UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-QSB
_______________________________
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to___________
Commission File Number 0-22842
First Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Missouri 43-1654695
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
142 East First St., Mountain Grove, MO 65711
(Address of principal executive offices) (Zip Code)
(417) 926-5151
(Registrant's telephone number)
Indicate by check mark whether the Registrant (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 twelve 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
As of May 9, 1996, there were 1,301,276 shares of the Registrant's
Common Stock, $.01 par value per share, outstanding.
FIRST BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1996
INDEX PAGE
PART I-FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited) 1-2
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 3
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 4-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 6-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
(Unaudited)
March 31, June 30,
1996 1995
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents, including
interest-bearing accounts of $7,138 at
March 31 and $1,237 at June 30 $ 8,088 $ 3,535
Certificates of deposit 3,729 4,122
Investment securities available-for-sale,
at fair value 3,646 10,013
Investment securities held-to-maturity (estimated
fair value $2,296 at March 31 and
$1,790 at June 30) 2,275 1,779
Investment in Federal Home Loan Bank stock, at cost 890 784
Mortgage backed certificates available-for-sale,
at fair value 2,977 3,134
Loans receivable held-for-investment, net
(includes reserves for loan losses of $510
at March 31 and $459 at June 30) 115,239 101,682
Accrued interest receivable 426 425
Prepaid expenses 107 107
Property and equipment, less accumulated
depreciation and valuation reserves 2,994 2,487
Intangible assets, less accumulated amortization 46 58
Real estate owned - 48
Other assets 54 19
-------- --------
Total assets $140,471 $128,193
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $102,687 $ 98,389
Advances from Federal Home Loan Bank 13,500 5,000
Other borrowed funds 55 55
Income taxes payable - current 206 49
Accrued expenses 175 163
Deferred income taxes 77 45
-------- --------
Total liabilities 116,700 103,701
-------- --------
See accompanying notes to Consolidated Financial Statements.
-1-
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(Unaudited)
March 31, June 30,
1996 1995
(Dollars in thousands)
Commitments and contingencies - -
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 8,000,000 shares
authorized, 1,552,960 issued, 1,301,576 and
1,400,178 outstanding at March 31 and
June 30, respectively 16 16
Unearned compensation 15,025 14,922
Retained earnings - substantially restricted 13,704 13,094
Treasury stock - at cost; 251,384 and 151,214
shares at March 31 and June 30, respectively (3,572) (1,908)
Unearned compensation (1,266) (1,461)
Unrealized loss on securities available-for-sale,
net of applicable deferred income taxes (136) (171)
-------- ---------
Total stockholders' equity 23,771 24,492
-------- ---------
Total liabilities and stockholders' equity $140,471 $128,193
======== ========
See accompanying notes to Consolidated Financial Statements.
-2-
</TABLE>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - - - -
<CAPTION>
(Unaudited) (Unaudited)
Quarter Nine Months
Ended March 31, Ended March 31,
1996 1995 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $2,304 $1,787 $6,568 $5,073
Investment securities 164 275 623 801
Mortgage-backed and related securities 47 59 148 183
Other interest-earning assets 61 18 109 58
----- ----- ----- -----
Total interest income 2,576 2,139 7,448 6,115
----- ----- ----- -----
Interest Expense:
Customer deposits 1,236 1,190 3,796 3,214
Borrowed funds 199 2 418 71
----- ----- ----- -----
Total interest expense 1,435 1,192 4,214 3,285
----- ----- ----- -----
Net interest income 1,141 947 3,234 2,830
Provision for loan losses 72 - 52 (9)
Other than temporary decline in value
of certificate backed by auto loans 17 - 46 -
----- ----- ----- -----
Net interest income after
provisions for losses 1,052 947 3,136 2,839
----- ----- ----- -----
Noninterest Income:
Service charges and other fee income 68 55 170 127
Loan origination and commitment fees 2 2 3 2
Income form real estate operations 25 15 69 40
Insurance commissions 20 30 53 61
Gain on sale of investments 24 - 26 -
Gain on sale of property and equipment 17 - 19 7
----- ----- ----- -----
Total noninterest income 156 102 340 237
Noninterest Expense:
Compensation and employee benefits 427 392 1,252 1,155
Occupancy and equipment 98 67 286 201
Deposit insurance premiums 58 56 170 150
Professional fees 16 20 38 41
Other 148 98 525 335
----- ----- ------ -----
Total noninterest expense 747 633 2,271 1,882
----- ----- ------ -----
Income before taxes 461 416 1,205 1,194
Income Taxes 177 154 414 410
----- ----- ----- -----
Net income $ 284 $ 262 $ 791 $ 784
===== ===== ===== =====
Earnings per share .24 .20 .65 .59
Dividends per share .05 .05 .15 .15
See accompanying notes to Consolidated Financial Statements.
-3-
</TABLE>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Nine months ended March 31, 1996 and 1995
<CAPTION>
(Unaudited)
1996 1995
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 791 $ 784
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 124 103
Amortization 12 13
Gain on sale of investments (24) -
Gain on sale of property and equipment (19) (7)
Premiums and discounts on mortgage-backed
securities and investment securities 4 4
Loss on loans, net of recoveries 52 (9)
Other than temporary decline in value of
certificate secured by auto loans 46 -
Income reinvested on investment securities and
Federal Home Loan Bank stock (32) (57)
ESOP compensation expense at fair value 87 57
Vesting of unearned compensation 174 82
Net change in operating accounts:
Accrued interest receivable and other assets 5 (102)
Deferred loan costs (18) 3
Deferred income tax benefits, net - 111
Income taxes payable - current 157 112
Deferred income tax payable 19 -
Accrued expenses 12 (70)
------ -----
Net cash from operating activities 1,390 1,024
------ -----
Cash flows from investing activities:
Purchase of investment securities available-for-sale - (850)
Purchase of investment securities held-to-maturity (780) (265)
Purchase of Federal Home Loan Bank stock (91) -
Proceeds from sales of investment securities
available-for-sale 1,421 -
Proceeds from maturities of investment securities
available-for-sale 5,016 725
Proceeds from maturities of investment securities
held-to-maturity 282 210
Net change in certificates of deposit 393 2,580
Net change in federal funds sold - 2,000
Net change in loans receivable (13,637) (10,563)
Proceeds from maturities of mortgage-backed
certificates 133 183
Purchases of property and equipment (600) (157)
Proceeds from sale of property and equipment 36 7
Purchase of other assets - (3)
Repayment from ESOP - 135
------ ------
Net cash used in investing activities (7,827) (5,998)
------ ------
-4-
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
(Unaudited)
1996 1995
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 4,298 $12,226
Proceeds from borrowed funds 10,200 3,650
Payments on borrowed funds (1,700) (11,650)
Proceeds from sale of common stock 16 -
Purchase of treasury stock (1,664) (788)
Cash dividends paid (160) (215)
------ ------
Net cash from financing activities 10,990 3,223
------ ------
Net increase in cash and cash equivalents 4,553 (1,751)
Cash and cash equivalents -
beginning of period 3,535 4,970
----- -----
Cash and cash equivalents -
end of period $ 8,088 $ 3,219
====== ======
See accompanying notes to Consolidated Financial Statements.
-5-
</TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - Basis of Presentation
The consolidated interim financial statements as of March 31, 1996
included in this report have been prepared by the Registrant without
audit. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation are
reflected in the March 31, 1996 interim financial statements. The
results of operations for the periods ended March 31, 1996 and 1995 are
not necessarily indicative of the operating results for the full year.
The June 30, 1995 Consolidated Statement of Financial Condition
presented with the interim financial statements was audited and received
an unqualified opinion.
NOTE B - Formation of Holding Company and Conversion to Stock Form
On December 22, 1993, First Bancshares, Inc. ("Registrant") became the
holding company for First Home Savings Bank ("Savings Bank") upon the
Savings Bank's conversion from a state chartered mutual savings and loan
association to a state chartered stock savings and loan association.
The conversion was accomplished through the sale and issuance by the
Registrant of 1,551,292 shares of common stock at $10.00 per share.
Proceeds from the sale of common stock, net of issuance costs incurred
of $639,802, were $14,873,123, inclusive of $1,520,870 related to shares
held by the ESOP plan and $304,170 in connection with stock held by the
MRP. The financial statements included herein have not been restated as
a result of the consummation of the conversion.
NOTE C - Earnings per Share
Earnings per share are presented for the periods ended March 31, 1996
and 1995 based on the average shares issued and outstanding during the
period. For the periods presented, unreleased ESOP shares are not
considered outstanding for purposes of calculating earnings per share.
Common stock equivalents, composed of stock options outstanding, are not
included in the calculations since the effect is immaterial to the
period presented.
NOTE D - Employee Stock Ownership Plan
In connection with the conversion to stock form as described in Note B,
the Savings Bank established an ESOP for the exclusive benefit of
participating employees (all salaried employees who have completed at
least 1000 hours of service in a twelve-month period and have attained
the age of 21). The ESOP borrowed funds from the Holding Company in an
amount sufficient to purchase 152,087 shares (10% of the Common Stock
issued in the Conversion). The loan is secured by the shares purchased
and is being repaid by the ESOP with funds from contributions made by
the Savings Bank, dividends received by the ESOP and any other earnings
-6-
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
on ESOP assets. All dividends received by the ESOP are paid on the
loan. The Savings Bank presently expects to contribute approximately
$180,000 plus interest annually to the ESOP. Contributions will be
applied to repay interest on the loan first, then the remainder will be
applied to principal. The loan is expected to be repaid approximately
nine years from inception.
Shares purchased with the loan proceeds are held in a suspense account
for allocation among participants as the loan is repaid. Contributions
to the ESOP and shares released from the suspense account are allocated
among participants in proportion to their compensation relative to total
compensation of all active participants. Benefits generally become 20%
vested after each year of credited service beyond two years.
Vesting is accelerated upon retirement, death or disability of the
participant. Forfeitures are returned to the Savings Bank or
reallocated to other participants to reduce future funding costs.
Benefits may be payable upon retirement, death, disability or separation
from service. Since the Savings Bank's annual contributions are
discretionary, benefits payable under the ESOP cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of
Position 93-6, Employers Accounting for Employee Stock Ownership Plans.
Accordingly, the debt of the ESOP is eliminated in consolidation and the
shares pledged as collateral are reported as unearned ESOP shares in the
consolidated balance sheets. Contributions to the ESOP shall be
sufficient to pay principal and interest currently due under the loan
agreement. As shares are committed to be released from collateral, the
Company reports compensation expense equal to the average market price
of the shares for the respective period, and the shares become
outstanding for earnings per share computations. Dividends on allocated
ESOP shares are recorded as a reductions of retained earnings; dividends
on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest. ESOP compensation expense was $76,000 and $221,000
for the three months and nine months ended March 31, 1996, respectively.
ESOP compensation expense was $63,000 and $169,000 for the three months
and nine months ended March 31, 1995.
A summary of ESOP shares at March 31, 1996 is as follows:
Shares allocated 27,942
Shares committed for release 14,195
Unreleased shares 108,127
-------
Total 150,264
=======
Fair value of unreleased shares $1,811,127
=========
-7-
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
NOTE E - Management Recognition Plan
A Management Recognition Plan (MRP) has been adopted for the benefit of
officers, directors and employees of the Savings Bank. The MRP provides
officers, directors and employees with a proprietary interest in the
Holding Company that will encourage them to remain with the Savings Bank
or Holding Company. The Savings Bank contributed enough funds to the
MRP to allow it to purchase 30,417 shares (2% of the shares of Common
Stock issued in the Conversion). Shares have been granted to qualifying
eligible officers, directors and employees pursuant to terms of the MRP.
The shares are in the form of restricted stock and will vest over a
five-year period. Compensation expense in the amount of the fair market
value of the stock at the date of the grant to the officers, directors
or employees will be recognized during the years in which the shares are
payable.
NOTE F - Treasury Stock
On March 9, 1994, First Bancshares, Inc. announced its first stock
repurchase program. The program was completed on March 31, 1994.
Treasury stock consisting of 77,500 shares (approximately 5% of the
outstanding stock) was purchased for $910,000. First Bancshares, Inc.
began its second stock repurchase program on December 23, 1994.
Treasury stock consisting of 73,714 shares was repurchased for $998,000
during the second stock repurchase program. A third repurchase program
began on July 10, 1995. From July 10 through January 5, 1996, 69,985
shares were repurchased at a cost of $1,169,000 to complete the third
repurchase program.
Between January 6 and March 31, 1996, 30,185 shares were repurchased at
a cost of $495,000 pursuant to the fourth repurchase program. On March
31, 1996, therefore, a total of 251,384 shares of treasury stock were
held and were recorded at a cost of $3,572,000. Between April 1, and
May 3, 1996, 300 shares were purchased at a cost of $4,800. As of May
3, 1996, First Bancshares, Inc. had authority to purchase 36,075
additional shares pursuant to its fourth repurchase program. Treasury
stock is shown at cost for financial statement presentation.
NOTE G - Accounting Changes
During the quarter ended September 30, 1994, First Bancshares, Inc.
adopted SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". This statement requires certain debt and equity
securities classified as available for sale to be valued at fair market
value with unrealized holding gains and losses reported as a net amount
in a separate component of stockholders' equity.
-8-
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
Effective July 1, 1994, the Company adopted Statement of Position
("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership
Plans". SOP 93-6 applies to shares acquired by employee stock ownership
plans after December 31, 1992 but not yet committed to be released as of
the beginning of the year SOP 93-6 is adopted. SOP 93-6 changes the
measure of compensation expense recorded by employers for leveraged
employee stock ownership plans from the cost of the ESOP shares to the
fair value of the ESOP shares. Under SOP 93-6, the Company recognizes
the compensation cost equal to the fair value of the ESOP shares during
the periods in which they become committed to be released. To the
extent that fair value of the Savings Bank's employee stock ownership
plan shares differ from the cost of such shares, this differential will
be charged or credited to equity. Employers with internally leveraged
employee stock ownership plans such as the Company will not report the
loans receivable from the ESOP as an asset and will not report the ESOP
debt from the employer as a liability.
Effective July 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan". This statement requires a lender
to consider a loan to be impaired if the lender believes it is probable
it will be unable to collect all principal and interest due according to
the contractual terms of the loan. If a loan is impaired, the lender
will be required to record a loan valuation allowance equal to the
present value of the estimated future cash flows discounted at the
loan's effective rate. Also adopted was SFAS No. 118, "Accounting for
Creditors for Impairment of a Loan - Income Recognition and Disclosures,
" which amends SFAS No. 114 to allow a creditor to use existing methods
for recognizing interest income on impaired loans and eliminates the
income recognition provisions of SFAS No. 114.
-9-
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those material
changes in liquidity and capital resources that have occurred since June
30, 1995, as well as certain material changes in results of operations
during the three and nine month periods ended March 31, 1996 and 1995.
The following narrative is written with the presumption that the
users have read or have access to the Company's 1995 Form 10-KSB, which
contains the latest audited financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial
Condition and Results of Operations as of June 30, 1995, and for the
year then ended. Therefore, only material changes in financial
condition and results of operations are discussed herein.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 TO THE THREE MONTHS
ENDED MARCH 31, 1995
FINANCIAL CONDITION. Total assets increased $.4 million during the
quarter ended March 31, 1996 as deposits increased $.6 million. Net
loans increased by $3.3 million during the quarter while investment
securities and certificates of deposit purchased decreased $2.2 million.
Cash and cash equivalents decreased $.8 million during the quarter.
Nonperforming assets were $1,041,000, or .74% of total assets at
March 31, 1996 compared to $1,194,000, or .85% of total assets at
December 31, 1995 and $714,000, or .58% of total assets at March 31,
1995. Nonperforming assets at March 31, 1996 included an $80,000
overdraft on a commercial checking account. The increase in nonaccrual
loans to $130,000 at March 31, 1996 from $49,000 at December 31, 1995
and $51,000 at March 31, 1995 was attributable to the $80,000 overdraft.
A $67,000 loss reserve has been established, consisting of a $27,000
transfer from general loss reserves and an immediate $40,000 expense.
Civil litigation to recover the funds is in process. It is too early in
the discovery process to assess the probability of recovery.
NET INCOME. Net income was $284,000 for the quarter ended March 31,
1996 compared to $262,000 for the quarter ended March 31, 1995. Net
interest income after provision for loan losses increased $105,000 and
noninterest income increased $54,000. These two increases were largely
offset by a $114,000 increase in noninterest expense and an income tax
expense increase of $23,000 due to the increase in income before income
tax expense.
NET INTEREST INCOME. Net interest income of $1,141,000 for the
quarter ended March 31, 1996 increased by $194,000, or 20%, from
$947,000 for the quarter ended March 31, 1995. Interest income
increased $437,000 while interest expense increased $243,000.
INTEREST INCOME. Interest income increased by $437,000, or 20%, from
$2,139,000 for the quarter ended March 31, 1995 to $2,576,000 for the
quarter ended March 31, 1996. The largest portion of the increase was a
$517,000 increase in interest income from loans receivable from
$1,787,000 for the quarter ended March 31, 1995 to $2,304,000 for the
quarter ended March 31, 1996. The increase was largely attributable to
-10-
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
the increase in average loans outstanding and partly to interest rate
increases on existing adjustable rate loans. Interest income from
investment securities decreased by $111,000 from $275,000 for the
quarter ended March 31, 1995 to $164,000 for the quarter ended March 31,
1996. This decrease was primarily due to the decrease in the average
balance outstanding in investment securities and partly to interest rate
decreases on adjustable-rate securities or lower reinvestment rates.
INTEREST EXPENSE. Interest expense of $1,435,000 for the quarter
ended March 31, 1996 increased $243,000, or 20%, from $1,192,000 for the
quarter ended March 31, 1995. The increase was partially attributable
to an increase in the balance in customer deposits. The remainder of
the increase was due to an increase of $197,000 in interest expense on
borrowed funds as additional advances were drawn from the Federal Home
Loan Bank to fund local loan demand.
PROVISION FOR LOAN LOSSES. Loan loss provisions increased by $72,000
from none for the quarter ended March 31, 1995 to $72,000 for the
quarter ended March 31, 1996. The increase was attributable to the
$40,000 provision for the $80,000 overdraft and a $30,000 provision for
a pool of car loans purchased. There were no loan losses, net of
recoveries, on First Home originated loans for the quarter ended March
31, 1996 compared to $600 for the quarter ended March 31, 1995.
OTHER THAN TEMPORARY DECLINE IN VALUE. There was a $17,000 expense
for an other than temporary decline in value of a certificate secured by
auto loans for the quarter ended March 31, 1996. Based on an analysis
of the auto loans collateralizing the certificate, there is an other
than temporary decline in the market value of the certificate. This
expense, along with a corresponding charge to the recorded balance of
the certificate, were taken to write the certificate down to the
estimated net realizable value.
NONINTEREST INCOME. Noninterest income of $156,000 for the quarter
ended March 31, 1996 increased $54,000 from $102,000 for the quarter
ended March 31, 1995. Service charges and other fee income increased by
$13,000 from $55,000 for the quarter ended March 31, 1995 to $68,000 for
the quarter ended March 31, 1996. This increase was primarily
attributable to an increase in demand deposit accounts which, in turn,
largely resulted from a checking account program initiated in July 1995.
That program generated 438 net new checking accounts and approximately
$660,000 in deposits during the quarter ended March 31, 1996.
Income from real estate operations increased from $15,000 for the
quarter ended March 31, 1995 to $25,000 for the quarter ended March 31,
1996. This $10,000 increase was primarily attributable to rental income
from two four-plexes in Gainesville, Missouri.
There was a $24,000 net gain from the sale of four mutual funds and a
FNMA REMIC security. These investments were sold to generate cash flow
for the holding company. Also during the quarter ended March 31, 1996,
a rental property was sold for a gain of $17,000.
-11-
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
NONINTEREST EXPENSE. Noninterest expense increased $114,000, or 18%,
from $633,000 for the quarter ended March 31, 1995 to $747,000 for the
quarter ended March 31, 1996. Compensation and employee benefits
increased $35,000. The increase was attributable to $13,500 increase
due to recording ESOP expense at fair market value and the remainder to
payroll increases which went into effect on January 1, 1996. Occupancy
and equipment increased $31,000. Of this amount, $6,500 was
attributable to the opening of the branch in Sparta, Missouri and $3,500
for the rental duplexes in Gainesville, Missouri. Increases in computer
and maintenance expenses made up the remainder of the increase. Other
noninterest expenses increased $50,000, primarily due to expenses for
the checking account program. This program will continue in 1996;
however, it's expenses should be significantly reduced.
NET INTEREST MARGIN. Net interest margin increased from 3.34% for
the three months ended March 31, 1995 to 3.42% for the three months
ended March 31, 1996. Income from earning assets increased by $437,000,
or 20%, between the two quarters while interest expense increased by
$243,000, or 20%. Net interest income increased by $194,000, or 20%.
The average earning asset base increased by $17.0 million, or 15%, which
was offset by a $16.6 million, or 17%, increase in the average
interest-bearing liability base.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1996 TO THE NINE MONTHS
ENDED MARCH 31, 1995.
FINANCIAL CONDITION. Total assets for the nine months ended March
31, 1996 increased by $12.3 million. Cash and cash equivalents, federal
funds sold, certificates of deposit purchased and investment securities
decreased by $1.6 million while customer deposits increased by $4.3
million. Advances from Federal Home Loan Bank increased by $8.5
million. These funds were used to provide for a $13.6 million increase
in net loans.
Nonperforming assets of $986,000, or .77% of total assets at June 30,
1995 increased to $1,041,000, or .74% of total assets at March 31, 1996.
Nonaccrual loans of $51,000 at June 30, 1995 increased to $130,000 at
March 31, 1996. The $79,000 increase was attributable to the $80,000
overdraft previously discussed in the three month comparison section.
NET INCOME. Net income increased $7,000 from $784,000 for the nine
months ended March 31, 1995 to $791,000 for the nine months ended March
31, 1996. Net interest income after provision for loan losses was
$3,136,000 for the nine months ended March 31, 1996 compared to
$2,839,000 for the nine months ended March 31, 1995. This $297,000
increase was enhanced by a $103,000 increase in noninterest income.
Those two increases, however, were offset by a $389,000 increase in
noninterest expense. Income tax expense increased by $4,000 due to the
increase in income before income tax expense.
-12-
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
NET INTEREST INCOME. Net interest income of $3,234,000 for the nine
months ended March 31, 1996 increased $404,000 from net interest income
of $2,830,000 for the nine months ended March 31, 1995. Total interest
income increased by $1,333,000 while total interest expense increased
$929,000.
INTEREST INCOME. Total interest income increased $1,333,000 from
$6,115,000 for the nine months ended March 31, 1995 to $7,448,000 for
the nine months ended March 31, 1996. The increase was primarily
comprised of an increase in income from loans receivable which increased
by $1,495,000 from $5,073,000 for the nine months ended March 31, 1995
to $6,568,000 for the nine months ended March 31, 1996. This increase
was primarily due to an increase in the average outstanding loan
balances during the two periods and partly to interest rate increases on
existing adjustable rate loans. Income on investment securities
decreased by $178,000 to $623,000 for the nine months ended March 31,
1996 compared to $801,000 for the nine months ended March 31, 1995.
The decrease reflects a lower average balance of investment securities
along with lower average interest rates during the nine months ended
March 31, 1996.
INTEREST EXPENSE. Total interest expense was $4,214,000 for the nine
months ended March 31, 1996, a $929,000 increase from $3,285,000 for the
nine months ended March 31, 1995. An increase in the average balance of
customer deposits and an increase in the average interest rates on the
deposits caused the greater portion of the increase. A $347,000
increase in interest expense on borrowed funds, attributable to
additional Federal Home Loan Bank advances, made up the remainder of the
increase in interest expense.
PROVISION FOR LOAN LOSSES. Provision for loan losses increased by
$61,000 from $(9,000) for the nine months ended December 31, 1995 to
$52,000 for the nine months ended March 31, 1996. The increase was
attributable to the $40,000 provision for the $80,000 overdraft and
$30,000 for a pool of car loans purchased partially offset by reductions
in other reserves. Actual loan losses, net of recoveries, on First Home
originated loans were $1,400 for the nine months ended March 31, 1996
compared to $8,000 for the nine months ended March 31, 1995.
OTHER THAN TEMPORARY DECLINE IN VALUE. There was a $17,000 expense
for an other than temporary decline in the value of a certificate
secured by auto loans for the nine months ended March 31, 1996. Based
on an analysis of the auto loans collateralizing the certificate, there
is an other than temporary decline in the market value of the
certificate. This expense, along with a corresponding charge to the
recorded balance of the certificate, were taken to write the certificate
down to the estimated net realizable value.
-13-
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
NONINTEREST INCOME. Noninterest income of $340,000 for the nine
months ended March 31, 1996 increased by $103,000 from $237,000 for the
nine months ended March 31, 1995. Service charges and other fee income
of $170,000 for the nine months ended March 31, 1996 increased $43,000
from $127,000 for the nine months ended March 31, 1995. This $43,000
increase was primarily attributable to an increase in demand deposit
accounts which, in turn, largely resulted from a checking account
program initiated in July 1995. During the nine months ended March 31,
1996, the number of checking accounts increased by 60% from
approximately 3,350 accounts to approximately 5,400 accounts. Checking
account deposits at March 31, 1996 were $14.0 million compared to $11.3
million at June 30, 1995.
Income from real estate operations increased $29,000 from $40,000 for
the nine months ended March 31, 1995 to $69,000 for the nine months
ended March 31, 1996. The increase was primarily attributable to rental
income from the two four-plexes in Gainesville, Missouri. Gains from
sales of securities were $26,000 in the nine months ended March 31, 1996
as six securities were sold by the holding company to increase cash
flow. Also during the nine months ended March 31, 1996, a rental
property was sold for a gain of $17,000.
NONINTEREST EXPENSE. Noninterest expense increased by $389,000 to
$2,271,000 for the nine months ended March 31, 1996 from $1,882,000 for
the nine months ended March 31, 1995. Compensation and employee
benefits increased by $97,000, or 8%. The increase was attributable to
hiring personnel for the Sparta branch which opened September 11, 1995
and the recording of ESOP shares committed to be released at current
fair market value. The average fair market value of First Bancshares,
Inc. stock was $12.67 per share for the nine months ended March 31, 1995
and was $16.26 per share for the nine months ended March 31, 1996.
Occupancy and equipment increased by $85,000 due to the opening of
the Sparta branch and negative adjustments in the nine months ended
March 31, 1995 due to the reversal of overaccruals in budgeting for
anticipated repairs and maintenance expense. Other noninterest expenses
increased by $190,000 primarily attributable to the checking account
program started in July 1995. The program will continue in 1996;
however, it's expenses should be significantly reduced.
NET INTEREST MARGIN. Net interest margin of 3.34% for the nine
months ended March 31, 1996 increased .06% from 3.28% for the nine
months ended March 31, 1995. The increase in income from earning assets
of $1,333,000 was partially offset by the increase in interest expense
of $929,000. The average earning assets base increased by $14.0
million, or 12%, which was partially offset by a $14.6 million, or 15%,
increase in average interest-bearing liabilities.
-14-
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
First Home's primary sources of funds are deposits, proceeds from
principal and interest payments on loans, mortgage-backed securities,
investment securities and net operating income. While maturities and
scheduled amortization of loans and mortgage-backed securities are a
somewhat predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
First Home must maintain an adequate level of liquidity to ensure
availability of sufficient funds to support loan growth and deposit
withdrawals, satisfy financial commitments and take advantage of
investment opportunities. Funds from a $5 million Federal Home Loan
Bank line of credit can be drawn as an alternative source of funds.
During the periods presented, First Home used its sources of funds
primarily to fund loan commitments, pay maturing savings certificates
and deposit withdrawals. At March 31, 1996, First Home had approved
loan commitments totaling $2.3 million and undisbursed loans in process
of $1.7 million.
Liquid funds necessary for normal daily operations of First Home are
maintained in four working checking accounts, a daily time account with
the Federal Home Loan Bank of Des Moines and in federal funds. It is
the Savings Bank's current policy to maintain adequate collected
balances in those four checking accounts to meet daily operating
expenses, customer withdrawals, and fund loan demand. Funds received
from daily operating activities are deposited, on a daily basis, in one
of the working checking accounts and transferred, when appropriate, to
daily time or federal funds sold to enhance income or to reduce any
outstanding line-of-credit advance from the Federal Home Loan Bank.
Normal daily operating expenses are not expected to significantly
change. Noninterest expense as a percentage of average assets at 2.1%
is expected to remain basically constant. Interest expense on customer
deposits is expected to increase slightly over the near future as the
deposit base gradually increases, rates on existing interest bearing
transaction accounts remain stable and maturing certificates of deposit
are reinvested at slightly higher interest rates. A $3.5 million
Federal Home Loan Bank advance is due in November 1996. Based on
current interest rate levels, a higher rate is expected if extended.
Interest income is expected to gradually increase over the near future
as new loans are funded, interest rates remain basically constant or
are gradually increased on current adjustable-rate loans and securities
and as maturing investments are reinvested at relatively constant to
slightly increasing interest rates. Noninterest income is expected to
increase slightly as service charges and other fee income from demand
deposit accounts increases. Customer deposits are expected to
marginally exceed withdrawals.
-15-
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Construction of a new branch facility in Gainesville, anticipated to
cost approximately $450,000, is underway with completion and occupancy
tentatively scheduled for September 1996. Additional plans for
development of the remaining 2.25 acres tract are under consideration.
The Gainesville branch was opened September 1, 1992 and is housed in a
small modular facility. At March 31, 1996, Gainesville had $7.7 million
in deposits and $10.5 million in loans.
At March 31, 1996, certificates of deposit amounted to $68.9 million,
or 67% of First Home's total deposits, including $40.2 million of fixed
rate certificates scheduled to mature within twelve months.
Historically, First Home has been able to retain a significant amount of
its deposits as they mature. Management believes it has adequate
resources to fund all loan commitments from savings deposits, loan
payments and the Federal Home Loan Bank line of credit and adjust the
offering rates of savings certificates to retain deposits in changing
interest rate environments.
The Office of Thrift Supervision requires a savings institution to
maintain an average daily balance of liquid assets (cash and eligible
investments) equal to at least 5% of the average daily balance of its
net withdrawable deposits and short-term borrowings. In addition,
short-term liquid assets currently must constitute 1% of the sum of net
withdrawable deposit accounts plus short-term borrowings. First Home's
liquidity ratio was 11.94% at March 31, 1996 and its short-term
liquidity ratio at March 31, 1996 was 10.83% First Home consistently
maintains liquidity levels in excess of regulatory requirements, and
believes this is an appropriate strategy for proper asset and liability
management.
The Office of Thrift Supervision requires institutions such as the
Savings Bank to meet certain tangible, core, and risk-based capital
requirements. Tangible capital generally consists of stockholders'
equity minus certain intangible assets. Core capital generally consists
of stockholders' equity. The risk-based capital requirements presently
address risk related to both recorded assets and off-balance sheet
commitments and obligations. The following table summarizes the Savings
Bank's capital ratios and the ratios required by FIRREA and subsequent
regulations at March 31, 1996.
Percent of Adjusted
Amount Total Assets
(Unaudited)
(Dollars in thousands)
Tangible capital $18,324 13.3%
Tangible capital requirement 2,064 1.5
------ ----
Excess $16,260 11.8%
====== ====
Core capital $18,324 13.3%
Core capital requirement 4,128 3.0
------ ----
Excess $14,196 10.3%
====== ====
Risk-based capital $18,453 20.5%
Risk-based capital requirement 7,203 8.0
------- ----
Excess $11,250 12.5%
====== ====
-16-
FIRST BANCSHARES, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1, LEGAL PROCEEDINGS
Neither the Registrant nor the Savings Bank is a party to any material
legal proceedings at this time. From time to time the Savings Bank is
involved in various claims and legal actions arising in the ordinary
course of business.
ITEM 2, CHANGES IN SECURITIES
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
None
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
None
-17-
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.
First Bancshares, Inc.
(Registrant)
Date: May 15, 1996 By: Stephen H. Romines
(Signature)
CEO
By: Susan J. Uchtman
(Signature)
CFO
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