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:

Past due 30 through 89 days $ 7,075 Past 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.