20,675
Corporate obligations - - 37,597 3,750 37,597 3,750
Other 3,055 12 - - 3,055 12
Total available-for-sale $ 27,175 $ 1,545 $ 980,148 $ 120,854 $ 1,007,323 $ 122,399
Held-to-maturity:
U.S. Treasury $ - $ - $ 86,884 $ 2,804 $ 86,884 $ 2,804
Obligations of U.S. government agencies and sponsored entities 747 5 31,109 1,798 31,856 1,803
Tax-exempt and taxable obligations of states and municipal subdivisions 10,472 3,949 91,480 10,748 101,952 14,697
Mortgage-backed securities - residential - - 127,336 14,237 127,336 14,237
Mortgage-backed securities - commercial 920 2 119,457 12,332 120,377 12,334
Corporate obligations - - 7,714 2,286 7,714 2,286
Total held-to-maturity $ 12,139 $ 3,956 $ 463,980 $ 44,205 $ 476,119 $ 48,161
At December 31, 2024 and December 31, 2023, the Company’s securities portfolio consisted of 1,063 and 1,125 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.
Equity Securities
In 2024, the Company made a correction of an immaterial error and moved one of its securities from AFS to Equity Securities. The equity security consists of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund focuses exclusively on providing affordable housing to low- and moderate-income borrowers and renters, including Majority Minority Census Tracts.
As of December 31, 2024, the Company had equity securities with carrying values totaling $15.7 million. During the twelve months ended December 31, 2024, we recognized an unrealized loss of $78 thousand in net income on our equity securities. These unrealized losses are recorded in the change in value of equity securities on the Consolidated Statements of Income.
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 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, 2024 and December 31, 2023, is summarized below:
($ in thousands) December 31, 2024 December 31, 2023
Loans held for sale
Mortgage loans held for sale $ 3,687 $ 2,914
Total LHFS $ 3,687 $ 2,914
Loans held for investment
Commercial, financial, and agriculture (1) $ 740,193 $ 800,324
Commercial real estate 3,323,681 3,059,155
Consumer real estate 1,298,973 1,252,795
Consumer installment 44,384 57,768
Total loans 5,407,231 5,170,042
Less allowance for credit losses (56,205) (54,032)
Net LHFI $ 5,351,026 $ 5,116,010
______________________________________
(1)Loan balance includes $87 thousand and $386 thousand in PPP loans as of December 31, 2024 and 2023, 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, 2024 and 2023, accrued interest receivable for LHFI totaled $25.8 million and $24.7 million, respectively, with no related ACL and was reported in interest receivable on the accompanying Consolidated Balance Sheet.
Nonaccrual and Past Due LHFI
Past due LHFI are loans contractually past due 30 days or more as to principal or interest payments. Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a
loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.
The following tables presents the aging of the amortized cost basis in past due loans in addition to those loans classified as nonaccrual including PCD loans:
December 31, 2024
($ in thousands) Past Due
30 to 89
Days Past Due 90
Days or More
and
Still Accruing Nonaccrual PCD Total
Past Due,
Nonaccrual
and PCD Total
LHFI Nonaccrual
and PCD
with No
ACL
Commercial, financial, and agriculture (1) $ 498 $ - $ 2,515 $ 208 $ 3,221 $ 740,193 $ 120
Commercial real estate 2,249 - 9,093 345 11,687 3,323,681 3,698
Consumer real estate 5,941 1,641 5,575 2,498 15,655 1,298,973 1,254
Consumer installment 212 - 104 - 316 44,384 7
Total $ 8,900 $ 1,641 $ 17,287 $ 3,051 $ 30,879 $ 5,407,231 $ 5,079
______________________________________
(1)Total loan balance includes $87 thousand in PPP loans as of December 31, 2024.
December 31, 2023
($ in thousands) Past Due
30 to 89
Days Past Due 90
Days or More
and
Still Accruing Nonaccrual PCD Total
Past Due,
Nonaccrual
and PCD Total
LHFI Nonaccrual
and PCD
with No
ACL
Commercial, financial, and agriculture (1) $ 2,043 $ 313 $ 353 $ 965 $ 3,674 $ 800,324 $ 465
Commercial real estate 1,698 630 3,790 647 6,765 3,059,155 410
Consumer real estate 3,992 220 1,806 3,098 9,116 1,252,795 680
Consumer installment 180 - 31 - 211 57,768 -
Total $ 7,913 $ 1,163 $ 5,980 $ 4,710 $ 19,766 $ 5,170,042 $ 1,555
______________________________________
(1)Total loan balance includes $386 thousand in PPP loans as of December 31, 2023.
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 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) BBI HSBI
Purchase price of loans at acquisition $ 27,669 $ 52,356
Allowance for credit losses at acquisition 1,303 3,176
Non-credit discount (premium) at acquisition 530 2,325
Par value of acquired loans at acquisition $ 29,502 $ 57,857
As of December 31, 2024 and 2023, the amortized cost of the Company’s PCD loans totaled $47.1 million and $57.8 million, respectively, which had an estimated ACL of $2.1 million and $3.7 million, respectively.
Loan Modifications
The Company adopted ASU No. 2022-02 effective January 1, 2023. These amendments eliminate the TDR recognition and measurement guidance and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, and other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.
The following table presents the amortized cost basis of loans at December 31, 2024 and December 31, 2023 that were both experiencing financial difficulty and modified during 2024 and 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:
($ in thousands)
December 31, 2024 Payment Modification Term Extension Payment Delay Combination Term Extension and Payment Modification Percentage of Total Loans Held for Investment
Commercial, financial, and agriculture $ - $ 100 $ 40 538 0.09 %
Commercial real estate - 3,172 - - 0.10 %
Consumer real estate 778 - - - 0.06 %
Total $ 778 $ 3,272 $ 40 538 0.09 %
December 31, 2023 Term Extension Percentage of Total Loans Held for Investment
Commercial real estate $ 581 0.02 %
Total $ 581 0.02 %
The following table details the financial effect of the loan modification presented above to borrowers experiencing financial difficulty for the periods presented:
December 31, 2024 Payment Modification Term Extension Payment Delay Combination Term Extension and Payment Modification
Commercial, financial, and agriculture One loan with maturity date extension of 90 days.
One loan with payment deferred for 90 days.
One loan with maturity date extension of 36 months, and re-amortization of 180 months.
Commercial real estate Two loans with maturity date extension of 90 days.
Consumer real estate Two loans were converted from principal and interest to interest only for 6 months.
The Company has not committed to lend additional amounts to the borrowers included in the previous table.
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last 12 months as of December 31, 2024. There were no modified loans that were past due as of December 31, 2023.
($ in thousands)
December 31, 2024 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due
Commercial, financial and agriculture $ 40 $ - 100 $ 140
Commercial real estate 2,453 - 719 3,172
Total $ 2,493 $ - 819 $ 3,312
During the year ended December 31, 2024, the Company had payment delay balances of $40 thousand at default for LHFI in commercial, financial and agriculture portfolio that has a payment default and were modified within the twelve months prior to that default to borrowers experiencing financial difficulty.
Collateral Dependent Loans
The following table presents the amortized cost basis of collateral dependent individually evaluated loans by class of loans as of December 31, 2024 and 2023:
($ in thousands)
December 31, 2024 Real Property Equipment Miscellaneous Total
Commercial financial, and agriculture $ - $ 335 $ 759 $ 1,094
Commercial real estate 3,697 - - 3,697
Consumer real estate 2,412 - - 2,412
Consumer installment - - 7 7
Total $ 6,109 $ 335 $ 766 $ 7,210
Collateral Value $ 10,863 $ - $ 812
December 31, 2023 Real Property Equipment Miscellaneous Total
Commercial financial, and agriculture $ - $ 496 $ 918 $ 1,414
Commercial real estate 710 - - 710
Consumer real estate 778 - - 778
Total $ 1,488 $ 496 $ 918 $ 2,902
Collateral Value $ 3,675 $ 237 $ 1,293
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The following provides a qualitative description by class of loan of the collateral that secures the Company’s collateral dependent LHFI:
•Commercial, financial and agriculture - Loans within these loan classes are secured by equipment, inventory accounts, and other non-real estate collateral.
•Commercial real estate - Loans within these loan classes are secured by commercial real property.
•Consumer real estate - Loans within these loan classes are secured by consumer real property.
•Consumer installment - Loans within these loan classes are secured by consumer goods, equipment, and non-real estate collateral.
There have been no significant changes to the collateral that secures these financial assets during the period.
Loan Participations
The Company has loan participations, which qualify as participating interest, with other financial institutions. As of December 31, 2024, these loans totaled $328.9 million, of which $184.2 million had been sold to other financial institutions and $144.7 million was purchased by the Company. 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. 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: Loans 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.
The above classifications were the most current available as of December 31, 2024, 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, 2024 and 2023. Revolving loans converted to term as of year ended December 31, 2024 and 2023 were not material to the total loan portfolio.
($ in thousands) Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2024
2024 2023 2022 2021 2020 Prior Revolving
Loans Total
Commercial, financial and agriculture:
Risk Rating
Pass $ 103,910 $ 80,584 $ 104,382 $ 81,209 $ 30,397 $ 74,472 $ 249,088 $ 724,042
Special mention - 302 31 850 2,232 839 513 4,767
Substandard 1,536 1,645 497 625 601 1,682 4,798 11,384
Doubtful - - - - - - - -
Total commercial, financial and agriculture $ 105,446 $ 82,531 $ 104,910 $ 82,684 $ 33,230 $ 76,993 $ 254,399 $ 740,193
Current period gross write offs $ 10 $ 103 $ 337 $ 312 $ 14 $ 397 $ - $ 1,173
Commercial real estate:
Risk Rating
Pass $ 511,293 $ 400,874 $ 804,242 $ 497,248 $ 331,632 $ 691,589 $ 2,946 $ 3,239,824
Special mention 2,221 191 950 10,283 2,835 15,246 - 31,726
Substandard 580 1,291 13,079 4,754 1,493 30,934 - 52,131
Doubtful - - - - - - - -
Total commercial real estate $ 514,094 $ 402,356 $ 818,271 $ 512,285 $ 335,960 $ 737,769 $ 2,946 $ 3,323,681
Current period gross write offs $ - $ 70 $ - $ 20 $ - $ 71 $ - $ 161
Consumer real estate:
Risk Rating
Pass $ 181,376 $ 139,557 $ 302,890 $ 192,508 $ 114,554 $ 183,973 $ 160,289 $ 1,275,147
Special mention 98 530 634 484 - 1,012 717 3,475
Substandard 610 1,566 3,019 1,356 2,281 9,110 2,409 20,351
Doubtful - - - - - - - -
Total consumer real estate $ 182,084 $ 141,653 $ 306,543 $ 194,348 $ 116,835 $ 194,095 $ 163,415 $ 1,298,973
Current period gross write offs $ - $ 11 $ 358 $ - $ - $ 153 $ - $ 522
Consumer installment:
Risk Rating
Pass $ 13,871 $ 10,725 $ 6,239 $ 4,360 $ 1,340 $ 1,315 $ 6,358 $ 44,208
Special mention - - - - - - - -
Substandard - 56 82 7 19 - 12 176
Doubtful - - - - - - - -
Total consumer installment $ 13,871 $ 10,781 $ 6,321 $ 4,367 $ 1,359 $ 1,315 $ 6,370 $ 44,384
Current period gross write offs $ 274 $ 361 $ 212 $ 118 $ 77 $ 953 $ 43 $ 2,038
Total
Pass $ 810,450 $ 631,740 $ 1,217,753 $ 775,325 $ 477,923 $ 951,349 $ 418,681 $ 5,283,221
Special mention 2,319 1,023 1,615 11,617 5,067 17,097 1,230 39,968
Substandard 2,726 4,558 16,677 6,742 4,394 41,726 7,219 84,042
Doubtful - - - - - - - -
Total $ 815,495 $ 637,321 $ 1,236,045 $ 793,684 $ 487,384 $ 1,010,172 $ 427,130 $ 5,407,231
Current period gross write offs $ 284 $ 545 $ 907 $ 450 $ 91 $ 1,574 $ 43 $ 3,894
($ 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 $ 102,263 $ 150,420 $ 113,487 $ 47,313 $ 36,065 $ 64,020 $ 281,646 $ 795,214
Special mention - - - 141 797 3 10 951
Substandard 451 330 121 185 550 1,894 628 4,159
Doubtful - - - - - - - -
Total commercial, financial and agriculture $ 102,714 $ 150,750 $ 113,608 $ 47,639 $ 37,412 $ 65,917 $ 282,284 $ 800,324
Current period gross write offs 14 51 225 139 206 110 - 745
Commercial real estate:
Risk Rating
Pass $ 385,954 $ 825,505 $ 558,742 $ 377,085 $ 253,746 $ 569,428 $ 6,397 $ 2,976,857
Special mention - 660 6,118 3,111 9,545 22,648 - 42,082
Substandard 136 7,293 393 566 5,427 26,401 - 40,216
Doubtful - - - - - - - -
Total commercial real estate $ 386,090 $ 833,458 $ 565,253 $ 380,762 $ 268,718 $ 618,477 $ 6,397 $ 3,059,155
Current period gross write offs - - 193 - - 57 - 250
Consumer real estate:
Risk Rating
Pass $ 176,144 $ 334,056 $ 219,071 $ 127,539 $ 59,615 $ 163,464 $ 153,821 $ 1,233,710
Special mention - 1,081 - - 643 3,246 412 5,382
Substandard 502 404 511 1,559 514 6,988 3,225 13,703
Doubtful - - - - - - - -
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 5 19 - - - 25 - 49
Consumer installment:
Risk Rating
Pass $ 24,482 $ 12,408 $ 7,316 $ 2,919 $ 1,213 $ 1,195 $ 8,156 $ 57,689
Special mention - - - - - - - -
Substandard - 8 17 42 11 - 1 79
Doubtful - - - - - - - -
Total consumer installment $ 24,482 $ 12,416 $ 7,333 $ 2,961 $ 1,224 $ 1,195 $ 8,157 $ 57,768
Current period gross write offs 226 567 223 179 156 576 121 2,048
Total
Pass $ 688,843 $ 1,322,389 $ 898,616 $ 554,856 $ 350,639 $ 798,107 $ 450,020 $ 5,063,470
Special mention - 1,741 6,118 3,252 10,985 25,897 422 48,415
Substandard 1,089 8,035 1,042 2,352 6,502 35,283 3,854 58,157
Doubtful - - - - - - - -
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
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.
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.
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, 2024, 2023, and 2022.
December 31, 2024
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Consumer
Installment Total
Allowance for credit losses:
Beginning balance $ 8,844 $ 29,125 $ 15,260 $ 803 $ 54,032
Provision for credit losses 3,213 (173) 53 665 3,758
Loans charged-off (1,173) (161) (522) (2,038) (3,894)
Recoveries 319 676 85 1,229 2,309
Total ending allowance balance $ 11,203 $ 29,467 $ 14,876 $ 659 $ 56,205
December 31, 2023
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Consumer
Installment Total
Allowance for credit losses:
Beginning balance $ 6,349 $ 20,389 $ 11,599 $ 580 $ 38,917
Initial allowance on PCD loans 727 2,260 182 7 3,176
Provision for credit losses 2,164 6,610 3,279 1,697 13,750
Loans charged-off (745) (250) (49) (2,048) (3,092)
Recoveries 349 116 249 567 1,281
Total ending allowance balance $ 8,844 $ 29,125 $ 15,260 $ 803 $ 54,032
December 31, 2022
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Consumer
Installment Total
Allowance for credit losses:
Beginning balance $ 4,873 $ 17,552 $ 7,889 $ 428 $ 30,742
Initial allowance on PCD loans 614 576 113 - 1,303
Provision for credit losses 688 1,742 2,786 134 5,350
Loans charged-off (259) (72) (204) (683) (1,218)
Recoveries 433 591 1,015 701 2,740
Total ending allowance balance $ 6,349 $ 20,389 $ 11,599 $ 580 $ 38,917
The provision for credit losses for the year ended December 31, 2024 was $3.8 million, compared to $13.8 million, for the year ended December 31, 2023, and $5.4 million for the year ended December 31, 2022. The 2024 provision for credit losses decreased $10.0 million, or 72.7% when compared to the same period in 2023 and is attributed to the acquisition of HSBI in January 2023 and was partially offset by loan growth. 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 2023 provision for credit losses increased $8.4 million, compared to the same period in 2022. The 2023 increase is related to the HSBI acquisition mentioned above and loan growth. 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.
Total loans were $5.351 billion at December 31, 2024, compared to $5.116 billion at December 31, 2023, and $3.774 billion at December 31, 2022.
The following table provides the ending balance in the Company’s LHFI and the ACL, broken down by portfolio segment as of December 31, 2024 and 2023. The table also provides additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation.
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Consumer
Installment Total
December 31, 2024
LHFI
Individually evaluated $ 1,094 $ 3,697 $ 2,412 $ 7 $ 7,210
Collectively evaluated 739,099 3,319,984 1,296,561 44,377 5,400,021
Total $ 740,193 $ 3,323,681 $ 1,298,973 $ 44,384 $ 5,407,231
Allowance for Credit Losses
Individually evaluated $ 543 $ - $ 52 $ - $ 595
Collectively evaluated 10,660 29,467 14,824 659 55,610
Total $ 11,203 $ 29,467 $ 14,876 $ 659 $ 56,205
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Consumer
Installment Total
December 31, 2023
LHFI
Individually evaluated $ 1,414 $ 710 $ 778 $ - $ 2,902
Collectively evaluated 798,910 3,058,445 1,252,017 57,768 5,167,140
Total $ 800,324 $ 3,059,155 $ 1,252,795 $ 57,768 $ 5,170,042
Allowance for Credit Losses
Individually evaluated $ 408 $ - $ - $ - $ 408
Collectively evaluated 8,436 29,125 15,260 803 53,624
Total $ 8,844 $ 29,125 $ 15,260 $ 803 $ 54,032
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) 2024 2023
Premises:
Land $ 48,416 $ 48,460
Buildings and improvements 126,759 126,013
Equipment 43,429 41,788
Construction in progress 1,879 1,808
220,483 218,069
Less accumulated depreciation and amortization 50,687 43,760
Total $ 169,796 $ 174,309
The amounts charged to occupancy expense for depreciation were $7.3 million, $7.4 million, and $5.7 million in 2024, 2023 and 2022, respectively.
NOTE G - DEPOSITS
Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at December 31, 2024 and 2023, were $303.2 million and $292.9 million, respectively.
At December 31, 2024, the scheduled maturities of time deposits included in interest-bearing deposits were as follows:
($ in thousands)
Year Amount
2025 $ 1,231,068
2026 30,763
2027 10,450
2028 13,356
2029 9,758
Thereafter 6,213
Total $ 1,301,608
NOTE H - BORROWED FUNDS
At December 31, 2024 and 2023, borrowed funds consisted of the following:
($ in thousands) 2024 2023
Bank Term Funding Program $ - $ 390,000
FHLB advances 210,000 -
Total $ 210,000 $ 390,000
In 2024, each advance from the FHLB was payable at its maturity date in January 2025, with a prepayment penalty for fixed rate advances. Interest was payable monthly at rates ranging from 4.50% to 4.56%. 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 2024, advances due to the FHLB were collateralized by $4.265 billion in loans. Based on this collateral and holdings of FHLB stock, the Company is eligible to borrow up to a total of $1.984 billion and $2.051 billion at December 31, 2024 and 2023, 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 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 $398.1 million. The Bank's BTFP borrowings, which were drawn between March 15, 2023 and December 28, 2023, bear interest rates ranging from 4.69% to 4.83% and are set to mature one year from their issuance date. The BTFP borrowings were paid off on 2024.
Payments over the next five years are as follows:
($ in thousands)
2025 $ 210,000
NOTE I - LEASE OBLIGATIONS
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 7 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 furniture 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.
The following table details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at December 31, 2024 and 2023.
($ in thousands) December 31,
2024 December 31,
Right-of-use assets:
Operating leases $ 6,102 $ 6,387
Finance leases, net of accumulated depreciation 1,002 1,466
Total right-of-use assets $ 7,104 $ 7,853
Lease liabilities:
Operating lease $ 6,273 $ 6,550
Finance lease 1,556 1,739
Total lease liabilities $ 7,829 $ 8,289
Weighted average remaining lease term
Operating leases 6.7 years 7.2 years
Finance leases 6.9 years 7.9 years
Weighted average discount rate
Operating leases 2.2% 2.0%
Finance leases 2.2% 2.2%
The table below summarizes our net lease costs.
($ in thousands) December 31,
2024 2023 2022
Operating lease cost $ 1,489 $ 1,504 $ 1,464
Finance lease cost:
Interest on lease liabilities 36 40 44
Amortization of right-of-use 464 464 464
Net lease cost $ 1,989 $ 2,008 $ 1,972
The table below summarizes the maturity of remaining lease liabilities at December 31, 2024.
($ in thousands) December 31, 2024
Operating Leases Finance Leases
2025 $ 1,179 $ 220
2026 1,098 222
2027 908 252
2028 855 252
2029 769 252
Thereafter 2,004 483
Total lease payments 6,813 1,681
Less: Interest (540) (125)
Present value of lease liabilities $ 6,273 $ 1,556
NOTE J - REGULATORY MATTERS
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, 2024, 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, 2024 and 2023 are presented in the following table. No amount was deducted from capital for interest-rate risk exposure.
($ in thousands)
December 31, 2024 Company
(Consolidated) Subsidiary
The First
Amount Ratio
Amount Ratio
Total risk-based $ 960,381 15.6 % $ 946,568 15.4 %
Common equity Tier 1 781,326 12.7 % 890,438 14.5 %
Tier 1 risk-based 805,633 13.1 % 890,438 14.5 %
Tier 1 leverage 805,633 10.5 % 890,438 11.6 %
December 31, 2023 Amount Ratio
Amount Ratio
Total risk-based $ 892,310 15.0 % $ 875,071 14.8 %
Common equity Tier 1 715,858 12.1 % 821,246 13.8 %
Tier 1 risk-based 740,113 12.5 % 821,246 13.8 %
Tier 1 leverage 740,113 9.7 % 821,246 10.7 %
The minimum amounts of capital and ratios, not including Accumulated Other Comprehensive Income, as established by banking regulators at December 31, 2024, and 2023, were as follows:
($ in thousands)
December 31, 2024 Company
(Consolidated) Subsidiary
The First
Amount Ratio
Amount Ratio
Total risk-based $ 493,306 8.0 % $ 492,551 8.0 %
Common equity Tier 1 277,485 4.5 % 277,060 4.5 %
Tier 1 risk-based 369,979 6.0 % 369,413 6.0 %
Tier 1 leverage 246,653 4.0 % 246,276 4.0 %
December 31, 2023 Amount Ratio
Amount Ratio
Total risk-based $ 475,183 8.0 % $ 474,679 8.0 %
Common equity Tier 1 267,291 4.5 % 267,007 4.5 %
Tier 1 risk-based 356,387 6.0 % 356,009 6.0 %
Tier 1 leverage 237,592 4.0 % 237,339 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 2024, the Bank had available $125.3 million to pay dividends.
NOTE K - INCOME TAXES
The components of income tax expense are as follows:
($ in thousands) Years Ended December 31,
2024 2023 2022
Current:
Federal $ 14,641 $ 11,754 $ 12,071
State 2,926 2,587 2,759
Deferred 3,204 7,006 940
Total income tax expense $ 20,771 $ 21,347 $ 15,770
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) Years Ended December 31,
2024 2023 2022
Amount % Amount % Amount %
Income taxes at statutory rate $ 20,573 21 % $ 20,289 21 % $ 16,525 21 %
Tax-exempt income, net (1,196) (1) % (1,696) (2) % (2,369) (3) %
Nondeductible expenses 183 - % 144 - % 391 - %
State income tax, net of federal tax effect 3,492 4 % 3,064 4 % 2,251 3 %
Federal tax credits, net (715) (1) % (715) (1) % (715) (1) %
Other, net (1,566) (2) % 261 - % (313) - %
$ 20,771 21 % $ 21,347 22 % $ 15,770 20 %
The components of deferred income taxes included in the consolidated financial statements were as follows:
($ in thousands) December 31,
2024 2023
Deferred tax assets:
Allowance for credit losses $ 14,060 $ 13,276
Net operating loss carryover 23,753 27,256
Nonaccrual loan interest 919 826
Other real estate 659 1,092
Deferred compensation 1,126 1,161
Loan purchase accounting 4,461 6,438
Unrealized loss on available-for-sale securities 38,649 38,776
Lease liability 1,958 2,037
Other 4,588 5,014
90,173 95,876
Deferred tax liabilities:
Securities (271) (560)
Premises and equipment (9,048) (9,017)
Core deposit intangible (14,132) (16,094)
Goodwill (2,971) (2,651)
Right-of-use asset (1,777) (1,929)
Other (1,142) (1,461)
(29,341) (31,712)
Net deferred tax asset/(liability), included in other assets $ 60,832 $ 64,164
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. $205.1 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, 2024, 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 2020.
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 2024, $1.5 million in 2023, and $1.2 million in 2022.
The Company-sponsored Employee Stock Ownership Plan (ESOP) maintained for employees of the Company and the Bank who had completed one year of service and attained age 21, was terminated effective May 31, 2024. No employee was eligible to begin participation in the ESOP after that date. All participants in the ESOP on the May 31, 2024 termination date became 100% vested in their account balances. Contributions to the plan are at the discretion of the Board of Directors, and no contribution was made for 2024. Benefit distributions will be made to the participants and the ESOP will be liquidated as soon as administratively feasible following receipt of a favorable determination letter from the Internal Revenue Service in connection with the termination. At December 31, 2024, the ESOP held 5,728 shares valued at $200 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 $30 thousand for 2024, $24 thousand for 2023, and $33 thousand for 2022.
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, 2024 and 2023 was $6.3 million and $4.6 million, respectively. The Company accrued to expense $1.7 million for 2024, $951 thousand for 2023, and $945 thousand for 2022 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, 2024, the total liability of the deferred compensation agreements was $677 thousand, $1.1 million, $2.4 million, and $193 thousand, respectively. Deferred compensation expense totaled $9 thousand, $102 thousand, $128 thousand, and $19 thousand, respectively for 2024.
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. In 2024, 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 1,615,000 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 668,722 at year-end 2024, and 164,844 and 167,173 shares were issued in 2024 and 2023, respectively.
A summary of changes in the Company’s nonvested shares for the year follows:
Nonvested shares Shares Weighted-
Average
Grant-Date
Fair Value
Nonvested at January 1, 2024 464,941 $ 31.08
Granted 164,844
Vested (195,543)
Forfeited (26,561)
Nonvested at December 31, 2024
407,681 $ 29.39
As of December 31, 2024, there was $6.9 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, 2024, 2023 and 2022 was $6.6 million, $1.7 million, and $2.5 million.
Compensation cost in the amount of $4.6 million was recognized for the year ended December 31, 2024, $2.3 million was recognized for the year ended December 31, 2023 and $2.4 million for the year ended December 31, 2022. 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).
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 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 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 $123.7 million of subordinated debt, net of deferred issuance costs $1.4 million and unamortized fair value mark $1.7 million, at December 31, 2024, compared to $123.4 million, net of deferred issuance costs $1.6 million and unamortized fair value mark $2.1 million, at December 31, 2023.
NOTE O - TREASURY STOCK
Shares held in treasury totaled 1,249,607 at December 31, 2024, December 31, 2023 and December 31, 2022.
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 expired on December 31, 2024.
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 $24.1 million and $23.7 million at December 31, 2024 and 2023, respectively. The activity in loans to current directors, executive officers, and their affiliates during the year ended December 31, 2024, is summarized as follows:
($ in thousands)
Loans outstanding at beginning of year $ 23,680
Advances/new loans 1,204
Removed/payments (756)
Loans outstanding at end of year $ 24,128
Deposits from principal officers, directors, and their affiliates at year-end 2024 and 2023 were $18.0 million and $15.6 million.
NOTE Q - COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business, there are outstanding various commitments and contingent liabilities, such as guaranties, commitments to extend credit, overdraft protection, etc., which are not reflected in the accompanying financial statements. Commitments to extend credit and letters of credit include some exposure to credit loss in the event of nonperformance of the customer. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit policies and procedures for such commitments are the same as those used for lending activities. Because these instruments have fixed maturity dates and because a number expire without being drawn upon, they generally do not present any significant liquidity risk. No significant losses on commitments were incurred during the years ended December 31, 2024 and 2023, nor are any significant losses as a result of these transactions anticipated.
The contractual amounts of financial instruments with off-balance-sheet risk at year-end were as follows:
2024 2023
($ in thousands) Fixed Rate
Variable Rate
Fixed Rate
Variable Rate
Commitments to make loans $ 23,430 $ 39,796 $ 34,380 $ 50,226
Unused lines of credit 126,592 706,585 231,335 605,646
Standby letters of credit 13,405 16,331 15,573 13,114
Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 0.0% to 19.0% 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, 2024 and 2023. The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Changes in the ACL on OBSC exposures were as follows for the presented periods:
($ in thousands) 2024 2023 2022
Balance at beginning of period $ 2,075 $ 1,325 $ 1,070
Credit loss expense related to OBSC exposures 32 750 255
Balance at end of period $ 2,107 $ 2,075 $ 1,325
Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses OBSC exposures. The Company recorded $32 thousand, $750 thousand, and $255 thousand to the provision for credit losses OBSC exposures for the years ended December 31, 2024, 2023, and 2022 respectively. The decrease in the ACL on OBSC exposures for the year ended December 31, 2024 compared to the same period in 2023 was due to the day one provision for unfunded commitments related to the HSBI acquisition and an increase in unfunded commitments. 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 acquisition of HSBI mentioned above.
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 109 full-service banking and financial service offices, one motor bank facility and six 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, 2024, 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: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.
Level 2: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; 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 U.S. Treasury, 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). Level 3 securities include obligations of states and political subdivisions and corporate obligations.
Equity Securities - The fair value of equity securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).
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, 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 financial instruments 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, 2024 and 2023:
December 31, 2024 Fair Value Measurements
($ in thousands) Fair Value Quoted Prices in
Active Markets
For
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets:
Available-for-sale
U.S. Treasury $ 5,233 $ - $ 5,233 $ -
Obligations of U.S. government agencies and sponsored entities 96,225 - 96,225 -
Municipal securities 399,532 - 375,907 23,625
Mortgage-backed Securities 472,418 - 472,418 -
Corporate obligations 29,895 - 29,866 29
Total investment securities available-for-sale $ 1,003,303 $ - $ 979,649 $ 23,654
Equity Securities $ 15,684 $ 15,684 $ - $ -
Loans held for sale $ 3,687 $ - $ 3,687 $ -
Interest rate swaps $ 10,509 $ - $ 10,491 $ 18
Liabilities:
Interest rate swaps $ 10,510 $ - $ 10,491 $ 19
December 31, 2023 Fair Value Measurements
($ in thousands) Fair Value Quoted Prices in
Active Markets
For
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets:
Available-for-sale
U.S. Treasury $ 16,675 $ 16,675 $ - $ -
Obligations of U.S. government agencies and sponsored entities 104,923 - 104,923 -
Municipal securities 438,466 - 420,283 18,183
Mortgage-backed securities 441,661 - 441,661 -
Corporate obligations 37,597 - 37,567 30
Other 3,043 - 3,043 $ -
Total investment securities available-for-sale $ 1,042,365 $ 16,675 $ 1,007,477 $ 18,213
Loans held for sale $ 2,914 $ - $ 2,914 $ -
Interest rate swaps $ 12,170 $ - $ 12,129 $ 41
Liabilities:
Interest rate swaps $ 12,175 $ - $ 12,129 $ 46
The following is a reconciliation of activity for assets measured at fair value based on significant unobservable (Level 3) information:
Bank-Issued Trust
Preferred Securities
($ in thousands) 2024 2023
Balance, January 1 $ 30 $ 31
Paydowns (1) (1)
Balance, December 31
$ 29 $ 30
Municipal Securities
($ in thousands) 2024 2023
Balance, January 1 $ 18,183 $ 15,117
Maturities, calls and paydowns (2,198) (2,639)
Transfer from level 2 to level 3 8,035 6,085
Transfer from level 3 to level 2 (270) -
Unrealized (loss) gain included in comprehensive income (125) (380)
Balance, December 31
$ 23,625 $ 18,183
Interest Rate Swaps - Risk Participations
($ in thousands) 2024 2023
Balance, January 1, net $ (5) $ -
RPA-in 27 (46)
RPA-out (23) 41
Balance at December 31, net
$ (1) $ (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, 2024 and 2023. The following tables present quantitative information about recurring Level 3 fair value measurements:
($ in thousands)
Bank-Issued Trust Preferred Securities Fair Value Valuation Technique Significant Unobservable
Inputs Range of Inputs
December 31, 2024 $ 29 Discounted cash flow Discount rate 6.74% - 6.91%
December 31, 2023 $ 30 Discounted cash flow Discount rate 7.81% - 7.89%
Municipal Securities Fair Value Valuation Technique Significant Unobservable
Inputs Range of Inputs
December 31, 2024 $ 23,625 Discounted cash flow Discount rate 2.65% - 6.10%
December 31, 2023 $ 18,183 Discounted cash flow Discount rate 2.34% - 5.50%
Interest Rate Swaps - Risk Participations Fair Value Valuation Technique Significant Unobservable
Inputs Range of Inputs
December 31, 2024 $ (1) Credit Value Adjustment Credit Spread 225 bps - 300 bps
Recovery Rate 70%
December 31, 2023 $ (5) Credit Value Adjustment 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 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, 2024, amounted to $7.9 million. Other real estate owned is classified within Level 3 of the fair value hierarchy.
The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements were reported at December 31, 2024 and 2023:
Fair Value Measurements Using
($ in thousands) Fair Value Quoted Prices in
Active Markets
For
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
December 31, 2024
Collateral dependent loans $ 6,615 $ - $ - $ 6,615
Other real estate owned 7,874 - - 7,874
December 31, 2023
Collateral dependent loans $ 2,494 $ - $ - $ 2,494
Other real estate owned 8,320 - - 8,320
Estimated fair values for the Company's financial instruments are as follows, as of the date noted:
Fair Value Measurements
December 31, 2024 Carrying
Amount Estimated
Fair Value Quoted
Prices
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
($ in thousands)
Financial Instruments:
Assets:
Cash and cash equivalents $ 220,411 $ 220,411 $ 220,411 $ - $ -
Securities available-for-sale 1,003,303 1,003,303 - 979,649 23,654
Securities held-to-maturity 582,939 537,275 - 526,743 10,532
Equity securities 15,684 15,684 15,684 - -
Loans held for sale 3,687 3,687 - 3,687 -
Loans, net 5,351,026 5,132,544 - - 5,132,544
Accrued interest receivable 34,002 34,002 - 8,160 25,842
Interest rate swaps 10,509 10,509 - 10,491 18
Liabilities:
Non-interest-bearing deposits $ 1,796,685 $ 1,796,685 $ - $ 1,796,685 $ -
Interest-bearing deposits 4,808,171 4,644,812 - 4,644,812 -
Subordinated debentures 123,731 111,709 - - 111,709
FHLB and other borrowings 210,000 210,000 - 210,000 -
Accrued interest payable 13,856 13,856 - 13,856 -
Interest rate swaps 10,510 10,510 - 10,491 19
Fair Value Measurements
December 31, 2023 Carrying
Amount Estimated
Fair Value Quoted
Prices
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
($ in thousands)
Financial Instruments:
Assets:
Cash and cash equivalents $ 355,147 $ 355,147 $ 355,147 $ - $ -
Securities available-for-sale 1,042,365 1,042,365 16,675 1,007,477 18,213
Securities held-to-maturity 654,539 615,944 - 615,944 -
Loans held for sale 2,914 2,914 - 2,914 -
Loans, net 5,116,010 4,877,935 - - 4,877,935
Accrued interest receivable 33,300 33,300 - 8,632 24,668
Interest rate swaps 12,170 12,170 - 12,129 41
Liabilities:
Non-interest-bearing deposits $ 1,849,013 $ 1,849,013 $ - $ 1,849,013 $ -
Interest-bearing deposits 4,613,859 4,430,227 - 4,430,227 -
Subordinated debentures 123,386 109,426 - - 109,426
FHLB and other borrowings 390,000 390,000 - 390,000 -
Accrued interest payable 22,702 22,702 - 22,702 -
Interest rate swaps 12,175 12,175 - 12,129 46
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 Other real estate owned (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 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, 2024, 2023, and 2022. Items outside the scope of ASC 606 are noted as such.
($ in thousands) Year Ended December 31, 2024
Commercial/
Retail
Bank Mortgage
Banking
Division Holding
Company Total
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees $ 8,095 $ 4 $ - $ 8,099
Other 5,804 2 - 5,806
Interchange income 17,914 - - 17,914
Investment brokerage fees 1,829 - - 1,829
Net gains on OREO (87) - - (87)
Net losses on sales of securities (1) (31) - - (31)
Loss on premises and equipment (183) - - (183)
Gain on sale of loans 2,323 - - 2,323
Other 10,728 3,348 16 14,092
Total non-interest income $ 46,392 $ 3,354 $ 16 $ 49,762
($ in thousands) Year Ended December 31, 2023
Commercial/
Retail
Bank Mortgage
Banking
Division Holding
Company Total
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees $ 8,154 $ - $ - $ 8,154
Other 6,021 - - 6,021
Interchange income 18,914 - - 18,914
Investment brokerage fees 1,623 - - 1,623
Net gains on OREO 6 - - 6
Net losses on sales of securities (1) (9,716) - - (9,716)
Gain on premises and equipment 35 - - 35
Gain on sale of loans 1,512 - - 1,512
Other 10,307 2,866 6,983 20,156
Total non-interest income $ 36,856 $ 2,866 $ 6,983 $ 46,705
($ in thousands) Year Ended December 31, 2022
Commercial/
Retail
Bank Mortgage
Banking
Division Holding
Company Total
Revenue by Operating Segments
Non-interest income
Service charges on deposits
Overdraft fees $ 4,023 $ 93 $ - $ 4,116
Other 8,679 - - 8,679
Interchange income 12,702 - - 12,702
Investment brokerage fees 1,566 - - 1,566
Net gains on OREO 214 - - 214
Net losses on sales of securities (1) (82) - - (82)
Gain on acquisition (1) 281 - - 281
Loss on premises and equipment (116) - - (116)
Other 2,724 4,210 2,667 9,601
Total non-interest income $ 29,991 $ 4,303 $ 2,667 $ 36,961
___________________________________
(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) follows:
Condensed Balance Sheets
December 31,
($ in thousands) 2024 2023
Assets:
Cash and cash equivalents $ 7,077 $ 13,485
Investment in subsidiary bank 1,116,307 1,056,369
Investments in statutory trusts 806 806
Bank owned life insurance 365 348
Other 6,514 3,275
$ 1,131,069 $ 1,074,283
Liabilities and Stockholders’ Equity:
Subordinated debentures $ 123,731 $ 123,386
Other 1,907 1,863
Stockholders’ equity 1,005,431 949,034
$ 1,131,069 $ 1,074,283
Condensed Statements of Income
Years Ended December 31,
($ in thousands) 2024 2023 2022
Income:
Interest and dividends $ 38 $ 36 $ 17
Dividend income 39,000 65,000 16,000
Other 16 6,983 2,667
39,054 72,019 18,684
Expenses:
Interest on borrowed funds 7,436 7,970 7,492
Legal and professional 868 1,136 593
Other 10,125 6,266 7,498
18,429 15,372 15,583
Income (loss) before income taxes and equity in undistributed income of subsidiary 20,625 56,647 3,101
Income tax benefit 4,649 2,005 3,263
Income (loss) before equity in undistributed income of subsidiary 25,274 58,652 6,364
Equity in undistributed income of subsidiary 51,920 16,805 56,555
Net income $ 77,194 $ 75,457 $ 62,919
Condensed Statements of Cash Flows
Years Ended December 31,
($ in thousands) 2024 2023 2022
Cash flows from operating activities:
Net income $ 77,194 $ 75,457 $ 62,919
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed income of Subsidiary (51,920) (16,805) (56,555)
Restricted stock expense 4,622 2,302 2,425
Other, net (3,472) 9,263 6,255
Net cash provided by operating activities 26,424 70,217 15,044
Cash flows from investing activities:
Investment in bank - - (1,300)
Other, net - - 290
Net cash (used in) investing activities - - (1,010)
Cash flows from financing activities:
Dividends paid on common stock (30,664) (27,550) (16,275)
Repurchase of restricted stock for payment of taxes (2,275) (361) (683)
Common stock repurchased - - (22,180)
Called/repayment of subordinated debt - (31,000) -
Other, net 107 (7,664) 216
Net cash (used in) financing activities (32,832) (66,575) (38,922)
Net increase (decrease) in cash and cash equivalents (6,408) 3,642 (24,888)
Cash and cash equivalents at beginning of year 13,485 9,843 34,731
Cash and cash equivalents at end of year $ 7,077 $ 13,485 $ 9,843
NOTE U - OPERATING SEGMENTS
The Company’s reportable segments are determined by the Chief Financial Officer, who is the designated chief operating decision maker, based upon information provided about the Company’s products and services offered, primarily distinguished between banking and mortgage banking operations. A third operating segment, Holding Company, is for the most part the parent holding company, as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part have little activity. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision maker evaluates the financial performance of the Company’s business components such as evaluating revenue streams, significant expenses and budget to actual results, in assessing the performance of the Company’s reportable segments and in the determination of allocating resources. Segment pretax profit or loss is used to assess the performance of the banking segment by monitoring the margin between interest revenue and interest expense. Segment pretax profit or loss is used to assess the performance of the mortgage banking segment by monitoring the premium received on loan sales. Loans, investments, and deposits provide the revenues in the banking operation. Loans, and deposits provide the revenues in mortgage banking, and loan sales provide the revenues in mortgage banking. Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operation, payroll expenses provide the significant expense in mortgage banking, and interest expense, employee benefits, and acquisition expenses provide the significant expenses for the holding company operations. All operations are domestic. Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated using income before income taxes. Indirect expenses are allocated
on revenue. Transactions among segments are made at fair value. Information reported internally for performance assessment by the chief operating decision maker follows, inclusive of reconciliations of significant segment totals to the financial statements.
The Company is considered to have three principal business segments in 2024, 2023, and 2022, the Commercial/Retail Bank, the Mortgage Banking Division, and the Holding Company.
($ in thousands) Year Ended December 31, 2024
Commercial/
Retail
Bank Mortgage
Banking
Division Holding
Company Total Segments
Interest income $ 369,455 $ 342 $ 38 $ 369,835
Interest expense 127,976 154 7,436 135,566
Net interest income (loss) 241,479 188 (7,398) 234,269
Provision (credit) for credit losses 3,790 - - 3,790
Net interest income (loss) after provision for credit losses 237,689 188 (7,398) 230,479
Non-interest income:
Service charges on deposit accounts 13,899 6 - 13,905
Other service charges and fees 2,713 - - 2,713
Interchange fees 17,914 - - 17,914
Bank owned life insurance 3,804 - 16 3,820
Securities (loss) gain (31) - - (31)
Other 8,093 3,348 - 11,441
Total non-interest income 46,392 3,354 16 49,762
Non-interest expense:
Salaries 77,473 2,948 - 80,421
Employee benefits 14,598 1,533 5,601 21,732
Occupancy 18,468 62 - 18,530
Furniture and equipment 4,325 - - 4,325
Professional and consulting fees 5,296 44 868 6,208
FDIC and OCC assessments 4,015 - - 4,015
ATM expense 7,226 - - 7,226
Bank communications and data processing 4,030 98 8 4,136
Acquisition expense/charter conversion 109 - 3,631 3,740
Amortization of core deposit intangible 9,533 - - 9,533
Other 21,084 441 885 22,410
Total non-interest expense 166,157 5,126 10,993 182,276
Income (loss) before income taxes 117,924 (1,584) (18,375) 97,965
Income tax (benefit) expense 25,821 (401) (4,649) 20,771
Net income (loss) $ 92,103 $ (1,183) $ (13,726) $ 77,194
Total Assets $ 7,979,880 $ 10,136 $ 14,762 $ 8,004,778
Net Loans 5,350,874 3,839 - 5,354,713
($ in thousands) Year Ended December 31, 2023
Commercial/
Retail
Bank Mortgage
Banking
Division Holding
Company Total Segments
Interest income $ 340,566 $ 331 $ 36 $ 340,933
Interest expense 83,497 141 7,970 91,608
Net interest income (loss) 257,069 190 (7,934) 249,325
Provision (credit) for loan losses 14,500 - - 14,500
Net interest income (loss) after provision for credit losses 242,569 190 (7,934) 234,825
Non-interest income:
Service charges on deposit accounts 14,175 - - 14,175
Other service charges and fees 3,177 - - 3,177
Interchange fees 18,914 - - 18,914
Bank owned life insurance 3,303 - 16 3,319
Securities (loss) gain (9,716) - - (9,716)
Other 7,003 2,866 6,967 16,836
Total non-interest income 36,856 2,866 6,983 46,705
Non-interest expense:
Salaries 73,563 3,046 - 76,609
Employee benefits 12,252 1,416 3,135 16,803
Occupancy 17,304 77 - 17,381
Furniture and equipment 3,987 - - 3,987
Professional and consulting fees 5,279 31 1,136 6,446
FDIC and OCC assessments 3,849 - - 3,849
ATM expense 5,821 - - 5,821
Bank communications and data processing 6,252 88 10 6,350
Acquisition expense/charter conversion 6,501 - 2,574 9,075
Amortization of core deposit intangible 9,563 - - 9,563
Other 27,762 533 547 28,842
Total non-interest expense 172,133 5,191 7,402 184,726
Income (loss) before income taxes 107,292 (2,135) (8,353) 96,804
Income tax (benefit) expense 23,892 (540) (2,005) 21,347
Net income (loss) $ 83,400 $ (1,595) $ (6,348) $ 75,457
Total Assets $ 7,971,373 $ 10,058 $ 17,914 $ 7,999,345
Net Loans 5,114,434 4,490 - 5,118,924
($ in thousands) Year Ended December 31, 2022
Commercial/
Retail
Bank Mortgage
Banking
Division Holding
Company Total Segments
Interest income $ 199,937 $ 439 $ 17 $ 200,393
Interest expense 14,979 106 7,492 22,577
Net interest income (loss) 184,958 333 (7,475) 177,816
Provision (credit) for loan losses 5,605 - - 5,605
Net interest income (loss) after provision for credit losses 179,353 333 (7,475) 172,211
Non-interest income:
Service charges on deposit accounts 8,575 93 - 8,668
Other service charges and fees 1,833 - - 1,833
Interchange fees 12,702 - - 12,702
Bank owned life insurance 1,998 - 103 2,101
Securities (loss) gain (82) - - (82)
Other 4,965 4,210 2,564 11,739
Total non-interest income 29,991 4,303 2,667 36,961
Non-interest expense:
Salaries 54,947 2,956 - 57,903
Employee benefits 10,135 1,925 3,114 15,174
Occupancy 12,752 102 - 12,854
Furniture and equipment 2,981 - - 2,981
Professional and consulting fees 2,914 51 593 3,558
FDIC and OCC assessments 2,122 - - 2,122
ATM expense 3,873 - - 3,873
Bank communications and data processing 4,006 105 4 4,115
Acquisition expense/charter conversion 2,514 - 3,896 6,410
Amortization of core deposit intangible 4,664 - - 4,664
Other 15,991 354 484 16,829
Total non-interest expense 116,899 5,493 8,091 130,483
Income (loss) before income taxes 92,445 (857) (12,899) 78,689
Income tax (benefit) expense 19,250 (217) (3,263) 15,770
Net income (loss) $ 73,195 $ (640) $ (9,636) $ 62,919
Total Assets $ 6,428,889 $ 18,194 $ 14,634 $ 6,461,717
Net Loans 3,734,659 5,024 - 3,739,683
NOTE V - 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, 2024.
The following table provides outstanding interest rate swaps at December 31, 2024 and December 31, 2023.
($ in thousands) December 31, 2024 December 31, 2023
Notional amount $ 602,121 $ 493,290
Weighted average pay rate 5.6 % 5.2 %
Weighted average receive rate 5.6 % 5.2 %
Weighted average maturity in years 4.85 5.39
The following table provides the fair value of interest rate swap contracts at December 31, 2024 and December 31, 2023 included in other assets and other liabilities.
($ in thousands) December 31, 2024 December 31, 2023
Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities
Interest rate swap contracts $ 10,509 $ 10,510 $ 12,170 $ 12,175
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, 2024 and December 31, 2023, the Company had $650 thousand and $500 thousand, respectively, 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, 2024 and December 31, 2023, net swap spread income included in other income was $1.1 million and $1.3 million, 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 publicly available credit rating information, evaluating other market indicators, and periodically reviewing detailed financials.
The Company records the fair value of its interest rate swap contracts separately within other assets and other liabilities as current accounting rules do not permit the netting of customer and counterparty fair value amounts in the consolidated statement of financial condition.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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, 2024. 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, 2024 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, 2024, the Company’s internal control over financial reporting was effective based on those criteria.
This Annual Report on Form 10-K contains an audit report of Forvis Mazars, LLP, our independent registered public accounting firm, regarding internal control over financial reporting for the fiscal year ended December 31, 2024 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 (Company) internal control over financial reporting as of December 31, 2024, 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, 2024, 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, 2024 and 2023, and for each of the years in the three-year period ended December 31, 2024, and our report dated March 3, 2025 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.
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; (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 Mazars, LLP
Jackson, Mississippi
March 3, 2025

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the quarter ended December 31, 2024, 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

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 June 12, 2025, which proxy materials will be filed with the SEC on or about April 30, 2025.

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ITEM 11. EXECUTIVE COMPENSATION
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 June 12, 2025, which proxy materials will be filed with the SEC on or about April 30, 2025.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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 June 12, 2025, which proxy materials will be filed with the SEC on or about April 30, 2025.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 June 12, 2025, which proxy materials will be filed with the SEC on or about April 30, 2025.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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 June 12, 2025, which proxy materials will be filed with the SEC on or about April 30, 2025.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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, 2024 and 2023
Consolidated statements of income - Years ended December 31, 2024, 2023, and 2022
Consolidated statements of other comprehensive income (loss) - Years ended December 31, 2024, 2023, and 2022
Consolidated statements of changes in stockholders’ equity- Years ended December 31, 2024, 2023 and 2022
Consolidated statements of cash flows -Years ended December 31, 2024, 2023, and 2022
Notes to consolidated financial statements - December 31, 2024, 2023, and 2022
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 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).
2.2 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).
2.3 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).
2.4 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).
2.5 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).
2.6 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).
2.7 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).
2.8 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).
2.9 Agreement and Plan of Merger, dated as of July 29, 2024, by and between Renasant Corporation and The First Bancshares, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on July 29, 2024).
3.1 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).
3.2 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).
3.3 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).
3.4 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).
3.5 Amendment No. 1 to the Amended and Restated Bylaws of The First Bancshares, Inc. effective as of May 7, 2020 (incorporated by reference to Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2020).
4.1 Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement No. 333-220491 on Form S-3 filed on September 15, 2017).
4.2 Form of Global Subordinated Note for The First Bancshares, Inc. 5.875% Fixed-to-Floating Rate Subordinated Notes Due 2028 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 1, 2018).
4.3 Form of Global Subordinated Note for The First Bancshares, Inc. 6.4% Fixed-to-Floating Rate Subordinated Notes Due 2023 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 1, 2018).
4.4 Indenture by and between The First Bancshares, Inc. and U.S. Bank National Association, dated September 25, 2020 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on September 25, 2020).
4.5 Form of Global Subordinated Note for The First Bancshares, Inc. 4.25% Fixed-to-Floating Rate Subordinated Notes Due 2030 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on September 25, 2020).
4.6 Description of Securities.
10.1 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).
10.2 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).
10.3 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).
10.4 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).+
10.5 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).+
10.6 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).+
10.7 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).+
10.8 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).+
10.9 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).+
10.10 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).+
10.11 Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First Bank and Milton R. Cole, Jr. (incorporated herein by reference to Exhibit 10.11 to The First Bancshares Annual Report on Form 10-K filed on February 29, 2024).+
10.12 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).+
10.13 Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First Bank and Milton R. Cole, Jr. (incorporated herein by reference to Exhibit 10.13 to The First Bancshares Annual Report on Form 10-K filed on February 29, 2024).+
10.14 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).+
10.15 Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First Bank and Donna T. Lowery (incorporated herein by reference to Exhibit 10.15 to The First Bancshares Annual Report on Form 10-K filed on February 29, 2024)..+
10.16 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).+
10.17 Amendment to Supplemental Executive Retirement Agreement dated February 26, 2024 between The First Bank and Donna T. Lowery (incorporated herein by reference to Exhibit 10.17 to The First Bancshares Annual Report on Form 10-K filed on February 29, 2024).+
10.18 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).+
10.19 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).+
10.20 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). +
10.21 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).
10.22 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).
10.23 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).
19.1 Insider Trading Policy.*
21.1 Subsidiaries of The First Bancshares, Inc.*
23.1 Consent of Forvis Mazars, LLP.*
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*
32.1 Section 1350 Certifications.**
97.1 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.
**Furnished herewith.
+ Denotes management contract or compensatory plan or arrangement.