First Bancshares, Inc.
120 North Street, Bellevue, Ohio 44811
419-483-7340 – Fax 419-483-0006
www.fnblifetime.com
July 25, 2024

Dear Shareholder,

A second quarter dividend has been declared in the amount of thirty-three cents ($0.33) per share which is equal to the payment made the prior quarter end. This cash payment has been provided according to your direction or will be invested in additional stock if you are part of the Dividend Reinvestment Plan.

The attached statement provides a snapshot of the results of the first half of the year compared to the same period in 2023. We continue to see progress in improvement of our net interest income that was negatively impacted during the first half of 2023. This was subsequent to the rapid increase of short-term interest rates implemented by the Federal Reserve. Net interest income increased by over $275,000 equating to a 7% improvement over the first six months of last year. With loan demand slowing due to the current level of interest rates, we did see a drop in non-interest income which was influenced by loan fees being down from the prior year. There were a number of expenses that were higher in the first half of this year compared to last. We saw an increase in our professional service fees that includes data processing costs and audit services as well as a significant increase in our franchise tax. We were able to manage personnel expenses by keeping them slightly under what was paid out in 2023 helping to support a $78,000 improvement in the bottom line which is over a 14% improvement from a year ago.

It’s worth noting that the management and board are not satisfied with the current level of financial performance but do understand that the events of a rapid increase in short term interest rates, a slowing economy and a housing market that has impeded loan demand have impacted the earnings of most financial institutions. We continue to focus on managing our cost of funds as rates level off and slightly decline. Our loan portfolio continues to reprice at higher levels and our investment portfolio is generating principal runoff which we are reinvesting at considerably higher rates. Credit quality remains strong with low levels of delinquency and a limited number of non-performing assets.

Our balance sheet has remained stable and is supported by solid levels of capital. Our book value is still affected by the market adjustment of our investments but continues to improve as that portfolio shrinks and longer-term interest rates decline. We anticipate low to moderate growth through the remainder of the year as the economy remains muted and loan activity is light.

For the last year and a half, our income statement has been impacted by lower margins, which is a direct result of the Federal Reserve monetary policy that has taken interest rates to a level we have not seen in many years. The pace at which those rate increases occurred has affected the industry as a whole and will take some time for our margins to fully recover. It does appear the Fed is done raising rates in the current cycle and may consider reducing them yet this year. This should expedite the expected recovery. Economic activity varies by geography and industry type but overall does not appear to be in jeopardy of a near-term recession but is an area that warrants additional monitoring.

Your continued support of First National Bank and First Bancshares is genuinely appreciated by our directors, officers and staff. We hope you enjoy the remainder of the summer season and look forward to providing additional updates next quarter.

Sincerely,
James V. Stouffer Jr.- Chairman

Dean J. Miller- President and CEO