The First Bancshares, Inc. (“FBMS” or “the Company”) (NASDAQ: FBMS), holding company for The First, A National Banking Association, (www.thefirstbank.com) reported today net income available to common shareholders for the quarter ended September 30, 2021.

Highlights for the Quarter:

• Average loans, excluding Paycheck Protection Program (”PPP”) loans, increased $9.0 million, 0.3% as compared to the quarter ended June 30, 2021, or 1.2% on an annualized basis.
• Net income available to common shareholders totaled $16.1 million for the quarter ended September 30, 2021, representing an increase of $0.5 million, or 3.4%, compared to $15.6 million for the quarter ended June 30, 2021.
• Total interest income increased $1.2 million, or 2.8% from $43.2 million for quarter end June 30, 2021 to $44.4 million for quarter end September 30, 2021 and total cost of deposits decreased 23% from 0.30% at quarter end June 30, 2021 to 0.23% at quarter end September 30, 2021. These changes resulted in an increase of 11 bps to our net interest margin.
• In year-over-year comparison, net income available to common shareholders increased $11.2 million, or 30.1%, from $37.2 million for the nine months ended September 30, 2020 to $48.4 million for the same period ended September 30, 2021.
• Total nonperforming assets decreased $8.9 million representing a 24% decrease as compared to June 30, 2021 and decreased $16.9 million representing a 38% decrease as compared to third quarter 2020.
• Provision for credit losses totaled $0 for the quarter as compared to $0 for the sequential quarter comparison and $6.9 million for the third quarter of 2020.
• As of September 30, 2021, total COVID-related modifications were $27.8 million, representing 0.9% of the loan portfolio and down from a peak of $676 million or 21% of the loan portfolio in 2020. For additional details related to the effects of COVID-19, see the investor presentation filed and available under presentations and press releases included in the investor relations section of the Company’s website: www.thefirstbank.com.
• During the quarter, the Company received a $1.8 million grant from the U. S. Treasury Rapid Response Program (“RRP”).
• During the quarter, the Company made $1.4 million in charitable contributions to the University of Mississippi’s Children’s Hospital, to 3 Historically Black Colleges and Universities, Florida A&M, Southern University and Jackson State University and set aside monies for down payment and closing cost assistance for low to moderate income mortgage applicants. These investments further our mission as a Community Development Financial Institution to support underserved communities throughout our trade area.
• During the first quarter of 2021, the Company adopted the Current Expected Credit Losses (“CECL”) methodology for estimating credit losses, effective January 1, 2021.

M. Ray “Hoppy” Cole, President and Chief Executive Officer, commented, “Our markets continue to show improvement in activity across our footprint as we recover from the effects of the pandemic. We were pleased to see improvements in profitability and credit quality across the organization. Loan demand appears to be increasing as economic activity picks up particularly in the construction portion of our loan portfolio as total commitments increased 18% quarter over quarter. We achieved an 11 basis point increase in our net interest margin during the quarter and lowered our deposit costs to 0.23%. We are encouraged that these are signs of increasing growth opportunities as we focus on continuing to expand our southeastern presence.”

Quarterly Earnings

Net income available to common shareholders totaled $16.1 million for the quarter ended September 30, 2021, an increase of $0.5 million, or 3.4%, compared to $15.6 million for the quarter ended June 30, 2021. The Company recognized $0.4 million more in PPP loan fee income during the third quarter 2021 as compared to the second quarter 2021.

Net income available to common shareholders totaled $16.1 million for the quarter ended September 30, 2021, an increase of $4.2 million, or 35.4%, compared to $11.9 million for the quarter ended September 30, 2020.

Provision for credit losses totaled $0 for the quarter ended September 30, 2021 and quarter ended June 30, 2021, a decrease of $6.9 million, or $5.3 million net of tax, as compared to the third quarter of 2020.

Earnings Per Share

For the third quarter of 2021, fully diluted earnings per share were $0.76 compared to $0.74 for the second quarter of 2021 and $0.56 for the third quarter of 2020. The increase in sequential quarter comparison is due to an increase in net income available to common shareholders of $0.5 million.

Diluted earnings per share operating (non-GAAP) increased $0.20 from $0.56 for third quarter of 2020 to $0.76 for third quarter of 2021 due to the increase in operating net earnings available to shareholders (non-GAAP) of $4.0 million for the same period.

Fully diluted earnings per share include the purchase by the Company of 165,623 shares during the first quarter of 2021 and 289,302 shares during the fourth quarter of 2020.

Balance Sheet

Consolidated assets increased $2.2 million to $5.512 billion at September 30, 2021 from $5.510 billion at June 30, 2021.

PPP loans at September 30, 2021 were $87.1 million, down $70.7 million from June 30, 2021, due to loan forgiveness under the PPP program.

Total average loans were $2.984 billion for the quarter ended September 30, 2021, as compared to $3.043 billion for the quarter ended June 30, 2021, and $3.166 billion for the quarter ended September 30, 2020, representing a decrease of $59.0 million, or 1.9%, for the sequential quarter comparison, and a decrease of $181.9 million, or 5.7%, for the prior year quarterly comparison. PPP loans averaged $112.3 million for the quarter ended September 30, 2021, $180.3 million for the quarter ended June 30, 2021, and $260.1 million for the quarter ended September 30, 2020.

Excluding the PPP loans, average loans increased $9.0 million, or 0.3% as compared to the quarter ended June 30, 2021.

Total average deposits were $4.666 billion for the quarter ended September 30, 2021, as compared to $4.629 billion for the quarter ended June 30, 2021, and $4.212 billion for the quarter ended September 30, 2020, representing an increase of $36.7 million, or 0.8%, for the sequential quarter comparison, and an increase of $453.5 million, or 10.8%, for the prior year quarterly comparison.

Average deposits increased $453.5 million, or 10.8% as compared to the quarter ended September 30, 2020 of which $230.1 million was attributable to increases in the non-interest bearing accounts.

The Company implemented Deposit Reclassification at the beginning of 2020. This program reclassifies noninterest bearing deposits and NOW deposit balances to money market accounts. This program reduces our reserve balance required at the Federal Reserve Bank of Atlanta which provides additional funds for liquidity and lending. At September 30, 2021, $828.1 million in noninterest deposit balances and $854.0 million in NOW deposit accounts were reclassified as money market accounts.

Asset Quality

Nonperforming assets totaled $28.0 million at September 30, 2021, a decrease of $9.0 million compared to $37.0 million at June 30, 2021 and a decrease of $16.9 million compared to $44.9 million at September 30, 2020. Nonaccrual loans decreased $2.6 million as compared to June 30, 2021 and decreased $12.3 million as compared to September 30, 2020.

The ratio of the allowance for credit losses (ACL) to total loans was 1.09% at September 30, 2021 and 1.07% at June 30, 2021. The ratio of allowance for loan losses to total loans under the incurred loss model was 0.87% at September 30, 2020. The ratio of annualized net charge-offs (recoveries) to total loans was 0.005% for the quarter ended September 30, 2021 compared to 0.03% for the quarter ended June 30, 2021 and 0.09% for the quarter ended September 30, 2020.

Effective January 1, 2021, the Company adopted the CECL methodology for estimating credit losses. This adoption resulted in a net $0.4 million increase to the ACL and an unfunded commitment reserve of $0.7 million.

Third Quarter 2021 vs. Third Quarter 2020 Earnings Comparison

Net income available to common shareholders for the third quarter of 2021 totaled $16.1 million compared to $11.9 million for the third quarter of 2020, an increase of $4.2 million or 35.4%. Provision for credit losses totaled $0 for the quarter ended September 30, 2021, a decrease of $6.9 million, or $5.3 million net of tax, as compared to the third quarter of 2020.

Net interest income for the third quarter of 2021 was $40.0 million, a slight increase when compared to the third quarter of 2020. Fully tax equivalent (“FTE”) net interest income (non-GAAP) totaled $40.7 million and $40.6 million for the third quarter of 2021 and 2020, respectively. Purchase accounting adjustments decreased $0.7 million for the third quarter comparisons. Third quarter of 2021 FTE net interest margin (non-GAAP) was 3.25% which included 10 basis points related to purchase accounting adjustments compared to 3.58% for the same quarter in 2020, which included 17 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the core net interest margin (non-GAAP) decreased 26 basis points in prior year quarterly comparison.

Non-interest income increased $0.8 million for the third quarter of 2021 as compared to the third quarter of 2020. This increase is attributed to the $1.8 million RRP grant from the U.S. Treasury and was offset by the decrease in mortgage income of $1.2 million.

Third quarter 2021 non-interest expense was $29.1 million, an increase of $2.1 million, or 7.9% as compared to the third quarter of 2020. Charitable contributions of $1.4 million during the third quarter of 2021 contributed to the increase. These contributions related to the RRP grant and supported projects in underserved communities.

Investment securities totaled $1.485 billion, or 27.0% of total assets at September 30, 2021, compared to $984.9 million, or 19.1% of total assets at September 30, 2020. The average balance of investment securities increased $406.7 million in the prior year quarterly comparison. The average tax equivalent yield on investment securities (non-GAAP) decreased 26 basis points to 2.22% from 2.48% in the prior year quarterly comparison. The investment portfolio had a net unrealized gain of $18.2 million at September 30, 2021 as compared to a net unrealized gain of $33.2 million at September 30, 2020.

The FTE average yield on all earning assets (non-GAAP) decreased 54 basis points in prior year quarterly comparison, from 4.14% for the third quarter of 2020 to 3.60% for the third quarter of 2021. Interest expense on average interest bearing liabilities decreased 22 basis points from 0.61% for the third quarter of 2020 to 0.39% for the third quarter of 2021. Cost of all deposits averaged 22 basis points for the third quarter of 2021 compared to 47 basis points for the third second quarter of 2020.

Third Quarter 2021 vs Second Quarter 2021 Earnings Comparison

Net income available to common shareholders for the third quarter of 2021 increased $0.5 million to $16.1 million compared to $15.6 million for the second quarter of 2021.

Net interest income for the third quarter of 2021 was $40.0 million as compared to $38.1 million for the second quarter of 2021, an increase of $2.0 million which is attributed to an increase in income earned on investment securities of $1.0 million and a decrease in interest expense of $0.8 million. FTE net interest income (non-GAAP) increased $2.0 million to $40.7 million from $38.7 million in sequential-quarter comparison. Third quarter 2021 FTE net interest margin (non-GAAP) of 3.25% included 10 basis points related to purchase accounting adjustments compared to 3.14% for the second quarter in 2021, which included 9 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the core net interest margin (non-GAAP) increased 10 basis point in sequential quarter comparison.

Investment securities totaled $1.485 billion, or 27.0% of total assets at September 30, 2021, compared to $1.303 billion, or 23.6% of total assets at June 30, 2021. The average balance of investment securities increased $144.2 million in sequential-quarter comparison. The average tax equivalent yield on investment securities (non-GAAP) increased 7 basis points to 2.22% from 2.15% in sequential-quarter comparison. The investment portfolio had a net unrealized gain of $18.2 million at September 30, 2021 as compared to a net unrealized gain of $25.6 million at June 30, 2021.

The FTE average yield on all earning assets (non-GAAP) increased in sequential-quarter comparison from 3.56% to 3.60%. Interest expense on average interest bearing liabilities decreased 7 basis points from 0.46% for the second quarter of 2021 to 0.39% for the third quarter of 2021. Cost of all deposits averaged 22 basis points for the third quarter of 2021 compared to 28 basis points for the second quarter of 2021.

Non-interest income increased $0.8 million in sequential-quarter comparison resulting from the $1.8 million RRP grant from the U.S. Treasury and was offset by a decrease in mortgage income of $0.6 million.

Non-interest expense for the third quarter of 2021 was $29.1 million compared to $27.5 million for the second quarter of 2021, an increase of $1.6 million, which is attributed to the $1.4 million charitable contributions related to the RRP grant and $0.2 million in expense related to the early vesting of restricted stock held by our Directors.

Year-to-Date Earnings Comparison

In the year-over-year comparison, net income available to common shareholders increased $11.2 million, or 30.1%, from $37.2 million for the nine months ended September 30, 2020 to $48.4 million for the same period ended September 30, 2021. Excluding the bargain purchase and sale of land gains of $7.5 million, net of tax, and the decreased provision expense of $16.7 million, net of tax, recorded during the nine months ended September 2020, net income available to common shareholders increased $2.0 million in the year-over-year comparison.

Net interest income increased $4.1 million in the year-over-year comparison, primarily due to interest income earned on a higher volume of securities and a reduction in interest expense due to changes in rates.

Non-interest income increased $4.6 million in the year-over-year comparison excluding the gains mentioned above. Interchange fee income increased $1.7 million and the RRP grant of $1.8 million accounted for the increase in the year-over-year comparison.

Non-interest expense was $83.8 million for the nine months ended September 30, 2021 an increase of $5.3 million as compared to the same period ended September 30, 2020. An increase of $3.7 million in salaries and employee benefits, an increase of $1.7 million in occupancy expense and the $1.4 million in charitable contributions contributed to the increase.

Declaration of Cash Dividend

The Company announced that its Board of Directors declared a cash dividend of $0.16 per share to be paid on its common stock on November 26, 2021 to shareholders of record as of the close of business on November 10, 2021.

About The First Bancshares, Inc.

The First Bancshares, Inc., headquartered in Hattiesburg, Mississippi, is the parent company of The First, A National Banking Association (“The First”). Founded in 1996, The First has operations in Mississippi, Louisiana, Alabama, Florida and Georgia. The Company’s stock is traded on the NASDAQ Global Market under the symbol FBMS. Information is available on the Company’s website: www.thefirstbank.com.

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 press release includes operating efficiency ratio, pre-tax, pre-provision operating earnings, diluted operating earnings per common share, operating net earnings available to shareholder, fully tax equivalent net interest income, fully tax equivalent net interest margin, core net interest margin, average tax equivalent yield on investment securities, fully tax equivalent average yield on all earning assets, total tangible common equity, tangible book value per common share and certain ratios derived from these non-GAAP financial measures. The Company believes that the non-GAAP financial measures included in this press release allow management and investors to understand and compare results in a more consistent manner for the periods presented in this press release. 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 net income, earnings per share, net interest income, book value 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 in this press release following the Condensed Consolidated Financial Information (unaudited).

Forward Looking Statements

This news release and certain of our other filings with the Securities and Exchange Commission contain statements that constitute “forward looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements. Such statements can generally be identified by such words as “believes,” “anticipates,” “expects,” “may,” “will,” “assumes,” “should,” “predicts,” “could,” “would,” “intends,” “targets,” “estimates,” “projects,” “plans,” “potential,” “positioned” 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 banking industry and economy in general. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve known and unknown risk and uncertainties which may cause the actual results, performance or achievements of the Company to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on the information known to, and 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. Factors that might cause such differences include, but are not limited to: (1) competitive pressures among financial institutions increasing significantly; (2) changes in economic or political conditions, either nationally or locally, particularly in areas in which the Company conducts operations; (3) interest rate risk; (4) changes in applicable laws, rules, or regulations, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to COVID-19; (5) risks related to the Company’s pending and recently completed acquisitions, including that the anticipated benefits from the pending and recently completed acquisitions are not realized in the time frame anticipated or at all as a result of changes in general economic and market conditions or other unexpected factors or events; (6) changes in management’s plans for the future; (7) credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values, or competition; (8) changes in accounting principles, policies, or guidelines; (9) adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company’s participation in and execution of government programs related to the COVID-19 pandemic; (10) the impact of the COVID-19 pandemic on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations; (11) potential increases in the provision for loan losses resulting from the COVID-19 pandemic; and (12) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission, which are available on the SEC’s website, http://www.sec.gov. Undue reliance should not be placed on forward-looking statements. 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.

Statements about the potential effects of the COVID-19 pandemic on the Company’s assets, business, liquidity, financial condition, prospects, and results of operations may constitute forward-looking statements and are subject to the risks that the actual effects may differ, possibly materially, from what is reflected in these forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the depth, dispersion and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on customers, employees, third parties and the Company.