UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D. C. 20549





FORM
10-Q





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15 (D)


OF THE
SECURITIES EXCHANGE ACT OF 1934





FOR THE
QUARTERLY PERIOD ENDED:   September 30, 2009


OR


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15
(D)


OF THE
SECURITIES EXCHANGE ACT OF 1934




COMMISSION
FILE NUMBER:    33-94288





THE FIRST
BANCSHARES, INC.





(EXACT
NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)





MISSISSIPPI
              64-0862173(STATE
      OF INCORPORATION)
              (I.R.S.
      EMPLOYER IDENTIFICATION NO.)





6480
      U.S. HIGHWAY 98 WESTHATTIESBURG, MISSISSIPPI
              
              39402(ADDRESS
      OF PRINCIPAL
              
              (ZIP
      CODE)EXECUTIVE
      OFFICES)





(601)
268-8998





(ISSUER'S
TELEPHONE NUMBER, INCLUDING AREA CODE)





NONE





(FORMER
NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)





INDICATE
BY CHECK MARK WHETHER THE ISSUER: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED
BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS.


YES  x   NO
 ̈





INDICATE
BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN
ACCELERATED FILER, OR A NON-ACCELERATED FILER.  SEE DEFINITION OF
“ACCELERATED FILER AND LARGE ACCELERATED FILER” IN RULE 12B-2 OF THE EXCHANGE
ACT.





LARGE
ACCELERATED FILER  ̈   
ACCELERATED FILER   ̈   NON-ACCELERATED
FILER   x





ON
September 30, 2009, 3,019,869 SHARES OF THE ISSUER'S COMMON STOCK, PAR VALUE
$1.00 PER SHARE, WERE ISSUED AND OUTSTANDING.





TRANSITIONAL
DISCLOSURE FORMAT (CHECK ONE):





YES   ̈   NO  x





INDICATE
BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE
12B-2 OF THE EXCHANGE ACT):    YES   ̈  NO  x





PART I -
FINANCIAL INFORMATION  ITEM NO. 1. FINANCIAL STATEMENTS





THE FIRST
BANCSHARES, INC.





CONSOLIDATED
BALANCE SHEETS





($
      Amounts in Thousands)
                              
                              (Unaudited)September
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008ASSETSCash
      and due from banks
                              
                              $
                              8,113
                              
                              
                              $
                              8,887Interest-bearing
      deposits with banks
                              
                              
                              277
                              
                              
                              
                              2,762Federal
      funds sold
                              
                              
                              10,419
                              
                              
                              
                              13,359TOTAL
      CASH AND CASH EQUIVALENTS
                              
                              
                              18,809
                              
                              
                              
                              25,008Securities
      held-to-maturity, at amortized cost
                              
                              
                              3
                              
                              
                              
                              12Securities
      available-for-sale, at fair value
                              
                              
                              119,200
                              
                              
                              
                              99,679Other
      securities
                              
                              
                              2,413
                              
                              
                              
                              2,612Loans
      held for sale
                              
                              
                              4,195
                              
                              
                              
                              3,113Loans
                              
                              
                              317,207
                              
                              
                              
                              319,972Allowance
      for loan losses
                              
                              
                              (4,827
                              )
                              
                              
                              (4,785
                              )LOANS,
      NET
                              
                              
                              312,380
                              
                              
                              
                              315,187Premises
      and equipment
                              
                              
                              14,436
                              
                              
                              
                              15,279Interest
      receivable
                              
                              
                              2,250
                              
                              
                              
                              2,605Cash
      surrender value
                              
                              
                              5,819
                              
                              
                              
                              5,660Other
      real estate
                              
                              
                              2,499
                              
                              
                              
                              1,629Goodwill
                              
                              
                              702
                              
                              
                              
                              702Other
      assets
                              
                              
                              3,183
                              
                              
                              
                              3,338TOTAL
      ASSETS
                              
                              $
                              485,889
                              
                              
                              $
                              474,824LIABILITIES
      AND SHAREHOLDERS' EQUITYLIABILITIES:Deposits:Noninterest-bearing
                              
                              $
                              48,730
                              
                              
                              $
                              57,594Time,
      $100,000 or more
                              
                              
                              90,720
                              
                              
                              
                              87,944Interest-bearing
                              
                              
                              254,046
                              
                              
                              
                              232,541TOTAL
      DEPOSITS
                              
                              
                              393,496
                              
                              
                              
                              378,079Interest
      payable
                              
                              
                              712
                              
                              
                              
                              850Borrowed
      funds
                              
                              
                              32,063
                              
                              
                              
                              46,027Subordinated
      debentures
                              
                              
                              10,310
                              
                              
                              
                              10,310Other
      liabilities
                              
                              
                              6,128
                              
                              
                              
                              2,990TOTAL
      LIABILITIES
                              
                              
                              442,709
                              
                              
                              
                              438,256SHAREHOLDERS'
      EQUITY:Common
      stock, $1 par value, authorized 10,000,000 shares; 3,046,363 shares issued
      at September 30, 2009 and 3,016,695 shares issued at December 31,
      2008
                              
                              
                              3,046
                              
                              
                              
                              3,017Preferred
      stock, no par value $1,000 per share liquidation, 10,000,000 shares
      authorized; 5,000 shares issued and outstanding at September 30, 2009 and
      no shares issued at December 31, 2008
                              
                              
                              4,758
                              
                              
                              
                              -Treasury
      stock, at cost, 26,494 shares at September 30, 2009 and December 31,
      2008
                              
                              
                              (464
                              )
                              
                              
                              (464
                              )Additional
      paid-in capital
                              
                              
                              23,419
                              
                              
                              
                              22,942Retained
      earnings
                              
                              
                              12,419
                              
                              
                              
                              11,482Accumulated
      other comprehensive income (loss)
                              
                              
                              2
                              
                              
                              
                              (409
                              )TOTAL
      SHAREHOLDERS' EQUITY
                              
                              
                              43,180
                              
                              
                              
                              36,568TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                              
                              $
                              485,889
                              
                              
                              $
                              474,824








THE FIRST
BANCSHARES, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF INCOME




($
Amounts in Thousands, Except Per Share Data)





(Unaudited)
                                      
                                      
                                      (Unaudited)Three
      Months Ended
                                      
                                      
                                      Nine
      Months EndedSeptember
      30,
                                      
                                      
                                      September
      30,2009
                                      
                                      
                                      2008
                                      
                                      
                                      2009
                                      
                                      
                                      2008INTEREST
      INCOME:Loans,
      including fees
                                      
                                      $
                                      5,538
                                      
                                      
                                      $
                                      6,453
                                      
                                      
                                      $
                                      16,751
                                      
                                      
                                      $
                                      20,862Securities:Taxable
                                      
                                      
                                      695
                                      
                                      
                                      
                                      933
                                      
                                      
                                      
                                      2,246
                                      
                                      
                                      
                                      2,682Tax
      exempt
                                      
                                      
                                      256
                                      
                                      
                                      
                                      217
                                      
                                      
                                      
                                      697
                                      
                                      
                                      
                                      625Other
                                      
                                      
                                      12
                                      
                                      
                                      
                                      69
                                      
                                      
                                      
                                      81
                                      
                                      
                                      
                                      353TOTAL
      INTEREST INCOME
                                      
                                      
                                      6,501
                                      
                                      
                                      
                                      7,672
                                      
                                      
                                      
                                      19,775
                                      
                                      
                                      
                                      24,522INTEREST
      EXPENSE:Deposits
                                      
                                      
                                      2,085
                                      
                                      
                                      
                                      2,659
                                      
                                      
                                      
                                      6,547
                                      
                                      
                                      
                                      9,124Other
      borrowings
                                      
                                      
                                      408
                                      
                                      
                                      
                                      524
                                      
                                      
                                      
                                      1,392
                                      
                                      
                                      
                                      1,865TOTAL
      INTEREST EXPENSE
                                      
                                      
                                      2,493
                                      
                                      
                                      
                                      3,183
                                      
                                      
                                      
                                      7,939
                                      
                                      
                                      
                                      10,989NET
      INTEREST INCOME
                                      
                                      
                                      4,008
                                      
                                      
                                      
                                      4,489
                                      
                                      
                                      
                                      11,836
                                      
                                      
                                      
                                      13,533PROVISION
      (CREDIT)FOR LOAN LOSSES
                                      
                                      
                                      (36
                                      )
                                      
                                      
                                      721
                                      
                                      
                                      
                                      1,056
                                      
                                      
                                      
                                      1,721NET
      INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
                                      
                                      
                                      4,044
                                      
                                      
                                      
                                      3,768
                                      
                                      
                                      
                                      10,780
                                      
                                      
                                      
                                      11,812NONINTEREST
      INCOME:Service
      charges on deposit accounts
                                      
                                      
                                      515
                                      
                                      
                                      
                                      591
                                      
                                      
                                      
                                      1,474
                                      
                                      
                                      
                                      1,671Other
      service charges, commissions and fees
                                      
                                      
                                      233
                                      
                                      
                                      
                                      204
                                      
                                      
                                      
                                      633
                                      
                                      
                                      
                                      801TOTAL
      NONINTEREST INCOME
                                      
                                      
                                      748
                                      
                                      
                                      
                                      795
                                      
                                      
                                      
                                      2,107
                                      
                                      
                                      
                                      2,472NONINTEREST
      EXPENSES:Salaries
      and employee benefits
                                      
                                      
                                      2,140
                                      
                                      
                                      
                                      2,377
                                      
                                      
                                      
                                      6,355
                                      
                                      
                                      
                                      7,222Occupancy
      and equipment expense
                                      
                                      
                                      500
                                      
                                      
                                      
                                      523
                                      
                                      
                                      
                                      1,491
                                      
                                      
                                      
                                      1,615Impairment
      loss – security
                                      
                                      
                                      14
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      85
                                      
                                      
                                      
                                      -Other
      operating expenses
                                      
                                      
                                      1,067
                                      
                                      
                                      
                                      1,185
                                      
                                      
                                      
                                      3,409
                                      
                                      
                                      
                                      3,387TOTAL
      NONINTEREST EXPENSES
                                      
                                      
                                      3,721
                                      
                                      
                                      
                                      4,085
                                      
                                      
                                      
                                      11,340
                                      
                                      
                                      
                                      12,224INCOME
      BEFORE INCOME TAXES
                                      
                                      
                                      1,071
                                      
                                      
                                      
                                      478
                                      
                                      
                                      
                                      1,547
                                      
                                      
                                      
                                      2,060INCOME
      TAXES
                                      
                                      
                                      301
                                      
                                      
                                      
                                      143
                                      
                                      
                                      
                                      405
                                      
                                      
                                      
                                      596NET
      INCOME
                                      
                                      
                                      770
                                      
                                      
                                      
                                      335
                                      
                                      
                                      
                                      1,142
                                      
                                      
                                      
                                      1,464PREFERRED
      DIVIDENDS
                                      
                                      
                                      63
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      163
                                      
                                      
                                      
                                      -PREFERRED
      STOCK ACCRETION
                                      
                                      
                                      14
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      42
                                      
                                      
                                      
                                      -NET
      INCOME APPLICABLE TO COMMON SHAREHOLDERS
                                      
                                      $
                                      693
                                      
                                      
                                      $
                                      335
                                      
                                      
                                      $
                                      937
                                      
                                      
                                      $
                                      1,464EARNINGS
      PER SHARE APPLICABLE TO COMMON SHAREHOLDERS – BASIC
                                      
                                      $
                                      .23
                                      
                                      
                                      $
                                      .11
                                      
                                      
                                      $
                                      .31
                                      
                                      
                                      $
                                      .49EARNINGS PER SHARE
      APPLICABLE TO COMMON
      SHAREHOLDERS – DILUTED
                                      
                                      
                                      .23
                                      
                                      
                                      
                                      .11
                                      
                                      
                                      
                                      .31
                                      
                                      
                                      
                                      .48DIVIDENDS
      PER SHARE - COMMON
                                      
                                      
                                      -
                                      
                                      
                                      
                                      .075
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      .225





THE FIRST
BANCSHARES, INC.





CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


($
Amounts in Thousands)





Common
                  Stock
                
                
                Preferred
                  Stock
                
                
                Additional
                  Paid-in
                  Capital
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Compre-
                  hensive
                  Income
                  (Loss)
                
                
                Treasury
                  Stock
                
                
                TotalBalance,January
      1, 2008
                
                $
                3,015
                
                
                $
                -
                
                
                $
                22,929
                
                
                $
                10,306
                
                
                $
                494
                
                
                $
                (464
                )
                
                $
                36,280Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,464
                
                
                
                -
                
                
                
                -
                
                
                
                1,464Net
      change in unrealized gain (loss) on available-for-sale securities, net of
      tax
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,104
                )
                
                
                -
                
                
                
                (1,104
                )Adoption
      ofSFAS
      123R
                
                
                -
                
                
                
                -
                
                
                
                2
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2Exercise
      of stock options
                
                
                2
                
                
                
                -
                
                
                
                11
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                13Cash
      dividend declared $.15 per share
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (672
                )
                
                
                -
                
                
                
                -
                
                
                
                (672
                )Balance,
      Sept. 30, 2008
                
                $
                3,017
                
                
                $
                -
                
                
                $
                22,942
                
                
                $
                11,098
                
                
                $
                (610
                )
                
                $
                (464
                )
                
                $
                35,983Balance,
      January 1, 2009
                
                $
                3,017
                
                
                $
                -
                
                
                $
                22,942
                
                
                $
                11,482
                
                
                $
                (409
                )
                
                $
                (464
                )
                
                $
                36,568Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,142
                
                
                
                -
                
                
                
                -
                
                
                
                1,142Net
      change in unrealized gain (loss) on available-for-sale securities, net of
      tax
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                394
                
                
                
                -
                
                
                
                394Net
      change in unrealized gain (loss) on loans held for sale, net of
      tax
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                17
                
                
                
                -
                
                
                
                17Issuance
      of preferred stock and warrant
                
                
                -
                
                
                
                4,716
                
                
                
                284
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,000Exercise
      of stock options
                
                
                29
                
                
                
                -
                
                
                
                193
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                222Accretion
      of preferred stock discount
                
                
                -
                
                
                
                42
                
                
                
                -
                
                
                
                (42
                )
                
                
                -
                
                
                
                -
                
                
                
                -Dividends
      on preferred stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (163
                )
                
                
                -
                
                
                
                -
                
                
                
                (163
                )Balance,
      Sept. 30, 2009
                
                $
                3,046
                
                
                $
                4,758
                
                
                $
                23,419
                
                
                $
                12,419
                
                
                $
                2
                
                
                $
                (464
                )
                
                $
                43,180





THE FIRST
BANCSHARES, INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS





($
Amounts in Thousands)


(Unaudited)Nine
      Months EndedSeptember 30,2009
                                
                                
                                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:NET
      INCOME
                                
                                $
                                1,142
                                
                                
                                $
                                1,464Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                
                                
                                967
                                
                                
                                
                                631Provision
      for loan losses
                                
                                
                                1,056
                                
                                
                                
                                1,721Impairment
      loss on security
                                
                                
                                85
                                
                                
                                
                                -Loss
      on sale/writedown of ORE
                                
                                
                                128
                                
                                
                                
                                82Loss
      on disposal of premises and equipment
                                
                                
                                28
                                
                                
                                
                                -Increase
      in cash value of life insurance
                                
                                
                                (159
                                )
                                
                                
                                (90
                                )Federal
      Home Loan Bank stock dividends
                                
                                
                                (11
                                )
                                
                                
                                (61
                                )Changes
      in:Interest
      receivable
                                
                                
                                355
                                
                                
                                
                                938Loans
      held for sale
                                
                                
                                (1,082
                                )
                                
                                
                                1,345Interest
      payable
                                
                                
                                (138
                                )
                                
                                
                                (358
                                )Other,
      net
                                
                                
                                3,661
                                
                                
                                
                                2,254NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                                
                                
                                6,032
                                
                                
                                
                                7,926CASH
      FLOWS FROM INVESTING ACTIVITIES:Maturities
      and calls of securities available-for-sale
                                
                                
                                36,581
                                
                                
                                
                                24,340Purchases
      of securities available-for-sale
                                
                                
                                (55,997
                                )
                                
                                
                                (34,401
                                )Net
      decrease in loans
                                
                                
                                226
                                
                                
                                
                                31,157Net
      (additions) disposals of premises and equipment
                                
                                
                                236
                                
                                
                                
                                (599
                                )Net
      redemption of other securities
                                
                                
                                210
                                
                                
                                
                                196NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                                
                                
                                (18,744
                                )
                                
                                
                                20,693CASH
      FLOWS FROM FINANCING ACTIVITIES:Increase
      in deposits
                                
                                
                                15,417
                                
                                
                                
                                5,713Net
      decrease in borrowed funds
                                
                                
                                (13,964
                                )
                                
                                
                                (13,518
                                )Dividend
      paid on common stock
                                
                                
                                -
                                
                                
                                
                                (672
                                )Dividend
      paid on preferred stock
                                
                                
                                (163
                                )
                                
                                
                                -Proceeds
      from issuance of preferred stock and warrant
                                
                                
                                5,000
                                
                                
                                
                                -Exercise
      of stock options
                                
                                
                                223
                                
                                
                                
                                13Other
                                
                                
                                -
                                
                                
                                
                                2NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                                
                                
                                6,513
                                
                                
                                
                                (8,462
                                )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                
                                
                                (6,199
                                )
                                
                                
                                20,157CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                                
                                
                                25,008
                                
                                
                                
                                11,341CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                                
                                $
                                18,809
                                
                                
                                $
                                31,498SUPPLEMENTAL
      DISCLOSURES:CASH
      PAYMENTS FOR INTEREST
                                
                                $
                                8,077
                                
                                
                                $
                                11,347CASH
      PAYMENTS FOR INCOME TAXES
                                
                                
                                719
                                
                                
                                
                                1,389LOANS
      TRANSFERRED TO OTHER REAL ESTATE
                                
                                
                                1,110
                                
                                
                                
                                1,030





THE FIRST
BANCSHARES, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE A —
BASIS OF PRESENTATION





The
accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with 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
months ended September 30, 2009, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009.  For
further information, please refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 2008.





NOTE B —
SUMMARY OF ORGANIZATION





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.





At
September 30, 2009, the Company had approximately $485.9 million in assets,
$321.4 million in loans, $393.5 million in deposits, and $43.2 million in
shareholders' equity.  For the nine months ended September 30, 2009,
the Company reported a net income of $1,142,000 ($936,000 applicable to common
shareholders).





In the
first, second and third quarters of 2008, the Company declared and paid
quarterly dividends of $.075 per common share for each quarter and in the fourth
quarter of 2008, no dividend was paid.





No
dividend was paid on common shares in the first, second and third quarters of
2009.










NOTE C –
PREFERRED STOCK AND WARRANT





On
February 6, 2009, as part of the U.S. Department of Treasury’s (“Treasury”)
Capital Purchase Program (“CPP”), the Company received a $5.0 million equity
investment by issuing 5 thousand shares of Series A, no par value preferred
stock to the Treasury pursuant to a Letter Agreement and Securities Purchase
Agreement that was previously disclosed by the Company.  The Company
also issued a warrant to the Treasury allowing it to purchase 54,705 shares of
the Company’s common stock at an exercise price of $13.71.  The
warrant can be exercised immediately and has a term of 10 years.





The
non-voting Series A preferred shares issued, with a liquidation preference of $1
thousand per share, will pay a cumulative cash dividend quarterly at 5% per
annum during the first five years the preferred shares are outstanding,
resetting to 9% thereafter if not redeemed.  The CPP also includes
certain restrictions on dividend payments of the Company’s lower ranking equity
and the ability to purchase its outstanding common shares.





The
Company allocated the proceeds received from the Treasury on a pro rata basis to
the Series A preferred stock and the warrant based on their relative fair
values.  The Company assigned $.3 million and $4.7 million to the
warrant and the Series A preferred stock, respectively.  The resulting
discount on the Series A preferred stock is being accreted up to the $5.0
million liquidation amount over the five year expected life of the Series A
preferred stock.





NOTE D —
EARNINGS APPLICABLE TO COMMON SHAREHOLDERS





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
exercise of stock options.





For
      the Three Months EndedSeptember 30, 2009Net
      Income
                  
                  
                  Shares
                  
                  
                  Per
      Share(Numerator)
                  
                  
                  (Denominator)
                  
                  
                  DataBasic
      per share
                  
                  $
                  693,000
                  
                  
                  
                  3,019,869
                  
                  
                  $
                  .23Diluted
      per share
                  
                  $
                  693,000
                  
                  
                  
                  3,019,869
                  
                  
                  $
                  .23





For
      the Nine Months EndedSeptember 30, 2009Net
      Income
                  
                  
                  Shares
                  
                  
                  Per
      Share(Numerator)
                  
                  
                  (Denominator)
                  
                  
                  DataBasic
      per share
                  
                  $
                  936,000
                  
                  
                  
                  3,008,617
                  
                  
                  $
                  .31Diluted
      per share
                  
                  $
                  936,000
                  
                  
                  
                  3,008,617
                  
                  
                  $
                  .31








For
      the Three Months EndedSeptember
      30, 2008Net
      Income
                        
                        
                        Shares
                        
                        
                        Per
      Share(Numerator)
                        
                        
                        (Denominator)
                        
                        
                        DataBasic
      per share
                        
                        $
                        335,000
                        
                        
                        
                        2,989,801
                        
                        
                        $
                        .11Effect
      of dilutive shares:Stock
      options
                        
                        
                        -
                        
                        
                        
                        69,627Diluted
      per share
                        
                        $
                        335,000
                        
                        
                        
                        3,059,428
                        
                        
                        $
                        .11





For
      the Nine Months EndedSeptember 30, 2008Net
      Income
                    
                    
                    Shares
                    
                    
                    Per
      Share(Numerator)
                    
                    
                    (Denominator)
                    
                    
                    DataBasic
      per share
                    
                    $
                    1,464,000
                    
                    
                    
                    2,989,487
                    
                    
                    $
                    .49Effect
      of dilutive shares:Stock
      options
                    
                    
                    -
                    
                    
                    
                    69,627Diluted
      per share
                    
                    $
                    1,464,000
                    
                    
                    
                    3,059,114
                    
                    
                    $
                    .48





No stock
options were granted during the nine months ended September 30,
2009.





NOTE E -
COMPREHENSIVE INCOME





The
following table discloses Comprehensive Income for the periods reported in the
Condensed Consolidated Statements of Income:





($
Amounts in Thousands)


Three
      Months EndedSeptember
      30,2009
                              
                              
                              2008Net
      Income
                              
                              $
                              770
                              
                              
                              $
                              335Other
      Comprehensive Income (Loss) net of tax:Unrealized
      holding gains(losses)on securities during the period
                              
                              
                              297
                              
                              
                              
                              (629
                              )Unrealized
      gain on loans held for sale carried at fair value during the
      period
                              
                              
                              17
                              
                              
                              
                              -Comprehensive
      Income (Loss)
                              
                              $
                              1,084
                              
                              
                              $
                              (294
                              )Unrealized
      holding gains (losses) on securities during the period
                              
                              $
                              297
                              
                              
                              $
                              (629
                              )Unrealized
      gain on loans held for sale carried at fair value during the
      period
                              
                              
                              17
                              
                              
                              
                              -Accumulated
      Other Comprehensive Income (Loss), beginning of period
                              
                              
                              (312
                              )
                              
                              
                              19Accumulated
      Other Comprehensive Income (Loss), end
      of period
                              
                              $
                              2
                              
                              
                              $
                              (610
                              )








Nine
      Months EndedSeptember 30,2009
                            
                            
                            2008Net
      Income
                            
                            $
                            1,142
                            
                            
                            $
                            1,464Other
      Comprehensive Income (Loss) net of tax:Unrealized
      holding gains (losses) on securities during the period
                            
                            
                            394
                            
                            
                            
                            (1,104
                            )Unrealized
      gain on loans held for sale carried at fair value during the
      period
                            
                            
                            17
                            
                            
                            
                            -Comprehensive
      Income
                            
                            $
                            1,553
                            
                            
                            $
                            360Unrealized
      holding gains (losses) on securities during the period
                            
                            $
                            394
                            
                            
                            $
                            (1,104
                            )Unrealized
      gain on loans held for sale carried at fair value during the
      period
                            
                            
                            17
                            
                            
                            
                            -Accumulated
      Other Comprehensive Income (Loss), beginning of period
                            
                            
                            (409
                            )
                            
                            
                            494Accumulated
      Other Comprehensive Income (Loss), end
      of period
                            
                            $
                            2
                            
                            
                            $
                            (610
                            )





NOTE F —
FAIR VALUE OF ASSETS AND LIABILITIES




Effective
January 1, 2008, the Corporation adopted guidance that establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
This guidance has been applied prospectively as of the beginning of the
period.




The
guidance defines the fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.




In
accordance with the guidance, the Corporation groups its financial assets and
financial liabilities measured at fair value in three levels, based on the
markets in which the assets and liabilities are traded and the reliability of
the assumptions used to determine fair value. These levels are:







Level
      1:
              Valuations
      for assets and liabilities traded in active exchange markets, such as the
      New York Stock Exchange. Valuations are obtained from readily available
      pricing sources for market transactions involving identical assets or
      liabilities.




Level
      2:
            Valuations
      for assets and liabilities traded in less active dealer or broker markets.
      Valuations are obtained from third party pricing services for identical or
      comparable assets or liabilities which use observable inputs other than
      Level 1 prices, such as quoted prices for similar assets or liabilities;
      quoted prices in markets that are not active; or other inputs that are
      observable or can be corroborated by observable market data for
      substantially the full term of the assets and
  liabilities.




Level
      3:
            Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities.




Following
is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance
sheet.




Available-for-Sale
Securities




The fair
value of available-for-sale securities is determined by various valuation
methodologies. Where quoted market prices are available in an active market,
securities are classified within Level 1. The Corporation has no securities
classified within Level 1. If quoted market prices are not available, then fair
values are estimated by using pricing models or quoted prices of securities with
similar characteristics. Level 2 securities include U.S. Treasury securities,
obligations of U.S. government corporations and agencies, obligations of states
and political subdivisions, mortgage-backed securities and collateralized
mortgage obligations. In certain cases where Level 1 or Level 2 inputs are not
available, securities are classified within Level 3 of the
hierarchy.




The
following table presents the Corporation’s assets that are measured at fair
value on a recurring basis and the level within the hierarchy in which the fair
value measurements fall as of September 30, 2009 and December 31, 2008 (in
thousands):




September30,
2009




Fair
      Value Measurements UsingFair
      Value
                            
                            Quoted
                              Prices
      in
                              Active
                              Markets
      for
                              Identical
                              Assets
                              (Level
      1)
                            
                            SignificantOther
                              Observable
                              Inputs
                              (Level
      2)
                            
                            Significant
                              Unobservable
                              Inputs
                              (Level
      3)Available-for-sale
      securities
                            
                            $
                            119,200
                            
                            
                            $
                            0
                            
                            
                            $
                            116,188
                            
                            
                            $
                            3,012







December 31,
2008




Fair
      Value Measurements UsingFair
      Value
                        
                        Quoted
                          Prices
      in
                          Active
                          Markets
      for
                          Identical
                          Assets
                          (Level
      1)
                        
                        Significant
                          Other
                          Observable
                          Inputs
                          (Level
      2)
                        
                        Significant
                          Unobservable
                          Inputs
                          (Level
      3)Available-for-sale
      securities
                        
                        $
                        99,679
                        
                        
                        $
                        0
                        
                        
                        $
                        99,679
                        
                        
                        $
                        0




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




Impaired
Loans




Loans for
which it is probable that the Corporation will not collect all principal and
interest due according to contractual terms are measured for impairment in
accordance with the provisions of Financial Accounting Standard Board. Allowable
methods for estimating fair value include using the fair value of the collateral
for collateral dependent loans or, where a loan is determined not to be
collateral dependent, using the discounted cash flow method.




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 and applying a
discount factor to the value. If the impaired loan is determined not to be
collateral dependent, then the discounted cash flow method is used. This method
requires the impaired loan to be recorded at the present value of expected
future cash flows discounted at the loan’s effective interest rate. The
effective interest rate of a loan is the contractual interest rate adjusted for
any net deferred loan fees or costs, premiums or discount existing at
origination or acquisition of the loan. Impaired loans are classified within
Level 2 of the fair value hierarchy.




Other
Real Estate Owned




Other
real estate owned acquired through loan foreclosure is initially recorded at
fair value less costs to sell when acquired, establishing a new cost basis. The
adjustment at the time of foreclosure is recorded through the allowance for loan
losses. 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 non-interest expense. 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 posted to other non-interest expense. Other real estate owned
measured at fair value on a non-recurring basis at September 30, 2009, amounted
to $2.5 million.







The
following table presents the fair value measurement of assets and liabilities
measured at fair value on a nonrecurring basis and the level within the fair
value hierarchy in which the fair value measurements fall at September 30, 2009
and December 31, 2008.




September30,
2009





Fair
      Value Measurements UsingFair
      Value
                              
                              
                              Quoted
                                Prices
      in
                                Active
                                Markets
      for
                                Identical
                                Assets
                                (Level
      1)
                              
                              
                              Significant
                                Other
                                Observable
                                Inputs
                                (Level
      2)
                              
                              
                              Significant
                                Unobservable
                                Inputs
                                (Level
      3)Impaired
      loans
                              
                              $
                              6,004
                              
                              
                              $
                              0
                              
                              
                              $
                              6,004
                              
                              
                              $
                              0Other
      real estate owned
                              
                              $
                              2,499
                              
                              
                              $
                              0
                              
                              
                              $
                              2,499
                              
                              
                              $
                              0




December 31,
2008





Fair
      Value Measurements UsingFair
      Value
                              
                              
                              Quoted
                                Prices
      in
                                Active
                                Markets
      for
                                Identical
                                Assets
                                (Level
      1)
                              
                              
                              Significant
                                Other
                                Observable
                                Inputs
                                (Level
      2)
                              
                              
                              Significant
                                Unobservable
                                Inputs
                                (Level
      3)Impaired
      loans
                              
                              $
                              6,101
                              
                              
                              $
                              0
                              
                              
                              $
                              6,101
                              
                              
                              $
                              0Other
      real estate owned
                              
                              $
                              1,629
                              
                              
                              $
                              0
                              
                              
                              $
                              1,629
                              
                              
                              $
                              0





The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument for which it is practicable to estimate that
value:





Cash and Cash
Equivalents – For such short-term instruments, the carrying amount is a
reasonable estimate of fair value.





Investment in
securities available-for-sale and held-to-maturity – The fair value
measurement for securities available-for-sale was discussed earlier. The same
measurement approach was used for securities held-to-maturity.




Loans –
The fair value of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.





Deposits –
The fair values of demand deposits are, as required by guidance equal to the
carrying value of such deposits. Demand deposits include noninterest-bearing
demand deposits, savings accounts, NOW accounts, and money market demand
accounts. The fair value of variable rate term deposits, those repricing within
six months or less, approximates the carrying value of these deposits.
Discounted cash flows have been used to value fixed rate term deposits and
variable rate term deposits repricing after six months. The discount rate used
is based on interest rates currently being offered on comparable deposits as to
amount and term.








Short-Term
Borrowings – The carrying value of any federal funds purchased and other
short-term borrowings approximates their fair values.





FHLB and Other
Borrowings – The fair value of the fixed rate borrowings are estimated
using discounted cash flows, based on current incremental borrowing rates for
similar types of borrowing arrangements. The carrying amount of any variable
rate borrowing approximates its fair value.





Subordinated
Debentures –The subordinated debentures bear interest at a variable rate
and the carrying value approximates the fair value.





Off-Balance Sheet
Instruments– Fair values of off-balance sheet financial instruments are
based on fees charged to enter into similar agreements. However, commitments to
extend credit do not represent a significant value until such commitments are
funded or closed. Management has determined that these instruments do not have a
distinguishable fair value and no fair value has been assigned.





As
      of
                  September 30, 2009
                
                
                As
      of
                  December 31, 2008Carrying
                  Amount
                
                
                Estimated
                  Fair
                  Value
                
                
                Carrying
                  Amount
                
                
                Estimated
                  Fair
                  Value(In
      thousands)Financial
      Instruments:Assets:Cash
      and cash equivalents
                
                $
                18,809
                
                
                $
                18,809
                
                
                $
                25,008
                
                
                $
                25,008Securities
      available-for-sale
                
                
                119,200
                
                
                
                119,200
                
                
                
                99,679
                
                
                
                99,679Securities
      held-to-maturity
                
                
                3
                
                
                
                3
                
                
                
                12
                
                
                
                12Other
      securities
                
                
                2,413
                
                
                
                2,413
                
                
                
                2,612
                
                
                
                2,612Loans,
      net
                
                
                316,575
                
                
                
                328,869
                
                
                
                318,300
                
                
                
                332,389Liabilities:Noninterest-bearing
      deposits
                
                $
                48,730
                
                
                $
                48,730
                
                
                $
                57,594
                
                
                $
                57,594Interest-bearing
      deposits
                
                
                344,766
                
                
                
                342,012
                
                
                
                320,485
                
                
                
                325,777Subordinated
      debentures
                
                
                10,310
                
                
                
                10,310
                
                
                
                10,310
                
                
                
                10,310FHLB
      and other borrowings
                
                
                32,063
                
                
                
                32,063
                
                
                
                46,027
                
                
                
                46,027





NOTE G —
LOANS





Loans
typically provide higher yields than the other types of earning assets, and thus
one of the Company's goals is for loans to be the largest category of the
Company's earning assets. At September 30, 2009 and December 31, 2008,
respectively, loans accounted for 71% and 75% of earning assets. Management
attempts to control and counterbalance the inherent credit and liquidity risks
associated with the higher loan yields without sacrificing asset quality to
achieve its asset mix goals.




The
following table shows the composition of the loan portfolio by
category:








Composition
      of Loan PortfolioSeptember
      30,
                                                    
                                                    
                                                    December
      31,2009
                                                    
                                                    
                                                    2008Amount
                                                    
                                                    
                                                    Percent
                                                      of
                                                      Total
                                                    
                                                    
                                                    Amount
                                                    
                                                    
                                                    Percent
                                                      of
                                                      Total(Dollars
      in thousands)Mortgage
      loans held for sale
                                                    
                                                    $
                                                    4,195
                                                    
                                                    
                                                    
                                                    1.3
                                                    %
                                                    
                                                    $
                                                    3,113
                                                    
                                                    
                                                    
                                                    1.0
                                                    %Commercial,
      financial and agricultural
                                                    
                                                    
                                                    44,301
                                                    
                                                    
                                                    
                                                    13.8
                                                    %
                                                    
                                                    
                                                    37,861
                                                    
                                                    
                                                    
                                                    11.7
                                                    %Real
      Estate:Mortgage-commercial
                                                    
                                                    
                                                    90,105
                                                    
                                                    
                                                    
                                                    28.0
                                                    %
                                                    
                                                    
                                                    84,181
                                                    
                                                    
                                                    
                                                    26.1
                                                    %Mortgage-residential
                                                    
                                                    
                                                    101,622
                                                    
                                                    
                                                    
                                                    31.6
                                                    %
                                                    
                                                    
                                                    100,603
                                                    
                                                    
                                                    
                                                    31.1
                                                    %Construction
                                                    
                                                    
                                                    67,759
                                                    
                                                    
                                                    
                                                    21.1
                                                    %
                                                    
                                                    
                                                    81,178
                                                    
                                                    
                                                    
                                                    25.1
                                                    %Consumer
      and other
                                                    
                                                    
                                                    13,420
                                                    
                                                    
                                                    
                                                    4.2
                                                    %
                                                    
                                                    
                                                    16,149
                                                    
                                                    
                                                    
                                                    5.0
                                                    %Total
      loans
                                                    
                                                    
                                                    321,402
                                                    
                                                    
                                                    
                                                    100
                                                    %
                                                    
                                                    
                                                    323,085
                                                    
                                                    
                                                    
                                                    100
                                                    %Allowance
      for loan losses
                                                    
                                                    
                                                    (4,827
                                                    )
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (4,785
                                                    )Net
      loans
                                                    
                                                    $
                                                    316,575
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    $
                                                    318,300





In the
context of this discussion, a "real estate mortgage loan" is defined as any
loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. The Company follows the common practice
of financial institutions in the Company’s market area of 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 it will reduce the risk elements of its
loan portfolio 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. Commitments from investors to purchase the loans are obtained
upon origination.





NOTE H —
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 appropriate
valuation methodologies. However, considerable judgment is necessarily 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, 2009, follows:








Gross
                
                
                GrossAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                EstimatedCost
                
                
                Gains
                
                
                Losses
                
                
                Fair ValueAvailable-for-sale
      securities:Obligations
      of U.S. Government Agencies
                
                
                39,853
                
                
                
                503
                
                
                
                16
                
                
                
                40,340Tax-exempt
      and taxable obligations of states and municipal
    subdivisions
                
                
                36,334
                
                
                
                1,055
                
                
                
                48
                
                
                
                37,341Mortgage-backed
      securities
                
                
                28,049
                
                
                
                974
                
                
                
                56
                
                
                
                28,967Corporate
      obligations
                
                
                13,878
                
                
                
                59
                
                
                
                2,322
                
                
                
                11,615Other
                
                
                1,238
                
                
                
                -
                
                
                
                301
                
                
                
                937Total
                
                $
                119,352
                
                
                $
                2,591
                
                
                $
                2,743
                
                
                $
                119,200Held-to-maturity
      securities:Mortgage-backed
      securities
                
                $
                3
                
                
                $
                0
                
                
                $
                0
                
                
                $
                3





NOTE I —
ALLOWANCE FOR LOAN 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 is based upon a
number of assumptions which it believes to be reasonable, but which may not
prove to be accurate, particularly given the Company’s short operating history
and rapid growth. 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 loan loss allowance will not be required.





The
Company’s allowance consists of two parts. The first part is determined in
accordance with authoritative guidance regarding contingencies.The Company’s determination
of this part of the allowance is based upon quantitative and qualitative
factors. A loan loss history based upon the prior four years is utilized in
determining the appropriate allowance. Historical loss factors are determined by
graded and ungraded 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 upon 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 authoritative
guidance regarding loan impairment. Impaired loans are determined based upon a
review by internal loan review and senior loan officers. Impaired loans are
loans for which the bank does not expect to receive contractual interest and/or
principal by the due date. A specific allowance is assigned to each loan
determined to be impaired based upon the value of the loan’s underlying
collateral. Appraisals are used by management to determine the value of the
collateral.





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









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





NOTE J –
SUBSEQUENT EVENTS





Subsequent
events have been evaluated through November 13, 2009, which is the date the
financial statements were available to be issued.





ITEM NO. 2
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





FINANCIAL
CONDITION





The
following discussion contains "forward-looking statements" relating to,
without limitation, future economic performance, plans and objectives of
management for future operations, and projections of revenues and other financial
items that are based on the beliefs of the Company's management, as well
as assumptions made by and information currently available to the Company's
management. The words "expect," "estimate," "anticipate," and "believe,"
as well as similar expressions, are intended to identify forward-looking
statements. The Company's actual results may differ materially
from the results discussed in the forward-looking statements, and the
Company's operating performance each quarter is subject to various risks and
uncertainties that are discussed in detail in the Company's filings
with the Securities and Exchange Commission, including the "Risk Factors"
section in the Company's most recently filed Form 10-K.





The First
represents the primary asset of the Company. The First reported total assets of
$484.9 million at September 30, 2009, compared to $473.8 million at December 31,
2008. Loans decreased $1.7 million, or .5%, during the first nine months of
2009. Deposits at September 30, 2009, totaled $393.9 million compared to $378.6
million at December 31, 2008. For the nine month period ended September 30,
2009, The First reported net income of $1.4 million compared to $1.9 million for
the nine months ended September 30, 2008.









NONPERFORMING
ASSETS AND RISK ELEMENTS





Diversification
within the loan portfolio is an important means of reducing inherent lending
risks. At September 30, 2009, 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.





At
September 30, 2009, The First had loans past due as follows:





($ In Thousands)Past
      due 30 through 89 days
                  
                  $
                  7,075Past
      due 90 days or more and still accruing
                  
                  
                  621





The
accrual of interest is discontinued on loans which become ninety days past due
(principal and/or interest), unless the loans are adequately secured
and in the process of collection. Nonaccrual loans totaled $6.0
million at September 30, 2009, an increase of $2.6 million from December 31,
2008. This increase is due to the weakening real estate markets. These weakening
economic conditions are incorporated into the methodology of determining the
amount of our allowance for loan losses by adjusting historical loss factors.
Any other real estate owned is carried at fair value, determined by an
appraisal. Other real estate owned (consisting of foreclosed properties) totaled
$2.5 million at September 30, 2009. A loan is classified as a restructured loan
when the interest rate is materially reduced or the term is extended beyond the
original maturity date because of the inability of the borrower to service the
debt under the original terms and that these concessions would not have
otherwise been granted. The First had $4.0 million in restructured loans at
September 30, 2009.





LIQUIDITY
AND CAPITAL RESOURCES





Liquidity
is adequate with cash and cash equivalents of $18.8 million as of
September 30, 2009. In addition, loans and investment securities repricing
or maturing within one year or less exceed $145 million at September
30, 2009. Approximately $36.8 million in loan commitments could fund
within the next six months and other commitments, primarily standby letters of
credit, totaled $.9 million at September 30, 2009.





There are
no known trends or any known commitments or uncertainties that will
result in The First’s liquidity increasing or decreasing in a
material way.





Total
consolidated equity capital at September 30, 2009, is $43.2 million, or approximately
8.9% of total assets. The Company currently has adequate capital positions to
meet the minimum capital requirements for all regulatory agencies. The Company’s
capital ratios as of September 30, 2009, were as follows:





Tier
      1 leverage
                    
                    
                    10.69
                    %Tier
      1 risk-based
                    
                    
                    14.80
                    %Total
      risk-based
                    
                    
                    16.04
                    %









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 in
which the Company owns all of the common equity. The debentures are the sole
asset of the Trust. The Trust 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 the Trust’s obligations under the preferred securities. The preferred
securities are redeemable by the Company in 2011, or earlier in the event the
deduction of related interest for federal income taxes is prohibited, treatment
as Tier 1 capital is no longer permitted, or certain other contingencies arise.
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 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’s obligations under the preferred
securities. The preferred securities are redeemable by the Company in 2012, or
earlier in the event the deduction of related interest for federal income taxes
is prohibited, treatment as Tier 1 capital is no longer permitted, or certain
other contingencies arise. 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
accordance with the provisions of authoritative guidance, the trusts are not included
in the consolidated financial statements.





RESULTS
OF OPERATIONS – QUARTERLY





The
Company had a consolidated net income of $770,000 for the three months ended
September 30, 2009, compared with consolidated net income of $335,000 for the
same period last year.





Net
interest income decreased to $4.0 million from $4.5 million for the three months
ended September 30, 2009, or a decrease of 10.7% as compared to the same period
in 2008. Earning assets through September 30, 2009, increased $2.0 million, or
..4% and interest-bearing liabilities decreased $14.0 million or 3.8% when
compared to June 30, 2009.





Non
interest income for the three months ended September 30, 2009, was $748,000
compared to $795,000 for the same period in 2008, reflecting a decrease of
$47,000 or 5.9%. Included in noninterest income is service charges on deposit
accounts, which for the three months ended September 30, 2009, totaled $515,000
compared to $591,000 for the same period in 2008.





Non
interest expense decreased by $364,000 or 8.9% for the three months ended
September 30, 2009, when compared with the same period in 2008. The decrease is
primarily due to the ongoing efforts to reduce expenses while maintaining our
current level of customer service.





RESULTS
OF OPERATIONS – YEAR TO DATE





The
Company had a consolidated net income of $1,142,000 for the nine months ended
September 30, 2009, compared with consolidated net income of $1,464,000 for the
same period last year.





Net
interest income after provision for loan losses decreased to $10,780,000 from
$11,812,000 for the nine months ended September 30, 2009, or a decrease of 8.7%
as compared to the same period in 2009. Earning assets through September 30,
2009, increased $7.4 million, or 1.7% and interest-bearing liabilities decreased
$20.3 million when compared to September 30, 2008.









Noninterest
income for the nine months ended September 30, 2009, was $2,107,000
compared to $2,472,000 for the same period in 2008, reflecting a decrease
of $365,000 or 14.8%. Included in noninterest income are service charges on
deposit accounts, which for the nine months ended September 30, 2009, totaled
$1,474,000 compared to $1,671,000 for the same period in 2008, reflecting a
decrease of $197,000. A one time gain on the sale of bank property of $92,000
was recognized during the second quarter of 2008, which accounted for 46.7% of
that decrease.





The
provision for loan losses was $1,056,000 in the nine months ended September 30,
2009, compared with $1,721,000 for the same period in 2008. The allowance for loan
losses of $4.8 million at September 30, 2009 (approximately 1.52% of loans)
is considered by management to be adequate to cover losses inherent
in the loan portfolio. 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 loan
loss allowance 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.





Noninterest
expenses decreased by $884,000 or 7.2% for the nine months ended September 30,
2009, when compared with the same period in 2008. We achieved this overall
decrease of $884,000 while our FDIC and OCC assessments reflected an increase of
$388,000 over the same period.





ITEM NO.
3. CONTROLS AND PROCEDURES





As of
September 30, 2009, (the “Evaluation Date”), we carried out an evaluation, under
the supervision 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) promulgated under the Securities Exchange Act of 1934, as amended.
Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that 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.





There
have been no changes, significant or otherwise, in our internal controls over
financial reporting that occurred during the quarter ended September 30, 2009,
that have materially affected, or are reasonably likely to affect, our internal
control over financial reporting.





ITEM NO.
4. RECENT ACCOUNTING PRONOUNCEMENTS





In June,
2009, FASB issued the Accounting Standards Codification (ASC) which became
effective on July 1, 2009. At that date, the ASC became FASB’s officially
recognized source of authoritative U.S. generally accepted accounting principles
(GAAP) applicable to all public and non-public non-governmental entities,
superseding existing FASB, American Institute of Certified Public Accountants
(AICPA), Emerging Issues Task Force (EITF) and related literature. Rules and
interpretive releases of the SEC under the authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. All other accounting
literature is considered nonauthoritative. The switch to the ASC affects the way
companies refer to U.S. GAAP in financial statements and accounting policies.
Citing particular content in the ASC involves specifying the unique numeric path
to the content through the Topic, Subtopic, Section and Paragraph
structure.









In April
2009, the FASB issued authoritative guidance regarding recognition and
presentation of other-than-temporary impairmentsthat changes existing
guidance for determining whether an impairment is other than temporary to debt
securities; replaces the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired security until
recovery with a requirement that management assert: (a) it does not have the
intent to sell the security and (b) it is more likely than not it will not have
to sell the security before recovery of its cost basis; requires that an entity
recognize noncredit losses on held-to-maturity debt securities in other
comprehensive income and amortize the amount over the remaining life of the
security in a prospective manner by offsetting the recorded value of the asset
unless the security is subsequently sold or there are credit losses; requires an
entity to present the total other-than-temporary impairment in the statement of
earnings with an offset for the amount recognized in other comprehensive income;
and at adoption, requires an entity to record a cumulative-effect adjustment as
of the beginning of the period of adoption to reclassify the noncredit component
of a previously recognized other-than-temporary impairment from retained
earnings to accumulated other comprehensive income if the entity does not intend
to sell the security and it is more likely than not that the entity will be
required to sell the security before recovery. The authoritative guidance is
effective for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The adoption of the
guidance in the second quarter did not have a material impact on the Company’s
financial condition or results of operations.





In April
2009, the FASB issued guidance for interim disclosures about fair value of
financial instruments. Under this guidance, a publicly traded company shall
include disclosures about the fair value of its financial instruments whenever
it issues summarized financial information for interim reporting periods. In
addition, an entity shall disclose in the body or in the accompanying notes of
its summarized financial information for interim reporting periods and in its
financial statements for annual reporting periods the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position. The
guidance is effective for interim periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The adoption of the
guidance in the second quarter did not have a material impact on the Company’s
financial condition or results of operations.




In
February 2009, the FASB issued authoritative guidance regarding accounting for
assets acquired and liability assumed in a business combination that arise from
contingencies,that
amends provisions related to the initial recognition and measurement, subsequent
measurement and disclosure of assets and liabilities arising from contingencies
in a business combination. The guidance is effective for all business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
impact on the Company’s financial condition or results of operations is
dependent on the extent of future business combinations.




In
January 2009, FASB issued guidance to replace the requirement to use market
participant assumptions when determining future cash flows and, instead,
requires an assessment of whether it is probable that there has been an adverse
change in estimated cash flows. It requires an entity to consider all available
information relevant to the collectability of the security, including
information about past events, current conditions, and reasonable and
supportable forecasts when developing estimates of future cash flows. This
guidance is effective for interim and annual reporting periods ending after
December 15, 2008, and shall be applied prospectively. The adoption of the
guidance did not have a material impact on the Company’s financial condition or
results of operations.









In
December 2008, the FASB issued authoritative guidance for employer’s disclosures
about plan assets of a defined benefit pension or other postretirement plan. The
objectives of the disclosures are to provide users of financial statements with
an understanding of how investment allocation decisions are made; the major
categories of plan assets; the inputs and valuation techniques used to measure
fair value of plan assets; the effect of fair value measurements using
significant unobservable inputs (Level 3) on changes in plan assets for the
period; and significant concentrations on risk within plan assets. The guidance
is effective for fiscal years ending after December 15, 2009. The Company is
assessing the impact of adopting the guidance.




In May
2008, the FASB issued guidance which is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles for
nongovernmental entities. This guidance will be effective for fiscal periods
after July 1, 2009. The Company will adopt the provisions when required, but
does not expect the impact to be material to the Company’s financial condition
or results of operations.




In April
2008, the FASB issued authoritative guidance for the determination of the useful
life of intangible assets which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under previous guidance for determining goodwill
and other intangible assets. The intent of the guidance is to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset. This
guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2008. The adoption of the guidance during the first quarter
of 2009, did not have a material impact on the Company’s financial condition or
results of operations.




In March
2008, the FASB issued guidance requiring qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of derivative instruments and related gains and losses, and
disclosures about credit-risk-related contingent features in derivative
agreements. This is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008. The statement provides
only for enhanced disclosures. The Company does not participate in derivative
instruments or hedging activities. Therefore, adoption will have no impact on
our financial position, results of operations, and cash flows.




In
February 2008, the FASB issued alternative guidance which deferred the effective
date for one year for certain nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually) and was effective January 1,
2009. The adoption of the guidance during the first quarter of 2009 did not have
a material impact on the Company’s financial condition or results of
operations.




In
December 2007, the FASB issued guidance which will require noncontrolling
interests (previously referred to as minority interests) to be treated as a
separate component of equity, not as a liability or other item outside of
permanent equity. This guidance applies to the accounting for noncontrolling
interests and transactions with noncontrolling interest holders in consolidated
financial statements. This guidance is effective for periods beginning on or
after December 15, 2008. Earlier application is prohibited. This guidance will
be applied prospectively to all noncontrolling interests, including any that
arose before the effective date except that comparative period information must
be recast to classify noncontrolling interests in equity, attribute net earnings
and other comprehensive income to noncontrolling interests, and provide other
disclosures required. The Company does not expect the adoption of this guidance
to have any impact on its financial position, results of operation, and cash
flows.









PART II —
OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGS





On
October 8, 2007 The First Bancshares, Inc. (the "Company") and its subsidiary,
The First, A National Banking Association (the "Bank") were formally named as
defendants and served with a First Amended Complaint in litigation styled Nick
D. Welch v. Oak Grove Land Company, Inc., Fred McMurry, David E. Johnson, J.
Douglas Seidenburg, The First, a National Banking Association, The First
Bancshares, Inc., and John Does 1 through 10, Civil Action No. 2006-236-CV4,
pending in the Circuit Court of Jones County, Mississippi, Second Judicial
District (the "First Amended Complaint").





The
allegations by Welch against the Company and the Bank include counts of 1)
Intentional Misrepresentation and Omission; 2) Negligent Misrepresentation
and/or Omission; 3) Breach of Fiduciary Duty; 4) Breach of Duty of Good Faith
and Fair Dealing; and 5) Civil Conspiracy. The First Amended Complaint served by
Welch on October 8, 2007 added the Company and the Bank as defendants in this
ongoing litigation. The Plaintiff seeks damages from all the defendants,
including $2,957,385.00, annual dividends for the year 2006 in the amount of
$.30 per share, punitive damages, and attorneys' fees and costs, and is more
fully described in Form 8-K filed by the Company on October 10, 2007. The
Company and the Bank both deny any liability to Welch, and they intend to defend
vigorously against this lawsuit.





The
Defendants removed the case to the United States District Court for the Southern
District of Mississippi, Hattiesburg Division, on March 12, 2008 based upon the
Court's federal question jurisdiction. On April 11, 2008, the Plaintiff filed a
Motion to Remand the case to the Circuit Court of Jones County, Mississippi. The
Motion to Remand was granted, and the case is currently pending in the Circuit
Court of Jones County, Mississippi, Second Judicial District. The case is set
for trial on Monday, November 30, 2009 in the Circuit Court of Jones County,
Mississippi.





ITEM 1A.
RISK FACTORS





There are
no material changes in the Company’s risk factors since December 31, 2008.
Please refer to the Annual Report on Form 10-K of The First Bancshares, Inc.,
filed with the Securities and Exchange Commission on March 31,
2009.





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





Not
Applicable





ITEM 3.
DEFAULTS UPON SENIOR SECURITIES





Not
Applicable





ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





Not
Applicable




ITEM 5.
OTHER INFORMATION





Not
Applicable









ITEM 6.
EXHIBITS





(a)   Exhibits





Exhibit No.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.





b)
              The
      Company filed two reports on Form 8-K during the quarter ended September
      30, 2009.





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.11-13-2009
                
                M. Ray “Hoppy” Cole, Jr,(Date)
                
                Chief Executive Officer/s/ 
      DEEDEE LOWERY11-13-2009
                
                DeeDee Lowery, Executive(Date)
                
                Vice President and ChiefFinancial Officer