CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CHANGES IN STOCKHOLDERS’ EQUITY

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and the instructions to Form 10-Q of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, ~~2019,~~2020, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

The First Bancshares, Inc., Hattiesburg, Mississippi (the "Company"), was incorporated June 23, 1995, under the laws of the State of Mississippi for the purpose of operating as a bank holding company. The Company’s primary asset is its interest in its wholly-owned subsidiary, The First, A National Banking Association (the “Bank” or “The First”).

At March 31, ~~2019,~~2020, the Company had approximately ~~$3.533~~$4.062 billion in assets, ~~$2.330~~$2.595 billion in net loans, ~~$2.914~~$3.278 billion in deposits, and ~~$454.3~~$555.9 million in stockholders' equity. For the three months ended March 31, ~~2019,~~2020, the Company reported net income of ~~$7.6~~$8.3 million. ~~After tax merger related~~After-tax merger-related costs of ~~$2.5 million~~$576 thousand were expensed during the three months ended March 31, ~~2019.~~2020.

On February ~~26, 2019,~~21, 2020, the Company paid a cash dividend in the amount of ~~$0.07~~$0.10 per share to shareholders of record as of the close of business on ~~Monday,~~Friday, February ~~11, 2019.~~7, 2020.

During the three month ended March 31, 2020, there were no significant accounting pronouncements applicable to the Company that became effective.

In ~~August 2018,~~March 2020, the FASB issued ASU No. ~~2018-13,~~2020-04,~~Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.~~ASU 2018-11 eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2Reference Rate Reform (Topic 848): “Facilitation of the ~~fair value hierarchy, but will~~Effects of Reference Rate Reform on Financial Reporting.”This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be ~~required~~discontinued. It is intended to ~~disclose~~help stakeholders during the ~~range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13~~global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

In December 2019, the FASB issued ASU No. 2019-12,Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes.”ASU 2019-12 removes specific exceptions to the general principles in Topic 740. This update simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and ~~annual reporting periods beginning after December 15, 2019; early adoption~~the recognition for deferred tax liabilities for outside basis differences. The ASU also improves financial statement preparers’ application for income tax-related guidance, simplifies GAAP for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 will be effective on January 1, 2021 and is ~~permitted. Entities are also allowed~~not expected to elect for early adoption the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. The revised disclosure requirements will not have a material impact on the Company’s Consolidated Financial Statements.

~~In June 2018, the FASB issued ASU No. 2018-07,~~~~Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.~~ASU 2018-07 has been issued as part of a simplification initiative which will expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and expands the scope through the amendments to address and improve aspects of the accounting for non-employee share-based payment transactions. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the provisions of ASU 2018-07 to determine the potential impact the new standard will have on its Consolidated Financial Statements.

~~In August 2018, the FASB issued ASU No. 2018-15,~~“Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The guidance is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing ASU 2018-15 and the impact the new standard will have on its Consolidated Financial Statements.

~~In January 2017, the FASB issued ASU No. 2017-04,~~~~“Simplifying the Test for Goodwill Impairment.”~~ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company is currently assessing the impact of ASU 2017-04 on its Consolidated Financial Statements.

In June 2016, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ASU ~~No.~~ 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments”~~Instruments” (“ASU 2016-13”). ~~ASU 2016-13 requires a~~The FASB issued new ~~impairment~~guidance (Topic 326) to replace the incurred loss model ~~known~~for loans and other financial assets with an expected loss model, which is referred to as the current expected credit loss (“CECL”) ~~which significantly changes~~model. The CECL model is applicable to the ~~way impairment~~measurement of ~~financial instruments is recognized by requiring immediate recognition of estimated~~ credit losses ~~expected to occur over the remaining life of~~on financial ~~instruments. The main provisions of ASU 2016-13 include (1) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments~~assets measured at amortized cost, ~~(2) requiring entities~~including loan receivables and held-to-maturity debt securities. It also applies to ~~record an allowance~~off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases recognized by a lessor. In addition, the amendments in Topic 326 require credit losses ~~related to~~on available-for-sale debt securities to be presented as a valuation allowance rather than as a direct write-down of the carrying amount of the investments, as is required by the other-than-temporary-impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted.write-down. The Company is currently working with a third party to assess the impact of the adoption of ASU 2016-13 on its Consolidated Financial Statements. While we are currently unable to reasonably estimate the impact of the adoption of ASU 2016-13, we expect that the impact of adoption could be influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date. As part of our implementation process, the working group that is responsible for quarterly allowance for loan and lease losses(“ALLL”) model review and approval, also serves as the Bank’s CECL Implementation Team. These individuals come from various functional areas including Accounting, Credit Administration, Risk Management and Portfolio Management; as well as the CEO. The Bank has engaged the same third party vendor that currently provides ALLL modeling software and support to assist with the development of a CECL model thatstandard will be ready for use as of the adoption date. During the development phase of building a model specific to the needs of the Bank, concurrent CECL modeling will be performed to generate a loss projection using the new model for each quarter of 2019. This model estimate will be reviewed and discussed by the Implementation Team after each quarterly run as it does with the current ALLL Model. The Implementation Team will provide direction to management and the third party vendor throughout the implementation process.

~~In February 2016, the FASB issued ASU No. 2016-02 “~~~~Leases (Topic 842).”~~ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If neither risks and rewards nor control is conveyed, an operating lease results. The amendments are effective for fiscal years beginning after December 15, ~~2018,~~2019, including interim periods in those fiscal years. For calendar year-end SEC filers, it is effective for March 31, 2020 interim financial statements. For debt securities with other-than-temporary impairment (“OTTI”), the guidance will be applied prospectively. Existing purchased credit impaired (“PCI”) assets will be grandfathered and classified as purchased credit deteriorated (“PCD”) assets at the date of adoption. The assets will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the guidance is effective.

The Company’s Allowance for Credit Loss Committee (“ACL Committee”), made up of executive and senior management from corporate administration, accounting, risk management, and credit and portfolio administration, have reviewed and approved the methodology and initial setup of the CECL Model. All historical data used in the model’s calculation, the mathematical accuracy of that calculation, and any inputs provided externally that affect the calculation have been independently validated. Internal controls necessary in maintaining accuracy to estimate an adequate reserve have been designed but not tested for operating effectiveness. The Company had finalized the formal review and approval process and the results of its CECL estimate as of year-end but has elected to delay its adoption of ASU 2016-13, as provided by the Coronavirus Aid, Relief, and Economic Security (“CARES Act”), until the date on which the national emergency related to the novel coronavirus (“COVID-19”) outbreak is terminated or December 31, 2020 whichever occurs first. The delayed adoption will allow extra time to document and test controls over this standard and will allow us time to provide consistent, high-quality financial information to our investors and other stakeholders. Upon adoption of ASU 2016-13, the Company has determined that the impact to the allowance for credit losses will be an increase under the new standard due to the life of loan loss estimation methodology, as well as the requirement to record an allowance on acquired loans previously recorded at fair value. As disclosed previously, it can be reasonably expected that a probable range in the reserve as a percentage of total loans after adoption of this guidance to be between 0.68% and 1.39% as of January 1, 2020.

Upon adopting ASU 2016-13, the Company will not record an allowance as of January 1, 2020 with respect to its available-for-sale debt securities as the majority of these securities are government agency-backed securities for which the risk of loss is minimal.In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). The Company has elected to delay its adoption of ASU 2016-13, as provided by the Coronavirus Aid, Relief, and Economic Security (“CARES Act”), until the date on which the national emergency related to the COVID-19 outbreak is terminated or December 31, 2020 whichever occurs first. The Company has elected to utilize the five-year CECL transition.The adoption of ASU 2016-13 is not expected to have a significant impact on the Company’s regulatory capital ratios.

In March 2020, the FASB issued ASU 2020-03,“Codification Improvements to Financial Instruments.” This ASU makes narrow-scope improvements to various aspects of the financial instruments guidance, including the current expected credit losses (CECL) standard issued in 2016. ASU 2016-13 and subsequent ASUs are effective for fiscal years, and interim periods within those fiscal years, ~~for public business entities. Entities are~~beginning after December 15, 2019. This amendment is required to ~~use~~be adopted using a modified retrospective approach ~~for leases that exist or are entered into after the~~with a cumulative-effect adjustment to beginning ~~of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11,~~~~Leases – Targeted Improvements.~~ASU 2018-11 provides entities with relief from the costs of implementing certain aspects of ASU 2016-02. Under the amendments in ASU 2018-11 entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard and lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02, January 1, 2019. We have elected to apply ASU 2016-02retained earnings, as of the beginning of the first reporting period ~~of adoption (January 1, 2019) and will not restate comparative periods. Our operating leases relate primarily to bank branches. As a result of~~in which the adoption of ASC 842 on January 1, 2019, we recorded operating lease right-of-use (“ROU”) assets of $1.8 million and lease liabilities of $1.8 million. ROU assets are adjusted for lease incentives. The adoption of ASC 842 had an immaterial impact on our Consolidated Statements of Income and Consolidated Statements of Cash Flows compared to the prior lease accounting model. The ROU asset and operating lease liability are recorded in premises and equipment and other liabilities, respectively, in the Consolidated Balance Sheets. See Note 12 – Leases for additional information.guidance is effective.

On November 1, 2019, the Company completed its acquisition of First Florida Bancorp, Inc. (“FFB”), and immediately thereafter merged its wholly-owned subsidiary, First Florida Bank with and into The First. The Company paid a total consideration of $89.5 million to the FFB shareholders as consideration in the merger, which included 1,682,889 shares of Company common stock and approximately $34.1 million in cash.

In connection with the acquisition, the Company recorded approximately $40.0 million of goodwill and $3.7 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.

The Company acquired the $248.9 million loan portfolio at an estimated fair value discount of $1.7 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the FFB acquisition were $443 thousand for the three months ended March 31, 2020. These costs included system conversion and integrating operations charges and legal and consulting expenses, which have been expensed as incurred.

The assets acquired and liabilities assumed and consideration paid in the acquisition of FFB were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which runs through November 1, 2020 in respect of FFB, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed on November 1, 2019 ($ in thousands):

The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheets as of the date of acquisition and at March 31, 2020, are as follows ($ in thousands):

On March 2, 2019, the Company completed its acquisition of FPB Financial Corp., (“FPB”), and immediately thereafter merged its wholly-owned subsidiary, Florida Parishes Bank with and into The First. The ~~company~~Company paid a total consideration of ~~approximately~~ $78.2 million ~~in stock~~ to the FPB shareholders, ~~as consideration in the merger,~~ which included 2,377,501 shares of Company common stock and ~~approximately~~ $5 thousand in cash.

In connection with the acquisition, ~~preliminarily,~~ the Company recorded approximately ~~$30.3~~$28.8 million of goodwill and ~~$4.8~~$6.6 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.

The Company acquired the $247.8 million loan portfolio at an estimated fair value discount of $3.1 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the FPB acquisition were ~~$1.7 million~~$63 thousand for the three ~~month period ended~~months March 31, ~~2019.~~2020. These costs included system conversion and integrating operations charges ~~as well as~~and legal and consulting expenses, which have been expensed as incurred.

The ~~preliminary amounts~~following table summarizes the finalized fair values of the assets acquired ~~identifiable assets~~ and liabilities ~~as of the acquisition date were as follows~~assumed on March 2, 2019 ($ in thousands):

Valuation adjustments have been made to core deposit intangible and other assets since initially reported.

The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheets as of the date of acquisition and at March 31, ~~2019,~~2020, are as follows ($ in thousands):

~~Purchased credit impaired~~PCI loans are ~~detailed~~discussed more fully in Note 10 – ~~Loans.~~“Loans” of this report.

On November 1, 2018, the Company completed its acquisition of FMB Banking Corporation (“FMB”), and immediately thereafter merged its wholly-owned subsidiary, Farmers & Merchants Bank, with and into The First. The Company paid a total consideration of approximately $79.5 million to the former FMB shareholders including 1,763,042 shares of the Company’s common stock and approximately $16.0 million in cash.

In connection with the acquisition, the Company recorded approximately $36.2 million of goodwill and $10.2 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.

The Company acquired FMB’s $325.5 million loan portfolio at an estimated fair value discount of $7.6 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the acquisition were $998 thousand for the three month period ended March 31, 2019. These costs included system conversion and integrating operations charges, as well as legal and consulting expenses, which have been expensed as incurred.

~~The following table summarized the provisional fair values of the assets acquired and liabilities assumed on November 1, 2018 ($ in thousands):~~

~~The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet March 31, 2019, are as follows ($ in thousands):~~

On April 1, 2018, the Company completed its acquisition of Sunshine Financial, Inc., (“Sunshine”), and immediately thereafter merged its wholly-owned subsidiary, Sunshine Community Bank, with and into The First. The Company paid a total consideration of $30.5 million to the Sunshine shareholders as consideration in the merger which included 726,461 shares of Company common stock and $7 million in cash.

In connection with the acquisition, the Company recorded $9.5 million of goodwill and $4.1 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.

The Company acquired the $173.1 million loan portfolio at an estimated fair value discount of $4.5 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.

Expenses associated with the acquisition were $227 thousand for the three month period ended March 31, 2019. These costs included system conversion and integrating operations charges as well as legal and consulting expenses, which have been expensed as incurred.

The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet as of the date of acquisition and at March 31, 2019, are as follows ($ in thousands):

On March 1, 2018, the Company completed its acquisition of Southwest Banc Shares, Inc., (“Southwest”), and immediately thereafter merged its wholly-owned subsidiary, First Community Bank, with and into The First. The Company paid a total consideration of $60.0 million to the Southwest shareholders as consideration in the merger which included 1,134,010 shares of Company common stock and $24 million in cash.

In connection with the acquisition, the Company recorded $23.9 million of goodwill and $5.8 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.

The Company acquired the $274.7 million loan portfolio at an estimated fair value discount of $3.5 million. The discount represents expected credit losses, adjusted for market interest rates, and liquidity adjustments.

Expenses associated with the acquisition were $257 thousand for the three months period ended March 31, 2019. These costs included systems conversions and integrating operations charges, as well as legal and consulting expenses, which have been expensed as incurred.

~~Purchased credit impaired loans are detailed in Note 10 – Loans.~~Information

The following unaudited pro-forma financial ~~information~~data for the three months ended March 31, 2020 and 2019 ~~and March 31, 2018 gives effect to the acquisitions~~presents supplemental information as if the FPB and FFB acquisitions had occurred on January 1, ~~2019 and 2018.~~2019. The pro-forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of ~~this date.~~these dates.

Supplemental pro-forma earnings were adjusted to exclude acquisition costs incurred.

Non-credit impaired loans acquired in the acquisitions were accounted for in accordance with ASC 310-20,Receivables-Nonrefundable Fees and Other Costs.~~Purchased credit impaired~~PCI loans acquired in the ~~Southwest, Sunshine, FMB~~FPB and ~~FPB~~FFB acquisitions were accounted for in accordance with ASC 310-30Accounting for Purchased Loans with Deteriorated Credit Quality.

Basic per share data is calculated based on the weighted-average number of common shares outstanding during the reporting period. Diluted per share data includes any dilution from potential common stock outstanding, such as restricted stock grants. There were no ~~antidilutive~~anti-dilutive common stock equivalents excluded in the calculations.

The following tables disclose the reconciliation of the numerators and denominators of the basic and diluted computations applicable to common stockholders ($ in thousands, ~~expect~~except per share amount):

The Company granted 60,680 shares of restricted stock in the first quarter of 2020 and 66,132 shares of restricted stock in the first quarter of ~~2019 and 51,851 shares of restricted stock in the first quarter of 2018.~~2019.

As presented in the Consolidated Statements of Comprehensive Income, comprehensive income includes net income and other comprehensive income. The Company’s sources of other comprehensive income are unrealized gains and losses on available-for-sale ~~debt securities. Gains or losses on debt~~ securities, ~~that had previously been included in other comprehensive income~~which are also recognized as ~~unrealized holding gains or losses in the period in which they arose were realized and reflected in net income~~separate components of ~~the current period, and as a result are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period.~~equity.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. At March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, these financial instruments consisted of the following:

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from ~~3.25%~~0.5% to ~~18.00%~~18.0% and maturities ranging from approximately 1 year to 30 years.

NOTE 8 – FAIR VALUE DISCLOSURES AND REPORTING, THE FAIR VALUE OPTION AND FAIR VALUE MEASUREMENTS

FASB’s standards on financial instruments, and on fair value measurements and disclosures, require all entities to disclose in their financial statement footnotes the estimated fair values of financial instruments for which it is practicable to estimate fair values. In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities which are classified as available-for-sale and our equity securities that have readily determinable fair values be measured and reported at fair value in our Consolidated Financial Statements. Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value. FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but we have not elected the fair value option for any of those financial instruments.

~~Fair value measurement and disclosure standards also establish a framework for measuring fair values.~~ Fair value is ~~defined as~~ the exchange price that would be received for an asset or paid to transfer a liability ~~(an exit~~(exit price) in the principal or most advantageous market for the ~~asset~~assets or liability in an orderly transaction between market participants on the measurement date. Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values. The standards describeThere are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

~~Fair value estimates~~Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are ~~made at~~not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a ~~specific point in time based on relevant market data and information~~company’s own assumptions about the ~~financial instruments. The estimates do not reflect any premium~~factors that market participants would likely consider in pricing an asset or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to realized gains and losses could have a significant effect on fair value estimates but have not been considered in those estimates. Because no active market exists for a significant portion of our financial instruments, fair value disclosures are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. The estimates are subjective and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly alter the fair values presented. liability.

The following methods and assumptions were used by the Company to estimate its financial instrument fair values disclosed at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, securities are classified within Level 2 of the valuation hierarchy, and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities include U. S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

The following is a reconciliation of activity for assets measured at fair value based on significant unobservable ~~(non-market)~~inputs (Level 3) information. ~~There were no transfers into or out of the Level 3 fair value hierarchy for the periods presented below.~~

The following ~~table presents~~methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019. The following tables present quantitative information about recurring Level 3 fair value measurements ($ in thousands):

Following is a description of the valuation methodologies used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. The Company generally adjusts the appraisal down by approximately 10 percent to account for selling costs. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment.

Purchased credit impaired loan valuations utilize third party appraisals and are classified as Level 3 due to the significant judgement involved. Appraisals may include the utilization of unobservable inputs, subjective factors and utilize quantitative data to estimate fair market value. The Company generally adjusts the appraisal down by approximately 10 percent to account for selling costs.

Other real estate owned consists of properties obtained through foreclosure. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Fair value of other real estate owned is based on current independent appraisals of the collateral less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals, which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments, if any, result in a Level 3 classification of the inputs for determining fair value. In the determination of fair value subsequent to foreclosure, Management also considers other factors or recent developments, such as changes in market conditions from the time of valuation and anticipated sales values considering plans for disposition, which could result in an adjustment to lower the collateral value estimates indicated in the appraisals. The Company generally adjusts the appraisal down by approximately 10 percent to account for selling costs. Periodic revaluations are classified as Level 3 in the fair value hierarchy since assumptions are used that may not be observable in the market. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through other non-interest income. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and recorded in other non-interest income. Other real estate measured at fair value on a non-recurring basis at March 31, 2019, amounted to $11.6 million. Other real estate owned is classified within Level 3 of the fair value hierarchy.

The following table presents the fair value measurement of assets measured at fair value on a ~~nonrecurring~~non-recurring basis and the level within the fair value hierarchy in which the fair value measurements ~~declined~~were classified at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

The following disclosure of the estimated fair value of financial instruments is made in accordance with authoritative guidance. The estimated fair value amounts have been determined using available market information and valuation methodologies that management believes are appropriate. However, considerable judgment is required to interpret market data to develop the estimates of fair value. ~~Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange.~~ The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

A summary of the amortized cost, ~~and estimated~~ fair value of available-for-sale securities ~~and held-to-maturity securities~~ at March 31, ~~2019~~2020 and December 31, ~~2018, follows:~~2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

The ~~scheduled~~amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities ~~of securities at March 31, 2019 and December 31, 2018 were as follows:~~

~~Actual maturities can~~may differ from contractual maturities ~~because~~if borrowers have the ~~obligations may be called~~right to call or ~~prepaid~~prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

The details concerning securities classified as available-for-sale with unrealized losses as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s securities portfolio consisted of ~~910~~195 and ~~427~~156 securities, respectively, ~~that~~which were in an unrealized loss position. The Company reviews its investment portfolio quarterly for indications of other-than-temporary impairment (“OTTI”), with attention given to securities in a continuous loss position of at least ten percent for over twelve months. Management believes that none of the losses on available-for-sale securities noted above ~~constitute~~constitutes an OTTI. The noted losses are considered temporary due to market fluctuations in available interest rates. Management considers the issuers of the securities to be financially sound, the corporate bonds are investment grade, and the collectability of all contractual principal and interest payments is reasonably expected. On January 1, 2018, the Company adopted the new accounting standard for Financial Instruments, which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with the changes in fair value recognized in net income. The adoption of this guidance resulted in a $348 thousand decrease to retained earnings. No OTTI losses were recognized during the three months ended March 31, ~~2019~~2020 or the year ended December 31, ~~2018.~~2019.

The Company uses four different categories to classify loans in its portfolio based on the underlying collateral securing each loan. The loans grouped together in each category have been determined to share similar risk characteristics with respect to credit quality. Those four categories are commercial, financial and agriculture, commercial real estate, consumer real estate, installment and other;

Commercial, financial and agriculture – Commercial, financial and agriculture loans include loans to business entities issued for commercial, industrial, or other business purposes. This type of commercial loan shares a similar risk characteristic in that unlike commercial real estate loans, repayment is largely dependent on cash flow generated from the operation of the business.

Commercial real estate – Commercial real estate loans are grouped as such because repayment is mainly dependent upon either the sale of the real estate, operation of the business occupying the real estate, or refinance of the debt obligation. This includes both owner-occupied and non-owner occupied CRE secured loans, because they share similar risk characteristics related to these variables.

Consumer real estate – Consumer real estate loans consist primarily of loans secured by 1-4 family residential properties and/or residential lots. This includes loans for the purpose of constructing improvements on the residential property, as well as home equity lines of credit.

Installment and other – Installment and other loans are all loans issued to individuals that are not for any purpose related to operation of a business, and not secured by real estate. Repayment on these loans is mostly dependent on personal income, which may be impacted by general economic conditions.

Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

The following tables summarize by class our loans classified as past due in excess of 30 days or more in addition to those loans classified as ~~non-accrual or PCI:~~nonaccrual including PCI loans.

We acquired loans with deteriorated credit quality in 2014, 2017, 2018 and 2019. These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated as of the acquisition date between those considered to be performing ~~(purchased~~(acquired non-impaired loans) and those with evidence of credit deterioration (purchased credit impaired loans). Acquired loans are considered to be impaired if it is probable, based on current available information, that the Company will be unable to collect all cash flows as expected. If ~~the collection of~~ expected cash flows cannot reasonably be estimated noas to what will be collected, there will not be any interest income ~~will be~~ recognized on these loans.

The following ~~table~~ presents information regarding the contractually required payments receivable, cash flows expected to be collected and the estimated fair value of PCI loans acquired in the ~~FPB acquisition.~~acquisitions from 2019.

Total outstanding purchased credit impaired loans were ~~$21.7~~$13.1 million and the related purchase accounting discount was ~~$4.0~~$3.6 million as of March 31, ~~2019,~~2020, and ~~$17.7~~$14.6 million and ~~$3.8~~$3.3 million as of December 31, ~~2018,~~2019, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. ~~There was no related allowance allocated to the acquired impaired loans.~~

Changes in the carrying amount and accretable yield for purchased credit impaired loans were as follows at March 31, 2020 and 2019 ~~and 2018:~~($ in thousands):

The following tables provide ~~additional~~ detail of impaired loans broken out according to class as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. The following tables do not include PCI loans. The recorded investment included in the following ~~tables~~table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. ~~As nearly all of our impaired loans at March 31, 2019 are on nonaccrual status, recorded~~Recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.

~~(1) – The total unpaid balance of impaired loans with no related allowance as of March 31, 2019 includes $21,702 in PCI loans.~~

As of March 31, ~~2019,~~2020, the Company had ~~$2.1~~$1.3 million of foreclosed residential real estate property obtained by physical possession and ~~$368 thousand~~$1.6 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions.

~~(1) –~~ The ~~total unpaid balance of impaired loans with no related allowance~~cash basis interest earned in the chart above is materially the same as ~~of December 31, 2018 includes $17,652 in PCI loans.~~

~~Interest income~~the interest recognized ~~and cash-basis interest income recognized on impaired loans was approximately $122 thousand and $97 thousand, respectively,~~during impairment for ~~the three months~~period ended March 31, ~~2019~~2020 and ~~2018.~~ December 31, 2019.

The gross interest income that would have been recorded in the period that ended if the ~~non-accrual~~nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the three months ended March 31, ~~2019 and March 31, 2018 and $409 thousand and $86 thousand, respectively.~~2020, was $377 thousand. The Company had no loan commitments to borrowers in ~~non-accrual~~nonaccrual status at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

If the Company grants a concession to a borrower in financial difficulty, the loan is classified as a troubled debt restructuring (“TDR”).

~~There were 3 and 0 TDRs~~The following table presents loans by class modified as troubled debt restructurings (TDRs) that occurred during the three months ended March 31, 2020 and 2019 ($ in thousands, except for number of loans).

The TDRs presented above increased the allowance for loan losses $37 thousand and ~~2018,~~$47 thousand and resulted in no charge-offs for the quarter ended March 31, 2020 and 2019, respectively.

The balance of TDRs ~~was $17.0~~decreased $900 thousand to $31.1 million at March 31, ~~2019 and $14.3~~2020 compared to $32.0 million at December ~~31, 2018. The increase of $2.7 million is attributable to acquired loans. There was $215 thousand allocated in specific reserves established with respect to these loans as of March~~ 31, 2019. As of March 31, ~~2019,~~2020, the Company had no additional amount committed on any loan classified as TDR.

The following ~~tables set forth the amounts and past due status for the Company’s TDRs at March 31, 2019 and December 31, 2018:~~

~~A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There was 1 loan which totaled $10 thousand and 12~~table presents loans ~~which totaled $4.3 million that were~~by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification ~~during~~($ in thousands, except for number of loans).

The modifications described above included one of the ~~quarters ending~~following or a combination of the following: maturity date extensions, interest only payments, amortizations were extended beyond what would be available on similar type loans, and payment waiver. No interest rate concessions were given on these nor were any of these loans written down. The TDRs presented above increased the allowance for loan losses and resulted in no charge-offs for the quarter ended March 31, ~~2019~~2020 and 2019.

The following tables represents the Company’s TDRs at March 31, ~~2018, respectively.~~2020 and December 31, 2019:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:

Pass: Loan classified as pass are deemed to possess average to superior credit quality, requiring no more than normal attention.

Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

~~Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.~~

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, and based on the most recent analysis performed, the risk ~~categories~~category of loans by class of loans (excluding mortgage loans held for sale) ~~were~~was as follows:

~~Activity~~The following table presents the activity in the allowance for loan losses by portfolio segment for the ~~period was as follows:~~quarter ended March 31, 2020 and 2019:

The following tables provide the ending balances in the Company's loans (excluding mortgage loans held for sale) and allowance for loan losses, broken down by portfolio segment as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. The tables also provide additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation. The impairment evaluation corresponds to the Company's systematic methodology for estimating its Allowance for Loan Losses. ~~See Item 2. – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Allowance for Loan and Lease Losses” for a description of our methodology.~~

~~On January 1, 2018, the Company adopted ASU No. 2014-09,~~~~Revenue from Contracts with Customers.~~ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract; (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams or the presentation of revenue as gross versus net. No adjustment to retained earnings was required on the adoption date. Because there was no change to the timing and pattern of revenue recognition, there were no material changes to the Company’s processes and internal controls.

All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within ~~noninterest~~non-interest income. The guidance does not apply to revenue associated with financial instruments, including loans and investment securities that are accounted for under other GAAP, which comprise a significant portion of our revenue stream. A description of the Company’s revenue streams accounted for under ASC 606 is as follows:

Service Charges on Deposit Accounts: The Company earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Interchange Income: The Company earns interchange fees from debit and credit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided by the cardholder.

Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether the collectability of the transaction prices is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Company’s sources of non-interest income revenue, by operating segments, for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. Items outside the scope of ASC 606 are noted as such.

~~Operating~~The Company enters into leases in the normal course of business primarily for financial centers, back office operations locations and business development offices. The Company’s leases have remaining terms ranging from 1 to 11 years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Leases in which we are the lessee are recorded as ~~operating lease ROU~~a right-of-use assets and ~~operating~~ lease liabilities, which are included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. ~~We do not currently have any significant finance~~Lease expense for leases ~~in which we are the lessee.~~

~~Operating lease ROU assets represent our right to use an underlying asset during the lease term~~ and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability,short-term leases is recognized on a straight-line basis over the lease term, and is recorded in net occupancy and equipment expense in the consolidated statements of income and other comprehensive income. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date and based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB amortizing advance rate, adjusted for the lease term and other factors.

~~Our~~Right-of-use assets and lease liabilities relating to the Company’s operating and finance leases ~~relate primarily to bank branches with remaining lease terms of generally 1 to 8 years. Certain lease arrangements contain extension options which~~ are ~~not generally considered reasonably certain of exercise and they are not included in the lease term. As of~~as follows at March 31, 2020 and 2019 ~~operating lease ROU assets and liabilities were $3.6 million and $3.6 million, respectively.~~($ in thousands).

~~As a result of the adoption of ASC 842, The Company did not restate the prior period unaudited consolidated financial statements~~liabilities at March 31, 2020 and ~~all prior period amounts and disclosures are presented under ASC 840. At December 31, 2018, minimum future lease payments were as follows~~2019 ($ in thousands):

On April 3, 2020, the Company completed its acquisition of Southwest Georgia Financial Corporation (“SWG”), and immediately thereafter merged its wholly-owned subsidiary, Southwest Georgia Bank, with and into The First. The Company paid total consideration of approximately $47.9 million to the former SWG shareholders including 2,546,967 shares of the Company’s common stock and approximately $2 thousand in cash. At March 31, 2020, SWG had $555.3 million in total assets, $391.1 million in loans and $472.9 million in deposits.

The COVID-19 pandemic is having, and will likely continue to have, significant effects on global markets, supply chains, businesses and communities. COVID-19 is likely to impact the Company’s future financial condition and result of operations including but not limited to additional credit loss reserves, additional collateral and/or modifications to debt obligations, liquidity, limited dividend payouts or potential shortages of personnel. The following estimates are particularly subject to change in the near term due to the impact of COVID-19: the allowance for loan losses and valuation of goodwill. As of April 24, 2020, we have approximately 1,660 PPP loans approved through the SBA for $199.3 million and have processed payment modifications on 926 loans with principal balances of $401.5 million, representing 15% of total portfolio dollars.

Management continues to take appropriate actions to mitigate the negative impact the virus has on the Company, including restricting employee travel, directing employees to work remotely, cancelling in-person meetings and implementing our business continuity plans and protocols to the extent necessary. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as these events are still developing.

Certain amounts in the ~~2018~~2019 financial statements have been reclassified for comparative purposes to conform to the current period financial statement presentation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~This Quarterly~~Certain statements made or incorporated by reference in this Report ~~on Form 10-Q contains~~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 ~~Private~~protections of, Section 27A of the Securities ~~Litigation Reform~~ Act and Section 21E of ~~1995. Words~~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,” ~~“anticipates,~~“targets,” “estimates,” “projects,” “plans,” ~~“believes,” “seeks,” “estimates”~~“potential” and ~~variations of such~~other similar words and ~~similar~~ expressions ~~are intended to identify such forward-looking statements. Such~~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 ~~currently available information~~the current beliefs and expectations of the Company’s management and are subject to ~~various~~significant risks and ~~uncertainties~~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 the novel coronavirus (“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 the Company’s present expectations. Factors that might cause such differences include, but are not limited to: competitive pressures among financial institutions increasing significantly; economic conditions, either nationally or locally, in areas in which the Company conducts operations being less favorable than expected; interest rate risk; legislation or regulatory changes which adversely affect the ability of the consolidated Company to conduct business combinations or new operations; financial success or changing strategies of the Bank’s customers or vendors; actions of government regulators; and the risk that anticipated benefits from the recent 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.

~~Potential risks and uncertainties that could cause our actual results to differ materially from~~ those ~~anticipated in any~~indicated by forward-looking statements include, but are not limited to, the following:

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, ~~2018,~~2019, in this Quarterly Report on Form 10Q, and in our ~~future~~other filings with the Securities and Exchange Commission, available at the SEC’s website, http://www.sec.gov.

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances. Actual results may differ from those estimates under divergent conditions.

Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s critical accounting policies deal with the following areas: the establishment of the allowance for loan and lease losses (referred to as the “allowance for loan losses” or the “ALLL”), as explained in detail in Note 10 - Loans to the Consolidated Financial Statements and in the “Allowance for Loan and Lease Losses” sections of this Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations; the valuation of impaired loans and foreclosed assets, as discussed in Note 10 - Loans to the Consolidated Financial Statements; income taxes and deferred tax assets and liabilities, especially with regard to the ability of the Company to recover deferred tax assets as discussed in the “Provision for Income Taxes” and “Other Assets” sections of this Item No. 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and goodwill and other intangible assets, which are evaluated annually for impairment, as discussed in the “Other Assets” section of this Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations. Critical accounting policies are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate our most recent expectations with regard to those areas.

As a result of the Company’s immediate response to COVID-19, including loan modifications/payment deferral programs and the Paycheck Protection Program, as well as acquisition and integration of SWG, and increased uncertainty related to certain judgments and estimates, the Company has elected to temporarily defer or suspend the application of two provisions 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 provide the Company with temporary relief from troubled debt restructurings and from CECL, 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.

OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS SUMMARY

First quarter ~~2019~~2020 compared to first quarter ~~2018~~2019

The Company reported net income available to common shareholders of ~~$7.6~~$8.3 million for the three months ended March 31, ~~2019,~~2020, compared with net income available to common shareholders of ~~$4.0~~$7.6 million for the same period last year. For the first quarter of ~~2019,~~2020, fully diluted earnings per share were ~~$0.48,~~$0.44, compared to ~~$0.34~~$0.48 for the first quarter of ~~2018.~~2019.

Operating net earnings, a non-GAAP financial measure, for the first quarter of 2020 totaled $8.9 million compared to $9.9 million for the first quarter of 2019, a decrease of $1.0 million or 10.5%. The net, after tax, provision charge in the quarter comparison was $4.6 million, which accounted for the decrease. Operating net earnings for the first quarter of 2020 excludes merger-related costs of $576 thousand, net of tax. Operating net earnings for the first quarter of 2019 ~~totaled $9.9 million compared to $5.4 million for the first quarter of 2018, an increase of $4.6 million or 85.2%. Operating net earnings~~ excludes merger-related costs of $2.5 million, net of tax, and income ~~in the form~~ of ~~an award from~~$174 thousand, net of tax, related to the Community Development Financial Institutions Fund of the U.S. ~~Department of Treasury of $233 thousand, net of tax, for the first quarter of 2019, and excludes merger-related costs of $1.4 million, net of tax for the first quarter of 2018.~~Treasury. Operating earnings per share were ~~$0.63~~$0.47 on a fully diluted basis for the first quarter ~~2019,~~2020, compared to ~~$0.46~~$0.63 for the same period in ~~2018.~~2019, excluding the merger-related costs and income described above. See reconciliation of non-GAAP financial measures provided below.

Net interest income increased to ~~$27.1~~$34.1 million, or ~~65.6%~~25.6%, for the three months ended March 31, ~~2019,~~2020, compared to ~~$16.4~~$27.1 million for the same period in ~~2018.~~2019. The increase was due to interest income earned on a higher volume of ~~loans as well as~~loans. Fully tax equivalent (“FTE”) net interest income, which is a non-GAAP measure, totaled $34.5 million and $27.4 million for the first quarter of 2020 and 2019, respectively. FTE net interest income increased $7.1 million in the prior year quarterly comparison due to increased loan volume. Purchase accounting adjustments accounted for $1.2 million of the difference in net interest ~~rates.~~income for the first quarter comparisons. First quarter 2020 FTE net interest margin, which is a non-GAPP measure, of 3.93% included 28 basis points related to purchase accounting adjustments compared to 3.89% for the same quarter in 2019, which included 18 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the net interest margin decreased 6 basis points in prior year quarterly comparison. In the first quarter of 2020, the Federal Reserve reduced the Federal Funds rate to near zero. The reduction in the rates contributed to the 6 basis point decrease in the core net interest margin. Quarterly average earning assets at March 31, ~~2019,~~2020 increased ~~$1.0 billion, or 55.4% and quarterly average interest-bearing liabilities increased $778~~$701 thousand, or ~~55.1% when compared to March 31, 2018.~~24.9%.

Non-interest income for the three months ended March 31, ~~2019,~~2020, was ~~$5.6~~$6.5 million compared to ~~$3.5~~$5.6 million for the same period in ~~2018,~~2019, reflecting an increase of ~~$2.1 million~~$920 thousand or ~~60.6%~~16.6%. ~~This increase was composed of increases in service~~Service charges and interchange fee income increased $417 thousand along with mortgage income of ~~$1.4~~$658 thousand.

Pre-tax, pre-provision operating earnings which exclude acquisition charges and treasury awards increased 29.9% to $17.8 million ~~primarily based on~~for the ~~increased deposit base due~~quarter ended March 31, 2020 as compared to ~~the acquisitions. The Company also received a Bank Enterprise Award of $233 thousand from the U.S. Department of the Treasury during~~$13.7 million for the first quarter of ~~2019 as a result~~2019. See reconciliation of ~~our designation as a Community Development Financial Institution.~~non-GAAP financial measures provided below.

~~The provision~~Provision for loan losses ~~was~~totaled $7.1 million for the quarter ended March 31, 2020, an increase of $6.0 million, or 532% as compared to $1.1 million for the ~~three months~~first quarter of 2019. $5.6 million of the $7.1 million provision for loan loss expense for the quarter ended March 31, ~~2019, compared with $277 thousand for the same period in 2018.~~2020 was related to anticipated economic effects of COVID-19. The allowance for loan losses of ~~$11.2~~$20.8 million at March 31, ~~2019~~2020 or ~~0.48%~~0.80% of total loans is based on our methodology and is considered by management to be adequate to cover losses inherent in the loan portfolio. See “Allowance for Loan and Lease Losses” in ~~this~~ Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on this evaluation.

Non-interest expense was ~~$21.9~~$23.4 million for the three months ended March 31, ~~2019,~~2020, an increase of ~~$7.3~~$1.5 million or ~~50.0%~~7.1%, when compared with the same period in ~~2018.~~2019. Excluding the ~~increase~~decrease in acquisition charges of ~~$1.4~~$2.4 million for the first quarter of 2019, non-interest expense increased ~~$5.9~~$4.0 million in the first quarter of ~~2019,~~2020, of which ~~$3.8~~$3.1 million was attributable to the operations of ~~Southwest, Sunshine, FMB~~FPB and ~~FPB,~~FFB, as compared to first quarter of ~~2018.~~2019.

FINANCIAL CONDITION

The First represents the primary asset of the Company. The First reported total assets of ~~$3.533~~$4.054 billion at March 31, ~~2019~~2020 compared to ~~$3.004~~$3.935 billion at December 31, ~~2018,~~2019, an increase of ~~$529.0~~$119.5 million. Loans increased ~~$274.9~~$1.9 million to ~~$2.335~~$2.602 billion, or ~~13.3%~~0.1%, during the first three months of ~~2019.~~2020. Deposits at March 31, ~~2019,~~2020 totaled ~~$2.914~~$3.280 billion compared to ~~$2.457~~$3.082 billion at December 31, 2019. The First acquired loans of $241.6 million, net of fair value marks and deposits of $314.4 million, net of fair value marks as a result of the acquisition of FPB during the first quarter of 2019. See Note 4 – Business Combinations to the Consolidated Financial Statements.

For the three ~~month~~months period ended March 31, ~~2019,~~2020, The First reported net income of ~~$7.6~~$10.1 million compared to ~~$4.0~~$9.6 million for the three months ended March 31, ~~2018.~~2019. Merger charges, net of tax, equaled $576 thousand for the first three months of 2020 as compared to $2.5 million for the first three months of 2019.

CORONAVIRUS (COVID-19) IMPACT

In March 2020, the World Health Organization recognized the novel Coronavirus Disease 2019 (“COVID-19”) as ~~compared~~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 ~~$1.4 million~~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 ~~first three months~~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 ~~2018.~~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 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.

Our staff has been working to assist clients with payment modifications and processing of Paycheck Protection Program (“PPP”) applications with the United States Small Business Administration (the “SBA”). As of April 24, 2020, we have approximately 1,660 PPP loans approved through the SBA for $199.3 million and have processed payment modifications on 926 loans with principal balances of $401.5 million, representing 15% of total portfolio dollars.

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 ~~$10.8~~$6.9 million, or ~~65.6%~~25.6%, for the first quarter of ~~2019~~2020 relative to the first quarter of ~~2018.~~2019. The increase was due to interest income earned inon a higher volume of ~~loans as well as increased interest rates.~~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 ~~non-accrual~~nonaccrual status during the reporting period, and the recovery of interest on loans that had been on ~~non-accrual~~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.

Average Balances, Tax Equivalent Interest and Yields/Rates

($ in thousands)															Three Months Ended							Three Months Ended
															March 31, 2020							March 31, 2019
	Three Months Ended							Three Months Ended							Avg.		Tax Equivalent		Yield/			Avg.		Tax Equivalent		Yield/
	March 31, 2019							March 31, 2018							Balance		interest		Rate			Balance		interest		Rate
	Avg.		Tax Equivalent		Yield/			Avg.		Tax Equivalent		Yield/
($ in thousands)	Balance		interest		Rate			Balance		interest		Rate

Earning Assets:

Taxable securities	$	435,576	$	3,581		3.29	%	$	274,595	$	1,986		2.89	%	$	560,613	$	3,944		2.81	%	$	435,576	$	3,581		3.29	%

Tax exempt securities		117,831		1,015		3.45	%		106,161		904		3.41	%		224,212		1,821		3.25	%		117,831		1,015		3.45	%

Total investment securities		553,407		4,596		3.32	%		380,756		2,890		3.04	%		784,825		5,765		2.94	%		553,407		4,596		3.32	%
Fed funds sold		-		-		-			11,368		35		1.23	%

Interest bearing deposits in other banks		94,778		130		0.55	%		94,321		77		0.33	%
Interest bearing deposits in
other banks																129,978		289		0.89	%		94,778		130		0.55	%
Loans		2,167,495		28,804		5.32	%		1,325,272		15,985		4.82	%		2,602,340		36,005		5.53	%		2,167,495		28,804		5.32	%

Total earning assets		2,815,680		33,530		4.76	%		1,811,717		18,987		4.19	%		3,517,143		42,059		4.78	%		2,815,680		33,530		4.76	%
Other assets		366,081							174,433							473,350							366,081
Total assets	$	3,181,761						$	1,986,150						$	3,990,493						$	3,181,761

Interest-bearing liabilities:
Deposits	$	2,024,718	$	4,363		0.86	%	$	1,330,925	$	1,840		0.55	%	$	3,042,529	$	5,413		0.71	%	$	2,024,718	$	4,363		0.86	%
Fed funds purchased		150		5		13.33	%		202		1		1.98	%
FHLB and First Tennessee		86,119		541		2.51	%		71,944		459		2.55	%

Borrowed funds																145,267		917		2.53	%		86,269		546		2.53	%
Subordinated debentures		80,540		1,233		6.12	%		10,310		78		3.03	%		80,697		1,203		5.96	%		80,540		1,233		6.12	%
Total interest- bearing liabilities		2,191,527		6,142		1.12	%		1,413,381		2,378		0.67	%
Total interest-bearing liabilities																3,268,493		7,533		0.92	%		2,191,527		6,142		1.12	%
Other liabilities		600,017							342,514							174,691							600,017
Stockholders’ equity		390,217							230,255							547,309							390,217

Total liabilities and stockholders’ equity	$	3,181,761						$	1,986,150
Total liabilities and
stockholders’ equity															$	3,990,493						$	3,181,761

Net interest income			$	27,131						$	16,380						$	34,065						$	27,131
Net interest margin						3.85	%						3.62	%						3.87	%						3.85	%
Net interest income (FTE)*			$	27,388		3.64	%			$	16,609		3.52	%			$	34,526		3.86	%			$	27,388		3.64	%
Net interest
Margin (FTE)*						3.89	%						3.67	%
Net interest margin (FTE)*																				3.93	%						3.89	%

*See reconciliation of Non-GAAP financial measures.

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 ~~month period~~months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

($ in thousands)	Three Months Ended											Three Months Ended
EARNINGS STATEMENT	3/31/19			% of Total			3/31/18		% of Total			3/31/20		% of Total			3/31/19			% of Total
Non-interest income:
Service charges on deposit accounts	$	1,831			32.97	%	$	1,027		29.69	%	$	1,914		29.56	%	$	1,831			32.97	%
Mortgage fee income		909			16.37	%		800		23.10	%		1,567		24.20	%		909			16.37	%
Interchange fee income		1,652			29.74	%		1,040		30.07	%		1,986		30.68	%		1,652			29.74	%
Gain (loss) on securities, net		38			0.68	%		-		-
Financial
Assistance Award		233			4.20	%		-		-
Gain (loss) on securities , net													174		2.69	%		38			0.68	%
Financial assistance award													-		-			233			4.20	%
Other charges and fees		891			16.04	%		592		17.14	%		833		12.87	%		891			16.04	%
Total non-interest income	$	5,554			100	%	$	3,459		100	%	$	6,474		100	%	$	5,554			100	%

Non-interest expense:
Salaries and employee benefits	$	10,697			48.87	%	$	7,789		53.36	%	$	13,228		56.43	%	$	10,697			48.87	%
Occupancy expense		2,442			11.15	%		1,647		8.86	%		2,918		12.45	%		2,442			11.15	%
FDIC premiums		(52	)		(0.24	)%		367		2.51	%		147		0.63	%		(52	)		(0.24	)%
Marketing		175			0.80			80		0.55	%		213		0.91	%		175			0.80	%
Amortization of core deposit intangibles		716			3.27	%		201		1.38	%		938		4.00	%		716			3.27	%
Other professional services		920			4.20	%		189		2.66	%		874		3.73	%		920			4.20	%
Other non-interest expense		3,816			17.43	%		2,566		18.64	%		4,381		18.69	%		3,816			17.43	%
Acquisition and integration charges		3,179			14.52	%		1,758		12.04	%		740		3.16	%		3,179			14.52	%
Total non-interest expense	$	21,893			100	%	$	14,597		100	%	$	23,439		100	%	$	21,893			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 ~~$2.0~~$1.7 million or ~~21.03%~~16.9% of earnings before income taxes for the first quarter of ~~2019,~~2020, compared to ~~$1.0~~$2.0 million or ~~20.3%~~21.0% of earnings before income taxes for the same period in ~~2018.~~2019. The decrease in the effective tax rate for 2020 is related to the CARES Act that was signed into law on March 27, 2020. The Act includes several significant provisions for corporations including increasing the amount of deductible interest under section 163(j), 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.

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 ~~fed~~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 ~~$605.2~~$763.0 million, or ~~17.1%~~18.8% of total assets at March 31, ~~2019~~2020 compared to ~~$498.7~~$765.1 million, or ~~16.6%~~19.4% of total assets at December 31,~~2018~~2019.

~~We had~~There were no federal funds sold at March 31, ~~2019~~2020 and December 31, ~~2018;~~2019; and interest-bearing balances at other banks increased to ~~$157.0~~$179.5 million at March 31, ~~2019~~2020 from ~~$87.8~~$79.0 million at December 31, ~~2018.~~2019. The Company’s investment portfolio ~~increased $105.6~~decreased $2.9 million, or ~~20.5%~~0.4%, to a total fair market value of ~~$620.5~~$788.9 million at March 31, ~~2019~~2020 compared to December 31, ~~2018, $93.6 million of which was due~~2019. The portfolio decrease can be attributed to calls, maturities and mortgage paydowns related to the ~~acquisition~~decline in interest rates since the end of ~~FPB during the first three months of 2019, as well as a increase in the fair market value of $8.0 million.~~2019. The ~~Company carries~~Company’s investments principally at their fair market values. The Company holds a small amount of “held-to-maturity” investments with a fair market value of $7.6 million at March 31, 2019 as compared to $7.0 million at December 31, 2018. All other investment securities are classified as “available-for-sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.

Refer to the ~~table~~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 AND LEASE PORTFOLIO

The Company’s gross loans and leases, excluding the associated allowance for loan losses and including loans held for sale, totaled ~~$2.342~~$2.616 billion at March 31, ~~2019,~~2020, an increase of ~~$276.3~~$4.4 million, or ~~13.4%~~0.2%, from December 31, ~~2018.~~2019. The ~~acquisition of Florida Parishes Bank accounted for approximately $241.6 million, net of fair value marks, of the increase.~~

~~A distribution of the Company’s loans showing the balance and percentage of loans by type~~increase is ~~presented for the noted periods in the table below.~~attributed to organic loan growth.

The following table shows the composition of the loan portfolio by category ($ in thousands):

~~Composition of Loan Portfolio~~

													Composition of Loan Portfolio
	March 31, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
Loans held for sale	$	6,238			0.3	%	$	4,838			0.3	%	$	13,288			0.5	%	$	10,810			0.4	%
Commercial, financial and agricultural		340,333			14.5	%		301,182			14.6	%		327,979			12.5	%		332,600			12.7	%
Real Estate:
Mortgage-commercial		857,918			36.6	%		776,880			37.6	%
Mortgage-residential		722,611			30.9	%		617,804			29.9	%
Construction		348,788			14.9	%		298,718			14.5	%
Real estate - commercial														1,048,854			40.1	%		1,028,012			39.4	%
Real estate - residential														828,378			31.7	%		814,282			31.2	%
Real estate - construction														334,707			12.8	%		359,195			13.8	%
Lease financing receivable		3,060			0.1	%		2,891			0.1	%		3,526			0.1	%		3,095			0.1	%
Obligations of states and subdivisions		13,734			0.6	%		16,941			0.8	%		18,218			0.7	%		20,716			0.8	%
Consumer and other		48,904			2.1	%		46,006			2.2	%		40,626			1.6	%		42,458			1.6	%
Total loans		2,341,586			100	%		2,065,260			100	%		2,615,576			100	%		2,611,168			100	%
Allowance for loan losses		(11,235	)					(10,065	)					(20,804	)					(13,908	)
Net loans	$	2,330,351					$	2,055,195					$	2,594,772					$	2,597,260

In the context of this discussion, a "real estate residential loan" is defined as any loan, other than a loan for construction purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial institutions in ~~the Company’s~~its market area ofby obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. 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.

Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Associated servicing rights are not retained. Commitments from investors to purchase the loans are obtained upon origination.

LOAN CONCENTRATIONS

Diversification within the loan portfolio is an important means of reducing inherent lending risk. At March 31, ~~2019,~~2020, The First had no concentrations of ten percent or more of total loans in any single industry or any geographical area outside its immediate market areas, which include Mississippi, Louisiana, Alabama, Florida and Georgia.

NON-PERFORMING ASSETS

~~At March 31, 2019, The First had loans past due as follows ($ in thousands):~~

Past due 30 through 89 days $ 5,680
Past due 90 days or more and still accruing 943

Non-performing assets 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 ~~non-accrual~~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. ~~Non-accrual and~~Nonaccrual loans, including PCI loans, totaled ~~$26.5~~$37.8 million at March 31, ~~2019,~~2020, an ~~increase~~decrease of ~~$1.4~~$1.0 million from December 31, ~~2018. This increase is primarily due to acquired PCI loans.~~2019.

Other real estate owned is carried at fair value, determined by an appraisal, less estimated costs to sell. Other real estate owned totaled ~~$11.6~~$7.0 million at March 31, ~~2019~~2020 as compared to ~~$10.9~~$7.3 million at December 31, ~~2018.~~2019.

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, ~~2019,~~2020, the Bank had ~~$17.0~~$31.1 million in loans that were classified as ~~troubled debt restructurings (“TDRs”)~~“TDRs”, of which ~~$8.0~~$6.2 million were performing as agreed with modified terms. At December 31, ~~2018,~~2019, the Bank had ~~$14.3~~$32.0 million in loans that were classified as troubled debt restructurings of which ~~$5.3~~$6.8 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, ~~2019, $8.6~~2020, $24.9 million in loans categorized as TDRs were classified as non-performing as compared to ~~$8.3~~$25.1 million at December 31, ~~2018.~~2019.

The following table, which includes purchased credit impaired loans, presents comparative data for the Company’s non-performing assets and performing TDRs as of the dates noted:

($ in thousands)							3/31/20			12/31/19

NON-ACCRUAL LOANS
Nonaccrual Loans

Real Estate:		3/31/19			12/31/18
1-4 family residential construction	$	-			-
Other construction/land		2,230			1,918
1-4 Family residential construction							$	-		$	-
Other Construction/land								1,578			1,548
1-4 family residential revolving/open-end		618			431			1,154			998
1-4 family residential closed-end		9,628			8,680			8,679			8,986
Nonfarm, nonresidential, owner-occupied		7,244			7,154			20,270			20,157
Nonfarm, nonresidential, other nonfarm nonresidential		5,496			5,601			3,772			4,647
TOTAL REAL ESTATE		25,216			23,784
Total Real Estate								35,453			36,336
Commercial and industrial								2,069			2,234
Loans to individuals – other								229			265
Total Nonaccrual Loans								37,751			38,835

Commercial and industrial		1,188			1,208
Loans to individuals - other		98			81
TOTAL NON-ACCRUAL LOANS		26,502			25,073
Other real estate owned		11,588			10,869
TOTAL NON-PERFORMING ASSETS	$	38,090		$	35,942
Other real-estate owned								6,974			7,299

Total Non-performing Assets							$	44,725		$	46,134
Performing TDRs	$	7,994		$	5,307		$	6,171		$	6,824
Total non-performing assets as a % of total loans & leases net of unearned income		1.63	%		1.75	%		1.72	%		1.77	%

Total non-accrual loans as a % of total loans & leases net of unearned income		1.14	%		1.22	%
Total nonaccrual loans as a % of total loans & leases net of unearned income								1.45	%		1.49	%

Non-performing assets totaled ~~$38.1~~$44.7 million at March 31, ~~2019,~~2020, compared to ~~$35.9~~$46.1 million at December 31, ~~2018, an increase~~2019, a decrease of ~~$2.2~~$1.4 million. The ALLL/total loans ratio was ~~0.48%~~0.80% at March 31, ~~2019,~~2020, and ~~0.49%~~0.53% at December 31, ~~2018.~~2019. The increase in the ALLL/total loans ratio is primarily attributable to an increase in the ALLL due to concerns with the anticipated economic effects of COVID-19, as discussed under the heading “Allowance for Loan and Lease Losses” below. Total valuation accounting adjustments total ~~$16.1~~$11.1 million on acquired loans. The ratio of annualized net charge-offs (recoveries) to total loans was ~~(0.008%)~~0.03% for the quarter ended March 31, ~~2019~~2020 compared to ~~0.02%~~(0.002)% at December 31, ~~2018.~~2019.

The following table represents the Company’s impaired loans, ~~at March 31, 2019, and December 31, 2018.~~excluding PCI loans, as of the dates noted:

March 31, December 31,
($ in thousands) 2019 2018

Impaired Loans:
Impaired loans without a valuation allowance (1) $ 18,855 $ 25,247
Impaired loans with a valuation allowance 9,755 5,864
Total impaired loans $ 28,610 $ 31,111
Allowance for loan losses on impaired loans at period end 2,336 1,179

Total nonaccrual loans (2) 26,502 25,073

Past due 90 days or more and still accruing 943 1,265
Average investment in impaired loans 31,426 16,257

~~(1)~~

~~Includes PCI loans of $21,702 and $17,652, for the quarter ended March 31, 2019 and year ended December 31, 2018, respectively.~~

~~(2)~~

~~Includes PCI loans of $15,161 and $13,405, for the quarter ended March 31, 2019 and year ended December 31, 2018, respectively.~~

($ in thousands)	March 31,		December 31,
	2020		2019
Impaired Loans:
Impaired loans without a valuation allowance	$	14,067	$	14,178
Impaired loans with a valuation allowance		15,159		15,761
Total impaired loans	$	29,226	$	29,939
Allowance for loan losses on impaired loans at period end		4,035		4,424

Total nonaccrual loans	$	29,226	$	29,939

Past due 90 days or more and still accruing		2,392		2,715
Average investment in impaired loans		29,266		26,195

ALLOWANCE FOR LOAN AND LEASE LOSSES

The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. Management’s judgment as to the adequacy of the allowance for ~~loan~~credit losses is based upon a number of assumptions about future events which it believes to be reasonable, but which may not prove to be accurate. The level of this allowance is dependent upon a number of factors, including the total amount of past due loans, general economic conditions, and management’s assessment of potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant change. Ultimately, losses may vary from current estimates and future additions to the allowance may be necessary. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan ~~loss allowance~~losses will not be required. Management evaluates the adequacy of the allowance for loan losses quarterly and makes provisions for loan losses based on this evaluation.

The Company’s allowance consists of two parts. The first part is determined in accordance with authoritative guidance issued by the FASB regarding the allowance. The Company’s determination of this part of the allowance is based upon quantitative and qualitative factors. The Company uses a loan loss history based upon the prior ten years to determine the appropriate allowance. Historical loss factors are determined by criticized and uncriticized loans by loan type. These historical loss factors are applied to the loans by loan type to determine an indicated allowance. The loss factors of peer groups are considered in the determination of the allowance and are used to assist in the establishment of a long-term loss history for areas in which this data is unavailable and incorporated into the qualitative factors to be considered. The historical loss factors may also be modified based upon other qualitative factors including but not limited to local and national economic conditions, trends of delinquent loans, changes in lending policies and underwriting standards, concentrations, and management’s knowledge of the loan portfolio. These factors require judgment on the part of management and are based upon state and national economic reports received from various institutions and agencies including the Federal Reserve Bank, United States Bureau of Economic Analysis, Bureau of Labor Statistics, meetings with the Company’s loan officers and loan committees, and data and guidance received or obtained from the Company’s regulatory authorities.

The second part of the allowance is determined in accordance with guidance issued by the FASB regarding impaired loans. Impaired loans are determined based upon a review by internal loan review and senior loan officers. Impaired loans are loans for which the Bank does not expect to receive contractual interest and/or principal by the due date. A specific allowance is assigned to each loan determined to be impaired based upon the value of the loan’s underlying collateral. Appraisals are used by management to determine the value of the collateral.

The sum of the two parts constitutes management’s best estimate of an appropriate allowance for loan losses. ~~When~~On a quarterly basis, the estimated allowance is determined ~~it is~~and presented to the Company’s audit committee for review and ~~approval on a quarterly basis.~~approval.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis, and a specific allowance is assigned to each loan determined to be impaired. Impaired loans not deemed collateral dependent are analyzed according to the ultimate repayment source, whether that is cash flow from the borrower, guarantor or some other source of repayment. Impaired loans are deemed collateral dependent if, in the Company’s opinion, the ultimate source of repayment will be generated from the liquidation of collateral.

The Company discontinues accrual of interest on loans when management believes, after considering economic and business conditions and collection efforts, that a borrower’s financial condition is such that the collection of interest is doubtful. Generally, the Company will place a delinquent loan in ~~non-accrual~~nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in ~~non-accrual~~nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

At March 31, ~~2019,~~2020, the consolidated allowance for loan losses was approximately ~~$11.2~~$20.8 million, or ~~0.48%~~0.80% of outstanding loans excluding loans held for sale. At December 31, ~~2018,~~2019, the allowance for loan losses amounted to approximately ~~$10.1~~$13.9 million, which was ~~0.49%~~0.53% of outstanding ~~loans.~~loans excluding loans held for sale. The provision for loan losses is a charge to earnings to maintain the allowance for loan losses at a level consistent with management’s assessment of the collectability of the loan portfolio in light of current economic conditions and market trends. ItDuring the quarter, the World Health Organization declared the spread of the COVID-19 virus to be a global pandemic. This has caused significant disruptions to the U.S. economy across all industries. While it is ~~maintained~~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 than normal provision expense to provide the required allowance reserve for this situation.If economic conditions continue to worsen, further funding to the allowance may be required in future periods. The Company maintains the allowance at a level that management believes is adequate to absorb probable incurred losses inherent in the loan portfolio. Specifically identifiable and quantifiable losses are immediately ~~charged off~~charged-off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge off. The Company’s provision for loan losses was $7.1 million at March 31, 2020, $3.7 million at December 31, 2019 and $1.1 million at March 31, ~~2019, $2.1 million at December 31, 2018 and $277 thousand at March 31, 2018.~~2019. The overall allowance for loan losses results from consistent application of our loan loss reserve methodology as described above. At March 31, ~~2019,~~2020, management believes the allowance is appropriate and has been derived from consistent application of our methodology. Should any of the factors considered by management in evaluating the appropriateness of the allowance for loan losses change, management’s estimate of inherent losses in the portfolio could also change, which would affect the level of future provisions for loan losses.

The table that follows summarizes the activity in the allowance for loan and lease losses for the noted ~~periods:~~periods ($ in thousands):

Allowance for Loan and Lease Losses
	Three Months Ended			Three Months Ended			For the Year Ended			Three Months Ended			Three Months Ended			For the Year Ended
($ in thousands)	3/31/19			3/31/18			12/31/18
Balances:										3/31/20			3/31/19			12/31/19
Average gross loans & leases outstanding during period:	$	2,167,495		$	1,325,272		$	1,678,746
Gross Loans & leases outstanding at end of period		2,341,586			1,519,117			2,065,260

Average gross loans & leases outstanding during
period:										$	2,602,340		$	2,167,495		$	2,341,202
Gross loans & leases outstanding at end of
period:											2,615,575			2,341,586			2,611,168
Allowance for Loan and Lease Losses:
Balance at beginning of period	$	10,065		$	8,288		$	8,288		$	13,908		$	10,065		$	10,065
Prior period reclassification - Mortgage Reserve Funding		-			-			(181	)
Beginning balance of allowance restated		10,065			8,288			8,107
Provision charged to expense		1,123			277			2,120			7,102			1,123			3,738

Charge-offs:

Real Estate-
1-4 family residential construction		-			-			-			-			-			-
Other construction/land		-			4			52			-			-			-
1-4 family revolving, open-ended		-			-			7			-			-			54
1-4 family closed-end		42			-			-			9			42			109
Nonfarm, nonresidential, owner-occupied		-			-			170			333			-			54
Total Real Estate		42			4			229			342			42			217
Commercial and industrial		4			-			265			99			4			141
Credit cards		-			-			-			-			-			33
Automobile loans		1			-			5			21			1			48
Loans to individuals - other		28			19			82			28			28			-
All other loans		-			-			-			10			-			225
Total		75			23			581			500			75			664
Recoveries:
Real Estate-
1-4 family residential construction		-			-			-			-			-			-
Other construction/land		6			7			34			9			6			129
1-4 family revolving, open-ended		1			-			27			25			1			19
1-4 family closed-end		19			14			156			24			19			221
Nonfarm, nonresidential, owner-occupied		4			1			10			60			4			13
Total Real Estate		30			22			227			118			30			382
Commercial and industrial		-			8			44			76			12			85
Credit cards		-			1			1			-			-			3
Automobile loans		13			6			29			33			13			40
Loans to individuals - other		12			11			37			21			12			72
All other loans		55			69			81			46			55			187
Total		122			117			419			294			122			769
Net loan charge offs (recoveries)		(47	)		(94	)		162			206			(47	)		(105	)
Balance at end of period	$	11,235		$	8,659		$	10,065		$	20,804		$	11,235		$	13,908

RATIOS
Net Charge-offs (recoveries) to average Loans & Leases(annualized)		(0.008	)%		(0.02	)%		0.02	%
Allowance for Loan Losses to gross Loans & Leases at end of period		0.48	%		0.57	%		0.49	%
Net Loan Charge-offs (recoveries) to provision for loan losses		(4.19	)%		(33.94	)%		7.64	%
Net Charge-offs (recoveries) to average loans &
leases (annualized)											0.03	%		(0.008	)%		(0.004	)%
Allowance for loan losses to gross loans &
leases at end of period											0.80	%		0.48	%		0.53	%
Net Loan Charge-offs (recoveries) to provision
for loan losses											2.90	%		(4.19	)%		(2.81	)%

The following tables represent how the allowance for loan losses is allocated to a particular loan type, as well as the percentage of the category to total loans at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~Allocation of the Allowance for Loan Losses~~

Allocation of the Allowance for Loan Losses
($ in thousands)	March 31, 2020
	Amount		% of loans in each category to total loans
Commercial, financial and agriculture	$	4,466		13.2	%
Commercial real estate		13,095		65.8	%
Consumer real estate		2,840		19.6	%
Installment and other		403		1.4	%
Unallocated		-		-
Total	$	20,804		100	%

March 31, 2019
($ in thousands) Amount % of loans
in each category
to total loans

Commercial, Financial and Agriculture $ 1,579 14.1 %
Commercial Real Estate 7,271 64.7 %
Consumer Real Estate 204 1.8 %
Installment and Other 2,181 19.4 %
Total $ 11,235 100 %

December 31, 2018
($ in thousands) Amount % of loans
in each category
to total loans

Commercial, Financial and Agriculture $ 2,060 14.8 %
Commercial Real Estate 6,258 64.6 %
Consumer Real Estate 1,743 18.9 %
Installment and Other 201 1.7 %
Unallocated (197 ) -
Total $ 10,065 100 %

($ in thousands)	December 31, 2019
	Amount		% of loans in each category to total loans
Commercial, financial and agriculture	$	3,043		13.1	%
Commercial real estate		8,836		65.5	%
Consumer real estate		1,694		19.8	%
Installment and other		296		1.6	%
Unallocated		39		-
Total	$	13,908		100	%

OTHER ASSETS

The Company’s balance of non-interest earning cash and due from banks was ~~$91.5~~$107.3 million at March 31, ~~2019~~2020 and ~~$71.4~~$89.7 million at December 31, ~~2018.~~2019. 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.~~Bank (“ FHLB”). Should a large “short” overnight position persists 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 ~~equity~~other securities decreased ~~$929~~$779 thousand due to ana decrease in FHLB stock. The Company’s net premises and equipment at March 31, ~~2019~~2020 was ~~$94.6~~$108.0 million and ~~$74.8~~$105.0 million at December 31, ~~2018;~~2019; an increase of ~~$19.8~~$3.0 million, or ~~26.5%~~2.9% for the first three months of ~~2019. Included~~2020. The increase is attributed to the recording of a finance lease in the ~~acquisition~~first quarter of ~~FPB was $7.3 million in bank-owned~~2020. Bank-owned life insurance ~~creating a balance of $58.4~~increased to 65.7 million at March 31, 2020, an increase of $6.1 million from December 31. 2019. ~~Bank-owned life insurance is also discussed above under the heading “Non-Interest Income and Non-Interest Expense.”~~ Goodwill ~~increased to $119.9 million~~ at March 31, ~~2019, an increase of $30.2~~2020 remained unchanged at $158.6 million ~~from the first quarter of 2018 as a result of the acquisition FPB.~~when compared to December 31, 2019. Other intangible assets, consisting primarily of the Company’s core deposit intangible, ~~increased~~decreased by ~~$4.1 million~~$938 thousand in the first quarter of ~~2019,~~2020, as compared to December 31, 2019.

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 ~~prior year quarter~~asset is impaired. Given the recent events surrounding the COVID-19 pandemic, the Company performed a peer stock price comparison and did not note any impairment. At this time, we do not believe there exists any impairment to goodwill and intangible assets, long-lived assets, or available-for-sale securities due to the acquisition. The Company’s goodwill and other intangible assets are evaluated annually for potential impairment, and pursuant to that analysis management has determined that no impairment exists as of March 31, 2019.COVID-19 pandemic.

Other real estate owned ~~increased~~decreased by ~~$719~~$325 thousand, or ~~6.6%~~4.5%, to ~~$11.6~~$7.0 million at March 31, ~~2019~~2020 as compared to December 31, ~~2018. A majority of the increase is attributable to acquired loans.~~2019.

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 ~~$453.0~~$361.5 million at March 31, ~~2019~~2020 and ~~$316.6~~$410.3 million at December 31, ~~2018,~~2019, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately ~~19.3%~~14.0% of gross loans at March 31, ~~2019~~2020 and ~~15.3%~~15.8% at December 31, ~~2018,~~2019, with the ~~increase due in part~~decrease related to ~~higher commitments in~~revolving open-ended lines secured by 1-4 family and commercial and industrial loans. The Company also had undrawn ~~commercial and~~standby similar letters of credit to customers totaling ~~$10.9~~$12.3 million at March 31, ~~2019~~2020 and ~~$10.7~~$12.1 million at December 31, ~~2018.~~2019. 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.~~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 ~~Federal Home Loan Bank (“FHLB”)~~FHLB on the Company’s behalf as ~~security as~~ of March 31, ~~2019.~~2020. That letter of credit is backed by loans which are pledged to the FHLB by the Company.

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 ~~our~~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 via 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 ~~$777.2 million~~$1.093 billion at March 31, ~~2019.~~2020. 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, ~~2019,~~2020, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised ~~$117.3~~$306.8 million of the Company’s investment balances, compared to ~~$110.8~~$348.3 million at December 31, ~~2018.~~2019. The ~~increase~~decrease in unpledged securities from March ~~2019~~2020 compared to December ~~2018~~2019 is primarily due to an ~~increase~~decrease in portfolio assets. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding federal funds sold and vault cash. ~~Management~~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 ofbacked by loans that are pledged to the ~~opinion that available investments and other potentially liquid assets, along with~~FHLB by the ~~standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.~~Company, totaled $109.5 million at March 31, 2020.

The Company’s liquidity ratio as of March 31, ~~2019~~2020 was ~~14.2%~~20.1%, as compared to internal liquidity policy guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:

	March 31, 2019			Policy Maximum			Policy Compliance	March 31, 2020			Policy Maximum			Policy Compliance
Loans to Deposits (including FHLB advances)		77.8	%		90.0	%	In Policy		76.7	%		90.0	%	In Policy
Net Non-core Funding Dependency Ratio		1.1	%		20.0	%	In Policy		2.9	%		20.0	%	In Policy
Fed Funds Purchased / Total Assets		0.0	%		10.0	%	In Policy		0.0	%		10.0	%	In Policy
FHLB Advances / Total Assets		1.8	%		20.0	%	In Policy		2.7	%		20.0	%	In Policy
FRB Advances / Total Assets		0.0	%		10.0	%	In Policy		0.0	%		10.0	%	In Policy
Pledged Securities to Total Securities		80.7	%		90.0	%	In Policy		58.3	%		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, 2020, cash and cash equivalents were $286.8 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $682.3 million at March 31, 2020. Approximately $363.4 million in loan commitments could fund within the next three months and other commitments, primarily commercial and similar letters of credit, totaled $11.2 million at March 31, 2020.

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.

The Company’s primary uses of funds are ordinary operating expenses and stockholder dividends, and its primary source of funds is dividends from the Bank since the Company does not conduct regular banking operations. ~~Management anticipates that the Bank will have sufficient earnings to provide dividends to the Company to meet its funding requirements for the foreseeable future.~~ 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, ~~2018.~~2019.

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 ~~paid by deposit type~~ for the three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 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 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 and provides additional funds for liquidity or lending. At quarter end March 31, 2020, $409.3 million in noninterest deposit balances and $643.5 million in NOW deposit accounts were reclassified as money market accounts. A distribution of the Company’s deposits showing the balance and percentage of total deposits by type is presented for the noted periods in the following table.

Deposit Distribution							March 31, 2020					December 31, 2019
($ in thousands)	March 31, 2019			December 31, 2018			Amount		Percent of Total			Amount		Percent of Total
Non-interest bearing demand deposits	$	655,900		$	570,148		$	340,606		10.4	%	$	723,208		23.5	%
NOW accounts and Other		1,062,112			835,434			478,526		14.6	%		941,598		30.7	%
Money Market accounts		375,529			312,552			1,530,796		46.7	%		462,810		15.0	%
Savings accounts		272,254			253,724			296,177		9.0	%		287,200		9.3	%
Time Deposits of less than $250,000		414,281			384,030			462,808		14.1	%		479,386		15.6	%
Time Deposits of $250,000 or more		134,242			101,571			168,881		5.2	%		182,331		5.9	%
Total deposits	$	2,914,318		$	2,457,459		$	3,277,794		100	%	$	3,076,533		100	%

Percentage of Total Deposits

Non-interest bearing demand deposits		22.5	%		23.2	%
NOW accounts and other		36.4	%		34.0	%
Money Market accounts		12.9	%		12.7	%
Savings accounts		9.3	%		10.3	%
Time Deposits of less than $250,000		14.2	%		15.6	%
Time Deposits of $250,000 or more		4.7	%		4.2	%
Total		100	%		100	%

As of March 31, 2019, cash and cash equivalents were $248.6 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $508.7 million at March 31, 2019. Approximately $453.0 million in loan commitments could fund within the next three months and other commitments, primarily commercial and similar letters of credit, totaled $10.9 million at March 31, 2019.

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 ~~Federal Home Loan Bank (“FHLB”),~~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 ~~fed~~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 ~~$23.7~~$98.1 million, or ~~14.3%~~33.3%, in the first three months of ~~2019,~~2020, due in part to a decrease in ~~note payables~~notes payable to the FHLB of ~~$23.8~~$95.2 million. The Company had junior subordinated debentures totaling ~~$80.6~~$80.7 million at March 31, ~~2019~~2020 and ~~$80.5~~$80.7 million December 31, ~~2018, in the form~~2019, which consists of long-term borrowings from trust subsidiaries formed specifically to issue trust preferred ~~securities.~~securities and of 10 and 15 year subordinated notes issued by the Company in 2018.

OTHER LIABILITIES

Other liabilities are principally comprised of accrued interest payable, lease liabilities and other accrued but unpaid expenses. Other liabilities increased by ~~$4.2~~$4.5 million, or ~~27.0%~~16.9%, during the first three months of 2020. The Company recorded a finance lease during the first quarter of 2019 ~~due~~resulting in an increase to other liabilities of $2.7 million. For more information regarding the Company’s leases, see Note 12 – Leases to the ~~increase in other accrued but unpaid expenses.~~Consolidated Financial Statements.

CAPITAL

At March 31, ~~2019~~2020, the Company had total stockholders’ equity of ~~$454.3~~$555.9 million, comprised of ~~$17.3~~$19.0 million in common stock, ~~less than $464 thousand~~$5.7 million in treasury stock, ~~$354.8~~$409.9 million in surplus, ~~$78.6~~$116.9 million in undivided profits and ~~$4.1~~$15.8 million in accumulated comprehensive income (loss) on available-for-sale securities. Total stockholders’ equity at the end of ~~2018~~2019 was ~~$363.3~~$543.7 million. The increase of ~~$91.1~~$12.3 million, or ~~25.1%~~2.3%, in stockholders’ equity during the first three months of ~~2019~~2020 is comprised of capital added via net earnings of ~~$7.6~~$8.3 million, ~~$5.9~~an $5.7 million increase in accumulated comprehensive income for available-for-sale securities and, ~~$78.2 million of common stock issued for the purchase of FPB,~~ offset by ~~$1.0~~$1.9 million in cash dividends paid.

On March 28, 2019, the Company announced that its Board of Directors authorized a share repurchase program to purchase up to an aggregate of $20 million of the Company’s common stock (the “March 2019 program”). This share repurchase program ~~has an expiration date~~expired as of December 31, 2019. Under the March 2019 program, the Company ~~may repurchase~~repurchased shares of its common stock periodically in a manner determined by the Company’s management. The ~~actual means and timing of purchase, target number of~~Company repurchased 168,188 shares and 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. No shares were purchased under the March 2019 program during the ~~three months~~year ended ~~March~~December 31, 2019.

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 ~~help~~ 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 Basel III requirement 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.

Regulatory Capital Ratios
The First, A National Banking Association March 31,
2019 December 31,
2018 Minimum Required
to be Well
Capitalized
Common Equity Tier 1
Capital Ratio 15.9 % 11.5 % 6.5 %
Tier 1 Capital Ratio 15.9 % 12.2 % 8.0 %
Total Capital Ratio 16.4 % 15.6 % 10.0 %
Tier 1 Leverage Ratio 13.4 % 10.2 % 5.0 %

Regulatory Capital Ratios
The First Bancshares, Inc. March 31,
2019 December 31,
2018 Minimum Required
to be Well
Capitalized
Common Equity Tier 1
Capital Ratio* 12.0 % 14.8 % N/A
Tier 1 Capital Ratio** 12.6 % 14.8 % N/A
Total Capital Ratio 15.5 % 15.2 % N/A
Tier 1 Leverage Ratio 10.7 % 12.2 % N/A

Regulatory Capital Ratios The First, A National Banking Association	March 31, 2020			December 31, 2019			Minimum Required to be Well Capitalized
Common Equity Tier 1 Capital Ratio		15.5	%		15.1	%		6.5	%
Tier 1 Capital Ratio		15.5	%		15.1	%		8.0	%
Total Capital Ratio		16.2	%		15.6	%		10.0	%
Tier 1 Leverage Ratio		11.4	%		11.8	%		5.0	%

Regulatory Capital Ratios The First Bancshares, Inc.	March 31, 2020			December 31, 2019			Minimum Required to be Well Capitalized
Common Equity Tier 1 Capital Ratio*		12.7	%		12.5	%	N/A
Tier 1 Capital Ratio**		13.2	%		13.0	%	N/A
Total Capital Ratio		16.3	%		15.8	%	N/A
Tier 1 Leverage Ratio		9.8	%		10.3	%	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, ~~2019~~2020 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%. ~~The required phase-in capital conservation buffer during 2018 was 1.875%.~~ 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.

In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). The Company has elected to delay its adoption of ASU 2016-13, as provided by the Coronavirus Aid, Relief, and Economic Security (“CARES Act”), until the date on which the national emergency related to the COVID-19 outbreak is terminated or December 31, 2020 whichever occurs first. The Company has elected to utilize the five-year CECL transition.

As of March 31, ~~2019,~~2020, 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, ~~2019,~~2020 was ~~$454.3~~$555.9 million, or approximately ~~12.9%~~13.7% of total assets. The Company currently has adequate capital ~~positions~~ to meet the minimum capital requirements for all regulatory agencies.

On June 30, 2006, The Company issued $4,124,000 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 $4,000,000 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 $6,186,000 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 $6,000,000 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 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 $6,000,000 of Trust Preferred Securities 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.

In accordance with the provisions of ASC Topic 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.

The Company intends to use the net proceeds from the sale of the Notes for general corporate purposes, which may include increasing bank level capital ratios to support future growth, repaying an existing line of credit and establishing holding company reserves.

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, operating earnings per share, fully tax equivalent (“FTE”) net interest income, FTE net interest margin and tangible book ~~value.~~value per common share. 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. 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, net interest margin, 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.

Operating Net Earnings

($ in thousands)							Three Months			Three Months
	Three Months			Three Months			Ended			Ended
	Ended			Ended			March 31, 2020			March 31, 2019
($ in thousands)	March 31, 2019			March 31, 2018

Net income available to common shareholders	$	7,635		$	3,957
Net income available to common
shareholders							$	8,311		$	7,635
Effect of acquisition charges		3,179			1,758			740			3,179
Tax on acquisition charges		(712	)		(355	)		(164	)		(712	)
Treasury awards		(233	)		-			-			(233	)
Tax on Treasury awards		59			-			-			59
Net earnings available to common shareholders, operating	$	9,928		$	5,360
Net earnings available to common
shareholders, operating							$	8,887		$	9,928

Operating Earnings ~~Per~~per Share

($ in thousands)							Three Months			Three Months
	Three Months			Three Months			Ended			Ended
	Ended			Ended
($ in thousands)	March 31, 2019			March 31, 2018
							March 31, 2020			March 31, 2019
Book value per common share	$	26.30		$	20.95		$	29.49		$	26.30
Effect of intangible assets per share		8.51			4.56			9.97			8.51
Tangible book value per common share	$	17.79		$	16.39		$	19.52		$	17.79

Diluted earnings per share	$	0.48		$	0.34		$	0.44		$	0.48
Effect of acquisition charges		0.21			0.15			0.04			0.21
Tax on acquisition charges		(0.05	)		(0.03	)		(0.01	)		(0.05	)
Effect of Treasury Awards		(0.01	)		-			-			(0.01	)
Tax on Treasury Awards								-			-
Diluted earnings per share, operating	$	0.63		$	0.46		$	0.47		$	0.63

Net Interest Income Fully Tax Equivalent

($ in thousands)							Three Months			Three Months
	Three Months			Three Months			Ended			Ended
	Ended			Ended			March 31, 2020			March 31, 2019
($ in thousands)	March 31, 2019			March 31, 2018

Net interest income	$	27,131		$	16,380		$	34,065		$	27,131
Tax exempt investment income		(758	)		(675	)		(1,360	)		(758	)
Taxable investment income		1,015			904			1,821			1,015
Net interest income fully tax equivalent	$	27,388		$	16,609		$	34,526		$	27,388

Average earning assets	$	2,815,680		$	1,811,717		$	3,517,143		$	2,815,680
Net interest margin fully tax equivalent		3.89	%		3.67	%		3.93	%		3.89	%

Pre-Tax Pre-Provision Operating Earnings

($ in thousands)	Three Months		Three Months
	Ended		Ended
	March 31, 2020		March 31, 2019

Earnings before income taxes	$	9,998	$	9,669
Acquisition charges		740		3,179
Provision for loan losses		7,102		1,123
Treasury Awards		-		(233	)
Pre-Tax, Pre-Provision Operating Earnings	$	17,840	$	13,738

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.

To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios every month. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).

The following table shows the estimated changes in net interest income at risk and market value of equity along with policy limits:

	Net Interest Income at Risk						Market Value of Equity						Net Interest Income at Risk						Market Value of Equity
Change in Interest Rates	% Change from Base			Policy Limit			% Change from Base			Policy Limit			% Change from Base			Policy Limit			% Change from Base			Policy Limit

Up 400 bps		8.8	%		-20.0	%		27.7	%		-40.0	%		4.8	%		-20.0	%		30.3	%		-40.0	%
Up 300 bps		8.5	%		-15.0	%		25.2	%		-30.0	%		4.2	%		-15.0	%		27.2	%		-30.0	%
Up 200 bps		6.7	%		-10.0	%		20.0	%		-20.0	%		2.3	%		-10.0	%		21.5	%		-20.0	%
Up 100 bps		3.9	%		-5.0	%		11.8	%		-10.0	%		0.3	%		-5.0	%		12.6	%		-10.0	%
Down 100 bps		-6.2	%		-5.0	%		-13.8	%		-10.0	%		-1.5	%		-5.0	%		-9.5	%		-10.0	%
Down 200 bps		-11.3	%		-10.0	%		-8.9	%		-20.0	%		-2.9	%		-10.0	%		-2.3	%		-20.0	%

We use seven standard interest rate scenarios in conducting our 12-month net interest income simulations: “static,” upward shocks of 100, 200, 300 and 400 basis points, and downward shocks of 100, and 200 basis points. Pursuant to policy guidelines, we typically attempt to limit the projected decline in net interest income relative to the stable rate scenario to no more than 5% for a 100 basis point (bp) interest rate shock, 10% for a 200 bp shock, 15% for a 300 bp shock, and 20% for a 400 bp shock. As of March 31, ~~2019,~~2020, the Company had the following estimated net interest income sensitivity profile, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:

March 31, 2019	Net Interest Income at Risk – Sensitivity Year 1
($ In Thousands)		-200 bp	-100 bp	STATIC	+100 bp	+200 bp	+300 bp	+400 bp
March 31, 2020									Net Interest Income at Risk – Sensitivity Year 1
($ in thousands)									-200 bp			-100 bp			STATIC		+100 bp			+200 bp			+300 bp			+400 bp
Net Interest Income		105,324	111,318	118,699	123,330	126,653	128,724	129,123		114,788			116,371			118,182		118,494			120,876			123,111			123,899
Dollar Change		(13,375)	(7,381)		4,631	7,954	10,025	10,424		-3,394			-1,811					312			2,694			4,929			5,717
NII @ Risk - Sensitivity Y1		-11.3%	-6.2%		3.9%	6.7%	8.5%	8.8%		-2.9	%		-1.5	%				0.3	%		2.3	%		4.2	%		4.8	%
Policy Limits		-10.0%	-5.0%		-5.0%	-10.0%	-15.0%	-20.0%		-10.0	%		-5.0	%				-5.0	%		-10.0	%		-15.0	%		-20.0	%

If there were an immediate and sustained downward adjustment of 200 basis points in interest rates, all else being equal, net interest income over the next twelve months would likely be approximately ~~$13.4~~$3.4 million lower than in a stable interest rate scenario, for a negative variance of ~~11.3%~~2.9%. The unfavorable variance increases if rates were to drop below 200 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop. This effect would be exacerbated by accelerated prepayments on fixed-rate loans and mortgage-backed securities when rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures. ~~While management believes that further interest rate reductions are highly unlikely, the~~The potential percentage drop in net interest income exceeds our internal policy guidelines in declining interest rate scenarios and we will continue to monitor our interest rate risk profile and take corrective action as deemed appropriate.

Net interest income would likely improve by ~~$8.0~~$2.7 million, or ~~6.7%~~2.3%, if interest rates were to increase by 200 basis points relative to a stable interest rate scenario, with the favorable variance expanding the higher interest rates rise. The initial increase in rising rate scenarios will be limited to some extent by the fact that some of our variable-rate loans are currently at rate floors, resulting in a re-pricing lag while base rates are increasing to floored levels, but the Company would expect to benefit from a material upward shift in the yield curve.

The Company’s one year cumulative GAP ratio is approximately ~~206.2%~~156.0%, which means that there are more assets repricing than liabilities within the first year. The Company is “asset-sensitive.” These results are based on cash flows from assumptions of assets and liabilities that reprice (maturities, likely calls, prepayments, etc.) Typically, the net interest income of asset-sensitive financial institutions should improve with rising rates and decrease with declining rates.

If interest rates change in the modeled amounts, our assets and liabilities may not perform as anticipated. Measuring interest rate risk has inherent limitations including model assumptions. For example, changes in market indices as modeled in conjunction with a changes in the shapes of the yield curves could result in different net interest income. We consider many factors in monitoring our interest rate risk, and management adjusts strategies for the balance sheet and earnings as needed.

In addition to the net interest income simulations shown above, we run stress scenarios modeling the possibility of no balance sheet growth, the potential runoff of “surge” core deposits, which flowed into the Company in the most recent economic cycle, and potential unfavorable movement in deposit rates relative to yields on earning assets. Even though net interest income will naturally be lower with no balance sheet growth, the rate-driven variances projected for net interest income in a static growth environment are similar to the changes noted above for our standard projections. When a greater level of non-maturity deposit runoff is assumed or unfavorable deposit rate changes are factored into the model, projected net interest income in declining rate and flat rate scenarios does not change materially relative to standard growth projections. However, the benefit we would otherwise experience in rising rate scenarios is minimized and net interest income remains relatively flat.

The economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed. The difference between the projected fair value of the Company’s financial assets and the fair value of its financial liabilities is referred to as the economic value of equity (“EVE”), and changes in EVE under different interest rate scenarios are effectively a gauge of the Company’s longer-term exposure to interest rate risk. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at projected replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios. An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change substantially over time as the characteristics of the Company’s balance sheet evolve and interest rate and yield curve assumptions are updated.

The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and Management’s best estimates. The table below shows estimated changes in the Company’s EVE as of March 31, ~~2019,~~2020, under different interest rate scenarios relative to a base case of current interest rates:

Balance Sheet Shock
($ in thousands) -200 bp -100 bp STATIC
(Base) +100 bp +200 bp +300 bp +400 bp
Market Value of Equity 690,678 653,863 758,420 848,026 909,711 949,218 968,774
Change in EVE
from base (67,742) (104,557) 89,605 151,291 190,798 210,354
% Change -8.9% -13.8% 11.8% 20.0% 25.2% 27.7%
Policy Limits -20.0% -10.0% -10.0% -20.0% -30.0% -40.0%

	Balance Sheet Shock
($ in thousands)	-200 bp			-100 bp			STATIC (Base)		+100 bp			+200 bp			+300 bp			+400 bp
Market Value of Equity		756,984			701,119			774,404		872,120			940,598			985,105			1,008,703
Change in EVE from base		-17,420			-73,285					97,716			166,194			210,701			234,299
% Change		-2.3	%		-9.5	%				12.6	%		21.5	%		27.2	%		30.3	%
Policy Limits		-20.0	%		-10.0	%				-10.0	%		-20.0	%		-30.0	%		-40.0	%

The table shows that our EVE will generally deteriorate in declining rate scenarios, but should benefit from a parallel shift upward in the yield curve. ~~As noted previously, however, Management believes that the potential for a significant rate decline is low.~~ We also run stress scenarios for EVE to simulate the possibility of higher loan prepayment rates, unfavorable changes in deposit rates, and higher deposit decay rates. Model results are highly sensitive to changes in assumed decay rates for non-maturity deposits, in particular.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, ~~2019,~~2020, (the “Evaluation Date”), we carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as ~~amended.~~amended (the “Exchange Act”). Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the ~~Securities~~ Exchange Act ~~of 1934, as amended (the “Exchange Act”)~~ is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on ~~the~~this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures ~~were not~~are effective ~~due~~ to ensure that information we are required to disclose in reports that we file or submit under the ~~material weaknesses disclosed~~Exchange Act is recorded, processed, summarized, and reported within the time periods specified in ~~our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the~~ SEC ~~on March 18, 2019 (the “2018 Form 10-K”).~~rules and forms.

Changes in Internal ~~Controls~~Control over Financial Reporting

There have been no changes in our internal ~~controls~~control over financial reporting, ~~that occurred~~as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended March 31, ~~2019,~~2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. As disclosed in our 2018 Form 10-K, management implemented the additional controls and procedures described therein starting in the fourth quarter of 2018 in order to remediate the material weaknesses identified, and will continue to take steps as necessary that management and the Audit Committee believe will remediate the control deficiencies. However, the identified control deficiencies that led to the material weaknesses in internal control over financial reporting will not be considered fully addressed until the new and additional controls, processes and procedures described in the 2018 Form 10-K have been in operation for a sufficient period of time to allow the Company’s management to conclude, through testing, that the controls are operating effectively and the material weaknesses have been fully remediated. Management expects the remediation of the material weaknesses will be completed during 2019.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings in the normal course of business. Management does not believe, based on currently available information, that the outcome of any such proceedings will have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

~~There have been no~~The following represents a material ~~changes from the~~change in our risk factors ~~previously~~from those disclosed in Part I - “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The novel coronavirus, COVID-19, may adversely affect our business, financial condition, results of operations and our liquidity in the short term and for the foreseeable future.

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. Shortly thereafter, the President of the United States declared a National Emergency throughout the United States attributable to such outbreak. The outbreak has become increasingly widespread in the United States, including in the markets in which we operate. The Company has taken a number of steps to assess the effects, and mitigate the adverse consequences to its businesses, of the outbreak; though the magnitude of the impact remains to be seen, the Company’s business will likely be adversely impacted by the outbreak of COVID-19.

As previously disclosed in Part I - Item IA - Risk Factors” of the Company’s 2019 Form 10-K, the Company’s operations and profitability are impacted by business and economic conditions generally, as well as those in the primary banking markets in which it operates. The COVID-19 pandemic has resulted in historic job losses and decreases in economic activity. While the duration and full extent of job losses and magnitude of economic dislocation are not yet known, it is clear that they may impact the ability of individuals and businesses to make payments, adversely affect the value of underlying collateral and the ability of guarantors to make payments in the case of default, which may decrease demand for the Company’s products and services and otherwise adversely impact the Company’s financial condition, results of operations and business.

The United States and various state and local governments have implemented various programs designed to aid individuals and businesses, but the impact of, and extent to which, these efforts will be successful cannot be determined at this time. We have participated in some of these programs, including PPP, and likely will continue to participate in and facilitate such programs. Such programs have been developed and implemented rapidly, often with little immediate guidance from regulatory authorities, creating uncertainty regarding the rules for participating in and facilitating these programs in a compliant manner. We may experience losses as a result of our participation in and facilitation of PPP and similar government stimulus and relief programs, including losses arising from fraud, litigation or regulatory action.

COVID-19 presents a significant risk to our loan portfolio. Timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s business. Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation and collection actions, such as foreclosure. Approximately 20% of our loan portfolio also includes exposure to sectors that are expected to be subject to increased risk from COVID-19, including hotels, restaurants, retail, convenience stores, healthcare, and direct energy.

As a result of the adverse impact of COVID-19 on our customers, we have faced and may continue to face a decrease in demand for certain products, reduced access to our branches by our customers, and disruptions in the operations of its vendors. The pandemic could also result in recognition of additional credit losses in the Company’s loan portfolios and increase its allowance for credit losses as both businesses and consumers are negatively impacted by the economic downturn. In addition, in future periods the Company will be required to evaluate the impact of COVID-19 on the carrying value of certain of its assets, including goodwill, and to conduct impairments tests on those assets, which may result in impairment charges on these assets in future periods that could be material.

Effective March 2020, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent to mitigate the effects of the COVID-19 pandemic and to support the liquidity and stability of banking institutions as they serve the increased demand for credit. We expect a long duration of reduced interest rates to negatively impact our net interest income, margin, cost of borrowing and future profitability and to have a material adverse effect on our financial results for the remainder of 2020.

In order to protect the health of our customers and employees, and to comply with applicable government restrictions, we have modified our business practices, including restricting employee travel, directing many employees to work remotely, cancelling in-person meetings and implementing our business continuity plans and protocols to the extent necessary. In compliance with social distancing mandates and recommendations issued by federal, state and local governments to combat the spread of the virus, our branches are servicing clients primarily through drive-thrus with limited lobby access by appointment only. We may take further such actions that we determine are in the best interest of our employees, customers and communities or as may be required by government order. These precautions could impact demand for the Company’s products and services.

As many of our employees are required to work from home, our internal controls over financial reporting could also be negatively affected as the remote working environment could necessitate new processes, procedures, and controls. The increased reliance on remote access to information systems also increases the Company’s exposure to potential cybersecurity breaches and could impact the Company’s productivity. Additionally, the Company’s business customers are increasingly required to work remotely as well and may not have appropriately secured remote networks may be more vulnerable to cyber-attacks or phishing schemes that could also affect us. Furthermore, if a large proportion of the Company’s key employees were to contract COVID-19 or be quarantined as a result of the virus, then the Company’s operations could be adversely impacted and its business continuity plans may not prove effective..

Any of these occurrences could have a material adverse effect on the Company’s financial condition, results of operations and business The extent to which the pandemic impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including the duration of the pandemic, government and regulatory responses to the pandemic, new information which may emerge concerning its severity and the actions necessary to contain it or address its impact, among others. Behavioral changes are not fully known and may not be temporary.

The potential effects of COVID-19 also could impact and heighten many of our risk factors included in Part I - “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. Including, but not limited to: risks associated with information technology and systems, including service interruptions or security breaches; disruptions in services provided by third parties; our ability to hire or retain key personnel; the analytical and forecasting models we use to estimate our loan losses and to measure the fair value of our financial instruments; general political or economic conditions in the U.S.; economic conditions in the geographic areas in which we operate; funding to provide liquidity; the failure to maintain an effective system of disclosure controls and procedures, including internal control over financial reporting; the value of our goodwill and other intangible assets; our susceptibility to fraud; the impact of governmental regulation and supervision; the soundness of other financial institutions; volatility in our stock price. However, as the COVID-19 situation is unprecedented and continuously evolving, the potential impacts to our risk factors that are further described in our Annual Report on Form 10-K for the year ended December 31, 2019, remain uncertain.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Not applicable~~The following table provides information with respect to purchases of common stock of the Company made during the three months ended March 31, 2020, by the Company or any “affiliated purchaser” of the Company as defined in Rule 10b-18(a)(3) under the Exchange Act:

	Current Program
Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 2020		-	$	-		-		-
February 2020		10,991		34.42		-		-
March 2020		-		-		-		-
Total		10,991	$	34.42		-		-

The share listed above represents shares withheld by the Company in order to satisfy employee tax obligations for vesting of restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

Item 5. Other Information

~~Not applicable~~The Company is disclosing under this Item 5 the following information otherwise disclosable in a Current Report on Form 8-K under “Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year”:

On May 7, 2020, our board of directors approved and adopted an Amendment No. 1 to our Amended and Restated Bylaws. Amendment No. 1 was adopted to clarify that (i) shareholders may participate meetings by means of remote communications to extent permitted by Mississippi law the board of directors, and (ii) meetings of shareholders can be held entirely by means of remote communication to the extent permitted by the Mississippi Business Corporation Act. In light of the uncertainty resulting from the COVID-19 pandemic, our 2020 annual meeting will be held in completely virtual annual meeting, as permitted by Executive Order No. 1469 issued by the Governor of the state of Mississippi on April 9, 2020.

The foregoing summary is subject to, and qualified in its entirety by, the full text of the Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.4 to this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 5.

ITEM 6. EXHIBITS

~~(a) Exhibits~~

(a)

Exhibits

	Exhibit No.		~~Description~~
			Description
	3.1		Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on July 28, ~~2016.~~2016).

	3.2		Amendment to the Amended and Restated Articles of Incorporation of The First Bancshares, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed on August 9, ~~2018.~~2018).

	3.3		Amended and Restated Bylaws of The First Bancshares, Inc. effective as of March 17, 2016 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 18, ~~2016.~~2016).
	3.4		Amendment No. 1 to the Amended and Restated Bylaws of The First Bancshares, Inc. effective as of May 7, 2020*
	4.1		Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement No. 333-220491 on Form S-3 filed on September 15, ~~2017.~~2017).
	10.1		Amendment to Employment Agreement dated January 16, 2020, between The First, A National Banking Association, and M. Ray Cole, Jr.*
	~~10.1~~10.2		~~Form of 2019 Stock Incentive~~Amendment to Employment Agreement ~~for Restricted Stock Award pursuant to~~dated January 16, 2020, between The First, Bancshares, Inc. 2007 Stock Incentive Plan.A National Banking Association, and Donna T. Lowery
	10.3		Supplemental Executive Retirement Agreement effective January 1, 2020 between The First, A National Banking Association and Milton R. Cole, Jr.*
	31.1		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	31.2		Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	32.1		Certification of principal executive officer pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

	32.2		Certification of principal financial officer pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

	~~101.INS~~_________
			101.INS XBRL Instance Document

	101.SCH		XBRL Taxonomy Extension Schema

	101.CAL		XBRL Taxonomy Extension Calculation Linkbase

	101.DEF		XBRL Taxonomy Extension Definition Linkbase

	101.LAB		XBRL Taxonomy Extension Label Linkbase

	101.PRE		XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THE FIRST BANCSHARES, INC.
			(Registrant)

			/s/ M. RAY (HOPPY) COLE, JR.
May ~~10, 2019~~	11, 2020	M. Ray (Hoppy) Cole, Jr.
(Date)			Chief Executive Officer

			/s/ DONNA T. (DEE DEE) LOWERY
May ~~10, 2019~~	11, 2020	Donna T. (Dee Dee) Lowery, Executive
(Date)			Vice President and Chief Financial Officer

*Mississippi*		*64-0862173*
(State of Incorporation)		(IRS Employer Identification No)

6480 U.S. Highway 98 West, Suite A, Hattiesburg, Mississippi		39402
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00	FBMS	The Nasdaq Stock Market

Large accelerated filer¨	Accelerated filerþx
Non-accelerated filer¨	Smaller Reporting Company¨
Emerging growth company¨

~~Title of each class~~		~~Trading Symbol(s)~~		~~Name of each exchange on which registered~~
~~Common Stock~~		~~FBMS~~		~~NASDAQ~~

Part I. Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets—Unaudited at March 31, ~~2019~~2020	3
	Consolidated Statements of Income—Unaudited	4
	Consolidated Statements of Comprehensive Income—Unaudited	5
	Consolidated Statements of Changes in Stockholders’ ~~Equity—~~Equity - Unaudited	6
	Consolidated Statements of Cash Flows—Unaudited	7
	Notes to Consolidated Financial Statements—Unaudited	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3628
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5544
Item 4.	Controls and Procedures	5846

Part II. Other Information

Item 1.	Legal Proceedings	5847
Item 1A.	Risk Factors	5947
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5948
Item 3.	Defaults Upon Senior Securities	5949
Item 4.	Mine Safety Disclosures	5949
Item 5.	Other Information	5949
Item 6.	Exhibits	6049
Signatures		6150

	(Unaudited)			(Audited)			(Unaudited)
	March 31,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
ASSETS

Cash and due from banks	$	91,538		$	71,356		$	107,252		$	89,736
Interest-bearing deposits with banks		157,038			87,751			179,507			79,128
Federal funds sold		-			-

Total cash and cash equivalents		248,576			159,107			286,759			168,864

Securities held-to-maturity, at amortized cost		6,397			6,000
Securities available-for-sale, at fair value		598,796			492,224			762,977			765,087
Other securities		15,298			16,704			25,911			26,690

Total securities		620,491			514,928			788,888			791,777

Loans held for sale		6,238			4,838			13,288			10,810
Loans		2,335,348			2,060,422			2,602,288			2,600,358
Allowance for loan losses		(11,235	)		(10,065	)		(20,804	)		(13,908	)

Loans, net		2,330,351			2,055,195			2,594,772			2,597,260

Interest receivable		12,420			10,778			14,943			14,802
Premises and equipment		94,624			74,783			108,013			104,980
Cash surrender value of bank-owned life
Insurance		58,405			50,796
Cash surrender value of bank-owned life insurance								65,713			59,572
Goodwill		119,907			89,750			158,572			158,572
Other real estate owned		11,588			10,869			6,974			7,299
Other assets		36,617			37,780			37,167			38,737

TOTAL ASSETS	$	3,532,979		$	3,003,986		$	4,061,801		$	3,941,863

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing	$	655,900		$	570,148		$	340,606		$	723,208
Interest-bearing		2,258,418			1,887,311			2,937,188			2,353,325

TOTAL DEPOSITS		2,914,318			2,457,459			3,277,794			3,076,533

Interest payable		2,028			1,519			2,885			2,508
Borrowed funds		61,750			85,500			116,180			214,319
Subordinated debentures		80,561			80,521			80,717			80,678
Other liabilities		19,975			15,733			28,299			24,167

TOTAL LIABILITIES		3,078,632			2,640,732			3,505,875			3,398,205

STOCKHOLDERS’ EQUITY:
Common stock, par value $1 per share, 40,000,000 shares authorized; 17,299,225 shares issued at March 31, 2019, and 14,587,092 shares issued at December 31, 2018, respectively		17,299			14,857
Common stock, par value $1 per share, 40,000,000 shares authorized; 19,046,637 shares issued at March 31, 2020, and 18,996,948 shares issued at December 31, 2019, respectively								19,047			18,997
Additional paid-in capital		354,792			278,659			409,855			409,805
Retained earnings		78,594			71,998			116,886			110,460
Accumulated other comprehensive gain (loss)		4,126			(1,796	)
Treasury stock, at cost, 26,494 shares at March 31, 2019 and at December 31, 2018		(464	)		(464	)

Accumulated other comprehensive gain								15,831			10,089
Treasury stock, at cost, 194,682 shares at March 31, 2020 and 194,682 shares at December 31, 2019								(5,693	)		(5,693	)
TOTAL STOCKHOLDERS’ EQUITY		454,347			363,254			555,926			543,658

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,532,979		$	3,003,986		$	4,061,801		$	3,941,863

	Common Stock						Additional Paid-in			Retained			Accumulated Other Comprehensive			Treasury Stock
	Shares			Amount			Capital			Earnings			Income (Loss)			Shares			Amount			Total
.Balance, January 1, 2019		14,857,092		$	14,857		$	278,659		$	71,998		$	(1,796	)		(26,494	)	$	(464	)	$	363,254
Net income		-			-			-			7,635			-			-			-			7,635
Other comprehensive income		-			-			-			-			5,922			-			-			5,922
Dividends on common stock, $0.07 per share		-			-			-			(1,039	)		-			-			-			(1,039	)
Issuance of common shares for FPB acquisition		2,377,501			2,378			75,842			-			-			-			-			78,220
Restricted stock grant		66,132			66			(66	)		-			-			-			-			-
Restricted stock grant forfeited		(1,500	)		(2	)		2			-			-			-			-			-
Compensation expense		-			-			355			-			-			-			-			355
Balance, March 31, 2019		17,299,225		$	17,299		$	354,792		$	78,594		$	4,126			(26,494	)	$	(464	)	$	454,347

Balance, January 1, 2020		18,996,948		$	18,997		$	409,805		$	110,460		$	10,089			(194,682	)	$	(5,693	)	$	543,658
Net income		-			-			-			8,311			-			-			-			8,311
Other comprehensive income		-			-			-			-			5,742			-			-			5,742
Dividends on common stock, $0.10 per share		-			-			-			(1,885	)		-			-			-			(1,885	)
Restricted stock grant		60,680			61			(61	)		-			-			-			-			-
Repurchase of restricted stock for payment of taxes		(10,991	)		(11	)		(367	)		-			-			-			-			(378	)
Compensation expense		-			-			478			-			-			-			-			478
Balance, March 31, 2020		19,046,637		$	19,047		$	409,855		$	116,886		$	15,831			(194,682	)	$	(5,693	)	$	555,926

	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Compre- hensive Income(Loss)			Treasury Stock			Total
Balance, January 1, 2018	$	11,192		$	158,456		$	53,722		$	(438	)	$	(464	)	$	222,468
Net income		-			-			3,957			-			-			3,957
Other comprehensive income		-			-			-			(3,351	)		-			(3,351	)
Dividends on common stock, $0.05 per share		-			-			(555	)		-			-			(555	)
Issuance of 1,134,010 common shares for Southwest acquisition		1,134			34,871			-			-			-			36,005
Restricted stock grant		52			(52	)		-			-			-			-
Restricted stock grant forfeited		(12	)		12			-			-			-			-
Expenses associated with common stock issuance		-			(237	)		-			-			-			(237	)
Compensation expense		-			252			-			-			-			252
Balance, March 31, 2018	$	12,366		$	193,302		$	57,124		$	(3,789	)	$	(464	)	$	258,539

Balance, January 1, 2019	$	14,857		$	278,659		$	71,998		$	(1,796	)	$	(464	)	$	363,254
Net income		-			-			7,635			-			-			7,635
Other comprehensive income		-			-			-			5,922			-			5,922
Dividends on common stock, $0.07 per share		-			-			(1,039	)		-			-			(1,039	)
Issuance of 2,377,501 common shares for FPB acquisition		2,378			75,842			-			-			-			78,220
Restricted stock grant		66			(66	)		-			-			-			-
Restricted stock grants Forfeited		(2	)		2			-			-			-			-
Compensation expense		-			355			-			-			-			355
Balance, March 31, 2019	$	17,299		$	354,792		$	78,594		$	4,126		$	(464	)	$	454,347

Purchase price:
Cash and stock	$	89,520
Total purchase price		89,520

Identifiable assets:
Cash and due from banks		50,169
Investments		122,084
Loans		247,263
Core deposit intangible		3,745
Personal and real property		4,991
Other assets		2,283
Total assets		430,535

Liabilities and equity:
Deposits		373,908
Borrowed funds		5,527
Other liabilities		1,619
Total liabilities		381,054
Net assets acquired		49,481
Goodwill resulting from acquisition	$	40,039

	November 1, 2019		March 31, 2020
Outstanding principal balance	$	248,916	$	233,392
Carrying amount		247,263		232,082

Purchase price:	$	78,225
Cash and stock		78,225
Total purchase price
					Measurement
			As Initially		Period
			Reported		Adjustments			As Adjusted
Identifiable assets:
Cash and due from banks		14,748	$	14,748	$	-		$	14,748
Investments		93,604		93,604		-			93,604
Loans		244,665		244,665		-			244,665
Bank owned life insurance		7,312		7,312		-			7,312
Core deposit intangible		4,793		4,793		1,804			6,597
Personal and real property		17,358		17,358		-			17,358
Other assets		1,430		1,430		(278	)		1,152
Total assets		383,910		383,910	$	1,526			385,436

Liabilities and equity:
Deposits		312,453		312,453		-			312,453
Borrowed funds		17,250		17,250		-			17,250
Other liabilities		6,291		6,291		-			6,291
Total liabilities		335,994		335,994		-			335,994
Net assets acquired		47,916		47,916		1,526			49,442
Consideration paid				78,225		-			78,225
Goodwill resulting from acquisition	$	30,309	$	30,309	$	1,526		$	28,783

	March 2, 2019		March 31, 2019		March 2, 2019		March 31, 2020
Outstanding principal balance	$	247,774	$	243,555	$	247,774	$	180,070
Carrying amount		244,665		240,555		244,665		178,186

Purchase price:
Cash and stock	$	79,547
Total purchase price		79,547

Identifiable assets:
Cash and due from banks		28,556
Investments		97,331
Loans		317,909
Bank owned life insurance		13,639
Core deposit intangible		10,203
Personal and real property		15,204
Other assets		3,054
Total assets		485,896

Liabilities and equity:
Deposits		431,276
Borrowed funds		5,369
Other liabilities		5,894
Total liabilities		442,539
Net assets acquired		43,357
Goodwill resulting from acquisition	$	36,190

	November 1, 2018		March 31, 2019
Outstanding principal balance	$	325,509	$	289,230
Carrying amount		317,921		282,388

	April 1, 2018		March 31, 2019
Outstanding principal balance	$	173,052	$	157,150
Carrying amount		168,561		153,848

	March 1, 2018		March 31, 2019
Outstanding principal balance	$	274,669	$	185,301
Carrying amount		271,150		183,275

	Pro-Forma		Pro-Forma
($ in thousands)	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
	(unaudited)		(unaudited)

Net interest income	$	31,006	$	18,603
Non-interest income		5,454		4,038
Total revenue		36,460		22,641
Income before income taxes		16,306		7,869

	For the Three Months Ended						For the Three Months Ended
	March 31, 2019						March 31, 2020
	Net Income		Shares		Per		Net Income		Shares		Per
	(Numerator)		(Denominator)		Share Data		(Numerator)		(Denominator)		Share Data

Basic earnings per share	$	7,635		15,646	$	0.49	$	8,311		18,818,115	$	0.44

Effect of dilutive shares:
Restricted stock grants				125				��		124,014

Diluted earnings per share	$	7,635		15,771	$	0.48	$	8,311		18,942,129	$	0.44

As of March 31, 2019					Fair Value Measurements
($ in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Instruments:
Assets:
Cash and cash equivalents	$	248,576	$	248,576	$	248,576	$	-	$	-
Securities available-for-sale:
Obligations of U.S. Government agencies and sponsored entities		67,346		67,346		-		67,346		-
Municipal securities		163,588		163,588		-		-		163,588
Mortgage-backed securities		359,914		359,914		-		359,914		-
Corporate obligations		7,948		7,948		-		7,516		432
Securities held-to-maturity		6,397		7,628		-		7,628		-
Loans, net		2,330,351		2,303,461		-		-		2,303,461
Accrued interest receivable		12,420		12,420		-		3,082		9,338

Liabilities:
Non-interest- bearing deposits	$	655,900	$	655,900	$	-	$	655,900	$	-
Interest- bearing deposits		2,258,418		2,231,448		-		2,231,448		-
Subordinated debentures		80,561		78,210		-		-		78,210
FHLB and other borrowings		61,750		61,750		-		61,750		-
Accrued interest Payable		2,028		2,028		-		2,028		-

As of March 31, 2020					Fair Value Measurements
($ in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Instruments:
Assets:
Cash and cash equivalents	$	286,759	$	286,759	$	286,759	$	-	$	-
Securities available-for-sale:
U.S. Treasury		5,308		5,308		5,308
Obligations of U.S. government agencies and sponsored entities		72,880		72,880		-		72,880		-
Municipal securities		274,163		274,163		-		254,981		19,182
Mortgage-backed securities		382,900		382,900		-		382,900		-
Corporate obligations		27,726		27,726		-		27,215		511
Loans, net		2,594,772		2,573,942		-		-		2,573,942
Accrued interest receivable		14,943		14,943		-		3,995		10,948
Liabilities:
Non-interest-bearing deposits	$	340,606	$	340,606	$	-	$	340,606	$	-
Interest-bearing deposits		2,937,188		2,946,069		-		2,946,069		-
Subordinated debentures		80,717		69,037		-		-		69,037
FHLB and other borrowings		116,180		116,180		-		116,180		-
Accrued interest payable		2,885		2,885		-		2,885		-

As of December 31, 2019					Fair Value Measurements
($ in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Instruments:
Assets:
Cash and cash equivalents	$	168,864	$	168,864	$	168,864	$	-	$	-
Securities available-for-sale:
U.S. Treasury		4,894		4,894		4,894
Obligations of U.S. Government agencies and sponsored entities		77,950		77,950		-		77,950		-
Municipal securities		258,982		258,982		-		248,637		10,345
Mortgage-backed securities		395,315		395,315		-		395,315		-
Corporate obligations		27,946		27,946		-		27,538		408
Loans, net		2,597,260		2,560,668		-		-		2,560,668
Accrued interest receivable		14,802		14,802		-		4,246		10,556

Liabilities:
Non-interest-bearing deposits	$	723,208	$	723,208	$	-	$	723,208	$	-
Interest-bearing deposits		2,353,325		2,339,537		-		2,339,537		-
Subordinated debentures		80,678		80,330		-		-		80,330
FHLB and other borrowings		214,319		214,319		-		214,319		-
Accrued interest payable		2,508		2,508		-		2,508		-

As of December 31, 2018					Fair Value Measurements
($ in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Instruments:
Assets:

Cash and cash equivalents	$	159,107	$	159,107	$	159,107	$	-	$	-
Securities available-for-sale		492,224		492,224		-		341,286		150,938
Securities held-to-maturity		6,000		7,028		-		7,028		-
Loans, net		2,055,195		2,020,782		-		-		2,020,782
Accrued interest receivable		10,778		10,778		-		2,673		8,105

Liabilities:

Noninterest-bearing deposits	$	570,148	$	570,148	$	-	$	570,148	$	-
Interest-Bearing deposits		1,887,311		1,855,637		-		1,855,637		-
Subordinated debentures		80,521		76,986		-		-		76,986
FHLB and other borrowings		85,500		85,500		-		85,500		-
Accrued interest payable		1,519		1,519		-		1,519		-

($ in thousands)			Fair Value Measurements Using
			Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale
U.S. Treasury	$	5,308	$	5,308	$	-	$	-
Obligations of U.S. Government agencies and sponsored entities		72,880		-		72,880		-
Municipal securities		274,163		-		254,981		19,182
Mortgage-backed securities		382,900		-		382,900		-
Corporate obligations		27,726		-		27,215		511
Total available-for-sale	$	762,977	$	5,308	$	737,976	$	19,693

($ in thousands)	Bank-Issued Trust Preferred Securities						Bank-Issued Trust Preferred Securities
	2019			2018			2020		2019
Balance, January 1	$	874		$	2,569		$	408	$	874
Unrealized (loss) gain included in comprehensive income		(442	)		(1,695	)
Balance at March 31, 2019 and December 31, 2018	$	432		$	874
Unrealized (loss)/gain included in comprehensive income								103		(466	)
Balance at March 31, 2020 and December 31, 2019							$	511	$	408

Trust Preferred Securities	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs
March 31, 2020	$	511	Discounted cash flow	Probability of default	1.74% - 3.30%
December 31, 2019	$	408	Discounted cash flow	Probability of default	2.73% - 4.15%

($ in thousands)	March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:
U.S. Treasury	$	4,969	$	339	$	-	$	5,308
Obligations of U.S. government
agencies and sponsored entities		70,726		2,216		62		72,880
Tax-exempt and taxable obligations of
states and municipal subdivisions		270,385		5,369		1,591		274,163
Mortgage-backed securities - residential		251,134		10,993		80		262,047
Mortgage-backed securities - commercial		115,974		4,976		97		120,853
Corporate obligations		27,838		242		354		27,726
Total	$	741,026	$	24,135	$	2,184	$	762,977

	March 31, 2019
	Available-for-Sale				Held-to-Maturity
($ in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Due less than one year	$	23,499	$	23,520	$	-	$	-
Due after one year through five years		73,797		74,337		-		-
Due after five years through ten years		98,829		100,733		6,000		7,237
Due greater than ten years		39,935		40,292		-		-
Mortgage-backed securities		357,217		359,914		397		391
Total	$	593,277	$	598,796	$	6,397	$	7,628

	March 31, 2019
	Losses < 12 Months				Losses 12 Months or >				Total
($ in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Obligations of U.S. government agencies and sponsored entities	$	2,203	$	2	$	7,660	$	67	$	9,863	$	69
Tax-exempt and taxable obligations of state and municipal subdivisions		5,365		13		36,586		300		41,951		313
Mortgage-backed securities		7,404		75		102,827		1,032		110,231		1,107
Corporate obligations		2,492		2		4,451		115		6,943		117
Total	$	17,464	$	92	$	151,524	$	1,514	$	168,988	$	1,606

	March 31, 2019
($ in thousands)	Past Due 30 to 89 Days		Past Due 90 Days or More and Still Accruing		Non- Accrual		PCI		Total Past Due, Non- Accrual and PCI		Total Loans

Real Estate-construction	$	1,220	$	53	$	6	$	2,144	$	3,423	$	348,788
Residential secured loans including multifamily and farmland		3,222		671		955		9,370		14,218		722,611
Real Estate-non-farm non-residential		231		140		9,275		3,465		13,111		857,918
Commercial		726		64		1,043		156		1,989		340,333
Lease financing receivable		-		-		-		-		-		3,060
Obligations of states and subdivisions		-		-		-		-		-		13,734
Consumer		281		15		62		26		384		48,904
Total	$	5,680	$	943	$	11,341	$	15,161	$	33,125	$	2,335,348

	March 31, 2020
	Past Due 30 to 89 Days and Accruing		Past Due 90 Days or More and Still Accruing		Nonaccrual		PCI		Total Past Due, Nonaccrual and PCI		Total Loans
Commercial, financial and agriculture	$	1,385	$	23	$	1,989	$	80	$	3,477	$	327,979
Commercial real estate		9,664		582		22,123		3,498		35,867		1,388,925
Consumer real estate		10,960		1,772		2,128		7,704		22,564		821,432
Consumer installment		328		15		224		5		572		42,208
Lease financing receivable		-		-		-		-		-		3,526
Obligations of states and subdivisions		-		-		-		-		-		18,218
Total	$	22,337	$	2,392	$	26,464	$	11,287	$	62,480	$	2,602,288

	December 31, 2019
	Past Due 30 to 89 Days		Past Due 90 Days or More and Still Accruing		Nonaccrual		PCI		Total Past Due, Nonaccrual and PCI		Total Loans
Commercial, financial and agriculture	$	515	$	61	$	2,137	$	97	$	2,810	$	332,600
Commercial real estate		2,447		1,046		22,441		3,844		29,778		1,387,207
Consumer real estate		4,569		1,608		1,902		8,148		16,227		814,282
Consumer installment		226		-		260		6		492		42,458
Lease financing receivable		-		-		-		-		-		3,095
Obligations of states and subdivisions		-		-		-		-		-		20,716
Total	$	7,757	$	2,715	$	26,740	$	12,095	$	49,307	$	2,600,358

	March 2, 2019
($ in thousands)	Commercial, financial and agricultural		Mortgage- Commercial		Mortgage- Residential		Commercial and other		Total
Contractually required payments	$	100	$	1,562	$	3,045	$	8	$	4,715
Cash flows expected to be collected		77		1,317		2,901		-		4,295
Fair value of loans acquired		70		1,224		2,622		1		3,916

($ in thousands)	FPB		FFB		Total
Contractually required payments at acquisition	$	4,715	$	947	$	5,662
Cash flows expected to be collected at acquisition		4,295		955		5,250
Fair value of loans at acquisition		3,916		809		4,725

	March 31, 2020			March 31, 2019
	Accretable Yield			Accretable Yield
Balance at beginning of period	$	3,417		$	3,835
Additions, including transfers from non-accretable		337			427
Accretion		(148	)		(275	)
Balance at end of period	$	3,606		$	3,987