The First Bancshares, Inc.

FBMS

US3189161033

Banks

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FIRST BANCSHARES : MS/ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

May 10, 2021 at 03:31 pm EDT

FORWARD LOOKING STATEMENTS



Certain statements made or incorporated by reference in this Report which are
not statements of historical fact, including those under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere in this Report, constitute forward-looking statements within the
meaning of, and subject to the protections of, Section 27A of the Securities Act
of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements include
statements with respect to the Company's beliefs, plans, objectives, goals,
targets, expectations, anticipations, assumptions, estimates, intentions and
future performance and involve known and unknown risks, many of which are beyond
the Company's control and which may cause the Company's actual results,
performance or achievements or the financial services industry or economy
generally, to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are forward-looking
statements. You can identify these forward-looking statements through the
Company's use of words such as "believes," "anticipates," "expects," "may,"
"will," "assumes," "predicts," "could," "should," "would," "intends," "targets,"
"estimates," "projects," "seek," "plans," "potential," "aim," and other similar
words and expressions of the future or otherwise regarding the outlook for the
Company's future business and financial performance and/or the performance of
the financial services industry and economy in general. Forward-looking
statements are based on the current beliefs and expectations of the Company's
management and are subject to significant risks and uncertainties. Actual
results may differ materially from those contemplated by such forward-looking
statements. A number of factors could cause actual results to differ materially
from those contemplated by the forward-looking statements in this document. Many
of these factors are beyond the Company's ability to control or predict. The
most recent factor that could cause future results to differ materially from
those anticipated by our forward-looking statements include the negative impact
of COVID-19 pandemic on our financial statements, including our ability to
continue our business activities in certain communities we serve, the duration
of the pandemic and its continued effects on financial markets, a reduction in
financial transaction and business activities resulting in decreased deposits
and reduced loan originations, increases in unemployment rates impacting our
borrowers' ability to repay their loans, our ability to manage liquidity in a
rapidly changing and unpredictable market, additional interest rate changes by
the Federal Reserve and other government actions in response to the pandemic
including additional quarantines, regulations or laws enacted to counter the
effects of the COVID-19 pandemic on the economy. Other factors that could cause
actual results to differ materially from those indicated by forward-looking
statements include, but are not limited to, the following:

the negative impacts and disruptions resulting from the outbreak of COVID-19 on

the economies and communities we serve, which has had and may continue to have

? an adverse impact on our business operations and performance, and could have a

negative impact on our credit portfolio, stock price, borrowers and the economy

as a whole both globally and domestically;

? government or regulatory responses to the COVID-19 pandemic;

the costs and effects of litigation, investigations, inquiries or similar

? matters, or adverse facts and developments related thereto, including the costs

and effects of litigation related to our participation in government stimulus

programs associated with the COVID-19 pandemic;

reduced earnings due to higher credit losses generally and specifically because

losses in the sectors of our loan portfolio secured by real estate are greater

? than expected due to economic factors, including declining real estate values,

increasing interest rates, increasing unemployment, or changes in payment

behavior or other factors;

general economic conditions, either nationally or regionally and especially in

? our primary service area, becoming less favorable than expected resulting in,

among other things, a deterioration in credit quality;




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


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ability of borrowers to repay loans, which can be adversely affected by a

number of factors, including changes in economic conditions, adverse trends or

? events affecting business industry groups, reductions in real estate values or


   markets, business closings or lay-offs, natural disasters, public health
   emergencies and international instability;

current or future legislation, regulatory changes or changes in monetary, tax

or fiscal policy that adversely affect the businesses in which we or our

customers or our borrowers are engaged, including the impact of the Dodd-Frank

Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act"), the

? Federal Reserve's actions with respect to interest rates, the capital

requirements promulgated by the Basel Committee on Banking Supervision ("Basel

Committee"), potential impacts from the Tax Cuts and Jobs Act, the CARES Act of

2020, and other COVID-19 relief measures, uncertainty relating to calculation

of LIBOR and other regulatory responses to economic conditions;

? changes in political conditions or the legislative or regulatory environment;

? the adequacy of the level of our allowance for credit losses and the amount of

credit loss provisions required to replenish the allowance in future periods;

reduced earnings due to higher credit losses because our loans are concentrated

? by loan type, industry segment, borrower type, or location of the borrower or

collateral;

? changes in the interest rate environment which could reduce anticipated or

actual margins;

increased funding costs due to market illiquidity, increased competition for

? funding, higher interest rates, and increased regulatory requirements with

regard to funding;

results of examinations by our regulatory authorities, including the

? possibility that the regulatory authorities may, among other things, require us

to increase our allowance for credit losses through additional credit loss

provisions or write-down of our assets;

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

? the impact of our efforts to raise capital on our financial position,

liquidity, capital, and profitability;

risks and uncertainties relating to not successfully closing and integrating

? the currently contemplated or completed acquisitions within our currently

expected timeframe and other terms;

? significant increases in competition in the banking and financial services

industries;

? changes in the securities markets;

? loss of consumer confidence and economic disruptions resulting from national

disasters or terrorist activities;

? our ability to retain our existing customers, including our deposit

relationships;

? changes occurring in business conditions and inflation;

? changes in technology or risks to cybersecurity;

? changes in deposit flows;

? changes in accounting principles, policies, or guidelines, including the impact

of the new Current Expected Credit Losses ("CECL") standard;




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? our ability to maintain adequate internal control over financial reporting;

? risks related to the continued use, availability and reliability of LIBOR and

other "benchmark" rates; and

? other risks and uncertainties detailed from time to time in our filings with

the Securities and Exchange Commission ("SEC").




We have based our forward-looking statements on our current expectations about
future events. Although we believe that the expectations reflected in and the
assumptions underlying our forward-looking statements are reasonable, we cannot
guarantee that these expectations will be achieved or the assumptions will be
accurate.  The Company disclaims any obligation to update such factors or to
publicly announce the results of any revisions to any of the forward-looking
statements included herein to reflect future events or developments. Additional
information concerning these risks and uncertainties is contained in Item 1A.
Risk Factors in our Annual Report on Form 10-K for the year ended December 31,
2020 and in our other filings with the Securities and Exchange Commission,
available at the SEC's website, http://www.sec.gov.

                          CRITICAL ACCOUNTING POLICIES

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

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

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

CORONAVIRUS (COVID-19) IMPACT



In March 2020, the World Health Organization recognized the novel Coronavirus
Disease 2019 as a pandemic. The spread of COVID-19 has created a global public
health crisis that has resulted in unprecedented uncertainty, volatility and
disruption in financial markets and in governmental, commercial and consumer
activity in the United States and globally. In response to the outbreak, federal
and state authorities in the U.S. introduced various measures to try to limit or
slow the spread of the virus, including travel restrictions, nonessential
business closures, stay-at-home orders, and strict social distancing and shelter
in place. These actions, together with responses to the pandemic by businesses
and individuals, have resulted in rapid decreases in commercial and consumer
activity, temporary closures of many businesses that have led to a loss of
revenues and a rapid increase in unemployment, material decreases in oil and gas
prices and in business valuations, disrupted global supply chains, market
downturns and volatility, changes in consumer behavior related to pandemic
fears, related emergency response legislation and an expectation that Federal
Reserve policy will maintain a low interest rate environment for the foreseeable
future.   These disruptions may result in a decline in demand for banking
products or services, including loans and deposits, which could impact our
future financial condition, result of operations and liquidity. The impacts of
the COVID-19 pandemic on the economy and the banking industry are rapidly
evolving and the future effects are unknown at this time.  The Company is
working to adapt to the changing environment and proactively plan for
contingencies.  To that end, the Company has and is taking steps to protect the
health of our employees and to work with our customers experiencing difficulties
as a result of this virus.  The Company has many non-branch personnel working
remotely.  All of our branches are open, and we are servicing our clients

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

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

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

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

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

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

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

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         OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS SUMMARY

First quarter 2021 compared to first quarter 2020



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

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

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

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

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


Non-interest expense was $27.3 million for the three months ended March 31,
2021, an increase of $3.8 million or 16.3%, when compared with the same period
in 2020. Excluding the net decrease in acquisition charges of $740 thousand for
the quarterly comparison, non-interest expense increased $4.6 million in the
first quarter of 2021, of which $2.0 million was attributable to the operation
of SWG, as compared to first quarter of 2020.

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

The FTE average yield on all earning assets, a non-GAAP measure, decreased 94
basis points in prior year quarterly comparison, from 4.78% for the first
quarter of 2020 to 3.84% for the first quarter of 2021. Average interest expense
decreased 38 basis points from 0.92% for the first quarter of 2020 to 0.54% for
the first quarter of 2021. Cost of all deposits averaged 36 basis points for the
first quarter of 2021 compared to 76 basis points for the first quarter of 2020.
See reconciliation of non-GAAP financial measures provided below.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE FIRST



The First represents the primary asset of the Company. The First reported total
assets of $5.435 billion at March 31, 2021 compared to $5.145 billion at
December 31, 2020, an increase of $291.4 million. Loans, including loans held
for sale, decreased $71.7 million to $3.038 billion, or 2.3%, during the first
three months of 2021. Deposits at March 31, 2021 totaled $4.676 billion compared
to $4.283 billion at December 31, 2020.

For the three months period ended March 31, 2021, The First reported net income
of $18.7 million compared to $10.1 million for the three months ended March 31,
2020. Merger charges, net of tax, equaled $0 for the first three months of 2021
as compared to $576 thousand for the first three months of 2020.

EARNINGS PERFORMANCE



The Company earns income from two primary sources. The first is net interest
income, which is interest income generated by earning assets less interest
expense on deposits and other borrowed money. The second is non-interest income,
which primarily consists of customer service charges and fees as well as
mortgage income but also comes from non-customer sources such as bank-owned life
insurance. The majority of the Company's non-interest expense is comprised of
operating costs that facilitate offering a full range of banking services to our
customers.

NET INTEREST INCOME AND NET INTEREST MARGIN



Net interest income increased by $5.2 million, or 15.2%, for the first quarter
of 2021 relative to the first quarter of 2020. The increase was due to interest
income earned on a higher volume of loans and approximately $3.9 million in fees
earned on PPP loans.  The level of net interest income we recognize in any given
period depends on a combination of factors including the average volume and
yield for interest-earning assets, the average volume and cost of
interest-bearing liabilities, and the mix of products which comprise the
Company's earning assets, deposits, and other interest-bearing liabilities.

Net


interest income is also impacted by the reversal of interest for loans placed on
nonaccrual status during the reporting period, and the recovery of interest on
loans that had been on nonaccrual and were paid off, sold or returned to accrual
status.

The following tables depict, for the periods indicated, certain information
related to the average balance sheet and average yields on assets and average
costs of liabilities. Such yields are derived by dividing income or expense by
the average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.

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           Average Balances, Tax Equivalent Interest and Yields/Rates


($ in thousands)                                                            Three Months Ended
                                                          March 31,2021                            March 31,2020
                                                                 Tax                                      Tax
                                                 Avg.         Equivalent     Yield/       Avg.         Equivalent     Yield/
                                                Balance        interest       Rate       Balance        interest       Rate
Earning Assets:
Taxable securities                            $   699,585    $      3,591      2.05 %  $   560,613    $      3,944      2.81 %
Tax exempt securities                             367,322           2,590      2.82 %      224,212           1,821      3.25 %
Total investment securities                     1,066,907           6,181      2.32 %      784,825           5,765      2.94 %
Interest bearing deposits in other banks          614,283              48


   0.03 %      129,978             289      0.89 %
Loans                                           3,097,145          39,613      5.12 %    2,602,340          36,005      5.53 %
Total earning assets                            4,778,335          45,842      3.84 %    3,517,143          42,059      4.78 %
Other assets                                      558,929                                  473,350
Total assets                                  $ 5,337,264                              $ 3,990,493

Interest-bearing liabilities:
Deposits                                      $ 4,172,326    $      3,849      0.37 %  $ 3,042,529    $      5,413      0.71 %
Borrowed funds                                    100,143             288      1.15 %      145,267             917      2.53 %
Subordinated debentures                           144,590           1,821      5.04 %       80,697           1,203      5.96 %


Total interest-bearing liabilities              4,417,059           5,958


   0.54 %    3,268,493           7,533      0.92 %
Other liabilities                                 275,282                                  174,691
Shareholders' equity                              644,923                                  547,309


Total liabilities and shareholders' equity    $ 5,337,264

           $ 3,990,493

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

* See reconciliation of Non-GAAP financial measures.



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                  NON-INTEREST INCOME AND NON-INTEREST EXPENSE

The following table provides details on the Company's non-interest income and non-interest expense for the three months ended March 30, 2021 and 2020:






($ in thousands)                                                   Three Months Ended
EARNINGS STATEMENT                                 3/31/21     % of Total    3/31/20     % of Total
Non-interest income:


Service charges on deposit accounts                $  1,761          18.6 %

$  1,914          29.6 %
Mortgage fee income                                   3,162          33.4 %     1,567          24.2 %
Interchange fee income                                2,644          27.9 %     1,986          30.6 %
Gain on securities, net                                  20           0.2 %       174           2.7 %


Loss on sale of premises and equipment                  (4)           0.0 %


      (8)         (0.1) %
Other                                                 1,889          19.9 %       841          13.0 %
Total non-interest income                          $  9,472           100 %  $  6,474           100 %

Non-interest expense:


Salaries and employee benefits                     $ 16,054          58.9 %

$ 13,228          56.4 %
Occupancy expense                                     3,879          14.2 %     2,918          12.5 %
FDIC premiums                                           494           1.8 %       147           0.6 %
Marketing                                               160           0.6 %       213           0.9 %


Amortization of core deposit intangibles              1,052           3.9 %


      938           4.0 %
Other professional services                             934           3.4 %       874           3.7 %
Other non-interest expense                            4,691          17.2 %     4,381          18.7 %


Acquisition and integration charges                       -           0.0 %


      740           3.2 %
Total non-interest expense                         $ 27,264           100 %  $ 23,439           100 %




                           PROVISION FOR INCOME TAXES

The Company sets aside a provision for income taxes on a monthly basis. The
amount of the provision is determined by first applying the Company's statutory
income tax rates to estimated taxable income, which is pre-tax book income
adjusted for permanent differences, and then subtracting available tax credits
if applicable. Permanent differences include but are not limited to tax-exempt
interest income, bank-owned life insurance cash surrender value income, and
certain book expenses that are not allowed as tax deductions.

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

                             BALANCE SHEET ANALYSIS

EARNING ASSETS



The Company's interest-earning assets are comprised of investments and loans,
and the composition, growth characteristics, and credit quality of both are
significant determinants of the Company's financial condition. Investments are
analyzed in the section immediately below, while the loan and lease portfolio
and other factors affecting earning assets are discussed in the sections
following investments.

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INVESTMENTS


The Company's investments can at any given time consist of debt securities and
marketable equity securities (together, the "investment portfolio"), investments
in the time deposits of other banks, surplus interest-earning balances in our
Federal Reserve Bank ("FRB") account, and overnight fed funds sold. Surplus FRB
balances and federal funds sold to correspondent banks represent the temporary
investment of excess liquidity. The Company's investments serve several
purposes: 1) they provide liquidity to even out cash flows from the loan and
deposit activities of customers; 2) they provide a source of pledged assets for
securing public deposits, bankruptcy deposits and certain borrowed funds which
require collateral; 3) they constitute a large base of assets with maturity and
interest rate characteristics that can be changed more readily than the loan
portfolio to better match changes in the deposit base and other funding sources
of the Company; 4) they are another interest-earning option for surplus funds
when loan demand is light; and 5) they can provide partially tax exempt income.
Total securities, excluding other securities, totaled $1.135 billion, or 20.8%
of total assets at March 31, 2021 compared to $1.022 billion, or 19.8% of total
assets at December 31, 2020.

There were no federal funds sold at March 31, 2021 and December 31, 2020; and
interest-bearing balances at other banks increased to $695.7 million at March
31, 2021 from $424.9 million at December 31, 2020. The Company's investment
portfolio increased $107.7 million, or 10.3%, to a total fair market value of
$1.157 billion at March 31, 2021 compared to December 31, 2020. The increase in
the portfolio is related to purchases that were made in the first quarter of
2021. The Company's investments are classified as "available-for-sale" to allow
maximum flexibility with regard to interest rate risk and liquidity management.

Refer to the tables shown in Note 9 - Securities to the Consolidated Financial
Statements for information on the Company's amortized cost and fair market value
of its investment portfolio by investment type.

LOAN PORTFOLIO

LHFS



The Bank originates fixed rate single family, residential first mortgage loans
on a presold basis. The Bank issues a rate lock commitment to a customer and
concurrently "locks in" with a secondary market investor under a best efforts
delivery mechanism. Such loans are sold without the mortgage servicing rights
being retained by the Bank. The terms of the loan are dictated by the secondary
investors and are transferred within several weeks of the Bank initially funding
the loan. The Bank recognizes certain origination fees and service release fees
upon the sale, which are included in other income on loans in the consolidated
statements of income. Between the initial funding of the loans by the Bank and
the subsequent purchase by the investor, the Bank carries the loans held for
sale at the lower of cost or fair value in the aggregate as determined by the
outstanding commitments from investors. Associated servicing rights are not
retained. At March 31, 2021, LHFS totaled $15.1 million, compared to $21.4
million at December 31, 2020.

LHFI





LHFI, net of deferred fees and costs, were $3.022 billion at March 31, 2021, a
decrease of $65.4 million, or 2.2%, from $3.088 billion at December 31, 2020.
The Company also saw a decrease in the commercial, financial, and agriculture
loan portfolio of $18.0 million related to PPP loans.

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

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The following table presents the Company's composition of LHFI, net of deferred
fees and costs, in dollar amounts and as a percentage of total gross loans


($ in
thousands):




                                                 March 31, 2021 (1)           December 31, 2020
                                                              Percent                     Percent
                                                Amount        of Total       Amount       of Total


Commercial, financial and agriculture (2)    $    550,500          18.0 %

$   579,443        18.6 %
Commercial real estate                          1,633,667          53.5 %    1,652,993        52.9 %
Consumer real estate                              832,327          27.2 %      850,206        27.2 %
Consumer installment                               38,599           1.3 %       41,036         1.3 %
Total loans                                     3,055,093           100 %    3,123,678         100 %
Allowance for credit losses                      (32,663)                     (35,820)
Net loans                                    $  3,022,430                  $ 3,087,858

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

legacy GAAP.

(2) Loan amount includes $221.7 million and $239.7 million in PPP loans at March

31, 2021 and December 31, 2020, respectively.

Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes that the risk elements of its loan portfolio have been reduced through strategies that diversify the lending mix.

LOAN CONCENTRATIONS


Diversification within the loan portfolio is an important means of reducing
inherent lending risk. As of March 31, 2021, management does not consider there
to be any significant credit concentrations within the loan portfolio. Although
the Bank's loan portfolio, as well as existing commitments, reflects the
diversity of its primary market area, a substantial portion of a borrower's
ability to repay a loan is dependent upon the economic stability of the area.

NON-PERFORMING ASSETS


Non-performing assets ("NPAs") are comprised of loans for which the Company is
no longer accruing interest, and foreclosed assets including mobile homes and
OREO. Loans are placed on nonaccrual status when they become ninety days past
due (principal and/or interest), unless the loans are adequately secured and in
the process of collection. Nonaccrual loans totaled $30.0 million at March 31,
2021, a decrease of $3.8 million from December 31, 2020.

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

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

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

3/31/21 (1)      12/31/20
Nonaccrual Loans


Commercial, financial and agriculture                         $       1,006

$    2,418
Commercial real estate                                               20,662        22,887
Consumer real estate                                                  8,280         8,434
Consumer installment                                                     33            35
Total Nonaccrual Loans                                               29,981        33,774

Other real-estate owned                                               5,769         5,802

Total NPAs                                                    $      35,750    $   39,576
Performing TDRs                                               $       5,816    $    6,201


Past due 90 days or more and still accruing                   $       1,079

$ 2,692 Total non-performing assets as a % of total loans & leases net of unearned income

1.2

% 1.3 % Total nonaccrual loans as a % of total loans & leases net of unearned income

1.0

% 1.1 %

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

legacy GAAP.


NPAs totaled $35.8 million at March 31, 2021, compared to $39.6 million at
December 31, 2020, a decrease of $3.8 million. The ACL/total loans ratio was
1.07% at March 31, 2021, and the ALLL/total loans ratio was 1.15% at December
31, 2020. The decrease in the ACL/total loans ratio is primarily attributable to
charge-offs taken on several loans during the first quarter of 2021. Total
valuation accounting adjustments total $6.8 million on acquired loans at March
31, 2021. The ratio of annualized net charge-offs (recoveries) to total loans
was 0.5% for the quarter ended March 31, 2021 compared to 0.3% for the year
ended December 31, 2020.

ALLOWANCE FOR CREDIT LOSSES



On January 1, 2021, the Company adopted the ASU 2016-13. The FASB issued ASU
2016-13, "Financial Instruments - Credit Losses (ASC 326): Measurement of Credit
Losses on Financial Instruments" to replace the incurred loss model for loans
and other financial assets with an expected loss model and requires
consideration of a wider range of reasonable and supportable information to
determine credit losses. In accordance with ASC Subtopic 326-20, "Financial
Instruments - Credit Losses - Measured at Amortized Costs," the Company has
developed an ACL methodology effective January 1, 2021, which replaces its
previous allowance for loan losses methodology. The ACL is a valuation account
that is deducted from loans' amortized cost basis to present the net amount
expected to be collected on the loans. Loans are charged-off against the
allowance when management believes the uncollectibility of a loan balance is
confirmed. Expected recoveries do not exceed the aggregate of amounts previously
charged-off and expected to be charged-off.

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

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

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  Table of Contents

provision for credit losses for the three months ended March 31, 2021 was $0, a decrease of $7.1million compared to with the same quarter last year.



At March 31, 2021, management believes the allowance is appropriate and should
any of the factors considered by management in evaluating the appropriateness of
the allowance for credit losses change, management's estimate of inherent losses
in the portfolio could also change, which would affect the level of future
provisions for credit losses.

The table that follows summarizes the activity in the allowance for credit losses for the three months ended March 31, 2021 and the allowance for loan losses for the three months ended March 31, 2020 ($ in thousands):



Allowance for Credit Losses




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

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




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




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




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  Table of Contents

ALLOWANCE FOR CREDIT LOSSES ON OBSC EXPOSURES



On January 1, 2021, the Company adopted ASC 326. The Company estimates expected
credit losses over the contractual period in which the Company is exposed to
credit risk via a contractual obligation to extend credit, unless that
obligation is unconditionally cancellable by the Company. The ACL on OBSC
exposures is adjusted as a provision for credit loss expense. The estimate
includes consideration of the likelihood that funding will occur and an estimate
of expected credit losses on commitments expected to be funded over its
estimated life. Upon adoption of ASC 326, the Company recorded an ACL on
unfunded commitments of $717.9 million. As of March 31, 2021, the allowance for
credit losses on unfunded commitments was unchanged.

                                  OTHER ASSETS

The Company's balance of non-interest earning cash and due from banks was $117.5
million at March 31, 2021 and $137.7 million at December 31, 2020. The balance
of cash and due from banks depends on the timing of collection of outstanding
cash items (checks), the level of cash maintained on hand at our branches, and
our reserve requirement among other things, and is subject to significant
fluctuation in the normal course of business. While cash flows are normally
predictable within limits, those limits are fairly broad and the Company manages
its short-term cash position through the utilization of overnight loans to and
borrowings from correspondent banks, including the Federal Reserve Bank and the
Federal Home Loan Bank (" FHLB"). Should a large "short" overnight position
persist for any length of time, the Company typically raises money through
focused retail deposit gathering efforts or by adding brokered time deposits. If
a "long" position is prevalent, the Company will let brokered deposits or other
wholesale borrowings roll off as they mature, or might invest excess liquidity
in higher-yielding, longer-term bonds.

Total other securities decreased $5.3 million due to a decrease in FHLB stock.
The Company's net premises and equipment at March 31, 2021 was $113.8 million
and $114.8 million at December 31, 2020; a decrease of $1.0 million, or 0.9% for
the first three months of 2021. Operating right-of-use assets at March 31, 2021,
totaled $5.6 million compared to $6.0 million at December 31, 2020, a decrease
of $409 thousand. Financing right-of-use assets at March 31, 2021, totaled $2.6
million compared to $2.7 million at December 31, 2020, a decrease of $62
thousand. Bank-owned life insurance at March 31, 2021 totaled $86.5 million
compared to $73.7 million at December 31, 2020, an increase of $12.7 million.
The increase was due to the purchase of $12.3 million in BOLI contracts in the
first quarter of 2021. Goodwill at March 31, 2021 remained unchanged at $156.9
million when compared to December 31, 2020. Other intangible assets, consisting
primarily of the Company's core deposit intangible ("CDI"), decreased by $1.1
million as of March 31, 2021, as compared to December 31, 2020.

Goodwill and indefinite-lived intangible assets are tested for impairment at
least annually, and more frequently if events or changes in circumstances
indicate that it is more likely than not that the asset is impaired. At March
31, 2021, management has determined that no impairment exists.

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

OFF-BALANCE SHEET ARRANGEMENTS


The Company maintains commitments to extend credit in the normal course of
business, as long as there are no violations of conditions established in the
outstanding contractual arrangements. Unused commitments to extend credit
totaled $464.6 million at March 31, 2021 and $466.2 million at December 31,
2020, although it is not likely that all of those commitments will ultimately be
drawn down. Unused commitments represented approximately 15.2% of gross loans at
March 31, 2021 and 14.9% at December 31, 2020. The Company also had undrawn
similar standby letters of credit to customers totaling $14.4 million at March
31, 2021 and $15.7 million at December 31, 2020. The effect on the Company's
revenues, expenses, cash flows and liquidity from the unused portion of the
commitments to provide credit cannot be reasonably predicted because there is no
guarantee that the lines of credit will ever be used. However, the "Liquidity"
section in this Form 10-Q outlines resources available to draw upon should we be
required to fund a significant portion of unused commitments. For more
information regarding the Company's off-balance sheet arrangements, see Note 7 -
Financial Instruments with Off-Balance Risk to the Consolidated Financial
Statements.

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

                                       45



  Table of Contents

                        LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY


Liquidity management refers to the Company's ability to maintain cash flows that
are adequate to fund operations and meet other obligations and commitments in a
timely and cost-effective manner. Detailed cash flow projections are reviewed by
management on a monthly basis, with various scenarios applied to assess its
ability to meet liquidity needs under adverse conditions. Liquidity ratios are
also calculated and reviewed on a regular basis. While those ratios are merely
indicators and are not measures of actual liquidity, they are closely monitored
and we are focused on maintaining adequate liquidity resources to draw upon
should unexpected needs arise.

The Company, on occasion, experiences cash needs as the result of loan growth,
deposit outflows, asset purchases or liability repayments. To meet short-term
needs, the Company can borrow overnight funds from other financial institutions,
draw advances through FHLB lines of credit, or solicit brokered deposits if
deposits are not immediately obtainable from local sources. The net availability
on lines of credit from the FHLB totaled $1.332 billion at March 31, 2021.
Furthermore, funds can be obtained by drawing down the Company's correspondent
bank deposit accounts, or by liquidating unpledged investments or other readily
saleable assets. In addition, the Company can raise immediate cash for temporary
needs by selling under agreement to repurchase those investments in its
portfolio which are not pledged as collateral. As of March 31, 2021, the market
value of unpledged debt securities plus pledged securities in excess of current
pledging requirements comprised $414.2 million of the Company's investment
balances, compared to $513.2 million at December 31, 2020. Other forms of
balance sheet liquidity include but are not necessarily limited to any
outstanding federal funds sold and vault cash. The Company has a higher level of
actual balance sheet liquidity than might otherwise be the case, since it
utilizes a letter of credit from the FHLB rather than investment securities for
certain pledging requirements. That letter of credit, which is backed by loans
that are pledged to the FHLB by the Company, totaled $50.0 million at March 31,
2021.

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






                                                  March 31, 2021    Policy Maximum    Policy Compliance


Loans to Deposits (including FHLB advances)                 65.0 %            90.0 %      In Policy
Net Non-core Funding Dependency Ratio                     (13.8) %            20.0 %      In Policy
Fed Funds Purchased / Total Assets                           0.0 %


  10.0 %      In Policy
FHLB Advances / Total Assets                                 0.0 %            20.0 %      In Policy
FRB Advances / Total Assets                                  0.0 %            10.0 %      In Policy

Pledged Securities to Total Securities                      67.2 %


  90.0 %      In Policy

Continued growth in core deposits and relatively high levels of potentially liquid investments have had a positive impact on our liquidity position in recent periods, but no assurance can be provided that our liquidity will continue at current robust levels.



As of March 31, 2021, cash and cash equivalents were $813.3 million. In
addition, loans and investment securities repricing or maturing within one year
or less were approximately $557.5 million at March 31, 2021. Approximately
$479.5 million in loan commitments could fund within the next three months and
other commitments, primarily commercial and similar letters of credit, totaled
$14.4 million at March 31, 2021.

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

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  Table of Contents

The Company's primary uses of funds are ordinary operating expenses and
shareholder dividends, and its primary source of funds is dividends from the
Bank since the Company does not conduct regular banking operations. Both the
Company and the Bank are subject to legal and regulatory limitations on dividend
payments, as outlined in Item 1. Business - Supervision and Regulation in the
Company's Annual Report on Form 10-K for the year ended December 31, 2020.

DEPOSITS



Deposits are another key balance sheet component impacting the Company's net
interest margin and other profitability metrics. Deposits provide liquidity to
fund growth in earning assets, and the Company's net interest margin is improved
to the extent that growth in deposits is concentrated in less volatile and
typically less costly non-maturity deposits such as demand deposit accounts, NOW
accounts, savings accounts, and money market demand accounts. Information
concerning average balances and rates for the three-month periods ended March
31, 2021 and 2020 is included in the Average Balances, Tax Equivalent Interest
and Yield/Rates tables appearing above, under the heading "Net Interest Income
and Net Interest Margin." The Company implemented Deposit Reclassification at
the beginning of 2020. This program reclassifies non-interest bearing deposits
and NOW deposit balances to money market accounts. This program reduces our
reserve balance required at the Federal Reserve Bank of Atlanta and provides
additional funds for liquidity or lending.  At quarter-end March 31, 2021,
$695.8 million in non-interest deposit balances and $859.4 million in NOW
deposit accounts were reclassified as money market accounts.  A distribution of
the Company's deposits without reclassification showing the balance and
percentage of total deposits by type is presented for the noted periods in


the
following table.




Deposit Distribution                               March 31, 2021            December 31, 2020
                                                            Percent of                  Percent of
($ in thousands)                                Amount        Total         Amount        Total


Non-interest bearing demand deposits          $ 1,328,236         28.7 %  $


1,185,980         28.1 %
NOW accounts and Other                          1,562,119         33.8 %    1,347,778         32.0 %
Money Market accounts                             750,687         16.3 %      705,357         16.7 %
Savings accounts                                  429,082          9.3 %      395,116          9.4 %


Time Deposits of less than $250,000               419,556          9.0 %      218,418          5.2 %
Time Deposits of $250,000 or more                 130,617          2.9 %


  362,631          8.6 %
Total deposits                                $ 4,620,297          100 %  $ 4,215,280          100 %




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

OTHER INTEREST-BEARING LIABILITIES



The Company's non-deposit borrowings may, at any given time, include federal
funds purchased from correspondent banks, borrowings from the FHLB, advances
from the Federal Reserve Bank, securities sold under agreements to repurchase,
and/or junior subordinated debentures. The Company uses short-term FHLB advances
and federal funds purchased on uncommitted lines to support liquidity needs
created by seasonal deposit flows, to temporarily satisfy funding needs from
increased loan demand, and for other short-term purposes. The FHLB line is
committed, but the amount of available credit depends on the level of pledged
collateral.

Total non-deposit interest-bearing liabilities decreased by $110.2 million, or
96.1%, in the first three months of 2021, due in to a decrease in notes payable
of $110.2 million to the FHLB. As of March 31, 2021, junior subordinated
debentures decreased $21 thousand, net of issuance costs, to $144.6 million.
Subordinated debt is discussed more fully in the below Capital section of this
report.

LEASE LIABILITIES


As of March 31, 2021, operating lease liabilities decreased $398 thousand, or
6.6% to $5.6 million from $6.0 million at December 31, 2020. Finance lease
liabilities decreased $47 thousand, or 2.1% to $2.2 million from $2.3 million at
December 31, 2020.

                                       47



  Table of Contents

OTHER LIABILITIES


Other liabilities are principally comprised of accrued interest payable and
other accrued but unpaid expenses. Other liabilities decreased by $3.5 million,
or 13.8%, during the first three months of 2021. As of March 31, 2021, accrued
interest payable decreased $532 thousand, or 24.9% to $1.6 million from $2.1
million at December 31, 2020. Other accrued but unpaid expenses decreased $2.9
million, or 12.7% to 20.0 million at March 31, 2021.

CAPITAL



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

On May 7, 2020, the Company announced the renewal of its share repurchase
program that previously expired on December 31, 2019. Under the program, the
Company could from time to time repurchase up to $15 million of shares of its
common stock in any manner determined appropriate by the Company's management.
The actual timing and method of any purchases, the target number of shares and
the maximum price (or range of prices) under the program, was determined by
management at its discretion and will depend on a number of factors, including
the market price of the Company's common stock, general market and economic
conditions, and applicable legal and regulatory requirements. The renewed share
repurchase program expired on December 31, 2020, The Company repurchased 289,302
shares in 2020 pursuant to the program.

On December 16, 2020, the Company announced that its Board of Directors has
authorized a share repurchase program (the "Repurchase Program"), pursuant to
which the Company may purchase up to an aggregate of $30 million in shares of
the Company's issued and outstanding common stock. Under the program, the
Company may, but is not required to, from time to time repurchase up $30 million
of shares of its own common stock in any manner determined appropriate by the
Company's management. The actual timing and method of any purchases, the target
number of shares and the maximum price (or range of prices) under the program,
will be determined by management at its discretion and will depend on a number
of factors, including the market price of the Company's common stock, general
market and economic conditions, and applicable legal and regulatory
requirements. The Repurchase Program will have an expiration date of December
31, 2021. The Company repurchased 165,623 shares for $5.2 million under the
Repurchase Program in the first quarter of 2021.

The Company uses a variety of measures to evaluate its capital adequacy,
including risk-based capital and leverage ratios that are calculated separately
for the Company and the Bank.  Management reviews these capital measurements on
a quarterly basis and takes appropriate action to ensure that they meet or
surpass established internal and external guidelines.  As permitted by the
regulators for financial institutions that are not deemed to be "advanced
approaches" institutions, the Company has elected to opt out of the requirement
of the standards initially adopted by the Basal Committee on Banking Supervision
in December 2010 (which standards are commonly referred to as "Basel III") to
include accumulated other comprehensive income in risk-based capital.  The
following table sets forth the Company's and the Bank's regulatory capital
ratios as of the dates indicated.




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




                                       48



  Table of Contents




                                                                                          Minimum
                                                        March 31,    December 31,      Required to be
Regulatory Capital Ratios The First Bancshares, Inc.      2021           2020         Well Capitalized
Common Equity Tier 1 Capital Ratio*                          13.8 %


  13.5 %               N/A
Tier 1 Capital Ratio**                                       14.3 %           14.0 %               N/A
Total Capital Ratio                                          19.3 %           19.1 %               N/A
Tier 1 Leverage Ratio                                         9.0 %            9.2 %               N/A

* The numerator does not include Preferred Stock and Trust Preferred.

** The numerator includes Trust Preferred.



Our capital ratios remain very strong relative to the median for peer financial
institutions, and at March 31, 2021 were well above the threshold for the
Company and the Bank to be classified as "well capitalized," the highest rating
of the categories defined under the Bank Holding Company Act and the Federal
Deposit Insurance Corporation Improvement Act of 1991. Basel III rules require a
"capital conservation buffer" for both the Company and the Bank. The capital
conservation buffer is subject to a three-year phase-in period that began
January 1, 2016 and was fully phased-in on January 1, 2019 at 2.5%. Under this
guidance banking institutions with a CETI, Tier 1 Capital Ratio and Total Risk
Based Capital above the minimum regulatory adequate capital ratios but below the
capital conservation buffer will face constraints on their ability to pay
dividends, repurchase equity and pay discretionary bonuses to executive
officers, based on the amount of the shortfall.

As of March 31, 2021, management believes that each of the Bank and the Company
met all capital adequacy requirements to which they are subject. We do not
foresee any circumstances that would cause the Company or the Bank to be less
than well capitalized, although no assurance can be given that this will not
occur.

Total consolidated equity capital at March 31, 2021 was $643.9 million, or approximately 11.8% of total assets. The Company currently has adequate capital to meet the minimum capital requirements for all regulatory agencies.



On June 30, 2006, The Company issued $4.1 million of floating rate junior
subordinated deferrable interest debentures to The First Bancshares Statutory
Trust 2 ("Trust 2") in which the Company owns all of the common equity. The
debentures are the sole asset of the Trust. Trust 2 issued $4.0 million of Trust
Preferred Securities ("TPSs") to investors. The Company's obligations under the
debentures and related documents, taken together, constitute a full and
unconditional guarantee by the Company of Trust 2's obligations under the
preferred securities. The preferred securities are redeemable by the Company at
its option. The preferred securities must be redeemed upon maturity of the
debentures in 2036. Interest on the preferred securities is the three  month
London Interbank Offer Rate ("LIBOR") plus 1.65% and is payable quarterly. The
terms of the subordinated debentures are identical to those of the preferred
securities.

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

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

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  Table of Contents

In accordance with the provisions of ASC 810, Consolidation, the trusts are not included in the consolidated financial statements.

Subordinated Notes

On April 30, 2018, The Company entered into two Subordinated Note Purchase Agreements pursuant to which the Company sold and issued $24 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes due 2028 and $42 million in aggregate principal amount of 6.40% fixed-to-floating rate subordinated notes due 2033 (collectively, the "Notes").


The Notes are not convertible into or exchangeable for any other securities or
assets of the Company or any of its subsidiaries. The Notes are not subject to
redemption at the option of the holder. Principal and interest on the Notes are
subject to acceleration only in limited circumstances. The Notes are unsecured,
subordinated obligations of the Company and rank junior in right to payment to
the Company's current and future senior indebtedness, and each Note is pari
passu in right to payment with respect to the other Notes.

On September 25, 2020, The Company entered into a Subordinated Note Purchase
Agreement with certain qualified institutional buyers pursuant to which the
Company sold and issued $65.0 million in aggregate principal amount of its 4.25%
Fixed to Floating Rate Subordinated Notes due 2030. The Notes are unsecured and
have a ten-year term, maturing October 1, 2030, and will bear interest at a
fixed annual rate of 4.25%, payable semi-annually in arrears, for the first five
years of the term. Thereafter, the interest rate will reset quarterly to an
interest rate per annum equal to a benchmark rate (which is expected to be the
Three-Month Term Secured Overnight Financing Rate ("SOFR") plus 412.6 basis
points, payable quarterly in arrears. As provided in the Notes, under specified
conditions the interest rate on the Notes during the applicable floating rate
period may be determined based on a rate other than Three-Month Term SOFR. The
Company is entitled to redeem the Notes, in whole or in part, on any interest
payment date on or after October 1, 2025, and to redeem the Notes at any time in
whole upon certain other specified events.

The Company had $144.6 million of subordinated debt, net of deferred issuance
costs $2.2 million and unamortized fair value mark $686 thousand, at March 31,
2021, compared to $144.6 million, net of deferred issuance costs $2.2 million
and unamortized fair value mark $700 thousand, at December 31, 2020.

Reconciliation of Non-GAAP Financial Measures



Our accounting and reporting policies conform to generally accepted accounting
principles ("GAAP") in the United States and prevailing practices in the banking
industry. However, certain non-GAAP measures are used by management to
supplement the evaluation of our performance. This Quarterly Report on Form 10-Q
includes operating net earnings; diluted operating earnings per share; net
interest income, FTE; pre-tax, pre-provision operating earnings; total interest
income, FTE; interest income investment securities, FTE and certain rations
derived from these non-GAAP financial measures. The Company believes that the
non-GAAP financial measures included in this Quarterly Report on Form 10-Q allow
management and investors to understand and compare results in a more consistent
manner for the periods presented herein. The tax equivalent adjustment to net
interest income recognizes the income tax savings when comparing taxable and
tax-exempt assets and assumes a 25.3% tax rate. Management believes that it is a
standard practice in the banking industry to present net interest income and net
interest margin on a fully tax equivalent basis, and believes it enhances the
comparability of income and expenses arising from taxable and nontaxable
sources.  Operating net earnings and pre-tax, pre-provision operating earnings
excludes acquisition charges.  Non-GAAP financial measures should be considered
supplemental and not a substitute for the Company's results reported in
accordance with GAAP for the periods presented, and other bank holding companies
may define or calculate these measures differently. These non-GAAP financial
measures should not be considered in isolation and do not purport to be an
alternative to the efficiency ratio, net income, earnings per share, net
interest income, net interest margin, average yield on investment securities,
average yield on all earning assets, common equity, book value per common share
or other GAAP financial measures as a measure of operating performance. A
reconciliation of these non-GAAP financial measures to the most comparable


GAAP
measure is provided below.

                                       50



  Table of Contents

Operating Net Earnings




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


Net income available to common shareholders                  $       16,644    $       8,311
Effect of acquisition charges                                             -              740
Tax on acquisition charges                                                -            (164)

Net earnings available to common shareholders, operating $ 16,644

$       8,887

Diluted Operating Earnings per Share






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

Diluted earnings per share, operating $ 0.79 $ 0.47

Net Interest Income, Fully Tax Equivalent






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

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

Pre-Tax Pre-Provision Operating Earnings






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

Earnings before income taxes                 $        21,437    $         9,998
Acquisition charges                                        -                740
Provision for credit losses                                -              7,102

Pre-Tax, Pre-Provision Operating Earnings $ 21,437 $ 17,840






                                       51



  Table of Contents

Total Interest Income, Fully Tax Equivalent






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

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

Yield on average earnings assets, FTE               3.84 %             4.78

Interest Income Investment Securities, Fully Tax Equivalent






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

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

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

Yield on investment securities, FTE                      2.32 %

2.94 %

Latest news about The First Bancshares, Inc.

Business First Bancshares to Purchase Oakwood Bancshares in $85.7 Million All-Stock Deal	06:32am	MT
Earnings Flash (BFST) BUSINESS FIRST BANCSHARES Posts Q1 EPS $0.48, vs. Street Est of $0.57	Apr. 25	MT
Transcript : The First Bancshares, Inc., Q1 2024 Earnings Call, Apr 25, 2024	Apr. 25
The First Bancshares, Inc. Reports Earnings Results for the First Quarter Ended March 31, 2024	Apr. 25	CI
Earnings Flash (FBMS) THE FIRST BANCSHARES Posts Q1 EPS $0.65, vs. Street Est of $0.59	Apr. 24	MT
Earnings Flash (SFST) SOUTHERN FIRST BANCSHARES Posts Q1 Revenue $21.3M	Apr. 18	MT
Earnings Flash (SFST) SOUTHERN FIRST BANCSHARES Posts Q1 EPS $0.31	Apr. 18	MT
The First Bancshares, Inc. announces an Equity Buyback for $50 million worth of its shares.	Feb. 28	CI
The First Bancshares, Inc. authorized a Buyback Plan.	Feb. 27	CI
Sector Update: Financial Stocks Rise Late Afternoon	Feb. 01	MT
Sector Update: Financial Stocks Ease Thursday Afternoon	Feb. 01	MT
Business First Bancshares to Acquire Waterstone	Feb. 01	MT
North American Morning Briefing : Cautious Start -2-	Jan. 29	DJ
Keefe Bruyette & Woods Downgrades First Bancshares to Market Perform From Outperform, Price Target is $28	Jan. 26	MT
Tranche Update on The First Bancshares, Inc.'s Equity Buyback Plan announced on March 1, 2023.	Jan. 25	CI
Transcript : The First Bancshares, Inc., Q4 2023 Earnings Call, Jan 25, 2024	Jan. 25
The First Bancshares Q4 Non-GAAP Earnings Decline, Revenue Increases	Jan. 25	MT
Business First Bancshares Core Q4 Earnings Are Unchanged, Revenue Declines	Jan. 23	MT
The First Bancshares, Inc. Reports Earnings Results for the Fourth Quarter Ended December 31, 2023	Jan. 23	CI
The First Bancshares, Inc. Reports Earnings Results for the Full Year Ended December 31, 2023	Jan. 23	CI
Earnings Flash (BFST) BUSINESS FIRST BANCSHARES Reports Q4 EPS $0.57	Jan. 23	MT
North American Morning Briefing : Stock Futures Steady as Earnings Season Ramps Up	Jan. 23	DJ
Southern First Bancshares Q4 Earnings, Revenue Fall	Jan. 18	MT
Earnings Flash (SFST) SOUTHERN FIRST BANCSHARES Posts Q4 Revenue $21.4M	Jan. 18	MT
Earnings Flash (SFST) SOUTHERN FIRST BANCSHARES Reports Q4 EPS $0.51	Jan. 18	MT

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Company Profile

The First Bancshares, Inc. is a bank holding company for The First Bank (the First). The Company is a community-focused financial institution that offers a full range of financial services to individuals, businesses, municipal entities and nonprofit organizations in the communities that it serves. These services include consumer and commercial loans, deposit accounts and safe deposit services. It offers a full range of deposit services that are available in banks and savings institutions, including checking accounts, NOW accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit. It offers a full range of commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital, business expansion, purchase of equipment and machinery, and others. Its segments include the Commercial/Retail Bank, the Mortgage Banking Division, and the Holding Company.

Sector

Banks

Calendar

2024-05-23 - Annual General Meeting

Related indices

Russell 2000

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Ratings for The First Bancshares, Inc.

Trading Rating

Investor Rating

ESG Refinitiv

C-

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Analysts' Consensus

Sell

Buy

Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

25.04 USD

Average target price

29.81 USD

Spread / Average Target

+19.06%

Consensus

EPS Revisions

Estimates Revisions

Quarterly earnings - Rate of surprise

Company calendar

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Other Banks

The First Bancshares, Inc.

Equities

FBMS

US3189161033

Banks

FIRST BANCSHARES : MS/ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

EPS Revisions