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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to ________
Commission file number: 000-22507
THE FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
Mississippi | 64-0862173 |
(State of Incorporation) | (IRS Employer Identification No) |
| | | | | |
6480 U.S. Highway 98 West, Suite A, Hattiesburg, Mississippi | 39402 |
(Address of principal executive offices) | (Zip Code) |
(601) 268-8998
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $1.00 | FBMS | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☑ |
Non-accelerated filer | ☐ | Smaller Reporting Company | ☐ |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock, $1.00 par value, 32,339,839 shares issued and 31,090,232 outstanding as of November 1, 2023.
| | | | | | | | |
Auditor Firm PCAOB ID: 686 | Auditor Name: FORVIS, LLP | Auditor Location: Jackson, MS |
The First Bancshares, Inc.
Form 10-Q
Quarter Ended September 30, 2023
Index
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
| | | | | | | | | | | |
| (Unaudited) |
| September 30, 2023 | | December 31, 2022 |
ASSETS | | | |
Cash and due from banks | $ | 121,876 | | | $ | 67,176 | |
Interest-bearing deposits with banks | 75,756 | | | 78,139 | |
Total cash and cash equivalents | 197,632 | | | 145,315 | |
Securities available-for-sale, at fair value (amortized cost: $1,326,894 - 2023; $1,418,337 - 2022; allowance for credit losses: $0) | 1,141,971 | | | 1,257,101 | |
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $582,592 - 2023; $642,097 - 2022) | 658,524 | | | 691,484 | |
Other securities | 35,872 | | | 33,944 | |
Total securities | 1,836,367 | | | 1,982,529 | |
Loans held for sale | 5,960 | | | 4,443 | |
Loans held for investment | 5,089,800 | | | 3,774,157 | |
Allowance for credit losses | (53,565) | | | (38,917) | |
Net loans held for investment | 5,036,235 | | | 3,735,240 | |
Interest receivable | 30,542 | | | 27,723 | |
Premises and equipment | 175,716 | | | 143,518 | |
Operating lease right-of-use assets | 6,442 | | | 7,620 | |
Finance lease right-of-use assets | 1,582 | | | 1,930 | |
Cash surrender value of bank-owned life insurance | 133,540 | | | 95,571 | |
Goodwill | 272,672 | | | 180,254 | |
Other real estate owned | 4,920 | | | 4,832 | |
Other assets | 182,677 | | | 132,742 | |
Total assets | $ | 7,884,285 | | | $ | 6,461,717 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
Liabilities: | | | |
Deposits: | | | |
Noninterest-bearing | $ | 1,967,661 | | | $ | 1,630,203 | |
Interest-bearing | 4,512,364 | | | 3,864,201 | |
Total deposits | 6,480,025 | | | 5,494,404 | |
Interest payable | 13,800 | | | 3,324 | |
Borrowed funds | 302,000 | | | 130,100 | |
Subordinated debentures | 128,300 | | | 145,027 | |
Operating lease liabilities | 6,602 | | | 7,810 | |
Finance lease liabilities | 1,784 | | | 1,918 | |
Allowance for credit losses on off-balance sheet credit exposures | 2,075 | | | 1,325 | |
Other liabilities | 52,478 | | | 31,146 | |
Total liabilities | 6,987,064 | | | 5,815,054 | |
Shareholders’ equity: | | | |
Common stock, par value $1 per share, 80,000,000 shares authorized shares authorized; 32,343,411 shares issued at September 30, 2023, and par value $1 per share, 40,000,000 shares authorized; 25,275,369 shares issued at December 31, 2022 | 32,343 | | | 25,275 | |
Additional paid-in capital | 774,598 | | | 558,833 | |
Retained earnings | 296,559 | | | 252,623 | |
Accumulated other comprehensive (loss) income | (165,168) | | | (148,957) | |
Treasury stock, at cost, 1,249,607 shares at September 30, 2023 and at December 31, 2022 | (41,111) | | | (41,111) | |
Total shareholders’ equity | 897,221 | | | 646,663 | |
Total liabilities and shareholders’ equity | $ | 7,884,285 | | | $ | 6,461,717 | |
See Notes to Consolidated Financial Statements
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except earnings and dividends per share)
| | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | | (Unaudited) |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Interest and dividend income: | | | | | | | |
Interest and fees on loans | $ | 74,626 | | | $ | 42,274 | | | $ | 216,949 | | | $ | 111,091 | |
Interest and dividends on securities: | | | | | | | |
Taxable interest and dividends | 7,685 | | | 8,723 | | | 24,311 | | | 23,247 | |
Tax exempt interest | 2,929 | | | 2,875 | | | 8,825 | | | 8,077 | |
Interest on federal funds sold and interest-bearing deposits in other banks | 441 | | | 2 | | | 2,128 | | | 47 | |
Total interest income | 85,681 | | | 53,874 | | | 252,213 | | | 142,462 | |
Interest expense: | | | | | | | |
Interest on deposits | 19,572 | | | 2,748 | | | 46,611 | | | 6,937 | |
Interest on borrowed funds | 5,405 | | | 1,978 | | | 13,942 | | | 5,638 | |
Total interest expense | 24,977 | | | 4,726 | | | 60,553 | | | 12,575 | |
Net interest income | 60,704 | | | 49,148 | | | 191,660 | | | 129,887 | |
Provision for credit losses, LHFI | 1,000 | | | 4,300 | | | 12,500 | | | 4,750 | |
Provision for credit losses, OBSC exposures | — | | | — | | | 750 | | | 150 | |
Net interest income after provision for credit losses | 59,704 | | | 44,848 | | | 178,410 | | | 124,987 | |
Non-interest income: | | | | | | | |
Service charges on deposit accounts | 3,646 | | | 2,219 | | | 10,728 | | | 6,297 | |
(Loss) gain on securities | 2 | | | 1 | | | (46) | | | (82) | |
Gain on acquisition | — | | | — | | | — | | | 281 | |
Government awards/grants | 6,197 | | | — | | | 6,197 | | | 873 | |
BOLI death proceeds | — | | | — | | | — | | | 1,630 | |
(Loss) gain on sale of premises and equipment | (104) | | | — | | | 559 | | | (114) | |
Other | 9,583 | | | 6,802 | | | 26,921 | | | 19,958 | |
Total non-interest income | 19,324 | | | 9,022 | | | 44,359 | | | 28,843 | |
Non-interest expense: | | | | | | | |
Salaries and employee benefits | 22,807 | | | 19,099 | | | 69,695 | | | 53,135 | |
Occupancy and equipment | 5,343 | | | 3,826 | | | 15,680 | | | 11,530 | |
Acquisition expense/charter conversion | 588 | | | 3,640 | | | 8,482 | | | 5,220 | |
Other | 18,986 | | | 9,338 | | | 46,436 | | | 25,563 | |
Total non-interest expense | 47,724 | | | 35,903 | | | 140,293 | | | 95,448 | |
Income before income taxes | 31,304 | | | 17,967 | | | 82,476 | | | 58,382 | |
Income tax expense | 6,944 | | | 3,924 | | | 18,066 | | | 11,758 | |
Net income | $ | 24,360 | | | $ | 14,043 | | | $ | 64,410 | | | $ | 46,624 | |
| | | | | | | |
Basic earnings per share | $ | 0.78 | | | $ | 0.61 | | | $ | 2.05 | | | $ | 2.18 | |
Diluted earnings per share | 0.77 | | | 0.61 | | | 2.04 | | | 2.17 | |
See Notes to Consolidated Financial Statements
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($ in thousands)
| | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | (Unaudited) |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2023 | | 2022 | 2023 | | 2022 |
Net income | $ | 24,360 | | | $ | 14,043 | | $ | 64,410 | | | $ | 46,624 | |
Other comprehensive (loss) income: | | | | | | |
Unrealized holding (losses) gains arising during the period on available-for-sale securities | (26,770) | | | (67,785) | | (22,025) | | | (227,641) | |
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 | 93 | | | — | | 277 | | | — | |
Reclassification adjustment for losses (gains) included in net income | (2) | | | (1) | | 46 | | | 82 | |
Unrealized holding (losses) gains arising during the period on available-for-sale securities | (26,679) | | | (67,786) | | (21,702) | | | (227,559) | |
Income tax (expense) benefit | 6,750 | | | 17,150 | | 5,491 | | | 57,572 | |
Other comprehensive (loss) income | (19,929) | | | (50,636) | | (16,211) | | | (169,987) | |
Comprehensive income (loss) | $ | 4,431 | | | $ | (36,593) | | $ | 48,199 | | | $ | (123,363) | |
See Notes to Consolidated Financial Statements
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
($ in thousands except per share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total |
| Shares | | Amount | | | | | Shares | | Amount | |
Balance, January 1, 2022 | 21,668,644 | | | $ | 21,669 | | | $ | 459,228 | | | $ | 206,228 | | | $ | 7,978 | | | (649,607) | | | $ | (18,931) | | | $ | 676,172 | |
Net income | — | | | — | | | — | | | 16,829 | | | — | | | — | | | — | | | 16,829 | |
Common stock repurchased | — | | | — | | | — | | | — | | | — | | | (600,000) | | | (22,180) | | | (22,180) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (76,825) | | | — | | | — | | | (76,825) | |
Dividends on common stock, $0.17 per share | — | | | — | | | — | | | (3,468) | | | — | | | — | | | — | | | (3,468) | |
Issuance of restricted stock grants | 82,123 | | | 82 | | | (82) | | | — | | | — | | | — | | | — | | | — | |
Restricted stock grants forfeited | (1,000) | | | (1) | | | 1 | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted stock for payment of taxes | (15,330) | | | (16) | | | (538) | | | — | | | — | | | — | | | — | | | (554) | |
Compensation expense | — | | | — | | | 466 | | | — | | | — | | | — | | | — | | | 466 | |
Balance, March 31, 2022 | 21,734,437 | | | 21,734 | | | 459,075 | | | 219,589 | | | (68,847) | | | (1,249,607) | | | (41,111) | | | 590,440 | |
Net income | — | | | — | | | — | | | 15,753 | | | — | | | — | | | — | | | 15,753 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (42,526) | | | — | | | — | | | (42,526) | |
Dividends on common stock, $0.18 per share | — | | | — | | | — | | | (3,688) | | | — | | | — | | | — | | | (3,688) | |
Issuance of restricted stock grants | 47,767 | | | 48 | | | (48) | | | — | | | — | | | — | | | — | | | — | |
Restricted stock grants forfeited | (1,000) | | | (1) | | | 1 | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted stock for payment of taxes | (2,473) | | | (2) | | | (71) | | | — | | | — | | | — | | | — | | | (73) | |
Compensation expense | — | | | — | | | 546 | | | — | | | — | | | — | | | — | | | 546 | |
Balance, June 30, 2022 | 21,778,731 | | | 21,779 | | | 459,503 | | | 231,654 | | | (111,373) | | | (1,249,607) | | | (41,111) | | | 560,452 | |
Net income | — | | | — | | | — | | | 14,043 | | | — | | | — | | | — | | | 14,043 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (50,636) | | | — | | | — | | | (50,636) | |
Dividends on common stock, $0.19 per share | — | | | — | | | — | | | (4,565) | | | — | | | — | | | — | | | (4,565) | |
Issuance of common shares for BBI acquisition | 3,498,936 | | | 3,499 | | | 97,970 | | | — | | | — | | | — | | | — | | | 101,469 | |
Compensation expense | — | | | — | | | 708 | | | — | | | — | | | — | | | — | | | 708 | |
Balance, September 30, 2022 | 25,277,667 | | | $ | 25,278 | | | $ | 558,181 | | | $ | 241,132 | | | $ | (162,009) | | | (1,249,607) | | | $ | (41,111) | | | $ | 621,471 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY CONTINUED
($ in thousands except per share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total |
| Shares | | Amount | | | | | Shares | | Amount | |
Balance, January 1, 2023 | 25,275,369 | | | $ | 25,275 | | | $ | 558,833 | | | $ | 252,623 | | | $ | (148,957) | | | (1,249,607) | | | $ | (41,111) | | | $ | 646,663 | |
Net income | — | | | — | | | — | | | 16,271 | | | — | | | — | | | — | | | 16,271 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 18,183 | | | — | | | — | | | 18,183 | |
Dividends on common stock, $0.21 per share | — | | | — | | | — | | | (6,498) | | | — | | | — | | | — | | | (6,498) | |
Issuance of common shares for HSBI acquisition | 6,920,422 | | | 6,920 | | | 214,602 | | | — | | | — | | | — | | | — | | | 221,522 | |
Issuance of restricted stock grants | 118,689 | | | 119 | | | (119) | | | — | | | — | | | — | | | — | | | — | |
Restricted stock grants forfeited | (500) | | | (1) | | | 1 | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted stock for payment of taxes | (9,827) | | | (9) | | | (298) | | | — | | | — | | | — | | | — | | | (307) | |
Compensation expense | — | | | — | | | 593 | | | — | | | — | | | — | | | — | | | 593 | |
Balance, March 31, 2023 | 32,304,153 | | | 32,304 | | | 773,612 | | | 262,396 | | | (130,774) | | | (1,249,607) | | | (41,111) | | | 896,427 | |
Net income | — | | | — | | | — | | | 23,779 | | | — | | | — | | | — | | | 23,779 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (14,465) | | | — | | | — | | | (14,465) | |
Dividends on common stock, $0.22 per share | — | | | — | | | — | | | (6,825) | | | — | | | — | | | — | | | (6,825) | |
Issuance of restricted stock grants | 45,773 | | | 46 | | | (46) | | | — | | | — | | | — | | | — | | | — | |
Restricted stock grants forfeited | (4,526) | | | (5) | | | 5 | | | — | | | — | | | — | | | — | | | — | |
Compensation expense | — | | | — | | | 530 | | | — | | | — | | | — | | | — | | | 530 | |
Balance, June 30, 2023 | 32,345,400 | | | 32,345 | | | 774,101 | | | 279,350 | | | (145,239) | | | (1,249,607) | | | (41,111) | | | 899,446 | |
Net income | — | | | — | | | — | | | 24,360 | | | — | | | — | | | — | | | 24,360 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (19,929) | | | — | | | — | | | (19,929) | |
Dividends on common stock, $0.23 per share | — | | | — | | | — | | | (7,151) | | | — | | | — | | | — | | | (7,151) | |
Issuance of restricted stock grants | 2,711 | | | 3 | | | (3) | | | — | | | — | | | — | | | — | | | — | |
Restricted stock grants forfeited | (3,596) | | | (4) | | | 4 | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted stock for payment of taxes | (1,104) | | | (1) | | | (31) | | | — | | | — | | | — | | | — | | | (32) | |
Compensation expense | — | | | — | | | 527 | | | — | | | — | | | — | | | — | | | 527 | |
Balance, September 30, 2023 | 32,343,411 | | | $ | 32,343 | | | $ | 774,598 | | | $ | 296,559 | | | $ | (165,168) | | | (1,249,607) | | | $ | (41,111) | | | $ | 897,221 | |
See Notes to Consolidated Financial Statements
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
| | | | | | | | | | | |
| (Unaudited) |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net income | $ | 64,410 | | | $ | 46,624 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization, and accretion | 3,969 | | | 8,939 | |
Provision for credit loss | 13,250 | | | 4,900 | |
Loss on sale or writedown of ORE | 753 | | | 252 | |
Securities loss | 46 | | | 82 | |
Acquisition gain | — | | | (281) | |
Loss (gain) on loss of premises and equipment | (559) | | | 114 | |
Restricted stock expense | 1,650 | | | 1,720 | |
Increase in cash value of life insurance | (2,390) | | | (1,576) | |
Federal Home Loan Bank stock dividends | (279) | | | (8) | |
Residential loans originated and held for sale | (76,169) | | | (113,058) | |
Proceeds from sale of residential loans held for sale | 74,652 | | | 118,511 | |
Changes in: | | | |
Interest receivable | 1,530 | | | 166 | |
Interest payable | 10,476 | | | (346) | |
Operating lease liability | (1,208) | | | 3,900 | |
Other, net | (9,774) | | | 1,844 | |
Net cash provided by operating activities | 80,357 | | | 71,783 | |
Cash flows from investing activities: | | | |
Available-for-sale securities: | | | |
Sales | 171,150 | | | 21,069 | |
Maturities, prepayments, and calls | 88,490 | | | 148,168 | |
Purchases | (1,000) | | | (7,000) | |
Held-to-maturity securities: | | | |
Maturities, prepayments, and calls | 35,827 | | | 9,013 | |
Purchases | — | | | (602,218) | |
Purchases of other securities | (9,563) | | | (8,580) | |
Proceeds from other securities | 8,741 | | | 1,237 | |
Net increase in loans | (145,047) | | | (273,335) | |
Net changes in premises and equipment | (2,749) | | | (9,146) | |
Proceeds from sale of other real estate owned | 1,098 | | | 2,260 | |
Proceeds from the sale of premises and equipment | 1,416 | | | 712 | |
Bank-owned life insurance – death proceeds | — | | | 1,630 | |
Cash received in excess of cash paid for acquisitions | 106,973 | | | 23,939 | |
Net cash provided by (used in) investing activities | 255,336 | | | (692,251) | |
Cash flows from financing activities: | | | |
Decrease in deposits | (408,603) | | | (165,921) | |
Net change in borrowed funds | 171,900 | | | 65,000 | |
Principal payments on finance lease liabilities | (134) | | | (132) | |
Dividends paid on common stock | (20,200) | | | (11,544) | |
Cash paid to repurchase common stock | — | | | (22,180) | |
Called/repayment of subordinated debt | (26,000) | | | — | |
Repurchase of restricted stock for payment of taxes | (339) | | | (627) | |
Net cash used in financing activities | (283,376) | | | (135,404) | |
| | | |
| | | |
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
($ in thousands)
| | | | | | | | | | | |
| (Unaudited) |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Net change in cash and cash equivalents | 52,317 | | | (755,872) | |
Beginning cash and cash equivalents | 145,315 | | | 919,713 | |
Ending cash and cash equivalents | $ | 197,632 | | | $ | 163,841 | |
Supplemental disclosures: | | | |
Loans transferred to other real estate | $ | 1,543 | | | $ | 1,490 | |
Issuance of restricted stock grants | $ | 168 | | | $ | 130 | |
Dividends on restricted stock grants | $ | 273 | | | $ | 176 | |
Stock issued in connection with BBI acquisition | $ | — | | | $ | 101,469 | |
Stock issued in connection with HSBI acquisition | $ | 6,920,422 | | | $ | — | |
Lease liabilities arising from obtaining right-of-use assets | $ | 560 | | | $ | 2,647 | |
Lease liabilities arising from BBI acquisition | $ | — | | | $ | 3,390 | |
Lease liabilities arising from HSBI acquisition | $ | 184 | | | $ | — | |
See Notes to Consolidated Financial Statements
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2023
NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and the instructions to Form 10-Q of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2022.
NOTE 2 – SUMMARY OF ORGANIZATION
The First Bancshares, Inc., Hattiesburg, Mississippi (the “Company”), was incorporated June 23, 1995, under the laws of the State of Mississippi for the purpose of operating as a bank holding company. The Company’s primary asset is its interest in its wholly-owned subsidiary, The First Bank (the “Bank” or “The First”).
At September 30, 2023, the Company had approximately $7.884 billion in assets, $5.036 billion in net loans held for investment (“LHFI”), $6.480 billion in deposits, and $897.2 million in shareholders' equity. For the nine months ended September 30, 2023, the Company reported net income of $64.4 million.
On February 24, 2023, the Company paid a cash dividend in the amount of $0.21 per share to shareholders of record as of the close of business on February 8, 2023. On May 24, 2023, the Company paid a cash dividend of $0.22 per share to shareholders of record as of the close of business on May 8, 2023. On August 24, 2023, the Company paid a cash dividend of $0.23 per share to shareholders of record as of the close of business August 8, 2023.
NOTE 3 – ACCOUNTING STANDARDS
Effect of Recently Adopted Accounting Standards
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (ASC 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offer Rate ("LIBOR") or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The Company adopted ASU 2020-04 effective January 1, 2023. Adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combination (Topic 805): “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendment improves comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The Company adopted ASU 2021-08 effective January 1, 2023. Adoption of ASU 2022-02 did not have a material impact on the Company's consolidated financial statements.
In March 2022, FASB issued ASU No. 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” These amendments eliminate the TDR recognition and measurement guidance and instead require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these
amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The Company adopted ASU 2022-02 effective January 1, 2023. Adoption of ASU 2022-02 did not have a material impact on the Company's consolidated financial statements.
In July 2023, FASB issued ASU No. 2023-03, "Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraph Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock." This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were effective immediately and did not have a material impact on the Company's consolidated financial statements.
New Accounting Standards That Have Not Yet Been Adopted
In March 2023, FASB issued ASU No. 2023-01, Leases (Topic 842) - "Common Control Arrangements." This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party. The ASU requires all entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. This guidance is effective for the Company January 1, 2024, and is not expected to have a material impact on the Company's consolidated financial statements.
In March 2023, FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Venture (Topic 323): "Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for the Company January 1, 2024, and is not expected to have a material impact on the Company's consolidated financial statements.
In October 2023, FASB issued ASU No. 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative." This ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-K becomes effective, with early adoption prohibited. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
NOTE 4 – BUSINESS COMBINATIONS
Acquisitions
Heritage Southeast Bank
On January 1, 2023, the Company completed its acquisition of Heritage Southeast Bancorporation, Inc. ("HSBI"), pursuant to an Agreement and Plan of Merger dated July 27, 2022, by and between the Company and HSBI (the "HSBI Merger Agreement"). Upon the completion of the merger of HSBI with and into the Company, Heritage Southeast Bank ("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 a share of Company common stock. The Company paid a total consideration of $221.5 million to the former HSBI shareholders as consideration in the acquisition, which included 6,920,422 shares of the Company's common stock, and $16 thousand in cash in lieu of fractional shares. The HSBI acquisition provided the opportunity for the Company to expand its operations in Georgia and the Florida panhandle.
In connection with the acquisition of HSBI, the Company recorded approximately $92.1 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 $312 thousand and $4.5 million for the three months and nine months period ended September 30, 2023, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.
The assets acquired and liabilities assumed, and consideration paid in the acquisition were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which will run through January 1, 2024, in respect of the acquisition, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.
The following table summarizes the provisional fair values of the assets acquired and liabilities assumed, and the goodwill generated from the transaction.
| | | | | |
($ in thousands) | |
Purchase price: | |
Cash and stock | $ | 221,538 | |
Total purchase price | 221,538 | |
Identifiable assets: | |
Cash | $ | 106,973 | |
Investments | 172,775 | |
Loans | 1,155,712 | |
Core deposit intangible | 43,739 | |
Personal and real property | 35,963 | |
Other real estate owned | 857 | |
Bank owned life insurance | 35,579 | |
Deferred taxes | 6,129 | |
Interest receivable | 4,349 | |
Other assets | 3,103 | |
Total assets | 1,565,179 | |
Liabilities and equity: | |
Deposits | 1,392,432 | |
Trust Preferred | 9,015 | |
Other liabilities | 34,271 | |
Total liabilities | 1,435,718 | |
Net assets acquired | 129,461 | |
Goodwill | $ | 92,077 | |
Beach Bancorp, Inc.
On August 1, 2022, the Company completed its acquisition of Beach Bancorp, Inc. ("BBI"), pursuant to an Agreement and Plan of Merger dated April 26, 2022, by and between the Company and BBI (the "BBI Merger Agreement"). Upon the completion of the merger of 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 $101.5 million to the former BBI shareholders including 3,498,936 shares of the Company's common stock and $1 thousand in cash in lieu of fractional shares, and also assumed options entitling the owners thereof to purchase an additional 310,427 shares of the Company's common stock.
In connection with the acquisition of BBI, the Company recorded $23.7 million of goodwill, of which $1.3 million funded the ACL for estimated losses on the acquired PCD loans, 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.
Expenses associated with the BBI acquisition were $78 thousand and $1.4 million for the three months and nine months period ended September 30, 2023, respectively. These costs included charges associated with legal and consulting expenses, which have been expensed as incurred.
The assets acquired and liabilities assumed, and consideration paid in the acquisition were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which will run through August 1, 2023, in respect of the acquisition, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the goodwill generated from the transaction on August 1, 2022, along with valuation adjustments that have been made since initially reported.
| | | | | | | | | | | | | | | | | |
($ 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 have been made to investments, loans, other real estate, personal and real property, deferred tax asset, other assets, and deposits.
Supplemental Pro Forma Information
The following table presents certain supplemental pro forma information, for illustrative purposes only, for the nine months ended September 30, 2023 and 2022 as if the BBI and HSBI acquisitions had occurred on January 1, 2022. The pro forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of this date.
| | | | | | | | | | | |
($ in thousands) | (unaudited) | | (unaudited) |
| Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
Net interest income | $ | 191,660 | | | $ | 183,008 | |
Non-interest income | 44,359 | | | 46,466 | |
Total revenue | 236,019 | | | 229,474 | |
Income before income taxes | 90,958 | | | 87,860 | |
Supplemental pro-forma earnings were adjusted to exclude acquisition costs incurred. The Company’s operating results for the nine months ended September 30, 2023, include the operating results of the acquired assets and assumed liabilities of the above mentioned acquisitions subsequent to the acquisition date.
NOTE 5 – EARNINGS APPLICABLE TO COMMON SHAREHOLDERS
Basic per share data is calculated based on the weighted-average number of common shares outstanding during the reporting period. Diluted per share data includes any dilution from potential common stock outstanding, such as restricted stock grants. There were no anti-dilutive common stock equivalents excluded in the calculations.
The following tables disclose the reconciliation of the numerators and denominators of the basic and diluted computations applicable to common shareholders.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands, except per share amount) | Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
| Net Income (Numerator) | | Shares (Denominator) | | Per Share Data | | Net Income (Numerator) | | Shares (Denominator) | | Per Share Data |
Basic earnings per share | $ | 24,360 | | | 31,405,439 | | | $ | 0.78 | | | $ | 14,043 | | | 22,861,795 | | | $ | 0.61 | |
Effect of dilutive shares: | | | | | | | | | | | |
Restricted stock grants | | | 204,125 | | | | | | | 117,734 | | | |
Diluted earnings per share | $ | 24,360 | | | 31,609,564 | | | $ | 0.77 | | | $ | 14,043 | | | 22,979,529 | | | $ | 0.61 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands, except per share amount) | For the Nine Months Ended September 30, 2023 | | For the Nine Months Ended September 30, 2022 |
| Net Income (Numerator) | | Shares (Denominator) | | Per Share Data | | Net Income (Numerator) | | Shares (Denominator) | | Per Share Data |
Basic earnings per share | $ | 64,410 | | | 31,364,420 | | | $ | 2.05 | | | $ | 46,624 | | | 21,355,731 | | | $ | 2.18 | |
Effect of dilutive shares: | | | | | | | | | | | |
Restricted stock grants | | | 199,862 | | | | | | | 111,397 | | | |
Diluted earnings per share | $ | 64,410 | | | 31,564,282 | | | $ | 2.04 | | | $ | 46,624 | | | 21,467,128 | | | $ | 2.17 | |
The Company granted 118,689 shares and 82,123 shares of restricted stock in the first quarter of 2023 and 2022, respectively. The Company granted 45,773 shares and 47,827 shares of restricted stock in the second quarter of 2023 and 2022, respectively. The Company granted 2,711 shares and 0 shares of restricted stock in the third quarter of 2023 and 2022, respectively.
NOTE 6 – COMPREHENSIVE INCOME
As presented in the Consolidated Statements of Comprehensive Income (Loss), comprehensive income includes net income and other comprehensive income. The Company’s sources of other comprehensive income are unrealized gains and losses on available-for-sale securities, which are also recognized as separate components of equity.
NOTE 7 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. At September 30, 2023, and December 31, 2022, these financial instruments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | September 30, 2023 | | December 31, 2022 |
| Fixed Rate | | Variable Rate | | Fixed Rate | | Variable Rate |
Commitments to make loans | $ | 54,323 | | | $ | 31,508 | | | $ | 43,227 | | | $ | 15,758 | |
Unused lines of credit | 259,705 | | | 641,896 | | | 243,043 | | | 404,025 | |
Standby letters of credit | 15,975 | | | 12,556 | | | 4,260 | | | 9,909 | |
Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 1.0% to 18.0% and maturities ranging from approximately 1 year to 30 years.
ALLOWANCE FOR CREDIT LOSSES (“ACL”) ON OFF BALANCE SHEET CREDIT (“OBSC”) EXPOSURES
The Company maintains a separate ACL on OBSC exposures, including unfunded commitments and letters of credit, which is included on the accompanying consolidated balance sheet as of September 30, 2023 and December 31, 2022. The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Changes in the ACL on OBSC exposures were as follows for the presented periods:
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Balance at beginning of period | $ | 2,075 | | $ | 1,220 | | $ | 1,325 | | | $ | 1,070 | |
Credit loss expense related to OBSC exposures | — | | — | | 750 | | | 150 | |
Balance at end of period | $ | 2,075 | | $ | 1,220 | | $ | 2,075 | | | $ | 1,220 | |
Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses related to OBSC exposures. The Company recorded no provision for the three months period ended September 30, 2023 and 2022, respectively. For the nine months period ended September 30, 2023 and 2022, the Company recorded $750 thousand and $150 thousand provision to the ACL on OBSC exposures, respectively. The increase in the ACL on OBSC exposures for the nine months ended September 30, 2023 compared to the same period in 2022 was due to the day one provision for unfunded commitments related to the HSBI acquisition and an increase in unfunded commitments.
No credit loss estimate is reported for OBSC exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation on the arrangement.
NOTE 8 – FAIR VALUE DISCLOSURES AND REPORTING, THE FAIR VALUE OPTION AND FAIR VALUE MEASUREMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the assets or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability.
The following methods and assumptions were used by the Company to estimate its financial instrument fair values disclosed at September 30, 2023 and December 31, 2022:
•Investment Securities: The fair value for investment securities is 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), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, valuing debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
•Loans Held for Sale - Loans held for sale are carried at fair value in the aggregate as determined by the outstanding commitments from investors. As, such we classify those loans subjected to recurring fair value adjustments as Level 2 of the fair value 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 independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. The Company generally adjusts the appraisal down by approximately 10 percent to account for cost associated with litigation and collection. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are 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 cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals, which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated in the appraisals. The Company generally adjusts the appraisal down by approximately 10 percent to account for carrying costs. Periodic revaluations are classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through other non-interest 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 non-interest income. Other real estate owned is classified within Level 3 of the fair value hierarchy.
•Interest Rate Swaps: The Company offers interest rate swaps to certain commercial loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a 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. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified within Level 2 of the fair value hierarchy.
Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2023 | | Carrying Amount | | Estimated Fair Value | | Fair Value Measurements |
($ in thousands) | | | | | | | | |
| | | Quoted Prices (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | |
| | | | | | | | | | |
Financial Instruments: | | | | | | | | | | |
Assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | 197,632 | | | $ | 197,632 | | | $ | 197,632 | | | $ | — | | | $ | — | |
Securities available-for-sale | | 1,141,971 | | | 1,141,971 | | | 124,694 | | | 997,753 | | | 19,524 | |
Securities held-to-maturity | | 658,524 | | | 582,592 | | | — | | | 582,592 | | | — | |
Loans held for sale | | 5,960 | | | 5,960 | | | — | | | 5,960 | | | — | |
Loans, net | | 5,036,235 | | | 4,851,597 | | | — | | | — | | | 4,851,597 | |
Accrued interest receivable | | 30,542 | | | 30,542 | | | — | | | 8,112 | | | 22,430 | |
Interest rate swaps | | 14,869 | | | 14,869 | | | — | | | 14,869 | | | — | |
Liabilities: | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 1,967,661 | | | $ | 1,967,661 | | | $ | — | | | $ | 1,967,661 | | | $ | — | |
Interest-bearing deposits | | 4,512,364 | | | 4,225,829 | | | — | | | 4,225,829 | | | — | |
Subordinated debentures | | 128,300 | | | 106,391 | | | — | | | — | | | 106,391 | |
FHLB and other borrowings | | 302,000 | | | 302,000 | | | — | | | 302,000 | | | — | |
Accrued interest payable | | 13,800 | | | 13,800 | | | — | | | 13,800 | | | — | |
Interest rate swaps | | 14,880 | | | 14,880 | | | — | | | 14,869 | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2022 | | Carrying Amount | | Estimated Fair Value | | Fair Value Measurements |
($ in thousands) | | | | | | | | |
| | | Quoted Prices (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | |
| | | | | | | | | | |
Financial Instruments: | | | | | | | | | | |
Assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | 145,315 | | | $ | 145,315 | | | $ | 145,315 | | | $ | — | | | $ | — | |
Securities available-for-sale | | 1,257,101 | | | 1,257,101 | | | 123,854 | | | 1,118,099 | | | 15,148 | |
Securities held-to-maturity | | 691,484 | | | 642,097 | | | — | | | 642,097 | | | — | |
Loans held for sale | | 4,443 | | | 4,443 | | | — | | | 4,443 | | | — | |
Loans, net | | 3,735,240 | | | 3,681,313 | | | — | | | — | | | 3,681,313 | |
Accrued interest receivable | | 27,723 | | | |