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 ~~nine~~three months ended ~~September 30, 2019,~~March 31, 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 ~~September 30, 2019,~~March 31, 2020, the Company had approximately ~~$3.482~~$4.062 billion in assets, ~~$2.348~~$2.595 billion in net loans, ~~$2.761~~$3.278 billion in deposits, and ~~$478.1~~$555.9 million in stockholders' equity. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company reported net income of ~~$31.9~~$8.3 million. ~~After tax merger related~~After-tax merger-related costs of ~~$3.1 million~~$576 thousand were expensed during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

On ~~August 23, 2019,~~February 21, 2020, the Company paid a cash dividend in the amount of ~~$0.08~~$0.10 per share to shareholders of record as of the close of business on Friday, ~~August 9, 2019.~~February 7, 2020.

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

In March 2020, the FASB issued ASU No. 2020-04,Reference Rate Reform (Topic 848): “Facilitation of the 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 discontinued. It is intended to help stakeholders during the ~~amount of $0.08 per share to shareholders of record~~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 ~~close of business on Friday, May 10, 2019.~~Company’s transition away from LIBOR for its loan and other financial instruments.

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

In ~~March~~December 2019, the FASB issued ASU No. ~~2019-01,~~2019-12,~~Leases: Codification Improvements.~~Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes.”ASU ~~2019-01 provides clarification~~2019-12 removes specific exceptions to ~~increase transparency~~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 ~~comparability among organizations by recognizing lease assets~~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 ~~liabilities on~~enacted changes in tax laws or rates, and clarifies the ~~balance sheet and disclosing essential information about leasing transactions. This ASU (1) allows the fair value of the underlying asset reported by lessors~~accounting for transactions that are not manufacturers or dealers to continue to be its cost and not fair value as measured under the fair value definition, (2) allows for the payments received from sales-type and direct financing leases to continue to be presented as results from investing activitiesresult in a step-up in the ~~statement~~tax basis of ~~cash flows, and (3) clarifies that entities do not have to disclose the effect of the lease standard on adoption year interim amounts.~~goodwill. ASU ~~2019-01~~2019-12 will be effective on January 1, ~~2020~~2021 and ~~will not have a material impact on the Company’s Consolidated Financial Statements.~~

~~In August 2018, the FASB issued ASU No. 2018-13,~~~~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 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed 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 expands 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 were effective for interim and annual reporting periods beginning after December 15, 2018. ASU 2018-07 did not have a material impact on the Company’s 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. ASU 2018-15 will not have a material impact on the Company’s 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, notexpected 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. ASU 2017-04 will not have a material impact on the Company’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, ~~“Financial~~“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments”~~Instruments” (“ASU 2016-13”). ~~ASU 2916-13 makes significant changes~~The FASB issued new guidance (Topic 326) to replace the incurred loss model for loans and other financial assets with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the ~~accounting for~~measurement of credit losses on financial ~~instruments presented on an~~assets measured at amortized cost, ~~basis~~including loan receivables and ~~disclosures about them.~~held-to-maturity debt securities. It also applies to 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 on available-for-sale debt securities to be presented as a valuation allowance rather than as a direct write-down. The standard will be effective for fiscal years beginning after December 15, 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 ~~loss~~losses (CECL) impairment model will require an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditionsstandard issued in addition to information about past events and current conditions. The standard provides significant flexibility and requires a high degree of judgment throughout the estimation process including, but not limited to, pooling of financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. In addition,2016. ASU 2016-13 ~~amends the accounting for credit losses on debt securities~~ and ~~purchased financial assets with credit deterioration. The amendments in ASU 2016-13~~subsequent ASUs are effective for fiscal years, and interim periods ~~beginning after December 15, 2019 for public business entities that are SEC filers. The Company will adopt ASU 2016-13 on January 1, 2020.~~

The Company’s CECL Implementation Team continues to make progress in its plan for adoption, and is currently evaluating what impact ASU 2016-13 will have on our consolidated financial statements and disclosures. While we are currently unable to reasonably estimate that impact, it could be significantly 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. The Company, with help from its third party ALLL modeling vendor, completed the tasks of data capture, portfolio segmentation and input of other proxy data during the second quarter to complete runs in the third quarter using that model. Also during the third quarter, the Company engaged a third party vendor to assist in the development of a qualitative and environmental loss factor model (Q&E Model), as well as model validation. The Company’s plan for the fourth quarter is to approve the input of modeled qualitative loss factors, and to complete validation of our reasonable and supportable forecast model, leading to a final parallel run at end-of-year 2019.

~~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 forwithin those fiscal years, beginning after December 15, ~~2018, including interim periods within those fiscal years for public business entities. Entities are~~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 elected to apply ASU 2016-02retained earnings, as of the beginning of the first reporting period ~~of adoption (January 1, 2019) and did 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 did not have a material impact on our Consolidated Statements of Income or 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 paid a total consideration of $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 $5 thousand in cash.

In connection with the acquisition, the Company recorded approximately $28.8 million of goodwill and $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 ~~$97~~$63 thousand ~~and $2.2 million~~ for the three ~~month and nine~~ months ~~period ended September 30, 2019, respectively.~~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 FPB 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 March 2, 2020, 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~~finalized fair values of the assets acquired and liabilities assumed on March 2, 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 September 30, 2019, are as follows ($ in thousands):

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 $79.5 million to the FMB shareholders as consideration in the merger, which included 1,763,042 shares of the Company’s common stock and $16.0 million in cash.

In connection with the acquisition, the Company recorded approximately $36.4 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 $59 thousand and $615 thousand for the three month and nine months period ended September 30, 2019, respectively. These costs included system conversion and integrating operations charges and legal and consulting expenses, whichValuation adjustments have been ~~expensed as incurred.~~

The assets acquired and liabilities assumed and consideration paid in the acquisition of FMB were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subjectmade 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, 2019, 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~~other assets ~~resulting from the acquisition.~~

~~The following table summarizes 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 sheets as of the acquisition date and at September 30, 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 $0 and $250 thousand for the three month and nine months period ended September 30, 2019, respectively. These costs included system conversion and integrating operations charges and legal and consulting expenses, which have been expensed as incurred.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 ~~September 30, 2019,~~March 31, 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 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 $150 thousand and $519 thousand for the three month and nine months period ended September 30, 2019, respectively. These costs included systems conversions and integrating operations charges and legal and consulting expenses, which have been expensed as incurred.

March 1,
2018 September 30,
2019
Outstanding principal balance $ 274,669 $ 163,223
Carrying amount 271,150 161,806

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

Supplemental Pro-Forma Financial Information

The following unaudited pro-forma financial data for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and September 30, 2018~~ presents supplemental information as if the ~~Southwest, Sunshine, FMB~~FPB and ~~FPB~~FFB acquisitions had occurred on January 1, ~~2018.~~2019. The pro-forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of these dates.

($ in thousands)					Pro-Forma		Pro-Forma
	Pro-Forma		Pro-Forma		Three months ended March 31, 2020		Three months ended March 31, 2019
($ in thousands)	Nine months ended September 30, 2019		Nine months ended September 30, 2018
					(unaudited)		(unaudited)
	(unaudited)		(unaudited)
Net interest income	$	91,011	$	88,904	$	34,065	$	34,705
Non-interest income		19,854		18,812		6,474		6,313
Total revenue	$	110,865	$	107,716		40,539		41,018
Income before income taxes	$	46,030	$	40,616		10,739		18,002

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.

NOTE 5 – EARNINGS APPLICABLE TO COMMON STOCKHOLDERS

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, except per share amount):

							For the Three Months Ended
	For the Three Months Ended						March 31, 2020
	September 30, 2019						Net Income		Shares		Per
	Net Income		Shares		Per		(Numerator)		(Denominator)		Share Data
	(Numerator)		(Denominator)		Share Data
Basic earnings per share	$	12,272		17,130,610	$	0.72	$	8,311		18,818,115	$	0.44

Effect of dilutive shares:
Restricted stock grants				150,713				��		124,014

Diluted earnings per share	$	12,272		17,281,323	$	0.71	$	8,311		18,942,129	$	0.44

For the Nine months ended
September 30, 2019
Net Income Shares Per
(Numerator) (Denominator) Share Data
Basic earnings per share $ 31,890 16,653,045 $ 1.91

Effect of dilutive shares:
Restricted stock grants 136,873

Diluted earnings per share $ 31,890 16,789,918 $ 1.90

For the Three Months Ended
September 30, 2018
Net Income Shares Per
(Numerator) (Denominator) Share Data
Basic earnings per share $ 5,162 13,072,455 $ 0.39

Effect of dilutive shares:
Restricted stock grants 119,752

Diluted earnings per share $ 5,162 13,192,207 $ 0.39

							For the Three Months ended
	For the Nine months ended						March 31, 2019
	September 30, 2018						Net Income		Shares		Per
	Net Income		Shares		Per		(Numerator)		(Denominator)		Share Data
	(Numerator)		(Denominator)		Share Data
Basic earnings per share	$	14,364		12,565,000	$	1.14	$	7,635		15,646,476	$	0.49

Effect of dilutive shares:
Restricted stock grants				119,752						124,146

Diluted earnings per share	$	14,364		12,684,752	$	1.13	$	7,635		15,770,622	$	0.48

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. The Company granted 750 shares of restricted stock in the second quarter of 2019 and made no grants of restricted stock during the second quarter of 2018. The Company granted 8,333 shares of restricted stock in the third quarter of 2019 and 9,133 shares of restricted stock in the third quarter of 2018.2019.

NOTE 6 – COMPREHENSIVE INCOME

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, which are also recognized as separate components of equity.

NOTE 7 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

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 ~~September 30, 2019,~~March 31, 2020, and December 31, ~~2018,~~2019, these financial instruments consisted of the following:

($ in thousands)									March 31, 2020				December 31, 2019
	September 30, 2019				December 31, 2018				Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
($ in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	79,384	$	1,793	$	32,624	$	36,780	$	39,351	$	5,723	$	42,774	$	5,676
Unused lines of credit		127,886		200,629		115,524		131,741		120,335		180,732		137,966		208,728
Commercial & similar letters of credit		2,475		8,529		2,357		8,367
Standby letters of credit										2,425		9,917		3,648		8,475

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 0.5% to ~~19.7%~~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

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the assets or liability in an orderly transaction between market participants on the measurement date. There 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.

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 not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability.

The following methods and assumptions were used by the Company to estimate its financial instrument fair values disclosed at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

Investment Securities: The fair value for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans held for sale: Since loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and fluctuations in fair values are not relevant for reporting purposes. If available-for-sale loans are held on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices.

Impaired Loans: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 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.

Other Real Estate Owned: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 owned is classified within Level 3 of the fair value ~~hierarchy~~hierarchy.

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

Fair Value Measurements
As of September 30, 2019
($ 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 $ 159,990 $ 159,990 $ 159,990 $ - $ -
Securities available-for-sale:
Obligations of U.S. Government agencies and sponsored entities 65,009 65,009 - 65,009 -
Municipal securities 170,298 170,298 - 159,511 10,787
Mortgage-backed securities 366,062 366,062 - 366,062 -
Corporate obligations 10,633 10,633 - 10,220 413
Securities held-to-maturity 6,328 7,531 - 7,531 -
Loans, net 2,348,047 2,321,293 - - 2,321,293
Accrued interest receivable 12,415 12,415 - 3,125 9,286

Liabilities:
Non-interest-bearing deposits $ 642,054 $ 642,054 $ - $ 642,054 $ -
Interest-bearing deposits 2,119,291 2,107,490 - 2,107,490 -
Subordinated debentures 80,639 79,229 - - 79,229
FHLB and other borrowings 136,250 136,250 - 136,250 -
Accrued interest payable 2,236 2,236 - 2,236 -

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		-

					Fair Value Measurements
As of December 31, 2018 ($ in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of December 31, 2019											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	$	159,107	$	159,107	$	159,107	$	-	$	-		$	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		47,342		47,342		-		47,342		-			77,950		77,950		-		77,950		-
Municipal securities		150,064		150,064		-		142,490		7,574			258,982		258,982		-		248,637		10,345
Mortgage-backed securities		287,470		287,470		-		287,470		-			395,315		395,315		-		395,315		-
Corporate obligations		7,348		7,348		-		6,474		874			27,946		27,946		-		27,538		408
Securities held-to-maturity		6,000		7,028		-		7,028		-
Loans, net		2,055,195		2,020,782		-		-		2,020,782			2,597,260		2,560,668		-		-		2,560,668
Accrued interest receivable		10,778		10,778		-		2,673		8,105			14,802		14,802		-		4,246		10,556

Liabilities:
Noninterest-bearing deposits	$	570,148	$	570,148	$	-	$	570,148	$	-
Non-interest-bearing deposits												$	723,208	$	723,208	$	-	$	723,208	$	-
Interest-bearing deposits		1,887,311		1,855,637		-		1,855,637		-			2,353,325		2,339,537		-		2,339,537		-
Subordinated debentures		80,521		76,986		-		-		76,986			80,678		80,330		-		-		80,330
FHLB and other borrowings		85,500		85,500		-		85,500		-			214,319		214,319		-		214,319		-
Accrued interest payable		1,519		1,519		-		1,519		-			2,508		2,508		-		2,508		-

Assets measured at fair value on a recurring basis are summarized below:

~~September 30, 2019~~March 31, 2020

($ in thousands)									($ in thousands)			Fair Value Measurements Using
			Fair Value Measurements Using									Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs			Fair Value		(Level 1)		(Level 2)		(Level 3)
($ in thousands)	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	$	65,009	$	-	$	65,009	$	-			72,880		-		72,880		-
Municipal securities		170,298		-		159,511		10,787			274,163		-		254,981		19,182
Mortgage-backed securities		366,062		-		366,062		-			382,900		-		382,900		-
Corporate obligations		10,633		-		10,220		413			27,726		-		27,215		511
Total available-for-sale	$	612,002	$	-	$	600,802	$	11,200		$	762,977	$	5,308	$	737,976	$	19,693

December 31, ~~2018~~2019

($ in thousands)									($ in thousands)			Fair Value Measurements Using
			Fair Value Measurements Using									Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs			Fair Value		(Level 1)		(Level 2)		(Level 3)
($ in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale
U.S. Treasury										$	4,894	$	4,894	$	-	$	-
Obligations of U.S. Government agencies and sponsored entities	$	47,342	$	-	$	47,342	$	-			77,950		-		77,950		-
Municipal securities		150,064		-		142,490		7,574			258,982		-		248,637		10,345
Mortgage-backed securities		287,470		-		287,470		-			395,315		-		395,315		-
Corporate obligations		7,348		-		6,474		874			27,946		-		27,538		408
Total available-for-sale	$	492,224	$	-	$	483,776	$	8,448		$	765,087	$	4,894	$	749,440	$	10,753

The following is a reconciliation of activity for assets measured at fair value based on significant unobservable inputs (Level 3) information.

Bank-Issued Trust
Preferred Securities
($ in thousands) 2019 2018
Balance, January 1 $ 874 $ 2,569
Unrealized (loss) gain included in comprehensive income (461 ) (1,695 )
Balance at September 30, 2019 and December 31, 2018 $ 413 $ 874

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

Municipal Securities
($ in thousands) 2019 2018
Balance, January 1 $ 7,574 $ 4,818
Unrealized (loss) gain included in comprehensive income 3,213 2,756
Balance at September 30, 2019 and December 31, 2018 $ 10,787 $ 7,574

($ in thousands)	Municipal Securities
	2020		2019
Balance, January 1	$	10,345	$	7,574
Unrealized (loss)/gain included in comprehensive income		8,837		2,771
Balance at March 31, 2020 and December 31, 2019	$	19,182	$	10,345

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The following tables present quantitative information about recurring Level 3 fair value measurements ($ in thousands):

Trust Preferred Securities Fair Value Valuation Technique Significant Unobservable Inputs Range of Inputs
September 30, 2019 $ 413 Discounted cash flow Probability of default 2.90% - 4.39%
December 31, 2018 $ 874 Discounted cash flow Probability of default 3.71% - 5.03%

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%

Municipal Securities Fair Value Valuation Technique Significant
Unobservable Inputs Range of Inputs
September 30, 2019 $ 10,787 Discounted cash flow Discount Rate 1.70% - 3.15%
December 31, 2018 $ 7,574 Discounted cash flow Discount Rate 2.00% - 3.50%

Municipal Securities	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs
March 31, 2020	$	19,182	Discounted cash flow	Discount Rate	1.85% - 3.50%
December 31, 2019	$	10,345	Discounted cash flow	Discount Rate	1.50% - 4.40%

The following table presents the fair value measurement of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements were classified at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

~~September 30, 2019~~March 31, 2020

($ 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)

Impaired loans	$	11,124	$	-	$	-	$	11,124

Other real estate owned		6,974		-		-		6,974

Fair Value Measurements Using

Quoted Prices in
Active Markets
For
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

($ in thousands) Fair Value (Level 1) (Level 2) (Level 3)
Impaired loans $ 21,712 $ - $ - $ 21,712

Other real estate owned 9,974 - - 9,974

December 31, ~~2018~~2019

($ in thousands)											Fair Value Measurements Using
			Fair Value Measurements Using								Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value		(Level 1)		(Level 2)		(Level 3)
($ in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)

Impaired loans	$	11,571	$	-	$	-	$	11,571	$	11,337	$	-	$	-	$	11,337

Other real estate owned		10,869		-		-		10,869		7,299		-		-		7,299

NOTE 9 – SECURITIES

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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018, follows:~~

2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

($ in thousands)									March 31, 2020
	September 30, 2019								Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
Obligations of U.S. Government agencies and sponsored entities	$	63,097	$	1,919	$	7	$	65,009
Tax-exempt and taxable obligations of states and municipal subdivisions		166,449		3,970		121		170,298
Mortgage-backed securities		357,933		8,404		275		366,062
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		10,611		125		103		10,633		27,838		242		354		27,726
Total	$	598,090	$	14,418	$	506	$	612,002	$	741,026	$	24,135	$	2,184	$	762,977

Amortized
Cost

Gross
Unrecognized
Gains

Gross
Unrecognized
Losses

Estimated
Fair
Value

Held-to-maturity securities:
Taxable obligations of states and municipal subdivisions $ 6,000 $ 1,208 $ - $ 7,208
Mortgage-backed securities 328 - 5 323
Total $ 6,328 $ 1,208 $ 5 $ 7,531

December 31, 2018
($ in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
Available-for-sale securities:
Obligations of U.S. Government agencies sponsored entities $ 47,212 $ 405 $ 275 $ 47,342
Tax-exempt and taxable obligations of states and municipal subdivisions 150,215 1,070 1,221 150,064
Mortgage-backed securities 289,745 1,171 3,446 287,470
Corporate obligations 7,518 15 185 7,348
Total $ 494,690 $ 2,661 $ 5,127 $ 492,224

~~The scheduled maturities of securities at September 30, 2019 and December 31, 2018 were as follows:~~

September 30, 2019
Available-for-Sale Held-to-Maturity
($ in thousands) Amortized
Cost Estimated
Fair
Value Amortized
Cost Estimated
Fair
Value
Due less than one year $ 23,477 $ 23,563 $ - $ -
Due after one year through five years 76,610 77,856 - -
Due after five years through ten years 101,616 105,078 6,000 7,208
Due greater than ten years 38,454 39,443 - -
Mortgage-backed securities 357,933 366,062 328 323
Total $ 598,090 $ 612,002 $ 6,328 $ 7,531

($ in thousands)	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:
U.S. Treasury	$	4,967	$	-	$	73	$	4,894
Obligations of U.S. government
agencies sponsored entities		76,699		1,475		224		77,950
Tax-exempt and taxable obligations of
states and municipal subdivisions		253,527		5,602		147		258,982
Mortgage-backed securities - residential		263,229		4,726		107		267,848
Mortgage-backed securities - commercial		125,292		2,398		223		127,467
Corporate obligations		27,877		218		149		27,946
Total	$	751,591	$	14,419	$	923	$	765,087

December 31, 2018
Available-for-Sale Held-to-Maturity
($ in thousands) Amortized
Cost Estimated
Fair
Value Amortized
Cost Estimated
Fair
Value
Due less than one year $ 19,825 $ 19,794 $ - $ -
Due after one year through five years 64,933 64,925 - -
Due after five years through ten years 82,455 82,687 6,000 7,028
Due greater than ten years 37,732 37,348 - -
Mortgage-backed securities 289,745 287,470 - -
Total $ 494,690 $ 492,224 $ 6,000 $ 7,028

~~Actual~~The amortized cost and fair value of debt securities are shown by contractual maturity. Expected 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.

($ in thousands)	March 31, 2020				December 31, 2019
	Available-for-Sale				Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due less than one year	$	28,094	$	28,210	$	30,141	$	30,303
Due after one year through five years		86,142		87,617		80,119		81,372
Due after five years through ten years		147,047		150,671		143,811		148,085
Due greater than ten years		112,635		113,579		108,999		110,012
Mortgage-backed securities - residential		251,134		262,047		263,229		267,848
Mortgage-backed securities - commercial		115,974		120,853		125,292		127,467
Total	$	741,026	$	762,977	$	751,591	$	765,087

The details concerning securities classified as available-for-sale with unrealized losses as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:

($ in thousands)

	September 30, 2019												March 31, 2020
	Losses < 12 Months				Losses 12 Months or >				Total				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	$	124	$	-	$	1,847	$	7	$	1,971	$	7
													Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Treasury													$	-	$	-	$	-	$	-	$	-	$	-
Obligations of U.S government agencies and sponsored entities														-		-		5,371		62		5,371		62
Tax-exempt and taxable obligations of state and municipal subdivisions		234		-		13,035		121		13,269		121		2,571		5		45,504		1,586		48,075		1,591
Mortgage-backed securities		8,535		14		44,686		261		53,221		275
Mortgage-backed securities - residential														-		-		4,017		80		4,017		80
Mortgage-backed securities - commercial														4,293		4		12,532		93		16,825		97
Corporate obligations		1,970		3		441		100		2,411		103		4,494		6		9,820		348		14,314		354
Total	$	10,863	$	17	$	60,009	$	489	$	70,872	$	506	$	11,358	$	15	$	77,244	$	2,169	$	88,602	$	2,184

($ in thousands)

	December 31, 2018												December 31, 2019
	Losses < 12 Months				Losses 12 Months or >				Total				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	$	11,034	$	52	$	7,838	$	223	$	18,872	$	275
													Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Treasury													$	-	$	-	$	4,894	$	73	$	4,894	$	73
Obligations of U.S government agencies and sponsored entities														-		-		22,987		224		22,987		224
Tax-exempt and taxable obligations of state and municipal subdivisions		38,200		311		42,102		910		80,302		1,221		-		-		28,235		147		28,235		147
Mortgage-backed securities		93,294		843		101,005		2,603		194,299		3,446
Mortgage-backed securities - residential														-		-		29,930		107		29,930		107
Mortgage-backed securities - commercial														9,306		16		19,130		207		28,436		223
Corporate obligations		1,962		40		4,969		145		6,931		185		500		-		10,572		149		11,072		149
Total	$	144,490	$	1,246	$	155,914	$	3,881	$	300,404	$	5,127	$	9,806	$	16	$	115,748	$	907	$	125,554	$	923

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company’s securities portfolio consisted of 83195 and ~~427~~156 securities, respectively, 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 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 ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 or the year ended December 31, ~~2018.~~2019.

NOTE 10 – LOANS

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 ~~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.

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~~nonaccrual including ~~purchased credit impaired (“PCI”) loans that are on non-accrual:~~PCI loans.

($ in thousands)

September 30, 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 $ 484 $ 15 $ 82 $ 1,634 $ 2,215 $ 284,103
Residential secured loans includingmulti-family and farmland 4,259 1,378 907 8,075 14,619 724,860
Real Estate-nonfarm nonresidential 2,514 522 19,692 3,231 25,959 943,218
Commercial 1,278 4 1,423 17 2,722 338,584
Lease financing receivable - - - - - 3,239
Obligations of states and subdivisions - - - - - 16,545
Consumer installment 323 197 96 18 634 39,437
Total $ 8,858 $ 2,116 $ 22,200 $ 12,975 $ 46,149 $ 2,349,986

	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, 2018
($ 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 $ 818 $ 114 $ 8 $ 1,830 $ 2,770 $ 298,718
Residential secured loans including multi-family and farmland 5,528 650 1,411 7,781 15,370 617,804
Real Estate-nonfarm, nonresidential 4,319 456 9,179 3,576 17,530 776,880
Commercial 1,650 - 1,024 184 2,858 301,182
Lease financing receivable - - - - - 2,891
Obligations of states and subdivisions - - - - - 16,941
Consumer installment 507 45 46 34 632 46,006
Total $ 12,822 $ 1,265 $ 11,668 $ 13,405 $ 39,160 $ 2,060,422

($ in thousands)

	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

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 ~~or PCI~~ 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 acquisitions from ~~2018 and~~ 2019.

($ in thousands) Southwest Sunshine FMB FPB Total
Contractually required payments $ 925 $ 4,194 $ 9,939 $ 4,715 $ 19,773
Cash flows expected to be collected 706 3,894 8,604 4,295 17,499
Fair value of loans acquired 657 3,837 7,978 3,916 16,388

($ 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

Total outstanding purchased credit impaired loans were ~~$18.0~~$13.1 million and the related purchase accounting discount was ~~$3.4~~$3.6 million as of ~~September 30, 2019,~~March 31, 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.~~charged off.

Changes in the carrying amount and accretable yield for purchased credit impaired loans were as follows at ~~September 30,~~March 31, 2020 and 2019 ~~and 2018:~~($ in thousands):

	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

September 30,
2019 September 30,
2018
($ in thousands) Accretable
Yield Accretable
Yield
Balance at beginning of period, January 1 $ 3,835 $ 836
Reclassification from prior years - 859
Addition 307 762
Accretion (845 ) (225 )
Transfer from non-accretable 145 145
Charge-off - (10 )
Balance at end of period $ 3,442 $ 2,367

The following tables provide ~~additional~~ detail of impaired loans broken out according to class as of ~~September 30, 2019~~March 31, 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 September 30, 2019 are on non-accrual 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.

September 30, 2019
March 31, 2020											March 31, 2020
($ in thousands)																		Average		Interest
							Average		Interest									Recorded		Income
							Recorded		Income			Recorded		Unpaid		Related		Investment		Recognized
	Recorded		Unpaid		Related		Investment		Recognized			Investment		Balance		Allowance		YTD		YTD
($ in thousands)	Investment		Balance		Allowance		YTD		YTD
Impaired loans with no related allowance:
Commercial, financial and agriculture	$	656	$	656	$	-	$	572	$	7		$	262	$	265	$	-	$	160	$	-
Commercial real estate		11,668		12,192		-		8,815		573			13,089		13,210		-		13,322		1
Consumer real estate		535		639		-		2,714		-			704		760		-		623		2
Consumer installment		3		3		-		18		-			12		12		-		17		-
Total	$	12,862	$	13,490	$	-	$	12,119	$	580		$	14,067	$	14,247	$	-	$	14,122	$	3

Impaired loans with a related allowance:
Commercial, financial and agriculture	$	1,633	$	1,634	$	308	$	1,641	$	13		$	2,238	$	2,238	$	1,011	$	2,336	$	5
Commercial real estate		10,381		10,459		2,625		8,543		49			12,007		12,076		2,845		12,217		30
Consumer real estate		416		461		54		459		3			682		707		114		661		4
Consumer installment		110		110		44		82		2			232		232		65		246		-
Total	$	12,540	$	12,664	$	3,031	$	10,725	$	67		$	15,159	$	15,253	$	4,035	$	15,460	$	39

Total Impaired Loans:
Total impaired loans:
Commercial, financial and agriculture	$	2,289	$	2,290	$	308	$	2,213	$	20		$	2,500	$	2,503	$	1,011	$	2,496	$	5
Commercial real estate		22,049		22,651		2,625		17,358		622			25,096		25,286		2,845		25,539		31
Consumer real estate		951		1,100		54		3,173		3			1,386		1,467		114		1,284		6
Consumer installment		113		113		44		100		2			244		244		65		263		-
Total Impaired Loans	$	25,402	$	26,154	$	3,031	$	22,844	$	647		$	29,226	$	29,500	$	4,035	$	29,582	$	42

As of ~~September 30, 2019,~~March 31, 2020, the Company had ~~$1.8~~$1.3 million of foreclosed residential real estate property obtained by physical possession and ~~$1.3 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.

December 31, 2018							Average		Interest
December 31, 2019											December 31, 2019
($ in thousands)																		Average		Interest
							Recorded		Income									Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized			Recorded		Unpaid		Related		Investment		Recognized
($ in thousands)	Investment		Balance		Allowance		YTD		YTD
												Investment		Balance		Allowance		YTD		YTD
Impaired loans with no related allowance:
Commercial, financial and agriculture	$	709	$	709	$	-	$	379	$	27		$	59	$	62	$	-	$	294	$	7
Commercial real estate		6,441		8,170		-		7,685		427			13,556		13,671		-		10,473		591
Consumer real estate		445		760		-		4,522		69			542		594		-		2,173		-
Consumer installment		-		-		-		82		3			21		21		-		23		-
Total	$	7,595	$	9,639	$	-	$	12,668	$	526		$	14,178	$	14,348	$	-	$	12,963	$	598

Impaired loans with a related allowance:
Commercial, financial and agriculture	$	960	$	960	$	329	$	968	$	3		$	2,434	$	2,434	$	1,182	$	2,039	$	13
Commercial real estate		4,512		4,512		758		2,868		176			12,428		12,563		3,021		10,026		49
Consumer real estate		366		366		66		555		16			639		657		141		560		3
Consumer installment		26		26		26		24		-			260		260		80		164		2
Total	$	5,864	$	5,864	$	1,179	$	4,415	$	195		$	15,761	$	15,914	$	4,424	$	12,789	$	67
Total Impaired Loans:

Total impaired loans:
Commercial, financial and agriculture	$	1,669	$	1,669	$	329	$	1,347	$	30		$	2,493	$	2,496	$	1,182	$	2,333	$	20
Commercial real estate		10,953		12,682		758		10,553		603			25,984		26,234		3,021		20,499		640
Consumer real estate		811		1,126		66		5,077		85			1,181		1,251		141		2,733		3
Consumer installment		26		26		26		106		3			281		281		80		187		2
Total Impaired Loans	$	13,459	$	15,503	$	1,179	$	17,083	$	721		$	29,939	$	30,262	$	4,424	$	25,752	$	665

The ~~following table~~cash basis interest earned in the chart above is ~~a summary of~~materially the same as the interest ~~income~~ recognized during impairment for period ended March 31, 2020 and ~~cash-basis interest earned on impaired loans:~~December 31, 2019.

($ in thousands) Three months ended
September 30, 2019 Nine months ended
September 30, 2019
Interest income recognized during impairment $ 284 $ 443
Cash-basis interest income recognized 116 275

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 ~~and nine months~~ ended ~~September 30, 2019,~~March 31, 2020, was ~~$143 thousand and $693 thousand, respectively.~~$377 thousand. The Company had no loan commitments to borrowers in ~~non-accrual~~nonaccrual status at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Troubled Debt Restructuring

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 7 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 ~~nine months~~2019 ($ in thousands, except for number of loans).

	Three Months Ended March 31,
			Outstanding Recorded		Outstanding Recorded
2020	Number of Loans		Investment Pre-Modification		Investment Post-Modification
Commercial, financial and agriculture		1	$	12	$	12
Commercial real estate		2		738		734
Residential real estate		-		-		-
Consumer installment		-		-		-
Total		3	$	750	$	746

2019
Commercial, financial and agriculture		1	$	175	$	175
Commercial real estate		1		10		10
Residential real estate		1		81		80
Consumer installment		-		-		-
Total		3	$	266	$	265

The TDRs presented above increased the allowance for loan losses $37 thousand and $47 thousand and resulted in no charge-offs for the quarter ended ~~September 30,~~March 31, 2020 and 2019, respectively. ~~One TDR was modified during the three months and nine months ended September 30, 2018.~~

The balance of TDRs ~~was $30.0~~decreased $900 thousand to $31.1 million at ~~September 30, 2019 and $14.3~~March 31, 2020 compared to $32.0 million at December 31, 2018. The increase of $15.7 million is attributable to acquired loans and one relationship that was modified during the third quarter. There was $2.1 million allocated in specific reserves established with respect to these loans as of September 30, 2019. As of ~~September 30, 2019,~~March 31, 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 September 30, 2019 and December 31, 2018:~~

September 30, 2019
($ in thousands) Current Loans Past Due
30-89 Past Due 90
days and still
accruing Non-accrual Total
Commercial, financial and agriculture $ 607 $ 574 $ - $ 911 $ 2,092
Commercial real estate 4,578 219 - 18,328 23,125
Residential real estate 1,460 38 58 3,169 4,725
Consumer installment 34 - - - 34
Total $ 6,679 $ 831 $ 58 $ 22,408 $ 29,976
Allowance for loan losses $ 129 $ - $ - $ 1,997 $ 2,126

December 31, 2018
($ in thousands) Current Loans Past Due
30-89 Past Due 90
days and still
accruing Non-accrual Total
Commercial, financial and agriculture $ 13 $ 646 $ - $ 18 $ 676
Commercial real estate 4,827 - - 5,425 10,252
Residential real estate 442 86 - 2,801 3,329
Consumer installment 25 - - 13 38
Total $ 5,307 $ 732 $ - $ 8,257 $ 14,295
Allowance for loan losses $ 80 $ 13 $ - $ 110 $ 203

~~A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were 5~~table presents loans ~~which totaled $14.0 million, that were~~by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification ~~during~~($ in thousands, except for number of loans).

March 31, 2020

March 31, 2019

Troubled Debt Restructurings

Number of

Recorded

Number of

Recorded

That Subsequently Defaulted:

Loans

Investment

Loans

Investment

Commercial, financial and agriculture

15,841

4,339

The modifications described above included one of the 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 ~~ending September 30,~~ended March 31, 2020 and 2019. There were no loans that were modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the quarter ending September 30, 2018. There were 13 loans, which totaled $17.9 million, and no loans that were modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ending September 30, 2019 and September 30, 2018, respectively.

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

					Past Due 90
March 31, 2020	Current		Past Due		days and still
($ in thousands)	Loans		30-89		accruing		��	Nonaccrual		Total
Commercial, financial and agriculture	$	129	$	454	$	-		$	1,494	$	2,077
Commercial real estate		4,314		99		109			19,569		24,091
Consumer real estate		1,693		274		58			2,864		4,889
Consumer installment		35		-		-			-		35
Total	$	6,171	$	827	$	167		$	23,927	$	31,092
Allowance for loan losses	$	124	$	-	$	-		$	2,247	$	2,371

					Past Due 90
December 31, 2019	Current		Past Due		days and still
($ in thousands)	Loans		30-89		accruing		Nonaccrual		Total
Commercial, financial and agriculture	$	583	$	64	$	-	$	1,062	$	1,709
Commercial real estate		4,299		809		109		19,991		25,208
Consumer real estate		1,905		112		58		2,940		5,015
Consumer installment		37		-		-		-		37
Total	$	6,824	$	985	$	167	$	23,993	$	31,969
Allowance for loan losses	$	128	$	-	$	-	$	1,997	$	2,125

~~Internal Risk Ratings~~Credit Quality Indicators

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 ~~September 30, 2019~~March 31, 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:

March 31, 2020											Commercial,
			September 30, 2019								Financial and		Commercial		Consumer		Consumer
($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Installment and Other		Total		Agriculture		Real Estate		Real Estate		Installment		Total
Pass	$	336,249	$	1,480,834	$	429,355	$	36,353	$	2,282,791	$	330,739	$	1,646,868	$	496,926	$	36,033	$	2,510,566
Special Mention		2,195		7,002		1,978		24		11,199		3,351		11,399		1,001		19		15,770
Substandard		2,561		41,691		12,236		457		56,945		10,499		53,517		13,052		379		77,447
Doubtful		19		79		-		-		98		13		75		-		-		88
Subtotal		341,024		1,529,606		443,569		36,834		2,351,033	$	344,602	$	1,711,859	$	510,979	$	36,431	$	2,603,871
Less:
Unearned discount		-		1,047		-		-		1,047
Unearned Discount												-		1,583		-		-		1,583

Loans, net of unearned discount	$	341,024	$	1,528,559	$	443,569	$	36,834	$	2,349,986	$	344,602	$	1,710,276	$	510,979	$	36,431	$	2,602,288

December 31, 2019											Commercial,
			December 31, 2018								Financial and		Commercial		Consumer		Consumer
($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate		Installment and Other		Total		Agriculture		Real Estate		Real Estate		Installment		Total
Pass	$	300,685	$	1,286,151	$	377,028	$	34,127	$	1,997,991	$	327,205	$	1,645,496	$	499,426	$	41,008	$	2,513,135
Special Mention		842		12,401		1,962		13		15,218		3,493		8,876		1,194		21		13,584
Substandard		2,640		33,856		10,959		270		47,725		10,972		50,554		13,244		397		75,167
Doubtful		16		85		-		-		101		16		77		-		-		93
Subtotal		304,183		1,332,493		389,949		34,410		2,061,035	$	341,686	$	1,705,003	$	513,864	$	41,426	$	2,601,979
Less:
Unearned discount		-		613		-		-		613
Loans, net of unearned discount	$	304,183	$	1,331,880	$	389,949	$	34,410	$	2,060,422
Unearned Discount												-		1,621		-		-		1,621
Loans, net of unearned
discount											$	341,686	$	1,703,382	$	513,864	$	41,426	$	2,600,358

Allowance for Loan Losses

~~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:

Three months ended September 30, 2019
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Installment
and Other Unallocated Total
Allowance for loan losses:
Beginning balance $ 2,432 $ 7,872 $ 1,489 $ 250 $ 48 $ 12,091
Provision for loan losses (82 ) 787 294 18 (43 ) 974
Charge-offs 17 (66 ) 174 76 - 201
Recoveries 24 9 64 82 - 179
Net Charge-offs (recoveries) (7 ) (75 ) 110 (6 ) - 22
Ending Balance $ 2,357 $ 8,734 $ 1,673 $ 274 $ 5 $ 13,043

($ in thousands)	Three months ended March 31, 2020
	Commercial, Financial and Agriculture			Commercial Real Estate			Consumer Real Estate			Installment and Other			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	3,043		$	8,836		$	1,694		$	296		$	39		$	13,908
Provision for loan losses		1,446			4,523			1,106			66			(39	)		7,102
Loans charged-off		(99	)		(333	)		(9	)		(59	)		-			(500	)
Recoveries		76			69			49			100			-			294
Total ending allowance balance	$	4,466		$	13,095		$	2,840		$	403		$	-		$	20,804

($ in thousands)	Three months ended March 31, 2019
	Commercial, Financial and Agriculture			Commercial Real Estate		Consumer Real Estate			Installment and Other			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	2,060		$	6,258	$	1,743		$	201		$	(197	)	$	10,065
Provision for loan losses		(490	)		1,003		(1,516	)		1,929			197			1,123
Loans charged-off		(4	)		-		(42	)		(29	)		-			(75	)
Recoveries		13			10		19			80			-			122
Total ending allowance balance	$	1,579		$	7,271	$	204		$	2,181		$	-		$	11,235

Nine months ended September 30, 2019
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Installment
and Other Unallocated Total
Allowance for loan losses:
Beginning balance $ 2,060 $ 6,258 $ 1,743 $ 201 $ (197 ) $ 10,065
Provision for loan losses 269 2,454 (19 ) (18 ) 202 2,888
Charge-offs 23 - 216 143 - 382
Recoveries 51 22 165 234 - 472
Net Charge-offs (recoveries) (28 ) (22 ) 51 (91 ) - (90 )
Ending Balance $ 2,357 $ 8,734 $ 1,673 $ 274 $ 5 $ 13,043

Three months ended September 30, 2018
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Installment
and Other Unallocated Total
Allowance for loan losses:
Beginning balance $ 2,011 $ 5,136 $ 1,598 $ 184 $ 583 $ 9,512
Provision for loan losses 268 272 (37 ) 10 (101 ) 412
Charge-offs 242 42 - 39 - 323
Recoveries 18 4 103 39 - 164
Net Charge-offs (recoveries) 224 38 (103 ) - - 159
Ending Balance $ 2,055 $ 5,370 $ 1,664 $ 194 $ 482 $ 9,765

Nine months ended September 30, 2018
($ in thousands) Commercial,
Financial and
Agriculture Commercial
Real Estate Consumer
Real Estate Installment
and Other Unallocated Total
Allowance for loan losses:
Beginning balance $ 1,608 $ 4,644 $ 1,499 $ 173 $ 364 $ 8,288
Provision for loan losses 658 748 32 (10 ) 118 1,546
Charge-offs 247 52 7 71 - 377
Recoveries 36 30 140 102 - 308
Net Charge-offs (recoveries) 211 22 (133 ) (31 ) - 69
Ending Balance $ 2,055 $ 5,370 $ 1,664 $ 194 $ 482 $ 9,765

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 ~~September 30, 2019~~March 31, 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.~~

March 31, 2020	Commercial,						Installment
	Financial and		Commercial		Consumer		and
	Agriculture		Real Estate		Real Estate		Other		Unallocated		Total
Loans
Individually evaluated	$	2,500	$	25,095	$	1,386	$	244	$	-	$	29,225
Collectively evaluated		341,933		1,729,239		449,052		36,156		-		2,556,380
PCI Loans		169		9,575		6,908		31		-		16,683
Total	$	344,602	$	1,763,909	$	457,346	$	36,431	$	-	$	2,602,288

Allowance for Loan Losses
Individually evaluated	$	1,010	$	2,845	$	114	$	65	$	-	$	4,034
Collectively evaluated		3,456		10,250		2,726		338		-		16,770
Total	$	4,466	$	13,095	$	2,840	$	403	$	-	$	20,804

December 31, 2019	Commercial,						Installment
	Financial and		Commercial		Consumer		and
	Agriculture		Real Estate		Real Estate		Other		Unallocated		Total
Loans
Individually evaluated	$	2,493	$	25,984	$	1,181	$	281	$	-	$	29,939
Collectively evaluated		339,003		1,773,934		398,471		41,112		-		2,552,520
PCI Loans		191		10,471		7,204		33		-		17,899
Total	$	341,687	$	1,810,389	$	406,856	$	41,426	$	-	$	2,600,358

Allowance for Loan Losses
Individually evaluated	$	1,182	$	3,021	$	141	$	80	$	-	$	4,424
Collectively evaluated		1,861		5,815		1,553		216		39		9,484
Total	$	3,043	$	8,836	$	1,694	$	296	$	39	$	13,908

September 30, 2019
Commercial
Financial and Commercial Consumer Installment
($ in thousands) Agriculture Real Estate Real Estate and Other Unallocated Total
Loans
Individually evaluated $ 2,290 $ 22,048 $ 951 $ 114 $ - $ 25,403
Collectively evaluated 354,912 1,545,912 366,400 39,352 - 2,306,576
PCI loans 116 10,788 7,056 47 - 18,007
Total $ 357,318 $ 1,578,748 $ 374,407 $ 39,513 - $ 2,349,986

Allowance for Loan Losses
Individually evaluated $ 308 $ 2,625 $ 54 $ 44 $ - $ 3,031
Collectively evaluated 2,049 6,109 1,619 230 5 10,012
Total $ 2,357 $ 8,734 $ 1,673 $ 274 $ 5 $ 13,043

December 31, 2018
Commercial
Financial and Commercial Consumer Installment
($ in thousands) Agriculture Real Estate Real Estate and Other Unallocated Total
Loans
Individually evaluated $ 1,657 $ 10,932 $ 804 $ 66 $ - $ 13,459
Collectively evaluated 302,329 1,309,322 383,368 34,292 - 2,029,311
PCI loans 197 11,626 5,777 52 - 17,652
Total $ 304,183 $ 1,331,880 $ 389,949 $ 34,410 - $ 2,060,422

Allowance for Loan Losses
Individually evaluated $ 329 $ 758 $ 66 $ 26 $ - $ 1,179
Collectively evaluated 1,731 5,500 1,677 175 (197 ) 8,886
Total $ 2,060 $ 6,258 $ 1,743 $ 201 $ (197 ) $ 10,065

NOTE 11 – REVENUE FROM CONTRACTS WITH CUSTOMERS

~~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 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, 2020 and ~~nine months ended September 30, 2019 and 2018.~~2019. Items outside the scope of ASC 606 are noted as such.

($ in thousands)																	Three Months Ended March 31, 2020										Three Months Ended March 31, 2019
	Three Months Ended September 30, 2019								Nine months ended September 30, 2019								Commercial/			Mortgage							Commercial/			Mortgage
	Commercial/		Mortgage						Commercial/		Mortgage						Retail			Banking		Holding					Retail			Banking		Holding
	Retail		Banking		Holding				Retail		Banking		Holding				Bank			Division		Company		Total			Bank			Division		Company		Total
($ in thousands)	Bank		Division		Company		Total		Bank		Division		Company		Total
Non-interest income
Service charges on deposits
Overdraft fees	$	1,117	$	-	$	-	$	1,117	$	3,129	$	1	$	-	$	3,130	$	1,055		$	-	$	-	$	1,055		$	974		$	-	$	-	$	974
Other		861		1		-		862		2,596		2		-		2,598		859			1		-		860			857			1		-		858
Interchange income		2,252		-		-		2,252		5,949		-		-		5,949		1,986			-		-		1,986			1,652			-		-		1,652
Investment brokerage fees		24		-		-		24		58		-		-		58		102			-		-		102			9			-		-		9
Net gains (losses) on OREO		51		-		-		51		23		-		-		23		(224	)		-		-		(224	)		(10	)		-		-		(10	)
Net gains on sale of loans (a)		-		-		-		-		-		-		-		-
Net gains (losses) on sales of securities (a)		57		-		-		57		131		-		-		131
Net gains (losses) on sales of
securities (a)																		174			-		-		174			(38	)		-		-		(38	)
Other		932		1,799		9		2,740		2,871		4,265		348		7,484		939			1,566		16		2,521			956			908		245		2,109

Total non-interest income	$	5,294	$	1,800	$	9	$	7,103	$	14,757	$	4,268	$	348	$	19,373	$	4,891		$	1,567	$	16	$	6,474		$	4,400		$	909	$	245	$	5,554

Three Months Ended September 30, 2018 Nine months ended September 30, 2018
Commercial/ Mortgage Commercial/ Mortgage
Retail Banking Holding Retail Banking Holding
($ in thousands) Bank Division Company Total Bank Division Company Total
Non-interest income
Service charges on deposits
Overdraft fees $ 873 $ - $ - $ 873 $ 2,299 $ 2 $ - $ 2,301
Other 664 1 - 665 1,603 2 - 1,605
Interchange income 1,180 - - 1,180 3,720 - - 3,720
Investment brokerage fees 10 - - 10 36 - - 36
Net gains (losses) on OREO 44 - - 44 59 - - 59
Net gains on sale of loans (a) 21 - - 21 33 - - 33
Net gains (losses) on sales of securities (a) (5 ) - - (5 ) (5 ) - - (5 )
Other 1,219 1,066 1 2,286 2,422 3,075 918 6,415

Total non-interest income $ 4,006 $ 1,067 $ 1 $ 5,074 $ 10,167 $ 3,079 $ 918 $ 14,164

(a)

Not within scope of ASC 606

NOTE 12 – LEASES

~~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 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 September 30, 2019, operating lease ROURight-of-use assets and lease liabilities ~~were $4.4 million~~relating to the Company’s operating and ~~$4.4 million, respectively.~~finance leases are as follows at March 31, 2020 and 2019 ($ in thousands).

	Three months ended		Three months ended
	March 31, 2020		March 31, 2019
Right-of-use assets:
Operating leases	$	6,141	$	3,595
Finance leases		2,841		-
Total right-of-use assets	$	8,952	$	3,595
Lease liabilities:
Operating lease	$	6,141	$	3,595
Finance lease		2,419		-
Total lease liabilities	$	8,560	$	3,595

The table below summarizes our net lease ~~costs:~~costs ($ in thousands):

Three months ended Nine months ended
($ in thousands) September 30, 2019 September 30, 2019
Operating lease costs $ 231 $ 581

Cash paid for amounts included in the measurement of lease liability
Operating cash flows from operating leases $ 231 $ 581

	Three months ended		Three months ended
	March 31, 2020		March 31, 2019
Operating lease cost	$	378	$	122
Finance lease cost:				-
Interest on lease liabilities		2		-
Amortization of right-of-use		2		-
Net lease cost	$	382	$	122

The table below summarizes other information related to our operating leases:

~~Weighted-average remaining lease term – operating leases~~	~~5.8 years~~
~~Weighted-average discount rate – operating leases~~	~~2.8%~~

	Three months ended			Three months ended
	March 31, 2020			March 31, 2019
Weighted average remaining lease term
Operating leases		4.9 years			6.5 years
Finance leases		11.7 years			-
Weighted average discount rate
Operating leases		2.5	%		3.1	%
Finance leases		2.3	%		-

The table below summarizes the maturity of remaining lease ~~liabilities:~~liabilities at March 31, 2020 and 2019 ($ in thousands):

($ in thousands)	September 30, 2019
Remaining 2019	$	245
2020		946
				Three months ended March 31, 2020
				Operating Leases			Finance Leases
Remaining 2020				$	1,222		$	143
2021		830			1,527			175
2022		794			1,359			220
2023		743			844			220
2024 and thereafter		1,314
2024					631			220
Thereafter					985			1,698
Total lease payments	$	4,872		$	6,568			2,676
Less: Interest		(409	)		(427	)		(257	)
Present value of lease liabilities	$	4,463		$	6,141		$	2,419

As a result of the adoption of ASC 842, The Company did not restate the prior period unaudited consolidated financial statements and all prior period amounts and disclosures are presented under ASC 840. At December 31, 2018, minimum future lease payments were as follows:

($ in thousands)	December 31, 2018
2019	$	784
			Three months ended March 31, 2019
			Operating Leases			Finance Leases
Remaining 2019			$	562			-
2020		463		715			-
2021		347		584			-
2022		256		541			-
2023		229		513			-
2024 and thereafter		197
Total minimum lease payments	$	2,276
Thereafter				1,088			-
Total lease payments			$	4,003			-
Less: Interest				(408	)		-
Present value of lease liabilities			$	3,595			-

NOTE 13 – SUBSEQUENT EVENTS/OTHER

~~First Florida Bancorp, Inc.~~

On ~~November 1, 2019,~~April 3, 2020, the Company completed its acquisition of ~~First Florida Bancorp, Inc.~~Southwest Georgia Financial Corporation (“~~FFB”~~SWG”), and immediately thereafter merged its wholly-owned subsidiary, ~~First Florida~~Southwest Georgia Bank, with and into The First. The Company paid a total consideration of approximately ~~$89.5~~$47.9 million to the former ~~FFB~~SWG shareholders including ~~1,682,889~~2,546,967 shares of the Company’s common stock and approximately ~~$34.1 million~~$2 thousand in cash. At ~~September 30, 2019, FFB~~March 31, 2020, SWG had ~~$426.2~~$555.3 million in total ~~assets.~~assets, $391.1 million in loans and $472.9 million in deposits.

~~In connection~~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 ~~acquisition,~~negative impact the virus has on the Company, ~~estimates goodwill~~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 ~~approximately $34.0 million. Goodwill is not deductible for income taxes.~~

Expenses associated with the acquisition were $400 thousand and $408 thousand for the three month and nine months period ended September 30, 2019, respectively. These costs included charges associated with due diligence, which have been expensedreasonably estimated as ~~incurred.~~these events are still developing.

NOTE 14 – RECLASSIFICATION

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

FORWARD LOOKING STATEMENTS

~~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; risks related to the proposed acquisition of FFB, including the risk that the proposed acquisition of FFB does not close when expected or at all because of required shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all, the terms of the proposed transaction with FFB need to be modified to satisfy such approvals or conditions, and that anticipated benefits from the acquisition 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; 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:

the negative impacts and disruptions resulting from the outbreak of the novel coronavirus, or COVID-19, on the economies and communities we serve, which has had and may continue to have an adverse impact on our business operations and performance, and could have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically;

government or regulatory responses to the COVID-19 pandemic;

reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;

general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;

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

ability of borrowers to repay loans, which can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, natural disasters, public health emergencies and international instability;

	·	current or future legislation, regulatory changes or changes in monetary, tax or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Wall Street Reform and ~~tax policies, including~~Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Federal Reserve’s actions with respect to interest rates, the capital requirements promulgated by the Basel Committee on Banking Supervision (“Basel Committee”), potential impacts from the Tax Cuts and Jobs ~~Act;~~Act, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) of 2020, uncertainty relating to calculation of LIBOR and other regulatory responses to economic conditions;

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

the adequacy of the level of our allowance for ~~loan~~credit losses and the amount of loan loss provisions required to replenish the allowance in future periods;

reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral;

changes in the interest rate environment which could reduce anticipated or actual margins;

increased funding costs due to market illiquidity, increased competition for funding, higher interest rates, and increased regulatory requirements with regard to funding;

results of examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for loan losses through additional loan loss provisions or write-down of our assets;

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

the impact of our efforts to raise capital on our financial position, liquidity, capital, and profitability;

risks and uncertainties relating to not successfully closing and integrating the currently contemplated or completed acquisitions within our currently expected timeframe and other terms;

significant increases in competition in the banking and financial services industries;

changes in the securities markets; ~~and~~

loss of consumer confidence and economic disruptions resulting from national disasters or terrorist activities;

our ability to retain our existing customers, including our deposit relationships;

changes occurring in business conditions and inflation;

changes in ~~technology;~~technology or risks to cybersecurity;

changes in deposit flows;

changes in accounting principles, policies, or ~~guidelines;~~guidelines, including the impact of the new CECL standard;

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

	·	risks related to the continued use, availability and reliability of LIBOR and other “benchmark” rates; and

other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (“SEC”).

We have based our forward-looking statements on our current expectations about future events. Although we believe that the expectations reflected in and the assumptions underlying our forward-looking statements are reasonable, we cannot guarantee that these expectations will be achieved or the assumptions will be accurate. The Company disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Additional information concerning these risks and uncertainties is contained in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, in this Quarterly Report on Form 10Q, and in our other filings with the Securities and Exchange Commission, available at the SEC’s website, http://www.sec.gov.

CRITICAL ACCOUNTING POLICIES

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

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

The Company reported net income available to common shareholders of ~~$12.3~~$8.3 million for the three months ended ~~September 30, 2019,~~March 31, 2020, compared with net income available to common shareholders of ~~$5.2~~$7.6 million for the same period last year. For the ~~third~~first quarter of ~~2019,~~2020, fully diluted earnings per share were ~~$0.71,~~$0.44, compared to ~~$0.39~~$0.48 for the ~~third~~first quarter of ~~2018.~~2019.

Operating net earnings, a non-GAAP financial measure, for the ~~third~~first quarter of 2020 totaled $8.9 million compared to $9.9 million for the first quarter of 2019, ~~totaled $12.8~~a decrease of $1.0 million ~~compared to $8.0~~or 10.5%. The net, after tax, provision charge in the quarter comparison was $4.6 million, which accounted for the ~~third quarter of 2018, an increase of $4.8 million or 59.9%.~~decrease. Operating net earnings for the ~~third~~first quarter of ~~2019~~2020 excludes merger-related costs of ~~$553~~$576 thousand, net of tax. Operating net earnings for the ~~third~~first quarter of ~~2018~~2019 excludes merger-related costs of ~~$3.0~~$2.5 million, net of tax, and income of $174 thousand, net of tax, related to the ~~Financial Assistance Award from the U.S Department of the Treasury as a result of our designation as a~~ Community Development Financial ~~Institution.~~Institutions Fund of the U.S. Treasury. Operating earnings per share were ~~$0.74~~$0.47 on a fully diluted basis for the ~~third~~first quarter ~~2019,~~2020, compared to ~~$0.61~~$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 ~~$30.5~~$34.1 million, or ~~40.6%~~25.6%, for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$21.7~~$27.1 million for the same period in ~~2018.~~2019. The increase was due to interest income earned on a higher volume of loans. Fully tax equivalent (“FTE”) net interest income, which is a non-GAAP measure, totaled $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 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 ~~September 30, 2019~~March 31, 2020 increased ~~$825.6 million,~~$701 thousand, or ~~37.3%, and quarterly average interest-bearing liabilities increased $587.6 million, or 34.0%, when compared to September 30, 2018.~~24.9%.

Non-interest income for the three months ended ~~September 30, 2019,~~March 31, 2020, was ~~$7.1~~$6.5 million compared to ~~$5.1~~$5.6 million for the same period in ~~2018,~~2019, reflecting an increase of ~~$2.0 million~~$920 thousand or ~~40.0%~~16.6%. ~~This increase was composed of increases in service~~Service charges and interchange fee income increased $417 thousand along with mortgage income of ~~$1.5~~$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 the increased deposit base due to the acquisitions. Non-interest income~~ for the ~~third~~quarter ended March 31, 2020 as compared to $13.7 million for the first quarter of ~~2018 included~~2019. See reconciliation of non-GAAP financial measures provided below.

Provision for loan losses totaled $7.1 million for the ~~Financial Assistance Award~~quarter ended March 31, 2020, an increase of ~~$174 thousand, net~~$6.0 million, or 532% as compared to $1.1 million for the first quarter of ~~tax, from the U.S. Department~~2019. $5.6 million of the ~~Treasury.~~

~~The~~$7.1 million provision for loan ~~losses was $974 thousand~~loss expense for the ~~three months~~quarter ended ~~September 30, 2019, compared with $412 thousand for the same period in 2018.~~March 31, 2020 was related to anticipated economic effects of COVID-19. The allowance for loan losses of ~~$13.0~~$20.8 million at ~~September 30, 2019~~March 31, 2020 or ~~0.56%~~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 Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on this evaluation.

Non-interest expense was ~~$20.8~~$23.4 million for the three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$1.0~~$1.5 million or ~~5.3%~~7.1%, when compared with the same period in ~~2018.~~2019. Excluding the decrease in acquisition charges of ~~$3.4~~$2.4 million for the ~~third~~first quarter of 2019, non-interest expense increased ~~$4.4~~$4.0 million in the ~~third~~first quarter of ~~2019,~~2020, of which ~~$3.4~~$3.1 million was attributable to the operations of ~~FMB~~FPB and ~~FPB,~~FFB, as compared to ~~third~~first quarter of ~~2018.~~2019.

~~First nine months 2019 compared to first nine months 2018~~

The Company reported net income available to common shareholders of $31.9 million for the nine months ended September 30, 2019, compared to $14.4 million for the same period last year. Operating net earnings increased $14.0 million, or 66.9%, from $20.8 million at September 30, 2018 to $34.8 million at September 30, 2019. Operating net earnings excludes merger-related costs of $3.1 million, net of tax, and income in the form of an award from the U.S Department of Treasury of $174 thousand, net of tax, for the year-to-date period ending September 30, 2019, and merger-related costs of $7.3 million, net of tax, and income of $859 thousand, net of tax, related to the Financial Assistance Award from the U.S. Department of the Treasury, for the year-to-date period ending September 30, 2018. Operating earnings per share were $2.07 on a fully diluted basis for nine-month period ending September 30, 2019, compared to $1.64 for the same period in 2018, excluding the merger-related costs and income described above. See reconciliation of non-GAAP financial measures provided below.

Net interest income increased to $88.4 million, or 48.2%, for the nine months ended September 30, 2019, compared to $59.6 million for the same period in 2018. This increase was primarily due to interest earned on a high volume of loans. Average earning assets at September 30, 2019, increased $535.8 million, or 21.4%, and average interest-bearing liabilities also increased $370.3 million, or 19.0%, when compared to December 31, 2018.

Non-interest income for the nine months ended September 30, 2019, was $19.4 million compared to $14.2 million for the same period in 2018, reflecting an increase of $5.2 million or 36.8%. The increase consists of $1.8 million in service charges, $1.2 in mortgage fee income and $2.2 million in interchange fee income. Non-interest income included income of $233 thousand and $1.2 million for the nine-month periods ended September 30, 2019 and 2018, respectively, due to the receipt of awards from the U.S. Department of the Treasury.

The provision for loan losses was $2.9 million for the nine months ended September 30, 2019, compared with $1.5 million for the same period in 2018. The allowance for loan losses of $13.0 million at September 30, 2019 (approximately 0.56% of total loans) is considered by management to be adequate to cover losses inherent in the loan portfolio. Total valuation accounting adjustments totaled $12.9 million on acquired loans. See “Allowance for Loan and Lease Losses” in Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on this evaluation.

Non-interest expense was $63.6 million for the nine months ended September 30, 2019, an increase of $9.5 million or 17.7%, when compared with the same period in 2018. $3.5 million is related to the acquisitions and operations of Southwest, Sunshine, FMB and FPB. The remaining increase of $6.0 million in expenses for the legacy bank are related to salaries and employee benefits of $2.5 million and other expenses of $3.5 million.

FINANCIAL CONDITION

The First represents the primary asset of the Company. The First reported total assets of ~~$3.475~~$4.054 billion at ~~September 30, 2019~~March 31, 2020 compared to ~~$2.997~~$3.935 billion at December 31, ~~2018,~~2019, an increase of ~~$478~~$119.5 million. Loans increased ~~$289.6~~$1.9 million to ~~$2.350~~$2.602 billion, or ~~14.1%~~0.1%, during the first ~~nine~~three months of ~~2019.~~2020. Deposits at ~~September 30, 2019~~March 31, 2020 totaled ~~$2.771~~$3.280 billion compared to ~~$2.461~~$3.082 billion at December 31, ~~2018. The First acquired loans of $244.7 million, net of fair value marks and deposits of $314.4 million, 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 ~~nine month~~three months period ended ~~September 30, 2019,~~March 31, 2020, The First reported net income of ~~$37.3~~$10.1 million compared to ~~$14.4~~$9.6 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Merger charges, net of tax, equaled ~~$3.1~~$576 thousand for the first three months of 2020 as compared to $2.5 million for the first ~~nine~~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 ~~$7.3 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 nine 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 ~~$8.8~~$6.9 million, or ~~40.6%~~25.6%, for the ~~third~~first quarter of ~~2019~~2020 relative to the ~~third~~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
	Three Months Ended							Three Months Ended							March 31, 2020							March 31, 2019
	September 30, 2019							September 30, 2018							Avg.		Tax Equivalent		Yield/			Avg.		Tax Equivalent		Yield/
	Avg.		Tax Equivalent		Yield/			Avg.		Tax Equivalent		Yield/			Balance		interest		Rate			Balance		interest		Rate
($ in thousands)	Balance		interest		Rate			Balance		interest		Rate

Earning Assets:

Taxable securities	$	494,184	$	3,926		3.18	%	$	331,601	$	2,369		2.86	%	$	560,613	$	3,944		2.81	%	$	435,576	$	3,581		3.29	%
Tax exempt securities		127,750		1,108		3.47	%		116,235		1,013		3.49	%		224,212		1,821		3.25	%		117,831		1,015		3.45	%
Total investment securities		621,934		5,034		3.24	%		447,836		3,382		3.02	%		784,825		5,765		2.94	%		553,407		4,596		3.32	%

Fed funds sold		-		-		0.0	%		355		5		5.63	%
Interest bearing deposits in other banks		71,165		9		0.05	%		41,819		90		0.86	%
Interest bearing deposits in
other banks																129,978		289		0.89	%		94,778		130		0.55	%
Loans		2,343,392		32,480		5.54	%		1,720,884		22,407		5.21	%		2,602,340		36,005		5.53	%		2,167,495		28,804		5.32	%
Total earning assets		3,036,491		37,521		4.94	%		2,210,894		25,884		4.68	%		3,517,143		42,059		4.78	%		2,815,680		33,530		4.76	%
Other assets		402,711							256,633							473,350							366,081
Total assets															$	3,990,493						$	3,181,761

Total assets	$	3,439,202						$	2,467,527
Interest-bearing liabilities:

Deposits	$	2,140,419	$	5,061		0.95	%	$	1,629,195	$	2,782		0.68	%	$	3,042,529	$	5,413		0.71	%	$	2,024,718	$	4,363		0.86	%
Fed funds purchased		6,708		11		0.66	%		1,893		17		3.59	%
FHLB		88,533		440		1.99	%		22,469		35		0.62	%
Borrowed funds																145,267		917		2.53	%		86,269		546		2.53	%
Subordinated debentures		80,619		1,270		6.30	%		75,124		1,125		5.99	%		80,697		1,203		5.96	%		80,540		1,233		6.12	%
Total interest-bearing liabilities		2,316,279		6,782		1.17	%		1,728,681		3,959		0.92	%		3,268,493		7,533		0.92	%		2,191,527		6,142		1.12	%
Other liabilities		652,899							454,007							174,691							600,017
Stockholders’ equity		470,024							284,839							547,309							390,217
Total liabilities and
stockholders’ equity	$	3,439,202						$	2,467,527						$	3,990,493						$	3,181,761

Net interest income			$	30,459						$	21,669						$	34,065						$	27,131
Net interest margin						4.01	%						3.92	%						3.87	%						3.85	%
Net interest income (FTE)*			$	30,739		3.77	%			$	21,925		3.76	%			$	34,526		3.86	%			$	27,388		3.64	%
Net interest margin (FTE)*						4.05	%						3.97	%						3.93	%						3.89	%

*See reconciliation of Non-GAAP financial measures.

~~Average Balances, Tax Equivalent Interest and Yields/Rates~~

Nine Months Ended Nine Months Ended
September 30, 2019 September 30, 2018
Avg. Tax
Equivalent Yield/ Avg. Tax
Equivalent Yield/
($ in thousands) Balance interest Rate Balance interest Rate
Earning Assets:

Taxable securities $ 475,967 $ 11,734 3.29 % $ 315,394 $ 6,778 2.87 %
Tax exempt securities 123,353 3,181 3.44 % 113,460 2,932 3.45 %
Total investment securities 599,320 14,915 3.32 % 428,854 9,710 3.02 %

Fed funds sold - - 0.0 % 9,722 101 1.39 %
Interest bearing deposits in other banks 85,370 227 0.34 % 49,598 248 0.67 %
Loans 2,283,468 93,748 5.47 % 1,582,010 60,106 5.07 %
Total earning assets 2,968,158 108,890 4.89 % 2,070,183 70,165 4.52 %
Other assets 392,135 227,215
Total assets $ 3,360,293 $ 2,297,398

Interest-bearing liabilities:

Deposits $ 2,128,661 $ 14,747 0.92 % $ 1,546,703 $ 7,169 0.62 %
Fed funds purchased 4,028 46 1.52 % 1,165 27 3.09 %
FHLB 68,996 1,239 2.39 % 38,933 632 2.16 %
Subordinated debentures 80,579 3,691 6.11 % 46,691 1,977 5.65 %
Total interest-bearing liabilities 2,282,264 19,723 1.15 % 1,633,492 9,805 0.80 %
Other liabilities 639,335 400,491
Stockholders’ equity 438,694 263,416
Total liabilities and stockholders’ equity $ 3,360,293 $ 2,297,398

Net interest income $ 88,362 $ 59,619
Net interest margin 3.97 % 3.84 %
Net interest income (FTE)* $ 89,167 3.74 % $ 60,360 3.72 %
Net interest margin (FTE)* 4.01 % 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 ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

($ in thousands) Three Months Ended Nine Months Ended Three Months Ended
EARNINGS STATEMENT 9/30/19 % of
Total 9/30/18 % of
Total 9/30/19 % of
Total 9/30/18 % of
Total 3/31/20 % of
Total 3/31/19 % of
Total
Non-interest income:
Service charges on deposit accounts $ 1,979 27.9 % $ 1,538 30.3 % $ 5,728 29.6 % $ 3,906 27.6 % $ 1,914 29.56 % $ 1,831 32.97 %
Mortgage fee income 1,800 25.3 % 1,066 21.0 % 4,268 22.0 % 3,079 21.7 % 1,567 24.20 % 909 16.37 %
Interchange fee income 2,252 31.7 % 1,180 23.3 % 5,949 30.7 % 3,720 26.3 % 1,986 30.68 % 1,652 29.74 %
Gain (loss) on securities , net 57 0.8 % - - 131 0.7 % (5 ) 0.0 % 174 2.69 % 38 0.68 %
Financial assistance award - 0.0 % 233 4.6 % 233 1.2 % 1,150 8.1 % - - 233 4.20 %
Other charges and fees 1,015 14.3 % 1,057 20.8 % 3,064 15.8 % 2,314 16.3 % 833 12.87 % 891 16.04 %
Total non-interest income $ 7,103 100 % $ 5,074 100 % $ 19,373 100 % $ 14,164 100 % $ 6,474 100 % $ 5,554 100 %

Non-interest expense:
Salaries and employee benefits $ 11,612 55.8 % $ 9,266 46.8 % $ 33,924 53.3 % $ 26,557 49.1 % $ 13,228 56.43 % $ 10,697 48.87 %
Occupancy expense 2,632 12.6 % 2,163 10.9 % 7,606 12.0 % 5,844 10.8 % 2,918 12.45 % 2,442 11.15 %
FDIC premiums 111 0.5 % 278 1.4 % 485 0.8 % 1,013 1.9 % 147 0.63 % (52 ) (0.24 )%
Marketing 62 0.3 % 60 0.3 % 397 0.6 % 210 0.4 % 213 0.91 % 175 0.80 %
Amortization of core deposit intangibles 796 3.8 % 349 1.8 % 2,308 3.6 % 906 1.7 % 938 4.00 % 716 3.27 %
Other professional services 1,140 5.5 % 847 4.3 % 3,040 4.8 % 1,474 2.7 % 874 3.73 % 920 4.20 %
Other non-interest expense 3,767 18.1 % 2,764 14.0 % 11,874 18.7 % 8,405 15.5 % 4,381 18.69 % 3,816 17.43 %
Acquisition and integration charges 705 3.4 % 4,059 20.5 % 3,975 6.2 % 9,655 17.9 % 740 3.16 % 3,179 14.52 %
Total non-interest expense $ 20,825 100 % $ 19,786 100 % $ 63,609 100 % $ 54,064 100 % $ 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 ~~$3.5~~$1.7 million or ~~22.1%~~16.9% of earnings before income taxes for the ~~third~~first quarter of ~~2019,~~2020, compared to $1.4 million or 21.1% of earnings before income taxes for the same period in 2018. The provision for the nine months ended September 30, 2019 was $9.3 million or 22.7% of earnings before income taxes compared to $3.8$2.0 million or 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 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 ~~$618.3~~$763.0 million, or ~~17.8%~~18.8% of total assets at ~~September 30, 2019~~March 31, 2020 compared to ~~$498.2~~$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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018;~~2019; and interest-bearing balances at other banks ~~decreased~~increased to ~~$68.2~~$179.5 million at ~~September 30, 2019~~March 31, 2020 from ~~$87.8~~$79.0 million at December 31, ~~2018.~~2019. The Company’s investment portfolio ~~increased $126.1~~decreased $2.9 million, or ~~24.4%~~0.4%, to a total fair market value of ~~$642.1~~$788.9 million at ~~September 30, 2019~~March 31, 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 an increase in the fair market value of $16.4 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 $7.5 million at September 30, 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 ~~$2.361~~$2.616 billion at ~~September 30, 2019,~~March 31, 2020, an increase of ~~$296.3~~$4.4 million, or ~~14.3%~~0.2%, from December 31, ~~2018.~~2019. The ~~acquisition of FPB accounted for approximately $244.7 million, net of fair value marks, of the increase.~~increase is attributed to organic loan growth.

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

Composition of Loan Portfolio
September 30, 2019 December 31, 2018
Amount Percent
of Total Amount Percent
of Total
Loans held for sale $ 11,104 0.6 % $ 4,838 0.3 %
Commercial, financial and agricultural 338,584 14.3 % 301,182 14.6 %
Real Estate:
Mortgage-commercial 943,218 39.9 % 776,880 37.6 %
Mortgage-residential 724,860 30.7 % 617,804 29.9 %
Construction 284,103 12.0 % 298,718 14.5 %
Lease financing receivable 3,239 0.1 % 2,891 0.1 %
Obligations of states and subdivisions 16,545 0.7 % 16,941 0.8 %
Consumer and other 39,437 1.7 % 46,006 2.2 %
Total loans 2,361,090 100 % 2,065,260 100 %
Allowance for loan losses (13,043 ) (10,065 )
Net loans $ 2,348,047 $ 2,055,195
Composition of Loan Portfolio
March 31, 2020 December 31, 2019
Amount
Percent
of Total
Amount
Percent
of Total

Loans held for sale $ 13,288 0.5 % $ 10,810 0.4 %
Commercial, financial and agricultural 327,979 12.5 % 332,600 12.7 %
   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 3,526 0.1 % 3,095 0.1 %
Obligations of states and subdivisions 18,218 0.7 % 20,716 0.8 %
Consumer and other 40,626 1.6 % 42,458 1.6 %
Total loans 2,615,576 100 % 2,611,168 100 %
Allowance for loan losses (20,804 ) (13,908 )
Net loans $ 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 its market area by 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 ~~September 30, 2019,~~March 31, 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 September 30, 2019, The First had loans past due as follows ($ in thousands):~~
Past due 30 through 89 days $ 8,859
Past due 90 days or more and still accruing 2,115
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, ~~that are non-accrual~~ totaled ~~$35.2~~$37.8 million at ~~September 30, 2019,~~March 31, 2020, an ~~increase~~decrease of ~~$10.1~~$1.0 million from December 31, ~~2018. The increase is attributable to acquired loans and one relationship that was modified during the third quarter.~~2019.

Other real estate owned is carried at fair value, determined by an appraisal, less estimated costs to sell. Other real estate owned totaled ~~$10.0~~$7.0 million at ~~September 30, 2019~~March 31, 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 ~~September 30, 2019,~~March 31, 2020, the Bank had ~~$30.0~~$31.1 million in loans that were classified as “TDRs”, of which ~~$6.7~~$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 ~~September 30, 2019, $23.3~~March 31, 2020, $24.9 million in loans categorized as TDRs were classified as non-performing as compared to ~~$9.0~~$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) 9/30/19 12/31/18 3/31/20 12/31/19
Non-accrual Loans

Nonaccrual Loans

Real Estate:
1-4 Family residential construction $ - $ - $ - $ -
Other Construction/land 1,783 1,918 1,578 1,548
1-4 family residential revolving/open-end 407 431 1,154 998
1-4 family residential closed-end 8,509 8,680 8,679 8,986
Nonfarm, nonresidential, owner-occupied 17,546 7,154 20,270 20,157
Nonfarm, nonresidential, other nonfarm nonresidential 5,377 5,601 3,772 4,647
Total Real Estate 33,622 23,784 35,453 36,336
Commercial and industrial 1,163 1,208 2,069 2,234
Loans to individuals – other 390 81 229 265
Total Non-Accrual Loans 35,175 25,073
Total Nonaccrual Loans 37,751 38,835

Other real-estate owned 9,974 10,869 6,974 7,299

Total Non-performing Assets $ 45,149 $ 35,942 $ 44,725 $ 46,134
Performing TDRs $ 6,679 $ 5,307 $ 6,171 $ 6,824
Total non-performing assets as a % of total loans & leases net of unearned income 1.92 % 1.75 % 1.72 % 1.77 %
Total non-accrual loans as a % of total loans & leases net of unearned income 1.50 % 1.22 %
Total nonaccrual loans as a % of total loans & leases net of unearned income 1.45 % 1.49 %

Non-performing assets totaled ~~$45.1~~$44.7 million at ~~September 30, 2019,~~March 31, 2020, compared to ~~$35.9~~$46.1 million at December 31, ~~2018, an increase~~2019, a decrease of ~~$9.2~~$1.4 million. The ALLL/total loans ratio was ~~0.56%~~0.80% at ~~September 30, 2019,~~March 31, 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 ~~$12.9~~$11.1 million on acquired loans. The ratio of annualized net charge-offs (recoveries) to total loans was ~~0.004%~~0.03% for the quarter ended ~~September 30, 2019~~March 31, 2020 compared to ~~0.02%~~(0.002)% at December 31, ~~2018.~~2019.

The following table represents the Company’s impaired loans, excluding PCI loans, as of the dates noted:

September 30, December 31,
($ in thousands) 2019 2018
Impaired Loans:
    Impaired loans without a valuation allowance $ 12,862 $ 7,595
    Impaired loans with a valuation allowance 12,540 5,864
Total impaired loans $ 25,402 $ 13,459
Allowance for loan losses on impaired loans at period end 3,031 1,179

Total non-accrual loans 22,200 25,073

Past due 90 days or more and still accruing 2,115 1,265
Average investment in impaired loans 22,844 16,257
48
($ 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 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. On a quarterly basis, the estimated allowance is determined and presented to the Company’s audit committee for review and 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 ~~September 30, 2019,~~March 31, 2020, the consolidated allowance for loan losses was approximately ~~$13.0~~$20.8 million, or ~~0.56%~~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 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 ~~$2.9~~$7.1 million at ~~September 30, 2019, $2.1~~March 31, 2020, $3.7 million at December 31, ~~2018~~2019 and ~~$1.5~~$1.1 million at ~~September 30, 2018.~~March 31, 2019. The overall allowance for loan losses results from consistent application of our loan loss reserve methodology as described above. At ~~September 30, 2019,~~March 31, 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 Nine Months Ended Nine Months Ended For the Year Ended
($ in thousands) 9/30/19 9/30/18 9/30/19 9/30/18 12/31/18
Balances: 3/31/20 3/31/19 12/31/19
Average gross loans & leases outstanding during period: $ 2,343,392 $ 1,720,884 $ 2,283,468 $ 1,582,010 $ 1,678,746
Gross loans & leases outstanding at end of period: 2,361,090 1,752,752 2,361,090 1,752,752 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 $ 12,091 $ 9,512 $ 10,065 $ 8,288 $ 8,288 $ 13,908 $ 10,065 $ 10,065
Prior period reclassification – Mortgage Reserve Funding - - - - (181 )
Beginning balance of allowance restated 12,091 9,512 10,065 8,288 8,107
Provision charged to expense 974 412 2,888 1,546 2,120 7,102 1,123 3,738

Charge-offs:
Real Estate-
1-4 family residential construction - - - - - - - -
Other construction/land - 42 - 52 52 - - -
1-4 family revolving, open-ended 54 - 54 7 7 - - 54
1-4 family closed-end - - 108 - - 9 42 109
Nonfarm, nonresidential, owner-occupied 54 - 54 - 170 333 - 54
Total Real Estate 108 42 216 59 229 342 42 217
Commercial and industrial 17 242 23 247 265 99 4 141
Credit cards 10 - 10 - - - - 33
Automobile loans 14 5 25 5 5 21 1 48
Loans to individuals - other 52 34 108 66 82 28 28 -
All other loans - - - - - 10 - 225
Total 201 323 382 377 581 500 75 664
Recoveries:
Real Estate-
1-4 family residential construction - - - - - - - -
Other construction/land 8 4 22 30 34 9 6 129
1-4 family revolving, open-ended 7 9 17 17 27 25 1 19
1-4 family closed-end 54 93 139 120 156 24 19 221
Nonfarm, nonresidential, owner-occupied 3 1 9 3 10 60 4 13
Total Real Estate 72 107 187 170 227 118 30 382
Commercial and industrial 24 18 51 36 44 76 12 85
Credit cards 2 - 3 - 1 - - 3
Automobile loans 11 10 33 23 29 33 13 40
Loans to individuals - other 28 15 58 25 37 21 12 72
All other loans 42 14 140 54 81 46 55 187
Total 179 164 472 308 419 294 122 769
Net loan charge offs (recoveries) 22 159 (90 ) 69 162 206 (47 ) (105 )
Balance at end of period $ 13,043 $ 9,765 $ 13,043 $ 9,765 $ 10,065 $ 20,804 $ 11,235 $ 13,908

RATIOS
Net Charge-offs (recoveries) to average loans & leases(annualized) 0.004 % 0.04 % (0.005 )% 0.006 % 0.01 %
Allowance for loan losses to gross loans & leases at end of period 0.56 % 0.56 % 0.56 % 0.56 % 0.49 %
Net Loan Charge-offs (recoveries) to provision for loan losses 2.26 % 38.59 % (3.12 )% 4.46 % 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Allocation of the Allowance for Loan Losses
($ in thousands) September 30, 2019 March 31, 2020
Amount % of loans
in each category to total loans Amount % of loans
in each category to total loans
Commercial, Financial and Agriculture $ 2,357 14.5 %
Commercial Real Estate 8,734 65.0 %
Consumer Real Estate 1,673 18.9 %
Installment and Other 274 1.6 %
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 5 - - -
Total $ 13,043 100 % $ 20,804 100 %

($ in thousands) December 31, 2018
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 ~~$91.8~~$107.3 million at ~~September 30, 2019~~March 31, 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 ~~FHLB.~~Federal Home Loan 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 other securities ~~increased $5.8 million~~decreased $779 thousand due to ~~an increase~~a decrease in ~~Federal Reserve~~FHLB stock. The Company’s net premises and equipment at ~~September 30, 2019~~March 31, 2020 was ~~$96.7~~$108.0 million and ~~$74.8~~$105.0 million at December 31, ~~2018;~~2019; an increase of ~~$21.9~~$3.0 million, or ~~29.3%~~2.9% for the first ~~nine~~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 $59.3~~increased to 65.7 million at ~~September 30, 2019. Goodwill increased to $118.6 million at September 30, 2019,~~March 31, 2020, an increase of ~~$28.9~~$6.1 million from December 31. 2019. Goodwill at March 31, ~~2018 as a result of the FPB acquisition.~~2020 remained unchanged at $158.6 million when compared to December 31, 2019. Other intangible assets, consisting primarily of the Company’s core deposit intangible, ~~increased~~decreased by ~~$4.3 million~~$938 thousand in the ~~third~~first quarter of ~~2019,~~2020, as compared to December 31, ~~2018~~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 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 FPB 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 September 30, 2019.COVID-19 pandemic.

Other real estate owned decreased by ~~$895~~$325 thousand, or ~~8.2%~~4.5%, to ~~$10.0~~$7.0 million at ~~September 30, 2019~~March 31, 2020 as compared to December 31, ~~2018.~~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 ~~$412.7~~$361.5 million at ~~September 30, 2019~~March 31, 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 ~~17.5%~~14.0% of gross loans at ~~September 30, 2019~~March 31, 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 ~~$11.0~~$12.3 million at ~~September 30, 2019~~March 31, 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.

In addition to unused commitments to provide credit, the Company is utilizing a ~~$70.0~~$5.0 million letter of credit issued by the FHLB on the Company’s behalf as ~~security as~~ of ~~September 30, 2019.~~March 31, 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 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 ~~$784.4 million~~$1.093 billion at ~~September 30, 2019.~~March 31, 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 ~~September 30, 2019,~~March 31, 2020, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised ~~$285.5~~$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 ~~September 2019~~March 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. The Company has a higher level of actual balance sheet liquidity than might otherwise be the case, since it utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans that are pledged to the FHLB by the Company, totaled ~~$65.0~~$109.5 million at September 30, 2019. Management is of the opinion that available investments and other potentially liquid assets, along with the standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.March 31, 2020.

The Company’s liquidity ratio as of ~~September 30, 2019~~March 31, 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:

September 30,
2019

Policy
Maximum

Policy
Compliance

March 31, 2020

Policy Maximum

Policy
Compliance
Loans to Deposits (including FHLB advances) 80.7 % 90.0 % In Policy 76.7 % 90.0 % In Policy
Net Non-core Funding Dependency Ratio 6.8 % 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 3.9 % 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 66.3 % 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 for the three-month periods ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ 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) Amount Percent of Total Amount Percent of Total
Non-interest bearing demand deposits $ 340,606 10.4 % $ 723,208 23.5 %
NOW accounts and Other 478,526 14.6 % 941,598 30.7 %
Money Market accounts 1,530,796 46.7 % 462,810 15.0 %
Savings accounts 296,177 9.0 % 287,200 9.3 %
Time Deposits of less than $250,000 462,808 14.1 % 479,386 15.6 %
Time Deposits of $250,000 or more 168,881 5.2 % 182,331 5.9 %
Total deposits $ 3,277,794 100 % $ 3,076,533 100 %

Deposit Distribution September 30, 2019 December 31, 2018
($ in thousands) Amount Percent of
Total Amount Percent of
Total
Non-interest bearing demand deposits $ 642,054 23.3 % $ 570,148 23.2 %
NOW accounts and Other 926,704 33.5 % 835,434 34.0 %
Money Market accounts 385,988 14.0 % 312,552 12.7 %
Savings accounts 265,551 9.6 % 253,724 10.3 %
Time Deposits of less than $250,000 401,559 14.5 % 384,030 15.6 %
Time Deposits of $250,000 or more 139,489 5.1 % 101,571 4.2 %
Total deposits $ 2,761,345 100 % $ 2,457,459 100 %
As of September 30, 2019, cash and cash equivalents were $160.0 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $668.7 million at September 30, 2019. Approximately $412.6 million in loan commitments could fund within the next three months and other commitments, primarily commercial and similar letters of credit, totaled $11.0 million at September 30, 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 FHLB, advances from the Federal Reserve Bank, securities sold under agreements to repurchase, and/or junior subordinated debentures. The Company uses short-term FHLB advances and federal funds purchased on uncommitted lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line is committed, but the amount of available credit depends on the level of pledged collateral.

Total non-deposit interest-bearing liabilities ~~increased~~decreased by ~~$50.9~~$98.1 million, or ~~30.6%~~33.3%, in the first ~~nine~~three months of ~~2019,~~2020, due in part to ~~an increase~~a decrease in notes payable to the FHLB of ~~$50.8~~$95.2 million. The Company had junior subordinated debentures totaling ~~$80.6~~$80.7 million at ~~September 30, 2019~~March 31, 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 ~~$7.6~~$4.5 million, or ~~48.6%~~16.9%, during the first ~~nine~~three months of ~~2019. On January 1,~~2020. The Company recorded a finance lease during the first quarter of 2019 ~~the Company adopted the new accounting standard for leases, which requires a lessee~~resulting in an increase to ~~record an ROU and a lease liability for all leases with terms longer than 12 months. The adoption~~other liabilities of ~~this guidance resulted in a lease liability of $4.4 million as of September 30, 2019.~~$2.7 million. For more information regarding the Company’s leases, see Note 12 – Leases to the Consolidated Financial Statements.

CAPITAL

At ~~September 30, 2019~~March 31, 2020, the Company had total stockholders’ equity of ~~$478.1~~$555.9 million, comprised of ~~$17.3~~$19.0 million in common stock, ~~$5.3~~$5.7 million in treasury stock, ~~$355.6~~$409.9 million in surplus, ~~$100.1~~$116.9 million in undivided profits and ~~$10.4~~$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 ~~$477.9~~$12.3 million, or ~~15.9%~~2.3%, in stockholders’ equity during the first ~~nine~~three months of ~~2019~~2020 is comprised of capital added via net earnings of ~~$31.9~~$8.3 million, an ~~$12.2~~$5.7 million increase in accumulated comprehensive income for available-for-sale securities and, ~~$2.7 million of common stock issued for the purchase of FPB,~~ offset by ~~$3.8~~$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 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. The Company repurchased ~~13,873 shares and 157,439~~168,188 shares under the March 2019 program during the ~~three month and nine months~~year ended ~~September 30, 2019, respectively.~~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 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 September 30,
2019 December 31,
2018 Minimum
Required to be
Well Capitalized March 31,
2020 December 31, 2019 Minimum Required to be Well Capitalized
Common Equity Tier 1
Capital Ratio 15.6 % 14.8 % 6.5 %
Common Equity Tier 1 Capital Ratio 15.5 % 15.1 % 6.5 %
Tier 1 Capital Ratio 15.6 % 14.8 % 8.0 % 15.5 % 15.1 % 8.0 %
Total Capital Ratio 16.1 % 15.2 % 10.0 % 16.2 % 15.6 % 10.0 %
Tier 1 Leverage Ratio 12.0 % 12.2 % 5.0 % 11.4 % 11.8 % 5.0 %

Regulatory Capital Ratios
The First Bancshares, Inc. September 30,
2019 December 31,
2018 Minimum
Required to be
Well Capitalized March 31,
2020 December 31, 2019 Minimum Required to be Well Capitalized
Common Equity Tier 1
Capital Ratio* 13.0 % 11.5 % N/A
Common Equity Tier 1 Capital Ratio* 12.7 % 12.5 % N/A
Tier 1 Capital Ratio** 13.6 % 12.2 % N/A 13.2 % 13.0 % N/A
Total Capital Ratio 16.6 % 15.6 % N/A 16.3 % 15.8 % N/A
Tier 1 Leverage Ratio 10.5 % 10.2 % N/A 9.8 % 10.3 % N/A

* The numerator does not include Preferred Stock and Trust Preferred.
** The numerator includes Trust Preferred.
* 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 ~~September 30, 2019~~March 31, 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%. 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 ~~September 30, 2019,~~March 31, 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 ~~September 30, 2019~~March 31, 2020 was ~~$478.1~~$555.9 million, or approximately 13.7% of total assets. The Company currently has adequate capital to meet the minimum capital requirements for all regulatory agencies.

On June 30, 2006, The Company issued $4,124,000 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.

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 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 Nine Months Nine Months Ended Ended
Ended Ended Ended Ended
March 31,
2020

March 31,
2019

($ in thousands) September 30,
2019 September 30,
2018 September 30,
2019 September 30,
2018
Net income available to common shareholders $ 12,272 $ 5,162 $ 31,890 $ 14,364
Net income available to common
shareholders $ 8,311 $ 7,635
Effect of acquisition charges 705 4,059 3,975 9,655 740 3,179
Tax on acquisition charges (152 ) (1,027 ) (887 ) (2,311 ) (164 ) (712 )
Treasury awards - (233 ) (233 ) (1,150 ) - (233 )
Tax on Treasury awards - 59 59 290 - 59
Net earnings available to common shareholders, operating $ 12,825 $ 8,020 $ 34,804 $ 20,848

Net earnings available to common
shareholders, operating $ 8,887 $ 9,928

Operating Earnings per Share

Three Months Three Months Nine Months
Nine Months

Ended Ended Ended Ended
($ in thousands) September 30,
2019 September 30,
2018 September 30,
2019 September 30,
2018
Book value per common share $ 27.92 $ 22.09 $ 81.44 $ 89.41
Effect of intangible assets per share 8.53 4.99 25.54 22.22
Tangible book value per common share $ 19.39 $ 17.10 $ 55.90 $ 67.19

Diluted earnings per share $ 0.71 $ 0.39 $ 1.90 $ 1.13
Effect of acquisition charges 0.04 0.31 0.24 0.76
Tax on acquisition charges (0.01 ) (0.08 ) (0.06 ) (0.18 )
Effect of Treasury Awards - (0.02 ) (0.01 ) (0.09 )
Tax on Treasury Awards - 0.01 - 0.02
Diluted earnings per share, operating $ 0.74 $ 0.61 $ 2.07 $ 1.64
($ in thousands) Three Months Three Months
Ended Ended

March 31,
2020

March 31,
2019

Book value per common share $ 29.49 $ 26.30
Effect of intangible assets per share 9.97 8.51
Tangible book value per common share $ 19.52 $ 17.79

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

Net Interest Income Fully Tax Equivalent

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

March 31,
2019

($ in thousands) September 30,
2019 September 30,
2018 September 30,
2019 September 30,
2018

Net interest income $ 30,459 $ 21,669 $ 88,362 $ 59,618 $ 34,065 $ 27,131
Tax exempt investment income (828 ) (757 ) (2,376 ) (2,190 ) (1,360 ) (758 )
Taxable investment income 1,108 1,013 3,181 2,932 1,821 1,015
Net interest income fully tax equivalent $ 30,739 $ 21,925 $ 89,167 $ 60,360 $ 34,526 $ 27,388

Average earning assets $ 3,036,491 $ 2,210,894 $ 2,968,158 $ 2,070,184 $ 3,517,143 $ 2,815,680
Net interest margin fully tax equivalent 4.05 % 3.97 % 4.01 % 3.89 % 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 1.7 % -20.0 % 32.1 % -40.0 % 4.8 % -20.0 % 30.3 % -40.0 %
Up 300 bps 2.8 % -15.0 % 28.7 % -30.0 % 4.2 % -15.0 % 27.2 % -30.0 %
Up 200 bps 2.9 % -10.0 % 22.5 % -20.0 % 2.3 % -10.0 % 21.5 % -20.0 %
Up 100 bps 1.9 % -5.0 % 13.2 % -10.0 % 0.3 % -5.0 % 12.6 % -10.0 %
Down 100 bps -3.0 % -5.0 % 3.6 % -10.0 % -1.5 % -5.0 % -9.5 % -10.0 %
Down 200 bps -4.9 % -10.0 % 10.4 % -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 ~~September 30, 2019,~~March 31, 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:

September 30, 2019 Net Interest Income at Risk – Sensitivity Year 1
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 -200 bp -100 bp STATIC +100 bp +200 bp +300 bp +400 bp
Net Interest Income 106,961 109,094 112,489 114,628 115,693 115,619 114,367 114,788 116,371 118,182 118,494 120,876 123,111 123,899
Dollar Change (5,526 ) (3,395 ) 2,139 3,204 3,130 1,878 -3,394 -1,811 312 2,694 4,929 5,717
NII @ Risk - Sensitivity Y1 -4.9 % -3.0 % 1.9 % 2.9 % 2.8 % 1.7 % -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 ~~$5.5~~$3.4 million lower than in a stable interest rate scenario, for a negative variance of ~~4.9%~~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. 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 ~~$3.2~~$2.7 million, or ~~2.9%~~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 ~~163.8%~~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 ~~September 30, 2019,~~March 31, 2020, under different interest rate scenarios relative to a base case of current interest rates:

Balance Sheet Shock Balance Sheet Shock
($ in thousands) -200 bp -100 bp STATIC
(Base) +100 bp +200 bp +300 bp +400 bp -200 bp -100 bp STATIC (Base) +100 bp +200 bp +300 bp +400 bp
Market Value of Equity 730,170 684,945 661,340 748,733 810,129 851,023 873,871 756,984 701,119 774,404 872,120 940,598 985,105 1,008,703
Change in EVE from base 68,830 23,605 87,393 148,789 189,683 212,531 -17,420 -73,285 97,716 166,194 210,701 234,299
% Change 10.4 % 3.6 % 13.2 % 22.5 % 28.7 % 32.1 % -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 % -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. 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 ~~September 30, 2019,~~March 31, 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 (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 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 this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

As previously disclosed in the 2018 Form 10-K, in connection with its fiscal 2018 Sarbanes Oxley testing procedures, management observed a number of deficiencies in the Company’s control environment in four areas: overall design of the control environment; completeness and accuracy of loan controls, including problem loan monitoring; allowance for loan losses; and accounting for business combinations. These deficiencies, which are described in more detail below, in the aggregate, rose to the level of material weaknesses in each of those four areas. None of the identified control deficiencies resulted in material misstatements related to the Company’s annual or interim financial statements, and there were no changes to previously released financial results as a result of the material weaknesses.
· ~~Overall design of the control environment~~
o
In the area of preventative controls, management identified areas in which journal entries were recorded by certain personnel, including by the Chief Financial Officer, but a second review was not documented for all entries, and identified deficiencies in the scope of reviews of employee account activities. During the fourth quarter of 2018, management implemented the following corrective actions:
Ø removed the Chief Financial Officer’s access and subjected all entries performed by the Chief Financial Officer during 2018 to supervisory review, and implemented a review control to ensure that all journal entries are now reviewed by a second individual with supervisory authority;
Ø ~~removed the Chief Financial Officer’s administrative rights to the accounts payable system; and~~
Ø ~~implemented a risk-based testing approach to review activity in employee accounts, and increased the review period for the subject accounts.~~
o
During the first quarter of 2018, management converted its core provider IT system. During the user template review conducted in the first quarter of 2019, management determined that the review control related to the IT system user template setup during the conversion to the core provider was not performed and documented with sufficient precision, and that the user access rights review was not completed in an effective and timely manner. As a result, management determined that several users had inappropriate user rights which could have resulted in the ability of employees to make inappropriate changes to the IT system platform or conduct inappropriate activity. In addition, management determined that security logs were reviewed daily, however the reviewer was determined not to be independent of the function due to elevated system rights. Subsequently, management implemented the following corrective actions:
Ø ~~implemented an independent party review procedure for all daily logs for 2018 and for subsequent periods;~~
Ø ~~documented its user access review control and removed excessive rights identified, which involved revisions to user templates; and~~
Ø performed an additional user template and user access review, based upon changes resulting from the process above, to ensure that user and template rights are assigned appropriately based on job function.
o In the area of design and evidence of monitoring controls, management determined that a completeness control was not operating effectively to ensure all balance sheet accounts were reconciled timely, however upon review major areas such as correspondent banks, loans, securities, deposits and equities were reviewed on a timely basis. To remediate this issue, during the fourth quarter of 2018 management instituted a completeness control to ensure all balance sheet reconciliations are subject to timely review.
o
In the area of financial statements/internal financial reports, management determined that the review of the accuracy of the financial statements was not documented with sufficient precision, and identified an inadequate control design due to the fact that a subordinate was tasked with reviewing the compilation of the financial statements performed by a supervisor. In addition, control deficiencies related to masterfile changes on loans and deposits were not sufficiently mitigated by management's monitoring of financial results through certain financial reports, including our monthly yield variance analysis (among others), as this review was not documented with sufficient precision and did not include testing of the reports for completeness and accuracy. In the third and fourth quarters of 2018, management implemented the following corrective actions:
Ø ~~implemented an alternate control design to eliminate subordinate review; and~~
Ø ~~implemented controls to provide for documentation of management review and monitoring of financial statements, masterfile changes and other financial reports with sufficient precision.~~
Management has completed documentation of the corrective actions described above and, based on the evidence obtained in validating the design and operating effectiveness of the implemented controls, has determined that controls are operating effectively and the material weakness with respect to the overall design of the control environment has been remediated as of June 30, 2019.

· ~~Completeness and accuracy of loan controls, including problem loan monitoring~~
o
With respect to newly originated loans, management determined that testing for completeness and accuracy had not been performed in a timely manner during the post-closing review process for certain loans originated during 2018. During the fourth quarter of 2018, management implemented the following corrective actions:
Ø ~~engaged an independent third party to review the completeness and accuracy of the newly originated loans for 2018; and~~
Ø ~~redesigned controls to ensure the completeness of review by personnel independent of the recording function.~~
o With respect to monitoring of loans between the closing date and systems conversion for acquired banks, loan reports were reviewed by management but not tested and documented for completeness and accuracy with sufficient precision. In the fourth quarter of 2018, management implemented completeness and accuracy controls to determine the validity of the reports provided.
o
With respect to problem loan monitoring, management determined that the review of certain loan reports and other relevant information, including the report of loans 90 days past due and accruing, individual classified and criticized loan reports, and evaluations of troubled debt restructurings (“TDR”), was performed but not documented with sufficient precision, and a completeness check had not been performed to ensure that all loans agreed to the source document, which could have resulted in a lack of timely identification of loans as criticized and classified, impaired, or TDRs. In addition, management determined that the review of the accuracy of loan grade changes submitted via loan status change forms was performed but not documented with sufficient precision and a completeness check had not been performed. During the fourth quarter of 2018, management implemented the following corrective actions:
Ø ~~implemented completeness controls with respect to problem loan monitoring; and~~
Ø ~~began documenting review controls to provide evidence of their operation.~~
Management has completed documentation of the corrective actions described above and, based on the evidence obtained in validating the design and operating effectiveness of the implemented controls, has determined that controls are operating effectively and the material weakness with respect to the completeness and accuracy of loan controls, including problem loan monitoring has been remediated as of June 30, 2019. Management has completed documentation related to the completeness of TDR identification and has determined that controls are operating effectively and the deficiency with respect to the completeness of TDR identification has been remediated as of September 30, 2019.
· ~~Allowance for loan losses~~
o
With respect to the calculation of the allowance for loan losses, management uses a third party consultant to calculate the general reserve used in the calculation, which includes several variables such as bond ratings, loss given default historical percentages, proxy risk grades used to determine probability of default, sensitivity variances used for qualitative and environmental (“Q&E”) reserve adjustments, and other factors. Management did not document and perform with sufficient precision an independent verification of these factors, and did not document the secondary review of its internal determination of included Q&E factors. In addition, management did not document with sufficient precision its rationale for the sensitivity variances used in the Q&E reserve adjustments. During the second quarter of 2019, management implemented the following corrective actions:
Ø implemented additional controls to document with sufficient precision its review and approval of all proxy variables and factors used in the calculation of the allowance for loan losses, as well as its rationale for using the sensitivity variances provided by its third party consultant in the internal determination of the Q&E factors used for reserve adjustments; and
Ø ~~implemented an additional control to document with sufficient precision its review of the mathematical accuracy of its allowance for loan losses model.~~

o Management determined that with respect to acquired loans, including loans acquired in 2017, the control related to the measurement and recording of impairment did not operate with sufficient precision, resulting in a finding that loans of approximately $4.3 million that were classified and disclosed as “impaired” should have been classified as “purchased credit impaired,” or PCI. This finding resulted in changes to the method by which measurement and recognition of subsequent impairment is performed, so that impairment is measured and recorded for specific loans individually in accordance with ASC 310-30 and not against credit marks on the overall portfolio of impaired acquired loans. During the fourth quarter of 2018, as a result of enhanced disclosure controls, management reclassified these loans as PCI, properly recorded a reserve adjustment of $537 thousand through the allowance for loan losses for subsequent impairment of acquired loans and implemented an internal PCI policy with control procedures to identify and separately account for PCI loans in future acquisitions.
Management has completed documentation of the corrective actions described above and, based on the evidence obtained in validating the design and operating effectiveness of the implemented controls, has determined that controls are operating effectively and the material weakness with respect to the allowance for loan losses has been remediated as of September 30, 2019.
· ~~Accounting for business combinations~~
o
When completing an acquisition, management must initially record all assets of the acquired bank, both financial and non-financial, at fair value. The fair value of the performing loan portfolio and the core deposit intangible (“CDI”) is estimated using a discounted cash flow method. There are numerous assumptions that are considered when estimating the discounted cash flows, including principal maturities, prepayments, probability of default, loss given default, current market rates and proper discount rates, with respect to loan portfolios; and deposit decay rates, estimated fees, maintenance costs, and alternative costs of funding, with respect to CDI. Management used different third party valuation firms to assist with these fair value estimates for its acquisitions completed in 2018, which resulted in differing assumptions used to value the assets of the banks acquired. Management determined that the control related to the assumptions and methodology utilized in the determination of the value of the loan portfolio and the CDI did not operate with sufficient precision to ensure such values were reasonably stated and supported. During the fourth quarter of 2018, management implemented the following corrective actions:
Ø ~~began using a single valuation firm in order to provide more uniformity in its valuation assumptions and methodology;~~
Ø ~~reclassified certain acquired loans as PCI in compliance with its newly implemented internal PCI policy; and~~
Ø ~~implemented a review control related to the reasonableness of its valuation assumptions and methodology.~~
o With respect to the purchase price allocation of acquired assets and liabilities, management determined that evidence of the review of certain reports, including the reports related to consideration paid and goodwill, was not appropriately documented with sufficient precision. In the fourth quarter of 2018, management implemented additional documentation procedures to ensure the review of these entries is appropriately documented and that they are recorded accurately.
Management has completed documentation of the corrective actions described above and, based on the evidence obtained in validating the design and operating effectiveness of the implemented controls, has determined that the controls are operating effectively. As a result, management has concluded that the material weakness with respect to accounting for business combinations as described above has been fully remediated as of June 30, 2019.
Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended ~~September 30, 2019~~March 31, 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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

The following table provides information with respect to purchases of common stock of the Company made during the three months ended ~~September 30, 2019,~~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
July 1 – July 31 - $ - - -
August 1 – August 31 12,463 $ 31.33 12,463 487,194
September 1 – September 30 1,410 $ 30.93 1,410 485,948
Total 13,873 $ 31.13 13,873
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 ~~purchases~~listed above represents shares withheld by the Company in ~~the table above were made pursuant~~order to ~~the March 2019 program. The March 2019 program expires on December 31, 2019. As~~satisfy employee tax obligations for vesting of ~~September 30, 2019, $15.1 million remained available for further share repurchases of common~~restricted stock ~~under the March 2019 program.~~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
~~2.1~~ Agreement and Plan of Merger, dated July 22, 2019, by and between The First Bancshares, Inc. and First Florida Bancorp, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on July 23, 2019).
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).
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).
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).
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).
10.1 Amendment to Employment Agreement dated January 16, 2020, between The First, A National Banking Association, and M. Ray Cole, Jr.*
10.2 Amendment to Employment Agreement dated January 16, 2020, between The First, 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 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.
~~November 8, 2019~~ May 11, 2020                      M. Ray (Hoppy) Cole, Jr.
(Date) Chief Executive Officer
/s/ DONNA T. (DEE DEE) LOWERY
~~November 8, 2019~~ May 11, 2020                      Donna T. (Dee Dee) Lowery, Executive
(Date) Vice President and Chief Financial Officer

*Mississippi*	~~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¨

Part I. Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets—Unaudited at ~~September 30, 2019~~March 31, 2020	3
	Consolidated Statements of Income—Unaudited	4
	Consolidated Statements of Comprehensive Income—Unaudited	5
	Consolidated Statements of Changes in Stockholders’ Equity - Unaudited	6
	Consolidated Statements of Cash Flows—Unaudited	87
	Notes to Consolidated Financial Statements—Unaudited	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3828
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5744
Item 4.	Controls and Procedures	5946

Part II. Other Information

Item 1.	Legal Proceedings	6247
Item 1A.	Risk Factors	6347
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6348
Item 3.	Defaults Upon Senior Securities	6349
Item 4.	Mine Safety Disclosures	6349
Item 5.	Other Information	6349
Item 6.	Exhibits	6449
Signatures		6550

	(Unaudited)			(Audited)			(Unaudited)
	September 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
ASSETS

Cash and due from banks	$	91,810		$	71,356		$	107,252		$	89,736
Interest-bearing deposits with banks		68,180			87,751			179,507			79,128
Federal funds sold		-			-

Total cash and cash equivalents		159,990			159,107			286,759			168,864

Securities held-to-maturity, at amortized cost		6,328			6,000
Securities available-for-sale, at fair value		612,002			492,224			762,977			765,087
Other securities		22,517			16,704			25,911			26,690

Total securities		640,847			514,928			788,888			791,777

Loans held for sale		11,104			4,838			13,288			10,810
Loans		2,349,986			2,060,422			2,602,288			2,600,358
Allowance for loan losses		(13,043	)		(10,065	)		(20,804	)		(13,908	)

Loans, net		2,348,047			2,055,195			2,594,772			2,597,260

Interest receivable		12,415			10,778			14,943			14,802
Premises and equipment		96,726			74,783			108,013			104,980
Cash surrender value of bank-owned life insurance		59,254			50,796			65,713			59,572
Goodwill		118,636			89,750			158,572			158,572
Other real estate owned		9,974			10,869			6,974			7,299
Other assets		36,042			37,780			37,167			38,737

TOTAL ASSETS	$	3,481,931		$	3,003,986		$	4,061,801		$	3,941,863

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing	$	642,054		$	570,148		$	340,606		$	723,208
Interest-bearing		2,119,291			1,887,311			2,937,188			2,353,325

TOTAL DEPOSITS		2,761,345			2,457,459			3,277,794			3,076,533

Interest payable		2,236			1,519			2,885			2,508
Borrowed funds		136,250			85,500			116,180			214,319
Subordinated debentures		80,639			80,521			80,717			80,678
Other liabilities		23,373			15,733			28,299			24,167
TOTAL LIABILITIES		3,003,843			2,640,732			3,505,875			3,398,205

STOCKHOLDERS’ EQUITY:
Common stock, par value $1 per share, 40,000,000 shares authorized; 17,307,558 shares issued at September 30, 2019, and 14,857,092 shares issued at December 31, 2018, respectively		17,308			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		355,641			278,659			409,855			409,805
Retained earnings		100,107			71,998			116,886			110,460
Accumulated other comprehensive gain (loss)		10,373			(1,796	)
Treasury stock, at cost, 183,933 shares at September 30, 2019 and 26,494 shares at December 31, 2018		(5,341	)		(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		478,088			363,254			555,926			543,658

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,481,931		$	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, June 30, 2018		13,092,447		$	13,092		$	216,310		$	61,369		$	(4,481	)		(26,494	)	$	(464	)	$	285,826
Net income		-			-			-			5,162			-						-			5,162
Other comprehensive income		-			-			-			-			(1,840	)		-			-			(1,840	)
Dividends on common stock, $0.05 per share		-			-			-			(653	)		-			-			-			(653	)
Restricted stock grant		9,133			10			(10	)		-			-			-			-			-
Compensation expense								326															326
Repurchase of restricted shares for payment of taxes		(570	)		(1	)		(22	)		-			-			-			-			(23	)
Balance, September 30, 2018		13,101,010		$	13,101		$	216,604		$	65,878		$	(6,321	)		(26,494	)	$	(464	)	$	288,798

Balance, June 30, 2019		17,299,975		$	17,300		$	355,217		$	89,231		$	9,439			(170,060	)	$	(4,906	)	$	466,281
Net income		-			-			-			12,272			-			-			-			12,272
Common stock repurchased		-			-			-			-			-			(13,873	)		(435	)		(435	)
Other comprehensive income		-			-			-			-			934			-			-			934
Dividends on common stock, $0.08 per share		-			-			-			(1,396	)		-			-			-			(1,396	)
Issuance of restricted stock grants		8,333			9			(9	)		-			-			-			-			-
Restricted stock grant forfeited		(750	)		(1	)		1															-
Compensation expense		-			-			432			-			-			-			-			432
Balance, September 30, 2019		17,307,558		$	17,308		$	355,641		$	100,107		$	10,373			(183,933	)	$	(5,341	)	$	478,088

							(Unaudited)
							Three months ended
	(Unaudited) Nine months ended September 30,						March 31,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	31,890		$	14,364		$	8,311		$	7,635
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		2,333			3,125			1,308			677
Provision for loan losses		2,888			1,546			7,102			1,123
Loss on sale/writedown of ORE		332			31			293			295
Securities (gain)/losses		(136	)		-
Gain on sale of premises and equipment		(11	)		-
Securities gain								(174	)		(38	)
Gain on sale/writedown of premises and equipment								8			-
Restricted stock expense		1,213			884			478			355
Increase in cash value of life insurance		(1,146	)		(657	)		(328	)		(297	)
Federal Home Loan Bank stock dividends		(130	)		(85	)		(53	)		-
Payments on operating leases		(581	)		-
Payments on right-of-use assets								(382	)		(122	)
Residential loans originated and held for sale		(134,749	)		(105,280	)		(55,076	)		(30,078	)
Proceeds from sale of residential loans held for sale		128,558			105,761			51,828			28,632
Changes in:
Interest receivable		(278	)		(570	)		(141	)		(283	)
Interest payable		642			145			377			434
Other, net		(157	)		3,711			450			(630	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		30,668			22,975			14,001			7,703

CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities, calls and paydowns of available-for-sale and held-to-maturity securities		74,871			46,383			46,192			19,445
Proceeds from sales of securities available-for-sale		20,290			18,573			-			20,291
Purchases of available-for-sale securities		(107,557	)		(64,248	)		(36,277	)		(46,599	)
Redemptions (Purchases) of other securities		(4,377	)		(327	)
Redemptions of other securities								832			2,712
Net increase in loans		(42,473	)		(86,405	)		(925	)		(29,961	)
Net increase in premises and equipment		(6,013	)		(3,174	)		(1,413	)		(1,548	)
Proceeds from sale of other real estate owned		2,694			1,171			532			385
Proceeds from the sale of premises and equipment		1,689			-
Proceeds from the sale of other assets		65			-
Purchase of bank-owned life insurance								(5,800	)		-
Cash received in excess of cash paid for acquisitions		14,743			29,901			-			14,743
NET CASH USED IN INVESTING ACTIVITIES		(46,068	)		(58,126	)
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES								3,141			(20,532	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposits		(8,628	)		66,596
Net increase in borrowed funds		33,500			(63,672	)
Increase in deposits								201,122			144,318
Net decrease in borrowed funds								(98,139	)		(41,000	)
Dividends paid on common stock		(3,712	)		(1,829	)		(1,852	)		(1,020	)
Repurchase of restricted stock for payment of taxes		-			(23	)		(378	)		-
Expenses associated with capital raise		-			(237	)
Cash paid to repurchase common stock		(4,877	)		-
Issuance of subordinated debt, net		-			64,766
NET CASH PROVIDED BY FINANCING ACTIVITIES		16,283			65,601			100,753			102,298

NET INCREASE IN CASH		883			30,450			117,895			89,469
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		159,107			91,921			168,864			159,107
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	159,990		$	122,371		$	286,759		$	248,576

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest		4,918			9,430			5,567			4,297
Loans transferred to other real estate		1,616			1,510			504			946
Issuance of restricted stock grants		75			61			61			66
Stock issued in connection with Southwest acquisition		-			36,005
Stock issued in connection with Sunshine acquisition		-			23,428
Stock issued in connection with FPB acquisition		78,220			-			-			78,220
Dividends on restricted stock grants		69			32			33			19
Right-of-use assets obtained in exchange for operating lease liabilities		4,393			-
Lease liabilities arising from obtaining right-of-use assets								2,419			3,595

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:
Cash and stock	$	78,225
Total purchase price		78,225

Identifiable assets:
Cash and due from banks		14,748
Investments		93,604
Loans		244,665
Bank owned life insurance		7,312
Core deposit intangible		6,597
Personal and real property		17,358
Other assets		1,152
Total assets		385,436

Liabilities and equity:
Deposits		312,453
Borrowed funds		17,250
Other liabilities		6,291
Total liabilities		335,994
Net assets acquired		49,442
Goodwill resulting from acquisition	$	28,783

	March 2, 2019		September 30, 2019
Outstanding principal balance	$	247,774	$	212,917
Carrying amount		244,665		210,486

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

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

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		14,950
Other assets		3,054
Total assets		485,642

Liabilities and equity:
Deposits		431,276
Borrowed funds		5,369
Other liabilities		5,894
Total liabilities		442,539
Net assets acquired		43,103
Goodwill resulting from acquisition	$	36,444

	November 1, 2018		September 30, 2019
Outstanding principal balance	$	325,509	$	247,629
Carrying amount		317,909		242,017

	April 1, 2018		September 30, 2019		March 2, 2019		March 31, 2020
Outstanding principal balance	$	173,052	$	141,250	$	247,774	$	180,070
Carrying amount		168,561		138,560		244,665		178,186

	March 1, 2018		September 30, 2019
Outstanding principal balance	$	274,669	$	163,223
Carrying amount		271,150		161,806

					Fair Value Measurements
As of September 30, 2019 ($ 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	$	159,990	$	159,990	$	159,990	$	-	$	-
Securities available-for-sale:
Obligations of U.S. Government agencies and sponsored entities		65,009		65,009		-		65,009		-
Municipal securities		170,298		170,298		-		159,511		10,787
Mortgage-backed securities		366,062		366,062		-		366,062		-
Corporate obligations		10,633		10,633		-		10,220		413
Securities held-to-maturity		6,328		7,531		-		7,531		-
Loans, net		2,348,047		2,321,293		-		-		2,321,293
Accrued interest receivable		12,415		12,415		-		3,125		9,286

Liabilities:
Non-interest-bearing deposits	$	642,054	$	642,054	$	-	$	642,054	$	-
Interest-bearing deposits		2,119,291		2,107,490		-		2,107,490		-
Subordinated debentures		80,639		79,229		-		-		79,229
FHLB and other borrowings		136,250		136,250		-		136,250		-
Accrued interest payable		2,236		2,236		-		2,236		-

	Bank-Issued Trust
	Preferred Securities
($ in thousands)	2019			2018
Balance, January 1	$	874		$	2,569
Unrealized (loss) gain included in comprehensive income		(461	)		(1,695	)
Balance at September 30, 2019 and December 31, 2018	$	413		$	874

		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
Held-to-maturity securities:
Taxable obligations of states and municipal subdivisions	$	6,000	$	1,208	$	-	$	7,208
Mortgage-backed securities		328		-		5		323
Total	$	6,328	$	1,208	$	5	$	7,531

	September 30, 2019
	Available-for-Sale				Held-to-Maturity
($ in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due less than one year	$	23,477	$	23,563	$	-	$	-
Due after one year through five years		76,610		77,856		-		-
Due after five years through ten years		101,616		105,078		6,000		7,208
Due greater than ten years		38,454		39,443		-		-
Mortgage-backed securities		357,933		366,062		328		323
Total	$	598,090	$	612,002	$	6,328	$	7,531

	September 30, 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	$	484	$	15	$	82	$	1,634	$	2,215	$	284,103
Residential secured loans includingmulti-family and farmland		4,259		1,378		907		8,075		14,619		724,860
Real Estate-nonfarm nonresidential		2,514		522		19,692		3,231		25,959		943,218
Commercial		1,278		4		1,423		17		2,722		338,584
Lease financing receivable		-		-		-		-		-		3,239
Obligations of states and subdivisions		-		-		-		-		-		16,545
Consumer installment		323		197		96		18		634		39,437
Total	$	8,858	$	2,116	$	22,200	$	12,975	$	46,149	$	2,349,986


($ in thousands)	Southwest		Sunshine		FMB		FPB		Total
Contractually required payments	$	925	$	4,194	$	9,939	$	4,715	$	19,773
Cash flows expected to be collected		706		3,894		8,604		4,295		17,499
Fair value of loans acquired		657		3,837		7,978		3,916		16,388

	September 30, 2019			September 30, 2018
($ in thousands)	Accretable Yield			Accretable Yield
Balance at beginning of period, January 1	$	3,835		$	836
Reclassification from prior years		-			859
Addition		307			762
Accretion		(845	)		(225	)
Transfer from non-accretable		145			145
Charge-off		-			(10	)
Balance at end of period	$	3,442		$	2,367

($ in thousands)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Interest income recognized during impairment	$	284	$	443
Cash-basis interest income recognized		116		275

	September 30, 2019
($ in thousands)	Current Loans		Past Due 30-89		Past Due 90 days and still accruing		Non-accrual		Total
Commercial, financial and agriculture	$	607	$	574	$	-	$	911	$	2,092
Commercial real estate		4,578		219		-		18,328		23,125
Residential real estate		1,460		38		58		3,169		4,725
Consumer installment		34		-		-		-		34
Total	$	6,679	$	831	$	58	$	22,408	$	29,976
Allowance for loan losses	$	129	$	-	$	-	$	1,997	$	2,126

	Three months ended September 30, 2018
($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate			Installment and Other		Unallocated			Total
Allowance for loan losses:
Beginning balance	$	2,011	$	5,136	$	1,598		$	184	$	583		$	9,512
Provision for loan losses		268		272		(37	)		10		(101	)		412
Charge-offs		242		42		-			39		-			323
Recoveries		18		4		103			39		-			164
Net Charge-offs (recoveries)		224		38		(103	)		-		-			159
Ending Balance	$	2,055	$	5,370	$	1,664		$	194	$	482		$	9,765

	Nine months ended September 30, 2018
($ in thousands)	Commercial, Financial and Agriculture		Commercial Real Estate		Consumer Real Estate			Installment and Other			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	1,608	$	4,644	$	1,499		$	173		$	364	$	8,288
Provision for loan losses		658		748		32			(10	)		118		1,546
Charge-offs		247		52		7			71			-		377
Recoveries		36		30		140			102			-		308
Net Charge-offs (recoveries)		211		22		(133	)		(31	)		-		69
Ending Balance	$	2,055	$	5,370	$	1,664		$	194		$	482	$	9,765

	Three months ended		Nine months ended
($ in thousands)	September 30, 2019		September 30, 2019
Operating lease costs	$	231	$	581

Cash paid for amounts included in the measurement of lease liability
Operating cash flows from operating leases	$	231	$	581

Composition of Loan Portfolio
	September 30, 2019						December 31, 2018
	Amount			Percent of Total			Amount			Percent of Total
Loans held for sale	$	11,104			0.6	%	$	4,838			0.3	%
Commercial, financial and agricultural		338,584			14.3	%		301,182			14.6	%
Real Estate:
Mortgage-commercial		943,218			39.9	%		776,880			37.6	%
Mortgage-residential		724,860			30.7	%		617,804			29.9	%
Construction		284,103			12.0	%		298,718			14.5	%
Lease financing receivable		3,239			0.1	%		2,891			0.1	%
Obligations of states and subdivisions		16,545			0.7	%		16,941			0.8	%
Consumer and other		39,437			1.7	%		46,006			2.2	%
Total loans		2,361,090			100	%		2,065,260			100	%
Allowance for loan losses		(13,043	)					(10,065	)
Net loans	$	2,348,047					$	2,055,195

Past due 30 through 89 days		$	8,859
Past due 90 days or more and still accruing			2,115

($ in thousands)	9/30/19			12/31/18			3/31/20			12/31/19
Non-accrual Loans

Nonaccrual Loans

Real Estate:
1-4 Family residential construction	$	-		$	-		$	-		$	-
Other Construction/land		1,783			1,918			1,578			1,548
1-4 family residential revolving/open-end		407			431			1,154			998
1-4 family residential closed-end		8,509			8,680			8,679			8,986
Nonfarm, nonresidential, owner-occupied		17,546			7,154			20,270			20,157
Nonfarm, nonresidential, other nonfarm nonresidential		5,377			5,601			3,772			4,647
Total Real Estate		33,622			23,784			35,453			36,336
Commercial and industrial		1,163			1,208			2,069			2,234
Loans to individuals – other		390			81			229			265
Total Non-Accrual Loans		35,175			25,073
Total Nonaccrual Loans								37,751			38,835

Other real-estate owned		9,974			10,869			6,974			7,299

Total Non-performing Assets	$	45,149		$	35,942		$	44,725		$	46,134
Performing TDRs	$	6,679		$	5,307		$	6,171		$	6,824
Total non-performing assets as a % of total loans & leases net of unearned income		1.92	%		1.75	%		1.72	%		1.77	%
Total non-accrual loans as a % of total loans & leases net of unearned income		1.50	%		1.22	%
Total nonaccrual loans as a % of total loans & leases net of unearned income								1.45	%		1.49	%

Allowance for Loan and Lease Losses
																Three Months Ended			Three Months Ended			For the Year Ended
	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended			For the Year Ended
($ in thousands)	9/30/19			9/30/18			9/30/19			9/30/18			12/31/18
Balances:																3/31/20			3/31/19			12/31/19
Average gross loans & leases outstanding during period:	$	2,343,392		$	1,720,884		$	2,283,468		$	1,582,010		$	1,678,746
Gross loans & leases outstanding at end of period:		2,361,090			1,752,752			2,361,090			1,752,752			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	$	12,091		$	9,512		$	10,065		$	8,288		$	8,288		$	13,908		$	10,065		$	10,065
Prior period reclassification – Mortgage Reserve Funding		-			-			-			-			(181	)
Beginning balance of allowance restated		12,091			9,512			10,065			8,288			8,107
Provision charged to expense		974			412			2,888			1,546			2,120			7,102			1,123			3,738

Charge-offs:
Real Estate-
1-4 family residential construction		-			-			-			-			-			-			-			-
Other construction/land		-			42			-			52			52			-			-			-
1-4 family revolving, open-ended		54			-			54			7			7			-			-			54
1-4 family closed-end		-			-			108			-			-			9			42			109
Nonfarm, nonresidential, owner-occupied		54			-			54			-			170			333			-			54
Total Real Estate		108			42			216			59			229			342			42			217
Commercial and industrial		17			242			23			247			265			99			4			141
Credit cards		10			-			10			-			-			-			-			33
Automobile loans		14			5			25			5			5			21			1			48
Loans to individuals - other		52			34			108			66			82			28			28			-
All other loans		-			-			-			-			-			10			-			225
Total		201			323			382			377			581			500			75			664
Recoveries:
Real Estate-
1-4 family residential construction		-			-			-			-			-			-			-			-
Other construction/land		8			4			22			30			34			9			6			129
1-4 family revolving, open-ended		7			9			17			17			27			25			1			19
1-4 family closed-end		54			93			139			120			156			24			19			221
Nonfarm, nonresidential, owner-occupied		3			1			9			3			10			60			4			13
Total Real Estate		72			107			187			170			227			118			30			382
Commercial and industrial		24			18			51			36			44			76			12			85
Credit cards		2			-			3			-			1			-			-			3
Automobile loans		11			10			33			23			29			33			13			40
Loans to individuals - other		28			15			58			25			37			21			12			72
All other loans		42			14			140			54			81			46			55			187
Total		179			164			472			308			419			294			122			769
Net loan charge offs (recoveries)		22			159			(90	)		69			162			206			(47	)		(105	)
Balance at end of period	$	13,043		$	9,765		$	13,043		$	9,765		$	10,065		$	20,804		$	11,235		$	13,908

RATIOS
Net Charge-offs (recoveries) to average loans & leases(annualized)		0.004	%		0.04	%		(0.005	)%		0.006	%		0.01	%
Allowance for loan losses to gross loans & leases at end of period		0.56	%		0.56	%		0.56	%		0.56	%		0.49	%
Net Loan Charge-offs (recoveries) to provision for loan losses		2.26	%		38.59	%		(3.12	)%		4.46	%		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	)%

Allocation of the Allowance for Loan Losses
($ in thousands)	September 30, 2019					March 31, 2020
	Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans
Commercial, Financial and Agriculture	$	2,357		14.5	%
Commercial Real Estate		8,734		65.0	%
Consumer Real Estate		1,673		18.9	%
Installment and Other		274		1.6	%
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		5		-			-		-
Total	$	13,043		100	%	$	20,804		100	%

	September 30, 2019			Policy Maximum			Policy Compliance	March 31, 2020			Policy Maximum			Policy Compliance
Loans to Deposits (including FHLB advances)		80.7	%		90.0	%	In Policy		76.7	%		90.0	%	In Policy
Net Non-core Funding Dependency Ratio		6.8	%		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		3.9	%		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		66.3	%		90.0	%	In Policy		58.3	%		90.0	%	In Policy