10-Q 1 fbms-20240331.htm 10-Q fbms-20240331
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
oTRANSITION 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
Logo Holding (002).jpg
THE FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Mississippi64-0862173
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00
FBMSThe 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, 32,468,333 shares issued and 31,218,726 outstanding as of May 3, 2024.
Auditor Firm PCAOB ID: 686Auditor Name: FORVIS, LLPAuditor Location: Jackson, MS


The First Bancshares, Inc.
Form 10-Q
Quarter Ended March 31, 2024
Index
2

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
(Unaudited)
March 31,
2024
December 31,
2023
ASSETS
Cash and due from banks$109,323 $224,199 
Interest-bearing deposits with banks230,641 130,948 
Total cash and cash equivalents339,964 355,147 
Securities available-for-sale, at fair value (amortized cost: $1,216,163 - 2024; $1,164,227 - 2023; allowance for credit losses: $0)
1,088,568 1,042,365 
Securities held to maturity, net of allowance for credit losses of $0 (fair value: $577,343 - 2024; $615,944 - 2023)
622,574 654,539 
Other securities34,094 37,754 
Total securities1,745,236 1,734,658 
Loans held for sale4,241 2,914 
Loans held for investment5,139,952 5,170,042 
Allowance for credit losses(53,959)(54,032)
Net loans held for investment5,085,993 5,116,010 
Interest receivable34,954 33,300 
Premises and equipment173,225 174,309 
Operating lease right-of-use assets6,619 6,387 
Finance lease right-of-use assets1,350 1,466 
Cash surrender value of bank-owned life insurance135,148 134,249 
Goodwill272,520 272,520 
Other real estate owned6,743 8,320 
Other assets157,766 160,065 
Total assets$7,963,759 $7,999,345 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Liabilities:
Deposits:  
Noninterest-bearing$1,836,952 $1,849,013 
Interest-bearing4,873,403 4,613,859 
Total deposits6,710,355 6,462,872 
Interest payable13,705 22,702 
Borrowed funds110,000 390,000 
Subordinated debentures123,472 123,386 
Operating lease liabilities6,783 6,550 
Finance lease liabilities1,693 1,739 
Allowance for credit losses on off-balance sheet credit exposures2,075 2,075 
Other liabilities35,764 40,987 
Total liabilities7,003,847 7,050,311 
Shareholders’ equity:  
Common stock, par value $1 per share, 80,000,000 shares authorized; 32,467,928 shares issued at March 31, 2024, and par value $1 per share, 80,000,000 shares authorized; 32,338,983 shares issued at December 31, 2023
32,468 32,339 
Additional paid-in capital775,442 775,232 
Retained earnings313,001 300,150 
Accumulated other comprehensive (loss)(119,888)(117,576)
Treasury stock, at cost, 1,249,607 shares at March 31, 2024 and at December 31, 2023
(41,111)(41,111)
Total shareholders’ equity959,912 949,034 
Total liabilities and shareholders’ equity$7,963,759 $7,999,345 
See Notes to Consolidated Financial Statements
3

THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except earnings and dividends per share)
(Unaudited)
Three Months Ended
March 31,
20242023
Interest and dividend income:
Interest and fees on loans$78,799 $67,733 
Interest and dividends on securities:
Taxable interest and dividends8,302 8,759 
Tax exempt interest2,946 2,948 
Interest on federal funds sold and interest-bearing deposits in other banks 1,616 898 
Total interest income91,663 80,338 
Interest expense:
Interest on deposits29,413 12,277 
Interest on borrowed funds4,909 3,135 
Total interest expense34,322 15,412 
Net interest income57,341 64,926 
Provision for credit losses, LHFI 10,500 
Provision for credit losses, OBSC exposures 500 
Net interest income after provision for credit losses57,341 53,926 
Non-interest income:
Service charges on deposit accounts3,367 3,657 
Loss on securities(48) 
Gain on sale of premises and equipment 662 
Other9,360 8,293 
Total non-interest income12,679 12,612 
Non-interest expense:
Salaries and employee benefits24,508 23,572 
Occupancy and equipment5,714 5,296 
Acquisition expense/charter conversion8 3,793 
Other13,195 13,009 
Total non-interest expense43,425 45,670 
Income before income taxes 26,595 20,868 
Income tax expense5,967 4,597 
Net income$20,628 $16,271 
Basic earnings per share$0.66 $0.52 
Diluted earnings per share0.65 0.52 
See Notes to Consolidated Financial Statements
4

THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
20242023
Net income$20,628 $16,271 
Other comprehensive (loss) income:  
Unrealized holding (losses) gains arising during the period on available-for-sale securities(3,237)24,249 
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-maturity94 92 
Reclassification adjustment for losses (gains) included in net income48  
Unrealized holding (losses) gains arising during the period on available-for-sale securities(3,095)24,341 
Income tax (expense) benefit783 (6,158)
Other comprehensive (loss) income(2,312)18,183 
Comprehensive income$18,316 $34,454 
See Notes to Consolidated Financial Statements
5

THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
($ in thousands except per share data, unaudited)

Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockTotal
SharesAmountSharesAmount
Balance, January 1, 202325,275,369 $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 acquisition6,920,422 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, 202332,304,153 $32,304 $773,612 $262,396 $(130,774)(1,249,607)$(41,111)$896,427 
Balance, January 1, 202432,338,983 $32,339 $775,232 $300,150 $(117,576)(1,249,607)$(41,111)$949,034 
Net income— — — 20,628 — — — 20,628 
Other comprehensive loss— — — — (2,312)— — (2,312)
Dividends on common stock, $0.25 per share
— — — (7,777)— — — (7,777)
Issuance of restricted stock grants141,457 141 (141)— — — —  
Repurchase of restricted stock for payment of taxes(12,512)(12)(302)— — — — (314)
    Compensation expense— — 653 — — — — 653 
Balance, March 31, 202432,467,928 $32,468 $775,442 $313,001 $(119,888)(1,249,607)$(41,111)$959,912 
See Notes to Consolidated Financial Statements
6

THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
20242023
Cash flows from operating activities:
Net income$20,628 $16,271 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion3,700 3,336 
Provision for credit loss 11,000 
(Gain) loss on sale or write-down of ORE(33)66 
Securities loss48  
(Gain) loss on disposal of premises and equipment (662)
Restricted stock expense653 593 
Increase in cash value of life insurance(899)(795)
Federal Home Loan Bank stock dividends(109) 
Residential loans originated and held for sale(19,923)(21,900)
Proceeds from sale of residential loans held for sale18,596 22,270 
Changes in:
Interest receivable(1,654)2,089 
Interest payable(8,997)763 
Operating lease liability233 (1,186)
Other, net(2,009)(27,191)
Net cash provided by operating activities10,234 4,654 
Cash flows from investing activities:  
Available-for-sale securities:
Sales 170,625 
Maturities, prepayments, and calls75,302 31,173 
Purchases(128,487) 
Held-to-maturity securities:
Maturities, prepayments, and calls32,658 14,044 
Purchases of other securities (7,631)
Proceeds from other securities3,769 7,979 
Net decrease (increase) in loans33,486 (33,405)
Net changes in premises and equipment(717)(1,066)
Proceeds from sale of other real estate owned768 456 
Proceeds from the sale of premises and equipment 731 
Cash received in excess of cash paid for acquisitions 106,973 
Net cash provided by investing activities16,779 289,879 
Cash flows from financing activities:  
Increase (decrease) in deposits245,821 (219,484)
Proceeds from borrowed funds100,000 1,533,086 
Repayments of borrowed funds(380,000)(1,413,186)
Principal payments on finance lease liabilities(46)(44)
Dividends paid on common stock(7,657)(6,422)
Repurchase of restricted stock for payment of taxes(314)(307)
Net cash used in financing activities(42,196)(106,357)
Net change in cash and cash equivalents(15,183)188,176 
Beginning cash and cash equivalents355,147 145,315 
Ending cash and cash equivalents$339,964 $333,491 
7

Table of Contents             
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
($ in thousands)


(Unaudited)
Three Months Ended
March 31,
20242023
Supplemental disclosures:  
Cash paid during the year for:
Interest$39,006 $10,551 
Income taxes, (net of refunds)(162)(940)
Non-cash activities:
Loans transferred to other real estate842  
Issuance of restricted stock grants141 119 
Dividends on restricted stock grants120 76 
Stock issued in connection with HSBI acquisition 221,522 
Lease liabilities arising from obtaining right-of-use assets482  
Lease liabilities arising from HSBI acquisition 184 
See Notes to Consolidated Financial Statements
8

THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2024
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 three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023.
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 March 31, 2024, the Company had approximately $7.964 billion in assets, $5.086 billion in net loans held for investment (“LHFI”), $6.710 billion in deposits, and $959.9 million in shareholders' equity. For the three months ended March 31, 2024, the Company reported net income of $20.6 million.
On February 23, 2024, the Company paid a cash dividend in the amount of $0.25 per share to shareholders of record as of the close of business on February 7, 2024. On April 24, 2024, the Company announced that its Board of Directors declared a cash dividend of $0.25 per share to be paid on its common stock on May 23, 2024 to shareholders of record as of the close of business on May 7, 2024.
NOTE 3 – 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. This guidance is effective for the Company January 1, 2024, and 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. This guidance is effective for the Company January 1, 2024, and did not have a material impact on the Company's consolidated financial statements.
New Accounting Standards That Have Not Yet Been Adopted
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.
9

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 of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity's consolidated financial statements. 5. Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. 6. Require that a public entity has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
In December 2023, FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This ASU amendments require that a public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: 1. The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes. 2. The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: 1. Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign. 2. Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
In March 2024, FASB issued ASU No. 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements: This ASU amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. This ASU is effective for annual periods beginning after December 15, 2024. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
NOTE 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.
10

In connection with the acquisition of HSBI, the Company recorded $91.9 million of goodwill, of which $3.2 million funded the ACL for estimated losses on the acquired PCD loans, and $43.7 million core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the goodwill generated from the transaction on January 1, 2023, along with valuation adjustments that have been made since initially reported.
($ in thousands)As Initially
Reported
Measurement
Period
Adjustments
As Adjusted
Identifiable assets:
Cash and due from banks$106,973 $(180)$106,793 
Investments172,775  172,775 
Loans1,155,712  1,155,712 
Core deposit intangible43,739  43,739 
Personal and real property35,963  35,963 
Other real estate owned857 332 1,189 
Bank owned life insurance35,579  35,579 
Deferred taxes6,761 (632)6,129 
Interest receivable4,349  4,349 
Other assets3,103  3,103 
Total assets1,565,811 (480)1,565,331 
Liabilities and equity:
Deposits1,392,432  1,392,432 
Trust Preferred9,015  9,015 
Other liabilities34,271  34,271 
Total liabilities1,435,718  1,435,718 
Net assets acquired130,093 (480)129,613 
Consideration paid221,538  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 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.
11

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 $9.8 million core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed including the goodwill generated from the transaction on August 1, 2022, along with valuation adjustments that have been made since initially reported.
($ in thousands)As Initially ReportedMeasurement Period AdjustmentsAs Adjusted
Purchase price:
Cash and stock$101,470 $ $101,470 
Total purchase price101,470  101,470 
Identifiable assets:
Cash$23,939 $ $23,939 
Investments22,907 (264)22,643 
Loans482,903 2,268 485,171 
Other real estate8,797 (580)8,217 
Bank owned life insurance10,092  10,092 
Core deposit intangible9,791  9,791 
Personal and real property13,825 (1,868)11,957 
Deferred tax asset28,105 (970)27,135 
Other assets9,649 (414)9,235 
Total assets610,008 (1,828)608,180 
Liabilities and equity:
Deposits490,588 3 490,591 
Borrowings25,000  25,000 
Other liabilities14,772  14,772 
Total liabilities530,360 3 530,363 
Net assets acquired79,648 (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.
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.
12

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
March 31, 2024
Three Months Ended
March 31, 2023
Net Income
(Numerator)
Shares
(Denominator)
Per
Share Data
Net Income
(Numerator)
Shares
(Denominator)
Per
Share Data
Basic earnings per share$20,628 31,475,254 $0.66 $16,271 31,309,458 $0.52 
Effect of dilutive shares:
Restricted stock grants 155,491 231,755 
Diluted earnings per share$20,628 31,630,745 $0.65 $16,271 31,541,213 $0.52 
The Company granted 141,457 shares and 118,689 shares of restricted stock in the first quarter of 2024 and 2023, respectively.
NOTE 6 – COMPREHENSIVE INCOME
As presented in the Consolidated Statements of Comprehensive Income (Loss), comprehensive income includes net income and other comprehensive income. The Company’s sources of other comprehensive income are unrealized gains and losses on available-for-sale securities, which are also recognized as separate components of equity.
NOTE 7 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. At March 31, 2024, and December 31, 2023, these financial instruments consisted of the following:
($ in thousands)March 31, 2024December 31, 2023
Fixed Rate
Variable RateFixed RateVariable Rate
Commitments to make loans$35,854 $116,668 $34,380 $50,226 
Unused lines of credit208,878 606,400 231,335 605,646 
Standby letters of credit14,845 14,621 15,573 13,114 
Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 0.0% to 18.0% and maturities ranging from approximately 1 year to 30 years.
ALLOWANCE FOR CREDIT LOSSES (“ACL”) ON OFF BALANCE SHEET CREDIT (“OBSC”) EXPOSURES
The Company maintains a separate ACL on OBSC exposures, including unfunded commitments and letters of credit, which is included on the accompanying consolidated balance sheet as of March 31, 2024 and December 31, 2023. The ACL on OBSC exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Changes in the ACL on OBSC exposures were as follows for the presented periods:
($ in thousands)Three Months Ended March 31,
20242023
Balance at beginning of period$2,075$1,325
Credit loss expense related to OBSC exposures500
Balance at end of period$2,075$1,825
13

Adjustments to the ACL on OBSC exposures are recorded to provision for credit losses related to OBSC exposures. The Company recorded no ACL provision for the three months period ended March 31, 2024 and a $500 thousand ACL provision for the three months period ended March 31, 2023. The ACL on OBSC exposures for the three months ended March 31, 2023 includes 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 March 31, 2024 and December 31, 2023:
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,
14

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. 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.
15

Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:
March 31, 2024Carrying
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$339,964 $339,964 $339,964 $ $ 
Securities available-for-sale1,088,568 1,088,568 6,742 1,056,214 25,612 
Securities held-to-maturity622,574 577,343  577,343  
Loans held for sale4,241 4,241  4,241  
Loans, net5,085,993 4,841,681   4,841,681 
Accrued interest receivable34,954 34,954  7,604 27,350 
  Interest rate swaps11,987 11,987  11,957 30 
Liabilities:
Noninterest-bearing deposits$1,836,952 $1,836,952 $ $1,836,952 $ 
Interest-bearing deposits4,873,403 4,690,163  4,690,163  
Subordinated debentures123,472 106,946   106,946 
FHLB and other borrowings110,000 110,000  110,000  
Accrued interest payable13,705 13,705  13,705  
  Interest rate swaps11,988 11,988  11,957 31 
16

December 31, 2023Carrying
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$355,147 $355,147 $355,147 $ $ 
Securities available-for-sale1,042,365 1,042,365 16,675 1,007,477 18,213 
Securities held-to-maturity654,539 615,944  615,944  
Loans held for sale2,914 2,914  2,914  
Loans, net5,116,010 4,877,935   4,877,935 
Accrued interest receivable33,300 33,300  8,632 24,668 
Interest rate swaps12,170 12,170  12,129 41 
Liabilities:
Non-interest-bearing deposits$1,849,013 $1,849,013 $ $1,849,013 $ 
Interest-bearing deposits4,613,859 4,430,227  4,430,227  
Subordinated debentures123,386 109,426   109,426 
FHLB and other borrowings390,000 390,000  390,000  
Accrued interest payable22,702 22,702  22,702  
Interest rate swaps12,175 12,175  12,129 46 
Assets measured at fair value on a recurring basis are summarized below:
March 31, 2024
($ in thousands)Fair ValueFair Value Measurements Using
Quoted Prices in
Active Markets
For
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Available-for-sale
U.S. Treasury$6,742 $6,742 $ $ 
Obligations of U.S. Government agencies and sponsored entities99,787  99,787  
Municipal securities428,995  403,413 25,582 
Mortgage-backed securities515,517  515,517  
Corporate obligations34,476  34,446 30 
Other3,051  3,051  
Total available-for-sale$1,088,568 $6,742 $1,056,214 $25,612 
Loans held for sale$4,241 $ $4,241 $ 
Interest rate swaps$11,987 $ $11,957 $30 
Liabilities:
Interest rate swaps$11,988 $ $11,957 $31 
17

December 31, 2023
($ in thousands)
Fair ValueFair Value Measurements Using
Quoted Prices in
Active Markets
For
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale
U.S. Treasury$16,675 $16,675 $ $ 
Obligations of U.S. Government agencies and sponsored entities104,923  104,923  
Municipal securities438,466  420,283 18,183 
Mortgage-backed securities441,661  441,661  
Corporate obligations37,597  37,567 30 
Other3,043  3,043  
Total 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 $46 
The following is a reconciliation of activity for assets measured at fair value based on significant unobservable inputs (Level 3) information.
Bank-Issued Trust
Preferred Securities
($ in thousands)20242023
Balance, January 1 $30 $31 
Balance at March 31$30 $31 
Municipal Securities
($ in thousands)2024 2023
Balance, January 1 $18,183 $15,117 
Maturities, calls and paydowns(221)(216)
Transfer from level 2 to level 37,629  
Unrealized gain (loss) included in comprehensive income (9)726 
Balance at March 31$25,582 $15,627 
Interest Rate Swaps - Risk Participations
($ in thousands)2024
Balance, January 1$(5)
RPA-in15 
RPA-out(11)
Balance at March 31$(1)
18

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023. The following tables present quantitative information about recurring Level 3 fair value measurements.
($ in thousands)
Trust Preferred SecuritiesFair ValueValuation TechniqueSignificant Unobservable
Inputs
Range of Inputs
March 31, 2024$30 Discounted cash flowProbability of default
7.71% - 7.82%
December 31, 2023$30 Discounted cash flowProbability of default
7.81% - 7.89%
Municipal SecuritiesFair ValueValuation TechniqueSignificant
Unobservable Inputs
Range of Inputs
March 31, 2024$25,582 Discounted cash flowDiscount Rate
3.59% - 7.59%
December 31, 2023$18,183 Discounted cash flowDiscount Rate
2.34% - 5.50%
Interest Rate Swaps - Risk ParticipationsFair ValueValuation TechniqueSignificant
Unobservable Inputs
Range of Inputs
March 31, 2024$(1)Credit Value AdjustmentCredit Spread
225 bps - 300 bps
Recovery Rate70%
December 31, 2023$(5)Credit Value AdjustmentCredit Spread
225 bps - 300 bps
Recovery Rate70%
The following table presents the fair value measurement of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements were classified at March 31, 2024 and December 31, 2023.
March 31, 2024
($ in thousands)Fair Value Measurements Using
Fair ValueQuoted Prices in
Active Markets
For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Collateral dependent loans$2,285 $ $ $2,285 
Other real estate owned 6,743   6,743 
December 31, 2023
($ in thousands)Fair Value Measurements Using
Fair ValueQuoted Prices in
Active Markets
For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Collateral dependent loans$2,494 $ $ $2,494 
Other real estate owned8,320   8,320 
NOTE 9 - SECURITIES
The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale (“AFS”) and securities held-to-maturity at March 31, 2024 and December 31, 2023.
19

($ in thousands)March 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-sale securities:
U.S. Treasury$6,989 $ $247 $6,742 
Obligations of U.S. government agencies and sponsored entities114,588  14,801 99,787 
Tax-exempt and taxable obligations of states and municipal subdivisions480,597 360 51,962 428,995 
Mortgage-backed securities - residential337,963 11 36,034 301,940 
Mortgage-backed securities - commercial234,691 326 21,440 213,577 
Corporate obligations38,258  3,782 34,476 
Other3,077  26 3,051 
Total available-for-sale$1,216,163 $697 $128,292 $1,088,568 
Held-to-maturity:
U.S. Treasury$62,189 $ $2,556 $59,633 
Obligations of U.S. government agencies and sponsored entities33,615  1,881 31,734 
Tax-exempt and taxable obligations of states and municipal subdivisions246,266 6,108 14,816 237,558 
Mortgage-backed securities - residential138,366  16,060 122,306 
Mortgage-backed securities - commercial132,138  13,609 118,529 
Corporate obligations10,000  2,417 7,583 
Total held-to-maturity$622,574 $6,108 $51,339 $577,343 
($ in thousands)December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-sale securities:
U.S. Treasury$16,985 $ $310 $16,675 
Obligations of U.S. government agencies sponsored entities119,868 1 14,946 104,923 
Tax-exempt and taxable obligations of states and municipal subdivisions486,293 449 48,276 438,466 
Mortgage-backed securities - residential297,735 11 34,430 263,316 
Mortgage-backed securities - commercial198,944 76 20,675 178,345 
Corporate obligations41,347  3,750 37,597 
Other3,055