REGULATORY MATTERS

12 Months Ended

Dec. 31, 2020

REGULATORY MATTERS

REGULATORY MATTERS

NOTE J - REGULATORY MATTERS

The Company and its subsidiary bank are subject to regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiary bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgment by regulators about components, risk weightings, and other related factors.

To ensure capital adequacy, quantitative measures have been established by regulators, and these require the Company and its subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), Tier 1 capital to adjusted total assets (leverage) and common equity Tier 1.

Management believes, as of December 31, 2020, that the Company met all capital adequacy requirements to which they are subject.  Under Basel III requirements, a financial institution is considered to be well-capitalized if it has a total risk-based capital ratio of 10% or more, has a Tier 1 risk-based capital ratio of 8% or more, has a common equity Tier 1 of 6.5%, and has a Tier 1 leverage capital ratio of 5% or more. The actual capital amounts and ratios, excluding unrealized losses, at December 31, 2020 and 2019 are presented in the following table ($in thousands).  No amount was deducted from capital for interest-rate risk exposure.

	Company				Subsidiary
December 31, 2020	(Consolidated)				The First
	Amount		Ratio		Amount		Ratio
Total risk-based	$	618,025	19.1	%	$	549,273	16.9	%
Common equity Tier 1		438,109	13.5	%		513,453	15.8	%
Tier 1 risk-based		453,409	14.0	%		513,453	15.8	%
Tier 1 leverage		453,409	9.2	%		513,453	10.4	%
December 31, 2019
	Amount		Ratio		Amount		Ratio
Total risk-based	$	446,571	15.8	%	$	439,538	15.6	%
Common equity Tier 1		352,481	12.5	%		425,630	15.1	%
Tier 1 risk-based		367,727	13.0	%		425,630	15.1	%
Tier 1 leverage		367,727	10.3	%		425,630	11.8	%

The minimum amounts of capital and ratios, not including Accumulated Other Comprehensive Income, as established by banking regulators at December 31, 2020, and 2019, were as follows ($ in thousands):

	Company				Subsidiary
December 31, 2020	(Consolidated)				The First
	Amount		Ratio		Amount		Ratio
Total risk-based	$	258,896	8.0	%	$	259,136	8.0	%
Common equity Tier 1		145,629	4.5	%		145,764	4.5	%
Tier 1 risk-based		194,172	6.0	%		194,352	6.0	%
Tier 1 leverage		129,448	4.0	%		129,568	4.0	%

December 31, 2019
	Amount		Ratio		Amount		Ratio
Total risk-based	$	225,932	8.0	%	$	225,413	8.0	%
Common equity Tier 1		127,087	4.5	%		126,795	4.5	%
Tier 1 risk-based		169,449	6.0	%		169,060	6.0	%
Tier 1 leverage		143,460	4.0	%		143,940	4.0	%

The principal sources of funds to the Company to pay dividends are the dividends received from The First, A National Banking Association, Hattiesburg, Mississippi. Consequently, dividends are dependent upon The First’s earnings, capital needs, regulatory policies, as well as statutory and regulatory limitations. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the Company's regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer. Federal and state banking laws and regulations restrict the amount of dividends and loans a bank may make to its parent company. Approval by the Company’s regulators is required if the total of all dividends declared in any calendar year exceed the total of its net income for that year combined with its retained net income of the preceding two years. In 2020, the Bank had available $55.2 million to pay dividends.

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to the credit loss accounting under GAAP, including banking organizations implementation of CECL.  The final rule provides banking organizations the option to phase in over a three year period the day one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.  Based on the Company’s assessment of the CECL accounting standard and the impact of adoption on the consolidated financial statements and regulatory capital calculations, the Company is planning to adopt the capital transition relief over the permissible three year period.